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                                                                   EXHIBIT 10.95

                          SECURITIES PURCHASE AGREEMENT

     THIS SECURITIES PURCHASE AGREEMENT, dated as of July 31, 2000, is entered
into by and between NETGATEWAY, INC., a Delaware corporation, with headquarters
located at 300 Oceangate, 5th Floor, Long Beach, CA 90802 (the "Company"), and
the King William, LLC (the "Buyer").

                              W I T N E S S E T H:

     WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, INTER ALIA, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "Securities Act"),
and/or Section 4(2) of the Securities Act;

     WHEREAS, in consideration of the foregoing, the Buyer desires to purchase,
upon the terms and subject to the conditions of this Agreement, that certain 8%
Convertible Debenture, in the principal amount of $4,500,000, issued by the
Company (the "Debenture"), the form of which is attached hereto as ANNEX I,
which will be convertible into shares of Common Stock, par value $.001 per share
of the Company (the "Common Stock"), together with the Common Stock Purchase
Warrants described herein (the "Warrants"), upon the terms and subject to the
conditions of such Debenture, and subject to acceptance of this Agreement by the
Company;

     NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

     1.   AGREEMENT TO PURCHASE; PURCHASE PRICE.

     a.   PURCHASE PRICE; CERTAIN DEFINITIONS. (i) The Buyer hereby agrees to
purchase from the Company the Debenture upon the terms and conditions set forth
herein and in the Debenture. The form of Debenture is attached hereto as ANNEX
I. The purchase price for the Debenture shall be payable in two tranches, the
first tranche (the "First Tranche") of $2,500,000 shall be payable on the
Closing Date (as defined in Section 7(i) below). Subject to the satisfaction of
the closing conditions set forth in paragraphs 9(c), (e) and (f) hereof, the
second tranche (the "Second Tranche") of $2,000,000 shall be paid to Escrow
Agent (as defined in Section 2 below) on the date (the "Second Closing Date")
which is three (3) business days after Escrow Agent's receipt of (i) written
notice from the Company that the registration statement (the "Registration
Statement") filed with the Securities and Exchange Commission ("SEC") pursuant
to the Registration Rights Agreement (as defined in Section 3(d) below), has
been

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declared effective, (ii) an original certification from the chief financial
officer of the Company that, as of the date of the delivery of the
certification, (A) it is then in compliance with all of the covenants and
agreements contained herein (assuming that the Second Tranche has been funded)
and (B) that, as of the date of the delivery of the certification, the Company
would be able to honor a conversion of the entire balance of the Debenture
(including the Second Tranche) and an exercise of all of the Warrants, without
violating the "Cap Regulations" referred to in Section 4(j) below and (iii)
delivery of Warrants as set forth in Section 4(i) below. If the SEC refuses to
clear the Registration Statement for effectiveness as a result of the inclusion
of the funding of the Second Tranche in the Debenture, the Company and Buyer
hereby agree to amend the Debenture to remove the funding of the Second Tranche
thereunder (thereby reducing the principal balance of the Debenture to
$2,500,000) and, within five (5) business days of the effectiveness of the
Registration Statement, the Buyer hereby agrees to purchase (and the Company
hereby agrees to issue) a new 8% Convertible Debenture for a purchase price of
$2,000,000 upon the same terms and conditions as contained herein, except that
said debenture would not have a second tranche and Buyer shall not be entitled
to additional Warrants in connection with the purchase thereof.

          (ii) As used herein, the term "Securities" means the Debenture, the
Warrants and the Common Stock issuable upon conversion of the Debenture and the
exercise of the Warrants.

     b.   FORM OF PAYMENT. The Buyer shall pay the Purchase Price for the
Debenture by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as ANNEX II (the "Joint Escrow Instructions"). No
later than the Closing Date (as defined below), the Company shall deliver the
original Debenture duly executed on behalf of the Company to the Escrow Agent.
By signing this Agreement, the Buyer and the Company, and subject to acceptance
by the Escrow Agent, each agrees to all of the terms and conditions of, and
becomes a party to, the Joint Escrow Instructions, all of the provisions of
which are incorporated herein by this reference as if set forth in full.

     c.   METHOD OF PAYMENT. Payment into escrow of the Purchase Price for the
Debenture shall be made by wire transfer of funds to the account set forth in
the Joint Escrow Instructions, not later than 1:00 p.m., PST time, on the date
which is one (1) New York Stock Exchange trading day after the Company shall
have accepted this Agreement and returned a signed counterpart of this Agreement
to the Escrow Agent by facsimile, Buyer shall deposit with the Escrow Agent the
purchase price for the Debenture being acquired by it, in immediately available
funds. Time is of the essence with respect to such payment, and failure by the
Buyer to make such payment shall allow the Company to cancel this Agreement.

     d.   ESCROW PROPERTY. The Purchase Price, the Debenture and the Warrants
delivered to the Escrow Agent as contemplated herein are sometimes referred to
as the "Escrow Property."

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     2.   BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.

     Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:

     a.   Without limiting Buyer's right to sell the Common Stock pursuant to
the Registration Statement (as that term is defined below), the Buyer is
purchasing the Debenture and will be acquiring the shares of Common Stock
issuable upon conversion of the Debenture or the exercise of the Warrant (the
"Converted Shares") for its own account for investment, and not with a view
towards the public sale or distribution thereof and not with a view to or for
sale in connection with any distribution thereof.

     b.   The Buyer and each of its Members is (i) an "accredited investor" as
that term is defined in Rule 501 of the General Rules and Regulations under the
Securities Act by reason of Rule 501(a)(3), (ii) experienced in making
investments of the kind described in this Agreement and the related documents,
(iii) able, by reason of the business and financial experience of its officers
(if an entity) and professional advisors (who are not affiliated with or
compensated in any way by the Company or any of its affiliates or selling
agents), to protect its own interests in connection with the transactions
described in this Agreement, and the related documents, and (iv) able to afford
the entire loss of its investment in the Securities.

     c.   All subsequent offers and sales of the Debenture and the shares of
Common Stock representing the Converted Shares (such Common Stock sometimes
referred to as the "Shares") by the Buyer shall be made pursuant to registration
of the Shares under the Securities Act or pursuant to an exemption from
registration.

     d.   The Buyer understands that the Debenture is being offered and sold to
it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Debenture.

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     e.   The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Debenture and the offer of the
Shares which have been requested by the Buyer. The Buyer and its advisors, if
any, have been afforded the opportunity to ask questions of the Company and have
received complete and satisfactory answers to any such inquiries. Without
limiting the generality of the foregoing, the Buyer has also had the opportunity
to obtain and to review the (i) Registration Statement on Form S-1A dated
November 18, 1999; (ii) Prospectus filed pursuant to Rule 424 on November 19,
1999; (iii) S-8 Registration Statement January 21, 2000; (iv) S-8 POS
Registration Statement February 11, 2000; (v) Quarterly Report on Form 10Q dated
February 15, 2000; (vi) Current Report on Form 8-K dated March 21, 2000; (vii)
Definitive Proxy Statement dated April 26, 2000; (viii) Quarterly Report on Form
10Q dated May 15, 2000; (ix) Definitive Proxy Statement dated May 24, 2000; (x)
Amendment No. 1 to Registration Statement on Form S-4 dated May 24, 2000; and
(xi) Current Report on Form 8-K dated June 29, 2000;]

     f.   The Buyer understands that its investment in the Securities involves a
high degree of risk.

     g.   The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.

     h.   This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally. The Buyer
is a limited liability company duly organized, validly existing and in good
standing under the laws of the Cayman Islands and has requisite corporate power
to own its properties and to carry on its business as now being conducted.

     i.   Notwithstanding the provisions hereof or of the Debenture, in no event
(except with respect to an automatic conversion of the Debenture as provided
therein) shall Buyer be entitled to convert any Debenture to the extent that,
after such conversion, the sum of (1) the number of shares of Common Stock
beneficially owned by Buyer and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debenture), and (2) the number of shares of Common
Stock issuable upon the conversion of the Debenture with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by Buyer and its affiliates of more than 4.99% of the outstanding
shares of Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Any
issuance by the Company to the Buyer in excess of the limit contained in this
Paragraph 2.i. shall be null and void, AB INITIO, and upon notice of such
invalid issuance, the Company shall correct its books and

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cause its transfer agent's books to be corrected forthwith to reflect that the
Buyer's ownership of Common Stock is within the limit set forth herein. Buyer
shall immediately deliver any certificates for invalidly issued Common Stock to
the Company's transfer agent. The Company further agrees to (i) immediately
reissue certificates for Common Stock to the extent that a portion of the Common
Stock represented by said certificates have been validly issued and (ii)
immediately reissue all or a portion of those shares which were deemed invalidly
issued (at a price set forth in the original conversion notices applicable to
such shares) upon notice from the Buyer that the reissuance of such shares would
not cause such Buyer to have a beneficial ownership interest in excess of 4.99%.
The Company hereby indemnifies and holds Buyer free and harmless in connection
with any and all liabilities, losses, costs and expenses, including, without
limitation, attorneys' fees and costs arising from or relating to claims made by
any third parties alleging that Buyer has violated Sections 13(d) and/or 16, to
the extent such violation is premised on the fact that, notwithstanding this
Section 2.i., the Buyer is the beneficial owner of all of the shares of Common
Stock which would be issuable, from time to time, if Buyer converted the entire
principal and interest balance of the Debenture.

     j.   Buyer represents that it neither is nor will be obligated for any
finders' fee or commission nor is it aware of any such fee or commission payable
in connection with this transaction other than as set forth on the Joint Escrow
Instructions (attached hereto as Annex II). Buyer agrees to indemnify and to
hold harmless the Company from any liability for any commission or compensation
in the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which such Buyer or any of its
officers, partners, employees, or representatives is responsible.

     3.   COMPANY REPRESENTATIONS, ETC.

     The Company represents and warrants and hereby covenants and agrees with
Buyer that:

     a.   CONCERNING THE DEBENTURE AND THE SHARES. The Debenture has been duly
authorized and, when issued, will be duly and validly issued, fully paid and
non-assessable and will not subject the holder thereof to personal liability by
reason of being such holder. There are no preemptive rights of any stockholder
of the Company, as such, to acquire the Securities.

     b.   REPORTING COMPANY STATUS. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or prospects or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole. The Company has registered its Common Stock
pursuant to Section 12 of the 1934 Act, and the

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Common Stock is listed and traded on the "NASDAQ/National Market System. The
Company has received no notice, either oral or written, with respect to the
continued eligibility of the Common Stock for such listing, and the Company has
maintained all requirements for the continuation of such listing.

     c.   AUTHORIZED SHARES. The Company has at June 30, 2000, 21,638,031 shares
of Common Stock issued and outstanding, and has sufficient authorized and
unissued Shares as may be reasonably necessary to effect the conversion of the
Debenture (assuming all future conversions occurred are based upon an average
5-day closing bid of the Common Stock, as reported by Bloomberg, LP which was
one-half (1/2) of the closing bid price of the Common Stock on the Closing Date
(the "Closing Date Bid") and exercise of the Warrants (as defined in Section
4.k.) at the Closing Date Bid. The Common Stock has been duly authorized and,
when issued upon conversion of the Debenture in accordance with its terms, will
be duly and validly issued, fully paid and non-assessable and will not subject
the holder thereof to personal liability by reason of being such holder.

     d.   SECURITIES PURCHASE AGREEMENT; REGISTRATION RIGHTS AGREEMENT AND
DEBENTURE. This Agreement, the Debenture, the Registration Rights Agreement, the
form of which is attached hereto as ANNEX IV (the "Registration Rights
Agreement") and the transactions contemplated hereby and thereby, have been duly
and validly authorized by the Company, this Agreement has been duly executed and
delivered by the Company and this Agreement is, and the Debenture and the
Registration Rights Agreement, when executed and delivered by or on behalf of
the Company, will be, valid and binding agreements of the Company enforceable in
accordance with their respective terms, subject, as to enforceability, to
general principles of equity and to bankruptcy, insolvency, moratorium, and
other similar laws affecting the enforcement of creditors' rights generally.

     e.   NON-CONTRAVENTION. The execution and delivery of this Agreement, the
Debenture and the Registration Rights Agreement by the Company, the issuance of
the Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Debenture and the Registration Rights
Agreement do not and will not conflict with or result in a breach by the Company
of any of the terms or provisions of, or constitute a default under (i) the
articles of incorporation or by-laws of the Company, each as currently in
effect, (ii) except as disclosed in ANNEX V, any indenture, mortgage, deed of
trust, or other material agreement or instrument to which the Company is a party
or by which it or any of its properties or assets are bound, including any
listing agreement for the Common Stock (except as herein set forth), (iii) to
its knowledge, any existing applicable law, rule, or regulation or any
applicable decree, judgment, or order of any court, United States federal or
state regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, or (iv) any
listing agreement for its Common Stock, except such conflict, breach or default
which would not have a material adverse effect on the transactions contemplated
herein.

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     f.   APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.

     g.   SEC FILINGS. To the best of the Company's knowledge, none of the
Company's SEC Reports filed since November 1999 contained, at the time they were
filed, any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements made
therein in light of the circumstances under which they were made, not
misleading, except as corrected by an amended filing made prior to the date
hereof. The Company has since November 1999 filed all requisite forms, reports
and exhibits thereto with the SEC.

     h.   ABSENCE OF CERTAIN CHANGES. Since March 31, 2000, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), or results of
operations of the Company and its subsidiaries, taken as a whole, except as
disclosed in ANNEX V or in the Company's SEC Reports. Except as disclosed in
ANNEX V or in the Company's SEC Reports, since March 31, 2000 , the Company has
not (i) incurred or become subject to any material liabilities (absolute or
contingent) except liabilities incurred in the ordinary course of business
consistent with past practices; (ii) discharged or satisfied any material lien
or encumbrance or paid any material obligation or liability (absolute or
contingent), other than current liabilities paid in the ordinary course of
business consistent with past practices; (iii) declared or made any payment or
distribution of cash or other property to stockholders with respect to its
capital stock, or purchased or redeemed, or made any agreements to purchase or
redeem, any shares of its capital stock; (iv) sold, assigned or transferred any
other tangible assets, or canceled any debts or claims, except in the ordinary
course of business consistent with past practices; (v) suffered any substantial
losses or waived any rights of material value, whether or not in the ordinary
course of business, or suffered the loss of any material amount of existing
business; (vi) made any changes in employee compensation, except in the ordinary
course of business consistent with past practices; or (vii) experienced any
material problems with labor or management in connection with the terms and
conditions of their employment.

     i.   FULL DISCLOSURE. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in the
Company's SEC Reports), that has not been disclosed in writing to the Buyer that
(i) would reasonably be expected to have a material adverse effect on the
business or financial condition of the Company or (ii) would reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement or any of the agreements
contemplated hereby (collectively, including this Agreement, the "Transaction
Agreements").

     j.   ABSENCE OF LITIGATION. Except as disclosed in ANNEX V or in the

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Company's SEC Reports There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company, threatened against or affecting the Company, wherein
an unfavorable decision, ruling or finding would have a material adverse effect
on the properties, business or financial condition. results of operation or
prospects of the Company and its subsidiaries taken as a whole or the
transactions contemplated by any of the Transaction Agreements or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, any of the Transaction
Agreements.

     k.   ABSENCE OF EVENTS OF DEFAULT. Except as set forth in ANNEX V hereto or
in the Company's SEC Reports, no Event of Default (or its equivalent term), as
defined in the respective agreement to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (or its equivalent term) (as so defined in such
agreement), has occurred and is continuing, which would have a material adverse
effect on the Company's financial condition or results of operations or its
assets or properties.

     l.   PRIOR ISSUES. Except as set forth in ANNEX V hereto or in the
Company's SEC Reports, during the twelve (12) months preceding the date hereof,
the Company has not issued any Common Stock or convertible securities in capital
transactions which have not been fully disclosed in the Company's filings with
the SEC. Except as set forth in ANNEX V hereto or in the Company's SEC Reports,
all such issuances (except for issuances to Buyer) have been fully converted
into shares of common stock and there are no outstanding unconverted debt or
convertible securities from those transactions.

     m.   NO UNDISCLOSED LIABILITIES OR EVENTS. Except as set forth in ANNEX V,
the Company has no liabilities or obligations other than those disclosed in the
Company's SEC Reports or those incurred in the ordinary course of the Company's
business since March 31, 2000, and which, individually or in the aggregate, do
not or would not have a material adverse effect on the properties, business,
condition (financial or otherwise), results of operations or prospects of the
Company and its subsidiaries, taken as a whole. No event or circumstances has
occurred or exists with respect to the Company or its properties, business,
condition (financial or otherwise), results of operations or prospects, which,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed.

     n.   Intentionally deleted.

     o.   EXEMPT OFFERING. Neither the Company nor any of its affiliates nor any
person acting on its or their behalf has, directly or indirectly, made any offer
or sales of any security or solicited any offers to buy any security under
circumstances that would eliminate the availability of the exemption from
registration under Regulation D or Section 4(2) of the

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Securities Act in connection with the offer and sale of the Securities as
contemplated hereby.

     p.   DILUTION. The number of Shares issuable upon conversion of the
Debenture may increase substantially in certain circumstances, including, but
not necessarily limited to, the circumstance wherein the trading price of the
Common Stock declines prior to the conversion of the Debenture. The Company's
executive officers and directors fully understand the nature of the Securities
being sold hereby and recognize that they have a potential dilutive effect. The
board of directors of the Company has concluded that, in its good faith business
judgment, such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Shares upon
conversion of the Debenture is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company.

     q.   ACKNOWLEDGMENT BY COMPANY. Company represents and warrants that
neither the Buyer, nor any persons or entities representing or purporting to
represent the Buyer have made any representation or warranty which is not
contained expressly in this Agreement or any other agreements referred to
herein. Without limiting the foregoing, Company specifically acknowledges that
the Buyer has made no representations that it is a "long term" investor in the
Company, or that it intends to hold the Debenture or shares of stock in the
Company (obtained by conversions of the Debenture) for any period beyond that
which is required under the Securities Act. Company further acknowledges that
the Buyer may hedge the shares of stock in the Company prior to or after the
conversions of the Debenture, provided that such hedging is done in compliance
with the Securities Act, the 1934 Act, any rules applicable to securities traded
on the NASD/National Market System and the express terms of this Agreement, the
Debenture, the Warrants and the Registration Rights Agreement.

     r.   BROKERS FEE. The Company represents that it neither is nor will be
obligated for any finders' fee or commission nor is it aware of any such fee or
commission payable in connection with this transaction other than as set forth
on the Joint Escrow Instructions (attached hereto as Annex II). The Company
agrees to indemnify and to hold harmless the Buyer from any liability for any
commission or compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, partners, employees, or representatives is
responsible.

     4.   CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

     a.   TRANSFER RESTRICTIONS. Buyer acknowledges that (1) the Debenture has
not been and is not being registered under the provisions of the Securities Act
and, except as provided in the Registration Rights Agreement, the Shares have
not been and are not being registered under the Securities Act, and may not be
transferred unless (A) subsequently registered thereunder or (B) the Buyer shall
have delivered to the Company an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company, to the effect that the Securities to
be sold or transferred may be sold or transferred pursuant to an exemption from

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such registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the Securities Act may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such Securities under circumstances in which the seller, or the person through
whom the sale is made, may be deemed to be an underwriter, as that term is used
in the Securities Act, may require compliance with some other exemption under
the Securities Act or the rules and regulations of the SEC thereunder; and (3)
neither the Company nor any other person is under any obligation to register the
Securities (other than pursuant to the Registration Rights Agreement) under the
Securities Act or to comply with the terms and conditions of any exemption
thereunder.

     b.   RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the
Debenture and, until such time as the Common Stock has been registered under the
Securities Act as contemplated by the Registration Rights Agreement and sold
pursuant to an effective Registration Statement, certificates and other
instruments representing any of the Securities shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):

     THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
     UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
     ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
     OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
     STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER
     EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS
     NOT REQUIRED.

     c.   REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter into
the Registration Rights Agreement on or before the Closing Date.

     d.   FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Debenture to the Buyer under any
United States laws and regulations, or by any domestic securities exchange or
trading market, and to provide a copy thereof to the Buyer promptly after such
filing.

     e.   REPORTING STATUS. So long as Buyer beneficially holds the Debenture,
the Company shall file all reports required to be filed with the SEC pursuant to
Section 13 or 15(d) of the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would permit such termination.

     f.   USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Debenture (excluding amounts paid by the Company for legal fees, finder's
fees and escrow agent fees in connection with the sale of the Debenture) for
general capital purposes and, without

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limiting the foregoing, shall not, directly or indirectly, use any of such
proceeds for investment in any other affiliate.

     g.   CERTAIN AGREEMENTS. (i) The Company covenants and agrees that it will
not, without the prior written consent of the Buyer, enter into any subsequent
or further offer or sale of Common Stock or securities convertible into Common
Stock with any third party until one hundred eighty (180) days after the
Effective Date (as defined below).

     (ii) The provisions of subparagraph 4.g.i.(i) will not apply to (A) Common
Stock issued as "restricted stock" as defined in SEC Rule 144, provided the
holder thereof holds such Common Stock for at least one year from the date of
issuance; (B) a secondary public offering of shares of Common Stock at market;
(C) an offering of convertible securities at market or above; (D) the issuance
of securities (other than for cash) in connection with a merger, consolidation,
sale of assets, disposition or the exchange of the capital stock for assets,
stock or other joint venture interests or strategic relationships; (E) the grant
or exercise of employee stock options and other employment compensation; (F) the
conversion of securities or the exercise of warrants referenced in Schedule 5(b)
of the Registration Rights Agreement and (G) any issuance of Common Stock in any
future transaction with Buyer; provided with regard to (A) through (D) above,
such securities would not be included in the Registration Statement relating to
the Shares and a registration statement in respect of such stock shall not be
filed prior to sixty (60) days after the Effective Date.

     (iii) The term "Effective Date" means the effective date of the
Registration Statement covering the Registrable Securities (as defined in the
Registration Rights Agreement).

     (iv) In the event the Company breaches the provisions of this Paragraph
4.G.i., the Conversion Price shall be amended to equal the conversion formula
set forth in Section 4.A. of the Debenture and Buyer may, within thirty (30)
days after it receives written notice of such breach from the Company, require
the Company to immediately redeem the Debenture held by it in accordance with
Section 6(y) of the Debenture.

     h.   AVAILABLE SHARES. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock equal
to two hundred percent (200%) of the number of shares of Common Stock issuable
upon conversion of the Debenture, and the exercise of the Warrants.

     i.   WARRANTS. The Company agrees to issue to Buyer at the Closing,
Warrants for 231,000 shares of Common Stock. Such Warrants shall bear an
exercise price equal to $1.625 and shall be transferable divisible warrants
(with cashless exercise provisions), exercisable immediately upon issuance, and
for a period of five (5) years thereafter, in the form annexed hereto as ANNEX
VI, together with piggy-back registration rights, and demand registration rights
set forth under the Registration Rights Agreement. The Company agrees to

                                       11
<PAGE>

issue to Buyer on the Second Closing Date (and as a condition thereof), Warrants
for shares of Common Stock, equal to (A) the principal amount of the Second
Traunch, divided by the closing bid price of the Common Stock (as reported by
Bloomberg) at the close of the immediately preceding trading day (the "Second
Closing Bid Price"), (B) multiplied by fifteen percent (15%). Such Warrants
shall bear an exercise price equal to Second Closing Bid Price and shall be
transferable divisible warrants (with cashless exercise provisions), exercisable
immediately upon issuance, and for a period of five (5) years thereafter, in the
form annexed hereto as ANNEX VI, together with piggy-back registration rights,
and demand registration rights set forth under the Registration Rights
Agreement.

     j.   LIMITATION ON ISSUANCE OF SHARES. The Debenture shall provide that the
Company shall take all steps reasonably necessary to be in a position to issue
shares of Common Stock on conversion of the Debenture without violating the "Cap
Regulations". If despite taking such steps, the Company is limited in the number
of shares of Common Stock it may issue by the "Cap Regulations," to the extent
that the Company cannot issue such shares of Common Stock, due upon a Notice of
Conversion, without violating the Cap Regulations, the Company shall immediately
notify Buyer the principal amount of its Debenture which is not convertible as a
result of said Cap Regulations (the "Debenture Balance") and the Buyer, shall
have the option, exercisable in its sole and absolute discretion, to elect any
of the remedies in Section 6 of the Debenture.

     5.   TRANSFER AGENT INSTRUCTIONS.

     a.   Promptly following the delivery by the Buyer of the aggregate purchase
price for the Debenture in accordance with Section 1(c) hereof, the Company will
irrevocably instruct its transfer agent to issue Common Stock from time to time
upon conversion of the Debenture in such amounts as specified from time to time
by the Company to the transfer agent, bearing the restrictive legend specified
in Section 4(b) of this Agreement prior to registration of the Shares under the
Securities Act, registered in the name of the Buyer or its nominee and in such
denominations to be specified by Buyer in connection with each conversion of its
Debenture. The Company warrants that no instruction other than such instructions
referred to in this Section 5 and stop transfer instructions to give effect to
Section 4(a) hereof prior to registration and sale of the Shares under the
Securities Act will be given by the Company to the transfer agent and that the
Shares shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement, the Registration Rights
Agreement, and applicable law. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement to comply with all applicable securities
laws upon resale of the Securities. If the Buyer provides the Company with an
opinion of counsel reasonably satisfactory to the Company that registration of a
resale by the Buyer of any of the Securities in accordance with clause (1)(B) of
Section 4(a) of this Agreement is not required under the Securities Act, the
Company shall (except as provided in clause (2) of Section 4(a) of this
Agreement) permit the transfer of the Securities and, in the case of the Shares,
promptly instruct

                                       12
<PAGE>

the Company's transfer agent to issue one or more certificates for Common Stock
without legend in such name and in such denominations as specified by the Buyer.

     b.   (i) The Company will permit Buyer to exercise its right to convert its
Debenture by telecopying an executed and completed Notice of Conversion (as
defined in the Debenture) to the Company and delivering within three (3)
business days thereafter, the original Notice of Conversion, together with the
original Debenture, by express courier.

          (ii) The term "Conversion Date" means, with respect to any conversion
elected by the holder of the Debenture after the Effective Date, the date
specified in the Notice of Conversion, provided the copy of the Notice of
Conversion is telecopied to or otherwise delivered to the Company in accordance
with the provisions hereof so that is received by the Company on or before such
specified date. The Conversion Date for any mandatory conversion at maturity
shall be the Maturity Date of the Debenture.

          (iii) The Company shall, at its expense, take all actions and use all
means necessary and diligent to cause its transfer agent to transmit the
certificates representing the Shares issuable upon conversion of the Debenture
to the Buyer via express courier, by electronic transfer or otherwise, within
three (3) business days after receipt by the Company of the later of (i) receipt
by the Company of the copy of the original Notice of Conversion (and the
original Debenture upon the final conversion) and (ii) the Conversion Date (the
"Delivery Date").

     c. The Company understands that a delay in the issuance of the Shares of
Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer in the event that due entirely to the Company's
failure to issue and deliver the Shares upon Conversion in accordance with the
following schedule (where "No. Business Days Late" is defined as the number of
business days beyond three (3) business days from Delivery Date):

                                          LATE PAYMENT FOR EACH $10,000
                                          OF PRINCIPAL AND INTEREST OF DEBENTURE
       NO. BUSINESS DAYS LATE             BEING CONVERTED
       ----------------------             --------------------------------------

                1                              $100
                2                              $200
                3                              $300
                4                              $400
                5                              $500
                >5                             $500 +$200 for each
Business

                                               Day Late beyond 5 days from
                                               The Delivery Date

                                     13
<PAGE>

     The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit Buyer's
right to pursue actual damages or to cause the Company to redeem the Debenture
as provided below for the Company's actions or inactions resulting in the
transfer agent's failure to issue and deliver the Common Stock to the Buyer.
Furthermore, in addition to any other remedies which may be available to the
Buyer, in the event that the Company fails to deliver such shares of Common
Stock within three (3) business days after the Delivery Date, the Buyer will be
entitled to revoke the relevant Notice of Conversion by delivering a notice to
such effect to the Company whereupon the Company and the Buyer shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion. In the event the Company's actions or inactions result in
the transfer agent's failure to issue and deliver the Common Stock to the Buyer
within ten (10) days after the Delivery Date, Buyer may, at its option, require
the Company (without limiting its other remedies hereunder) to immediately
redeem the remaining interest and principal balance of its Debenture in
accordance with Section 6(y) of the Debenture.

     d.   If, by the relevant Delivery Date, the Company fails for any reason to
deliver the Shares to be issued upon conversion of the Debenture and after such
Delivery Date, the holder of the Debenture being converted (a "Converting
Holder") purchases, in an open market transaction or otherwise, shares of Common
Stock (the "Covering Shares") in order to make delivery in satisfaction of a
sale of Common Stock by the Converting Holder made after a Conversion Date (the
"Sold Shares"), which delivery such Converting Holder anticipated to make using
the Shares to be issued upon such conversion (a "Buy-In"), the Company shall pay
to the Converting Holder, in addition to all other amounts contemplated in other
provisions of the Transaction Agreements, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall pay the
Buy-In Adjustment Amount to the Buyer in immediately available funds immediately
upon demand by the Converting Holder. By way of illustration and not in
limitation of the foregoing, if the Converting Holder purchases shares of Common
Stock having a total purchase price (including brokerage commissions) of $11,000
to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000. The remedies set forth in
paragraphs 5(c) and (d) shall be cumulative.

     e.   In lieu of delivering physical certificates representing the
unlegended securities issuable upon conversion, provided the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of the Buyer and its compliance with
the provisions contained in this paragraph, so long as the certificates therefor
do not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause

                                       14
<PAGE>

its transfer agent to electronically transmit the Common Stock issuable upon
conversion to the Buyer by crediting the account of Buyer's Prime Broker with
DTC through its Deposit Withdrawal Agent Commission system.

     f.   The original Debenture shall be delivered by the Buyer to the Company
simultaneous with the final Notice of Conversion.

     6.   DELIVERY INSTRUCTIONS.

     The Debenture shall be delivered by the Company to the Escrow Agent
pursuant to Section 1(b) hereof, on a delivery against payment basis, no later
than on the Closing Date.

     7.   CLOSING DATE.

     (i)  The closing of the issuance and sale of the Debenture shall occur on
the date (the "Closing Date") which is the first NYSE trading day after the
fulfillment or waiver of all closing conditions pursuant to Sections 8 and 9
hereof or such other date and time as is mutually agreed upon by the Company and
the Buyer.

     (ii) The closing of the purchase and issuance of Debenture shall occur on
the Closing Date, at the offices of the Escrow Agent and shall take place no
later than 12:00 Noon, PST, on such day or such other time as is mutually agreed
upon by the Company and the Buyer.

     (iii) Notwithstanding anything to the contrary contained herein, the Escrow
Agent will be authorized to release the Escrow Property (as defined in the
Escrow Agreement) only upon satisfaction of the conditions set forth in Sections
8 and 9 hereof.

     8.   CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

     The Buyer understands that the Company's obligation to sell the Debenture
on the Closing Date and to the Buyer pursuant to this Agreement is conditioned
upon:

     a.   The receipt and acceptance by the Buyer of this Agreement as evidenced
by execution of this Agreement by the Buyer for Four Million Five Hundred
Thousand Dollars ($4,500,000) in aggregate principal amount of the Debenture (or
such lesser amount as the Company, in its sole discretion, shall determine on
the Closing Date);

     b.   Delivery by the Buyer to the Escrow Agent of good funds as payment in
full of an amount equal to the Purchase Price for the Debenture in accordance
with Section 1(c) hereof;

     c.   The accuracy on the Closing Date of the representations and warranties
of the Buyer contained in this Agreement as if made on the Closing Date, and the
performance by

                                       15
<PAGE>

the Buyer on or before the Closing Date of all covenants and agreements of the
Buyer required to be performed on or before the Closing Date;

     d.   There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.

     9.   CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.

     The Company understands that the Buyer's obligation to purchase the
Debenture on the Closing Date (and, as applicable, to remit the second tranche
on the Second Closing Date) is conditioned upon:

     a.   Acceptance by the Company of this Agreement for the sale of Debenture,
as indicated by execution of this Agreement;

     b.   Delivery by the Company to the Escrow Agent of the Debenture, in
accordance with this Agreement;

     c.   The accuracy in all material respects on the Closing Date (and, as
applicable, the Second Closing Date) of the representations and warranties of
the Company contained in this Agreement as if made on the Closing Date and the
performance of or compliance with all covenants and agreements of the Company
required to be performed or complied with on or before the Closing Date; and

     d.   On the Closing Date, Buyer having received (i) an opinion of counsel
for the Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in ANNEX III attached hereto,
(ii) the Registration Rights Agreement, and (iii) the Warrants.

     e.   No statute, rule, regulation, executive order, decree, ruling or
injunction shall be enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits or adversely
effects any of the transactions contemplated by this Agreement or the
Transaction Documents, and no proceeding or investigation shall have been
commenced or threatened which may have the effect of prohibiting or adversely
effecting any of the transactions contemplated by this Agreement or the
Transaction Documents.

     f.   From and after the date hereof to and including the Closing Date (and,
as applicable, the Second Closing Date), the trading of the Common Stock shall
not have been suspended by the SEC, or the NASD and trading in securities
generally on the New York Stock Exchange, NASDAQ/National Market System, shall
not have been suspended or limited, nor shall minimum prices been established
for securities traded on NASDAQ/National Market System, nor shall there be any
outbreak or escalation of hostilities involving the United States or

                                       16
<PAGE>

any material adverse change in any financial market that in either case in the
reasonable judgment of the Buyer makes it impracticable or inadvisable to
purchase the Debenture.

     10.  GOVERNING LAW; MISCELLANEOUS.

     a.   This Agreement 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 the Company or Buyer shall be brought and maintained
exclusively in the state or Federal courts of the State of California, sitting
in the City of Los Angeles. The Company hereby expressly and irrevocably submits
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. The Company further irrevocably consents to the service of process
by registered mail, postage prepaid, or by personal service within or without
the State of California. The Company hereby expressly and irrevocably waives, 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 the Company 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, the Company hereby irrevocably waives such immunity in respect of its
obligations under this Agreement and the related agreements entered into in
connection herewith.

     b.   A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.

     c.   This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original.

     d.   The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.

     e.   If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.

     f.   This Agreement may be amended only by an instrument in writing signed
by the party to be charged with enforcement thereof.

                                       17
<PAGE>

     g.   This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.

     h.   Except as otherwise set forth herein, all costs and expenses,
including reasonable attorneys' fees, incurred by the Buyer in the enforcement
of this Agreement or any agreements related thereto, shall be paid by the
Company upon demand.

     11.  NOTICES. Any notice or communication required or permitted by this
Agreement shall be given in writing addressed as follows:

COMPANY:       NETGATEWAY, INC.
               300 Oceangate, 5th Floor
               Long Beach, CA 90802
               ATTN: Craig Gatarz, General Counsel
               Telephone No.: (562) 308-0010
               Telecopier No.: (562) 308-0021

               with a copy to:

               Nida & Maloney
               800 Anacapa St.
               Santa Barbara, CA 93101
               Attention: C. Thomas Hopkins, Esq.
               Telephone: (805) 568-1151
               Facsimile: (805) 568-1955

BUYER:         At the address set forth on the signature page of this Agreement.

ESCROW AGENT:  At the address set forth in the Joint Escrow Instruction

All notices shall be served personally by telecopy, by telex, by overnight
express mail service or other overnight courier, or by first class registered or
certified mail, postage prepaid, return receipt requested. If served personally,
or by telecopy, notice shall be deemed delivered upon receipt (provided that if
served by telecopy, sender has written confirmation of delivery); if served by
overnight express mail or overnight courier, notice shall be deemed delivered
forty-eight (48) hours after deposit; and if served by first class mail, notice
shall be deemed delivered seventy-two (72) hours after mailing. Any party may
give written notification to the other parties of any change of address for the
sending of notices, pursuant to any method provided for herein.

     12.  SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
representations and warranties herein shall survive, for a period of two (2)
years the execution and delivery of this Agreement and the delivery of the
Debenture and the Purchase

                                       18
<PAGE>

Price, and shall inure to the benefit of the Buyer and its successors and
assigns.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       19

<PAGE>

PURCHASE PRICE OF THE DEBENTURE:    $4,500,000*
*As detailed below

                             SIGNATURES FOR ENTITIES

     IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf as of this ____ day of July, 2000.

                                   Printed Names of Buyers

                                   By: SEE ANNEXED
                                   -------------------------------------
                                   (Signature of Authorized Person)

                                   -------------------------------------
                                   Printed Name and Title

As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.

NETGATEWAY, INC., a Delaware corporation

By: /s/ DONALD M. CORLISS, JR.
   ------------------------------------------------

Title: President and Chief Operating Officer
   ------------------------------------------------

Date:  August 1, 2000
   ------------------------------------------------

<PAGE>

                             ANNEX TO SIGNATURE PAGE

PRINCIPAL AMOUNT
-----------------

$4,500,000                          King William, LLC, a Cayman Islands limited
                                    liability company

                                    By:
                                       -----------------------------------------
                                             Manager

ADDRESS:          King William, LLC
                  c/o Navigator Management
                  P.O. Box 972
                  Road Town
                  Tortola, British Virgin Islands
                  Telephone: (284) 494-4770
                  Facsimile: (284) 494-4771

<PAGE>

         ANNEX I           DEBENTURE

         ANNEX II          JOINT ESCROW INSTRUCTIONS

         ANNEX III         OPINION OF COUNSEL

         ANNEX IV          REGISTRATION RIGHTS AGREEMENT

         ANNEX V           COMPANY DISCLOSURE MATERIALS

         ANNEX VI          COMMON STOCK PURCHASE WARRANT

<PAGE>

ANNEX V

                               COMPANY DISCLOSURE
                               ------------------

                           [TO BE SUPPLIED BY COMPANY]<PAGE>

                                                                   EXHIBIT 10.96

                                    DEBENTURE

         NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
         HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
         EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER
         THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED
         AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS
         PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE
         HARBOR THEREFROM.

                                                                   US $4,500,000

NETGATEWAY, INC.

8% CONVERTIBLE DEBENTURE DUE JULY 31, 2003

     FOR VALUE RECEIVED, NETGATEWAY, INC., a Delaware corporation (the
"Company") promises to pay to King William, LLC, a Cayman Islands limited
liability company, the registered holder hereof (the "Holder"), the principal
sum of Four Million Five Hundred Thousand Dollars and 00/100 Dollars (US
$4,500,000) on July 31, 2003 (the "Maturity Date") and to pay interest on the
principal sum outstanding from time to time in arrears (i) prior to the Maturity
Date, quarterly, on the last day of March, June, September and December of each
year, (ii) upon conversion as provided herein or (iii) on the Maturity Date, at
the rate of eight percent (8%) per annum accruing from July 31, 2000, the date
of the issuance of this Debenture. Accrual of interest shall commence on the
first such business day to occur after the date hereof and shall continue to
accrue on a daily basis until payment in full of the principal sum has been made
or duly provided for.

     This Debenture is subject to the following additional provisions:

     1.   The Debentures are issuable in denominations of Ten Thousand Dollars
(US$10,000) and integral multiples thereof. The Debentures are exchangeable for
an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.

     2.   The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.

                                       1
<PAGE>

     3.   This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. In the event of any proposed
transfer of this Debenture, the Company may require, prior to issuance of a new
Debenture in the name of such other person, that it receive reasonable transfer
documentation including legal opinions that the issuance of the Debenture in
such other name does not and will not cause a violation of the Act or any
applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.

     4.   A. The Holder of this Debenture is entitled, at its option, subject to
the following provisions of this Section 4, to convert all or a portion of this
Debenture into shares of Common Stock of the Company, $0.001 par value per share
("Common Stock") of the Company at any time until the Maturity Date, at a
conversion price for each share of Common Stock (the "Conversion Rate") equal to
the lower of (x) $1.79 or (y) the Current Market Price (as defined below)
multiplied by eighty percent (80%); provided that the principal amount being
converted is the lower of (x) at least $10,000 (unless if at the time of such
election to convert the aggregate principal amount of all Debentures registered
to the Holder is less than Ten Thousand Dollars $10,000, then the whole amount
thereof) or (y) the maximum amount which the Holder can then convert pursuant to
the terms of Section 4.E. hereof .

          B.   For purposes of this Debenture, the following terms have the
meanings indicated below:

          (i)  "Current Market Price" means the average of the Market Price
of the Common Stock for any three (3) non-consecutive trading days of the Common
Stock (which may include some consecutive days) during the twenty day trading
period ending on the trading day immediately before the relevant Conversion Date
(as defined below). On the relevant Conversion Date, Holder may select, in its
sole discretion, either of the formulas contained in (A) and (B) in the
immediately preceding sentence.

          C.   The Holder of this Debenture is entitled, at its option, to
convert this Debenture at any time which is after the earlier of (x) the
thirtieth (30th) day after the Initial Closing Date or (y) the Effective Date of
the Registrable Securities applicable to the Initial Debentures (as those terms
are defined in the Securities Purchase Agreement dated of even date herewith
(the "Securities Purchase Agreement").

          D.   Conversion shall be effectuated by surrendering the Debentures to
be converted to the Company's transfer agent, Colonial Stock Transfer Co., Inc.,
accompanied by or

                                       2
<PAGE>

preceded by facsimile or other delivery to the Company of the form of conversion
notice attached hereto as Exhibit A, executed by the Holder of the Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion hereof, and accompanied, if required by the Company, by proper
assignment hereof in blank. Subject to the provisions of Section 4.E hereof,
interest accrued or accruing from the date of issuance to the date of conversion
shall, at the option of the Company, be paid in cash or Common Stock upon
conversion at the Conversion Rate applicable to such conversion. No fractional
shares of Common Stock or scrip representing fractions of shares will be issued
on conversion, but the number of shares issuable shall be rounded to the nearest
whole share. The date on which notice of conversion is given (the "Conversion
Date") shall be deemed to be the date on which the Holder faxes or otherwise
delivers the conversion notice ("Notice of Conversion"), substantially in the
form annexed hereto as Exhibit A, duly executed, to the Company, provided that
the Holder shall deliver to the Company's transfer agent or the Company the
original Debentures being converted within three (3) business days thereafter
(and if not so delivered within such time, the Conversion Date shall be the date
on which the later of the Notice of Conversion and the original Debentures being
converted is received by the Company). Facsimile delivery of the Notice of
Conversion shall be accepted by the Company at facsimile number (562)308-0021;
ATTN: CHIEF FINANCIAL OFFICER. Certificates representing Common Stock upon
conversion will be delivered as soon as practicable after Notice of Conversion
is delivered to the Company as contemplated in the first sentence of this
paragraph C or the original Debenture is delivered to the Company's transfer
agent or the Company.

          E.   Notwithstanding any other provision hereof, of the Warrants or of
any of the other Transaction Agreements (as those terms are defined in the
Securities Purchase Agreement), in no event (except (i) with respect to an
automatic conversion, if any, of a Debenture as provided in the Debentures, (ii)
as specifically provided in this Debenture as an exception to this provision, or
(iii) while there is outstanding a tender offer for any or all of the shares of
the Company's Common Stock) shall the Holder be entitled to convert any
Debenture or shall the Company have the obligation, to convert all or any
portion of this Debenture (and the Company shall not have the right to pay
interest on this Debenture) to the extent that, after such conversion, the sum
of (1) the number of shares of Common Stock beneficially owned by the Holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Debentures), and (2) the number of shares of Common Stock issuable upon the
conversion of the Debentures or exercise of the Warrants with respect to which
the determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock (after taking into account the shares to be issued to the
Holder upon such conversion or exercise). For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), except as otherwise provided in clause (1) of such sentence.
Any issuance by the Company to the Buyer in excess of the limit contained in
this Section 4.E. shall be null and void, AB INITIO, and upon notice of such

                                       3
<PAGE>

invalid issuance, the Company shall correct its books and cause its transfer
agent's books to be corrected forthwith to reflect that the Buyer's ownership of
Common Stock is within the limit set forth herein. Holder shall immediately
deliver any certificates for invalidly issued Common Stock to the Company's
transfer agent. The Company further agrees to (i) immediately reissue
certificates for Common Stock to the extent that a portion of the Common Stock
represented by said certificates have been validly issued and (ii) immediately
reissue all or a portion of those shares which were deemed invalidly issued (at
the Conversion Price set forth in the original conversion notice(s) applicable
to such shares) upon notice from Holder that the reissuance of such shares would
not cause such Holder to have a beneficial ownership interest in excess of
4.99%. Notwithstanding the foregoing, Holder may elect, by providing the Company
written notice at any time prior to the reissuance of shares, to cancel that
portion of a prior conversion applicable to shares of Common Stock surrendered
by it pursuant to this Section 4.E. The Company hereby indemnifies and holds
Holder free and harmless in connection with any and all liabilities, losses,
costs and expenses, including, without limitation, attorneys' fees and costs
arising from or relating to claims made by any third parties alleging that any
Holder has violated Sections 13(d) and/or 16, to the extent such violation is
premised on the fact that, notwithstanding this Section 4.E., the Holder is the
beneficial owner of all of the shares of Common Stock which would be issuable,
from time to time, if Holder converted the entire principal and interest balance
of the Debenture. The Holder, by its acceptance of this Debenture, further
agrees that if the Holder transfers or assigns any of the Debentures to a party
who or which would not be considered such an affiliate, such assignment shall be
made subject to the transferee's or assignee's specific agreement to be bound by
the provisions of this Section 4(E) as if such transferee or assignee were the
original Holder hereof.

          F.   Anything herein to the contrary notwithstanding, in the event the
Company breaches the provisions of Section 4(g) of the Securities Purchase
Agreement, the Conversion Rate shall be amended to be equal to 87.5% of the
Conversion Rate determined in accordance with the other provisions of this
Debenture without regard to this Section 4.F., and the Holder may require the
Company to immediately redeem the outstanding portion of this Debenture in
accordance with clause (y) of Section 6 hereof.

          G.   If the average price closing bid price as reported on Bloomberg
of the Common Stock for a five (5) consecutive trading day period ("Triggering
Period") is less than $1.00 per share, the Holder agrees to suspend conversions
of the Debenture into Common Stock for a period of twenty (20) consecutive
trading days, commencing on the first trading day immediately after the end of
the FIRST such Triggering Period. If the average closing bid price as reported
by Bloomberg for the Common Stock for any five (5) consecutive days after the
FIRST such Triggering Period is less than $1.00 the Holder shall have no further
obligation to suspend conversions of the Debenture.

     5.   On the condition that the Company is not then in default hereunder,
any portion of the principal balance and accrued interest of the Debentures not
previously converted as of the Maturity Date, shall be deemed to be
automatically converted, without further action of any kind

                                       4
<PAGE>

(except the delivery of unrestricted Common Stock in connection with such
conversion) by the Company or any of its agents, employees or representatives,
as of the Maturity Date at the Conversion Rate applicable on the Maturity Date
("Mandatory Conversion"), and the Company shall have no further obligation to
repay the Debentures. If the Company is in default hereunder, (i) there shall be
no Mandatory Conversion, (ii) Holder shall retain all of its rights set forth in
Section 15 below, and (iii) Holder may, in addition to its other rights,
unilaterally extend the Maturity Date by one (1) year by providing written
notice to the Company on or before the Maturity Date.

     6.   The Holder recognizes that the Company may be limited in the number of
shares of Common Stock it may issue by (i) reason of its authorized shares, or
(ii) the applicable rules and regulations of the principal securities market on
which the Common Stock is listed or traded (collectively, the "Cap
Regulations"). Without limiting the other provisions hereof, (i) the Company
will take all steps reasonably necessary to be in a position to issue shares of
Common Stock on conversion of the Debentures without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still can not
issue such shares of Common Stock without violating the Cap Regulations, the
Holder of this Debenture (to the extent the same can not be converted in
compliance with the Cap Regulations (an "Unconverted Debenture"), shall have the
option, exercisable in the Holder's sole and absolute discretion, to elect any
one of the following remedies:

          (x)  require the Company to issue shares of Common Stock in
     accordance with such Holder's Notice of Conversion relating to
     the Unconverted Debenture at a conversion purchase price equal to
     the average of the closing bid price per share of Common Stock
     for any five (5) consecutive trading days (subject to the
     equitable adjustments for certain events occurring during such
     period as provided in this Debenture) during the sixty (60)
     trading days immediately preceding the date of the Notice of
     Conversion; or

          (y)  require the Company to redeem each Unconverted
     Debenture for an amount (the "Cap Redemption Amount"), payable in
     cash, equal to:

                     V                     x                 M
                 ---------
                    CP

     where:

          "V" means the outstanding principal plus accrued interest
     through the Cap Redemption Date (as defined below) of an
     Unconverted Debenture;

                                  5
<PAGE>

          "CP" means the Conversion Rate in effect on the date of
     redemption (the "Cap Redemption Date") specified in the notice
     from the Holder electing this remedy; and

          "M" means the average closing ask price during the period
     beginning on the Cap Redemption Date and ending on the date of
     payment of the Cap Redemption Amount.

The holder of an Unconverted Debenture may elect one of the above remedies with
respect to a portion of such Unconverted Debenture and the other remedy with
respect to other portions of the Unconverted Debenture.

     7.   Subject to the terms of the Securities Purchase Agreement, no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, and interest on,
this Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture and all other Debentures now or hereafter issued of
similar terms are direct obligations of the Company.

     8.   If the Company merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another person and
the holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any proposed
merger, consolidation or sale or transfer of all or substantially all of the
assets of the Company (a "Sale"), the Holder hereof shall have the right to
convert by delivering a Notice of Conversion to the Company within fifteen (15)
days of receipt of notice of such Sale from the Company. In the event the Holder
hereof shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture by paying the Redemption Amount
contemplated by Section 5 hereof, less all amounts required by law to be
deducted, upon which tender of payment following such notice, the right of
conversion shall terminate.

     9.   If, for any reason, prior to the Conversion Date or the Redemption
Payment Date, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes all or of a part of its assets in a
transaction (the "Spin Off") in which the Company does not receive compensation
for such business, operations or assets, but causes securities of another entity
(the "Spin Off Securities") to be issued to security holders of the Company,
then the Company shall cause (i) to be reserved Spin Off Securities equal to the
number thereof which would have been issued to the Holder had all of the
Holder's Debentures outstanding on the

                                       6
<PAGE>

record date (the "Record Date") for determining the amount and number of Spin
Off Securities to be issued to security holders of the Company (the "Outstanding
Debentures") been converted as of the close of business on the trading day
immediately before the Record Date (the "Reserved Spin Off Shares"), and (ii) to
be issued to the Holder on the conversion of all or any of the Outstanding
Debentures, such amount of the Reserved Spin Off Shares equal to (x) the
Reserved Spin Off Shares multiplied by (y) a fraction, of which (I) the
numerator is the principal amount of the Outstanding Debentures then being
converted, and (II) the denominator is the principal amount of the Outstanding
Debentures.

     10.  If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of its
Common Stock or issues a dividend on its Common Stock consisting of shares of
Common Stock, the Conversion Price shall be equitably adjusted to reflect such
action. By way of illustration, and not in limitation, of the foregoing (i) if
the Company effectuates a 2:1 split of its Common Stock, thereafter, with
respect to any conversion for which the Company issues the shares after the
record date of such split, the Base Price shall be deemed to be one-half of what
it had been calculated to be immediately prior to such split; (ii) if the
Company effectuates a 1:10 reverse split of its Common Stock, thereafter, with
respect to any conversion for which the Company issues the shares after the
record date of such reverse split; and (iii) if the Company declares a stock
dividend of one share of Common Stock for every 10 shares outstanding,
thereafter, with respect to any conversion for which the Company issues the
shares after the record date of such dividend, the Base Price shall be deemed to
be the amount of such Base Price calculated immediately prior to such record
date multiplied by a fraction, of which the numerator is the number of shares
(10) for which a dividend share will be issued and the denominator is such
number of shares plus the dividend share(s) issuable or issued thereon (11).

     11.  All payments contemplated hereby to be made "in cash" shall be made in
immediately available good funds in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts. All payments of cash and each delivery of shares of Common Stock
issuable to the Holder as contemplated hereby shall be made to the Holder at the
address last appearing on the Debenture Register of the Company as designated in
writing by the Holder from time to time; except that the Holder can designate,
by notice to the Company, a different delivery address for any one or more
specific payments or deliveries.

     12.  The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.

     13.  This Debenture 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

                                       7
<PAGE>

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 the
Company or Holder shall be brought and maintained exclusively in the state or
Federal courts of the State of California, sitting in the City of Los Angeles.
The Company hereby expressly and irrevocably submits 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. The Company
further irrevocably consents to the service of process by registered mail,
postage prepaid, or by personal service within or without the State of
California. The Company hereby expressly and irrevocably waives, 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 the Company 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, the Company
hereby irrevocably waives such immunity in respect of its obligations under this
Agreement and the related agreements entered into in connection herewith.

     14.  In the event that any action is taken by the Company or Holder in
connection with this Debenture, or any related document or matter, the losing
party in such legal action, in addition to such other damages as he or it may be
required to pay, shall pay reasonable attorneys' fees to the prevailing party.

     15.  The following shall constitute an "Event of Default":

          a.   The Company shall default in the payment of principal or interest
               on this Debenture and same shall continue for a period of three
               (3) days after its receipt of written notice thereof; or

          b.   Any of the representations or warranties made by the Company
               herein, in the Securities Purchase Agreement, the Registration
               Rights Agreement or in any certificate or financial or other
               written statements heretofore or hereafter furnished by the
               Company in connection with the execution and delivery of this
               Debenture or the Securities Purchase Agreement shall be false or
               misleading in any material respect at the time made; or

          c.   The Company fails to issue shares of Common Stock to the Holder
               or to cause its Transfer Agent to issue shares of Common Stock
               upon exercise by the Holder of the conversion rights of the
               Holder in accordance with the terms of this Debenture, fails to
               transfer or to cause its Transfer Agent to transfer any
               certificate for shares of Common Stock issued to the Holder upon
               conversion of this Debenture and when required by this Debenture
               or

                                       8
<PAGE>

               the Registration Rights Agreement, and such transfer is otherwise
               lawful, or fails to remove any restrictive legend or to cause its
               Transfer Agent to transfer on any certificate or any shares of
               Common Stock issued to the Holder upon conversion of this
               Debenture as and when required by this Debenture, the Agreement
               or the Registration Rights Agreement and such legend removal is
               otherwise lawful, and any such failure shall continue uncured for
               five (5) business days; or

          d.   The Company shall fail to perform or observe, in any material
               respect, any other covenant, term, provision, condition,
               agreement or obligation of this Debenture and such failure shall
               continue uncured for a period of twenty (20) days after written
               notice from the Holder of such failure; or

          e.   The Company shall fail to perform or observe, in any material
               respect, any covenant, term, provision, condition, agreement or
               obligation of the Company under the Securities Purchase
               Agreement, the Registration Rights Agreement, the Warrant and
               such failure shall continue uncured for a period of twenty (20)
               days after written notice from the Holder of such failure (other
               than a failure to cause the Registration Statement to become
               effective no later than the Required Effective Date, as defined
               and provided in the Registration Rights Agreement, as to which no
               such cure period shall apply); or

          f.   The Company shall (1) admit in writing its inability to pay its
               debts generally as they mature; (2) make an assignment for the
               benefit of creditors or commence proceedings for its dissolution;
               or (3) apply for or consent to the appointment of a trustee,
               liquidator or receiver for its or for a substantial part of its
               property or business; or

          g.   A trustee, liquidator or receiver shall be appointed for the
               Company or for a substantial part of its property or business
               without its consent and shall not be discharged within sixty (60)
               days after such appointment; or

          h.   Any governmental agency or any court of competent jurisdiction at
               the instance of any governmental agency shall assume custody or
               control of the whole or any substantial portion of the properties
               or assets of the Company and shall not be dismissed within sixty
               (60) days thereafter; or

          i.   Any money judgment, writ or warrant of attachment, or similar
               process in excess of Two Hundred Thousand ($200,000) Dollars in
               the aggregate shall be entered or filed against the Company or
               any of its properties or other assets and shall remain unpaid,
               unvacated, unbonded or unstayed for

                                       9
<PAGE>

               a period of sixty (60) days or in any event later than five (5)
               days prior to the date of any proposed sale thereunder; or

          j.   Bankruptcy, reorganization, insolvency or liquidation proceedings
               or other proceedings for relief under any bankruptcy law or any
               law for the relief of debtors shall be instituted by or against
               the Company and, if instituted against the Company, shall not be
               dismissed within sixty (60) days after such institution or the
               Company shall by any action or answer approve of, consent to, or
               acquiesce in any such proceedings or admit the material
               allegations of, or default in answering a petition filed in any
               such proceeding; or

          k.   The Company shall have its Common Stock suspended or delisted
               from an exchange or The Nasdaq National Market System from
               trading for in excess of five (5) trading days.

          l.   An Event of Default has occurred under the terms of any other
               Debenture (in this series) issued pursuant to the Securities
               Purchase Agreement.

Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may, at its option,
consider this Debenture immediately due and payable in cash (and not by
conversion into Common Stock), without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately enforce any and all of the Holder's rights and remedies
provided herein, or any other rights or remedies afforded by law.

     16.  Nothing contained in this Debenture shall be construed as conferring
upon the Holder the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect of any meeting of shareholders or any
rights whatsoever as a shareholder of the Company, unless and to the extent
converted in accordance with the terms hereof.

     17.  In the event for any reason, any payment by or act of the Company or
the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, then IPSO FACTO the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully

                                       10
<PAGE>

collectible as interest, then such amount (to the extent of such excess not
returned to the Company) shall, without further agreement or notice between or
by the Company or the Holder, be deemed applied to the payment of principal, if
any, hereunder immediately upon receipt of such excess funds by the Holder, with
the same force and effect as though the Company had specifically designated such
sums to be so applied to principal and the Holder had agreed to accept such sums
as an interest-free prepayment of this Debenture. If any part of such excess
remains after the principal has been paid in full, whether by the provisions of
the preceding sentences of this Section 17 or otherwise, such excess shall be
deemed to be an interest-free loan from the Company to the Holder, which loan
shall be payable immediately upon demand by the Company. The provisions of this
Section 17 shall control every other provision of this Debenture.

     18.  Time is of the essence as to the performance of each and every
obligation of the Company and Holder pursuant to this Debenture.

     19.  A. On the conditions that the Company (i) is not in default under this
Debenture (and no event has occurred that would ripen into a default with the
passage of time), and (ii) has previously honored all prior Redemption Notices,
the Company may, at its option, repay, in whole or in part, the then outstanding
principal and interest balance of this Debenture on the date of the Redemption
Notice (after deducting the principal and interest subject to outstanding
Conversion Notices) at the Redemption Price (as defined below). This Debenture
is redeemable, in whole or in part, by the Company by providing written notice
(the "REDEMPTION NOTICE") to the Holder via facsimile at its address set forth
herein (the Business Day between the hours of 6:30 a.m. and 3:00 p.m. Pacific
Time the Redemption Notice is received by the Holder via facsimile is defined to
be the "REDEMPTION NOTICE DATE"). Within seven (7) Trading Days after the
Redemption Notice Date the Company shall make payment of the Redemption Price
(as defined below) in immediately available funds to the Holder (such date of
payment referred to as the "REDEMPTION DATE"). Partial redemptions shall be in
an aggregate principal amount of at least $400,000.

     B.   In the event the Company serves a Redemption Notice, the Redemption
Price shall be equal to the greater of (i) 125% of the outstanding principal and
interest balance of the Debenture, or (ii) the "Economic Benefit" of the
principal and interest of the Debenture which are the subject of such Redemption
Notice. "ECONOMIC BENEFIT" shall mean the dollar value derived if the principal
(and interest) which was the subject of the Redemption Notice was converted on
the Redemption Notice Date and sold on the Redemption Notice Date at the Closing
Bid Price of the Common Stock on the Redemption Notice Date.

     C.   The Notice of Redemption shall set forth (i) the Redemption Date and
the place fixed for redemption, (ii) the Redemption Price, (iii) a statement of
or reference to the conversion right set forth herein, and (iv) confirmation
that the Company has the full Redemption Price reserved as set forth in F.
below. The notice shall specify the principal and interest balance hereof to be
redeemed. Within seven (7) Trading Days of the Redemption Notice Date, the
Company shall wire transfer the

                                       11
<PAGE>

appropriate amount of funds to the Holder. If the Company fails to comply with
the redemption provisions set forth herein by the seventh Trading Day after the
Redemption Notice Date (or in the case of a public offering as contemplated in
F. below, by the seventh Trading Day after the Redemption Notice Date) relating
to the Redemption Notice, the redemption will be declared null and void and the
Company shall not be permitted to serve another Redemption Notice. For the first
five Trading Days after the Redemption Notice Date, the Holder will retain its
conversion rights with respect to a maximum of twenty percent (20%) of the
principal and interest amount subject to the redemption. If the Holder elects to
so convert the said principal and interest after the receipt of the Redemption
Notice, the Company must receive notice of such election within two (2) business
days from the time the Redemption Notice was received by the Holder. In the
event the Company has not complied with the redemption provisions set forth
herein the Company must comply with the delivery requirements of any then
outstanding Conversion Notice as set forth herein. If the entire balance of
interest and principal of this Debenture is redeemed hereunder, the Holder shall
deliver to the Company the original of this Debenture within three (3) Business
Days after it has received good funds for the Redemption Price.

     D.   The Redemption Price shall be adjusted proportionally upon any
          adjustment of the Conversion Price as provided herein and in the event
          of any stock dividend, stock split, combination of shares or similar
          event.

     E.   Intentionally Deleted.

     F.   The Company shall not be entitled to send any Redemption Notice and
          begin the redemption procedure hereunder unless it has:

          (a)  the full amount of the Redemption Price in cash, available in a
               demand or other immediately available account in a bank or
               similar financial institution, specifically allotted for such
               redemption;

          (b)  immediately available credit facilities, in the full amount of
               the Redemption Price with a bank or similar financial institution
               specifically allotted for such redemption; or

          (c)  a combination of the items set forth in (i) and (ii) above,
               aggregating the full amount of the Redemption Price.

Notwithstanding the foregoing, in the event the redemption is expected to be
made contemporaneously with the closing of a public offering of the Company's
securities for an amount in excess of the Redemption Price, the Company shall
not be required to have the full amount of the Redemption Price available to it
as set forth above.

     G.   Upon its receipt of a Conversion Notice, the Company may, at its
option, repay that

                                       12
<PAGE>

portion of the accrued interest of this Debenture which is subject to such
outstanding Conversion Notice, at the Redemption Price, provided that the
Company delivers to Holder a Redemption Notice with respect thereto within two
(2) business days after the date of the subject Conversion Notice. On the
Redemption Date, the Company shall make payment of the Redemption Price in
immediately available funds to the Holder.

                                       13
<PAGE>

     IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.

Dated: as of July 31, 2000

                                        NETGATEWAY, INC., a Delaware corporation

                                        By: /s/ DONALD M. CORLISS, JR.
                                        ---------------------------------------

                                         Donald M. Corliss, Jr.
                                        ---------------------------------------
                                       (Print Name)

                                        President and Chief Operating Officer
                                        ---------------------------------------
                                        (Title)

                                       14
<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION

(To be Executed by the Registered Holder in order to Convert the Debenture)

     The undersigned hereby irrevocably elects to convert $ ________________ of
the principal amount (and $________________ of accrued interest thereon) of the
above Debenture No. ___ into Shares of Common Stock of NETGATEWAY, INC., a
Delaware corporation (the "Company") according to the conditions hereof, as of
the date written below.

Conversion Date*
-------------------------------------------------------------------

Applicable Conversion Price
-----------------------------------------------------------

Signature
----------------------------------------------------------------------------
                     [Name]

Address:
----------------------------------------------------------------------------

----------------------------------------------------------------------------

* This original Debenture must be received by the Company or its transfer agent
by the third business day following the Conversion Date.

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