[logo] vFinance
Investments, Inc.
March 22, 2002
Netgateway, Inc.
000 X. Xxxxxxxxxx Xxxxxx
Xxxx, XX 00000
Attention: Xxx Xxxxx
Chairman of the Board of Directors
and Chief Executive Officer
Gentlemen:
Reference is made to the letter dated as of February 18, 2002 (the "Letter
of Intent") between vFinance Investments, Inc., ("VFIN" or the "Placement
Agent"), and Netgateway, Inc., its successors, subsidiaries, or assigns
(collectively, the "Company"). It is hereby understood that the Company wishes
to increase the dollar amount of the Private Placement as set forth in this
amendment to the Letter of Intent (the "Amendment"). The Amendment will confirm
the entire understanding and agreement (the "Agreement") between vFinance
Investments, Inc. and Netgateway, Inc., as follows:
1. Dollar Amount of Private Placement: A minimum of $300,000.00 and a
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maximum of $2,400,000.00
2. Retention of VFIN: The Company hereby engages VFIN, and VFIN accepts
such engagement as the Company's exclusive financial advisor, for six months
from the date of this letter, in connection with the management of a private
placement (the "Private Placement") of equity securities of the Company, which
will include shares of common stock (the "Shares") of the Company and may
include warrants to purchase common stock (the "Warrants") of the Company
(collectively, the "Units"), on a best efforts basis.
3. The Private Placement:
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a. The Private Placement shall be structured as a transaction exempt from
Section 5 of the Securities Act of 1933, as amended (the "Securities Act"), and
shall comply with Section 4(2) of the Securities Act and Regulation D thereunder
and state securities law.
b. The Private Placement shall be structured in that there may be multiple
closings upon the receipt and acceptance by the Company of irrevocable
subscriptions. The feasibility of the Private Placement will depend upon the
results of our investigation of the Company, information about the Company that
VFIN may receive including, but not limited to, due diligence reports concerning
the Company's operations, management, and business plan, and the continuation of
the operation of the Company without material adverse change.
c. The Company will use all reasonable efforts to promptly prepare a
Confidential Offering Memorandum (the "Memorandum") substantially in a form
acceptable to the Placement Agent relating to the offering and sale of the
Shares. In connection with the Memorandum and other matters pertaining to the
Private Placement, the Company and its officers, accountants, and counsel shall
furnish to the Placement Agent and the counsel to the Placement Agent such
information and documents as shall be reasonably requested. The Company will
also endeavor in good faith, in cooperation with the Placement Agent and counsel
to the Placement Agent, whenever requested by the Placement Agent, to qualify
the Shares and the securities included therein and issuable upon the conversion
thereof, the Placement Agent's Warrants (as hereinafter defined) and the
securities issuable upon the exercise of the Placement Agent's Warrants and all
underlying securities for offer and sale under the applicable securities laws of
such jurisdictions as Placement Agent may reasonably designate, provided,
however, that the Company shall not be required thereby to qualify to do
business in any jurisdiction in which it is not otherwise engaged in business.
4. Placement Agent's Compensation: The Placement Agent shall be compensated
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for its services in connection with the proposed offering herein contemplated as
follows:
a. For its role as Placement Agent, the Company shall pay or cause to be
paid to the Placement Agent a cash fee of $60,000, which shall be payable in two
installments: (1) $40,000 upon the first Closing of the Private Placement and
(2) $20,000 upon the second Closing of the Private Placement. In addition, the
Placement Agent shall be paid a cash commission of five percent (5%) on the
gross proceeds sold in the placement. It is hereby understood between the
parties that the Placement Agent intends to pay certain finders a portion or all
of the above mentioned commission on any sales of the placement sold through the
finder. In addition, the Placement Agent shall be entitled at each closing, to
reimbursements for the expenses incurred by it in connection with the Private
Placement.
b. The Company will authorize, and the Placement Agent or its designees
shall be entitled to receive at the Closing, purchase warrants (the "Placement
Agent's Warrants") for the purchase of a number of Shares equal to five percent
(5%) of the number of shares sold in the Private Placement. The Placement
Agent's Warrants will be exercisable at a price per Share equal to the offering
price per Share. Such Warrants will contain standard net issuance and
anti-dilution provisions.
c. The Placement Agent's Warrants shall not be exercisable for a period of
one year from the date of the Initial Closing and shall thereafter be
exercisable for a period of four years.
d. The Company agrees, at its expense, to register the shares (the
"Underlying Shares") of common stock of the Company (the "Common Stock")
issuable upon conversion of the Shares issuable upon the exercise of the
Placement Agent's Warrants for resale at any time during the entire period
between the first and fifth anniversaries of the date of the Initial Closing.
The Company will bear all the costs of such demand registration, except for
customary underwriting discounts and commissions. In addition, the Company will
take all actions necessary, and bear all expenses required to permit holders of
the Underlying Shares, including the holders of the Placement Agent's Warrants
and the Shares, to "piggyback" such Underlying Shares on any registration
statement filed by the Company under the Securities Act during such four year
period. The Company shall not enter into any agreement or take any other step
that would impair the registration rights of any such holders granted hereby.
5. Expenses: The Placement Agent shall be entitled to reimbursement of out
of pocket expenses incurred in connection with this Private Placement.
Reimbursement of expenses shall be duly documented and paid monthly and at each
closing, upon submission of a duly documented invoice. In addition, the Company
shall pay all of its costs and expenses incident to the purchase, sale and
delivery of the Shares and the securities included therein and issuable upon the
conversion thereof, including without limitation, all fees and expenses of
filings with the Securities and Exchange Commission and the National Association
of Securities Dealers, Inc., in each case if applicable; all blue sky fees and
expenses; all fees of the counsel to the Placement Agent, fees of counsel and
accountants for the Company; printing costs, including costs of printing the
Memorandum and any amendments, supplements, or exhibits thereto, any preliminary
drafts thereof or amendments thereto, all private placement documents, blue sky
memoranda and a reasonable quantity of Memoranda as determined by the Placement
agent; the Company's road show costs and expenses; and the cost of preparing
four bound volumes of the Private Placement documents for the Placement Agent
and counsel to the Placement Agent.
6. Conditions of the Placement Agent's Obligation: Corporate Changes: The
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financial condition and prospects of the Company shall be reasonably
satisfactory to the Placement Agent.
7. Conditions, Representations and Covenants: The Company represents,
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warrants, and covenants that:
a. There will be included in the Memorandum audited financial statements of
the Company for the three fiscal years preceding the date of the Memorandum
(reported on by a national accounting firm reasonably acceptable to the
Placement Agent) and, if requested by the Placement Agent, current unaudited
comparative interim financial statements. The financial statements will present
fairly the financial condition of the Company and the results of its operations
at the time and for the periods covered by such financial statements, and such
statements will be substantially as heretofore represented to the Placement
Agent.
b. The Company has prepared and delivered to the Placement Agent its most
recent financial statements and, if requested, will deliver projections
constituting its best estimate of revenues, earnings and cash flow and shall
update such estimates on a monthly basis during the registration period.
c. Except in connection with acquisitions, strategic commercial
transactions or pursuant to the exercise of warrants, options, or other
securities outstanding prior to Closing, and the Company's right to maintain a
stock option plan of Common Stock and the grant of options to, or the issuance
of Common Stock upon exercise of options by is officers, employees, directors
and consultants under such Plan at an exercise price equal to the fair market
value, the Company will not, without the Placement Agent's prior written consent
(1) sell any shares of capital stock or issue warrants or options, except
pursuant to the Company's employee benefit plans described in the Memorandum, or
(2) purchase any shares of capital stock of the Company during the six month
period following the Closing of the Private Placement, except pursuant to the
Company's employee benefit plans described in the Memorandum.
d. The Company will use its best efforts to cause two persons to be elected
to the Company's Board of Directors who are deemed by the Placement Agent to be
independent of the Company's management, who are reasonably acceptable to VFIN,
as well as make any management changes mutually agreeable to the Company and
VFIN.
e. The Company shall secure Director and Officer Liability Insurance
(provided that such insurance can be obtained at a reasonable cost as determined
by the Company and the Placement Agent) in an amount and from an insurer
reasonably satisfactory to the Placement Agent, provided that the amount of
coverage shall not exceed that which is customary for companies of comparable
size and in the same industry as the Company.
f. For a three-year period from the date of the Initial Closing of the
Private Placement, VFIN shall have a right to appoint a designee as an observer
to the Board of Directors. Such observer will have the right to attend all
meetings of the Board. Such observer shall have no voting rights, but shall be
entitled to receive reimbursement for all reasonable out-of-pocket expenses
incurred in attending such meetings, including, but not limited to food, lodging
and transportation. VFIN shall be given notice of such meetings at the same time
and in the same manner as Directors of the Company are informed. VFIN and such
observer shall be indemnified to the same extent as the other directors.
g. The Company agrees to indemnify the Placement Agent in accordance with
the indemnification provisions (the "Indemnification Provisions") attached to
this Agreement as Exhibit A, which Indemnification Provisions are incorporated
herein and made a part hereof.
8. Statement of Intent: It is understood that VFIN's undertaking to conduct
the proposed Private Placement is subject to the Memorandum, all amendments,
supplements and exhibits thereto or other documentation related thereto, being
reasonably satisfactory to the Placement Agent and counsel to the Placement
Agent.
The Placement Agent intends to proceed with the Private Placement
immediately after availability of the required final documentation and the terms
of this letter of Intent have been satisfied; provided, however, that the
Placement Agent reserves the right not to proceed with the Private Placement if,
in its sole judgment, market conditions are unsuitable for such offering, or
information comes to its attention relating to the Company, its management or
its position in the industry, which could, in the Placement Agent's sole
judgment, preclude a successful offering of the Shares.
9. Legally Binding: As described in Paragraph 9, the Company and the
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Placement Agent agree that the following provisions shall be legally binding on
the Company:
a. If the Company or the Placement Agent decides not to proceed with the
Private Placement for any reason whatsoever, all expenses incurred by the
Placement Agent in connection with the Private Placement will be paid promptly
by the Company in accordance with all provisions described herein.
b. If, after executing this Letter of Intent and prior to final closing of
the offering, the Company elects not to expeditiously proceed with the offering
even though the Placement Agent is ready, willing and able to conduct the
Private Placement, then the Company agrees that (1) it will not sell any of its
capital stock through another placement agent for a period of at least six (6)
months, or (2) if it does so, then the Company shall pay to the Placement Agent
$100,000 in addition to the amounts paid to it pursuant to subparagraph (a)
hereof, which the Company and the Placement Agent agree will be fair
compensation to the Placement Agent for services performed with respect to the
proposed Private Placement.
c. If prior to the final Closing of the Private Placement and within a
period of twelve (12) months from the date hereof, the Company is acquired,
merges, sells all or substantially all of its assets or otherwise effects a
corporate reorganization with any other entity (collectively, a "Transaction")
and, as a result, the Private Placement contemplated hereby is abandoned by the
Company, then, in addition to any amounts paid to it pursuant to subparagraph
(a) hereof, the Company shall pay the Placement Agent a cash fee of 2.0% of the
aggregate amount of Consideration given upon the closing of such Transaction,
which the Company and the Placement Agent agree is fair compensation to the
Placement Agent for services performed with respect to the proposed Private
Placement.
For purposes of this Agreement, "Consideration" shall include the aggregate
amount of cash, securities, or other assets received by the Company or its
shareholders in connection with a Transaction, plus (i) the present value of any
payments made or to be made pursuant to installment notes, covenants
not-to-compete, or other, similar arrangements (but excluding any future
compensation for future employment in an amount consistent with that paid by the
Company prior to the Transaction; (ii) the face amount of any debt of the
company or the Company's shareholders (but excluding operating leases, trade
payables and normal accruals) which is assumed otherwise borne by the purchaser;
and (iii) the amount of any dividends or other extraordinary payments or
distributions made by the Company to its shareholders, officers, directors, or
employees in anticipation of the Transaction. The "present value of any payments
made or to be made" shall be determined using the face amount of the payments,
and a discount rate equal to the yield of 5-year Treasuries plus 1% at the end
of the day immediately preceding the close of this Transaction. Any securities
or other non-cash consideration, received as consideration shall have a value
equal to the cash equivalent value, as reasonably determined by VFIN. If the
Transaction takes the form of a purchase of assets and an assumption of
liabilities, then Consideration, shall include the fair market value of the
assets purchased from the Company, its shareholders, or their affiliates (but
excluding operating leases, trade payables and normal accruals) that is assumed
by the purchaser. If all or any portion of the consideration payable in
connection with the Transaction includes contingent future payments, then the
Company shall pay to VFIN, upon consummation of the Transaction, an additional
cash fee determined in accordance with this Paragraph 9( c), when, and if, such
contingency payments are received. However, in the event of an installment
purchase at a fixed price and a fixed time schedule the Company agrees to pay to
VFIN, upon consummation of the Transaction, a cash fee determined in accordance
with this Paragraph 2 based upon the present value of such installment payments
using a discount rate referenced above.
If the Company's Board of Directors authorizes the Company to pursue a
merger/acquisition opportunity involving the sale of all or substantially all of
the Company's assets during the period after the Memorandum has been distributed
by the Placement Agent, the Placement Agent shall have the right of first
refusal to act as the Company's investment banker or financial advisor in
connection with any such merger/acquisition, rendering such services as are
customary in connection therewith in consideration for a fee which is considered
customary for such services.
d. Pending completion of the Private Placement, the Company shall refrain
for a period of six (6) months from the date hereof from negotiating with any
other placement agent or investment banker or other person regarding a possible
public or private offering of any of the Company's securities.
e. The Placement Agent and the Company agree that any controversy arising
out of or relating to this letter of intent or proposed offering contemplated
hereby, shall be settled by arbitration in accordance with the rules then in
effect on the National Association of Securities Dealers, Inc.
f. For the three-year period commencing on the date of the Closing, VFIN
shall have the right of first refusal (on terms at least as favorable as can be
obtained from other sources) to act as lead manager, co-manager, placement
agent, or investment banker with respect to any proposed underwritten public
distribution or private placement of the Company's securities or any merger,
acquisition, or disposition of assets of the Company, if the Company uses a lead
manager, co-manager, placement agent, investment banker, or other person
performing such functions for a fee. VFIN will advise the Company promptly, but
in no event later than 15 days following the submission to VFIN writing of any
such proposed transaction(s), of VFIN's election to exercise said right. If any
such proposal is not accepted by VFIN, but later modified, the Company will
re-submit such proposal to VFIN. Should VFIN elect, at any time not to exercise
said right this will not affect preferential rights for future financings.
If the foregoing correctly sets forth the understand we have heretofore
reached regarding the proposed Private Placement, please sign and return the
enclosed copy of this letter by February 29, 2002. If this Letter of Intent is
not signed by February 29, 2002, and an extension has not been mutually agreed
upon in writing by the Company and the Placement Agent, this Letter of Intent
will be considered void. By accepting this letter, the Company agrees to keep
this letter and all terms confidential and not to "shop" it with any other
placement agents or underwriters.
Very truly yours,
VFINANCE INVESTMENTS, INC.
By: [signature]
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Xxx Xxxxxxx
Principal
ACCEPTED AND AGREED TO
This 27th day of March in, 2002
NETGATEWAY, INC.
By: [signature]
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Xxx Xxxxx
Chairman and Chief Executive Officer
EXHIBIT A
The Placement Agent will be acting on behalf of Netgateway, Inc. (the
"Company") in connection with the services or matters that are subject of the
Agreement to which this Exhibit A is attached. Accordingly, the Company agrees
to indemnify and hold harmless each Placement Agent and their respective
affiliates, their respective directors, officers, agents, and employees and
affiliates, and each other person, if any, controlling any such Placement Agent
or any of their respective affiliates (collectively the "Indemnified Persons"),
from and against any losses, claims, damages, liabilities or expenses (or
actions, including shareholder actions, in respect thereof) relating to or
arising out of such engagement or the Placement Agent's role in connection
therewith, and will reimburse the Indemnified Persons for all reasonable
expenses (including out-of-pocket expenses and Placement Agent's counsel fees
and expenses) as they are incurred by the Indemnified Persons in connection with
investigating, preparing or defending any such action or claim, whether or not
in connection with pending or threatened litigation in which any Placement Agent
or any Indemnified Person is a party. The Company will not, however, be
responsible to any particular Placement Agent for any losses, claims, damages,
liabilities, or expenses which are finally judicially determined to have
resulted primarily from such Placement Agent's willful misconduct or bad faith.
The Company also agrees that none of the Indemnified Persons shall have any
liability to the Company for or in connection with the services or matters
pertaining to the Agreement except for any such liability for losses, claims,
damages, liabilities or expenses incurred by the Company that results primarily
from any Placement Agent's willful misconduct or bad faith. If the forgoing
indemnity is unavailable or insufficient to hold the Indemnified Persons
harmless, then the Company shall contribute to the amount paid or payable by the
Indemnified Persons, in respect of the Indemnified Persons, for losses, claims,
damages, liabilities, or expenses in such proportion as appropriately reflects
the relative benefits received by, and fault of, the Company, on the one hand
and the Indemnified Persons, on the other, in connection with the matters as to
which such looses, claims, damages, liabilities or expenses relate and other
equitable consideration; provided, however, the Company agrees that the
aggregate contribution of all Indemnified Persons shall in all cases be not more
than the amount of fees actually received by the Placement Agents for their
services. It is hereby further agreed that the relative benefits to the Company
on the one hand and the Indemnified Persons on the other with respect to any
transaction contemplated by the Agreement shall be deemed to be in the same
proportion as (i) the total value of the transaction bears to (ii) the fees
actually paid to the Placement Agents with respect to such transaction. The
foregoing Agreement shall be in addition to any rights that any Placement Agent
or any Indemnified Person may have at common law or otherwise. The Company
hereby consents to personal jurisdiction and service and venue in any court in
which any claim which is subject to this Agreement is brought against any
Placement Agent or any other Indemnified Person. If any action, proceeding, or
investigation is commenced as to which an Indemnified Person demands
indemnification, the Indemnified Person shall have the right to retain counsel
of its own choice to represent it, the Company shall pay the reasonable fees and
expenses of such counsel, and such counsel shall to the extent consistent with
its professional responsibilities cooperate with the Company and any counsel
designated by the Company; provided that the Company shall not be responsible
for the fees and expenses of more than one counsel.
