Promissory Note - Netgateway Inc. and King William LLC
PROMISSORY NOTE
$400,000 Salt Lake City, Utah September 10, 2001
FOR VALUE RECEIVED Netgateway, Inc., a Delaware corporation ("Maker"),
promises to pay to the order of King William LLC, a Cayman Islands limited
liability company ("Noteholder"), Four Hundred Thousand Dollars ($400,000) with
interest as set forth hereinbelow at the rate and in accordance with the terms
and conditions hereinafter set forth.
1. Interest Rate; Payments
(a) The principal amount hereof shall bear interest at the rate of
eight percent (8%) per annum (computed on a 365-day year) from the date hereof
until August 15, 2004 (the date on which the unpaid principal balance of this
Note, together with accrued but unpaid interest, shall be due and payable).
(b) Interest accrued on this Note shall be payable quarterly in arrears
on the tenth day of each of November, February, May and August.
(c) All payments made hereunder shall be applied first to accrued
interest, then to unpaid principal.
(d) If Maker fails to make any payment under this Note within five (5)
days after the payment is due, Maker shall pay a late charge equal to five
percent (5%) of such overdue amount. The parties hereto agree that it would be
impracticable or extremely difficult to fix the actual damages resulting to
Noteholder from Maker's failure to make timely payments. The parties further
agree that the foregoing late charge is a reasonable sum that takes into
consideration all of the circumstances existing on the date of this Note and is
a fair and reasonable estimate of the costs and expenses that will be incurred
by Noteholder due to Maker's failure to make timely payments.
2. Prepayment
Upon ten (10) days prior written notice, Maker shall have the right during
the term hereof without payment of any fee or penalty to prepay all or any
portion of the unpaid principal balance of this Note or interest accrued
hereunder. The then remaining balance of this Note and all interest accrued
hereunder shall become due and payable in full (without payment of any fee or
penalty) on the thirtieth (30) day following the completion by Maker of equity
financings (i.e. issuances for cash of Maker's common stock or securities of
Maker convertible into or exchangeable for common stock of Maker other than
through the exercise of warrants and employee stock options) with proceeds in
the aggregate to Maker of $5.0 million or more. Proceeds from the private
placement in process by Maker on the date this Note is issued shall not be
included in determining whether proceeds of $5.0 million has been received by
Maker.
3. Forgiveness
Noteholder agrees to forgive repayment of this Note and that this Note
shall automatically be deemed to have been repaid in full and shall be returned
to Maker marked "Paid in Full" at the time each of the following three
conditions is simultaneously satisfied:
(i) Noteholder, together with all successors and predecessors
in interest if any, shall have received at least $2,250,000 of
proceeds, net of commissions, from the sale of common stock ("Common
Stock"), par value $.001 per share, of Maker, which was either (A)
issued by Maker to Noteholder upon conversion of that certain Debenture
originally issued by the Maker to the Noteholder on July 31, 2000, or
(B) acquired from Maker by Noteholder upon exercise of the warrants to
purchase Common Stock issued to the Noteholder by the Maker (after
subtracting the exercise price of such warrants);
(ii) either (A) Noteholder shall have sold all of its shares
of Common Stock, (B) there shall at that time be an effective
registration statement with respect to all of the shares of Common
Stock held by Noteholder or (C) Maker shall have been acquired in a
business combination transaction and in such transaction Noteholder
shall have received cash, common stock or a combination of cash and
common stock of the acquirer which common stock of the acquirer was
registered on Form S-4; and
(iii) either (A) the Common Stock is listed on one of the
NASDAQ National Market System, NASDAQ Small Cap Market, the American
Stock Exchange or the New York Stock Exchange or (B) Maker shall have
been acquired and in such transaction Noteholder shall have received
cash, common stock or a combination of cash and common stock of the
acquirer which common stock is listed on one of the NASDAQ National
Market, NASDAQ Small Cap Market, the American Stock Exchange or the New
York Stock Exchange.
4. Default
(a) Events of Default. Maker shall be in default of this Note upon the
occurrence of any of the following:
(i) Failure of Maker to make any payment under this Note when
due.
(ii) Failure of Maker to perform or observe any of its
obligations under this Note (other than those requiring payment of money), the
Registration Rights Agreement dated as of July 31, 2000 by and between Maker and
Noteholder, as amended (other than with respect to late filing or effectiveness
of the registration statement referred to therein for which the remedy shall be
as provided therein, including Section 2(b)(vi) thereof), any warrant issued by
Maker to the Noteholder and exercisable for Common Stock, or the Second
Restructuring Agreement dated as of July 11, 2001 by and between Maker and
Noteholder and to commence and proceed diligently to cure such failure within
three (3) days after written notice thereof from Noteholder to Maker and in any
event to cure such failure within five (5) days after the date on which the
written notice of default is given by Noteholder to Maker.
(iii) The filing by Maker of a voluntary petition in bankruptcy,
a petition for reorganization, arrangement or other relief under the United
States Bankruptcy Act, or a voluntary petition for the appointment of a receiver
or comparable relief from creditors under the laws of any State, or the making
by Maker of an assignment of all or substantially all of its assets for the
benefit of creditors.
(iv) Any default shall occur under the terms applicable to any of
the indebtedness for borrowed money of the Maker (including, without limitation,
all notes payable, debentures, and similar instruments on which interest charges
are typically paid and capitalized lease obligations) outstanding in an
aggregate principal amount at any one time exceeding $150,000 and such default
shall (x) consist of the failure to pay such indebtedness at maturity thereof,
or (y) result in, or continue unremedied for a period of time sufficient to
permit, the acceleration of such indebtedness.
(v) The levy of a writ of attachment or execution in the amount
of $150,000 or more upon the property of Maker, but only if said writ or
execution is not stayed, removed or vacated within ten (10) days.
(vi) The Common Stock shall not be listed on either The Nasdaq
National Market System, The Nasdaq Small Cap Market, the Nasdaq Bulletin Board,
the New York Stock Exchange or the American Stock Exchange for a period in
excess of five (5) trading days.
(b) Acceleration on Default. When Maker is in default of this Note as
provided in this Section 3, the entire unpaid balance of interest and principal
of this Note shall become immediately due and payable upon written notice to
Maker by Noteholder.
(c) Interest After Default. Upon failure to make any payment of any
installment of principal or interest when due hereunder, Maker further promises
to pay, automatically on all installments of principal and interest which are
not timely paid when due and on the then outstanding principal balance,
additional interest in addition to the rate set forth hereinabove, so that
interest will then accrue at a rate equal to ten percent (10%).
5. Miscellaneous Provisions
(a) Notices. Any notice, payment, demand, claim or other communication
under this Note shall be in writing and shall be made by hand delivery,
first-class mail (registered or certified, return receipt requested) or
overnight courier warranting next-day delivery to the following addresses:
MAKER: Netgateway, Inc.
754 East Technology Avenue
Orem, Utah 84097
Attn: Chief Financial Officer
NOTEHOLDER: King William LLC
c/o Navigator Management
P.O. Box 972
Road Town, Tortola, British Virgin Islands
All such notices shall be deemed to have been given at the time delivered by
hand, if personally delivered; two business days after being deposited in the
mail if deposited within the continental United States and seven business days
after being deposited in the mail if deposited outside the continental United
States, postage prepaid, if mailed; and the next business day after delivered to
courier, if sent by overnight air courier warranting next-day delivery. Any
party may change the address to which each such notice or communication shall be
sent by giving written notice to the other parties of such new address in the
manner provided herein for giving notice.
(b) Attorneys' Fees. In the event that any action is taken by Maker or
Noteholder in connection with this Note, or any related document or matter, the
losing party in such legal action, in addition to such other damages as he or
she may be required to pay, shall pay reasonable attorneys' fees to the
prevailing party.
(c) Successors and Assigns. The provisions and covenants contained
herein shall inure to and be binding upon the successors, transferees, heirs and
assigns of the parties hereto. Maker shall not assign its obligations hereunder
without written approval of Noteholder.
(d) Interpretation. Whenever possible, each provision of this Note, and
any other related document, shall be interpreted in such manner as to be valid
under applicable law. If any provision of any of the foregoing shall be invalid
or prohibited thereunder, such provision shall be ineffective to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of such document.
(e) Time of the Essence. Time is of the essence as to the performance
of each and every obligation of Maker and Noteholder pursuant to this Note.
(f) Governing Law and Venue. This Note and all agreements entered into
in connection herewith shall be governed by and interpreted in accordance with
the laws of the State of California for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Any litigation based thereon, or arising out of, under, or in
connection with, this agreement or any course of conduct, course of dealing,
statements (whether oral or written) or actions of Maker or Noteholder shall be
brought and maintained exclusively in the state or Federal courts of the State
of California, sitting in the City of Los Angeles. Maker and Noteholder hereby
expressly and irrevocably submit to the jurisdiction of the state and federal
Courts of the State of California for the purpose of any such litigation as set
forth above and irrevocably agrees to be bound by any final judgment rendered
thereby in connection with such litigation. Maker and Noteholder further
irrevocably consents to the service of process by registered mail, postage
prepaid, or by personal service within or without the State of California. Maker
and Noteholder hereby expressly and irrevocably waive, to the fullest extent
permitted by law, any objection which it may have or hereafter may have to the
laying of venue of any such litigation brought in any such court referred to
above and any claim that any such litigation has been brought in any
inconvenient forum. To the extent that Maker or Noteholder has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution or otherwise) with respect to itself or its property, Maker and
Noteholder each hereby irrevocably waives such immunity in respect of its
obligations under this Note and the related agreements entered into in
connection herewith.
(g) Further Actions. Noteholder and Maker agree to execute such further
documents, and take such further actions as may be reasonably necessary to carry
out the provisions of this Note, or any agreement or document relating hereto or
entered into in connection herewith.
(h) Section Headings. The headings of the sections of this Note are
inserted solely for convenience, and are not intended to govern, limit or aid in
the construction of any term or provision hereof.
(i) Waivers and Amendments. None of the terms or provisions of this
Note may be waived, altered, modified or amended except by an instrument in
writing, duly executed by the parties hereto.
(j) Excess Interest. Any interest rate provided for hereunder which
exceeds the maximum rate provided by applicable law shall instead be deemed to
be such maximum rate and any interest in excess of such maximum rate paid to
Noteholder shall be applied to reduce the principal balance of this Note so that
in no event shall Noteholder receive or be entitled to receive interest in
excess of the maximum amount permitted by applicable law.
(k) Waiver of Jury Trial. Each of the parties hereto irrevocably waives
all right to trial by jury in any action or counterclaim arising out of or
relating to this Note.
(l) Entire Agreement. This Note and the other agreements referred to
herein and the Restructuring Agreement pursuant to which it was issued
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and supersede all other agreements and understandings.
IN WITNESS WHEREOF this Note has been executed as of the date first
above set forth.
MAKER:
By:_______________________________