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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-SB
AMENDMENT NO. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES ACT
iMALL, INC.
(Exact name of registrant as specified in its charter)
NEVADA 59-2544687B
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4400 Coldwater Canyon Boulevard, Suite 200, Studio City, California 91604
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 509-3600
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
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(Title of class)
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(Title of Class)
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ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING INFORMATION
This registration statement contains certain forward-looking statements
and information relating to the Company that are based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. When used in this registration statement,
the words "anticipate", "believe", "estimate", "expect" and similar expressions,
as they relate to the Company or the Company's management, are intended to
identify forward-looking statements. Such statements reflect the current view of
the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not intend to update these
forward-looking statements. See "Description of Business -- Industry and
Competitive Considerations", and "Management's Discussion and Analysis or Plan
or Operations."
OVERVIEW
The Company is an electronic commerce and Internet services company
that maintains an Internet destination called "iMALL", located at www.imall.com.
The iMALL Web site offers goods and services for sale from a variety of
merchants, either through a Web site or classified advertisements within iMALL.
The Company believes that the iMALL is currently one of the most popular online
shopping sites on the Internet, with an Internet "consumer reach" three times
greater than wal-mart.com, and almost equal to iQVC, according to the Internet
Retailing Report published by Morgan Stanley & Co. on May 28, 1997. Consumer
reach is defined as the percentage of Web-active persons who visit at least one
page within a domain during that month.
The Company currently derives the majority of its revenues from Web
site sales and maintenance fees, and Internet training, education and consulting
services. The Company believes its future revenues will include those sources as
well as revenue from selling products over the Internet, providing electronic
commerce services to businesses (through Web sites which include the tools
necessary to consummate transactions online), and selling Internet advertising.
During 1996 and the first nine months of 1997, the Company generated revenues of
$16,046,933 and $13,645,695, respectively. The Company believes its margins were
negatively impacted during the first nine months of 1997 in part because of a
change in its business strategy led by a management team that was hired in
October 1996 and subsequently removed in June 1997. The change in strategy
included increased infomercial marketing and a lack of focus on the Company's
true strengths and core competencies--the building of Web sites equipped to
process online transactions ("Transactional Web Sites") and recurring online
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commerce revenues. The Company is now focusing on what it believes to be more
profitable areas such as the building of transactional Web sites, maximizing its
Internet advertising revenues, and growing its online commerce revenue (by
receiving a percentage of the gross sales made through an iMALL merchants' Web
site). The Company believes the new strategy will significantly impact the
Company's revenues in the latter half of 1998.
The Company's mission is to maintain and expand its leadership position
as an important Internet commerce destination where businesses and consumers
from around the world go to engage in the sale and purchase of goods, services
and information. To achieve this mission, the Company will focus on acquiring
new merchants and products and increasing its shopper base of two million
visitors per month.
In 1996, which was the Company's first year of business as it is
presently constituted, the Company concentrated its efforts on the sale of Web
sites through Internet marketing and education workshops and other consulting
services with the objective of increasing its base of iMALL merchants and
advertisers. The Company believes that the development of a base of merchants is
important for its long-term success and that in 1996 the best method of
developing such a base was to couple the Web site sale with Internet education.
Consequently, the Company has to date derived most of its revenue from this
method. In the event that the number of iMALL merchants and advertisers
continues to increase, the Company expects a larger share of its revenues to be
derived from recurring maintenance fees, sales of Internet advertisements, and
commissions on gross product sales made by iMALL merchants.
The Company has developed within iMALL a number of professional and
business services sites referred to as "Centers." These Centers include AT&T
Market Square Deals, the American Express Travel Center, the Steve Young Sports
Arena, and Career, Financial, Entertainment and International Centers. The
Company intends to populate the International Center with merchants from around
the world through license and services agreements with third parties with
expertise in marketing in particular countries. The Company believes that with
its base of merchants, traffic and technical infrastructure it will be in a
position to capitalize on the emerging market for commerce on the Internet.
In connection with the Company's acquisitions in January 1996, the
Company effected a 1 for 19 stock split on January 8, 1996. In addition, on May
22, 1996, the Company effected a 4 for 1 stock split, and, effective February
12, 1998, the Company effected a 1 for 8 stock split. All references in this
registration statement take these splits into effect when referring to the
number of shares of the Company's common stock or per share data.
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INTERNET COMMERCE
The Internet is a world-wide series of interconnected electronic and/or
computer networks. Individuals and companies have recently recognized that the
technological capabilities of the Internet provide a medium for not only the
promotion and communication of ideas and concepts, but also for the presentation
and sale of information, goods and services. According to the "Internet
Retailing Report," published by Morgan Stanley in May 1997, there are currently
35 million users of the Internet, and the number of users is expected to grow to
150 million by the year 2000. The Los Angeles Times (September 14, 1997), citing
industry sources, predicted that the value of services and goods sold on the
Internet will increase from $7-8 billion in 1997 to up to $327 billion in 2002.
Historically, the Internet has been accessible principally through
personal computers. Recently, several companies have announced "Web TV" products
designed for attachment to television sets for the purpose of allowing access to
the Internet without the need for a personal computer. Although these products
do not permit the full range of functions provided by personal computers, they
do permit many of the features of the Internet to be viewed on television sets.
Management believes that these new Web TV products are expected to substantially
increase the number of people who will shop online by accessing the Internet.
The term "Internet commerce" encompasses the use of the Internet for
selling goods and services. The use of the Internet as a marketing and
advertising tool is enhanced by the ability to communicate information through
the Internet to a large number of individuals, businesses and other entities.
Because of the "virtual" nature of electronic commerce, the online
presence for certain merchants can significantly reduce or eliminate the costs
of maintaining a physical retail facility. Online merchants can also achieve
significant savings by eliminating traditional product packaging, print
advertising and other point of purchase materials. Marketing on the Internet can
be especially advantageous for smaller companies because it removes many
physical and capital barriers to entry and serves to level the competitive
playing field by allowing smaller companies to effectively compete with larger
companies.
HOW ACTIVITY IS TRACKED
There are three different methods to measure Internet activity for a
particular Web site. The first method is to count the number of "hits" on the
site. Hits refers to the total number of files retrieved from a Web page. These
files can either be text documents, executable files (i.e., downloaded
programs), or graphic images. A file is deemed a hit whether it is simply
accessed or actually downloaded. Depending on how much activity is generated, a
single visitor to iMALL could result in numerous hits.
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The second method of measuring activity on a Web site is to count
"impressions". Impressions usually refer to the total number of banners or pages
imposed into a user's line of sight. Because items creating impressions may
change while a viewer is still viewing a single page, more impressions than
visitors may be generated by a Web page.
A third method of measuring activity is to count the number of
"visitors" to a Web site. Visitors (or accesses to a site) are the total number
of people coming to a particular Web site.
INTERNET SECURITY
One of the largest barriers to a potential customer's willingness to
conduct commerce over the Internet is the perceived ability of unauthorized
persons to access and use personal information about the user, such as credit
card account numbers, social security numbers and bank account information.
Concerns about the security of the Internet include the authenticity of the user
(i.e., is the user accurately identified), verification and certification
methods of who these users are, and privacy protection for access to private
information transmitted over the Internet. However, recent advances in this area
have greatly reduced the possibility of such unauthorized access or use. The
Company is not aware of any occasion in which a user's credit card was
misappropriated while transacting business on iMALL. For a discussion of the
methods of security employed by the Company, see "--iMALL Security."
IMALL
The Company maintains an Internet Web site called "iMALL," located on
the World Wide Web at www.imall.com. Upon accessing the iMALL Web site, an
Internet user is shown the iMALL Home Page. This home page provides users with
access to the iMALL Guide Page, each of iMALL's approximately 1,600 Web sites
for merchants ("storefronts"), thousands of classified advertisements, and the
iMALL directory. From January 1996 to January 1998, iMALL's hits have increased
from approximately 1 million per month to over 25 million per month. iMALL's key
merchants include AT&T WorldNet Service, American Express Travel, Barnes &
Noble, Hanes, Dr. Laura (one of the most popular radio personalities), Circus
Circus' fourteen casinos and resorts, Sega Soft, Breath Asure, Checker Auto,
Quantum and Amazing Discoveries. iMall has also recently started selling through
licensed distributors certain Coca-Cola, Disney, and Speedo products for which
it receives a percentage of all gross sales made through the iMALL Web site.
The iMALL directory lists sites by product or service categories and
allows users to perform global searches of the entire iMALL. Users may also use
the "power shopping" function to narrow their search to a specific area of
iMALL, a specific product, or even merchants or products from a particular
region of the country. A viewer who wishes to
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purchase items offered on iMALL can do so simply by submitting an order online
and entering a credit card number.
In addition to the traditional search options, iMALL offers a special
function called "Deals of the Day." This service is updated daily and alerts
iMALL users to special manufacturer discounts on quality name-brand merchandise.
The Company and AT&T WorldNet Service(sm) opened "AT&T Market Square
Deals" on iMALL's Web site. AT&T Market Square Deals is hosted by iMALL and
linked from AT&T Market Square and offers name brand merchandise for sale at
significant discounts from retail prices. This Site is jointly marketed by the
Company and AT&T WorldNet Service.
The Company also established an international commerce center (located
at international.imall.com) on iMALL. The Company anticipates that this
"International Center" will contain Web sites from merchants throughout the
world, allowing for global Internet commerce. The Company intends to focus on
expanding the countries represented in this Center beginning in mid-1998.
In the past, the Company derived substantially all of its revenue from
Web site sales and maintenance fees, and Internet education and marketing
services. In the future, the Company anticipates deriving the majority of its
revenue from Web site sales and maintenance fees, commissions from online sales,
Internet advertising sales, and Internet training.
WEB SITE SALES AND MAINTENANCE FEES
A Web site is a business' online presence or electronic store and has
two fundamental roles. First, it is an advertising medium for products and/or
services. Second, it is a medium for engaging in Internet commerce by allowing
the Company to sell goods and services to Internet users. The Company sells a
large percentage of its Web sites in conjunction with its educational and
marketing seminars, See "-Sales and Marketing-Internet Education and
Consulting." The Company also receives revenue in the form of fees for setting
up a Web site and from monthly maintenance or hosting fees. iMALL currently
hosts approximately 1,600 online merchants.
The Company charges most of its stores a monthly maintenance fee for
maintaining their site on iMALL. The basic fee is $59 per month. This fee pays
for "space" on the Company's servers and technical support from the Company.
During 1997, the Company expanded its maintenance fee offerings to include more
advanced maintenance services including technology updates, periodic design
updates and data gathering services.
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The Company's technology staff also performs billable services such as
design and development work for current iMALL Web sites and full corporate site
development. Fees for these services are billed by the hour or by the project.
The Company builds its Transactional Web sites with its proprietary Web
site development tool, called "iSTORE". iSTORE facilitates the development of
basic Web sites, the enhancing of Web sites, and the creation of fully
customized Web sites. iSTORE also supports electronic commerce components which
merchants may employ on their iMALL sites. Basic Web sites contain text of
various fonts and font sizes as well as simple images. Enhanced sites contain
more advanced text, images, forms and tables that are generated through the use
of Java applets (a small computer application written in the Java language that
is downloaded to a browser), JavaScripting (a language that is interpreted by
Web browsers and used to enhance content that is downloaded to a browser), and
similar tools. iSTORE provides several stylized templates for basic Web site
designs and a more limited number for enhanced Web site designs. Fully
customized Web sites contain features similar to those contained in enhanced Web
sites but require several sophisticated design and programming resources that
are not currently provided in iSTORE. The Company anticipates that as demand
grows for the more sophisticated features found in enhanced and fully customized
sites, the Company will integrate the tools for creating these features into
iSTORE.
Other forms of advertising on the Internet include banner
advertisements and sponsorships. Banner advertisements are advertisements that
circulate across Web pages and typically link to Web sites. Banner
advertisements are purchased based upon the number of impressions they receive.
In the past, the Company has traded the majority of its banner inventory to
other Internet Sites to help increase traffic. The Company is now focusing on
selling the banner ads for a price between 2 cents and 5 cents per impression.
iMALL currently generates over one million impressions per month. The Company
has not yet been able to sell or trade all of its impressions, and there can be
no assurance that it will be able to do so in the future.
The Company anticipates selling sponsorships of different "iMALL
Centers." An "iMALL Center" is a special area on iMALL, linked from its Guide
Page, where topic specific information is presented and/or a special collection
of products are offered. iMALL Centers include AT&T Market Square Deals, the
American Express Travel Center, the Steve Young Sports Center, a Career Center,
an Entertainment Center, a Financial Center, and an International Center. In
iMALL's American Express Travel Center, visitors can obtain general information
on travel related topics and book travel reservations at the same time. The
Company receives a percentage from American Express of all travel sold through
that Center. In the case of AT&T Market Square Deals, discounted brand
merchandise is sold at 15-30% off retail the Company and AT&T share in the
revenue generated from this Center. The Company is currently merchandising its
Centers from its merchant's products and outside vendors.
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COMMISSIONS FROM SALES ON IMALL
Merchants generally agree to maintain a site on iMALL for a one year
period. Previously, a majority of the Company's clients paid a monthly
maintenance or hosting fee of $59 per month. The Company is currently
negotiating with existing merchants who renew their sites on iMALL to agree to
pay the Company a negotiated commission based on a percentage of gross sales
made through their iMALL site. Since September 9, 1997, substantially all new
merchants establishing iMALL sites have entered into such an arrangement.
Revenues from this program have thus far been a small percentage of the
Company's total revenues, but the Company expects that such revenues will grow
in the future, particularly through its "AT&T Market Square Deals" and "Park
Avenue Collections." This commission program was recently introduced by the
Company, and the Company to date has not encountered any substantial resistance
to its implementation.
The Company recently implemented technology which will allow it to
closely meter all types of transactions on iMALL. This new technology allows the
Company to track a particular merchant's sales, thereby facilitating the
Company's ability to charge a commission on sales.
IMALL SECURITY
The Company's current electronic commerce service includes the use of
secure sockets layer (SSL) protocol. SSL supports a fully DES encrypted session
(up to 128-bit, depending on the browser) between the Web browser and the Web
server. Additional security is provided by CyberCash's Secure Internet Payment
Service. This service incorporates an RSA encryption method between a shopper on
iMALL and a merchant on iMALL. These security methods provide a high level of
encryption protection for users' credit card numbers, bank account numbers, and
other personal information. To the Company's knowledge, the Company has never
experienced any significant problems with security. However, there can be no
assurance that the Company will never experience such a problem.
TECHNICAL INFRASTRUCTURE
The Company's World Wide Web servers include the latest release
Stronghold Secure Webserver (version 2.0). These servers are based on Apache's
version 1.2 base server. Apache is run on over 40% of all the web servers in the
world and has been the most popular in the world for more than six months (based
on the November 1997 World Wide Web server site survey conducted by Netcraft).
The Company's Central Processing Unit server infrastructure includes
four high end web servers, running BSD compliant UNIX operating systems. Load
(made up of traffic and the activities of the traffic) is distributed across
these machines through round-robin domain
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name service which maximizes the capacity of the systems. Internet service to
these machines consists of multiple DS3 (45Mb/sec) backbone service providers
including MCI, Sprint, and UUNET/Alternet. The Company estimates that the
current system has capacity to handle in excess of 1.5 million hits per day. The
Company's management believes that the Company can quickly and inexpensively
upgrade this system as it becomes necessary. File system backups are written
across machines to protect against a catastrophic system failure on any one
given machine.
SALES AND MARKETING
The Company's sales and marketing activities are conducted in several
ways:
INTERNET EDUCATION AND CONSULTING
The Company has found that an effective method of selling Web sites is
in conjunction with Internet education. Therefore, the Company conducts Internet
marketing and educational seminars in approximately two cities per week. These
preview seminars target individuals and businesses interested in marketing their
products and services on the Internet, or simply learning about business
applications of the Internet. The preview seminars are conducted free of charge
for attendees and are designed to showcase the value of the Internet workshop.
Attendees at the Company's Internet education and marketing workshops
currently pay a price of $2,995 per person (plus $500 per guest). These Internet
education and marketing workshops include extensive instruction about the
Internet and are taught by instructors who have experience in areas such as
marketing, business development, Internet commerce, and Web site design.
Prior to January 1, 1997, Internet workshop participants received the
right to receive up to two Web sites, each consisting of up to five Web pages,
and up to 25 classified advertisements on iMALL, all designed by the Company.
This right was available to workshop participants for twelve months from the
date of the workshop. If a participant chose to exercise the right to receive
the Web sites and classified advertisements, the participant was required to
purchase a Web Site Initiation and Maintenance Agreement. The purchase price of
the initiation (design and activation) and maintenance of the Web sites and
classified advertisements is $590 annually, if paid in advance, or $59 per month
if paid monthly.
Beginning on January 1, 1997, workshop participants receive up to two
Web sites and up to 25 classified advertisements in connection with such
workshops, rather than simply receiving a right to purchase Web Sites. If these
new participants choose to have the
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Company maintain such Sites, they must purchase a Web Site Initiation and
Maintenance Agreement.
The Company uses a mix of radio, television, print advertising, as well
as direct mailings, to advertise its Internet education and marketing program in
two cities in the United States each week. This advertising is directed at
entrepreneurs and business owners inviting them to learn more about the Internet
and how it can be a money-making and effective marketing tool. The Company uses
an eight to twelve week rotation of cities depending on the population base and
availability of direct mail names. Seven to ten days following the free
previews, the Company returns to the city for its full day Internet education
and marketing workshop.
The Company also offers information "home study" products priced at
$1,495 and $995 for those who are interested in obtaining a Web site on iMALL
and learning about the Internet but choose not to attend the workshop.
INDEPENDENT SALES CONSULTANTS
In connection with iMALL's Internet education and consulting model
discussed above, many workshop participants asked if they could receive the Web
sites and training even if they did not have a specific business, product or
service to market. These participants wanted to resell Web sites to their
colleagues who had a business, product or service. Moreover, many of these
participants sold multiple Web sites and asked if they could purchase additional
ones to resell. As a result, the Company's participants can now use their Web
sites for their own business or resell them to others. The Company refers to
those participants who choose to market Web sites as internet consultants.
In 1996, the Internet consultant marketing force generated over
$400,000 in revenue for the Company. In 1997, the revenue generated by these
consultants was approximately $1,000,0000. The revenue generated was achieved
without significant corporate marketing support. In 1998, the company intends to
devote greater resources to marketing programs in support of these consultants.
In the next few months, the Company intends to begin a marketing program in
which these consultants will offer Web sites to businesses in their local area.
These Web sites will be placed in a geographically-focused iMALL, such as iMALL
New York, to attract smaller businesses who wish to only target a localized
geographic area. While iMALL currently has geographic search capabilities,
specific local malls may be incorporated into the main iMALL web site and its
technical infrastructure.
INTERNAL SALES FORCE
The majority of iMALL's merchants have been acquired through its
Internet education and consulting program as previously described. However, the
Company has also utilized a
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small internal sales force, to sign contracts with such large clients as AT&T
WorldNet Service, American Express Travel, Barnes & Noble, Hanes, Dr. Laura (one
of the most popular radio personalities), Circus Circus' fourteen casinos and
resorts, Sega Soft, Breath Asure, Checker Auto, Quantum and Amazing Discoveries.
The Company intends to expand its internal sales force in the first half of 1998
to help acquire additional name-brand merchants.
STRATEGIC ALLIANCES
The Company's strategy includes the continued development of strategic
alliances and partnerships such as the Company's alliance with AT&T WorldNet
Services(sm). The AT&T WorldNet Service(sm) relationship has not only increased
the number of users visiting the iMALL, but, in the opinion of the Company's
management, it has also added credibility to the Company. Relationships such as
this will be key to building the acceptance and the revenue base of the Company.
However, there can be no assurance that the Company will be successful in
developing additional strategic alliances or maintaining existing strategic
alliances in the future.
The Company and AT&T WorldNet Services(sm) recently opened "AT&T Market
Square Deals" on iMALL. AT&T Market Square Deals offers name brand merchandise
for sale at significant discounts from retail. This site features a wide range
of products and includes a link to the iMALL's "Deals of the Day".
The Company has entered into a licensing agreement with a company based
in Korea pursuant to which the licensee received an exclusive "flag" on the
International Center, iMALL's proprietary software, a locally installed iMALL
server, onsite marketing, web building and technical training. The Company plans
to enter into similar agreements in the future, which would provide the Company
a percentage of gross proceeds generated by the activities in the foreign
countries and require minimum annual payments to the Company in order to
maintain exclusivity.
None of the Company's strategic alliances involve the creation of
distinct legal enterprises.
INDUSTRY AND COMPETITIVE CONSIDERATIONS
Nature of Market. There is a lack of proven business models with
respect to the generation of revenues from the sale of commercial or
informational sites on the Internet. It is impossible to predict whether the
Company will be successful in establishing itself as a viable sales outlet, or
that consumers will purchase products from sites on iMALL in sufficient
quantities for the Company to generate positive cash flow. In addition, Internet
users are faced with a multitude of options while online which involve shopping
and other
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activities. There can be no assurance that a significant number of Internet
users will become comfortable in engaging in online commerce.
Changing Technology. Internet advertising and commerce is a new,
intensely competitive, rapidly evolving industry which is subject to rapid
technological change. The success of the Company will depend, in part, upon the
ability of the Company to keep abreast of technological changes that are
evolving with the Internet and electronic commerce in general.
Other Internet Malls and Sites. There are many other sites on the Web
that call themselves "Internet shopping malls." However, the Company believes
that the majority of them are small search engines that link to Sites hosted on
another company's server. These "search engine malls" sell links from their
search engine malls to the merchant's Web site. They do not typically provide
Web site building services, commerce tools, or online marketing. In addition,
when the user clicks on the link, the mall owner can not usually track the
sale and does not, therefore, benefit from the purchases made or data
collected. From the shopper's standpoint, they do not know who they are buying
from and since each Web site is likely on a different server, the ordering and
security varies. On iMALL, every purchase is made securely and through a
standardized iMALL ordering format. Moreover, because iMALL controls all
ordering, multiple products can be bought from multiple stores at the same
time. Management believes that this convenience and security in shopping is
essential for robust online commerce. The largest of these other search engine
malls is the Internet Mall.
Other "malls" which host some of their own merchants include: viamall,
fashionmall, branchmall, and choicemall. These malls contain far fewer merchants
and/or much less traffic than iMALL.
The Company believes that the two other "Internet shopping malls" which
are often mentioned as competitors of the Company are America Online's
Marketplace (AOL Marketplace) and iQVC. The Company believes that these malls
are two of the largest sites for Internet commerce. Each, however, is quite
different than iMALL. Internet retailing is only a small part of AOL's main
focus, which is providing content to its eight million online members. iQVC
sells only its own home shopping products on its Web site. iQVC does not,
therefore, provide individual merchants the opportunity to create commerce
enabled Web sites as iMALL's 1,600 merchants have done.
THE COMPANY'S COMPETITIVE ADVANTAGES
Brand Identity. According to the Internet Retailing Report of Morgan
Stanley in May 1997, iMALL's "consumer reach' is three times that of
wal-mart.com, and almost equal to iQVC.
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Traffic. The Internet Retailing Report listed iMALL as the second most
visited online shopping mall on the Internet, and the 13th most visited shopping
site on the Internet overall, each as of February 1997. IMALL's site received
over 25 million hits in January 1998.
Internet Education and Marketing Seminars. Based on the Company's
internal research, the Company's management believes that the Company is one of
only three Internet malls that have established an Internet education system.
Not only is this an effective marketing and sales tool, it is also a very
effective customer service tool. Furthermore, the flexibility inherent in this
program permits the Company to tailor the approach to various markets and
vertical niches.
Consultant Program. Through the Company's seminars and home study
products, the Company has a network of independent consultants, each of whom may
purchase the Company's products and services at wholesale prices for themselves
or for resale.
Number of Storefronts. Based on its internal research, the Company
believes that iMALL has the largest number of independent storefronts of any
Internet mall. iMALL currently hosts over 1,600 storefronts. Although there are
other malls that claim more storefronts than the Company, those storefronts are
actually only "links", rather than independent storefronts maintained on a
closed site. A "link" is a hyper-text based command which redirects a user to
another address on the Internet when activated. Thus, a link based mall is
really just a small search engine or a directory of stores. The Company believes
that iMALL is much more than a directory of stores, because all of its
merchants' Web sites are built with and internally managed by the Company's
proprietary software. This allows the user to have the same shopping experience
regardless of where on iMALL he or she shops. The Company believes that this
consistency in feel and functionality leads to a much more compelling and
convenient shopping experience.
Web Site Building Costs. In the opinion of the Company's management,
the Company's proprietary Web site development tools and process allow it to
build Web sites at lower costs than many of its competitors. These cost savings
assist in the funding of the development of additional development tools.
Reselling Data. The Company's independent storefront approach and its
sophisticated database allow it to capture and assimilate demographic data,
shopping and navigation habits and other pertinent marketing information from
the users that visit the iMALL. The Company expects that by mid 1998, it will
have completed development on a program which will allow, subject to applicable
law, for this demographic data to be provided to iMALL merchants and information
providers, as well as packaged and sold to companies interested in marketing on
the Internet.
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Relationships with Merchants. The Company believes its independent mall
approach creates a more intimate relationship with the merchant, which,
translates into better service to the customer and increased quality of product
or service offering. The merchants benefit from consistency of format so that
the user is able to become more familiar with the iMALL Web site and its
features. This approach allows for more detailed and accurate tracking of store
visits and sales. This in turn leads to more directed marketing and sales of
data, resulting in more revenue to the Company, and ensures better search and
navigation performance since the Company has complete control over its servers.
Unlike iMALL, a linked mall exposes the end-user to the performance problems and
the inherent unpredictability of the Internet.
EMPLOYEES
As of February 3, 1998, the Company and its subsidiaries had a total of
62 full-time employees. Twenty three full-time employees are located in Studio
City, California, and 39 are located in Provo, Utah. None of the Company's
employees is covered by an ongoing collective bargaining agreement with the
Company and the Company believes that its relationship with its employees is
good.
HISTORY OF THE COMPANY
The Company's predecessor for accounting purposes is Madison, York &
Associates, Inc., a Utah corporation ("Madison"), which was incorporated on
November 2, 1994. On January 16, 1996, Madison engaged in a share exchange with
iMALL, Inc., a Nevada corporation, which had been the surviving company in a
change of domicile merger with Natures Gift, Inc., a Utah corporation ("Natures
Gift"), on January 8, 1996. Natures Gift was incorporated under the laws of the
State of Utah on February 9, 1984 as Brickland Corporation, and changed its name
to Natures Gift, Inc. on May 23, 1991. Natures Gift did not transact any
significant business from the date of its inception until January 1996. As a
result of this share exchange between Madison and iMALL, Inc., Madison became a
wholly owned subsidiary of iMALL, Inc. This share exchange was accounted for as
a reverse acquisition and Madison is considered the predecessor of the Company
because it had operations at the time of the share exchange. In this share
exchange, the shareholders of Madison received 2,103,112 shares of common stock
of iMALL, Inc. in exchange for all of the issued and outstanding shares of
common stock of Madison. The number of shares outstanding after this transaction
consisted of the 2,103,112 shares issued to the shareholders of Madison, and
2,701,848 shares existing in connection with the reverse acquisition accounting.
In connection with the Company's acquisitions in January 1996, the
Company effected a 1 for 19 stock split on January 8, 1996. In addition, on May
22, 1996, the Company effected a 4 for 1 stock split, and, effective February
12, 1998, the Company effected an 1 for
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<PAGE> 15
8 stock split. All references in this registration statement take these splits
into effect when referring to the number of shares of the Company's common stock
or per share data.
On January 16, 1996, the Company also entered into share exchange
agreements with Cabot, Richards & Reed, Inc., a Utah corporation ("Cabot"), and
R&R Advertising, Inc., a California corporation ("R&R"), wherein the
shareholders of Cabot received 1,400,000 shares of common stock of iMALL, Inc.
in exchange for all of the outstanding shares of common stock of Cabot and the
shareholders of R&R received 600,000 shares of common stock of iMALL, Inc. in
exchange for all of the outstanding shares of common stock of R&R. Each of Cabot
and R&R became wholly owned subsidiaries of iMALL, Inc. On March 5, 1996, the
Company entered into a share exchange agreement with Inter Active Marketing
Group, Inc., a Utah corporation ("IMG"), wherein the shareholders of IMG
received 52,563 shares of common stock of the Company in exchange for all of the
outstanding shares of common stock of IMG, and IMG became a wholly owned
subsidiary of the Company. On April 26, 1996, the Company entered into a share
exchange agreement with e.m.a.N.a.t.e., Inc., a California corporation
("e.m.a.N.a.t.e.") wherein the shareholders of e.m.a.N.a.t.e. received 200,000
shares of common stock of the Company in exchange for all of the outstanding
shares of common stock of e.m.a.N.a.t.e., and e.m.a.N.a.t.e. became a wholly
owned subsidiary of the Company. The amount of shares issued in each of these
share exchanges was determined by the percentage ownership interest in the
Company to which the Company's management determined the acquired entity would
be entitled through negotiation. Certain additional information concerning these
transactions is set forth in Item 7 hereof, "Certain Relationships and Related
Transactions" and in the notes to the consolidated financial statements of the
Company attached hereto.
Madison was incorporated in 1994 and commenced business in 1995
providing Web site sales and consulting services to merchants and Internet
entrepreneurs. Madison developed the Internet specific techniques used by the
Company today in its educational seminars. In September 1995, Madison had
acquired all of the issued and outstanding common stock of EMS, Inc., which
owned the Internet site called "iMALL". Madison issued 20 shares of its common
stock to the shareholders of EMS, Inc., and accounted for this transaction as a
purchase.
Cabot was incorporated in December 1992 and became a well known
educational workshop company. Cabot developed the marketing and training
techniques used by the Company today in its Internet education workshops.
R&R was formed in January 1991 in California. R&R was an advertising
agency that catered to small businesses. Services included commercial and
infomercial production, art and graphics design, as well as print, television
and radio advertising. The television department placed its clients'
advertisements on hundreds of network, cable, and independent stations
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<PAGE> 16
throughout the United States. R&R contributed its computer advertising expertise
to iMALL Services, Inc. ("iMALL Services"), a wholly owned subsidiary of the
Company.
IMG has changed its name to "Internet Yellow Pages, Inc." Internet
Yellow Pages, Inc. maintains a Web site similar to regular yellow pages and
allows for different types of sponsorships which businesses can purchase for
greater exposure.
e.m.a.N.a.t.e. was formed by three individuals who worked on Department
of Defense and NASA contracts using state-of-the-art computer and Internet
technology. The founders were involved with the Internet since its infancy and
in 1994 began to focus on generating revenue from the Internet by designing Web
sites. Thus, while e.m.a.N.a.t.e. currently has contracts with or has recently
completed projects for Lockheed-Martin, United Defense, and NASA, most of the
personnel are involved with creating Internet web pages and programming advanced
features such as Java, Shockwave and Virtual Reality applications for customers.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
The following discussion and analysis of the Company's and the
Company's predecessor's financial condition as of September 30, 1997 and
December 31, 1996 and the Company's and the Company's predecessor's results of
operations for the three and nine months ended September 30, 1997 and 1996 and
the year ended December 31, 1996 and the period ended December 31, 1995 should
be read in conjunction with the Company's consolidated financial statements and
notes thereto included elsewhere in this Form 10-SB. These results are not
necessarily indicative of the results that may be achieved by the Company for
the entire year ending December 31, 1997.
OVERVIEW
The Company currently derives the majority of its revenues from Web
site sales, Web site maintenance fees, Internet education and Internet
consulting services. iMALL believes its future revenues will include those
sources as well as revenue from selling products over the internet, providing
electronic commerce services to businesses (through Web sites which include the
tools necessary to consumate transactions on line), and selling internet
advertising. During 1996 and the first nine months of 1997, the Company
generated revenues of $16,046,933 and $13,645,695, respectively. The Company
believes that its margins were negatively impacted during the first nine months
of 1997 in part because of a change in its business strategy led by a
management team that was hired in October of 1996 and subsequently removed in
June of 1997. The change in strategy included increased infomercial
marketing. Currently, the Company is focusing on what it believes to be less
capital intensive and more profitable areas, such as the building of higher
margin Web sites, maximizing its Web site advertising revenues, and growing
its online commerce from its existing merchants and
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<PAGE> 17
visitors. The Company believes the new strategy will begin to impact the
Company's revenues in the first or second quarter of 1998.
RESULTS OF OPERATIONS
The Company operates various entities which became part of the
consolidated group within the last calendar year. Results of prior periods are
not necessarily indicative of the results of operations that can be expected
for any future period and do not reflect the current mix of the Company's
operations. Because Madison is the only predecessor of the Company, comparisons
of historical results of operations may not be meaningful.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues. Revenues for the three months ended September 30,
1997 were $4,457,658 compared to $3,680,893 for the three months ended September
30, 1996. The 21% increase was due primarily to increases in telemarketing sales
of Website and other Internet products. The Company's Internet training division
provided approximately 55% of total revenues for the three months ended
September 30, 1997 compared to 77% for the three months ended September 30,
1996. The decrease in the percentage of the Company's revenues derived from the
Internet training division was due to the following factors: (i) an increase in
telemarketing sales, and (ii) a decrease in Internet training revenue of
approximately $300,000.
Cost of Revenues. Total direct cost of revenues for the three
months ended September 30, 1997 was $4,237,616 compared to $1,710,014 for the
three months ended September 30, 1996, an increase of 148%. This increase was
due primarily to an increase in advertising expense. The Company's marketing
efforts were expanded to include the airing of infomercials on television and
significant direct mail marketing in an attempt to increase attendance at the
Company's educational workshops. The 148% increase in cost of revenues compared
to the 21% increase in revenues over the same period was primarily due to the
fact that the Company's increased marketing efforts did not produce increased
revenues to the same extent as the Company's expenditures. Management believes
its strategy of increasing advertising efforts is in its early stages. The
Company intends to continue advertising expenditures at higher levels, and
believes that over time, these increased expenditures will lead to an increase
in revenues.
General and Administrative Expenses. General and
administrative expenses for the three months ended September 30, 1997 were
$1,520,191 compared to $2,034,898 for the three months ended September 30, 1996.
This 34% decrease was due primarily to the net effect of dissolving the
Company's technology division formerly located in Woodland Hills, California,
and relocating the Company's technology division to Provo, Utah.
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<PAGE> 18
Other Income, net. The Company sells mailing lists to outside
vendors. This activity is considered to be peripheral to its operations. Net
other income for the three months ended September 30, 1997 was $78,760 compared
to $42,379 for the three months ended September 30, 1996. The 86% increase was
due mainly to the increased sales of mailing lists during 1997.
Interest Income (Expense), net. Net interest expense for the
three months ended September 30, 1997 was $28,940 compared to net interest
income of $5,617 for the three months ended September 30, 1996. The net increase
in interest expense was primarily due to interest on notes payable to a
stockholder and notes payable to related parties.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues. Revenues for the nine months ended September 30,
1997 were $13,645,695 compared to $12,250,236 for the nine months ended
September 30, 1996. This 11% increase was primarily due to increased
telemarketing revenues. The Company's Internet training division provided
approximately 64% of total revenues for the nine months ended September 30, 1997
and 75% for the nine months ended September 30, 1996. The decrease in the
percentage of the Company's revenues derived from the Internet training division
was due primarily to the increase in telemarketing sales.
Cost of Revenues. Total direct cost of revenues for the nine
months ended September 30, 1997 was $10,689,453 compared to $6,383,369 for the
nine months ended September 30, 1996. The 67% increase was due primarily to
increased advertising costs. The Company's marketing efforts were expanded to
include the airing of infomercials on television and direct mail marketing. The
67% increase in cost of revenues compared to the 11% increase in revenues over
the same period was primarily due to the fact that the Company's increased
marketing efforts did not produce increased revenues to the same extent as the
Company's expenditures. Management believes its strategy of increasing
advertising efforts is in its early stages. The Company intends to continue
advertising expenditures at higher levels, and believes that over time, these
increased expenditures will lead to an increase in revenues.
General and Administrative Expenses. General and
administrative expenses for the nine months ended September 30, 1997 were
$5,587,770 compared to $4,818,597 for the nine months ended September 30, 1996.
The 16% increase was due primarily to the Company's hiring of several
individuals for key management positions subsequent to the first nine months of
1996.
Other Income, net. The Company sells mailing lists to outside
vendors. This activity is considered to be peripheral to its operations. Net
other income for the nine months ended September 30, 1997 was $147,431 compared
to $129,770 for the nine months ended
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<PAGE> 19
September 30, 1996. The 14% increase was due mainly to the increased sales of
mailing lists during 1997.
Interest Income (Expense), net. Net interest expense for the
nine months ended September 30, 1997 was $58,235 compared to net interest income
of $1,111 for the nine months ended September 30, 1996. The net increase in
interest expense was primarily due to interest on notes payable to a stockholder
and notes payable to related parties.
COMPARISON OF FISCAL 1996 AND 1995
Given the consolidation of entities during fiscal 1996, some
comparisons made between fiscal 1996 and 1995 may not be meaningful or
congruent.
Revenues. Revenues for the fiscal year ended December 31,
1996, were $16,046,933, compared to $1,003,965 for the fiscal year ended
December 31, 1995. This increase is due to the fact that this comparison is
being made between all consolidated entities operating during fiscal 1996, and
only Madison as the "predecessor company" as of December 31, 1995.
Cost of Revenues. Direct cost of revenues for the fiscal year
ended December 31, 1996, were $8,593,455, compared to $437,035 for the fiscal
year ended December 31, 1995. This increase was also due to the consolidation of
entities.
General and Administrative Expense. General and Administrative
expense for the fiscal year ended December 31, 1996, was $7,480,688, compared to
$591,373 for the fiscal year ended December 31, 1995. This increase was also
due to the consolidation of entities.
Depreciation and Amortization Expenses. Depreciation and
amortization expenses for the fiscal year ended December 31, 1996, were
$307,246, compared to $2,919 for the fiscal year ended December 31, 1995. This
increase was due primarily to the acquisition of property and equipment
(primarily computers, Internet products, furniture and fixtures) and the
recording of goodwill amortization associated with acquisitions during 1996.
Other Income. The increase in other income of $126,044 from
1995 to 1996 is primarily attributable to the sale of mailing lists in 1996. No
such sale took place in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company recently completed raising $20,000,000 in equity
capital through a private placement of units consisting of Series A Convertible
Preferred Stock and warrants to purchase Common Stock. See Item 8 "Description
of Securities". As of December 31, 1997, the Company had unaudited current
assets of $16,105,176 and unaudited current liabilities of $2,590,165.
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<PAGE> 20
The Company is currently generating cash receipts (exclusive of
financing activities) of approximately $1,200,000 per month and incurring cash
expenses in the amount of approximately $1,500,000 per month, of which fixed
costs account for approximately $600,000. The Company anticipates capital
expenditures will be approximately $3,000,000 in 1998. The Company believes
that it will be able to fund its ongoing operations with existing cash and from
cash expected to be generated by ongoing operations for at least the next
twelve months.
The Company is collecting $10,000 per month on a note receivable in the
original amount of $250,000, which bears interest at an annual rate of 10%. The
amount outstanding on this note receivable is approximately $159,105 as of
December 31, 1997.
ITEM 3. DESCRIPTION OF PROPERTIES
The Company maintains offices in Studio City, California, and Provo,
Utah. The Company leases its executive offices at 4400 Coldwater Canyon Blvd.,
Studio City, California for a total of $12,066 per month, which lease expires in
November 1998. The Company leases office space at 1185 South Mike Jense Circle,
Provo, Utah for $10,639 per month from a related party which lease expires in
March 1999. See Item 7 "Certain Relationships and Related Transactions". The
Company also leases office space at 5314 North 250 West, #110, Provo, Utah at a
current rent of $6,000 per month, which lease expires in December 2000. The
Company believes that it currently has sufficient space to carry on its
operations for the foreseeable future.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information known to the Company
as of February 5, 1998 with respect to the beneficial ownership of the
outstanding shares of the Common Stock by the Company's directors and executive
officers and the directors and executive officers of the Company as a group and
the beneficial owners of more than five percent of the outstanding shares of the
Company's common stock. Except as indicated, each person listed below has
personal and sole beneficial ownership of the shares of common stock listed with
their name.
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<PAGE> 21
<TABLE>
<CAPTION>
Name and Address of Number of Percentage (1)
Beneficial Owner Shares ---------------
- ---------------- ------
<S> <C> <C>
Richard Rosenblatt 1,750,000 (2) 22.29%
4400 Coldwater Canyon Blvd.
Suite 200
Studio City, California 91604
Mark R. Comer 1,625,000 21.03%
4400 Coldwater Canyon Blvd.
Suite 200
Studio City, California 91604
Craig R. Pickering 1,637,500 (3) 21.16%
1185 South Mike Jense Circle
Provo, Utah 84601
Anthony P. Mazzarella 301,282 (4) 3.78%
4400 Coldwater Canyon Blvd.
Suite 200
Studio City, California 91604
Phillip J. Windley 126,250 (5) 1.63%
5314 North 250 West
#110
Provo, Utah 84604
Steven Rossow 15,625 (6) -- %
4400 Coldwater Canyon Blvd.
Suite 200
Studio City, California 91604
Stephen Fulling 10,833 (7) -- %
5314 North 250 West
#110
Provo, Utah 84604
Martin Rosenblatt 219,167 (8) 2.82%
4400 Coldwater Canyon Blvd.
Suite 200
Studio City, California 91604
</TABLE>
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<PAGE> 22
<TABLE>
<S> <C> <C>
Marshall S. Geller 365,064 (9) 4.57%
1875 Century Park East, #2200
Los Angeles, CA 90067
Harold S. Blue 28,125 (10) -- %
2501 Davie Road
Ft. Lauderdale, FL 33317
Leonard M. Schiller 35,969 (11) -- %
33 N. Dearborn, #1030
Chicago, IL 60602
Howard A. Goldberg 15,494 (12) -- %
1300 Atlantic Avenue, #800
Atlantic City, NJ 08401
Richard H. Rogel 90,625 (13) 1.16%
56 Rosecrown
Avon, CO 81620
Commonwealth Associates 1,500,000 (14) 16.26%
830 Third Avenue
New York, New York 10022
Commonwealth Management Co., Inc. 1,500,000 (15) 16.26%
830 Third Avenue
New York, New York 10022
Michael S. Falk 1,562,500 (16) 16.82%
830 Third Avenue
New York, New York 10022
Total of Directors 6,220,934 72.07%
and Executive Officers
as a group (13 persons)
</TABLE>
- -------------------
(1) Based on 7,725,472 shares of common stock outstanding as of February 5,
1998.
(2) Includes 125,000 shares issuable upon options exercisable within the
next sixty days. Does not include 1,500,000 shares issuable upon the
exercise of options to Commonwealth Associates with respect to which
Mr. Rosenblatt is the beneficiary of a proxy.
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<PAGE> 23
(3) Includes 12,500 shares issuable upon options exercisable within the
next sixty days.
(4) Includes 125,000 shares issuable upon currently exercisable warrants
and 125,000 shares issuable upon options exercisable within the
next sixty days.
(5) Includes 12,500 shares issuable upon options exercisable within the
next sixty days.
(6) Consists of shares issuable upon options exercisable within the
next sixty days.
(7) Consists of shares issuable upon options exercisable within the
next sixty days.
(8) Includes 50,000 shares issuable upon options exercisable within the
next sixty days.
(9) Includes 250,000 shares issuable upon currently exercisable warrants
and 12,500 shares issuable upon options exercisable within the next
sixty days.
(10) Consists of 15,625 shares issuable upon conversion of Company's Series
A Convertible Preferred Stock and 12,500 shares issuable upon options
exercisable within the next sixty days.
(11) Consists of 23,469 shares issuable upon conversion of the Company's
Series A Convertible Preferred Stock and 12,500 shares issuable upon
the exercise of options exercisable within the next sixty days.
(12) Includes 12,500 shares issuable upon the exercise of options
exercisable within the next sixty days.
(13) Consists of 78,125 shares issuable upon conversion of the Company's
Series A Convertible Preferred Stock and 12,500 shares issuable upon
the exercise of options exercisable within the next sixty days.
(14) Consists of shares issuable upon the exercise of currently exercisable
warrants.
(15) Consists of shares issuable upon the exercise of currently exercisable
options issued to Commonwealth Associates. Commonwealth Management Co.,
Inc. is the corporate general partner of Commonwealth Associates.
(16) Includes 1,500,000 shares issuable upon the exercise of currently
exercisable warrants owned by Commonwealth Associates. Mr. Falk is the
Chairman and controlling equity owner of Commonwealth Management Co.,
Inc., the corporate general partner of Commonwealth Associates. Also
includes 62,500 shares issuable upon the conversion of 50,000 shares of
the Company's Series A Preferred Stock of which Mr. Falk directly owns
37,500 shares and The Falk Family Foundation, a charitable trust for
which Mr. Falk serves as trustee, owns 12,500 shares.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The following table sets forth the names, ages and positions with the
Company as of the date of this Registration Statement of all of the executive
officers and directors of the Company. Also set forth below is information as to
the principal occupation and background for each named person in the table.
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<PAGE> 24
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard M. Rosenblatt 28 Chairman and Chief Executive Officer
Mark R. Comer 31 President and Director
Anthony P. Mazzarella 40 Executive Vice President,
Secretary/Treasurer, Chief Financial
Officer and Director
Phillip J. Windley 39 Chief Technology Officer
Steven E. Rossow 41 Senior Vice President
Stephen W. Fulling 33 Vice President
Martin Rosenblatt 54 Vice President
Craig R. Pickering 39 Consultant and Director
Marshall S. Geller 58 Director
Harold S. Blue 35 Director
Leonard M. Schiller 56 Director
Howard A. Goldberg 52 Director
Richard H. Rogel 48 Director
</TABLE>
Richard M. Rosenblatt. Mr. Rosenblatt is Chairman of the Board of Directors and
Chief Executive Officer the Company. In 1991, Mr. Rosenblatt formed R&R
Advertising, Inc. which specialized in advertising and marketing for small to
mid size businesses, and co-founded Madison in 1994. Mr. Rosenblatt is the son
of Martin Rosenblatt. Mr. Rosenblatt has been an officer of the Company since
January 1996, became Chief Executive Officer in July 1997 and was elected
Chairman in January 1998. Mr. Rosenblatt received his Bachelor of Arts degree in
political science from the University of California at Los Angeles, where he
graduated Magna Cum Laude and Phi Beta Kappa in 1991. He received his Juris
Doctorate from the University of Southern California, where he graduated with
honors in 1994.
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<PAGE> 25
Mark R. Comer. Mr. Comer is the President and a director of the Company. Mr.
Comer has over seven years experience in marketing and in the business seminar
industry. In 1992, he formed Cabot and in 1994 he co-founded Madison. He has
been an officer of the Company since January 1996, and has held his present
position with the Company since July 1997. Mr. Comer attended Brigham Young
University in 1984 and 1985 as a business major.
Anthony P. Mazzarella. Mr. Mazzarella is the Chief Financial Officer and a
director of the Company. Mr. Mazzarella was formerly Managing Director of Geller
& Friend Capital Partners, Inc., a merchant banking firm. From 1991 to 1995, he
was Executive Vice President of Drake Capital Securities, Inc., a
California-based investment banking firm. From 1987 to 1991, he served as Vice
President of The Davis Companies, a private holding company owned by Marvin
Davis, where he was responsible for corporate finance and acquisition
activities. Mr. Mazzarella also held management positions with Twentieth Century
Fox Film Corporation and United Airlines, and was a management consultant with
Deloitte & Touche. Mr. Mazzarella has been a director of the Company and has
held his current position since January 1998. Mr. Mazzarella holds a BA in
Physics from Pomona College and an MBA from the Harvard Business School.
Phillip J. Windley, PhD. Dr. Windley is Chief Technology Officer of the Company.
He has been a consultant to the Company and its predecessor since 1994. Mr.
Windley received his PhD in computer science from the University of California
(Davis) in 1990 and is presently a professor of computer science at Brigham
Young University. Prior to earning his PhD, Mr. Windley was a member of the
technical staff at the Department of Energy's Division of Naval Reactors. Mr.
Windley has held his present position with the Company since January 1998.
Steven E. Rossow. Mr. Rossow is Senior Vice President of Marketing and Sales of
the Company. Mr. Rossow was formerly director of business alliances with AT&T
WorldNet Service, developing programs for customer acquisitions, promotion
marketing and production of online content development for shopping and gaming.
Mr. Rossow also worked with CMP MEDIA's Channel Consulting Services, where he
developed marketing, merchandising and branding programs for Motorola, Intel,
Apple Computer, Word Perfect, Mattel and Epson as well as a number of
entertainment software companies. Mr. Rossow has held his present position with
the Company since January 1998.
Stephen W. Fulling. Mr. Fulling is Vice President of Information--Technology
Services of the Company. Mr. Fulling served as Senior Network Research Assistant
for the College of Engineering at Oregon State University and Network Operations
Manager for the NERO project for Oregon Joint Graduate Schools of Engineering,
where he designed, built, and deployed state-of-the-art wide area networking
systems. Mr. Fulling has a broad background in Internet technologies and more
than 15 years experience in the telecommunications industry. He received his
Bachelor of Science in Computer Science from the University of California
(Davis).
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<PAGE> 26
Martin Rosenblatt. Mr. Rosenblatt is a Vice President of the Company. Mr.
Rosenblatt has successfully managed a group of 20 scientists in developing and
applying sophisticated physics based computer programs. He has been using the
Internet regularly since its infancy, as a communications tool to reach and
remotely operate advanced government computers. Mr. Rosenblatt worked for Titan
Corporation as Vice President of the Titan Research and Technology Division from
1985 to 1994. In 1994, Mr. Rosenblatt founded e.m.a.N.a.t.e. Mr. Rosenblatt is
the father of Richard Rosenblatt. He has held his present position with the
Company since April 1996. Mr. Rosenblatt received a Bachelor of Arts degree and
a Masters of Science degree from the University of California at Los Angeles in
1964 and 1966, respectively.
Craig R. Pickering. Mr. Pickering is a director of the Company. Mr. Pickering
was a co-founder of the Company. Mr. Pickering has over 16 years of business
experience including work in venture capital, sales, mergers and acquisitions
and as a seminar speaker for American Business Seminars. In 1992, he formed
Cabot, and in 1994 he co-founded Madison. He has been a director of the Company
since January 1996, was Chairman of the Board of Directors from January 1996
to January 1998, was President of the Company from January 1996 to July 1997,
and was Chief Executive Officer of the Company from January 1996 to October
1996, and from June 1997 to July 1997. He became a consultant to the Company in
January 1998.
Marshall S. Geller. Mr. Geller is a director of the Company. Mr. Geller is
currently the Chairman, Chief Executive Officer and Founding Partner of Geller &
Friend Capital Partners, Inc., a merchant banking firm. From 1991 to 1995, Mr.
Geller was the Senior Managing Partner and founder of Golenberg & Geller, Inc.,
a merchant banking and investment company. From 1988 to 1990, he was the Vice
Chairman of Gruntal & Company, a New York Stock Exchange investment banking
firm. From 1967 to 1988, Mr. Geller was a Senior Managing Director for Bear
Stearns & Company. While at Bear Stearns, Mr. Geller was the Managing Partner in
charge of all areas of Corporate Finance, Public Finance, Institutional Equities
& Debt for Bear Stearns' offices in Los Angeles, San Francisco, Chicago and Hong
Kong. He was also a director of Shun Loong-Bear Stearns Far East and Sun Hung
Kai-Bear Stearns, both leading Chinese investment banking firms. Mr. Geller
formerly served as Interim Co-Chairman of Hexcel Corporation and is currently on
its board of directors. Mr. Geller was formerly Interim President and Chief
Operating Officer of Players International, Inc., and now serves on its board
and is Chairman of its Investment Committee. Mr. Geller also serves as Vice
Chairman of the board of Value Vision International, Inc., and serves as
Chairman of their Investment Committee. He also serves on the boards of
Ballantyne of Omaha, Inc. and Cabletel Communications Corporation. Mr. Geller
has been a director of the Company since January 1998.
Harold S. Blue. Mr. Blue is a director of the Company. Mr. Blue is currently
Chairman and Chief Executive Officer of ProxyMed, Inc., a publicly traded
medical information technology company engaged in providing online services to
physicians and other healthcare providers, since February 1993, and has been a
director of such company since August 1991. He served
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<PAGE> 27
as interim President and Chief Operating Officer of ProxyMed from March 1994 to
June 1995. From August 1991 until February 1993, Mr. Blue served as Vice
President of ProxyMed. From July 1992 until February 1995, Mr. Blue served as
Chairman of the Board and Chief Executive Officer of Health Services, Inc., a
physician practice management company, which was sold to Inphynet in 1995. From
June 1979 to February 1992, Mr. Blue was the President and Chief Executive
Officer of Budget Drugs, Inc., a retail discount pharmacy chain comprised of six
stores located in South Florida. From September 1984 to August 1988, Mr. Blue
founded and was the Executive Vice President of Best Generics Incorporated, a
generic pharmaceutical distribution company. In August 1988, Best Generics was
sold to Ivax Corporation, a publicly traded pharmaceutical manufacturer. Mr.
Blue served as a member of the Board of Directors of Ivax for approximately two
years before resigning, and continued to serve as a consultant to Ivax pursuant
to a consulting agreement that expired in August 1993. Mr. Blue has been a
director of the Company since January 1998.
Leonard M. Schiller. Mr. Schiller is a director of the Company. Mr. Schiller has
been a practicing attorney for over 25 years and is a partner in the law firm of
Schiller, Klein & McElroy, P.C. in Illinois. Mr. Schiller is the President of
The Dearborn Group, a residential property management and real estate company
and is involved in the ownership of residential properties throughout the
Midwest. He is currently a director of AccuMed International, Inc., a publicly
traded company which manufactures and markets diagnostic screening products for
clinical laboratories, and Milestone Scientific, Inc., a dentistry products
company. Mr. Schiller has been a director of the Company since January 1998.
Howard A. Goldberg. Mr. Goldberg is a director of the Company. Mr. Goldberg
currently serves as Chief Executive Officer of Players International, Inc. Prior
to 1993, he was the managing shareholder practicing law in the firm of Horn,
Goldberg, Gorny, Plackter & Weiss, a professional corporation, which is general
counsel to Players. Mr. Goldberg is a graduate of Franklin & Marshall College
and received his law degree from New York University. He is a member of the New
Jersey State and American Bar Associations. Mr. Goldberg has been a director of
the Company since January 1998.
Richard H. Rogel. Mr. Rogel is a director of the Company. Mr. Rogel is an
independent investor and a director of CoolSavings.com, an online commerce
company providing specialized Internet merchandising. Mr. Rogel was Chief
Executive Officer of the Preferred Provider Organization of Michigan, a firm
that he founded in 1982 and sold in 1997. Previously, Mr. Rogel was President
and Chief Executive Officer of Suburban Medical Center, President of
Strick-Stylehomes, and Treasurer of Seligman and Associates. He has also worked
with Burnham and Company, investment bankers, and Arthur Young and Company. Mr.
Rogel has been a director of the Company since January 1998.
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<PAGE> 28
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth certain information as to the Company's
Chief Executive Officer and each of the Company's officers who received
compensation in amounts equal to or exceeding $100,000 for any of the years
ended December 31, 1995, 1996 and 1997. No person received any compensation
from the Company or its predecessor in any fiscal year prior to 1996. Figures
listed below do not include automobile and entertainment allowances for certain
executive officers of the Company which total, in the aggregate, $100,746 for
the year ended December 31, 1996, and $58,462 for the year ended December 31,
1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Name of Year Salary Bonus Other Annual Restricted Securities LTIP All Other
Individual $ $ Compensation Stock Awards Underlying Payouts Compensation
$ $ Options/SARs $ $
$
----- ------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tracy W. Scott(1) 1995 - - - - - - -
1996 36,919 - - - - - -
1997 62,250 - - - - - -
----- ------- ----- ----- ----- ----- ----- -----
Craig R. Pickering (2) 1995 - - - - - - -
1996 117,250 - - - - - -
1997 119,217 - - - - - -
----- ------- ----- ----- ----- ----- ----- -----
Richard R. Rosenblatt(3) 1995 - - - - - - -
1996 118,712 - - - - - -
1997 119,792 - - - - - -
----- ------- ----- ----- ----- ----- ----- -----
Mark R. Comer(4) 1995 - - - - - - -
1996 117,975 - - - - - -
1997 119,217 - - - - - -
===== ======= ===== ===== ===== ===== ===== =====
</TABLE>
- ----------------------
(1) Tracy W. Scott was the Chief Executive Officer of the Company from
October 1996 to June 1997. Mr. Scott has not been an officer or
director of the Company since June 1997.
(2) Craig R. Pickering was President of the Company from January 1996 to
July 1997. Mr. Pickering was compensated in 1995 by Cabot, Richards &
Reed, Inc. which was unrelated to iMALL, Inc. at the time.
(3) Richard R. Rosenblatt was Executive Vice President of the company until
July 1997, at which time he became Chief Executive Officer. Mr.
Rosenblatt was compensated in 1995 by R&R Advertising, Inc. which was
unrelated to iMALL, Inc. at the time.
(4) Mark R. Comer was Executive Vice President of the Company until July
1997, at which time he became President. Mr. Comer was compensated in
1995 by Cabot, Richards & Reed, Inc. which was unrelated to iMALL, Inc.
at the time.
None of the named individuals were granted options in 1996 or 1997 nor
did any such individual exercise or own options at any time during 1996 or 1997.
27
<PAGE> 29
EMPLOYMENT AGREEMENTS
Richard Rosenblatt
Pursuant to an Employment Agreement entered into as of January 5, 1998,
the Company employed Richard Rosenblatt as its Chief Executive Officer. The term
of such employment commenced on February 2, 1998 and terminates five years
thereafter. Mr. Rosenblatt is paid a salary of $195,000 per annum, which may be
increased in such amounts as the Compensation Committee of the Company
determines in good faith. In addition, Mr. Rosenblatt is entitled to an annual
bonus in an amount at least equal to 20% of the salary paid to Rosenblatt during
the immediately preceding year. Pursuant to the Employment Agreement, the
Company granted Mr. Rosenblatt options to purchase 375,000 shares of the common
stock of the Company at the exercise price of $5.20 per share. Such options will
vest in Mr. Rosenblatt as follows: (i) 125,000 options vested immediately upon
the date of the Employment Agreement and (ii) the remaining 250,000 options will
vest at the rate of 125,000 options on each of the first and second anniversary
dates of Mr. Rosenblatt's employment with the Company. All unexercised options
expire five years after the date on which such options have vested.
Mark Comer
Pursuant to an Employment Agreement entered into as of January 5, 1998,
the Company employed Mark Comer as its President. The term of such employment
commenced on February 2, 1998 and terminates two years thereafter. Mr. Comer is
paid a salary of $125,000 per annum. The Company will pay Mr. Comer an annual
bonus in an amount equal to (i) five percent (5%) of the relevant year's net
operating profits of the Internet Training Division, on any net operating
profits up to the amount of $1,000,000, plus (ii) ten percent (10%) of the
relevant year's net operating profits of the Internet Training Division, on any
net operating profits in excess of $1,000,000.
28
<PAGE> 30
Anthony Mazzarella
Pursuant to an Employment Agreement entered into as of December 30,
1997, the Company employed Mr. Mazzarella as its Executive Vice President and
Chief Financial Officer. The term of such employment commenced on January 15,
1998 and terminates five years thereafter. Mr. Mazzarella is paid a salary of
$180,000 per annum through the calendar year ending December 31, 1998.
Thereafter, Mr. Mazzarella is entitled to annual salary increases as determined
by the Board of Directors but in no event less than 16%. Prior to the end of
each year, the Board of Directors is to review the compensation of Mr.
Mazzarella and pay to him a cash bonus not less than 20% of his salary for that
year. Pursuant to the Employment Agreement, Company granted Mr. Mazzarella
options to purchase an aggregate of 375,000 shares of the Common Stock of the
Company at an exercise price of $4.00 per share. Such options will vest as
follows: (i) 125,000 options vested immediately and (ii) 125,000 options will
vest on January 15, 1999, and 125,000 options will vest on January 15, 2000.
All options have a term of 10 years. The options expire 10 years after the date
of grant.
Phillip J. Windley
Pursuant to an Employment Agreement entered into as of December 9,
1997, the Company employed Phillip J. Windley as its Chief Technology Officer.
The term of such employment commenced on January 1, 1998 and terminates two
years thereafter. Mr. Windley is paid a salary of $145,000 per annum. The
Company may grant to Mr. Windley an annual bonus or bonuses up to a maximum
aggregate annual amount of $35,000, at the sole and exclusive discretion of the
Chief Executive Officer and the Compensation Committee of the Company and at
such times and in such manner as the Chief Executive Officer and the
Compensation Committee may determine. Pursuant to the Employment Agreement, the
Company granted Mr. Windley options to purchase 93,750 shares of the common
stock of the Company at the exercise price of $5.20 per share. Such options will
vest in Mr. Windley as follows: (i) at the rate of 12,500 options per full
quarter for the first year during which Mr. Windley remains employed by the
Company, commencing as of January 1, 1998, and (ii) at the rate of 9,375 options
per full quarter for the second year during which Mr. Windley remains employed
by the Company, commencing one year after January 1, 1998. All unexercised
options expire five years after the date on which such options have vested.
Steve Rossow
Pursuant to an Employment Agreement entered into as of December 9,
1997, the Company employed Steve Rossow as its Vice President Marketing & Sales.
The term of such employment commenced on January 12, 1998 and terminates four
years thereafter. Mr. Rossow is paid a salary of $120,000 per annum and received
a one-time signing bonus in
29
<PAGE> 31
the amount of $20,000. The Company may grant to Mr. Rossow an annual bonus or
bonuses up to a maximum aggregate annual amount of $30,000, at the sole and
exclusive discretion of the Chief Executive Officer and the Compensation
Committee of the Company and at such times and in such manner as the Chief
Executive Officer and the Compensation Committee may determine. Pursuant to the
Employment Agreement, the Company granted Mr. Rossow options to purchase 125,000
shares of the common stock of the Company at the exercise price of $5.20 per
share. Such options will vest in Mr. Rossow as follows: (i) at the rate of
15,625 options per full quarter for the first year during which Mr. Rossow
remains employed by the Company, commencing as of January 12, 1998, and (ii) at
the rate of 7,813 options per full quarter for the second and third years during
which Mr. Rossow remains employed by the Company, commencing one year after
January 12, 1998. All unexercised options expire five years after the date on
which such options have vested.
Stephen W. Fulling
Pursuant to an Employment Agreement entered into as of December 9,
1997, the Company employed Stephen W. Fulling as its Vice President of
Technology. The term of such employment commenced on January 1, 1998 and
terminates three years thereafter. Mr. Fulling is paid a salary of $85,000 per
annum, which may be increased in such amounts as the Chief Executive Officer and
the Compensation Committee of the Company determine at their sole discretion,
except that at a minimum the Company shall increase the salary for the second
and third years of Mr. Fulling's employment by an amount equal to 7% of the
total amount of salary due to Mr. Fulling during the immediately-preceding year.
The Company may grant to Mr. Fulling an annual bonus or bonuses up to a maximum
aggregate annual amount of $25,000, at the sole and exclusive discretion of the
Chief Executive Officer and the Compensation Committee of the Company and at
such times and in such manner as the Chief Executive Officer and the
Compensation Committee may determine. Pursuant to the Employment Agreement, the
Company granted Mr. Fulling options to purchase 85,000 shares of the common
stock of the Company at the exercise price of $5.20 per share. Such options vest
as follows: (i) at the rate of 10,833 options per full quarter for the first
year during which Mr. Fulling remains employed by the Company, commencing as of
January 1, 1998, (ii) at the rate of 5,208 options per full quarter for the
second year and per the first three full quarters of the third year during which
Mr. Fulling remains employed by the Company, commencing one year after January
1, 1998, and (iii) at the rate of 5,208 options per the fourth full quarter of
the third year during which Mr. Fulling remains employed by the Company. All
unexercised options expire five years after the date on which such options have
vested.
30
<PAGE> 32
Martin Rosenblatt
The Company entered into an employment agreement with Martin Rosenblatt
in the second quarter of 1996, providing for a salary of $85,000 per year and
the grant of 50,000 options on February 1, 1998, and annual grants of no less
than 25,000 options in January of each year thereafter at the fair market
value on the last trading day of each year. This agreement expires in 2003.
Craig Pickering
Pursuant to a Consulting Agreement entered into as of January 26, 1998,
the Company engaged the services of Craig Pickering as an independent
contractor. The term of such engagement commenced on January 26, 1998 and
terminates two years thereafter. Mr. Pickering is paid a consulting fee of
$65,000 during the first year of the Agreement and $50,000 during the second
year of the Agreement.
Director Compensation
The non-employee directors of the Company are paid cash compensation of
$2,000 per quarter plus $500 per meeting attended(either in person or
telephonically). In addition each non-employee director receives options to
purchase 12,500 shares of the Company's common stock per year for each of 1998
and 1999 at the market price as of January 26, 1998.
Each of the three members of the Audit Committee of the Board of
Directors receive $250 per meeting attended (either in person or
telephonically). In addition, the Chairman of the Audit Committee receives cash
compensation of $2,500 annually.
Each of the three members of the Compensation Committee of the Board of
Directors receive $250 per meeting attended (either in person or
telephonically). In addition, the Chairman of the Compensation Committee
receives cash compensation of $2,500 annually.
Employee directors do not receive any additional compensation for
serving as a director.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company pays certain related parties for advertising, rent and
computer graphic design. Sierra Advertising received $1,792,122 in 1997 and
$2,116,607 in 1996 for advertising expenses, all of which is distributed
directly for advertising costs, and is owned by officers of the Company. The
sole purpose for the existence of Sierra Advertising is to pass through certain
costs of advertising at reduced rates. No officers of the Company receive any
monetary compensation from the Company through Sierra Advertising. Sierra
Advertising
31
<PAGE> 33
makes no profit on funds received from the Company. All funds paid to Sierra
Advertising are used by Sierra Advertising for the purchase of air time for
advertising.
The share exchanges described in Part I, Item 1 "Description of
Business--History of the Company" involved certain executive officers of the
Company. At the time of the share exchanges described therein, the shareholders
of Madison were Craig Pickering, Richard Rosenblatt, Mark Comer, JCH Trust, MJB
Trust, CSW Trust, Ross Jardine, Phil Windley and Michael Beck; the shareholders
of Cabot were Craig Pickering, Mark Comer and JCH Trust; and the sole
shareholder of R&R was Richard Rosenblatt.
The Company's offices located at 1185 South Mike Jense Circle, Provo,
Utah are leased from RDR Properties for $10,639 per month, which lease expires
in March 1999. Craig Pickering and Mark Comer each own 33.33% of RDR Properties.
The Company retained Geller & Friend Capital Partners, Inc. ("Geller &
Friend"), a merchant banking firm, in August 1997 to assist in arranging equity
financing. Geller & Friend was paid $50,000 and granted 375,000 warrants in
connection with its role in the private placement completed in December 1997.
Additionally, Geller & Friend will act as financial consultant to the Company
for the calendar year 1998 for a cash fee of $25,000 per quarter. Marshall
Geller, chairman and chief executive officer of Geller & Friend, became a
director of the Company in January 1998. Also in January 1998, the Company
employed Anthony Mazzarella, formerly managing director of Geller & Friend, as
its Executive Vice President and Chief Financial Officer. Mr. Mazzarella is also
a director of the Company.
ITEM 8. DESCRIPTION OF SECURITIES
Series A Convertible Preferred Stock
The authorized capital stock of the Company includes 10,000,000 shares
of preferred stock of which 5,250,000 shares are designated as Series A
Convertible Preferred Stock. Holders of the Preferred Shares are entitled to
receive, when as and if declared by the Board of Directors, a cumulative
dividend of $.36 per share (9% per annum) payable semi-annually in cash or
Preferred Shares valued at $4.00 per share at the discretion of the Board. In
the event of any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company, the holders of the Series A Convertible Preferred
Stock are entitled to receive out of the assets of the Company available for
distribution to its stockholders, before any payment or distribution shall be
made on the Common Stock, an amount per share equal to $4.00. The Series A
Convertible Preferred Stock and the Common Stock vote together as a single
class, with each share of Preferred Stock being entitled to cast a number of
votes equal to the number of shares of Common Stock into which such share of
Preferred Stock could then be converted.
32
<PAGE> 34
Each share of the Series A Convertible Preferred Stock may at any time
be converted into 1.25 shares of the Company's Common Stock reflecting an
initial Conversion Price of $3.20 per share. In the event that at any time prior
to June 19, 1999 the market price of the Company's Common Stock is less than
$3.20 the Conversion Price will be automatically adjusted to equal such lower
market price. The Conversion Price will also be subject to adjustment in the
event of a stock split of, stock dividend on, or a subdivision, combination or
recapitalization of the Common Stock. In addition, in the event that the Company
fails to (i) make any semi-annual dividend payment when due or (ii) effect the
registration of the Series A Convertible Preferred Stock on or before July 3,
1998, the Conversion Price then in effect will be adjusted downward by 10%.
Commencing on December 19, 1998 and terminating on December 19, 2003,
the shares of Series A Convertible Preferred Stock will be automatically
converted into shares of Common Stock at the Company's option upon 30 days'
prior written notice provided (i) the Common Stock to be issued upon such
conversion has been registered under the Securities Act and (ii) the Common
Stock has traded at or above $8.00 per share for 30 consecutive trading days.
WARRANTS
The following discussion is a summary of certain terms and provisions
of the warrants (the "Warrants") contained in the Warrant Agreement between the
Company and Signature Stock Transfer, Inc. (the "Warrant Agent"). The Warrants
were issued to investors as part of a private placement of Units in December
1997. (See Item 4, "Recent Sales of Unregistered Securities".)
Each Warrant entitles the holder to purchase, at a price of $3.20 per
share, subject to adjustment, one share of Common Stock during the period
commencing on December 4, 1998 and ending on December 4, 2002. Commencing on
December 4, 1998, the Company may redeem the Warrants at $3.20 per Warrant upon
30 days' prior written notice in the event that (1) there is a current
registration statement in effect covering the shares of Common Stock underlying
the Warrants and the Warrants separately and (2) the Common Stock has traded at
or above $8.00 per share for at least 30 consecutive trading days.
Any Warrantholders who do not exercise their Warrants prior to the
redemption date, as set forth in the Company's notice of redemption, will
forfeit the right to purchase the shares of Common Stock underlying the Warrants
and, after the redemption date, any outstanding Warrants will become void and be
of no further force or effect. If the Company does not redeem the Warrants, the
Warrants will expire, become void and be of no further force or effect on
conclusion of the exercise period.
The exercise price of the Warrants and the number of shares to be
obtained upon the exercise of the Warrants are subject to adjustment in certain
circumstances including a stock
33
<PAGE> 35
split of, or stock dividend on, or a subdivision, combination, or
recapitalization of the Common Stock. In the event of liquidation, dissolution
or winding up of the Company, holders of the Warrants, unless exercised, will
not be entitled to participate in the assets of the Company. Holders of the
Warrants will have no voting, preemptive, liquidation or other rights of a
shareholder, and no dividends will be declared on the Warrants.
REGISTRATION RIGHTS
The Company has agreed to file a registration statement under the
Securities Act covering all of the shares of Common Stock issuable upon the
conversion of the Preferred Stock and upon the exercise of the Warrants. The
Company has also agreed to file a registration statement covering the resale of
the Warrants as a separate security. The Company will use its best efforts to
cause the registration statement to become effective as soon as practicable and
in any event on or before July 3, 1998. In the event the Registration Statement
is not declared effective on or before July 3, 1998, the Conversion Price will
be adjusted downward by 10%. The holders of the Placement Agent's Warrants will
have certain demand and piggy-back registration rights with respect to such
Warrants and the underlying Common Shares exercisable commencing six months
after the Initial Closing.
The registration statements will be maintained effective until all of
the securities covered thereby have been sold, or all of the securities covered
thereby may be sold under Rule 144 without regard to volume limitations. The
Company will pay all registration expenses incurred in connection with the
registration of the securities. In addition, the Company will comply with all
necessary state securities laws so as to permit the sale by the investors of the
securities.
COMMON STOCK
The authorized capital stock of the Company includes 300,000,000 shares
of $.001 par value Common Stock. All shares have equal voting rights. Voting
rights are not cumulative, and, therefore, the holders of more than 50% of the
Common Stock of the Company could, if they chose to do so, elect all of the
Directors.
Upon liquidation, dissolution or winding up of the Company, the assets
of the Company, after the payment of liabilities and any distributions to the
holders of outstanding shares of Series A Convertible Preferred Stock, will be
distributed pro rata to the holders of the Common Stock. The holders of the
Common Stock do not have preemptive rights to subscribe for any securities of
the Company and have no right to require the Company to redeem or purchase their
shares.
Holders of Common Stock are entitled to share equally in dividends
when, as and if declared by the Board of Directors of the Company, out of funds
legally available therefor.
34
<PAGE> 36
The Company has not paid any cash dividends on its Common Stock, and it is
unlikely that any such dividends will be declared in the foreseeable future.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the Board of
Directors to issue 10,000,000 shares of preferred stock, $.001 par value. The
preferred stock may be issued in series from time to time with such designation,
rights, preferences and limitations as the Board of Directors of the Company may
determine by resolution. The rights, preferences and limitations of separate
series of preferred stock may differ with respect to such matters as may be
determined by the Board of Directors, including, without limitation, the rate of
dividends, method and nature of payment of dividends, terms of redemption,
amounts payable on liquidation, sinking fund provisions (if any), conversion
rights (if any), and voting rights. The potential exists, therefore, that
preferred stock might be issued which would grant dividend preferences and
liquidation preferences to preferred shareholders. Unless the nature of a
particular transaction and applicable statutes require such approval, and
subject to the required approval of the Series A Preferred Stockholders for
issuances of preferred stock which have liquidation or dividend rights senior to
theirs, the Board of Directors has the authority to issue these shares without
shareholder approval. The issuance of preferred stock may have the affect of
delaying or preventing a change in control of the Company without any further
action by shareholders. As of February 3, 1998, there were 5,000,000 shares of
Series A Preferred Stock outstanding.
TRANSFER AND WARRANT AGENT
Signature Stock Transfer, Inc., 14675 Midway Road, Dallas, Texas 75244,
serves as Transfer Agent for the Company's Common Stock, and serves as Transfer
and Warrant Agent for the Series A Convertible Preferred Stock and Warrants.
35
<PAGE> 37
SHARES ELIGIBLE FOR FUTURE SALE
Of the shares of the Company's Common Stock outstanding, as of February
5, 1998, approximately 5,627,474 (inclusive of an aggregate of 5,314,757 shares
beneficially owned by the Company's directors and executive officers) are
"restricted securities," as that term is defined in the Securities Act, and may
be sold in compliance with the provisions of Rule 144 of the Securities Act. The
officers and directors of the Company hold an aggregate of approximately
5,314,757 shares of Common Stock (exclusive of shares issuable upon the exercise
of warrants and options and conversion of the Series A Convertible Preferred
Stock). Messrs. Pickering, Comer, Richard Rosenblatt and Martin Rosenblatt have
entered into lockup agreements with Commonwealth Associates which provide that,
absent the consent of Commonwealth Associates, they will be prohibited from
selling their Common Stock (5,044,167 shares) for 12 months from December 4,
1997. Any future sale of such shares, including sale upon the expiration of such
lock-up agreements, could have an adverse effect on the market, if any, for the
Company's Common Stock.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
The Company's common stock is traded on the OTC Bulletin Board under
the symbol "IIML." The following table sets forth, on a per share basis, and for
the periods indicated, the high and low sales prices of the Company's common
stock as reported on the OTC Bulletin Board. No dividends have been declared or
paid on the Company's common stock, nor does the Company intend to declare or
pay any dividends on the Company's common stock in the near future. All sales
prices are set forth taking into effect all stock splits, exclusive of
commissions or discounts of any nature. As of February 3, 1998, there were
approximately 590 shareholders of record of the Company's common stock. The
Company did not exist in its present form prior to January 1996; therefore stock
prices prior to that date are not applicable.
36
<PAGE> 38
<TABLE>
<CAPTION>
Price Range
-----------------------
High Low
-------- ------
<S> <C> <C>
1996:
First Quarter $ 26.00 $18.00
Second Quarter 112.00 17.52
Third Quarter 97.04 34.24
Fourth Quarter 47.04 16.00
1997:
First Quarter 36.00 13.04
Second Quarter 24.00 8.48
Third Quarter 13.04 6.48
Fourth Quarter 8.48 3.44
1998:
First Quarter (through February 9, 1998) 12.25 4.00
</TABLE>
ITEM 2. LEGAL PROCEEDINGS
The Company is a defendant in various legal proceedings in the ordinary
course of business, but is aware of no legal proceedings which appear at this
time as if they might have a material impact on its financial position, results
of operations or business.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On December 10, 1996, the Company engaged Arthur Andersen LLP as its
independent public accountants. The Company had no disagreements with its prior
independent auditor, Crouch, Bierwolf & Chisholm. See the Company's Report on
Form 8-K filed with the SEC on June 20, 1997.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following list shows all sales of unregistered securities in the
past three years. All such sales were of shares of the Company's common stock,
and the information has been adjusted to take into account all stock splits,
including a 1 for 19 reverse split in January 1996, the 4 for 1 forward split in
May 1996 and a 1 to 8 reverse split on February 12, 1998. All shares of
securities issued in these transactions bear restrictive legends. Unless
otherwise noted, the consideration given in each of the share exchanges was all
of the outstanding common stock of the other constituent company. No
underwriters or agents were involved in
37
<PAGE> 39
any of the share exchanges. Each share exchange was exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"), as issuances not involving a public offering. The consideration in the
International Marketing Associates private placement was services in the nature
of promotional work at industry conventions, and was intended to approximate the
value of the services they were to render for the Company at such conventions.
This private placement was exempt from registration pursuant to Regulation D of
the Securities Act as an issuance not involving a public offering. No
underwriter or agent was involved in this private placement. All persons
receiving shares in the transactions described below were allowed access to the
Company's books and records and made representations to the Company that they
were acquiring shares of the Company's common stock for their own account and
for investment purposes only.
Share Exchange with Madison York & Associates, Inc. January 16, 1996
Number of shares issued: 2,103,112
The number of shares listed in the Company's Statement of Stockholders' Equity
in connection with this transaction consists of the 2,103,112 shares issued to
the shareholders of Madison, and 2,701,848 shares existing in connection with
the reverse acquisition accounting.
Share Exchange with Cabot Richards & Reed, Inc. January 16, 1996
Number of shares issued: 1,400,000
Share Exchange with R & R Advertising, Inc. January 16, 1996
Number of shares issued: 600,000
Share Exchange with Inter Active Marketing Group, Inc. March 5, 1996
Amount of shares issued: 52,563
In addition, 151,787 shares were placed in escrow in accordance with certain
earn-out provisions in the Company's share exchange agreement with IMG. The
Company has since retired such shares with the consent of IMG because it became
clear that IMG would not obtain the targets for the earn-out provisions.
Share Exchange with e.m.a.N.a.t.e., Inc. April 26, 1996
Amount of shares issued: 200,000
In January 1996, the Company also issued 350,000 shares to an investment
banking firm for services valued at $28,000 which were rendered in connection
with the reverse acquisition. No relationship existed between the Company and
the investment banking firm prior to the services performed.
The Company issued 315,384 shares of common stock in August, September
and October 1997 at a purchase price of $3.25 per share to private investors in
a transaction
38
<PAGE> 40
exempt from registration under Section 4(2) of the Securities Act and Regulation
D thereunder as an issuance not involving a public offering. Additionally, in
January 1998, the Company issued to such investors warrants to purchase an
aggregate of 25,749 of the Company's common stock at an exercise price of $3.20
per share, subject to adjustment. No agents or underwriters were involved in
this transaction.
The Company issued 200 "Units" at a price of $100,000 per Unit in
December 1997. Each Unit consisted of (i) 25,000 shares of the Series A 9%
Convertible Preferred Stock, par value $.001 per share, each convertible into
1.25 shares of the Company's common stock, and (ii) warrants to purchase 7,813
shares of the Company's common stock at an exercise price of $3.20 per share,
subject to adjustment. This transaction was exempt from registration under
Section 4(2) of the Securities Act and Regulation D thereunder as an issuance
not involving a public offering. Commonwealth Associates acted as placement
agent in this transaction and received a fee of $2,000,000, plus expenses, and
warrants to purchase 1,500,000 shares of the Company's common stock at an
exercise price of $3.20 per share, subject to adjustment. Prior to the initial
closing of the Units, the Company issued warrants to purchase an aggregate of
6,250 shares of the Company's Common Stock at an exercise price of $3.20 per
share for making certain bridge loans to the Company. The issuance was in a
transaction exempt from registration under Section 4(2) of the Securities Act
and Regulation D thereunder.
In August 1997, the Company issued 36,821 shares of Common Stock,
and in December 1997, the Company issued 59,208 shares of Common Stock, to
consultants for services rendered in connection with Internet training and
consulting. The issuances were in transactions exempt from registration under
Section 4(2) of the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As authorized by Section 78.751 of the Nevada General Corporation Law,
the Company may indemnify its officers and directors against expenses incurred
by such persons in connection with any threatened, pending or completed action,
suit or proceedings, whether civil, criminal, administrative or investigative,
involving such persons in their capacities as officers and directors, so long as
such persons acted in good faith and in a manner which they reasonably believed
to be in the best interests of the Company. If the legal proceeding, however, is
by or in the right of the Company, the director or officer may not be
indemnified in respect of any claim, issue or matter as to which he is adjudged
to be liable for negligence or misconduct in the performance of his duty to the
Company unless a court determines otherwise.
Under Nevada law, corporations may also purchase and maintain insurance
or make other financial arrangements on behalf of any person who is or was a
director or officer (or is serving at the request of the corporation as a
director or officer of another corporation) for
39
<PAGE> 41
any liability asserted against such person and any expenses incurred by him in
his capacity as a director or officer. These financial arrangements may include
trust funds, self insurance programs, guarantees and insurance policies.
Article 6.E of the Articles of Incorporation of the Company and Article
5 of the Bylaws of the Company provide that, to the fullest extent permitted by
law, directors of the Company will not be liable for monetary damages to the
Company or its shareholders for breaches of their fiduciary duties.
The Company maintains Director and Officer liability insurance with an
aggregate coverage amount of $10,000,000.
PART F/S FINANCIAL STATEMENTS
The following is a list of the financial statements filed herewith:
Unaudited condensed consolidated financial statements of iMall, Inc.
and subsidiaries as of September 30, 1997, and for the three and nine months
ended September 30, 1997 and 1996.
Audited consolidated financial statements as of December 31, 1996 and
for the year and period ended December 31, 1996 and 1995, respectively, as
follows:
Report of Independent Public Accountants--Arthur Andersen LLP
Report of Independent Auditors--Crouch, Bierwolf & Chisholm
Consolidated Balance Sheet as of December 31, 1996
Consolidated Statements of Operations for the year and period ended
December 31, 1996 and 1995, respectively
Consolidated Statements of Stockholders' Equity for the year and period
ended December 31, 1996 and 1995, respectively
Consolidated Statements of Cash Flows for the year and period ended
December 31, 1996 and 1995, respectively
PART III
ITEM 1: INDEX TO EXHIBITS
2.1 Share Exchange Agreement between the Company and Madison, York
& Associates, Inc.*
40
<PAGE> 42
2.2 Share Exchange Agreement between the Company and Cabot,
Richards & Reed, Inc.*
2.3 Share Exchange Agreement between the Company and R&R
Advertising, Inc.*
2.4 Share Exchange Agreement between the Company and Physicomp
Corporation (d.b.a. e.m.a.N.a.t.e.)*
2.5 Share Exchange Agreement between the Company and Interactive
Marketing Group, Inc.*
3.1 Articles of Incorporation, as amended*
3.2 By-Laws, as amended*
4.1 Certificates of Amendment (re Preferred Stock)
4.2 Agency Agreement between the Company and Commonwealth
Associates
4.3 Warrant Agreement among the Company, Signature Stock Transfer,
Inc. and Commonwealth Associates
10.1 Software License and Distribution Agreement between the
Company and AT&T*
10.2 Agreement with Positive Response T.V.*
10.3 Memorandum of Understanding between the Company and Softbank*
10.4 Consulting Agreement with Craig Pickering
10.5 Employment Agreement with Richard Rosenblatt
10.6 Employment Agreement with Mark Comer
10.7 Employment Agreement with Martin Rosenblatt*
10.8 Employment Agreement with Anthony Mazzarella
10.9 Employment Agreement with Phillip Windley
10.10 Employment Agreement with Steve Rossow
41
<PAGE> 43
10.11 Employment Agreement with Stephen Fulling
10.12 Services and License Agreement between the Company and
Koinonia System Co. Ltd.
21 Subsidiaries*
27 Financial Data Schedule
- --------------------------
* Previously filed
42
<PAGE> 44
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
iMALL, INC.
February 12, 1998
By:/s/ RICHARD M.ROSENBLATT
------------------------------------
Richard Rosenblatt
Chairman of the Board and
Chief Executive Officer
By:/s/ MARK R. COMER
------------------------------------
Mark R. Comer
President and Director
By:/s/ ANTHONY P. MAZZARELLA
------------------------------------
Anthony P. Mazzarella
Executive Vice President,
Chief Financial Officer,
Secretary-Treasurer and Director
43
<PAGE> 45
IMALL, INC. AND SUBSIDIARIES
(FORMERLY NATURES GIFT, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
AND FOR THE YEAR THEN ENDED
AND FOR THE PERIOD FROM INCEPTION
TO DECEMBER 31, 1995
TOGETHER WITH REPORTS OF
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE> 46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To iMALL, Inc.:
We have audited the accompanying consolidated balance sheet of iMALL, Inc., a
Nevada corporation (formerly Natures Gift, Inc.), and subsidiaries as of
December 31, 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of iMALL, Inc. and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the accompanying
consolidated financial statements, the Company has generated minimal earnings to
date and has a working capital deficiency of $590,400 as of December 31, 1996
that raise substantial doubt about its ability to continue as a going concern.
Subsequent to year-end, the Company has incurred operating losses. Management's
plans in regard to these matters are described in Note 1. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result from the outcome of this
uncertainty.
Salt Lake City, Utah
June 13, 1997
<PAGE> 47
[CROUCH, BIERWOLF & CHISHOLM, CERTIFIED PUBLIC ACCOUNTANTS, LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of iMall, Inc.:
We have audited the accompanying consolidated balance sheet of iMall, Inc.
(formerly Nature's Gift, Inc.) as of June 30, 1996 and December 31, 1995 and
the related consolidated statements of operations, stockholders' equity and
cash flows for six months ended June 30, 1996 and the year ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The financial statements as of
September 30, 1996 were not audited by us and, accordingly, we do not express
an opinion on them.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of iMall, Inc. as of
June 30, 1996 and December 31, 1995 and the results of its operations and
cash flows for the six months ended June 30, 1996 and the year ended
December 31, 1995 in conformity with generally accepted accounting principles.
/s/ Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
October 1, 1996
<PAGE> 48
Page 1 of 2
IMALL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
------
CURRENT ASSETS:
<S> <C>
Cash $ 40,264
Accounts receivable, net of allowance for doubtful
accounts of $26,400 100,502
Related-party receivable 85,521
Current portion of note receivable 100,524
Income tax receivable 276,940
Employee receivables 14,536
Inventory 55,277
Prepaid expenses 129,960
Deferred income tax asset 163,715
----------
Total current assets 967,239
----------
EQUIPMENT, FURNITURE AND FIXTURES:
Computer equipment 793,852
Office equipment 365,221
Leased office equipment 121,760
Furniture and fixtures 109,353
Leasehold improvements 28,804
----------
1,418,990
Less accumulated depreciation and amortization (386,604)
----------
Net equipment, furniture and fixtures 1,032,386
----------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $27,214 177,883
Note receivable, net of current portion 141,476
Deposits 22,826
Organization costs, net of accumulated amortization of $891 1,396
----------
343,581
----------
$2,343,206
==========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
<PAGE> 49
Page 2 of 2
IMALL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
<S> <C>
Current portion of notes payable to related parties $ 105,082
Current portion of capitalized lease obligations 39,956
Note payable 12,500
Accounts payable 667,426
Accrued payroll 126,357
Accrued royalties 96,030
Accrued interest payable to related party 12,759
Other accrued liabilities 120,286
Income taxes payable 41,068
Deferred revenues 336,175
----------
Total current liabilities 1,557,639
----------
NOTES PAYABLE TO RELATED PARTIES, net of current portion 40,000
----------
CAPITALIZED LEASE OBLIGATIONS, net of current portion 31,621
----------
COMMITMENTS AND CONTINGENCIES (Notes 3, 5 and 8):
STOCKHOLDERS' EQUITY:
Common stock, par value $.001; 300,000,000 shares
authorized, 7,410,566 shares outstanding 7,411
Additional paid-in capital 662,248
Retained earnings 44,287
----------
Total stockholders' equity 713,946
----------
$2,343,206
==========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
<PAGE> 50
IMALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM INCEPTION (SEPTEMBER 1, 1995)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
REVENUES $ 16,046,933 $ 1,003,965
COST OF REVENUES (including $2,116,607 and
$147,535 to a related party, respectively) 8,593,455 437,035
------------ ------------
Gross Margin 7,453,478 566,930
GENERAL AND ADMINISTRATIVE EXPENSES 7,480,688 591,373
------------ ------------
OPERATING LOSS (27,210) (24,443)
------------ ------------
OTHER INCOME AND (EXPENSE):
Other income, net 133,308 3,912
Interest expense, net (3,352) --
------------ ------------
Net other income 129,956 3,912
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 102,746 (20,531)
PROVISION FOR INCOME TAXES (37,928) --
------------ ------------
NET INCOME (LOSS) $ 64,818 $ (20,531)
============ ============
NET INCOME (LOSS) PER COMMON SHARE $ .01 $ .00
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 7,252,584 4,799,596
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 51
IMALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM INCEPTION (SEPTEMBER 1, 1995)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Common Stock Additional Retained
------------------------- Paid-in Earnings
Shares Amount Capital (Deficit)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at inception,
September 1, 1995 -- $ -- $ -- $ --
Shares issued at $25.32 per share 79 -- 2,000 --
Shares issued in acquisition of
EMS, Inc. 20 -- 12,812 --
Shares issued in private
placement at $151.98 per share 1,645 2 249,998 --
Net loss -- -- -- (20,531)
---------- ---------- ---------- ----------
Balance at December 31, 1995 1,744 2 264,810 (20,531)
Adjustments due to fractional
shares in stock split 174 -- -- --
Reverse acquisition for
accounting purposes of
Madison, York & Associates, Inc. 4,804,960 4,805 (7,151) --
Shares issued for acquisition of
Cabot, Richards & Reed, Inc. 1,400,000 1,400 (121,416) --
Shares issued for acquisition of
R&R Advertising, Inc. 600,000 600 287,200 --
Shares issued for services 350,000 350 27,650 --
Shares issued for acquisition of
Physicomp, Inc. (EmaNate, Inc.) 200,000 200 159,800 --
Shares issued for acquisition of
Interactive Marketing Group,
Inc 52,563 53 41,997 --
Shares issued for services 1,125 1 34,358 --
Distribution of S-Corporation
earnings to stockholders -- -- (25,000) --
Net income -- -- -- 64,818
---------- ---------- ---------- ----------
Balance at December 31, 1996 7,410,566 $ 7,411 $ 662,248 $ 44,287
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 52
Page 1 of 3
IMALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM INCEPTION (SEPTEMBER 1, 1995)
TO DECEMBER 31, 1995
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 64,818 $ (20,531)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 306,480 2,919
Noncash expense related to issuance of shares
of common stock for services 62,359 --
Loss on sale of equipment, furniture and fixtures 8,662 --
Loss on disposal of obsolete inventory 11,573 --
Provision for losses on accounts receivable 80,315 --
Change in assets and liabilities, net of effects
from purchase of subsidiaries-
Decrease in accounts receivable 19,828 --
Increase in related-party receivable (85,521) (22,375)
Increase in income tax receivable (276,940) --
Increase in employee receivables (14,536) --
Decrease in inventory 24,013 --
Decrease (increase) in prepaid expenses 30,904 (81,952)
Increase in deferred income tax asset (163,715) --
Increase in accounts payable 371,799 65,290
Increase in accrued expenses 248,958 --
Increase in accrued interest payable to
related party 12,759 5,820
Increase in income tax payable 41,068 --
Increase in deferred revenues 311,003 --
Decrease in deposits 500 --
----------- -----------
Net cash provided by (used in) operating
activities 1,054,327 (50,829)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received through acquisition of subsidiaries 110,350 --
Purchase of equipment, furniture and fixtures (860,639) (49,275)
Proceeds from sale of equipment 6,304 --
Increase in other assets -- (1,000)
Increase in notes receivable (250,000) (250,000)
Principal payments received on notes receivable 8,000 88,380
----------- -----------
Net cash used in investing activities (985,985) (211,895)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 53
Page 2 of 3
IMALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM INCEPTION (SEPTEMBER 1, 1995)
TO DECEMBER 31, 1995
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution of S Corporation retained earnings $ (25,000) $ --
Proceeds from stock issuance -- 252,000
Proceeds from debt financing -- 137,002
Principal payments on notes payable -- (84,582)
Principal payments on obligations under capital
leases (26,774) --
Principal payments on notes payable to related
parties (18,000) --
--------- ---------
Net cash (used in) provided by financing
activities (69,774) 304,420
--------- ---------
INCREASE (DECREASE) IN CASH (1,432) 41,696
CASH AT BEGINNING OF THE PERIOD 41,696 --
--------- ---------
CASH AT END OF THE PERIOD $ 40,264 $ 41,696
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 11,467 $ --
Cash paid for income taxes $ 437,516 $ --
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING TRANSACTIONS:
Stock issued for equipment $ -- $ 12,812
Stock issued for services $ 62,359 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 54
Page 3 of 3
IMALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM INCEPTION (SEPTEMBER 1, 1995)
TO DECEMBER 31, 1995
During 1996, the Company exchanged capital stock for all issued and
outstanding capital stock of Cabot, Richards & Reed, Inc. ("Cabot), R&R
Advertising, Inc. ("R&R"), Physicomp, Inc. ("Physicomp"), and Interactive
Marketing Group, Inc. ("IMG") (see Note 7). In conjunction with these
acquisitions, the assets and liabilities acquired and assumed were as follows:
<TABLE>
<CAPTION>
Physicomp R&R Cabot IMG
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fair value of non-cash
assets acquired $ 159,323 $ 304,198 $ 280,196 $ 58,766
Cash acquired 31,963 115,863 (40,170) 2,694
Liabilities assumed (255,793) (132,261) (360,042) --
Goodwill (negative
goodwill) 224,507 -- -- (19,410)
--------- --------- --------- ---------
Equity recorded $ 160,000 $ 287,800 $(120,016) $ 42,050
========= ========= ========= =========
</TABLE>
During 1996, the Company entered into capital lease obligations of $40,759 in
connection with its acquisition of new office equipment.
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 55
IMALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND NATURE OF OPERATIONS
The consolidated financial statements presented are those of iMALL, Inc. (a
Nevada corporation) and its wholly owned subsidiaries (collectively, the
"Company"). On January 16, 1996, iMALL, Inc., which had been the surviving
company in a change of domicile merger with Natures Gift, Inc. on January 8,
1996, engaged in a share exchange with Madison, York & Associates, Inc.
("Madison"). Natures Gift, Inc. was incorporated under the laws of the State of
Utah on February 9, 1984 as Brickland Corporation and changed its name to
Natures Gift, Inc. on May 23, 1991 (but remained inactive). The share exchange
with Madison, a Utah corporation, was accounted for as a reverse acquisition.
Due to accounting for the acquisition of Madison as a reverse acquisition, the
1995 historical financial information presented herein is that of Madison (the
acquirer for accounting purposes) and stockholders' equity was retroactively
restated for the equivalent number of shares issued after giving effect to the
difference in par value. The shares were also retroactively adjusted to reflect
the reverse split of 1 for 19 shares and the stock split of 4 for 1 shares (see
Note 7). iMALL, Inc. then acquired Cabot, Richards & Reed, Inc. ("Cabot"), a
Utah corporation, and R&R Advertising, Inc. ("R&R"), a California corporation.
iMALL, Inc. issued 4,804,960 common shares for 100 percent of the outstanding
stock of Madison, 600,000 common shares for 100 percent of the outstanding
stock of R&R and 1,400,000 common shares for 100 percent of the outstanding
stock of Cabot. The acquisitions of R&R and Cabot were accounted for using the
purchase method of accounting. At the time of the share exchanges described
above, there were certain common shareholders among the Company, Madison, R&R
and Cabot.
The companies acquired are in the seminar, advertising and internet businesses.
The Company's primary businesses are developing an electronic shopping mall on
the internet known as the "iMall" and providing seminars to customers related to
the internet. During the first quarter of 1996, iMALL, Inc. changed the name of
its subsidiary, Madison, to iMALL Consulting, Inc. On January 17, 1996, iMALL,
Inc. incorporated a Nevada subsidiary named iMALL Services, Inc. Various assets
of R&R were transferred to iMALL Services, Inc., as well as the customer service
function previously performed by iMALL Consulting, Inc. The assets and
operations of iMALL Services, Inc. are consolidated with all other subsidiaries
in these consolidated financial statements.
iMALL, Inc. acquired two companies involved in internet technology during the
second quarter of 1996. On April 26, 1996, iMALL, Inc. acquired 100 percent
of the outstanding stock of Physicomp, Inc. (known as "EmaNate" or
"Physicomp"), a company specializing in information systems and internet
consulting, in a business combination accounted for as a purchase. On
March 5, 1996, iMALL, Inc. acquired Interactive Marketing Group, Inc. ("IMG"),
a company specializing in yellow-page advertising on the Internet, in a
business combination accounted for as a purchase. See further discussion of
these acquisitions at Note 7.
The Company's headquarters are located in Provo, Utah with additional offices in
Studio City, California and Woodland Hills, California.
<PAGE> 56
(1) ORGANIZATION AND NATURE OF OPERATIONS (continued)
The Company has generated minimal earnings to date and has a working capital
deficiency of $590,400 as of December 31, 1996. The Company's continued
existence is dependent upon its ability to achieve its 1997 operating plan,
which includes cost reductions and obtaining additional funding from equity
financings. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result from the outcome of this uncertainty.
The Company's seminar business follows seasonal trends and is also affected by
weather conditions. The Company usually experiences its highest revenues in the
second quarter and its lowest revenues in the fourth quarter.
(2) SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
iMALL, Inc., Cabot, R&R, iMALL Consulting, Inc., iMALL Services, Inc., EmaNate
and IMG. All material intercompany transactions and accounts have been
eliminated in consolidation.
Inventory
Inventory consists of seminar literature which are materials used in conjunction
with seminar presentations and home study courses. Inventory is stated at the
lower of cost (using the first-in, first-out method) or market value.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the related
assets. The estimated useful lives of leasehold improvements are 10 years. The
estimated useful lives of equipment, furniture and fixtures range from 2 to 7
years. Major renewals and betterments are capitalized. Maintenance, repairs and
minor renewals are expensed as incurred.
Organization Costs
Organization costs have been capitalized and are being amortized over a
five-year period.
Goodwill
Goodwill was recorded in connection with the acquisitions of EmaNate and IMG and
is being amortized over a five-year period.
<PAGE> 57
(2) SIGNIFICANT ACCOUNTING POLICIES (continued)
Net Income (Loss) Per Common Share
Net income (loss) per common share is calculated based upon the weighted average
number of common shares outstanding during the period. There were no common
stock equivalents in existence during the periods presented.
Income Taxes
The Company recognizes a liability or asset for the deferred tax consequences of
temporary differences between the tax bases of assets or liabilities and their
reported amounts in the financial statements. These temporary differences will
result in taxable or deductible amounts in future years when the reported
amounts of the assets or liabilities are recovered or settled.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Values of Financial Instruments
The carrying amounts of the Company's financial instruments approximate their
fair values as of December 31, 1996. The estimated fair values have been
determined using appropriate market information and valuation methodologies.
Recognition of Revenue
The Company generates revenue from five major sources within its seminar and
internet commerce businesses. The major sources of revenue and the timing of
revenue recognition are set forth below:
Seminar and workshop revenue - The Company presents seminars and
workshops to businesses and individuals introducing them to the Internet
and the iMall, a shopping mall on the Internet. The attendees pay a fee
for the seminar, usually in advance. Recognition of the revenue occurs
at the completion of the seminar. Any cash received in advance of the
completion of the seminar is accounted for as deferred revenue.
Home study revenue - The Company offers home study courses on the same
material discussed in its seminars. The customer pays the home study fee
before receiving the materials. Recognition of the revenue occurs when
an order is shipped. Cash received but not yet recognized for orders not
shipped totaled $22,500 as of December 31, 1996, and is included in
deferred revenues in the accompanying consolidated balance sheet.
<PAGE> 58
(2) SIGNIFICANT ACCOUNTING POLICIES (continued)
Maintenance fee revenue - The Company maintains web sites on an annual
basis for customers for a fee. The fee may be prepaid in full or paid
monthly by the customer. Recognition of revenue occurs as payments are
received if the fee is collected monthly. Revenue is recognized on a
straight-line basis if the annual fee is prepaid. Cash received but not
yet recognized under maintenance agreements totaled $313,675 as of
December 31, 1996 and is included in deferred revenues in the
accompanying consolidated balance sheet.
Web site design revenue - The Company designs and upgrades web sites for
customers. The customer is provided with bids on the design and approves
the design prior to the Company beginning the work. Recognition of the
revenue occurs when the customer is billed for the design or upgrade.
Commissions from sales on the iMall - The Company participates in the
commerce generated by the businesses on the iMall. A percentage of
certain revenue generated is recognized as commission when the sale is
made to the buyer. For 1996, this revenue made up less than one percent
of the Company's total revenues.
(3) CAPITALIZED LEASE OBLIGATIONS
Certain equipment is leased under capitalized lease obligations. The following
is a summary of assets held under capital lease agreements as of December 31,
1996:
<TABLE>
<S> <C>
Equipment $123,472
Less accumulated amortization (45,222)
--------
$ 78,250
========
</TABLE>
The following is a schedule by year of future minimum lease payments under
capitalized leases together with the present value of the minimum lease payments
at December 31, 1996:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1997 $46,910
1998 23,210
1999 10,907
-------
Total minimum lease payments 81,027
Less amount representing interest (9,450)
-------
Present value of minimum lease payments 71,577
Less current portion (39,956)
-------
$31,621
=======
</TABLE>
<PAGE> 59
(4) NOTE PAYABLE AND NOTES PAYABLE TO RELATED PARTIES
Note Payable
As of December 31, 1996, the Company had a note payable totaling $12,500 to a
corporation due June 1, 1997. The note is unsecured and bears interest at seven
percent.
Notes Payable to Related Parties
Notes payable to related parties are detailed in the following schedule as of
December 31, 1996.
<TABLE>
<S> <C>
Notes payable to stockholders, interest
at 10 percent, interest due monthly with
principal due upon demand, unsecured $ 50,000
Notes payable to stockholders, noninterest
bearing, principal due upon demand, unsecured 55,082
Note payable to a stockholder, interest
at 10 percent, interest due monthly with
principal due May 1998, unsecured 15,000
Note payable to a stockholder, interest
at 10 percent, interest due monthly with
principal due August 1998, unsecured 25,000
---------
Total notes payable to related parties 145,082
Less current portion (105,082)
---------
$ 40,000
=========
</TABLE>
Future minimum payments for notes payable to related parties are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
- -------------------------
<S> <C>
1997 $105,082
1998 40,000
--------
Total $145,082
========
</TABLE>
<PAGE> 60
(5) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain facilities used in its operations. The approximate
aggregate commitments under noncancelable operating leases in effect at December
31, 1996, were as follows:
<TABLE>
<CAPTION>
Year ending December 31,
- ------------------------
<S> <C>
1997 $215,763
1998 199,162
1999 20,760
--------
$435,685
========
</TABLE>
The Company incurred rent expense of approximately $105,000 and $10,000 in
connection with operating leases during 1996 and 1995, respectively.
Legal Matters
The Company is a defendant in various lawsuits which are incidental to the
Company's business. Management, after consultation with legal counsel, is of the
opinion that any liability resulting from these matters will not have a material
adverse effect on the Company's results of operations or financial position.
Consulting Agreements
The Company entered into a consulting agreement with an individual which
provides for the monthly payment of $5,000 by the Company for a minimum of
twenty hours of service per month by the consultant. The agreement does not
contain a termination date.
The Company entered into a consulting agreement in July 1996 with a stockholder.
The Company has agreed to pay $45,000 per year beginning July 1996 through June
2003 for consulting and legal services.
Strategic Alliances
The Company is a participant in several strategic alliances. To date, none of
these alliances have required any significant capital or cash expenditures by
the Company with the exception of the Company's alliance with National Media
Corporation and its affiliate Positive Response Television (collectively,
"PRTV"). In connection with this alliance, the Company is required to reimburse
PRTV for certain media costs. As of December 31, 1996, PRTV had expended $65,675
in reimbursable media costs. This reimbursable amount is included in other
accrued liabilities in the accompanying consolidated balance sheet.
<PAGE> 61
(6) INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Period Ended December 31,
-------------------------
1996 1995
--------- ------
<S> <C> <C>
Current Provision:
Federal $ 160,575 $ --
State 41,068 --
--------- ------
201,643 --
--------- ------
Deferred Benefit:
Federal (132,610) --
State (31,105) --
--------- ------
(163,715) --
--------- ------
Provision for income taxes $ 37,928 $ --
========= ======
</TABLE>
The differences between the effective income tax rate and the Federal statutory
income tax rate consist of the following:
<TABLE>
<CAPTION>
Period Ended December 31,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
Provision at the federal statutory
rate of 34 percent $ 34,933 $ (6,980)
State income taxes, net of federal benefit 5,425 --
Nondeductible items for tax purposes 13,218 --
Change in valuation allowance (6,980) 6,980
Other (8,668) --
-------- --------
Total provision for income taxes $ 37,928 $ --
======== ========
</TABLE>
The components of the Company's deferred income tax assets as of December 31,
1996 are as follows:
<TABLE>
<S> <C>
Revenue deferred for financial reporting purposes $132,050
Future deductible reserves and accruals 29,696
Future deductible depreciation 1,969
--------
Net deferred tax assets $163,715
========
</TABLE>
<PAGE> 62
(7) CAPITAL STOCK
Stock Transactions
iMALL, Inc. entered into an agreement on September 27, 1995 with EMS, Inc. and
its principals to acquire 100 percent of the stock of EMS, Inc. Assets of
EMS, Inc. consisted of computer equipment, software and a web site on the
Internet known as the iMall. The Company issued 20 shares of common stock in
exchange for 100% of the stock of EMS, Inc. The acquisition was valued at
$12,812 and was accounted for as a purchase.
On December 10, 1995, the Company's board of directors authorized the issuance
of 25,000 shares of common stock to qualified investors in a private placement.
At December 31, 1995, 1,645 shares were issued at a price per share of $152.
Proceeds of $250,000 were received by the Company. As of December 31, 1996, the
private placement was terminated.
On January 8, 1996, the Company effected a reverse split of 1 for 19 shares and
on May 22, 1996, the Company effected a stock split of 4 for 1. All share and
per share amounts have been retroactively restated to reflect the stock splits.
The Company increased its authorized common stock to 300,000,000 shares with a
par value of $.001.
On January 16, 1996, the Company issued 600,000 common shares to R&R for all
of its outstanding stock. R&R's net book value of $287,800 was recorded as the
value of the acquisition. On January 16, 1996, 1,400,000 common shares were
issued to Cabot for all of its outstanding stock at the time of the transaction,
Cabot had a negative net book value of $(120,016). The fair market value of the
stock issued to Cabot at the time of the acquisition was not determinable,
therefore, no goodwill was recognized in the transaction. The negative book
value was netted against additional paid-in capital. On January 16, 1996,
4,804,960 shares were issued to Madison for all of its outstanding stock. The
net book value of Madison of $244,281 was recorded as the value of this
acquisition. The Company issued 350,000 shares to an investment banking firm
for services valued at $28,000 which were rendered in connection with the
acquisition. No relationship existed between the Company and the investment
banking firm prior to the services performed.
The merger with Madison was treated as a reverse acquisition and reorganization.
The 1995 financial statement presentation is that of Madison. The stockholders'
equity was retroactively restated for the equivalent number of shares issued in
the merger after giving effect to the difference in par value, plus the shares
outstanding in Natures Gift, Inc. at the time of the acquisition. As a result,
the stockholders' equity at December 31, 1995 is comparable with the
stockholders' equity presentation at December 31, 1996.
<PAGE> 63
CAPITAL STOCK (continued)
On April 26, 1996, the Company acquired EmaNate, a company specializing in
information systems, Internet consulting and front-page creations for web sites
on the Internet, in a business combination accounted for as a purchase. The
results of operations of EmaNate are included in the accompanying financial
statements since the date of acquisition. The Company issued 200,000 shares of
common stock with a fair value of $.80 per share, as determined by the Board of
Directors and a third-party investment banking firm, for all of the outstanding
stock of EmaNate. The acquisition resulted in goodwill of $224,507. The Company
is amortizing the resulting goodwill over a five-year period.
On March 5, 1996, the Company acquired Interactive Marketing Group, Inc.
("IMG"), a company specializing in yellow-page advertising on the Internet, in a
business combination accounted for as a purchase. The results of operations of
IMG are included in the accompanying financial statements since the date of
acquisition. The Company issued 204,350 shares of common stock (of which
151,787 shares are being held in escrow contingent on specified events
occurring in the future) with a fair value of $.80 per share, as determined by
the Board of Directors and a third-party investment banking firm, for all of the
outstanding stock of IMG. In acordance with Accounting Principles Board Opinion
No. 16, the contingent shares have not been accounted for in the purchase
accounting, but will be recorded if and when the contingency is resolved. The
acquisition resulted in negative goodwill of $(19,410). The Company is
amortizing the resulting negative goodwill over a five-year period.
1997 Stock Option Plan
On January 31, 1997, the Company adopted the 1997 Stock Option Plan (the
"Plan"). The Plan provides for the grant of options to purchase shares of the
Company's stock to employees. All employees of the Company are eligible to
participate in the Plan. The vesting requirements for individual option grants
is at the discretion of the Compensation Committee of the Board of Directors of
the Company. Each option expires no later than ten years after the date the
option is granted (five years if the option is granted to a 10 percent
stockholder). An option granted to an employee will expire (i) one year after
the employee's employment by the Company terminates because of death, disability
or retirement or (ii) a maximum 90 days after the employee's termination of
employment for any other reason.
At June 13, 1997, options to purchase 80,880 shares of common stock at a price
of $16.00 per share were outstanding. No shares were exercisable. A total of
750,000 shares have been reserved for issuance under the Plan.
(8) RELATED-PARTY TRANSACTIONS
The Company paid various related parties for advertising, rent and computer
graphic design services. During 1996 and 1995, Sierra Advertising received
$2,116,607 and $147,535, respectively, for advertising expenses. Sierra
Advertising is owned by two officers of the Company. The advertising expenses
are included in cost of revenues.
<PAGE> 64
(8) RELATED-PARTY TRANSACTIONS (continued)
The Company has a lease agreement for office space with RDR Properties ("RDR"),
which is owned by two officers of the Company. The Company pays $8,720 per month
to RDR. The rent expense as of December 31, 1996 and 1995 was $104,640 and $0,
respectively. In addition, RDR owes the Company $85,521 as of December 31, 1996
for certain leasehold improvements to the building, owned by RDR, paid for by
the Company.
Receivables of $14,536 are due from employees as of December 31, 1996.
The Company has notes payable to related parties which include amounts owing
certain directors, officers and stockholders of the Company totaling $145,082 as
of December 31, 1996 (See Note 4).
(9) SUBSEQUENT EVENT
Note Payable to Related Party
On January 2, 1997, a company loaned the Company $500,000. The note was due
March 1, 1997, bore interest at an annual rate of 10 percent and was secured by
certain property and inventory. Certain officers and directors have personally
guaranteed the note. On March 1, 1997, the Company defaulted on the note. Upon
default, all outstanding principal and interest became immediately due. Any
outstanding principal balance subsequent to March 1, 1997 bears interest at 13
percent.
(10) SUBSEQUENT EVENT (unaudited)
The Company effected a 1-for-8 reverse common stock split on February 12,
1998. All net income (loss) per common share amounts and common share data have
been restated for all periods, presented to reflect this reverse common stock
split.
<PAGE> 65
iMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
Assets
AS OF SEPTEMBER 30, 1997
------------------------
(Unaudited)
<S> <C>
Current Assets:
Cash $ 212,750
Restricted Cash 362,082
Accounts receivable - trade, net 138,531
Current portion of note receivable 136,250
Inventory 165,434
Prepaid expenses 29,459
------------
Total Current Assets 1,044,506
------------
Property and Equipment, Net 749,302
------------
Other Assets:
Goodwill, net 147,118
Note receivable, net of current portion 30,000
Deposits 25,701
Organization costs, net 1,053
------------
Total Other Assets 203,872
------------
Total Assets $1,997,680
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current portion of notes payable to related parties $280,385
Current portion of capitalized lease obligations 26,776
Note payable to stockholder 500,000
Accounts payable 1,158,328
Accrued payroll 188,104
Accrued royalties 96,030
Accrued interest payable to related party 19,509
Other accrued liabilities 92,371
Deferred revenue 477,504
------------
Total Current Liabilities 2,839,007
------------
Notes Payable to Related Parties, net of current portion 40,000
------------
Capitalized Lease Obligations, net of current portion 14,849
------------
Stockholders' Deficit:
Common stock, par value $.001; 300,000,000 shares
authorized, 7,716,617 shares outstanding 7,717
Additional paid-in capital 1,757,867
Accumulated deficit (2,661,760)
------------
Total Stockholders' Deficit (896,176)
------------
Total Liabilities and Stockholders' Deficit 1,997,680
============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 66
IMALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
----------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 4,457,658 $ 3,680,893 $ 13,649,695 $ 12,250,236
COST OF REVENUES 4,237,616 1,710,014 10,689,453 6,383,369
------------ ------------ ------------ ------------
GROSS MARGIN 220,042 1,970,879 2,956,242 5,866,867
GENERAL AND ADMINISTRATIVE EXPENSES 1,520,191 2,034,898 5,587,770 4,818,597
------------ ------------ ------------ ------------
Operating Income (Loss) (1,300,149) (64,019) (2,631,528) 1,048,270
------------ ------------ ------------ ------------
OTHER INCOME AND EXPENSES:
Other Income, net 78,760 42,379 147,431 129,770
Interest Income (Expense), net (28,940) 5,617 (58,235) 1,111
------------ ------------ ------------ ------------
Total Other Income, net 49,820 47,996 89,196 130,881
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (1,250,329) (16,023) (2,542,332) 1,179,151
PROVISION FOR INCOME TAXES 163,715 (59,115) 163,715 382,076
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (1,414,044) $ 43,092 $ (2,706,047) $ 797,075
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE $ (.19) $ .01 $ (.36) $ .11
============ ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 7,519,527 7,040,973 7,447,285 7,285,500
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 67
IMALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months For the Nine Months
Ended September 30, 1997 Ended September 30,1996
(Unaudited) (Unaudited)
--------------------------------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,706,047) $ 797,075
Increase (Decrease)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 389,415 179,041
Noncash expense related to issuance of shares
of common stock for services 220,925 28,000
Provision for losses on accounts receivable 18,462 33,835
Loss on disposal of property and equipment 1,236 6,342
Deferred income tax provision 163,715 (122,968)
Changes in assets and liabilities, net of effects from purchase of
subsidiaries:
Increase in accounts receivable (56,491) (107,818)
Decrease (Increase) in related-party receivable 85,521 (2,039)
Decrease in income tax receivable 276,940 -
Decrease (increase) in employee receivable 14,536 (19,011)
Increase in inventory (110,157) (62,969)
Decrease (Increase) in prepaid expenses 100,501 (191,648)
Increase (Decrease) in deposits (2,875) 2,930
Increase in accounts payable 490,902 157,618
Increase in accrued liabilities 33,832 110,269
Increase (Decrease) in interest payable to related party 6,750 (20)
Decrease (Increase) in income tax payable (41,068) 61,707
Increase in deferred revenues 141,329 325,708
----------- ----------
Net Cash Provided by (Used in) Operating Activities (972,574) 1,196,052
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received from acquisitions of subsidiaries - 110,350
Cash collections on notes receivable 75,750 (250,000)
Purchases of property and equipment (76,459) (725,855)
----------- ----------
Net Cash Used in Investing Activities (709) (865,505)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement of common stock 875,000 -
Proceeds from issuance of notes payable to stockholder 765,000 -
Proceeds from issuance of note payable to related party 175,303 -
Principal payment on notes payable (277,500) (12,500)
Cash paid for undistributed S-corp Earnings - (25,000)
Principal payments on obligations under capital leases (29,952) (13,229)
----------- ----------
Net Cash Provided by (Used in) Financing Activities 1,507,851 (50,729)
----------- ----------
Increase (Decrease) in Cash 534,568 279,818
CASH AT BEGINNING OF PERIOD 40,264 41,696
----------- ----------
CASH AND RESTRICTED CASH AT END OF PERIOD $ 574,832 $ 321,514
=========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 73,069 $ 7,386
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 68
IMALL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Interim Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements have been
prepared by the Company without audit. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows as of the
dates and for the periods presented herein have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission rules and regulations. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10-SB, as
amended. The results of operations for the three months and nine months ended
September 30, 1997, are not necessarily indicative of the operating results for
the year ended December 31, 1997. The accounting policies followed by the
Company are set forth in the notes to the Company's consolidated financial
statements in its Form 10-SB, as amended.
(2) Net Income (Loss) Per Common Share
Net income (loss) per common share is based on the weighted average number
of common shares outstanding for each period reported. Stock options and
warrants prior to conversion are not included in the calculation of any loss per
common share because their inclusion would be antidilutive, thereby reducing the
net loss per common share (see Note 4).
(3) Goodwill
On April 26, 1996, the Company acquired e.m.a.N.a.t.e., Inc.,
("e.m.a.N.a.t.e."), a company specializing in information systems, Internet
consulting and front-page creations for web sites on the Internet, in a business
combination accounted for as a purchase. The Company issued 200,000 shares of
common stock at $.80 per share, which was the fair value as determined by the
Company's Board of Directors, for all of the outstanding stock of e.m.a.N.a.t.e.
The acquisition resulted in the Company recording goodwill of $224,507. The
Company is amortizing goodwill over a five-year period.
On March 5, 1996, the Company acquired Inter-Active Marketing Group, Inc.
("IMG"), a company specializing in yellow page advertising on the Internet, in a
business combination accounted for as a purchase. The Company issued 204,350
shares of common stock (of which 151,787 shares were being held in escrow
contingent on specified events occurring in the future, which shares have
subsequently been returned to the treasury and retired) at
<PAGE> 69
$.80 per share, which was the fair value as determined by the Company's Board of
Directors, for all of the outstanding stock of IMG. The acquisition resulted in
the Company recording negative goodwill of $(19,410). The Company is amortizing
negative goodwill over a five-year period.
(4) Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128"). This statement specifies the computation, presentation, and
disclosure requirements for earnings per share ("EPS") for financial statements
issued for all periods ending after December 15, 1997. SFAS 128 simplifies the
standards for computing EPS in comparison to APB Opinion No. 15 and replaces the
presentations of Primary EPS and Fully Diluted EPS with a presentation of Basic
EPS and Diluted EPS.
(5) Income Taxes
During the three months ended September 30, 1997, in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", the Company reassessed the realizability of its deferred income tax
assets. As a result, the Company provided a valuation allowance against its
remaining deferred income tax assets due to the Company continuing to incur net
operating losses for financial reporting and income tax
reporting purposes.
(6) Restricted Cash
As of September 30, 1997, the Company had restricted cash totaling
$362,082 held by a bank for overdraft protection. This cash is collateral in
connection with a $350,000 loan from a third party (see note 7).
(7) Subsequent Events
On October 16, 1997, the Company entered into an agreement with certain
shareholders to repurchase 112,500 shares of Common Stock in exchange for a note
in the amount of $405,000. The maturity of this note is the earlier of November
30, 1997, or the closing of a financing of the Company with net proceeds of at
least $2,000,000. The unpaid portion of the purchase price bears interest at the
rate of 10% per year commencing on November 17, 1997.
On October 17, 1997, the Company received Board of Directors and
shareholder approval to (i) amend its articles of incorporation to authorize the
issuance of up to 10,000,000 shares of preferred stock, (ii) effect an up to
1-for-10 reverse stock split, which has not been effected as of November 14,
1997, and (iii) adopt the Company's 1997 Stock Option Plan.
<PAGE> 70
On October 20, 1997, a third party loaned $350,000 to the Company, secured
by a second position in restricted cash balances held at a bank. The loan amount
plus interest (computed at 12% per year) is due on or before December 31, 1997.
This note is personally guaranteed by each of Craig Pickering, Mark Comer, and
Richard Rosenblatt (officers of the Company).
The Company issued 46,154 shares of Common Stock during October 1997 to
independent investors in an unregistered offering exempt from registration
pursuant to Section 4(2) of the Securities Act in exchange for cash in the
amount of $150,000.
As of November 14, 1997, the Company was in the process of a $5,000,000 to
$20,000,000 private placement of Units, each Unit consisting of ( i) 25,000
shares of Series A 9% Convertible Preferred Stock, each of which is convertible
into 1.25 shares of Common Stock and (ii) Common Stock Purchase Warrants to
purchase 7,813 shares of Common Stock at an exercise price of $3.20 per share
(protected against dilution in certain situations).
The Company effected a 1-for-8 reverse common stock split on February 12,
1998. All net income (loss) per common share amounts and common share data have
been restated for all periods presented to reflect this reverse common stock
split.
<PAGE> 1
EXHIBIT 4.1
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
IMALL, INC.
We the undersigned as President and Secretary of iMall, Inc. to hereby
certify:
That the Board of Directors of said Corporation by unanimous written
consent adopted a resolution to amend the Articles of Incorporation, as amended,
as follows:
A. Delete Article IV in its entirety and substitute in its
place the following:
ARTICLE IV.
The total authorized capitalization of this Corporation shall
be 300,000,000 shares of Common Stock par value of $.001 per share and
10,000,000 shares of Preferred Stock par value of $.001 per share.
The shares of preferred stock authorized hereby may, when
authorized for issuance by the Board of Directors of this corporation,
be issued in series having such designations, powers, preferences,
rights and limitations, and on such terms and conditions as the Board
of Directors may from time to time determine including the rights, if
any, of the holders thereof with respect to voting, dividends,
redemption, liquidation and conversion.
Before this Amendment, 300,000,000 shares of Common Stock with a par
value of $.001 per share were authorized and of those authorized 61,742,239
shares were issued and outstanding. After this amendment, 300,000,000 shares of
Common Stock with a par value of $.001 per share and 10,000,000 shares of Common
Stock with a par value of $.001 per share will be authorized.
The said Amendment has been consented to and approved by a vote of the
shareholders holding an aggregate of 39,000,000 shares representing at least a
majority of the sole class of Common Stock outstanding and entitled to vote
thereon. The change is effective immediately.
/s/ MARK COMER
-----------------------------------
Mark Comer, President
/s/ CRAIG LEWIS
-----------------------------------
Craig Lewis, Secretary
<PAGE> 2
STATE OF UTAH )
) ss.
COUNTY OF )
--------------------
On this 14 day of November, 1997, personally appeared before me Mark
Comer and Craig Lewis, personally known to me or proved to me on the basis of
satisfactory evidence to be the persons whose names are signed on the preceding
document, and acknowledged to me that they signed it voluntarily for its stated
purpose.
/s/ STACEY DAVIS
-----------------------------------
NOTARY PUBLIC
2
<PAGE> 3
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A 9% CONVERTIBLE
PREFERRED STOCK
-OF-
iMALL, INC.
iMALL, INC., a corporation organized and existing under the laws of
the State of Nevada (the "Company"), by its President and Secretary, does hereby
certify that, pursuant to authority conferred upon the Board of Directors by
Article IV of the Articles of Incorporation, as amended, of the Company,
authorizing a class of 10,000,000 shares of preferred stock of the Company, the
Board of Directors of the Company, by unanimous written consent, has duly
adopted resolutions providing for the issuance out of such class of a series of
up to 5,000,000 shares of Series A 9% Convertible Preferred Stock at an issuance
price of $4.00 per share (the "Original Purchase Price") and setting forth the
voting powers, designation, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions
thereof, which resolution is as follows:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company in accordance with the provisions of its Articles of
Incorporation, as amended, there be, and hereby is, created out of the class of
10,000,000 shares of preferred stock of the Company authorized in Article IV of
its Articles of Incorporation, as amended, a series of preferred stock of the
Company with the following voting powers, designation, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions:
1. Designation and Number of Shares.
5,000,000 shares of preferred stock are hereby designated as
Series A 9% Convertible Preferred Stock (the "Series A Preferred Stock").
2. Dividends.
(A) Commencing on the date of issuance (the "Issuance Date"),
each issued and outstanding share of Series A Preferred Stock shall entitle the
holder of record thereof to receive, when, as and if declared by the Board of
Directors, out of any funds legally available therefor, dividends as follows:
for the period commencing with the first closing date (the "First Closing") of
the private placement of the Series A Preferred Stock pursuant to a Confidential
Placement Memorandum, dated November _, 1997 (the "Private Placement") through
Commonwealth Associates as placement agent until conversion, at the rate (the
"Dividend Rate") of $.36 per annum per share of Series A Preferred Stock,
subject to adjustment in each case as hereinafter set forth, for the semi-annual
period (or, in the case of the first dividend period, the period commencing on
the Date of Issuance) ending on the date immediately preceding the Dividend
Payment Date
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payable semi-annually on each January 2 and July 1 (the "Dividend Payment
Date"), to holders of record on December 15 and June 15 ("Dividend Record
Date"). Dividends per share shall be payable, at the Company's option, either
(i) in cash or (ii) in shares of Series A Preferred Stock, valued at $4.00 per
share.
(B) Dividends shall accrue from the date of issuance and shall
accrue from day to day, whether or not earned or declared. Cash dividends shall
be paid on the Series A Preferred Stock only when, as and if declared by the
Board of Directors, out of funds legally available therefor. Such dividends
shall be cumulative so that, if such dividends in respect of any previous or
current semi-annual period, at the annual rate specified above (subject to
adjustment as herein provided), shall not have been paid or declared and a sum
sufficient for payment thereof set apart, the deficiency shall first be fully
paid before any dividend or other distribution shall be paid on or set apart for
any equity securities of the Company which is junior to the Series A Preferred
Stock. Any accumulation of dividends on the Series A Preferred Stock shall not
bear interest.
(C) Unless full cumulative dividends on the Series A Preferred
Stock for all past dividend periods and the then current dividend period shall
have been paid or declared and a sum sufficient for the payment thereof set
apart: (i) no dividend whatsoever shall be paid or declared, and no distribution
shall be made, on any equity security of the Company which is junior to the
Series A Preferred Stock, and (ii) no shares of any equity security which is
junior to the Series A Preferred Stock of the Company shall be purchased,
redeemed, or acquired by the Company and no funds shall be paid into or set
aside or made available for a sinking fund for the purchase, redemption, or
acquisition thereof.
(D) As set forth in the Company's Articles of Incorporation,
as amended, the par value of the Series A Preferred Stock is $.001 per share.
(E) If any dividend previously due on the Series A Preferred
Stock has not been paid in full, then no dividends shall be paid or declared
upon any shares of any class or series of stock of the Company ranking on a
parity with the Series A Preferred Stock in the payment of dividends for any
period unless a like proportionate dividend for the current period, ratably in
proportion to the respective annual dividend rates fixed thereupon, shall be
paid upon or declared for the Series A Preferred Stock then issued and
outstanding.
(F) In the event of a split or subdivision of the outstanding
shares of Series A Preferred Stock, or the combination or the outstanding shares
of Series A Preferred Stock, as the case may be, the dividends provided for in
this Section 2 shall automatically and without any further action be decreased,
in the case of a split or subdivision, or increased, in the case of a
combination, in proportion to the increase or decrease in the number of shares
of Series A Preferred Stock outstanding immediately before such split,
subdivision or combination.
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3. Redemption.
The Series A Preferred Stock is not redeemable.
4. Liquidation
Upon any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary ("Liquidation"), the holders of record
of the shares of the Series A Preferred Stock shall be entitled to receive,
before and in preference to any distribution or payment of assets of the Company
or the proceeds thereof may be made or set apart for the holders of Common Stock
of the Company, par value $.001 per share (the "Common Stock") or any other
security junior to the Series A Preferred Stock in respect of distributions upon
Liquidation out of the assets of the Company legally available for distribution
to its stockholders, an amount in cash equal to the Original Purchase Price per
share (subject to adjustment if the Series A Preferred Stock has been adjusted
pursuant to Paragraph 2(F) hereof) plus an amount equal to accrued and unpaid
dividends on each share of Series A Preferred Stock on the date fixed for the
distribution of assets of the Company (the "Liquidation Preference"). If, upon
such Liquidation, the assets of the Company available for distribution to the
holders of Series A Preferred Stock and any other series of preferred stock then
outstanding ranking on parity with the Series A Preferred Stock upon liquidation
("Parity Stock") shall be insufficient to permit payment in full to the holders
of the Series A Preferred Stock and Parity Stock, then the entire assets and
funds of the Company legally available for distribution to such holders and the
holders of the Parity Stock then outstanding shall be distributed ratably among
the holders of the Series A Preferred Stock and Parity Stock based upon the
proportion the total amount distributable on each share upon liquidation bears
to the aggregate amount available for distribution on all shares of the Series A
Preferred Stock and of such Parity Stock, if any. A merger or consolidation
shall be considered a Liquidation except in the event that in such a
transaction, the holders of the Series A Preferred Stock receive securities of
the surviving corporation having substantially similar rights as the Series A
Preferred Stock and the stockholders of the Company immediately prior to such
transaction are holders of at least a majority of the voting securities of the
surviving corporation immediately thereafter. Notwithstanding Section 7 hereof,
such provision may be waived in writing by a majority of the holders of the then
outstanding Series A Preferred Stock.
5. Priority.
(A) So long as any shares of Series A Preferred Stock shall be
outstanding, no dividends, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on the Common Stock of the
Company or any other security junior to the Series A Preferred Stock as to
dividend rights, unless all dividends on the Series A Preferred Stock for all
past quarterly dividend periods and the full dividends for the then current
semi-annual period shall have been paid or declared and duly provided for. The
provisions of this Section 5 shall not, however, apply to a dividend payable in
Common Stock or any other security of the Company junior to the Series A
Preferred
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<PAGE> 6
Stock. If any dividend previously due on the Series A Preferred Stock has not
been paid in full, then no dividends shall be paid or declared upon any shares
of any class or series of stock of the Company ranking on a parity with the
Series A Preferred Stock in the payment of dividends for any period unless a
like proportionate dividend for the current period, ratably in proportion to the
respective annual dividend rates fixed thereupon, shall be paid upon or declared
for the Series A Preferred Stock then issued and outstanding.
(B) The Company may issue, in the future, without the consent
of holders of the Series A Preferred Stock, other series of preferred stock
which rank on parity with or junior to the Series A Preferred Stock as to
dividend and/or liquidation rights. In accordance with Paragraph 7(C) hereof,
the consent of the holders of two-thirds of the outstanding shares of the Series
A Preferred Stock is required for the issuance of any series of preferred stock
which is senior as to dividend and/or liquidation rights to the Series A
Preferred Stock.
6. Conversion Rights.
Each holder of record of shares of the Series A Preferred
Stock shall have the right to convert all or any part of such holder's share of
Series A Preferred Stock into Common Stock as follows:
(A) Voluntary Conversion. Each share of the Series A Preferred
Stock shall be convertible at any time, at the option of the respective holders
thereof, at the office of any transfer agent for the Series A Preferred Stock,
or if there is none, then at the office of the transfer agent for the Common
Stock, or if there is no such transfer agent, at the principal executive office
of the Company, into that number of fully paid and non-assessable shares of
Common Stock of the Company equal to the Original Purchase Price divided by the
conversion price in effect at the time of conversion (the "Conversion Price"),
determined as hereinafter provided. The Conversion Price shall initially be
$.40. The number of shares of Common Stock into which each share of Preferred
Stock is convertible is herein referred to as the "Conversion Rate." Dividends
accrued and payable at the time of conversion shall be paid, at the Company's
option, either (i) in cash or (ii) in such number of shares of Series A
Preferred Stock equal to the quotient resulting from dividing the amount of any
unpaid and accrued dividends by the Conversion Price. For purposes of this
Paragraph 6(A), such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series A Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date.
(B) Automatic Conversion. Commencing one year after the final
closing of the Private Placement (the "Final Closing"), at the Company's option
upon 30 days' prior written notice to each holder of record, each share of
Series A Preferred Stock then outstanding shall, by virtue of such conditions
and without any action on the part of the holder thereof, be deemed
automatically converted into that number of shares of
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<PAGE> 7
Common Stock into which the Series A Preferred Stock would then be converted at
the then effective Conversion Rate provided (i) the closing price (determined,
other than the time period, in accordance with Paragraph 6(G)(ii)) of the
Company's Common Stock equals or exceeds $1.00 per share for 30 consecutive
trading days and (ii) a registration statement covering the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock has been declared
effective by the Securities and Exchange Commission. The Company's right to
force conversion pursuant to this Paragraph 6(B) shall terminate on the fifth
anniversary of the Final Closing.
(C) Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Company or of any transfer agent for the
Series A Preferred Stock, and shall give written notice to the Company at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Company shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series A
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid.
(D) All Common Stock which may be issued upon conversion of
the Series A Preferred Stock will, upon issuance, be duly issued, fully paid and
non-assessable and free from all taxes, liens, and charges with respect to the
issuance thereof. At all times that any shares of Series A Preferred Stock are
outstanding, the Company shall have authorized and shall have reserved for the
purpose of issuance upon such conversion into Common Stock of all Series A
Preferred Stock, a sufficient number of shares of Common Stock to provide for
the conversion of all outstanding shares of Series A Preferred Stock at the then
effective Conversion Rate. Without limiting the generality of the foregoing, if,
at any time, the Conversion Price is decreased, the number of shares of Common
Stock authorized and reserved for issuance upon the conversion of the Series A
Preferred Stock shall be proportionately increased.
(E) The Conversion Price shall be subject to adjustment from
time to time as follows:
(i) (a) In case the Company shall issue shares of
Common Stock or any securities convertible into or exchangeable for Common
Stock, other than "Excluded Securities" (as defined below), for a consideration
per share (the "Offering Price") less than the Conversion Price, the Conversion
Price shall be adjusted immediately thereafter so that it shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the date of issuance by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock which the aggregate
consideration received for the issuance of such additional shares would purchase
at the Conversion Price in effect immediately prior to the date of such
issuance, and the denominator of which shall be the number of shares of Common
Stock outstanding
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<PAGE> 8
immediately after the issuance of such additional shares. Such adjustment shall
be made successively whenever such an issuance is made. Notwithstanding anything
to the contrary contained herein, in the event that at any time during the
18-month period following the final closing of the Private Placement, the
closing price of the Company's Common Stock (determined in accordance with the
provisions of the second sentence of Paragraph 6(G)(ii) hereof), is less than
$.40, the Conversion Price shall be automatically adjusted to equal such lower
market price. In addition, notwithstanding anything to the contrary contained
herein, in the event the Company shall, at any time during the 18-month period
commencing on the date of the initial closing of the Private Placement, sell any
shares of Common Stock for a consideration per share less than the Conversion
Price (including the securities described in subparagraphs 6(E)(ii)(c) and
6(E)(ii)(d)), the Conversion Price shall be immediately adjusted to equal such
issuance price. The provisions of this subparagraph 6(E)(i) shall not apply
retroactively to any Series A Preferred Stock which has been converted prior to
the date of the adjustment.
(b) Except as otherwise provided in subparagraph
6(E)(iii) below, in no event shall the Conversion Price be increased above the
initial Conversion Price, as otherwise adjusted pursuant to this Section 6.
(c) Upon each adjustment of the Conversion Price
pursuant to this subparagraph 6(E)(i). the total number of shares of Common
Stock purchasable upon the conversion of each share of Series A Preferred Stock
shall be such number of shares (calculated to the nearest one-hundredth and
pursuant to the terms of subparagraph 6(G)(i); provided, however, that in no
event shall the Conversion Price increase as a result of such rounding
calculation) purchasable at the Conversion Price in effect immediately prior to
such adjustment multiplied by a fraction, the numerator of which shall be the
Conversion Price in effect immediately prior to such adjustment and the
denominator of which shall be the Conversion Price in effect immediately after
such adjustment.
(d) No adjustment in the Conversion Price or the
number of shares of Common Stock into which a share of Series A Preferred Stock
may be converted shall be required unless such adjustment (plus any adjustments
not previously made by reason of this subparagraph (d)) would require an
increase or decrease of at least 1% in the number of shares of Common Stock into
which each share of the Series A Preferred Stock is then convertible, provided,
however, that any adjustments which are not required to be made by reason of
this subparagraph (d) shall be carried forward and taken into account in any
subsequent adjustment. All calculations and adjustments shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
(e) After each adjustment of the Conversion
Price the Company shall promptly prepare a certificate signed by its President
or Chief Financial Officer and a Secretary or Assistant Secretary setting forth
the Conversion Price, as so adjusted; the number of shares of Common Stock into
which the Series A Preferred Stock may be
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<PAGE> 9
converted, and a statement of the facts upon which such adjustment is based, and
such certificate shall forthwith be filed with the transfer agent, if any, for
the Series A Preferred Stock, and the Company shall cause such a copy of
statement to be sent by ordinary first class mail to each holder of Series A
Preferred Stock.
(f) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this Company for any underwriting or otherwise in
connection with the issuance and sale thereof.
(g) In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined in good
faith by the Board of Directors.
(h) In the case of the issuance after the Issuance
Date of options to purchase or rights to subscribe for Common Stock, securities
by their terms convertible into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or exchangeable securities,
the following provisions shall apply for all purposes of this subparagraph
6(E)(i) and subparagraph 6(E)(ii):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the
satisfaction of any conditions to exercisability, including
without limitation, the passage of time, but without taking
into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options
or rights were issued and for a consideration (determined in
the manner provided in subparagraphs 6(E)(i)(f) and
6(E)(i)(g)), if any, received by the Company upon the issuance
of such options or rights plus the minimum exercise price
provided in such options or rights (without taking into
account potential antidilution adjustments) for the Common
Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for
(assuming the satisfaction of any conditions to convertibility
or exchangeability, including, without limitation, the passage
of time, but without taking into account potential
antidilution adjustments) any such convertible or exchangeable
securities or upon the exercise of options to purchase or
rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof,
shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued
and for a consideration equal to the consideration, if any,
received by the Company for any such securities
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<PAGE> 10
and related options or rights (excluding any cash received on
account of accrued interest or accrued dividends), plus the
minimum additional consideration, if any, to be received by
the Company (without taking into account potential
antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or
rights (the consideration in each case to be determined in the
manner provided in subparagraphs 6(E)(i)(f) and 6(E)(i)(g)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration
payable to the Company upon exercise of such options or rights
or upon conversion of or in exchange for such convertible or
exchangeable securities (excluding a change resulting solely
from the antidilution provisions thereof if such change
results from an event which gives rise to an antidilution
adjustment under this Paragraph 6(E)), the Conversion Price of
the Series A Preferred Stock, to the extent in any way
affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change, but no
further adjustment shall be made for the actual issuance of
Common Stock or any payment of such consideration upon the
exercise of any such options or rights or the conversion or
exchange of such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to
such convertible or exchangeable securities, the Conversion
Price of the Series A Preferred Stock, to the extent in any
way affected by or computed using such options, rights or
securities or options or rights related to such securities,
shall be recomputed to reflect the issuance of only the number
of shares of Common Stock (and convertible or exchangeable
securities which remain in effect) actually issued upon the
exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the
options or rights related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to
subparagraphs 6(E)(i)(h)(1) and (2) shall be appropriately
adjusted to reflect any change, termination or expiration of
the type described in either subparagraph 6(E)(i)(h)(3) or
(4).
(6) Notwithstanding the provisions of subparagraphs
6(E)(i)(h)(1)-(5) above, in the event that on or after the
date hereof the Company issues any options to purchase or
rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such
convertible or exchangeable
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securities, if the conversion or exercise price is not then
determinable or is based on future events, such shares of
Common Stock shall not be deemed to be issued until the price
is determinable or such event has occurred and the conversion
or exercise price shall be subject to adjustment pursuant to
subparagraph 6(E)(i) above at the time of such determination
or the occurrence of such event even if the price is
determined or such event occurs after such date.
(i) In the event that the Company fails to (i)
effect a Registration Statement covering the securities sold in the Private
Placement within seven months of the Initial Closing or (ii) make any
semi-annual dividend payment when due, the Conversion Price then in effect shall
be adjusted downward by 10%.
(ii) The following issuances of Common Stock ("Excluded
Securities") shall be excluded from the adjustments set forth in this Paragraph
6(E) (except as otherwise set forth in Paragraph 6(E)(i)(a)):
(a) shares of capital stock issued pursuant to a
stock dividend or a stock split or other subdivision or recombination of shares;
(b) Common Stock issued upon exercise of any
warrants, options or other securities outstanding on the date of the Final
Closing;
(c) securities issued by the Company in an
underwritten public offering at not less than the then market price of the
Common Stock (determined in accordance with the provisions of Paragraph
6(G)(ii));
(d) securities issued pursuant to the direct or
indirect bona fide acquisition by the Company of any Person, whether by merger,
purchase of stock, purchase of assets or otherwise;
(e) securities issued upon exercise, conversion or
exchange of capital stock, rights, options or subscription calls, warrants or
other securities;
(f) Common Stock or options or warrants to purchase
Common Stock issued to officers, directors or employees of or consultants to the
Company pursuant to any compensation agreement, plan or arrangement or the
issuance of Common Stock upon the exercise of any such options or warrants,
provided such issuances do not exceed 10% of the Company's outstanding Common
Stock and preferred stock on the date of the Final Closing; and
(iii) In case the Company shall (a) issue Common Stock as
a dividend or distribution on any class of the capital stock of the Company, (b)
split or otherwise subdivide its outstanding Common Stock, (c) combine the
outstanding Common Stock
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into a smaller number of shares, or (d) issue by reclassification of its Common
Stock (except in the case of a merger, consolidation or sale of all or
substantially all of the assets of the Company as set forth in subparagraph
6(E)(iv) below) any shares of the capital stock of the Company, any shares of
the capital stock of the Company, the Conversion Price in effect on the record
date for any stock dividend or the effective date of any such other event shall
be decreased (or increased in the case of a reverse stock split) so that the
holder of each share of the Series A Preferred Stock shall thereafter be
entitled to receive, upon the conversion of such share, the number of shares of
Common Stock or other capital stock which it would own or be entitled to receive
immediately after the happening of any of the events mentioned above had such
share of the Series A Preferred Stock been converted immediately prior to the
close of business on such record date or effective date. The adjustments herein
provided shall become effective immediately following the record date for any
such stock dividend or the effective date of any such other events. There shall
be no reduction in the Conversion Price in the event that the Company pays a
cash dividend.
(iv) In case of any reclassification or similar change
of outstanding shares of Common Stock of the Company, or in case of the
consolidation or merger of the Company with another corporation, or the
conveyance of all or substantially all of the assets of the Company in a
transaction in which holders of the Common Stock receive shares of stock or
other property including cash, each share of the Series A Preferred Stock shall,
after such event and subject to the other rights of the Series A Preferred Stock
as set forth elsewhere herein, be convertible only into the number of shares of
stock or other securities or property, including cash, to which a holder of the
number of shares of Common Stock of the Company deliverable upon conversion of
such shares of the Series A Preferred Stock would have been entitled upon such
reclassification, change, consolidation, merger or conveyance had such share
been converted immediately prior to the effective date of such event.
(F) The Company shall at all times reserve and keep available,
out of its authorized but unissued shares of Common Stock or out of shares of
Common Stock held in its treasury, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, the full number of
shares of Common Stock deliverable upon the conversion of all shares of the
Series A Preferred Stock from time to time outstanding. The Company shall from
time to time in accordance with Nevada law take all steps necessary to increase
the authorized amount of its Common Stock if at any time the authorized number
of shares of Common Stock remaining unissued shall not be sufficient to permit
the conversion of all of the shares of the Series A Preferred Stock.
(G) (i) No fractional shares or scrip representing fractional
shares of Common Stock shall be issued upon the conversion of the Series A
Preferred Stock. In lieu of any fractional shares to which a holder would
otherwise be entitled, the Company shall pay cash, equal to such fraction
multiplied by the closing price (determined as
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provided in subparagraph (ii) of this Paragraph 6(G) of the Common Stock on the
day of conversion.
(ii) For the purposes of any computation under
subparagraph 6(G)(i), the current market price per share of Common Stock on any
date shall be deemed to be the average of the daily closing prices for the 20
consecutive business days prior to the day in question. The closing price for
each day shall be the last sales price regular way or in case no sale takes
place on such day, the average of the closing high bid and low asked prices
regular way, in either case (a) as officially quoted by the Nasdaq SmallCap
Market or the Nasdaq National Market or such other market on which the Common
Stock is then listed for trading, or (b) if, in the reasonable judgment of the
Board of Directors of the Company, the Nasdaq SmallCap Market or the Nasdaq
National Market is no longer the principal United States market for the Common
Stock, then as quoted on the principal United States market for the Common
Stock, as determined by the Board of Directors of the Company, or (c) if, in the
reasonable judgment of the Board of Directors of the Company, there exists no
principal United States market for the Common Stock, then as reasonably
determined by the Board of Directors of the Company.
(H) The Company will pay any taxes that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of
shares of the Series A Preferred Stock. However, the Company shall not be
required to pay any tax which may be payable in respect to any transfer involved
in the issue and delivery of shares of Common Stock upon conversion in a name
other than that in which the shares of the Series A Preferred Stock so converted
were registered, and no such issue or delivery shall be made unless and until
the person requesting such issue or delivery has paid to the Company the amount
of any such tax, or has established, to the satisfaction of the Company, that
such tax has been paid.
(I) The Company will not, by amendment of its Articles of
Incorporation, as amended, or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 6 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Series A Preferred Stock against impairment.
(J) No shares of Series A Preferred Stock which have been
converted to Common Stock shall be reissued by the Company, provided, however,
that any such share, upon being converted and cancelled, shall be restored to
the status of an authorized but unissued share of preferred stock without
designation as to series, rights or preferences and may thereafter be issued as
a share of preferred stock not designated as Series A Preferred Stock.
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7. Voting Rights.
(A) In addition to any other rights provided for herein or by
law, the holders of Series A Preferred Stock shall be entitled to vote, together
with the holders of Common Stock as one class, on all matters as to which
holders of Common Stock shall be entitled to vote, in the same manner and with
the same effect as such Common Stock holders. In any such vote each share of
Series A Preferred Stock shall entitle the holder thereof to the number of votes
per share that equals the number of whole shares of Common Stock into which each
such share of Series A Preferred Stock is then convertible, calculated to the
nearest of a share.
(B) In the event that the holders of the Series A Preferred
Stock are required to vote as a class, the affirmative vote of holders of not
less than two-thirds of the outstanding shares of Series A Preferred Stock shall
be required to approve each such matter to be voted upon and if any matter is
approved by such requisite percentage of holders of Series A Preferred Stock,
such matter shall bind all holders of Series A Preferred Stock.
(C) So long as any shares of the Series A Preferred Stock
remain outstanding, the consent of the holders of a two-thirds of the then
outstanding Series A Preferred Stock, voting as one class, together with any
other series of preferred stock then entitled to vote on such matter, regardless
of series, either expressed in writing or at a meeting called for that purpose,
shall be necessary to permit, effect or validate the creation and issuance of
any series of preferred stock of the Company which is senior as to liquidation
and/or dividend rights to the Series A Preferred Stock.
(D) So long as any shares of the Series A Preferred Stock
remain outstanding, the consent of two-thirds of the holders of the then
outstanding Series A Preferred Stock, voting as one class, either expressed in
writing or at a meeting called for that purpose, shall be necessary to repeal,
amend or otherwise change this Certificate of Designation, Preferences and
Rights or the Articles of Incorporation of the Company, as amended, in a manner
which would alter or change the powers, preferences, rights privileges,
restrictions and conditions of the Series A Preferred Stock so as to adversely
affect the Preferred Stock.
(E) Each share of the Series A Preferred Stock shall entitle
the holder thereof to one vote on all matters to be voted on by the holders of
the Series A Preferred Stock, as set forth above.
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8. Miscellaneous.
(A) There is no sinking fund with respect to the Series A
Preferred Stock.
(B) The shares of the Series A Preferred Stock shall not have
any preferences, voting powers or relative, participating, optional, preemptive
or other special rights except as set forth above in this Certificate of
Designation, Preferences and Rights and in the Articles of Incorporation of the
Company, as amended.
(C) The holders of the Series A Preferred Stock shall be
entitled to receive all communications sent by the Company to the holders of the
Common Stock.
IN WITNESS WHEREOF, iMALL, INC., Inc. has caused this Certificate to
be signed by Mark Comer, its President, and Craig Lewis, its Secretary, on this
14th day of November, 1997, and such persons hereby affirm under penalty of
perjury that this Certificate is the act and deed of iMall, Inc. and that the
facts stated herein are true and correct.
/s/ MARK COMER
---------------------------------------------
Mark Comer, President
/s/ CRAIG LEWIS
---------------------------------------------
Craig Lewis, Secretary
STATE OF UTAH )
) ss.
COUNTY OF )
--------------------
On this 14 day of November, 1997, personally appeared before me Mark
Comer and Craig Lewis, personally known to me or proved to me on the basis of
satisfactory evidence to be the persons whose names are signed on the preceding
document, and acknowledged to me that they signed it voluntarily for its stated
purpose.
/s/ Stacey Davis
---------------------------------------------
NOTARY PUBLIC
15
<PAGE> 16
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A 9% CONVERTIBLE
PREFERRED STOCK
OF
IMALL, INC.
We, the undersigned as President and Secretary of iMall, Inc., do
hereby certify:
That the Board of Directors of said Corporation by unanimous written
consent adopted a resolution to further amend the Certificate of Designation,
Preferences and Rights of Series A 9% Convertible Preferred Stock of the
Corporation, which was filed by the Secretary of State of Nevada on November 18,
1997, as such Certificate was amended by Certificate of Amendment filed on
December 3, 1997, as follows:
6. Conversion Rights.
"(E) (i) (a) In case the Company shall issue shares of
Common Stock or any securities convertible into or
exchangeable for Common Stock, other than "Excluded
Securities" (as defined below), for a consideration per
share (the "Offering Price") less than the Conversion Price,
the Conversion Price shall be adjusted immediately
thereafter so that it shall equal the price determined by
multiplying the Conversion Price in effect immediately prior
to the date of issuance by a fraction, the numerator of
which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock
which the aggregate consideration received for the issuance
of such additional shares would purchase at the Conversion
Price in effect immediately prior to the date of such
issuance, and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after the
issuance of such additional shares. Such adjustment shall be
made successively whenever such an issuance is made.
Notwithstanding anything to the contrary contained herein,
in the event that at any time during the 18-month period
following the final closing of the Private Placement, the
market price of the Company's Common Stock (determined
<PAGE> 17
in accordance with the provisions of Paragraph 6(G)(ii)
hereof), is less than $.40, the Conversion Price shall be
automatically adjusted to equal such lower market price. In
addition, notwithstanding anything to the contrary contained
herein, in the event the Company shall, at any time during
the 18-month period commencing on the date of the initial
closing of the Private Placement, sell any shares of Common
Stock for a consideration per share less than the Conversion
Price (including the securities described in subparagraphs
6(E)(ii)(c) and 6(E)(ii)(d)), the Conversion Price shall be
immediately adjusted to equal such issuance price. The
provisions of this subparagraph 6(E)(i) shall not apply
retroactively to any Series A Preferred Stock which has been
converted prior to the date of the adjustment.
Signed on December 4, 1997
/s/ Mark Comer
-------------------------------
Mark Comer, President
/s/ Craig Lewis
-------------------------------
Craig Lewis, Secretary
STATE OF UTAH )
) ss.
COUNTY OF_________________________)
On this 4th day of December, 1997, personally appeared before me Mark Comer and
Craig Lewis, personally known to me or proved to me on the basis of satisfactory
evidence to be the persons whose names are signed on the preceding document, and
acknowledged to me that they signed it voluntarily for its stated purpose.
------------------------------------
NOTARY PUBLIC
2
<PAGE> 18
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A 9% CONVERTIBLE
PREFERRED STOCK
OF
IMALL, INC.
We, the undersigned as President and Secretary of iMall, Inc., do
hereby certify:
That the Board of Directors of said Corporation by unanimous written
consent adopted a resolution to amend the Certificate of Designation,
Preferences and Rights of Series A 9% Convertible Preferred Stock of the
Corporation, which was filed by the Secretary of State of Nevada on November 18,
1997, as follows:
6. Conversion Rights.
"(E) (i) (a) In case the Company shall issue shares of
Common Stock or any securities convertible into or
exchangeable for Common Stock, other than "Excluded
Securities" (as defined below), for a consideration per
share (the "Offering Price") less than the Conversion Price,
the Conversion Price shall be adjusted immediately
thereafter so that it shall equal the price determined by
multiplying the Conversion Price in effect immediately prior
to the date of issuance by a fraction, the numerator of
which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock
which the aggregate consideration received for the issuance
of such additional shares would purchase at the Conversion
Price in effect immediately prior to the date of such
issuance, and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after the
issuance of such additional shares. Such adjustment shall be
made successively whenever such an issuance is made.
Notwithstanding anything to the contrary contained herein,
in the event that at any time during the 18-month period
following the final closing of the Private Placement, the
market price of the Company's Common Stock (determined in
accordance with the provisions of the second sentence of
<PAGE> 19
Paragraph 6(G)(ii) hereof), is less than $.40, the
Conversion Price shall be automatically adjusted to equal
such lower market price. In addition, notwithstanding
anything to the contrary contained herein, in the event the
Company shall, at any time during the 18-month period
commencing on the date of the initial closing of the Private
Placement, sell any shares of Common Stock for a
consideration per share less than the Conversion Price
(including the securities described in subparagraphs
6(E)(ii)(c) and 6(E)(ii)(d)), the Conversion Price shall be
immediately adjusted to equal such issuance price. The
provisions of this subparagraph 6(E)(i) shall not apply
retroactively to any Series A Preferred Stock which has been
converted prior to the date of the adjustment.
This said Amendment has been consented to and approved by a vote of
the shareholders holding an aggregate of 39,000,000 shares representing at least
a majority of the sole class of Common Stock outstanding and entitled to vote
thereon. The change is effective immediately.
Signed on December 2, 1997
/s/ Mark Comer
-------------------------------
Mark Comer, President
/s/ Craig Lewis
-------------------------------
Craig Lewis, Secretary
STATE OF UTAH )
) ss.
COUNTY OF________________________)
On this ____ day of December, 1997, personally appeared before me Marc Comer and
Craig Lewis, personally known to me or proved to me on the basis of satisfactory
evidence to be the persons whose names are signed on the preceding document, and
acknowledged to me that they signed it voluntarily for its stated purpose.
------------------------------------
NOTARY PUBLIC
2
<PAGE> 20
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A 9% CONVERTIBLE
PREFERRED STOCK
OF
IMALL, INC.
We, the undersigned as President and Secretary of iMall, Inc., do
hereby certify:
That the Board of Directors of said Corporation by unanimous written
consent adopted a resolution to further amend the Certificate of Designation,
Preferences and Rights of Series A 9% Convertible Preferred Stock of the
Corporation, which was filed by the Secretary of State of Nevada on November 18,
1997, as such Certificate was amended by Certificates of Amendment filed on
December 3, 1997 and December 4, 1997, as follows:
Paragraph 1 is deleted and amended in its entirety as
follows:
1. Designation and Number of Shares
5,250,000 shares of preferred stock are hereby designated
as Series A 9% Convertible Preferred Stock (the "Series A
Preferred Stock").
Signed on December 15, 1997
/s/ Mark Comer
-------------------------------
Mark Comer, President
/s/ Craig Lewis
-------------------------------
Craig Lewis, Secretary
STATE OF UTAH )
) ss.
COUNTY OF___________)
On this ____ day of December, 1997, personally appeared before me Mark Comer and
Craig Lewis, personally known to me or proved to me on the basis of satisfactory
evidence to be the persons whose names are signed on the preceding document, and
acknowledged to me that they signed it voluntarily for its stated purpose.
------------------------------------
NOTARY PUBLIC
<PAGE> 1
EXHIBIT 4.2
iMALL, Inc.
AGENCY AGREEMENT
Commonwealth Associates
830 Third Avenue
New York, New York 10022
as of November 26, 1997
Gentlemen:
iMALL, INC. a Nevada corporation (the "Company"), proposes to offer
for sale to "accredited investors", in a private placement, up to 200 units
("Units"), each Unit consisting of 25,000 shares ("Shares") of the Company's
Series A 9% Convertible Preferred Stock ("Preferred Stock") and 62,500 common
stock purchase warrants ("Warrants"). Such offering and sale are referred to
herein as the "Offering." Each Warrant will be exercisable during the four-year
period commencing one year after the initial closing to purchase one share of
the Company's Common Stock, $.001 par value (the "Common Stock"), at an exercise
price of $.40 per share. A minimum of 50 Units ("Minimum Offering") and a
maximum of 200 Units ("Maximum Offering") will be sold in the offering at
$100,000 per Unit. The Units will be offered pursuant to those terms and
conditions acceptable to you as reflected in the Private Placement Memorandum
(the "Memorandum"). Of the Units, 50 will be offered on a "best efforts -
all-or-none" basis and the remaining 150 Units will be offered on a "best
efforts" basis. The Units are being offered pursuant to the Memorandum and
related documents in accordance with Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act") and Regulation D promulgated thereunder. The
Preferred Stock shall have the rights and preferences set forth in the form of
Certificate of Designation, Preferences and Rights (the "Designation").
Commonwealth Associates is sometimes referred to herein as the
"Placement Agent." The Memorandum (including the exhibits thereto), as it may be
amended from time to time, and the form of proposed subscription agreement
between the Company and each subscriber (the "Subscription Agreement") and the
exhibits which are part of the Memorandum and/or Subscription Agreement are
collectively referred to herein as the "Offering Documents."
The Company will prepare and deliver to the Placement Agent a
reasonable number of copies of the Offering Documents in form and substance
satisfactory to counsel to the Placement Agent.
Each prospective investor subscribing to purchase Units
("Subscriber") will be required to deliver, among other things, a Subscription
Agreement and a confidential purchaser questionnaire ("Questionnaire") in the
form to be provided to offerees. Capitalized terms used herein, unless otherwise
defined or unless the context
<PAGE> 2
otherwise indicates, shall have the same meanings provided in the Offering
Documents.
1. Appointment of Placement Agent.
(a) You are hereby appointed exclusive Placement Agent
of the Company (subject to your right to have Selected Dealers, as defined in
Section 1(c) hereof, participate in the Offering) during the Offering Period
herein specified for the purposes of assisting the Company in finding qualified
Subscribers pursuant to the offering (the "Offering") described in the Offering
Documents. The Offering Period shall commence on the day (the "Commencement
Date") the Offering Documents are first made available to you by the Company for
delivery in connection with the offering for sale of the Units and shall
continue until the earlier to occur of (i) the sale of all of the Maximum
Offering or (ii) 60 days after the Commencement Date (unless extended for a
period of up to 60 days under circumstances specified in the Memorandum). If the
Minimum Offering is not sold prior to the end of the Offering Period, the
Offering will be terminated and all funds received from Subscribers will be
returned, without interest and without any deduction. The day that the Offering
Period terminates is hereinafter referred to as the "Termination Date."
(b) Subject to the performance by the Company of all of
its obligations to be performed under this Agreement and to the completeness and
accuracy of all representations and warranties of the Company contained in this
Agreement, Commonwealth Associates hereby accepts such agency and agrees to use
its best efforts to assist the Company in finding qualified subscribers pursuant
to the Offering described in the Offering Documents. It is understood that the
Placement Agent has no commitment to sell the Units. Your agency hereunder is
not terminable by the Company except upon termination of the Offering Period.
(c) You may engage other persons, selected by you in
your discretion, that are members of the National Association of Securities
Dealers, Inc., ("NASD") and that have executed a Selected Dealers Agreement
substantially in the form attached hereto as Schedule A, to assist you in the
Offering (each such person being hereinafter referred to as a "Selected Dealer")
and you may allow such persons such part of the compensation and payment of
expenses payable to you hereunder as you shall determine. Each Selected Dealer
shall be required to agree in writing to comply with the provisions of, and to
make the representations, warranties and covenants contained in, this Section 1.
(d) Subscriptions for Units shall be evidenced by the
execution by Subscribers of a Subscription Agreement. No Subscription Agreement
shall be effective unless and until it is accepted by the Company. Any
subscription may be rejected at the sole discretion of the Company or the
Placement Agent. Until the Closing, all subscription funds received shall be
held as described in the Subscription
2
<PAGE> 3
Agreement. The Placement Agent shall not have any obligation to independently
verify the accuracy or completeness of any information contained in any
Subscription Agreement or the authenticity, sufficiency, or validity of any
check delivered by any prospective investor in payment for Units.
(e) The Placement Agent and its affiliates may purchase
Units sold in the Offering.
2. Representations and Warranties of the Company. The Company
represents and warrants to the Placement Agent and each Selected Dealer, if any,
as follows:
(a) Securities Law Compliance. The Offering Documents
conform in all respects with the requirements of Section 4(2) of the Securities
Act and Regulation D promulgated thereunder and with the requirements of all
other published rules and regulations of the Securities and Exchange Commission
(the "Commission") currently in effect relating to l@private offerings" to
"accredited investors" of the type contemplated by the Company. The Offering
Documents will not contain an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading. If at any
time prior to the completion of the Offering or other termination of this
Agreement any event shall occur as a result of which it might become necessary
to amend or supplement the Offering Documents so that they do not include any
untrue statement of any material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances then existing, not misleading, the Company will promptly notify
you and will supply you with amendments or supplements correcting such statement
or omission. The Company will also provide the Placement Agent for delivery to
all offerees and purchasers and their representatives, if any, any information,
documents and instruments which the Placement Agent deems necessary to comply
with applicable state and federal law.
(b) Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has all requisite corporate power and authority to own and lease its
properties, to carry on its business as currently conducted and as proposed to
be conducted, to execute and deliver this Agreement and to carry out the
transactions contemplated by this Agreement, as appropriate, and is duly
licensed or qualified to do business as a foreign corporation in California,
Utah and in each other jurisdiction in which the conduct of its business or
ownership or leasing of its properties requires it to be so qualified, except
where the failure to be so licensed or qualified would not have a material
adverse effect on the business, financial condition or prospects of the Company
(a "Material Adverse Effect").
3
<PAGE> 4
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company prior to the consummation of the transactions
contemplated hereby is as set forth in the Offering Documents. All issued and
outstanding shares of the Company are validly issued, fully paid and
nonassessable and have not been issued in violation of the preemptive rights of
any stockholder of the Company. All prior sales of securities of the Company
were either registered under the Act and applicable state securities laws or
exempt from such registration, and no security holder has any rescission rights
with respect thereto.
(d) Warrants, Preemptive Rights, Etc. Except for the
warrants to purchase shares of the Company's Common Stock to be issued to you or
your designees in consideration for your acting as Placement Agent hereunder
(the "Agent's Warrants"), and except as set forth in or contemplated by the
Memorandum, there are not, nor will there be immediately after the Closing (as
hereinafter defined), any outstanding warrants, options, agreements, convertible
securities, preemptive rights to subscribe for or other commitments pursuant to
which the Company is, or may become, obligated to issue any shares of its
capital stock or other securities of the Company and this Offering will not
cause any anti-dilution adjustments to such securities or commitments except as
reflected in the Memorandum.
(e) Subsidiaries and Investments. Except as set forth in
Exhibit A, the Company has no other subsidiaries. The subsidiaries listed in
Exhibit A (the "Subsidiaries") are corporations duly organized and validly
existing under the laws of the States of Utah and California. The Company owns
all of the capital stock of the Subsidiaries free and clear of all liens,
security interests and encumbrances.
(f) Financial Statements. The financial information
contained in the Offering Documents is accurate in all material respects. The
Company's Form 10-QSB for the nine months ended September 30, 1997 contains the
Company's (i) Balance Sheets at September 30, 1997, (ii) Statements of
Operations for the year ended December 31, 1996 and for the three and nine
months ended September 30, 1997, and (iii) Statements of Cash Flows for each of
the year ended December 31, 1996 and the nine months ended September 30, 1997
(such financial statements attached to the Offering Documents hereinafter
referred to collectively as the "Financial Statements"). The Financial
Statements have been prepared in conformity with generally accepted accounting
principles consistently applied and show all material liabilities, absolute or
contingent, of the Company required to be recorded thereon and present fairly
the financial position and results of operations of the Company as of the dates
and for the periods indicated.
(g) Absence of Changes. Since the date of the Memorandum,
the Company has not incurred any liabilities or obligations, direct or
contingent, not in the ordinary course of business, or entered into any
transaction not in the ordinary course of business, which is material to the
business of the Company, and, except as
4
<PAGE> 5
set forth in Schedule G to this Agreement there has not been any change in the
capital stock of, or any incurrence of long-term debt by, the Company, or any
issuance of options, warrants or other rights to purchase the capital stock of
the Company, or any adverse change or any development involving, so far as the
Company can now reasonably foresee, a prospective adverse change in the
condition (financial or otherwise), net worth, results of operations, business,
key personnel or properties which would be material to the business or financial
condition of the Company, and the Company has not become a party to, and neither
the business nor the property of the Company has become the subject of, any
material litigation whether or not in the ordinary course of business.
(h) Except as set forth on Schedule H hereto, the Company
has good and marketable title to all properties and assets, owned by it, free
and clear of all liens, charges, encumbrances or restrictions, except such as
are not materially significant or important in relation to the Company's
business; all of the material leases and subleases under which the Company is
the lessor or sublessor of properties or assets or under which the Company holds
properties or assets as lessee or sublessee are in full force and effect, and
the Company is not in default in any material respect with respect to any of the
terms or provisions of any of such leases or subleases, and no material claim
has been asserted by anyone adverse to rights of the Company as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company to continued
possession of the leased or subleased premises or assets under any such lease or
sublease. The Company owns or leases all such properties as are necessary to its
operations as now conducted and to be conducted, as presently planned.
(i) Proprietary Rights. Except as set forth in Schedule I
hereto, the Company owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, service marks, copyrights, trade
secrets, processes, formulations, technology or know-how used or proposed to be
used in the conduct of its business as described in or contemplated by the
Memorandum (the "Proprietary Rights"). The Company has not received any notice
of any claims, nor does it have any knowledge of any threatened claims, and
knows of no facts which would form the basis of any claim, asserted by any
person to the effect that the sale or use of any product or process now used or
offered by the Company or proposed to be used or offered by the Company
infringes on any patents or infringes upon the use of any such Proprietary
Rights of another person and, to the best of the Company's knowledge, no others
have infringed the Company's Proprietary Rights.
(j) Litigation. There is no material action, suit,
investigation, customer complaint, claim or proceeding at law or in equity by or
before any arbitrator, governmental instrumentality or other agency now pending
or, to the knowledge of the Company, threatened against the Company (or basis
therefore known to the Company) the adverse outcome of which would have a
Material Adverse Effect. The
5
<PAGE> 6
Company is not subject to any judgment, order, writ, injunction or decree of any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign which would have a
Material Adverse Effect.
(k) Non-Defaults: Non-Contravention. The Company is not in
violation of or default under, nor will the execution and delivery of this
Agreement or any of the Offering Documents, the Fund Escrow Agreement (as
defined herein), the Advisory Agreement (as defined herein) or the Agent's
Warrants (as defined herein) or consummation of the transactions contemplated
herein or therein result in a violation of or constitute a default in the
performance or observance of any obligation (i) under its Articles of
Incorporation, as amended, or its By-laws, or any indenture, mortgage, contract,
material purchase order or other agreement or instrument to which the Company is
a party or by which it or its property is bound or affected or (ii) with respect
to any material order, writ, injunction or decree of any court of any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, and there exists no condition,
event or act which constitutes, nor which after notice, the lapse of time or
both, could constitute a default under any of the foregoing, which in either
case would have a Material Adverse Effect.
(l) Taxes. The Company has filed all Federal, state, local
and foreign tax returns which are required to be filed by it and all such
returns are true and correct in all material respects. The Company has paid all
taxes pursuant to such returns or pursuant to any assessments received by it or
which it is obligated to withhold from amounts owing to any employee, creditor
or third party. The Company has properly accrued all taxes required to be
accrued. The tax returns of the Company have never been audited by any state,
local or Federal authorities. The Company has not waived any statute of
limitations with respect to taxes or agreed to any extension of time with
respect to any tax assessment or deficiency.
(m) Compliance With Laws. Licenses. Etc. The Company has
not received notice of any violation of or noncompliance with any Federal,
state, local or foreign, laws, ordinances, regulations and orders applicable to
its business which has not been cured, the violation of, or noncompliance with
which, would have a Material Adverse Effect. The Company has all licenses and
permits and other governmental certificates, authorizations and permits and
approvals (collectively, "Licenses") required by every Federal, state and local
government or regulatory body for the operation of its business as currently
conducted and the use of its properties, except where the failure to be licensed
would not have a Material Adverse Effect. The Licenses are in full force and
effect and no violations are or have been recorded in respect of any License and
no proceeding is pending or threatened to revoke or limit any thereof
6
<PAGE> 7
(n) Authorization of Agreement, Etc. This Agreement has
been duly and validly authorized, executed and delivered by the Company and the
execution, delivery and performance by the Company of this Agreement, the
Subscription Agreement, the Warrant Agreement, the Fund Escrow Agreement, the
Advisory Agreement and the M/A Agreement have been duly authorized by all
requisite corporate action by the Company and when delivered, constitute or will
constitute the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms.
(o) Authorization of Shares and Warrants, Etc. The
issuance, sale and delivery of the Shares and Warrants and the Agent's Warrants
have been, or prior to issuance and delivery will be, duly authorized by all
requisite corporate action of the Company. When so issued, sold and delivered,
the Shares, the Warrants and the Agent's Warrants will be duly executed, issued
and delivered and will constitute valid and legal obligations of the Company
enforceable in accordance with their respective terms and, in each case, will
not be subject to preemptive or any other similar rights of the stockholders of
the Company or others which rights shall not have been waived prior to the
Initial Closing.
(p) Authorization of Reserved Shares. The issuance, sale
and delivery by the Company of the shares of Common Stock issuable upon
conversion of the Shares and the underlying Common Stock issuable upon the
exercise of the Warrants and the Agent's Warrants (collectively, the "Reserved
Shares") have been duly authorized by all requisite corporate action of the
Company, and the Reserved Shares have been duly reserved for issuance upon
conversion of all or any of the Shares and exercise of the Agent's Warrants and
when so issued, sold, paid for and delivered, the Reserved Shares will be
validly issued and outstanding, fully paid and nonassessable, and not subject to
preemptive or any other similar rights of the stockholders of the Company or
others which rights shall not have been waived prior to the Initial Closing.
(q) Exemption from Registration. Assuming (i) the accuracy
of the information provided by the respective Subscribers in the Subscription
Documents and (ii) that the Placement Agent has complied in all material
respects with the provisions of Regulation D promulgated under the Securities
Act, the offer and sale of the Units pursuant to the terms of this Agreement are
exempt from the registration requirements of the Securities Act and the rules
and regulations promulgated thereunder (the "Regulations"). The Company is not
disqualified from the exemption under Regulation D by virtue of the
disqualifications contained in Rule 505(b)(2)(iii) or Rule 507 promulgated
thereunder.
(r) Registration Rights. Except with respect to holders of
the Units and the Agent's Warrants, and except as set forth in the Memorandum,
no person has any right to cause the Company to effect the registration under
the Securities Act of any securities of the Company. The Company shall grant
registration rights under the
7
<PAGE> 8
Securities Act of 1933, as amended to the investors in the Offering and/or their
transferees with respect to the Shares, including the Common Stock issuable upon
conversion of the Shares, and the Warrants, including the Common Stock issuable
upon exercise of the Warrants, purchased in the Offering as more fully described
in the Subscription Agreement between the Company and the investors. The Company
will also grant one demand registration commencing six months after the Closing,
which, at the discretion of the Company, may be filed on any applicable short
form registration statement that the Company is eligible to use, and unlimited
"piggyback" registrations to Commonwealth Associates with respect to its Agent's
Warrants and the Common Stock underlying such securities. The procedure to
implement these registration rights will be as described in the Agent's
Warrants.
(s) Brokers. Neither the Company nor any of its officers,
directors, employees or stockholders has employed any broker or finder in
connection with the transactions contemplated by this Agreement other than the
Placement Agent.
8
<PAGE> 9
(t) Title to Units. When certificates representing the
securities comprising the Units and/or the Reserved Shares shall have been duly
delivered to the purchasers and payment shall have been made therefor, the
several purchasers shall have good and marketable title to the Shares, Warrants
and/or the Reserved Shares free and clear of all liens, encumbrances and claims
whatsoever (with the exception of claims arising or through the acts of the
purchasers and except as arising from applicable Federal and state securities
laws), and the Company shall have paid all taxes, if any, in respect of the
original issuance thereof
(u) Right of First Refusal. Except for the right of first
refusal granted to the Placement Agent under Section 40) hereof, no person, firm
or other business entity is a party to any agreement, contract or understanding,
written or oral entitling such party to a right of first refusal with respect to
the Company.
(v) Securities Exchange Act Compliance. The Company has
filed with the Securities and Exchange Commission ("SEC") on a timely basis all
filings required of a company whose securities have been registered under the
Securities Exchange Act of 1934, as amended ("Exchange Act"). All information
contained in such filings is true, accurate and complete in all material
respects. The Company covenants to maintain the registration o its Common Stock
under the Exchange Act and to make all filings thereunder on a timely basis. For
the purpose of this paragraph, filings pursuant to Rule 12b-25 of the Exchange
Act shall be deemed timely.
(w) Non-Affiliated Directors. Within two months after the
Initial Closing, the Company's Board of Directors will have a majority (but not
less than four) directors who qualify under the criteria of the Nasdaq Stock
Market as independent directors, one of which may be a designee of Commonwealth.
Unless any of such individuals refuse to serve, the following shall be the four
appointees: Marshall Geller, Anthony P. Mazzarella, Harold S. Blue and Leonard
M. Schiller.
3. Closing; Placement and Fees.
(a) Closing. Provided the Minimum Offering shall have been
subscribed for and funds representing the sale thereof shall have cleared, a
closing (the "Initial Closing") shall take place at the offices of the Placement
Agent, 830 Third Avenue, New York, New York within ten (10) days following the
Termination Date (which date (the "Closing Date") may be accelerated or
adjourned by agreement between the Company and the Placement Agent). At the
Initial Closing, payment for the Units issued and sold by the Company shall be
made against delivery of certificates representing the Shares and Warrants
comprising such Units. In addition, subsequent closings (if applicable) may be
scheduled at the discretion of the Company and Placement Agent, each of which
shall be deemed a "Closing" hereunder.
9
<PAGE> 10
(b) Conditions to Placement Agent's Obligations. The
obligations of the Placement Agent hereunder will be subject to the accuracy of
the representations and warranties of the Company herein contained as of the
date hereof and as of each Closing Date, to the performance by the Company of
its obligations hereunder and to the following additional conditions:
(i) Due Qualification or Exemption. (A) The offering
contemplated by this Agreement will become qualified or be exempt from
qualification under the securities laws of the several states pursuant to
paragraph 4(e) below not later than the Closing Date, and (B) at the Closing
Date no stop order suspending the sale of the Units shall have been issued, and
no proceeding for that purpose shall have been initiated or threatened;
(ii) No Material Misstatements. Neither the Blue Sky
qualification materials nor the Memorandum, nor any supplement thereto, will
contain an untrue statement of a fact which in the opinion of the Placement
Agent is material, or omits to state a fact, which in the opinion of the
Placement Agent is material and is required to be stated therein, or is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(iii) Compliance with Agreements. The Company will
have complied with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to each Closing;
(iv) Corporate Action. The Company will have taken
all necessary corporate action, including, without limitation, obtaining the
approval of the Company's board of directors, for the execution and delivery of
this Agreement, the performance by the Company of its obligations hereunder and
the offering contemplated hereby;
(v) Opinion of Counsel. The Placement Agent shall
receive the opinion of Loeb & Loeb LLP, dated the Closing(s), substantially to
the effect that:
(A) the Company has been duly organized and is
validly existing and in good standing under the laws of the State of Nevada, has
all requisite power and authority necessary to own or hold its respective
properties and conduct its business and is duly qualified or licensed to do
business as a foreign corporation and is in good standing in the State of
California, Utah and in each other jurisdiction in which the ownership or
leasing of its properties or conduct of its business requires such
qualification, except where the failure to so qualify or be licensed would not
have a Material Adverse Effect;
(B) each of this Agreement, the Fund Escrow
Agreement, the Warrant Agreement, the Subscription Agreement, the Advisory
Agreement, the M/A
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<PAGE> 11
Agreement and the Agent's Warrants has been duly and validly authorized,
executed and delivered by the Company, and is the valid and binding obligation
of the Company, enforceable against it in accordance with its terms, subject to
any applicable bankruptcy, insolvency or other laws affecting the rights of
creditors generally and to general equitable principles;
(C) the authorized, issued and outstanding
capital stock of the Company as of the date hereof (before giving effect to the
transactions contemplated by this Agreement) is as set forth in the Offering
Documents. Except for the Shares, the Warrants and the Agent's Warrants to be
issued as contemplated by this Agreement, to such counsel's knowledge, there are
no outstanding warrants, options, agreements, convertible securities, preemptive
rights or other commitments pursuant to which the Company is, or may become,
obligated to issue any shares of its capital stock or other securities of the
Company other than as set forth in the Memorandum. All of the issued shares of
capital stock of the Company issued in connection with the Company's acquisition
of Madison, York & Associates on January 16, 1997 and subsequent thereof have
been duly and validly authorized and issued, are fully paid and nonassessable
and have not been issued in violation of the preemptive rights of any security
holder of the Company. The offers and sales of such outstanding securities were
either registered under the Act and applicable state securities laws or exempt
from such registration requirements. The Shares and the Warrants included in the
Units and the Agent's Warrants have been duly authorized, validly issued, fully
paid and nonassessable and no personal liability will attach to the ownership
thereof The Reserved Shares have been, or prior to the issuance and delivery of
the Shares, the.Warrants and the Agent's Warrants will be, duly reserved, and
when issued in accordance with the terms of the Shares, the Warrants and the
Agent's Warrants will be validly issued, fully paid and nonassessable and not
subject to preemptive or any other similar rights and no personal liability will
attach to the ownership thereof,
(D) assuming (i) the accuracy of the
information provided by the Subscribers in the Subscription Documents and (ii)
that the Placement Agent has complied in all material respects with the
requirements of section 4(2) of the Securities Act (and the provisions of
Regulation D promulgated thereunder), the issuance and sale of the Units is
exempt from registration under the Securities Act and Regulation D promulgated
thereunder;
(E) neither the execution and delivery of this
Agreement, the Fund Escrow Agreement, the Warrant Agreement, the Subscription
Agreement, the Advisory Agreement, the M/A Agreement or the Agent's Warrants nor
compliance with the terms hereof or thereof, nor the consummation of the
transactions herein or therein contemplated, nor the issuance of the Shares, the
Warrants or the Agent's Warrants, has, nor will, conflict with, result in a
breach of, or constitute a default under the Articles of Incorporation, as
amended, or By-laws of the Company, or any material contract, instrument or
document to which the Company is a party, or by
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<PAGE> 12
which it or any of its properties is bound or violate any applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court having
jurisdiction over the Company or any of its properties or business;
(F) to the best of such counsel's knowledge
after due inquiry, there are no claims, actions, suits, investigations or
proceedings before or by any arbitrator, court, governmental authority or
instrumentality pending or, to the knowledge of such counsel, threatened,
against or affecting the Company or involving the properties of the Company
which might materially and adversely affect the business, properties or
financial condition of the Company or which might materially adversely affect
the transactions or other acts contemplated by this Agreement or the validity or
enforceability of this Agreement, except as set forth in or contemplated by the
Offering Documents; and
(G) such counsel has participated in the
preparation of the Offering Documents and nothing has come to the attention of
such counsel to cause them to have reason to believe that the Offering Documents
contained any untrue statement of a material fact required to be stated therein
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading (except for the financial
statements, notes thereto and other financial information and statistical data
contained therein, as to which such counsel need express no opinion).
(vi) Opinion of Trademark and Copyright Counsel.
The Placement Agent shall receive the opinion of special trademark and copyright
counsel to the Company, dated the Closing(s), in form and substance satisfactory
to counsel for the Placement Agent, to the effect that:
(a) The Company holds a valid registered
trademark for "iMALL" (the "Trademark");
(b) Neither the Company nor its subsidiaries
has received any notice challenging the validity or enforceability of the
Trademark;
(c) there have been no claims asserted against
the Company relating to the potential infringement of or conflict with any
trademarks, copyrights or trade secrets of others.
(vii) Officers' Certificate. The Placement Agent shall
receive a certificate of the Company, signed by the President and Secretary
thereof, that the representations and warranties contained in Section 2 hereof
are true and accurate in all material respects at such Closing with the same
effect as though expressly made at such Closing.
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<PAGE> 13
(viii) Fund Escrow Agreement. The Placement Agent shall
receive a copy of a duly executed escrow agreement in the form acceptable to the
Company and the Placement Agent regarding the deposit of funds pending the
Closing(s) with a bank or trust company acceptable to the Placement Agent (the
"Fund Escrow Agreement").
(ix) Lock-Up Agreements. On or prior to the Initial
Closing, the Placement Agent shall receive agreements from each of Messrs. Craig
R. Pickering, Mark R. Comer, Richard Rosenblatt and Martin Rosenblatt to the
effect that (i) such individual shall not publicly sell, assign or transfer any
of their securities of the Company for a period of 12 months from the final
Closing of this offering without the prior written consent of the Placement
Agent.
(x) Transmittal Letters. The Placement Agent shall
receive copies of all letters from the Company to the investors transmitting the
Warrants and Shares and shall receive a letter from the Company confirming
transmittal of the securities to the investors.
(xi) Charter Amendment. On or prior to the Initial
Closing, the Company shall have obtained the necessary board of director and
shareholder approval of an amendment to the Company's articles of incorporation
authorizing the Preferred Stock and shall have filed such amendment with the
Secretary of State of the State of Nevada.
(c) Blue Sky. A summary blue sky survey shall be prepared
by counsel to the Placement Agent stating the extent to which and the conditions
upon which offers and sales of the Units may be made in certain jurisdictions.
It is understood that such survey may be based on or rely upon (i) the
representations of each Subscriber set forth in the Subscription Agreement
delivered by such Subscriber, (ii) the representations, warranties and
agreements of the Company set forth in Section 2 of this Agreement, (iii) the
representations and warranties of the Placement Agent, and (iv) the
representations of the Company set forth in the certificate to be delivered at
the Closing pursuant to paragraph (vii) of Section 3(b).
(d) Placement Fee and Expenses. Simultaneously with payment
for and delivery of the Units at each Closing as provided in paragraph 3(a)
above, the Company shall at such Closing pay to the Placement Agent (i) a
commission equal to 7% of the aggregate purchase price of the Units sold; (ii) a
structuring fee equal to 3% of the aggregate purchase price of the Units sold;
and (iii) an expense allowance of $200,000. The Company shall also pay all
expenses in connection with the qualification of the Units under the securities
or Blue Sky laws of the states which the Placement Agent shall designate. The
Company will, at each Closing, issue to you or your designees (which may include
any Selected Dealer or any officer of the Placement Agent or a Selected Dealer)
the Agent's Warrants in the form annexed
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<PAGE> 14
hereto as Exhibit I to purchase 5,500,000 shares of Common Stock in case of the
Minimum Offering and increasing by 500,000 shares for each additional $1,000,000
raised up to a total of 10,500,000 shares in the case of the Maximum Offering,
at an exercise price of $.40 per share. The number of warrants to be issued to
the Placement Agent will be reduced on a pro rata basis for each $1.00 less than
the Maximum Offering raised. In the event that any of the Over allotment Units
(as defined herein) are sold in the Offering, the number of warrants to be
issued to the Placement Agent will be increased on a pro rata basis for each
$1.00 in excess of the Maximum Offering raised. The Agent's Warrants will be
exercisable for a period of five years from the Initial Closing. At the Initial
Closing, the Company shall enter into (i) a 12-month financial advisory
agreement (the "Advisory Agreement") with the Placement Agent under which it
will pay the Placement Agent $5,000 per month for 12 months and (ii) a two-year
agreement regarding mergers and acquisitions ("NVA Agreement") pursuant to which
it will pay the Placement Agent 5% of any consideration received in such a
transaction with a party introduced by the Placement Agent.
(e) Bring-Down Opinions and Certificates. If there is more
than one Closing, then at each such Closing there shall be delivered to the
Placement Agent updated opinions and certificates as described in (v), (vi) and
(vii) of Section 3(b) above, respectively.
(f) No Adverse Changes. There shall not have occurred, at
any time prior to the Closing or, if applicable, any additional Closing, (i) any
domestic or international event, act or occurrence which has materially
disrupted, or in the Placement Agent's opinion will in the immediate future
materially disrupt, the securities markets; (ii) a general suspension of, or a
general limitation on prices for, trading in securities on the New York Stock
Exchange or the American Stock Exchange or in the over-the-counter market; (iii)
any outbreak of major hostilities or other national or international calamity;
(iv) any banking moratorium declared by a state or federal authority; (v) any
moratorium declared in foreign exchange trading by major international banks or
other persons; (vi) any material interruption in the mail service or other means
of communication within the United States; (vii) any material adverse change in
the business, properties, assets, results of operations, or financial condition
of the Company; or (viii) any change in the market for securities in general or
in political, financial, or economic conditions which, in the Placement Agent's
reasonable judgment, makes it inadvisable to proceed with the offering, sale,
and delivery of the Units.
4. Covenants of the Company.
(a) Use of Proceeds. The net proceeds of the Offering will
be used by the Company substantially as set forth in the Memorandum. The Company
shall not use more than $650,000 of the proceeds from the Offering to repay any
indebtedness
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<PAGE> 15
of the Company, including but not limited to indebtedness to any current
executive officers, directors or principal stockholders of the Company, other
than as set forth in the Memorandum.
(b) Break-Up Fee. If the Private Placement is not completed
for any reason except those specified in the next sentence, the Company shall be
liable for the Placement Agent's out of pocket expenses, not to exceed $200,000,
in addition to the other costs and expenses of the Offering set forth in Section
3(d). If the Placement Agent raises at least $5,000,000 in escrow and if, within
60 days from the printing of a final Memorandum, the Private Placement is not
completed because the Company prevents it or because of a breach by the Company
of any such covenants, representations or warranties, the Company shall, in
addition to the payments set forth above and in Section 3(d), pay the Placement
Agent $500,000. In such event, the Placement Agent shall receive 5,500,000
Warrants to purchase Common Stock with an exercise price of $.40 per share.
(c) Reservation of Common Stock. The Company shall reserve
and keep available that maximum number of its authorized but unissued shares of
Common Stock which are issuable upon conversion and/or exercise of the Shares
and the Warrants, including the shares underlying the Agent's Warrants.
(d) Notification. The Company shall notify the Placement
Agent immediately, and in writing, (A) when any event shall have occurred during
the period commencing on the date hereof and ending on the later of the last
Closing or the Termination Date as a result of which the Offering Documents
would include 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
therein not misleading, and (B) of the receipt of any notification with respect
to the modification, rescission, withdrawal or suspension of the qualification
or registration of the Units, or of any exemption from such registration or
qualification, in any jurisdiction. The Company will use its best efforts to
prevent the issuance of any such modification, rescission, withdrawal or
suspension and, if any such modification, rescission, withdrawal or suspension
is issued and you so request, to obtain the lifting thereof as promptly as
possible.
(e) Blue Sky. The Company will use its best efforts to
qualify or register the Units for offering and sale under, or establish an
exemption from such qualification or registration under, the securities or "blue
sky" laws of such jurisdictions as you may reasonably request; provided however,
that the Company will not be obligated to qualify as a dealer in securities in
any jurisdiction in which it is not so qualified. The Company will not
consummate any sale of Units in any jurisdiction in which it is not so qualified
or in any manner in which such sale may not be lawfully made.
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<PAGE> 16
(f) Form D Filing. The Company shall file five copies of a
Notice of Sales of Securities on Form D with the Securities and Exchange
Commission (the "Commission") no later than 15 days after the first sale of the
Units. The Company shall file promptly such amendments to such Notices on Form D
as shall become necessary and shall also comply with any filing requirement
imposed by the laws of any state or jurisdiction in which offers and sales are
made. The Company shall furnish the Placement Agent with copies of all such
filings.
(g) Press Releases, Etc. The Company shall not, during the
period commencing on the date hereof and ending on the later of the last Closing
and the Termination Date, issue any press release or other communication, or
hold any press conference with respect to the Company, its financial condition,
results of operations, business, properties, assets, or liabilities, or the
Offering, without the prior consent of the Placement Agent, which consent shall
not be unreasonably withheld.
(h) Form 10-QSB. The Company will provide to the Placement
Agent, promptly upon the filing thereof with the Commission (and in any event no
later than 5 days of such filing), a copy of its Annual Report in Form 10-KSB
for the year ended December 3 1, 1997.
(i) Restrictions on Issuance of Securities. Prior to the
Initial Closing Date, the Company will not, without the prior written consent of
the Placement Agent, issue additional shares of Common Stock or grant any
warrants, options or other securities of the Company.
(j) Absence of Changes. Subsequent to the date of the
Memorandum and prior to the Closing, the Company will not, without the prior
written consent of the Placement Agent, incur any liabilities or obligations,
direct or contingent, not in the ordinary course of business, or enter into any
transaction not in the ordinary course of business, which is material to the
business of the Company, and there will not be any change in the capital stock
of, or any incurrence of long-term debt by, the Company, or any issuance of
options, warrants or other rights to purchase the capital stock of the Company.
(k) Advisory Agreement. Prior to or on the Initial Closing,
the Company shall execute and deliver to the Placement Agent the Advisory
Agreement in the form previously delivered to the Company by the Placement
Agent.
(l) Key-Man Insurance. Prior to the Initial Closing, the
Company shall have obtained "key-man" life insurance policies in the amount of
at least $2,000,000 on each of the lives of Messrs. Rosenblatt, Comer and
Pickering. Such policies will be kept in for at least three years from the
Initial Closing Date or the term of the employment agreements with such
officers, whichever period is longer.
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<PAGE> 17
(m) Executive Compensation. The compensation of the
executive officers of the Company shall not increase from the date of this
Agreement until 12 months from the Termination Date.
(n) Board Designee. The Company shall, for a period of
three years following the Initial Closing Date or such earlier date after the
second anniversary of the Initial Closing Date as the Preferred Stock has been
converted pursuant to the automatic conversion feature set forth in Section 6(B)
of the Designation, at the Placement Agent's option, nominate a designee of the
Placement Agent to the Company's Board of Directors or, at the option of the
Placement Agent appoint an observer selected by the Placement Agent to attend
all meetings of the Company's Board of Directors.
(o) Accounting Firm. The Company shall retain an accounting
firm acceptable to the Placement Agent promptly following the Initial Closing
Date and for a period of three years following the Initial Closing Date, shall
not effect a change in such accounting firm, without the prior written consent
of the Placement Agent, unless such new firm is a "big four" accounting firm.
(p) Reports. The Company will deliver to all purchasers in
this Offering (and/or their transferees), within 45 days after the close of each
of the Company's first three fiscal quarters, a quarterly report and
shareholders letter substantially similar in form and substance to a Form 10-QSB
under the Securities Exchange Act of 1934 and an abbreviated form of an annual
report within 90 days after its year end.
(q) M/A Agreement. Prior to or on the Initial Closing, the
Company shall execute and deliver to the Placement Agent the M/A Agreement in
the form previously delivered to the Company by the Placement Agent.
(r) Checks. For a period of one year following the Final
Closing, all checks, wires or money transfers issued by the Company for an
amount over $500 must bear two signatures, one of which must be that of Richard
Rosenblatt.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Placement Agent and each Selected Dealer, if any, and their respective
shareholders, directors, officers, agents and controlling persons (an
"Indemnified Party") against. any and all loss, liability, claim, damage and
expense whatsoever (and all actions in respect thereof), and to reimburse the
Placement Agent for legal fees and related expenses as incurred (including, but
not limited to the costs of giving testimony or furnishing documents in response
to a subpoena or otherwise, and the costs of investigating, preparing or
defending any such action or claim whether or not in connection with litigation
in which the Placement Agent is a party), arising out of any untrue
17
<PAGE> 18
statement or alleged untrue statement of a material fact contained in the
Offering Documents or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(b) The Company agrees to indemnify and hold harmless an
Indemnified Party to the same extent as the foregoing indemnity, against any and
all loss, liability, claim, damage and expense whatsoever directly arising out
of the exercise by any person of any right under the Securities Act or the
Exchange Act or the securities or Blue Sky laws of any state on account of
violations of the representations, warranties or agreements set forth in Section
2 hereof.
(c) Promptly after receipt by a person entitled to
indemnification pursuant to the foregoing subsection (a) or (b) (an "indemnified
party") under this Section of notice of the commencement of any action, the
indemnified party will, if a claim in respect thereof is to be made against the
Company under this Section, notify in writing the Company of the commencement
thereof, but the omission so to notify the Company will not relieve it from any
liability which it may have to the indemnified party otherwise than under this
Section. In case any such action is brought against an indemnified party, and it
notifies the Company of the commencement thereof, the Company will be entitled
to participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, subject to
the provisions herein stated, with counsel reasonably satisfactory to the
indemnified party, and after notice from the Company to the indemnified party of
its election so to assume the defense thereof, the Company will not be liable to
the indemnified party under this Section for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the Company if the Company has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that the fees and expenses of such counsel shall be at the
expense of the Company if (i) the employment of such counsel has been
specifically authorized in writing by the Company or (ii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party or parties and the Company and, in the judgment of the indemnified party,
it is advisable for the indemnified party or parties to be represented by
separate counsel (in which case the Company shall not have the right to assume
the defense of such action on behalf of the indemnified party or parties, it
being understood, however, that the Company shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys for the indemnified party or parties. No settlement of any action
against an indemnified
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<PAGE> 19
party shall be made without the consent of the indemnified party, which shall
not be unreasonably withheld in light of all factors of importance to the
indemnified party.
6. Contribution.
To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section (5) but
it is found in a final judicial determination, not subject to further appeal,
that such indemnification may not be enforced in such case, even though this
Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the Securities Act,
the Exchange Act, or otherwise, then the Company (including for this purpose any
contribution made by or on behalf of any officer, director, employee or agent
for the Company, or any controlling person of the Company), on the one hand, and
the Placement Agent and any Selected Dealers (including for this purpose any
contribution by or on behalf of an indemnified party), on the other hand, shall
contribute to the losses, liabilities, claims, damages, and expenses whatsoever
to which any of them may be subject, in such proportions as are appropriate to
reflect the relative benefits received by the Company, on the one hand, and the
Placement Agent and the Selected Dealers, on the other hand; provided, however,
that if applicable law does not permit such allocation, then other relevant
equitable considerations such as the relative fault of the Company and the
Placement Agent and the Selected Dealers in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses shall also
be considered. In no case shall the Placement Agent or a Selected Dealer be
responsible for a portion of the contribution obligation in excess of the
compensation received by it pursuant to Section 3 hereof or the Selected Dealer
Agreement, as the case may be. No person guilty of a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person, if any, who controls the Placement Agent or a Selected Dealer
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act and each officer, director, stockholder, employee and agent of the
Placement Agent or a Selected Dealer, shall have the same rights to contribution
as the Placement Agent or the Selected Dealer, and each person, if any who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act and each officer, director, employee and agent
of the Company, shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 6. Anything in this
Section 6 to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 6 is intended to supersede any right
to contribution under the Securities Act, the Exchange Act, or otherwise.
7. Miscellaneous.
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<PAGE> 20
(a) Survival. Any termination of the Offering without
consummation thereof shall be without obligation on the part of any party except
that the indemnification provided in Section 5 hereof and the contribution
provided in Section 6 hereof shall survive any termination and shall survive the
Closing for a period of five years.
(b) Representations, Warranties and Covenants to Survive
Delivery. The respective representations, warranties, indemnities, agreements,
covenants and other statements of the Company as of the date hereof shall
survive execution of this Agreement and delivery of the Shares and the Warrants.
All of the Company's obligations for the payment of fees and expenses shall
survive termination of this Agreement, subject to the maximum amounts payable by
the Company provided in Section 4(b) hereof.
(c) No Other Beneficiaries. This Agreement is intended for
the sole and exclusive benefit of the parties hereto and their respective
successors and controlling persons, and no other person, firm or corporation
shall have any third-party beneficiary or other rights hereunder.
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York without regard to
conflict of law provisions. The Placement Agent and the Company will attempt to
settle any claim or controversy arising out of this Agreement through
consultation and negotiation in good faith and a spirit of mutual cooperation.
Should such attempts fail, then the dispute will be mediated by a mutually
acceptable mediator to be chosen by the Placement Agent and the Company within
15 days after written notice from either party demanding mediation. Neither
party may unreasonably withhold consent to the selection of a mediator, and the
parties will share the costs of the mediation equally. Any dispute which the
parties cannot resolve through negotiation or mediation within six months of the
date of the initial demand for it by one of the parties may then be submitted to
the courts for resolution. The use of mediation will not be construed under the
doctrine of latches, waiver or estoppel to affect adversely the rights of either
party. Nothing in this paragraph will prevent either party from resorting to
judicial proceedings if (a) good faith efforts to resolve the dispute under
these procedures have been unsuccessful or (b) interim relief from a court if
necessary to prevent serious and irreparable injury.
(e) Counterparts. This Agreement may be signed in
counterparts with the same effect as if both parties had signed one and the same
instrument.
(f) Notices. Any communications specifically required
hereunder to be in writing, if sent to the Placement Agent, will be mailed,
delivered and confirmed to it at Commonwealth Associates, 830 Third Avenue, New
York, New York 10022, Att: Keith Rosenbloom, with a copy to Bachner, Tally,
Polevoy & Msher LLP, 380
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<PAGE> 21
Madison Avenue, New York, New York 100 1 7, Att: Fran M. Stoller, Esq. and if
sent to the Company, will be mailed, delivered or telegraphed and confirmed to
it at 4400 Coldwater Canyon Boulevard, Suite 200, Studio City, California 91604,
Att: Richard Rosenblatt, with a copy to Loeb & Loeb LLP, 1000 Wilshire
Boulevard, Suite 1800, Los Angeles, California 90017, Att: David L. Ficksman,
Esq.
(g) Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the matters herein referred and
supersedes all prior agreements and understandings, written and oral, between
the parties with respect to the subject matter hereof Neither this Agreement nor
any term hereof may be changed, waived or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver or termination is sought.
If you find the foregoing is in accordance with our understanding,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between us.
Very truly yours,
iMALL, INC.
By: /s/ Richard Rosenblatt
--------------------------------
Name: Richard Rosenblatt
Title: Chief Executive Officer
Agreed:
COMMONWEALTH ASSOCIATES,
a New York limited partnership
By: COMMONWEALTH MANAGEMENT CO., INC.
a New York corporation,
its general partner
By: /s/ Joseph Wynne
-------------------------------------
Name: Joseph Wynne
Title: Chief Financial Officer
21
<PAGE> 1
EXHIBIT 4.3
WARRANT AGREEMENT
AGREEMENT, dated as of this 27th day of November, 1997, by and among
iMALL, INC., a Nevada corporation ("Company"), SIGNATURE STOCK TRANSFER, INC. as
Warrant Agent (the "Warrant Agent"), and COMMONWEALTH ASSOCIATES, a New York
limited partnership ("Commonwealth").
WITNESSETH
WHEREAS, in connection with a private placement (the "Private
Placement") of minimum of seventy (50) and a maximum of one hundred fifty (150)
units ("Units"), each unit consisting 25,000 shares (the "Shares") of Series A
Convertible Preferred Stock, par value $.001 per share (the "Preferred Stock")
and 62,500 common stock purchase warrants ("Warrants") pursuant to an agency
agreement (the "Agency Agreement") dated as of November 26, 1997 between the
Company and Commonwealth, the Company may issue Warrants to purchase up to
10,625,000 (including the Overallotment Units as defined below) shares of Common
Stock (as defined below); and
WHEREAS, in connection with the Private Placement, the Company may
issue to Commonwealth or its designees warrants to purchase up to 11,500,000 (in
the event Overallotment Units are sold) shares of Common Stock, which warrants
are convertible at the option of Commonwealth into an equal number of Warrants
(the "Agent's Warrants"); and
WHEREAS, in connection with the Private Placement, the Company and
Commonwealth may determine to sell up to an additional twenty (20) Units (the
"Overallotment Units") so as to increase the maximum number of Units up to one
hundred seventy (170); and
WHEREAS, each Warrant initially entitles the Registered Holder
thereof to purchase one share of Common Stock; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of
the Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
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certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit as to amount or
percentage, which at the date hereof consists of 300,000,000 authorized shares
of Common Stock, $.001 par value.
(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date hereof at 14675
Midway Road, Dallas, Texas 75244.
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney-in-fact duly authorized in writing,
and (b) payment in cash, or by official bank or certified check made payable to
the Company, of an amount in lawful money of the United States of America equal
to the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean ______________,
199__.
(e) "Purchase Price" shall mean the purchase price to be paid
upon exercise of each Warrant in accordance with the terms hereof, which price
shall be $.40, subject to adjustment from time to time pursuant to the
provisions of Section 9 hereof, and subject to the Company's right to reduce the
Purchase Price upon notice to all warrantholders.
(f) "Redemption Price" shall mean the price at which the Company
may, at its option in accordance with the terms hereof, redeem the Warrants,
which price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of
any particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean Signature Stock Transfer, Inc.
as the Company's transfer agent, or its authorized successor, as such.
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(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on __________, 2002 or, with respect to Warrants which are outstanding as
of the Redemption Date (but specifically excluding the Agent's Warrants), the
Redemption Date as defined in Section 8, whichever is earlier; provided that if
such date shall in the State of New York be a holiday or a day on which banks
are authorized or required to close, then 5:00 P.M. (New York time) on the next
following day which in the State of New York is not a holiday or a day on which
banks are authorized or required to close. Upon notice to all warrantholders the
Company shall have the right to extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase one share of
Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.
(b) The Warrants included in the offering of Units will be
detachable and separately transferable from the shares of Preferred Stock
constituting part of such Units commencing on the Initial Exercise Date.
(c) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold in the Private Placement shall be
executed by the Company and delivered to the Warrant Agent. Upon written order
of the Company signed by its President or Chairman or a Vice President and by
its Secretary or an Assistant Secretary, the Warrant Certificates shall be
countersigned, issued and delivered by the Warrant Agent as part of the Units.
(d) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to the number of shares of Common
Stock as shall be issuable on exercise of the Warrants, subject to adjustment as
described herein, upon the exercise of Warrants in accordance with this
Agreement.
(e) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised Warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; and (v) at the option of the
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<PAGE> 4
Company, in such form as may be approved by its Board of Directors, to reflect
any adjustment or change in the Purchase Price, the number of shares of Common
Stock purchasable upon exercise of the Warrants or the Redemption Price therefor
made pursuant to Section 9 hereof
(f) Notwithstanding anything to the contrary contained herein,
the Agent's Warrants shall not be subject to redemption by the Company.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Warrants may be listed, or to
conform to usage or to the requirements of Section 2(b). The Warrant
Certificates shall be dated the date of issuance thereof (whether upon initial
issuance, transfer, exchange or in lieu of mutilated, lost, stolen, or destroyed
Warrant Certificates) and issued in registered form. Warrant Certificates shall
be numbered serially with the letter W on Warrants of all denominations.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chief Executive Officer, President or any Vice President and by
its Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4(a) hereof
SECTION 4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but not after
the Warrant
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<PAGE> 5
Expiration Date, upon the terms and subject to the conditions set forth herein
and in the applicable Warrant Certificate. A Warrant shall be deemed to have
been exercised immediately prior to the close of business on the Exercise Date
and the person entitled to receive the securities deliverable upon such exercise
shall be treated for all purposes as the holder of those securities upon the
exercise of the Warrant as of the close of business on the Exercise Date. As
soon as practicable on or after the Exercise Date the Warrant Agent shall
deposit the proceeds received from the exercise of a Warrant and shall notify
the Company in writing of the exercise of the Warrants. Promptly following, and
in any event within five days after the date of such notice from the Warrant
Agent, the Warrant Agent, on behalf of the Company, shall cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon such
exercise, (plus a certificate for any remaining unexercised Warrants of the
Registered Holder) unless prior to the date of issuance of such certificates the
Company shall instruct the Warrant Agent to refrain from causing such issuance
of certificates pending clearance of checks received in payment of the Purchase
Price pursuant to such Warrants. Notwithstanding the foregoing, in the case of
payment made in the form of a check drawn on an account of Commonwealth or such
other investment banks and brokerage houses as the Company shall approve in
writing to the Warrant Agent, certificates shall immediately be issued without
prior notice to the Company or any delay. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant (the "Warrant Proceeds") to the Company or as
the Company may direct in writing.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that from and after the Initial
Warrant Exercise Date, it will at all times reserve and keep available out of
its authorized Common Stock, solely for the purpose of issue upon exercise of
Warrants, such number of shares of Common Stock as shall then be issuable upon
the exercise of all outstanding Warrants. The Company covenants that all shares
of Common Stock which shall be issuable upon exercise of the Warrants shall, at
the time of delivery, be duly and validly issued, fully paid, nonassessable and
free from all taxes, liens and charges with respect to the issue thereof, (other
than those which the Company shall promptly pay or discharge) and that upon
issuance of such shares, if registered under the Securities Act of 1933 (as
amended, the "Act"), or if exempt from such registration, shall be listed on
each national securities exchange, including the Nasdaq National Market, or the
Nasdaq SmallCap Market, on which the other shares of outstanding Common Stock of
the Company are then listed.
(b) The Company covenants that if any securities to be reserved
for the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities
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<PAGE> 6
may be validly issued or delivered upon such exercise, then the Company will in
good faith and as expeditiously as reasonably possible and in accordance with
the terms of the Private Placement offering documents, endeavor to secure such
registration or approval. The Company will use reasonable efforts to obtain
appropriate approvals or registrations under state "blue sky" securities laws.
With respect to any such securities, however, Warrants may not be exercised by,
or shares of Common Stock or other securities underlying the Warrants issued to,
any Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares upon exercise of
the Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of the Transfer Agent of the Company for shares of
Common Stock issuable upon exercise of the Warrants.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
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<PAGE> 7
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly cancelled
by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation as Warrant Agent, or, with the
prior written consent of Commonwealth, disposed of or destroyed, at the
direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall ( in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Redemption.
(a) On not less than thirty (30) days notice to Registered
Holders of the Warrants being redeemed, the Warrants may be redeemed, at the
option of the Company, at any time after 1 199_ (12 months from the final
closing of the Private Placement) at a redemption price of $.05 per Warrant,
provided the Market Price of the Common Stock receivable upon exercise of such
Warrants shall be at least $1.00
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<PAGE> 8
(the "Target Price"), subject to adjustment as set forth in Section 8(f), below.
Market Price for the purpose of this Section 8 shall mean (i) the average
closing bid price, for thirty (30) consecutive business days ending with the
date of the notice of redemption, which notice shall be mailed no later than
five days thereafter, of the Common Stock as reported by Nasdaq or (ii) the
average of the last reported sale prices for thirty (30) consecutive business
days ending with the date of the notice of redemption, which notice shall be
mailed no later than five days thereafter, on the primary exchange on which the
Common Stock is traded, if the Common Stock is traded on a national securities
exchange, including the Nasdaq National Market. The date fixed for redemption of
the Warrants is referred to herein as the "Redemption Date."
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall mail a
notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the Redemption Date, (iii) the place where the Warrant Certificates
shall be delivered and the redemption price paid, (iv) that Commonwealth will
assist each Registered Holder of a Warrant in connection with the exercise
thereof and (v) that the right to exercise the Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such redemption except
as to a Registered Holder (a) to whom notice was not mailed or (b) whose notice
does not substantially comply with the preceding sentence. An affidavit of the
Warrant Agent or of the Secretary or an Assistant Secretary of the Company that
notice of redemption has been mailed shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M.
(New York time) on the business day immediately preceding the Redemption Date.
On and after the Redemption Date, Holders of the Warrants shall have no further
rights except to receive, upon surrender of the Warrant, the Redemption Price.
(e) From and after the Redemption Date, the Company shall, at
the place specified in the notice of redemption, upon presentation and surrender
to the Company by or on behalf of the Registered Holder thereof of one or more
Warrant Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Holder a sum in cash equal to the
redemption price
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<PAGE> 9
of each such Warrant. From and after the Redemption Date and upon the deposit or
setting aside by the Company of a sum sufficient to redeem all the Warrants
called for redemption, such Warrants shall expire and become void and all rights
hereunder and under the Warrant Certificates, except the right to receive
payment of the redemption price, shall cease.
(f) Notwithstanding anything to the contrary contained on this
Section 8, the Company may not redeem the Warrants unless at the time of the
mailing of the notice of redemption a registration statement covering the shares
of Common Stock issuable upon exercise thereof has been declared effective and
remains effective through the Redemption Date.
(g) If the shares of the Company's Common Stock are subdivided
or combined into a greater or smaller number of shares of Common Stock by one or
more stock dividends or a stock split or a reverse stock split, the Target Price
shall be proportionally adjusted by the ratio which the total number of shares
of Common Stock outstanding immediately prior to such event bears to the total
number of shares of Common Stock to be outstanding immediately after such event.
SECTION 9. Adjustment of Exercise Price and Number of Shares of
Common Stock or Warrants.
(a) Subject to the exceptions referred to in Section 9(m) below,
in the event the Company shall, at any time during the 18-month period
commencing on the initial closing date of the Private Placement, sell any shares
of Common Stock for a consideration per share less than the Purchase Price, the
Purchase Price shall be immediately adjusted to equal such issuance price.
(b) Subject to the exceptions referred to in Section 9(m) below,
in the event the Company shall, at any time or from time to time after the date
hereof, issue any shares of Common Stock as a stock dividend to the holders of
Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price in effect immediately
prior to such Change of Shares shall be changed to a price (including any
applicable fraction of a cent) determined by multiplying the Purchase Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares and the denominator of which shall be the
sum of the number of shares of Common Stock outstanding immediately after the
issuance of such additional shares. Such adjustment shall be made successively
whenever such an issuance is made.
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<PAGE> 10
(c) In case the Company shall fix a record date for the issuance
of rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the Exercise Price on such record date the Exercise
Price shall be adjusted so that the same shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the date of
issuance by a fraction, the numerator of which shall be the sum of the number of
shares outstanding on the record date mentioned below and the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase at the Exercise
Price in effect immediately prior to the date of such issuance, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding on the record date mentioned below and the number of additional
shares of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(d) In case the Company shall issue shares of its Common Stock
(excluding (i) shares of capital stock issued pursuant to a stock dividend or a
stock split or other subdivision or recombination of shares, (ii) Common Stock
issued upon exercise of any warrants, options or other securities outstanding on
the date of the Final Closing, (iii) securities issued by the Company in an
underwritten public offering at not less than the then Market Price (as defined
herein) of the Common Stock, (iv) securities issued pursuant to the direct or
indirect bona fide acquisition by the Company of any Person, whether by merger,
purchase of stock, purchase of assets or otherwise, (v) securities issued upon
exercise, conversion or exchange of capital stock, rights, options or
subscription calls, warrants or other securities, or (vi) Common Stock or
options or warrants to purchase Common Stock issued to officers, directors or
employees of or consultants to the Company pursuant to any compensation
agreement, plan or arrangement or the issuance of Common Stock upon the exercise
of any such options or warrants, provided such issuances do not exceed 10% of
the Company's outstanding Common Stock and preferred stock on the date of the
Final Closing) for a consideration per share (the "Offering Price") less than
the Exercise Price, the Exercise Price shall be adjusted immediately thereafter
so that it shall equal the price determined by multiplying the Exercise Price in
effect immediately prior to the date of issuance by a fraction, the numerator of
which shall be the number of shares of
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Common Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subsection (h) below) for the
issuance of such additional shares would purchase at the Exercise Price in
effect immediately prior to the date of such issuance, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
(e) In case the Company shall issue any securities convertible
into or exchangeable for its Common Stock (excluding securities issued in
transactions described in Subsection (b) above) for a consideration per share of
Common Stock (the "Conversion Price") initially deliverable upon conversion or
exchange of such securities (determined as provided in Subsection (h) below)
less than the Exercise Price, the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the sum of the number of shares
outstanding immediately prior to the issuance of such securities and the number
of shares of Common Stock which the aggregate consideration received (determined
as provided in subsection (h) below) for such securities would purchase at the
Exercise Price in effect immediately prior to the date of such issuance, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to the issuance of such securities and the maximum
number of shares of Common Stock of the Company deliverable upon conversion of
or in exchange for such securities at the initial conversion or exchange price
or rate. Such adjustment shall be made successively whenever such an issuance is
made.
(f) Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(g) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(g) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the
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Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(h) For purposes of any computation respecting consideration
received pursuant to Subsections (d) and (e) above, the following shall apply:
(A) in the case of the issuance of shares of Common Stock
for cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions, discounts
or other expenses incurred by the Company for any underwriting of the
issue or otherwise in connection therewith;
(B) in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Company
(irrespective of the accounting treatment thereof), whose determination
shall be conclusive; and
(C) in the case of the issuance of securities convertible
into or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the consideration
received by the Company for the issuance of such securities plus the
additional minimum consideration, if any, to be received by the Company
upon the conversion or exchange thereof (the consideration in each case to
be determined in the game manner as provided in clauses (A) and (B) of
this Subsection (h)).
(i) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
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have the right thereafter, by exercising such Warrant to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassifications,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(j) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
and the Redemption Price therefore were expressed in the Warrant Certificates
when the same were originally issued.
(k) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the Chief
Executive Officer or President, and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary, of the Company setting forth: (i)
the Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary thereof
to be sent by ordinary first class mail to Commonwealth and to each registered
holder of Warrants at his last address as it shall appear on the registry books
of the Warrant Agent. No failure to mail such notice nor any defect therein or
in the mailing thereof shall affect the validity thereof except as to the holder
to whom the Company failed to mail such notice, or except as to the holder whose
notice was
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<PAGE> 14
defective. The affidavit of an officer of the Warrant Agent or the Secretary or
an Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(l) For purposes of Section 9(b) and 9(c) hereof, the following
provisions (A) to (C) shall also be applicable:
(A) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or for
the account of the Company and the sale or issuance of such treasury
shares or the distribution of any such treasury shares shall not be
considered a Change of Shares for purposes of said sections.
(B) No adjustment of the Purchase Price shall be made
unless such adjustment would require an increase or decrease of at least
$.025 in such price; provided that any adjustments which by reason of this
clause (B) are not required to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment
which, together with any adjustment(s) so carried forward, shall require
an increase or decrease of at least $.025 in the Purchase Price then in
effect hereunder.
(C) In case of the sale for cash of any shares of Common
Stock, any Convertible Securities, any rights or warrants to subscribe for
or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, the consideration received by the Company
therefore shall be deemed to be the gross sales price therefor without
deducting therefrom any expense paid or incurred by the Company or any
underwriting discounts or commissions or concessions paid or allowed by
the Company in connection therewith.
(m) No adjustment to the Purchase Price of the Warrants or to
the number of shares of Common Stock purchasable upon the exercise of each
Warrant will be made, however,
(i) upon the exercise of any of the options presently
outstanding under the Company's Stock Option Plan (the "Plan") for
officers, directors and certain other key personnel of the Company; or
(ii) upon the sale or exercise of the Warrants; or
(iii) upon the sale of any shares of Common Stock or
Convertible Securities in a firm commitment underwritten public offering,
including, without limitation, shares sold upon the exercise of any
overallotment option granted to the underwriters in connection with such
offering; or
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<PAGE> 15
(iv) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common
Stock or Convertible Securities, whether or not such rights, warrants or
options were outstanding on the date of the original sale of the Warrants
or were thereafter issued or sold; or
(v) upon the issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities, whether or not any
adjustment in the Purchase Price was made or required to be made upon on
the issuance or sale of such Convertible Securities and whether or not
such Convertible Securities were outstanding on the date of the original
sale of the Warrants or were thereafter issued or sold;
(n) As used in this Section 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date of the
original issue of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the fights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Articles of Incorporation as Common Stock on the
date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(i) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(o) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(p) If and whenever the Company shall grant to the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number of
15
<PAGE> 16
whole shares of Common Stock then issuable upon exercise (assuming, for purposes
of this section 9(p), that exercise of Warrants is permissible during periods
prior to the Initial Warrant Exercise Date) of his Warrants. Such grant by the
Company to the holders of the Warrants shall be in lieu of any adjustment which
otherwise might be called for pursuant to this Section 9.
SECTION 10. Registration Under The Securities Act of 1933. The
Company agrees to register for resale the Warrants and the shares of Common
Stock issued or issuable upon exercise of the Warrants under the Securities Act
of 1933, as amended (the "Act") no later than _________, 1998, as more fully set
forth in Section IV of the Subscription Agreement between the Company and each
of the investors in the Private Placement, subject to certain contractual
restrictions on transfer and exercise applicable to the Holder.
SECTION 11. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the current market value of such fractional share,
determined as follows:
(1) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or
listed for trading on the Nasdaq National Market, the current market value
shall be the last reported sale price of the Common Stock on such exchange
or market on the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average of the closing
bid and asked prices for such day on such exchange or market; or
(2) If the Common Stock is not listed or admitted to
unlisted trading privileges, the current market value shall be the mean of
the last reported bid and asked prices reported by the Nasdaq SmallCap
Market or, if not traded thereon, by the National Quotation Bureau, Inc.
on the last business day prior to the date of the exercise of this
Warrant; or
(3) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported,
the current market value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
16
<PAGE> 17
SECTION 12. Warrant Holders Not Deemed Shareholders. Subject to
Section 9(k), no holder of Warrants shall, as such, be entitled to vote or to
receive dividends or be deemed the holder of Common Stock that may at any time
be issuable upon exercise of such Warrants for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the holder of Warrants, as
such, any of the rights of a shareholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof
SECTION 13. Rights of Action. All rights of action with respect to
this Agreement are vested in the respective Registered Holders of the Warrants,
and any Registered Holder of a Warrant, without consent of the Warrant Agent or
of the holder of any other Warrant, may, in his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
SECTION 14. Agreement of Warrant Holders. Every holder of a Warrant,
by his acceptance thereof, consents and agrees with the Company, the Warrant
Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of
the Warrant Agent by the Registered Holder thereof in person or by his
attorney-in-fact duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof
SECTION 15. Cancellation of Warrant Certificates. If the Company
shall purchase or acquire any Warrant or Warrants, the Warrant Certificate or
Warrant Certificates evidencing the same shall thereupon be delivered to the
Warrant Agent and cancelled by it and retired. The Warrant Agent shall also
cancel the Warrant
17
<PAGE> 18
Certificate or Warrant Certificates following exercise of any or all of the
Warrants represented thereby or delivered to it for transfer, splitup,
combination or exchange.
SECTION 16. Concerning, the Warrant Agent. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof The Warrant Agent shall not,
by issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value or authorization of
the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory
to it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments, costs
and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and
18
<PAGE> 19
powers hereunder except losses, expenses and liabilities arising as a result of
the Warrant Agent's negligence or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its
or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein
19
<PAGE> 20
shall preclude the Warrant Agent from acting in any other capacity for the
Company or for any other legal entity.
SECTION 17. Modification of Agreement. The parties hereto may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; (ii) to reflect an increase in the number of Warrants which are to be
governed by this Agreement resulting from a subsequent public offering of
Company securities which includes Warrants having the same terms and conditions
as the Warrants originally covered by or subsequently added to this Agreement
under this Section 17; or (iii) that they may deem necessary or desirable and
which shall not adversely affect the interests of the holders of Warrant
Certificates; provided, however, that this Agreement shall not otherwise be
modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing not less
than 50% of the Warrants then outstanding; and provided, further, that no change
in the number or nature of the securities purchasable upon the exercise of any
Warrant, or the Purchase Price therefor, or the acceleration of the Warrant
Expiration Date, shall be made without the consent in writing of the Registered
Holder of the Warrant Certificate representing such Warrant, other than such
changes as are specifically prescribed by this Agreement as originally executed
or are made in compliance with applicable law.
SECTION 18. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent: if to the Company, at iMall, Inc., 4400 Coldwater Canyon Blvd., Suite
200, Studio City, California 91604, attention: Chief Executive Officer, or at
such other address as may have been furnished to the Warrant Agent in writing by
the Company; if to the Warrant Agent, at its Corporate Office; if to
Commonwealth, at Commonwealth Associates, 830 Third Avenue, New York, New York
10022.
SECTION 19. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 20. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
20
<PAGE> 21
SECTION 21. Termination. This Agreement shall terminate at the close
of business on the earlier of the Warrant Expiration Date or the date upon which
all Warrants have been exercised, except that the Warrant Agent shall account to
the Company for cash held by it and the provisions of Section 15 hereof shall
survive such termination.
SECTION 22. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS W]HEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
iMALL, INC.
By: /s/ Richard Rosenblatt
-------------------------------
Richard Rosenblatt,
Chief Executive Officer
SIGNATURE STOCK TRANSFER, INC.
By: /s/
-------------------------------
Authorized Officer
COMMONWEALTH ASSOCIATES,
a New York limited partnership
By: COMMONWEALTH
MANAGEMENT CO., INC., a
New York corporation, its
general partner
By: /s/
-------------------------------
Name:
--------------------------
Title:
-------------------------
21
<PAGE> 22
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W ______ Warrants
VOID AFTER ____________, 2002
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
iMALL, INC.
This certifies that FOR VALUE RECEIVED ___________
_______________________ or registered assigns (the "Registered Holder") is the
owner of the number of Warrants ("Warrants") specified above. Each Warrant
represented hereby initially entitles the Registered Holder to purchase, subject
to the terms and conditions set forth in this Warrant Certificate and the
Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $.001 par value ("Common Stock"), of imall, Inc., a
Nevada corporation (the "Company"), at any time through the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of Signature Stock Transfer, Inc. as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $.40 (the "Purchase
Price") in lawful money of the United States of America in cash or by official
bank or certified check made payable to Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated ________,
1997, by and among the Company, the Warrant Agent and Commonwealth Associates.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new
A-1
<PAGE> 23
Warrant Certificate or Warrant Certificates of like tenor, which the Warrant
Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
______________, 2002 or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then the Expiration Date shall mean 5:00 P.M. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of the Warrants represented hereby unless a
registration statement under the Securities Act of 1933, as amended, with
respect to such securities is effective. The Company has covenanted and agreed
that it will file a registration statement in accordance with the terms of the
subscription agreements executed in connection with the Company's 1997 private
placement. The Warrants represented hereby shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof
by the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee, tax, or
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Warrants represented hereby may be redeemed at the option of the
Company, at a redemption price of $.05 per Class A Warrant at any time provided
the Market Price (as defined in the Warrant Agreement) for the Common Stock
shall exceed $1.00 per share. Notice of redemption shall be given not later than
the thirtieth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to the Warrants represented hereby
except to receive the $.05 per Warrant upon surrender of this Warrant
Certificate.
A-2
<PAGE> 24
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS W]HEREOF, the Company has caused this Warrant Certificate
to be duly executed, manually or in facsimile, by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
iMALL, INC.
Dated: By:
----------------- ---------------------------
By:
---------------------------
[seal]
Countersigned:
SIGNATURE STOCK TRANSFER, INC.,
as Warrant Agent
By:
- ---------------------------------
Authorized Officer
A-3
<PAGE> 25
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise _______ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
[please print or type name and address]
and be delivered to
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
A-4
<PAGE> 26
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
[please print or type name and address]
________________ of the Warrants represented by this Warrant Certificate, and
hereby irrevocably constitutes and appoints __________________________ Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Dated: X
------------------- ---------------------------
Signature Guaranteed
------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-5
<PAGE> 27
SCHEDULE A
iMALL, INC.
PRIVATE PLACEMENT SELLING AGREEMENT
New York, New York
, 1997
Dear Sirs:
1. iMall, Inc. (the "Company") is offering for sale on a "best
efforts, minimum-maximum" basis, up to 150 units ("Units"), each Unit consisting
of 25,000 shares (the "Shares") of the Company's Convertible Preferred Stock and
62,500 common stock purchase warrants ("Warrants"). The Units and the terms
under which they are to be offered for sale by the Company are more particularly
described in the Private Placement Memorandum dated November __, 1997 (the
"Memorandum") and the form of subscription agreement between the Company and
each subscriber (the "Subscription Agreement"), the exhibits to the Memorandum
and the Subscription Agreement, and any other documents delivered to subscribers
(herein, collectively the "Offering Documents"). Commonwealth Associates (the
"Placement Agent") has agreed to act as exclusive placement agent to the Company
for the purpose of assisting the Company in finding subscribers who satisfy the
requirements set forth in the Offering Documents and more particularly in the
Subscription Agreement (herein, "Qualified Subscribers") pursuant to the
offering ("Private Placement") described in the Offering Documents.
2. The Units are to be offered to a limited number of
subscribers by the Company at the price per Unit set forth in the Offering
Documents (the "Subscription Price"), in accordance with the terms of offering
thereof set forth in the Offering Documents.
3. We are extending the right, subject to the terms and
conditions hereof, to assist the Company in finding Qualified Subscribers to
purchase a portion of the Units, to certain dealers who are actually engaged in
the investment banking or securities business and who are members in good
standing of the National Association of Securities Dealers, Inc. (the "NASD")
(such dealers who shall agree to assist in locating Qualified Subscribers for
Units hereunder being herein called "Selected Dealers"), at the Subscription
Price, for which they will receive a commission of ___% of the Subscription
Price for Units purchased by Qualified Subscribers presented to the Company by
them. The Selected Dealers have agreed to comply
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with the provisions of all applicable Rules of Fair Practice of the NASD. We may
be included among the Selected Dealers.
4. We shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the Private Placement of
the Units.
5. If you desire to present to the Company any Qualified
Subscribers for Units, your application should reach us promptly by telephone or
telegraph at 830 Third Avenue, New York, New York 10022, Attention:
____________, telephone number 212-829-5800. We reserve the right to reject
subscriptions in whole or in part, to make allotments and to close the
subscription books at any time without notice. The Units allotted to the
Qualified Subscribers presented by you will be confirmed, subject to the terms
and conditions of this Agreement.
6. The privilege of assisting the Company in finding Qualified
Subscribers for the Units is extended to you only so long as the Company may
lawfully sell the Units to residents in the state in which any such Qualified
Subscribers reside pursuant to the terms of the Offering Documents.
7. Any Units offered under the terms of this Agreement and the
Offering Documents may only be offered and sold subject to the securities or
blue sky laws of the various states or other jurisdictions.
You agree to advise us from time to time, upon request, of the
number of sets of Offering Documents delivered to qualified subscribers by you
hereunder at the time of such request.
No expenses shall be charged to Selected Dealers.
Neither you nor any other person is or has been authorized to give
any information or to make any representation in connection with the offer or
sale of the Units other than as contained in the Offering Documents.
8. On becoming a Selected Dealer, and in assisting the Company
in finding Qualified Subscribers for the Units, you agree to comply with all the
applicable requirements of the Securities Act of 193 3, as amended (the "1933
Act") specifically with respect to the requirements of Regulation D thereunder.
You confirm that you are familiar with Rules 501 and 5 02 under the 193 3 Act
relating to the limitations on the manner in which a private placement may be
conducted pursuant to Regulation D under the 1933 Act.
9. Upon request, you will be informed as to the states and
other jurisdictions in which we have been advised that the Units have been
qualified or are exempt from registration requirements for offer and sale under
the respective securities or blue sky
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laws of such states and other jurisdictions, but we do not assume any obligation
or responsibility as to the right of any Selected Dealer to offer the Units in
any state or other jurisdiction or as to the eligibility of the Units for sale
therein. We will, if requested, file a Further State Notice in respect of the
Units pursuant to Article 23-A of the, General Business Law of the State of New
York.
10. No Selected Dealer is authorized to act as our agent or an
agent of the Company or otherwise to act on our behalf in assisting the Company
in finding Qualified Subscribers or otherwise or to furnish any information or
make any representation except as contained in the Offering Documents.
11. Nothing will constitute the Selected Dealers an association
or other separate entity or partners with us, or with each other, but you will
be responsible for your share of any liability or expense based on any claim to
the contrary. We shall not be under any liability for or in respect of value,
validity or form of the components of the Units or the delivery of the Shares
and Warrants comprising the Units, or the performance by anyone of any agreement
on its part, or the qualification of the Units for offer or sale under the laws
of any jurisdiction, or for or in respect of any other matter relating to this
Agreement, except for lack of good faith and for obligations expressly assumed
by us in this Agreement and no obligation on our part shall be implied herefrom.
The foregoing provisions shall not be deemed a waiver of any liability imposed
under the federal securities laws.
12. Payment for the Units subscribed for hereunder is to be made
by Qualified Subscribers at the Subscription Price during the term of the
Private Placement set forth in the Offering Documents at the office of
Commonwealth Associates, 830 Third Avenue, New York, New York 10022, by a
certified or official bank check, payable to the order of ________________, as
Escrow Agent for iMall, Inc.
13. Notice to us should be addressed to Commonwealth Associates,
830 Third Avenue, New York, New York 10022, Attention: ___________________.
Notices to you shall be deemed to have been duly given if mailed to you at the
address to which
this letter is addressed.
14. If you desire to assist the Company in finding Qualified
Subscribers pursuant to the terms set forth above, please confirm your
application by signing and returning to us your confirmation on the duplicate
copy of this letter enclosed herewith, even though you may have previously
advised us thereof by telephone or telegraph. Our signature hereon may be by
facsimile.
Very truly yours,
COMMONWEALTH ASSOCIATES
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By: __________________________
Authorized Officer
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Commonwealth Associates
830 Third Avenue
New York, New York 10022
We hereby present to iMall, Inc. (the "Company") Qualified
Subscribers for Units in accordance with the terms and conditions stated in the
foregoing letter. We hereby acknowledge receipt of the Offering Documents
referred to in the first paragraph thereof relating to said Units. We confirm
that we are a dealer actually engaged in the investment banking or securities
business and that we are a member in good standing of the National Association
of Securities Dealers, Inc. (the "NASD"). We hereby agree to comply with all of
the applicable provisions of the Rules of Fair Practice of the NASD.
By:
-------------------------------
Authorized Officer
Address:
Dated:
---------------------------
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<PAGE> 1
EXHIBIT 10.4
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made and entered into as
of January 26, 1998, by and between iMall, Inc., a Nevada corporation (the
"Company"), and Craig Pickering, an individual ("Consultant").
R E C I T A L S
A. Consultant has approximately 12 years experience in providing
management and training services in internet and internet-related industries.
B. Consultant has provided such services to the Company in the
capacity of an employee, and has acted as Chairman of the Board of the Company,
until the termination of his employment and his resignation as Chairman, on
January 26, 1998.
C. Consultant desires to perform, and the Company is willing to have
Consultant perform, such services as an independent contractor to the Company.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Services. Consultant agrees to provide consulting services
(the "Services") to the Company including, but not limited to, management and
training services for the Company's Internet Training Division.
2. Term. The term of this Agreement shall commence as of the
date first set forth above and shall end on that date which is two years
thereafter, unless terminated earlier in accordance with its terms.
3. Compensation. As sole and exclusive compensation for the
performance of the Services, the Company shall pay Consultant as follows: During
the first year of the term of this Agreement, the Company shall pay Consultant
the annual amount of $65,000. During the second year of this Agreement, the
Company shall pay Consultant the annual amount of $50,000. The Company shall pay
the compensation due Consultant under this Section in equal monthly amounts,
each such amount to be paid to Consultant within ten days after the end of each
month during the term of this Agreement.
4. Expenses. Any expenses incurred by Consultant in performing
the Services will be the sole responsibility of Consultant unless (i) such
expenses are first approved by the Company in each instance and (ii) Consultant
provides receipts or other documentation that evidences such expenses.
5. Termination. Either party hereto shall have the right to
terminate this Agreement in the event of a breach by the other party if such
breach continues
<PAGE> 2
uncured for a period of ten days after the breaching party is given written
notice thereof by the non-breaching party. Notwithstanding the foregoing
sentence, the Company may immediately terminate this Agreement upon notice to
Consultant if Consultant breaches any provision of Section 7 below. The election
by the Company to terminate this Agreement shall not be deemed an election of
remedies, and all other remedies provided by this Agreement or available at law
or in equity shall survive any such termination.
6. Relationship of Parties.
6.1 Independent Contractor. Consultant is an independent
contractor and is not an agent, partner or employee of the Company, and has no
authority to bind the Company in any manner. Consultant shall perform the
Services under the general direction of the Company, but Consultant shall
determine, in Consultant's sole and exclusive discretion, the manner and means
by which the Services are accomplished, subject to the requirement that
Consultant shall at all times comply with applicable law.
6.2 Employment Taxes and Contributions. Consultant shall
report as income all compensation received by Consultant under this Agreement.
The Company shall not withhold any federal, state or local taxes or make any
contributions on behalf of Consultant relating to the compensation received by
Consultant under this Agreement. Consultant shall indemnify the Company and hold
it harmless from and against all liabilities, claims, actions, damages, losses
and expenses, including reasonable fees and expenses of attorneys and other
professionals, relating to (i) any obligation imposed by law on the Company to
pay any such taxes or contributions in connection with compensation received by
Consultant under this Agreement or (ii) any failure of Consultant to pay such
taxes and contributions.
6.3 No Benefits. Because Consultant is engaged as an
independent contractor and not as an employee of the Company, the Company shall
not provide Consultant with any form or type of benefits, including, but not
limited to, health, life or disability insurance.
7. Confidential Information.
7.1 "Confidential Information". For purposes of this
Agreement, the term "Confidential Information" shall include, but not be limited
to (i) information concerning the operation, business and finances of the
Company and the Company's affiliates, (ii) the identity of customers and
suppliers of the Company and the Company's affiliates, (iii) techniques and
processes known or used by the Company and the Company's affiliates, (iv)
pending patent applications and unpublished software owned or licensed to the
Company and the Company's affiliates, and (v) other information and trade
secrets which are of great value to the Company and
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<PAGE> 3
the Company's affiliates, which information and trade secrets are generally not
known other than by the Company and the Company's affiliates.
7.2 Maintenance of Confidentiality. Consultant
acknowledges that maintaining the confidentiality of all Confidential
Information is critically important to the Company and that Consultant has a
fiduciary duty to maintain the confidentiality of the Confidential Information.
In addition, Consultant understands that his agreement to maintain the
confidentiality of all Confidential Information is a material inducement to the
Company in executing this Agreement.
7.3 No Use or Disclosure. Without the Company's prior
written consent in each instance, Consultant agrees not to use or disclose,
directly or indirectly, any Confidential Information in any manner, at any time,
other than as expressly required by the Company in connection with the services
Consultant performs under this Agreement.
7.4 Restriction on Removal and Duplication. Consultant
agrees not to remove, reproduce, summarize or copy any Confidential Information
except as expressly required by the Company in connection with the performance
of his services under this Agreement. Consultant agrees to return immediately
all Confidential Information (including any copies thereof) to the Company (i)
once such Confidential Information is no longer required for Consultant to
perform his services for the Company, (ii) when this Agreement expires or is
earlier terminated under any circumstances whatsoever or (iii) whenever the
Company may otherwise require that such Confidential Information be returned.
7.5 Return of Documents. Consultant agrees that all
manuals, documents, files, media storage devices, reports, studies and other
materials used or developed by the Company, whether are not deemed Confidential
Information, are solely the property of the Company and that Consultant has no
right, title or interest therein. Upon the expiration or earlier termination of
this Agreement or whenever requested by the Company, Consultant shall promptly
deliver such property in his possession to the Company.
7.6 Survival. Consultant's covenants and agreements
contained in this Section 7 shall be deemed to be effective as of the date he
first acquired knowledge of any Confidential Information and shall survive the
expiration or earlier termination of this Agreement.
7.7 Injunctive and Other Equitable Relief. Consultant
acknowledges that his breach of any provision of this Section 7 will cause the
Company great and irreparable harm, for which it will have no adequate remedy at
law, and that, in addition to all other rights and remedies the Company may
have, the Company shall
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<PAGE> 4
be entitled to injunctive and other equitable relief to prevent a breach or
continued breach of the provisions of this Section 7.
8. Ownership. Consultant acknowledges and agrees that the
Company shall own all rights and proceeds of Consultant's services (whether or
not such results and proceeds constitute Confidential Information) rendered
under this Agreement, in perpetuity and throughout the world, including without
limitation, all ideas, inventions, patents, copyrights, trademarks, trade names,
service marks, and any and all other results and proceeds of Consultant's
services hereunder (collectively, "Works"). If for any reason the Company is
deemed not to own any or all of the Works, Consultant hereby irrevocably and
unconditionally assigns all of the rights in and to such Works to the Company,
throughout the world and in perpetuity, and Consultant shall execute all
documents and take all actions that are necessary to effect such assignment.
9. Arbitration. Any claim or controversy arising out of or
relating to this Agreement shall be settled by arbitration in Los Angeles,
California, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment on the award rendered by the arbitrators
may be entered in any court having jurisdiction. There shall be three
arbitrators, one to be chosen directly by each party at will, and the third
arbitrator to be selected by the two arbitrators so chosen.
10. General.
10.1 Assignment. Consultant shall not assign Consultant's
rights or delegate Consultant's duties under this Agreement either in whole or
in part without the prior written consent of the Company. The Company shall have
the right to assign its rights and delegate its duties under this Agreement in
whole or in part without the consent of Consultant.
10.2 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Utah.
10.3 Attorneys' Fees. If any litigation, arbitration or
other legal proceeding relating to this Agreement occurs between the parties
hereto, the prevailing party shall be entitled to recover (in addition to any
other relief awarded or granted) its reasonable costs and expenses, including
attorneys' fees and costs incurred in such litigation, arbitration or
proceeding.
10.4 Severability. If any provision of this Agreement is
determined to be illegal, invalid or otherwise unenforceable by a court of
competent jurisdiction, then to the extent necessary to make such provision or
this Agreement legal, valid or otherwise enforceable, such provision shall be
limited, construed or severed and deleted from this Agreement, and the remaining
portion of such provision and the
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<PAGE> 5
remaining other provisions hereof shall survive, remain in full force and effect
and continue to be binding, and shall be interpreted to give effect to the
intention of the parties hereto insofar as that is possible.
10.5 Notices. All notices, requests and other
communications hereunder shall be in writing and shall be delivered by courier
or other means of personal service (including by means of a nationally
recognized courier service or professional messenger service), or sent by telex
or telecopy or mailed first class, postage prepaid, by certified mail, return
receipt requested, in all cases, addressed to:
Company:
iMall, Inc.
4400 Coldwater Canyon Boulevard
Suite 200
Studio City, California 91604
Attention: Richard Rosenblatt
With a copy to:
Loeb & Loeb LLP
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017
Attention: David L. Ficksman, Esq.
Employee:
Craig Pickering
------------------------------
------------------------------
------------------------------
With a copy to:
------------------------------
------------------------------
------------------------------
------------------------------
Attention:
-------------------
All notices, requests and other communications shall be deemed given on the date
of actual receipt or delivery as evidenced by written receipt, acknowledgement
or other evidence of actual receipt or delivery to the address. In case of
service by telecopy, a
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<PAGE> 6
copy of such notice shall be personally delivered or sent by registered or
certified mail, in the manner set forth above, within three business days
thereafter. Any party hereto may from time to time by notice in writing served
as set forth above designate a different address or a different or additional
person to which all such notices or communications thereafter are to be given.
10.6 Entire Agreement. This Agreement sets forth the
entire understanding of the parties with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements, written or oral,
between them concerning such subject matter, including, but not limited to, all
agreements or arrangements relating to Consultant's previous employment by the
Company and his position as Chairman of the Board of the Company. Employee
hereby waives any claims that may exist on the date hereof arising from his
prior employment with the Company or his position as Chairman of the Board,
other than for salary or fees payable or reimbursement of reasonable expenses,
all as incurred in the ordinary course of business.
10.7 Amendment, Modification and Waiver. This Agreement
and its provisions may not be amended, modified or waived except in a writing
signed by Consultant and the Company.
10.8 Construction. The normal rule of construction that an
agreement shall be interpreted against the drafting party shall not apply to
this Agreement. In this Agreement, whenever the context so requires, the
masculine, feminine or neuter gender, and the singular or plural number or
tense, shall include the others.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date first set forth above.
iMall, Inc.
By: /s/ Craig Pickering
------------------------ -----------------------------
Craig Pickering
Name:
----------------------
Title:
---------------------
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<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of
January 5, 1998, by and between iMall, Inc., a Nevada corporation (the
"Company") and Richard Rosenblatt, an individual ("Employee"), with reference to
the following:
A. The Company desires to employ Employee on the terms and
conditions set forth in this Agreement.
B. Employee desires to be so employed.
NOW, THEREFORE, based on the foregoing premises and in consideration
of the covenants set forth in this Agreement, the parties hereto hereby agree as
follows:
1. Term of Employment. The Company hereby employs Employee and
Employee accepts such employment commencing on February 2, 1998 and terminating
on that date which is five (5) years thereafter, unless sooner terminated in
accordance with the terms of this Agreement.
2. Services to be Rendered.
2.1 Duties. Employee shall serve as Chief Executive
Officer of the Company and shall have the responsibilities, duties and powers
customarily associated with such position. Employee shall report directly to the
Board of Directors of the Company, and shall perform his duties pertaining to
the business of the Company (the "Company Business") subject to the direction of
the Board of Directors and to such limits upon Employee's authority as the Board
of Directors may from time to time impose. Employee's principal place of work
hereunder shall be located in Los Angeles County, California. Employee shall be
subject to the policies and procedures generally applicable to senior executive
employees of the Company to the extent the same are not inconsistent with any
term of this Agreement.
2.2 Exclusive Services. Employee shall at all times
faithfully, industriously and to the best of his ability, experience and talent
perform to the satisfaction of the Board of Directors all of the duties that may
be assigned to Employee hereunder and shall devote all of his productive time
and efforts to the performance of such duties; provided, however, that Employee
may devote time to personal and family investments to the extent that the time
so spent does not conflict with the Company Business. The existence of such a
conflict shall be determined in good faith by the Board of Directors.
3. Compensation and Benefits. The Company shall pay the
following compensation and benefits to Employee during the term hereof, and
Employee shall
<PAGE> 2
accept the same as payment in full for all services rendered by Employee to or
for the benefit of the Company:
3.1 Salary. A salary ("Salary") of $195,000 per annum. The
Salary shall accrue in equal monthly installments in arrears and shall be
payable in accordance with the payroll practices of the Company in effect from
time to time. The Company shall review Employee's performance within thirty (30)
days after the end of each of the first four (4) years of Employee's employment
hereunder. Based upon such reviews, the Company may increase the Salary in such
amounts as the Compensation Committee of the Company determines in good faith.
The Company shall continue to pay to Employee the Salary paid during the
immediately-preceding year until the review has been conducted, at which time
the Company shall pay to Employee the amount that is necessary to effect the
adjustment under this Section 3.1 with respect to the installments of Salary
theretofore paid by the Company to Employee during the then-current year, and
payment of the adjusted Salary shall continue thereafter.
3.2 Car Allowance. The Company shall pay to Employee a car
allowance of $750 per month, which shall accrue in monthly installments in
arrears and be payable in accordance with the practices of the Company in effect
from time to time.
3.3 Fringe Benefits. Employee shall be entitled to
participate in benefits under the Company's benefit plans and arrangements,
including, without limitation, any employee benefit plan or arrangement made
available in the future by the Company to its senior executives, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans and arrangements. The Company shall have the right to amend or delete
any such benefit plan or arrangement made available by the Company to its senior
executives and not otherwise specifically provided for herein.
3.4 Expenses. The Company shall reimburse Employee for
reasonable out-of-pocket expenses incurred in connection with the Company
Business and the performance of his duties hereunder, subject to (i) such
policies as the Company may from time to time establish, (ii) Employee
furnishing the Company with evidence in the form of receipts satisfactory to the
Company substantiating the claimed expenditures, and (iii) Employee receiving
advance approval from the Company in case of expenses (or a series of related
expenses) in excess of $2,500.
3.5 Vacation. Employee shall be entitled to the number of
paid vacation days in each calendar year determined by the Company from time to
time for its senior executive officers. Employee shall also be entitled to all
paid holidays given to the Company's senior executive officers.
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<PAGE> 3
3.6 Bonus. In addition to the Salary to which Employee is
entitled pursuant to Section 3.1, and within thirty (30) days of the end of each
year of Employee's employment hereunder, the Company shall grant to Employee an
annual bonus in an amount at least equal to twenty percent (20%) of the Salary
paid to Employee during the immediately-preceding year, any amount in excess
thereof to be granted by the Compensation Committee of the Company after its
review of Employee's performance pursuant to Section 3.1 above.
3.7 Withholding and other Deductions. All compensation
payable to Employee hereunder shall be subject to such deductions as the Company
is from time to time required to make pursuant to law, governmental regulation
or order.
4. Stock Options. The Company shall grant Employee options to
purchase three million (3,000,000) shares of the common stock of the Company
("Options"). The principal terms of the Options are set forth below and all of
the terms of the Options are set forth in a stock option agreement (a copy of
which is attached hereto as Exhibit A and incorporated herein by this
reference). The exercise price of each Option is $.65 per share. The Options
will vest in Employee as follows: (i) one million (1,000,000) Options shall vest
immediately upon the date of this Agreement and (ii) the remaining two million
(2,000,000) Options shall vest at the rate of one million (1,000,000) Options on
each of the first and second anniversary dates of Mr. Rosenblatt's employment
with the Company.
4.1 Expiration of Options. All unexercised Options shall
expire on that date which is five (5) years after the date on which such Options
have vested.
4.2 Effect of Employee's Termination. If Employee is
terminated pursuant to 9.1 below, all Options that are unexercised at that time
shall expire on that date which is sixty (60) days after the date of such
termination. If Employee is terminated pursuant to Section 9.2 below, all
Options that are unexercised at that time shall expire immediately.
4.3 Effect of Employee's Improper Termination of This
Agreement. If Employee resigns or terminates this Agreement for any reason other
than based on a material breach hereof by the Company, all Options that are not
vested in Employee at that time shall expire immediately.
4.4 Effect of Sale of the Company. All of the Options
shall vest in Employee immediately upon (i) the sale by the Company of all or
substantially all of its assets, (ii) the sale of fifty percent (50%) or more of
its outstanding shares, or (iii) the merger of the Company into another company
whereby the Company is not the surviving entity.
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5. Representations and Warranties of Employee. Employee
represents and warrants to the Company that (a) Employee is under no contractual
or other restriction or obligation which is inconsistent with the execution of
this Agreement, the performance of his duties hereunder, or the other rights of
the Company hereunder and (b) Employee is under no physical or mental disability
that would hinder the performance of his duties under this Agreement.
6. Certain Covenants.
6.1 Noncompetition. The parties hereto acknowledge that if
Employee were to compete with the Company, Employee would necessarily use
Confidential Information (as defined below) in doing so. Accordingly, during the
term of this Agreement (including, if Employee is terminated for good cause or
voluntarily terminates his employment hereunder, for the remainder of the term
of this Agreement after such termination) (the "Restricted Period"), Employee
shall not have any ownership interest (of record or beneficial) in, or have any
interest as an employee, salesman, consultant, officer or director in, or
otherwise aid or assist in any manner, any firm, corporation, partnership,
proprietorship or other business that engages in any county, city or part
thereof in the United States and/or any foreign country in a business which is
similar to that in which the Company is engaged in such county, city or part
thereof, so long as the Company, or any successor in interest of the Company the
business and goodwill of the Company, remains engaged in such business in such
county, city or part thereof or continues to solicit customers or potential
customers therein; provided, however, that Employee may own, directly or
indirectly, solely as an investment, securities of any entity which are traded
on any national securities exchange if Employee (a) is not a controlling person
of, or a member of a group which controls, such entity or (b) does not, directly
or indirectly, own one percent (1%) or more of any class of securities of any
such entity.
6.2 Trade Secrets. Employee acknowledges that the nature
of Employee's engagement by the Company is such that Employee will have access
to Confidential Information which has great value to the Company and that except
for Employee's engagement by the Company, Employee would not otherwise have
access to the Confidential Information. During the term of this Agreement and at
all times thereafter, Employee shall keep all of the Confidential Information in
confidence and shall not disclose any of the same to any other person, except
the Company's personnel entitled thereto and other persons designated in writing
by the Company. Employee shall not cause, suffer or permit the Confidential
Information to be used for the gain or benefit of any party outside of the
Company or for Employee's personal gain or benefit outside the scope of
Employee's engagement by the Company.
6.3 Solicitation of Business. Employee shall not during
the Restricted Period solicit or assist any other person to solicit any business
(other than for the Company) from any present or past customer of the Company;
or request or advise
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any present or future customer of the Company to withdraw, curtail or cancel its
business dealings with the Company; or commit any other act or assist others to
commit any other act which might injure the business of the Company.
6.4 Solicitation of Employees. Employee shall not during
the Restricted Period, directly or indirectly, hire, solicit or encourage to
leave the employment of the Company or any of its affiliates, any employee of
the Company or any of its affiliates or hire any such employee who has left the
employment of the Company or any of its affiliates within one (1) year of the
termination of such employee's employment with the Company or any of its
affiliates.
6.5 Solicitation of Consultants. Employee shall not during
the Restricted Period, directly or indirectly, hire, solicit or encourage to
cease work with the Company or any of its affiliates any consultant then under
contract with the Company or any of its affiliates within one (1) year of the
termination of such consultant's engagement by the Company or any of its
affiliates.
6.6 Rights and Remedies Upon Breach. If Employee breaches
or threatens to commit a breach of any of the provisions of this Section 6 (the
"Restrictive Covenants"), the Company shall have the following rights and
remedies, each of which rights and remedies shall be independent of the other
and severally enforceable, and all of which rights and remedies shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or in equity:
(a) Specific Performance. The right and remedy to
have the Restrictive Covenants specifically enforced by any court having equity
jurisdiction, all without the need to post a bond or any other security or to
prove any amount of actual damage or that money damages would not provide an
adequate remedy, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide adequate remedy to the Company; and
(b) Accounting and Indemnification. The right and
remedy to require Employee (i) to account for and pay over to the Company all
compensation, profits, monies, accruals, increments or other benefits derived or
received by Employee or any associated party deriving such benefits as a result
of any such breach of the Restrictive Covenants; and (ii) to indemnify the
Company against any other losses, damages (including special and consequential
damages), costs and expenses, including actual attorneys' fees and court costs,
which may be incurred by them and which result from or arise out of any such
breach or threatened breach of the Restrictive Covenants.
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6.7 Severability of Covenants/Blue Pencilling. If any
court determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions. If any court determines that any of the Restrictive Covenants,
or any part thereof, are unenforceable because of the duration of such provision
or the area covered thereby, such court shall have the power to reduce the
duration or area of such provision and, in its reduced form, such provision
shall then be enforceable and shall be enforced. Employee hereby waives any and
all right to attack the validity of the Restrictive Covenants on the grounds of
the breadth of their geographic scope or the length of their term.
6.8 Enforceability in Jurisdictions. The Company and
Employee intend to and do hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
such covenants. If the courts of any one (1) or more of such jurisdictions hold
the Restrictive Covenants wholly unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of the Company and Employee that such
determination not bar or in any way affect the right of the Company to the
relief provided above in the courts of any other jurisdiction within the
geographical scope of such covenants, as to breaches of such covenants in such
other respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and independent
covenants.
6.9 Definitions.
(a) In Sections 6.1 - 6.9 above, all references to the
Company mean not only the Company, but also any company, partnership or entity
which, directly or indirectly, controls, is controlled by or is under common
control with the Company.
(b) The term "Confidential Information", as used in this
Agreement, means all information or material not generally known by non-Company
personnel which (i) gives the Company some competitive business advantage or the
opportunity of obtaining such advantage or the disclosure of which could be
detrimental to the interests of the Company; (ii) which is owned by the Company
or in which the Company has an interest and (iii) which is either (A) marked
"Confidential Information," "Proprietary Information" or other similar marking,
(B) known by Employee to be considered confidential and proprietary by the
Company or (C) from all the relevant circumstances should reasonably be assumed
by Employee to be confidential and proprietary to the Company. Confidential
Information includes, but is not limited to, the following types of information
and other information of a similar nature (whether or not reduced to writing):
trade secrets, inventions, drawings, file data, documentation, diagrams,
specifications, know how, processes, formulas, models, flow charts, software in
various stages of development, source codes, object codes, categories of
information unique to the business, research and development
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procedures, research or development and test results, marketing techniques and
materials, marketing and development plans, price lists, pricing policies,
business plans, information relating to customers and/or suppliers' identities,
characteristics and agreements, financial information and projections, and
employee files. Confidential Information also includes any information described
above which the Company obtains from another party and which the Company treats
as proprietary or designates as Confidential Information, whether or not owned
or developed by the Company. NOTWITHSTANDING THE ABOVE, HOWEVER, NO INFORMATION
CONSTITUTES CONFIDENTIAL INFORMATION IF IT IS GENERIC INFORMATION OR GENERAL
KNOWLEDGE WHICH COVENANTOR WOULD HAVE LEARNED IN THE COURSE OF SIMILAR
EMPLOYMENT ELSEWHERE IN THE TRADE OR IF IT IS OTHERWISE PUBLICLY KNOWN AND IN
THE PUBLIC DOMAIN.
7. Proprietary Rights.
7.1 Disclosure of Employee's Knowledge. Employee shall
make available to the Company at no cost to the Company all knowledge possessed
by him relating to any methods, developments, inventions and/or improvements,
whether patented, patentable or unpatentable, which concern in any way the
Company Business, acquired by Employee during the term of employment, provided
that nothing herein shall be construed as requiring any disclosure where any
such method, development, invention and/or improvement is lawfully protected
from disclosure as a trade secret of any third party or by any other lawful bar
to such disclosure.
7.2 Ownership of Patent Rights, Copyrights, and Trade
Secrets. To the fullest extent permitted by California law, Employee shall
assign, and does hereby assign, to the Company all of Employee's right, title
and interest in and to all inventions, improvements, developments, trade
secrets, discoveries, computer software, tradenames and trademarks conceived,
improved, developed, discovered or written by Employee, alone or in
collaboration with others, during the term of this Agreement which relate in any
manner to the Company Business, whether or not the same shall be conceived,
improved, developed, discovered or written during customary working hours on the
Company's premises. During the term of this Agreement Employee shall promptly
and fully disclose to the Company all matters within the scope of this Section
7.2, and shall, upon request of the Company, execute, acknowledge, deliver and
file any and all documents necessary or useful to vest in the Company all of
Employee's right, title and interest in and to all such matters. All expenses
incurred in connection with the execution, acknowledgment, delivery and filing
of any papers or documents within the scope of this Section 7.2 shall be borne
by the Company. All matters within the scope of this Section 7.2 shall
constitute trade secrets of the Company subject to the provisions of Section
6.2, until such matters cease to be trade secrets by operation of law.
Notwithstanding the foregoing, however, Employee shall be under no obligation to
assign to the Company any right
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<PAGE> 8
in or to any invention which qualifies fully under the provisions of Section
2870 of the California Labor Code, which section is reproduced in Exhibit B
attached hereto.
8. Insurance. The Company shall have the right to take out
life, health, accident, "key-man" or other insurance covering Employee, in the
name of the Company and at the Company's expense in any amount deemed
appropriate by the Company. Employee shall assist the Company in obtaining such
insurance, including, without limitation, submitting to any required
examinations and providing information and data required by insurance companies.
9. Termination.
9.1 Death or Total Disability of Employee. If Employee
dies or becomes totally disabled during the term of this Agreement, Employee's
employment hereunder shall automatically terminate. For these purposes Employee
shall be deemed totally disabled if Employee shall become physically or mentally
incapacitated or disabled or otherwise unable fully to discharge Employee's
duties hereunder for a period of ninety (90) consecutive calendar days or for
one hundred twenty (120) calendar days in any one hundred eighty (180)
calendar-day period.
9.2 Termination for Good Cause. Employee's employment
hereunder may be terminated by the Company for "good cause" by giving written
notice thereof to Employee. For the purposes of this Agreement, "good cause"
shall only mean Employee's (i) commission of a crime directly related to his
employment hereunder, (ii) conviction of a felony involving moral turpitude,
(iii) willful misconduct in the management of the business and affairs of the
Company or (iv) repeated failure to perform Employee's duties as may reasonably
be directed by the Board of Directors and as may be reasonably consistent with
Employee's office.
9.3 Severance Compensation. Upon the occurrence of any of
the events referred to in Sections 9.1 and 9.2 above, Employee (or Employee's
heirs or representatives) shall be entitled to receive only such portion (if
any) of the Salary as may theretofore have accrued but be unpaid on the date on
which the termination shall take effect.
9.4 Return of the Company's Property. If this Agreement is
terminated for any reason whatsoever, the Company shall have the right, at its
option, to require Employee to vacate his offices prior to the effective date of
termination and to cease all activities on the Company's behalf. Upon the
termination of his employment in any manner, Employee shall immediately
surrender to the Company all lists, books and records of, or in connection with,
the Company's business, and all other property belonging to the Company, it
being distinctly understood that all such lists, books and records, and other
documents, are the property of the Company.
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10. Arbitration. Any claim or controversy arising out of or
relating to this Agreement shall be settled by arbitration in Los Angeles,
California, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment on the award rendered by the arbitrators
may be entered in any court having jurisdiction. There shall be three (3)
arbitrators, one (1) to be chosen directly by each party at will, and the third
arbitrator to be selected by the two (2) arbitrators so chosen. Each party shall
pay the fees of the arbitrator it selects and of its own attorneys, the expenses
of its witnesses and all other expenses connected with presenting its case.
Other costs of the arbitration, including the cost of any record or transcripts
of the arbitration, administrative fees, the fee of the third arbitrator, and
all other fees and costs, shall be borne equally by the parties.
11. General Relationship. Employee shall be considered an
employee of the Company within the meaning of all federal, state and local laws
and regulations including, but not limited to, laws and regulations governing
unemployment insurance, workers' compensation, industrial accident, labor and
taxes.
12. Miscellaneous.
12.1 Modification; Prior Claims. This Agreement sets forth
the entire understanding of the parties with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements, written or oral,
between them concerning such subject matter, including, but not limited to, all
agreements or arrangements relating to the issuance or grant of securities of
the Company to Employee, except for shares of common stock of the Company. This
Agreement may be modified only by a written instrument duly executed by each
party. Employee hereby waives any claims that may exist on the date hereof
arising from his prior employment with the Company, other than for salary
payable or reimbursement of reasonable expenses, all as incurred in the ordinary
course of business.
12.2 Assignment. The rights of the Company under this
Agreement may, without the consent of Employee, be assigned by the Company, in
its sole and unfettered discretion, to any person, firm, corporation or other
business entity which at any time, whether by purchase, merger or otherwise,
directly or indirectly, acquires all or substantially all of the assets or
business of the Company or an affiliate of the Company.
12.3 Survival. The covenants, agreements, representations
and warranties contained in or made pursuant to this Agreement shall survive
Employee's termination of employment.
12.4 Third-Party Beneficiaries. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
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12.5 Waiver. The failure of either party hereto at any
time to enforce performance by the other party of any provision of this
Agreement shall in no way affect such party's rights thereafter to enforce the
same, nor shall the waiver by either party of any breach of any provision hereof
be deemed to be a waiver by such party of any other breach of the same or any
other provision hereof.
12.6 Hiring At Will. Any continuance of Employee's
employment by the Company after the term hereof shall be deemed a hiring at will
(unless such continuance is the subject of a new written agreement) and shall be
subject to termination with or without cause by either party upon delivery of
notice thereof.
12.7 Section Headings. The headings of the several
sections in this Agreement are inserted solely for the convenience of the
parties and are not a part of and are not intended to govern, limit or aid in
the construction of any term or provision hereof.
12.8 Notices. All notices, requests and other
communications hereunder shall be in writing and shall be delivered by courier
or other means of personal service (including by means of a nationally
recognized courier service or professional messenger service), or sent by telex
or telecopy or mailed first class, postage prepaid, by certified mail, return
receipt requested, in all cases, addressed to:
Company:
iMall, Inc.
4400 Coldwater Canyon Boulevard
Suite 200
Studio City, California 91604
Attention: Richard Rosenblatt
With a copy to:
Loeb & Loeb LLP
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017
Attention: David L. Ficksman, Esq.
Employee:
Richard Rosenblatt
3540 Wrightwood Drive
Studio City, California 91604
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<PAGE> 11
All notices, requests and other communications shall be deemed given on the date
of actual receipt or delivery as evidenced by written receipt, acknowledgement
or other evidence of actual receipt or delivery to the address. In case of
service by telecopy, a copy of such notice shall be personally delivered or sent
by registered or certified mail, in the manner set forth above, within three (3)
business days thereafter. Any party hereto may from time to time by notice in
writing served as set forth above designate a different address or a different
or additional person to which all such notices or communications thereafter are
to be given.
12.9 Severability. All Sections, clauses and covenants
contained in this Agreement are severable, and in the event any of them shall be
held to be invalid by any court, this Agreement shall be interpreted as if such
invalid Sections, clauses or covenants were not contained herein.
12.10 Governing Law and Venue. This Agreement is to be
governed by and construed in accordance with the laws of the State of California
applicable to contracts made and to be performed wholly within such State, and
without regard to the conflicts of laws principles thereof. Any suit brought
hereon shall be brought in the state or federal courts sitting in Los Angeles,
California, the parties hereto hereby waiving any claim or defense that such
forum is not convenient or proper. Each party hereby agrees that any such court
shall have in personam jurisdiction over it and consents to service of process
in any manner authorized by California law.
12.11 Non-transferability of Interest. None of the rights
of Employee to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Employee. Any attempted assignment, transfer, conveyance, or other disposition
(other than as aforesaid) of any interest in the rights of Employee to receive
any form of compensation to be made by the Company pursuant to this Agreement
shall be void.
12.12 Attorneys' Fees. Subject to the provisions of
Section 10 hereof with respect to arbitration, if any legal action, arbitration
or other proceeding is brought for the enforcement of this Agreement, or because
of any alleged dispute, breach, default or misrepresentation in connection with
this Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs it incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
12.13 Gender. Where the context so requires, the use of
the masculine gender shall include the feminine and/or neuter genders and the
singular shall include the plural, and vice versa, and the word "person" shall
include any corporation, firm, partnership or other form of association.
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<PAGE> 12
12.14 Counterparts. This Agreement may be executed in one
(1) or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same Agreement.
12.15 Construction. The language in all parts of this
Agreement shall in all cases be construed simply, according to its fair meaning,
and not strictly for or against any of the parties hereto. Without limitation,
there shall be no presumption against any party on the ground that such party
was responsible for drafting this Agreement or any part thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date hereinabove set forth.
THE COMPANY
iMall, Inc.
By:/s/
------------------------------
Its:
--------------------------
Title:
------------------------
EMPLOYEE
/s/ Richard Rosenblatt
---------------------------------
Richard Rosenblatt
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<PAGE> 13
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE> 14
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of
January 5, 1998, by and between iMall, Inc., a Nevada corporation (the
"Company") and Mark Comer, an individual ("Employee"), with reference to the
following:
A. The Company desires to employ Employee on the terms and
conditions set forth in this Agreement.
B. Employee desires to be so employed.
NOW, THEREFORE, based on the foregoing premises and in consideration
of the covenants set forth in this Agreement, the parties hereto hereby agree as
follows:
1. Term of Employment. The Company hereby employs Employee and
Employee accepts such employment commencing on February 2, 1998 and terminating
on that date which is two years thereafter, unless sooner terminated in
accordance with the terms of this Agreement.
2. Services to be Rendered.
2.1 Duties. Employee shall serve as President of the
Company and shall have the responsibilities, duties and powers customarily
associated with such position. Employee shall report directly to the Chief
Executive Officer of the Company, and shall perform his duties pertaining to the
business of the Company (the "Company Business") subject to the direction of the
Chief Executive Officer and to such limits upon Employee's authority as the
Chief Executive Officer may from time to time impose. Employee's principal place
of work hereunder shall be located in Studio City, California or such other
location within Los Angeles County as may be designated by the Chief Executive
Officer from time to time. However, Employee shall also render services at such
other place or places within or without the United States as the Chief Executive
Officer may direct from time to time. Employee shall be subject to the policies
and procedures generally applicable to senior executive employees of the Company
to the extent the same are not inconsistent with any term of this Agreement.
2.2 Exclusive Services. Employee shall at all times
faithfully, industriously and to the best of his ability, experience and talent
perform to the satisfaction of the Chief Executive Officer all of the duties
that may be assigned to Employee hereunder and shall devote all of his
productive time and efforts to the performance of such duties; provided,
however, that Employee may devote time to personal and family investments to the
extent that the time so spent does not conflict with the Company Business. The
existence of such a conflict shall be determined in good faith by the Chief
Executive Officer.
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3. Compensation and Benefits. The Company shall pay the
following compensation and benefits to Employee during the term hereof, and
Employee shall accept the same as payment in full for all services rendered by
Employee to or for the benefit of the Company:
3.1 Salary. A salary ("Salary") of $125,000 per annum. The
Salary shall accrue in equal monthly installments in arrears and shall be
payable in accordance with the payroll practices of the Company in effect from
time to time.
3.2 Car Allowance. The Company shall pay to Employee a car
allowance of $750 per month, which shall accrue in monthly installments in
arrears and be payable in accordance with the practices of the Company in effect
from time to time.
3.3 Fringe Benefits. Employee shall be entitled to
participate in benefits under the Company's benefit plans and arrangements,
including, without limitation, any employee benefit plan or arrangement made
available in the future by the Company to its senior executives, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans and arrangements. The Company shall have the right to amend or delete
any such benefit plan or arrangement made available by the Company to its senior
executives and not otherwise specifically provided for herein.
3.4 Expenses. The Company shall reimburse Employee for
reasonable out-of- pocket expenses incurred in connection with the Company
Business and the performance of his duties hereunder, subject to (i) such
policies as the Chief Executive Officer may from time to time establish, (ii)
Employee furnishing the Company with evidence in the form of receipts
satisfactory to the Company substantiating the claimed expenditures, and (iii)
Employee receiving advance approval from the Chief Executive Officer in case of
expenses (or a series of related expenses) in excess of $500.
3.5 Vacation. Employee shall be entitled to the number of
paid vacation days in each calendar year determined by the Company from time to
time for its senior executive officers. Employee shall also be entitled to all
paid holidays given to the Company's senior executive officers.
3.6 Bonus. The Company shall review the performance of the
division of the Company for which Employee primarily works (i.e., the Internet
Training Division) within 90 days after the end of each of the 1998 and 1999
fiscal years of the Company. Based on such reviews, the Company shall pay
Employee an annual bonus in an amount equal to (i) five percent (5%) of the
relevant year's "net operating profits" of the Internet Training Division, on
any net operating profits up to the amount of $1,000,000, plus (ii) ten percent
(10%) of the relevant year's net operating profits of the Internet Training
Division, on any net operating profits in excess of $1,000,000. For purposes of
this Agreement, the term "net operating profits" means the net operating profits
of the Internet Training Division as
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<PAGE> 3
determined by the Company in accordance with its then-current standard
accounting practices.
3.7 Withholding and other Deductions. All compensation
payable to Employee hereunder shall be subject to such deductions as the Company
is from time to time required to make pursuant to law, governmental regulation
or order.
4. Stock Options. The Company may, from time to time, grant
Employee options under its then-current stock option plan to purchase shares of
its common stock, on such terms and in such amounts (if any) as the Company
determines in its sole and exclusive discretion.
5. Representations and Warranties of Employee. Employee
represents and warrants to the Company that (a) Employee is under no contractual
or other restriction or obligation which is inconsistent with the execution of
this Agreement, the performance of his duties hereunder, or the other rights of
the Company hereunder and (b) Employee is under no physical or mental disability
that would hinder the performance of his duties under this Agreement.
6. Certain Covenants.
6.1 Noncompetition. The parties hereto acknowledge that if
Employee were to compete with the Company, Employee would necessarily use
Confidential Information (as defined below) in doing so. Accordingly, during the
term of this Agreement (including, if Employee is terminated for good cause or
voluntarily terminates his employment hereunder, for the remainder of the term
of this Agreement after such termination) (the "Restricted Period"), Employee
shall not have any ownership interest (of record or beneficial) in, or have any
interest as an employee, salesman, consultant, officer or director in, or
otherwise aid or assist in any manner, any firm, corporation, partnership,
proprietorship or other business that engages in any county, city or part
thereof in the United States and/or any foreign country in a business which is
similar to that in which the Company is engaged in such county, city or part
thereof, so long as the Company, or any successor in interest of the Company the
business and goodwill of the Company, remains engaged in such business in such
county, city or part thereof or continues to solicit customers or potential
customers therein; provided, however, that Employee may own, directly or
indirectly, solely as an investment, securities of any entity which are traded
on any national securities exchange if Employee (a) is not a controlling person
of, or a member of a group which controls, such entity or (b) does not, directly
or indirectly, own one percent (1%) or more of any class of securities of any
such entity.
6.2 Trade Secrets. Employee acknowledges that the nature
of Employee's engagement by the Company is such that Employee will have access
to Confidential Information which has great value to the Company and that except
for Employee's engagement by the Company, Employee would not otherwise have
access to the Confidential Information.
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<PAGE> 4
During the term of this Agreement and at all times thereafter, Employee shall
keep all of the Confidential Information in confidence and shall not disclose
any of the same to any other person, except the Company's personnel entitled
thereto and other persons designated in writing by the Company. Employee shall
not cause, suffer or permit the Confidential Information to be used for the gain
or benefit of any party outside of the Company or for Employee's personal gain
or benefit outside the scope of Employee's engagement by the Company.
6.3 Solicitation of Business. Employee shall not during
the Restricted Period solicit or assist any other person to solicit any business
(other than for the Company) from any present or past customer of the Company;
or request or advise any present or future customer of the Company to withdraw,
curtail or cancel its business dealings with the Company; or commit any other
act or assist others to commit any other act which might injure the business of
the Company.
6.4 Solicitation of Employees. Employee shall not during
the Restricted Period, directly or indirectly, hire, solicit or encourage to
leave the employment of the Company or any of its affiliates, any employee of
the Company or any of its affiliates or hire any such employee who has left the
employment of the Company or any of its affiliates within one year of the
termination of such employee's employment with the Company or any of its
affiliates.
6.5 Solicitation of Consultants. Employee shall not during
the Restricted Period, directly or indirectly, hire, solicit or encourage to
cease work with the Company or any of its affiliates any consultant then under
contract with the Company or any of its affiliates within one year of the
termination of such consultant's engagement by the Company or any of its
affiliates.
6.6 Rights and Remedies Upon Breach. If Employee breaches
or threatens to commit a breach of any of the provisions of this Section 6 (the
"Restrictive Covenants"), the Company shall have the following rights and
remedies, each of which rights and remedies shall be independent of the other
and severally enforceable, and all of which rights and remedies shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or in equity:
(a) Specific Performance. The right and remedy to
have the Restrictive Covenants specifically enforced by any court having equity
jurisdiction, all without the need to post a bond or any other security or to
prove any amount of actual damage or that money damages would not provide an
adequate remedy, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide adequate remedy to the Company; and
(b) Accounting and Indemnification. The right and
remedy to require Employee (i) to account for and pay over to the Company all
compensation, profits, monies,
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<PAGE> 5
accruals, increments or other benefits derived or received by Employee or any
associated party deriving such benefits as a result of any such breach of the
Restrictive Covenants; and (ii) to indemnify the Company against any other
losses, damages (including special and consequential damages), costs and
expenses, including actual attorneys' fees and court costs, which may be
incurred by them and which result from or arise out of any such breach or
threatened breach of the Restrictive Covenants.
6.7 Severability of Covenants/Blue Pencilling. If any
court determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions. If any court determines that any of the Restrictive Covenants,
or any part thereof, are unenforceable because of the duration of such provision
or the area covered thereby, such court shall have the power to reduce the
duration or area of such provision and, in its reduced form, such provision
shall then be enforceable and shall be enforced. Employee hereby waives any and
all right to attack the validity of the Restrictive Covenants on the grounds of
the breadth of their geographic scope or the length of their term.
6.8 Enforceability in Jurisdictions. The Company and
Employee intend to and do hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
such covenants. If the courts of any one or more of such jurisdictions hold the
Restrictive Covenants wholly unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of the Company and Employee that such
determination not bar or in any way affect the right of the Company to the
relief provided above in the courts of any other jurisdiction within the
geographical scope of such covenants, as to breaches of such covenants in such
other respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and independent
covenants.
6.9 Definitions.
(a) In Sections 6.1 - 6.9 above, all references to the
Company mean not only the Company, but also any company, partnership or entity
which, directly or indirectly, controls, is controlled by or is under common
control with the Company.
(b) The term "Confidential Information", as used in this
Agreement, means all information or material not generally known by non-Company
personnel which (i) gives the Company some competitive business advantage or the
opportunity of obtaining such advantage or the disclosure of which could be
detrimental to the interests of the Company; (ii) which is owned by the Company
or in which the Company has an interest and (iii) which is either (A) marked
"Confidential Information," "Proprietary Information" or other similar marking,
(B) known by Employee to be considered confidential and proprietary by the
Company or (C) from all the relevant circumstances should reasonably be assumed
by Employee to be confidential and proprietary to the Company. Confidential
Information
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includes, but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing): trade
secrets, inventions, drawings, file data, documentation, diagrams,
specifications, know how, processes, formulas, models, flow charts, software in
various stages of development, source codes, object codes, categories of
information unique to the business, research and development procedures,
research or development and test results, marketing techniques and materials,
marketing and development plans, price lists, pricing policies, business plans,
information relating to customers and/or suppliers' identities, characteristics
and agreements, financial information and projections, and employee files.
Confidential Information also includes any information described above which the
Company obtains from another party and which the Company treats as proprietary
or designates as Confidential Information, whether or not owned or developed by
the Company. NOTWITHSTANDING THE ABOVE, HOWEVER, NO INFORMATION CONSTITUTES
CONFIDENTIAL INFORMATION IF IT IS GENERIC INFORMATION OR GENERAL KNOWLEDGE WHICH
COVENANTOR WOULD HAVE LEARNED IN THE COURSE OF SIMILAR EMPLOYMENT ELSEWHERE IN
THE TRADE OR IF IT IS OTHERWISE PUBLICLY KNOWN AND IN THE PUBLIC DOMAIN.
7. Proprietary Rights.
7.1 Disclosure of Employee's Knowledge. Employee shall
make available to the Company at no cost to the Company all knowledge possessed
by him relating to any methods, developments, inventions and/or improvements,
whether patented, patentable or unpatentable, which concern in any way the
Company Business, acquired by Employee during the term of employment, provided
that nothing herein shall be construed as requiring any disclosure where any
such method, development, invention and/or improvement is lawfully protected
from disclosure as a trade secret of any third party or by any other lawful bar
to such disclosure.
7.2 Ownership of Patent Rights, Copyrights, and Trade
Secrets. To the fullest extent permitted by California law, Employee shall
assign, and does hereby assign, to the Company all of Employee's right, title
and interest in and to all inventions, improvements, developments, trade
secrets, discoveries, computer software, tradenames and trademarks conceived,
improved, developed, discovered or written by Employee, alone or in
collaboration with others, during the term of this Agreement which relate in any
manner to the Company Business, whether or not the same shall be conceived,
improved, developed, discovered or written during customary working hours on the
Company's premises. During the term of this Agreement Employee shall promptly
and fully disclose to the Company all matters within the scope of this Section
7.2, and shall, upon request of the Company, execute, acknowledge, deliver and
file any and all documents necessary or useful to vest in the Company all of
Employee's right, title and interest in and to all such matters. All expenses
incurred in connection with the execution, acknowledgment, delivery and filing
of any papers or documents within the scope of this Section 7.2 shall be borne
by the Company. All matters within the scope of this Section 7.2 shall
constitute trade secrets of the Company subject to the provisions of Section
6.2, until such matters cease to be trade secrets by
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operation of law. Notwithstanding the foregoing, however, Employee shall be
under no obligation to assign to the Company any right in or to any invention
which qualifies fully under the provisions of Section 2870 of the California
Labor Code, which section is reproduced in Exhibit A attached hereto.
8. Insurance. The Company shall have the right to take out
life, health, accident, "key-man" or other insurance covering Employee, in the
name of the Company and at the Company's expense in any amount deemed
appropriate by the Company. Employee shall assist the Company in obtaining such
insurance, including, without limitation, submitting to any required
examinations and providing information and data required by insurance companies.
9. Termination.
9.1 Death or Total Disability of Employee. If Employee
dies or becomes totally disabled during the term of this Agreement, Employee's
employment hereunder shall automatically terminate. For these purposes Employee
shall be deemed totally disabled if Employee shall become physically or mentally
incapacitated or disabled or otherwise unable fully to discharge Employee's
duties hereunder for a period of 90 consecutive calendar days or for 120
calendar days in any 180 calendar-day period.
9.2 Termination for Good Cause. Employee's employment
hereunder may be terminated by the Company for "good cause." The term "good
cause" is defined as any one or more of the following occurrences:
(a) Employee's breach of any of the covenants
contained in Section 6 of this Agreement;
(b) Employee's conviction by, or entry of a plea of
guilty or nolo contendere in, a court of competent and final jurisdiction for
any crime involving moral turpitude or punishable by imprisonment in the
jurisdiction involved;
(c) Employee's commission of an act of fraud, whether
prior to or subsequent to the date hereof upon the Company;
(d) Employee's willful failure or refusal to perform
Employee's duties as required by this Agreement for any reason whatsoever
(including, without limitation, Employee's inability to comply with any laws,
rules or regulations of any governmental entity with respect to Employee's
employment by the Company);
(e) Employee's gross negligence, insubordination or
material violation of any duty of loyalty to the Company or any other material
misconduct on the part of Employee;
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(f) Employee's commission of any act which is
detrimental to the Company's business or goodwill; or
(g) Employee's breach of any other provision of this
Agreement, provided that termination of Employee's employment pursuant to this
subsection (g) shall not constitute valid termination for good cause unless
Employee shall have first received written notice from the Chief Executive
Officer stating with specificity the nature of such breach and affording
Employee at least fifteen (15) days to correct the breach alleged.
9.3 Other Events. The Company may terminate Employee's
employment, with two weeks' prior written notice at such time, if any, as the
Company ceases to conduct business for any reason whatsoever.
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9.4 Severance Compensation. Upon the occurrence of any of
the events referred to in Sections 9.1, 9.2 and 9.3 above, Employee (or
Employee's heirs or representatives) shall be entitled to receive only such
portion (if any) of the Salary as may theretofore have accrued but be unpaid on
the date on which the termination shall take effect.
9.5 Return of the Company's Property. If this Agreement is
terminated for any reason whatsoever, the Company shall have the right, at its
option, to require Employee to vacate his offices prior to the effective date of
termination and to cease all activities on the Company's behalf. Upon the
termination of his employment in any manner, Employee shall immediately
surrender to the Company all lists, books and records of, or in connection with,
the Company's business, and all other property belonging to the Company, it
being distinctly understood that all such lists, books and records, and other
documents, are the property of the Company.
10. Arbitration. Any claim or controversy arising out of or
relating to this Agreement shall be settled by arbitration in Los Angeles,
California, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment on the award rendered by the arbitrators
may be entered in any court having jurisdiction. There shall be three
arbitrators, one to be chosen directly by each party at will, and the third
arbitrator to be selected by the two arbitrators so chosen.
11. General Relationship. Employee shall be considered an
employee of the Company within the meaning of all federal, state and local laws
and regulations including, but not limited to, laws and regulations governing
unemployment insurance, workers' compensation, industrial accident, labor and
taxes.
12. Miscellaneous.
12.1 Modification; Prior Claims. This Agreement sets forth
the entire understanding of the parties with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements, written or oral,
between them concerning such subject matter, including, but not limited to, that
certain employment agreement by and between the Company and Employee, entered
into in or around July of 1996. This Agreement may be modified only by a written
instrument duly executed by each party. Employee hereby waives any claims that
may exist on the date hereof arising from his prior employment with the Company,
other than for salary payable or reimbursement of reasonable expenses, all as
incurred in the ordinary course of business.
12.2 Assignment. The rights of the Company under this
Agreement may, without the consent of Employee, be assigned by the Company, in
its sole and unfettered discretion, to any person, firm, corporation or other
business entity which at any time, whether by purchase, merger or otherwise,
directly or indirectly, acquires all or substantially all of the assets or
business of the Company or an affiliate of the Company.
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12.3 Survival. The covenants, agreements, representations
and warranties contained in or made pursuant to this Agreement shall survive
Employee's termination of employment.
12.4 Third-Party Beneficiaries. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
12.5 Waiver. The failure of either party hereto at any
time to enforce performance by the other party of any provision of this
Agreement shall in no way affect such party's rights thereafter to enforce the
same, nor shall the waiver by either party of any breach of any provision hereof
be deemed to be a waiver by such party of any other breach of the same or any
other provision hereof.
12.6 Hiring At Will. Any continuance of Employee's
employment by the Company after the term hereof shall be deemed a hiring at will
(unless such continuance is the subject of a new written agreement) and shall be
subject to termination with or without cause by either party upon delivery of
notice thereof.
12.7 Section Headings. The headings of the several
sections in this Agreement are inserted solely for the convenience of the
parties and are not a part of and are not intended to govern, limit or aid in
the construction of any term or provision hereof.
12.8 Notices. All notices, requests and other
communications hereunder shall be in writing and shall be delivered by courier
or other means of personal service (including by means of a nationally
recognized courier service or professional messenger service), or sent by telex
or telecopy or mailed first class, postage prepaid, by certified mail, return
receipt requested, in all cases, addressed to:
Company:
iMall, Inc.
4400 Coldwater Canyon Boulevard
Suite 200
Studio City, California 91604
Attention: Richard Rosenblatt
With a copy to:
Loeb & Loeb LLP
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017
Attention: David L. Ficksman, Esq.
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Employee:
Mark Comer
------------------------------
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With a copy to:
------------------------------
------------------------------
------------------------------
------------------------------
Attention:
-------------------
All notices, requests and other communications shall be deemed given on the date
of actual receipt or delivery as evidenced by written receipt, acknowledgement
or other evidence of actual receipt or delivery to the address. In case of
service by telecopy, a copy of such notice shall be personally delivered or sent
by registered or certified mail, in the manner set forth above, within three
business days thereafter. Any party hereto may from time to time by notice in
writing served as set forth above designate a different address or a different
or additional person to which all such notices or communications thereafter are
to be given.
12.9 Severability. All Sections, clauses and covenants
contained in this Agreement are severable, and in the event any of them shall be
held to be invalid by any court, this Agreement shall be interpreted as if such
invalid Sections, clauses or covenants were not contained herein.
12.10 Governing Law and Venue. This Agreement is to be
governed by and construed in accordance with the laws of the State of Utah
applicable to contracts made and to be performed wholly within such State, and
without regard to the conflicts of laws principles thereof. Any suit brought
hereon shall be brought in the state or federal courts sitting in Los Angeles,
California, the parties hereto hereby waiving any claim or defense that such
forum is not convenient or proper. Each party hereby agrees that any such court
shall have in personam jurisdiction over it and consents to service of process
in any manner authorized by California law.
12.11 Non-transferability of Interest. None of the rights
of Employee to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Employee. Any attempted assignment, transfer, conveyance, or other disposition
(other than as aforesaid) of any interest in the rights of Employee to receive
any form of compensation to be made by the Company pursuant to this Agreement
shall be void.
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12.12 Attorneys' Fees. If any legal action, arbitration or
other proceeding is brought for the enforcement of this Agreement, or because of
any alleged dispute, breach, default or misrepresentation in connection with
this Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs it incurred in that action,
arbitration or proceeding, in addition to any other relief to which it may be
entitled.
12.13 Gender. Where the context so requires, the use of
the masculine gender shall include the feminine and/or neuter genders and the
singular shall include the plural, and vice versa, and the word "person" shall
include any corporation, firm, partnership or other form of association.
12.14 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same Agreement.
12.15 Construction. The language in all parts of this
Agreement shall in all cases be construed simply, according to its fair meaning,
and not strictly for or against any of the parties hereto. Without limitation,
there shall be no presumption against any party on the ground that such party
was responsible for drafting this Agreement or any part thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date hereinabove set forth.
THE COMPANY
iMall, Inc.
By:/s/
----------------------------------
Its:
----------------------------------
Title:
----------------------------------
EMPLOYEE
/s/ MARK COMER
-------------------------------------
Mark Comer
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EXHIBIT A
CALIFORNIA LABOR CODE SECTION 2870
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMeNT (the "Agreement") is entered into as of
December 30, 1997, by and between iMall, Inc., a Nevada corporation (the
Company), and Anthony P. Mazzarella ("Employee").
RECITALS:
A. The Company seeks to retain Employee as Executive Vice
President and Chief Financial Officer of the Company, and intends for Employee
to become Chief Operating officer within the next 18 months.
B. Employee desires to accept such employment on the terms and
conditions set forth herein.
NOW, THEREFORE, based upon the following covenants, conditions and
promises, the parties hereto do hereby agree as follows:
1. Employment and Duties. Subject to the terms and conditions
met forth herein, the Company hereby employs employee, and Employee hereby
accepts such employment with the Company, as the Executive Vice President and
Chief Financial Officer of the Company, and his duties shall be consistent with
such positions. Employee shall report to the chief executive officer of the
Company. Employee is currently a member of the Board of Directors of the Company
(the "Board") and the Company shall continue to nominate and utilize its beat
efforts to retain Employee as a member of the Board for so long as Employee
remains employed by the Company and wishes to remain a member of the Board.
2. Term of Employment. The term of Employee's employment under
this Agreement shall commence on and as of January 15, 1998 and shall continue
thereafter for a period of 60 months, subject to early termination as provided
for elsewhere in this Agreement. The "term" of this Agreement shall mean and
refer to such 60-month period (or any earlier termination thereof pursuant to
this Agreement).
3. Extent of Service. During the hereof, Employee agrees to
devote his full time to the performance of his duties hereunder. Employee shall
devote such of his time and energy as he in his sole discretion deems necessary
timely to complete the services and duties contemplated under this Agreement. It
is understood by the parties that the particular amount of time which Employee
may devote to the Company may vary from day to day or week to week and nothing
set forth herein shall require Employee to commute a distance of more than
twenty-five miles from Santa Monica, California.
4. Compensation.
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(a) Minimum Annual Salary and Bonus. As compensation for
the services which Employee is to render to the Company hereunder, the Company
shall pay to Employee a salary at the annualized rate of $180,000 for and
through the calendar year ending December 31, 1998. Thereafter, the Company
shall provide Employee with annual salary increases as determined by the Board
but in no event shall any annual salary increase be less than sixteen percent of
the annual salary for the preceding year. Employee's salary during each of such
years shall be paid in accordance with the normal payroll practices of the
Company. Prior to the end of each year during the term hereof, the Board shall
review the compensation of Employee hereunder and shall pay to Employee a cash
bonus for and with respect to such year which in no event shall be less than
twenty percent of Employee salary for that year.
(b) Car Allowance and Fringe Benefits. The Company will
provide Employee with a reasonable automobile allowance in the amount of $750
per month and such other fringe benefits as are within the Company's policy as
approved by the Board of Directors of the Company. Included in such fringe
benefits to which Employee shall be entitled to participate are any
profit-sharing plan, employee stock plan, stock bonus plan, and pension plan
which may be adopted and/or implemented by the Company. The actual
participation, Employer contributions and restrictions respecting each such plan
or benefit shall be determined by the Board.
(c) Health Care Insurance Benefits . The Company shall
provide Employee with health insurance coverage for Employee and his dependents.
The Company shall have complete discretion in choosing the type of health
insurance plan provided to Employee and in choosing the insurance carrier,
provided that any such health insurance plan or plans shall include hospital,
maternity, major medical, and dental coverage for Employee and his dependents to
be applied to Employee or any of his dependents upon terms no less favorable
than those available to any other employee. The benefits provided to Employee
under this section shall end at the expiration of the term, subject to early
termination as provided for elsewhere in this Agreement.
(d) Employee Service as Director. Consistent with the
provisions set forth in Paragraph 1, Employee hereby consents to serve as (i) a
member of the Board, and (ii) as a member of the board of directors of any
subsidiary, or other corporation affiliated with the Company ("Affiliated
Board"), provided, however, that, in addition to the compensation to be paid to
Employee hereunder, Employee shall receive further emoluments for serving.as a
member of the Board or as a member of an Affiliated Board to the same extent as
may be received by other management personnel or employees of the Company who
may serve in such capacities.
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<PAGE> 3
(e) Reimbursement of Expenses. The Company agrees to pay
all expenses incurred by Employee in furtherance of the business of Company,
including travel and entertainment expenses in excess of the expense amount set
forth in section 4(a) hereof. The Company will reimburse Employee for any such
expenses paid by him upon submission by him of a statement itemizing such
expenses, provided that Employee shall present appropriate vouchers evidencing
any such expenses to the Company.
(f) Stock Options. In addition to any options to purchase
securities of the Company which may be granted to Employee during the term,
whether pursuant to the 1997 Stock Option Plan of the Company or any other plan
which may be subsequently adopted by the Board, the Company hereby grants to
Employee options to purchase three million shares of common stock (the "CFO
Options") . One-third of the CFO Options shall be exercisable upon execution of
this Agreement. An additional one-third of the CFO Options shall vest and be
exercisable on January 15, 1999, and the remaining one-third of the CFO Options
shall vest and be exercisable on January 15, 2000. All CFO options or other
options granted to Employee shall vest immediately and may be exercised upon any
"Change of Control" or upon any "Company Termination" as defined in section 9.
The CFO options shall have a term of ton years and shall be exercisable at a
price per share of $0.50. The option exercise price of the CFO options shall be
adjusted as appropriate for forward or reverse stock splits, stock dividends,
recapitalizations, spin-offs, or divisions of the Company and other like events.
The Company shall register under the Securities Act of 1933, as amended, (the
"Act"), all of the shares of common stock underlying the CFO Options (the "CFO
Shares") at the same time as the Company registers shares of common stock (or
other securities) in any primary or secondary offering of securities which are
registered under the Act, provided that Employee shall agree to any reasonable
"lock-up* restricting sale of the CFO Shares only to the extent that other
principal shareholders, officers and directors are also required to execute
similar lock-up agreements provided that any such lock-up period shall not
extend beyond one hundred twenty days from the date the CFO Shares are
registered under the Act. Notwithstanding the foregoing Employee shall not sell
any CFO Shares during 1998 (the "1998 Lock-Up") unless (i) there is a "Change of
Control" or there is a "Company Termination" as defined in section 9 or (ii)
other members of management elect to sell or dispose of securities of the
Company during 1998 ("Management Sales"). The 1998 Lock-Up shall terminate and
have no further force or effect upon the occurrence of any event described in
clause (i) above. The Company shall provide written notice to Employee in
advance of any Management Sales setting forth the details thereof within not
more than two business days after the Company learns that such sales or
dispositions of securities may be permitted or may otherwise be scheduled.
During 1998 Employee may from time to time sell or dispose of that number of CFO
Shares which is not greater than the greatest number of Management Sales made
during 1998 by any other member of management.
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<PAGE> 4
5. Termination of Employment for Good Cause. The Company may
terminate the employment of Employee for "good cause" by giving written notice
thereof to Employee. For the purposes of this Agreement, "good cause," shall
mean only Employee's (i) commission of a crime directly related to his
employment hereunder, (ii) conviction of a felony involving moral turpitude, or
(iii) willful misconduct in the management of the business and affairs of the
Company or habitual failure to perform such duties as may reasonably be directed
by the Board and as may be reasonably consistent with the duties and obligations
of Employee's office. in the event the employment of the Employee is terminated
pursuant to this Paragraph 5, the Company shall have no further liability to
Employee other than for compensation earned but not yet paid. In the event the
Company contends that it had good cause to terminate the employment of Employee
pursuant to clause (i), (ii) or (iii) of this Paragraph 5, the Company shall
specify in said written notice the effective date of termination of Employee's
employment.
6. Termination by Death or other Absence. The Company may
terminate the employment of Employee by written notice to Employee if, during
the term of this Agreement, Employee shall become incapable of fulfilling his
obligations hereunder because of injury or physical or mental illness which
shall exist for a period or an aggregate of periods in excess of twelve months
in any two years during the term of employment. In such event, the Company shall
have the right to terminate this Agreement on ninety days, notice to Employee.
The death of Employee shall automatically terminate the term of Employee's
employment. In the event the employment of Employee is terminated by Employee's
death or by the Company pursuant to this Paragraph 6 because of injury or
physical or mental illness, the Company shall pay Employee, or Employee's
heir(s) (in the event of death), all compensation of Employee earned but not yet
paid up to and through the day upon which Employee's death occurs or this
Agreement is terminated by the Company due to Employee's incapacity or other
absence, as applicable, or in accordance with any written policy applicable to
other executives of the Company in effect at the time of Employee's death or
incapacity, if more favorable.
7. Noncompetition; Nonsolicitation; Confidential Information.
(a) Employee covenants and agrees that, during the term of
this Agreement, he will not, directly or indirectly, whether individually or as
an officer, director, employee or consultant, become employed by, or become a
partner in or a stockholder owning more than five percent of, any business which
is engaged in the business of the Company.
(b) Employee acknowledges that it is the policy of the
Company to maintain an secret and confidential all valuable and unique
information heretofore or hereafter acquired, developed or used by the Company
relating to the business, operations, employees, tenants and/or clients of the
Company, which gives the
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<PAGE> 5
Company a competitive advantage in its industry, including, without limitation,
information about net costs, profits, markets, suppliers, sales products, key
personnel, pricing policies, operational methods, technical processes and other
business affairs and methods and other information not readily available to the
public and plans for future developments, operating manuals, proprietary
computer software, financial statements, forecasts and operating data and
business plans (all such information is hereinafter referred to as "Confidential
Information"). Employee recognizes that the services to be performed by Employee
are special and unique, and that by reason of his duties, he will acquire
Confidential information. Employee recognizes that all such Confidential
Information is the property of the Company. in consideration of the Company's
entering into this Agreement, Employee agrees that: (i) Employee shall not use,
publish, disseminate or otherwise disclose any Confidential Information obtained
during his employment by the Company (whether obtained prior to, during or after
the term of this Agreement) without the prior written consent of the Board; and
(ii) during the term of this Agreement, he shall exercise all due and diligent
precautions to protect the integrity of the Company a mailing lists and sources
thereof, statistical data and compilations, agreements, contracts, manuals or
other documents embodying any Confidential information. Upon termination of
Employee's employment by the Company he shall return all such documents
embodying any Confidential Information in his possession or control. Employee
agrees that the provisions of this subparagraph (b) are reasonable and necessary
to protect the proprietary rights of the Company in the Confidential Information
and its trade secrets, goodwill and reputation. The provisions of this
subparagraph (b) shall not apply to Confidential information (i) which is known
generally to the public, (ii) which otherwise comes into the public domain or
(iii) which Employee obtains from sources other than the Company.
(c) For a period of six months after the termination of
this Agreement for any reason (or for such a lesser period of time as may be
determined by a court of law or equity to be a reasonable limitation on
Employee), Employee shall not solicit any director, officer or employee of the
Company to discontinue that individually status of employment with the Company,
nor to become employed in any activity similar to or competitive with the
business of the company being conducted at the time of termination of this
Agreement.
(d) If the covenants contained in this Paragraph 7 are
violated, Employee acknowledges and agrees that such violation will cause
irreparable damage to the company, that the remedy at law of the Company will be
inadequate and that the Company shall, in addition to, but not in limitation of,
any other rights or remedies available at law or in equity, be entitled to
temporary and permanent injunctive relief and/or specific performance without
the necessity of proving actual damage.
8. Directorships and Other Investments. The Company
acknowledges that Employee currently serves and in the future may serve as a
member of and as an
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<PAGE> 6
advisor to the boards of directors of other companies in which Employee has an
investment interest. Nothing set forth herein shall prevent Employee from
continuing such activities or from actively managing his investments, provided
that any such activities shall not directly conflict with Employee's duties
hereunder.
9. Change in Control; Default by the Company. The term of and
amount payable to Employee under this Agreement may be terminated by Employee as
provided below in this section 9.
(a) Change in Control. For purposes of this Agreement, the
term "change in control" shall mean, (i) the acquisition by a single entity or
group of affiliated entities of more than thirty-five percent of the outstanding
capital stock of the Company and which is accompanied or followed by a change
either in a majority of the members of the Board or of these members of the
Board who are not full time employees of the C y, or (ii) the consummation of
any merger of the Company or any sale, transfer or other disposition of all or
substantially all of the Company's assets, directly of indirectly, if the
shareholders of the Company immediately before the consummation of such
transaction own, immediately following the consummation of such transaction on a
fully-diluted basis, equity securities (other than options, warrants or rights
to acquire equity securities) possessing less than sixty percent of the voting
power of the surviving or acquiring corporation (or any corporation in control
of the surviving or acquiring corporation whose equity securities are issued or
transferred in such transaction). Upon any change in control of the Company and
provided that he has given the Company written notice thereof not more than 120
days thereafter, Employee may deem this Agreement to be terminated and the
Company shall pay to Employee the amounts described in Paragraph 9 (b). Such
amounts shall be paid in full (x) immediately following the change in control if
the change in control results from a transaction or transactions described in
clause (i) above or (y) immediately prior to the consummation of the subject
merger, sale or other disposition, if the change in control results from a
transaction or transactions described in clause (ii) set forth above.
(b) Severance Pay. Upon any termination, other than an
expiration of the term, or a termination by Employee which is not permitted
under this Agreement or terminations described in sections 5 and 6 or paragraph
9(a) above ("Company Termination"), Employee shall be entitled to severance pay
in amount equal to (i) the compensation due to Employee under this Agreement for
the balance of the term, or (ii) two times Employee's then applicable annual
compensation under section 4 above, whichever is greater. Upon any termination
resulting from events described in paragraph 9(a), Employee shall be entitled to
severance pay in an amount equal to the compensation due to Employees under this
Agreement for the balance of the term less any salary which Employee may receive
from another employer during the balance of the term.
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(c) Default in Payment. In the event that the Company fails
to pay to Employee the compensation and benefits provided in this Agreement for
a period in excess of sixty days, or fails on more than three occasions to pay
Employee the compensation due to him hereunder for more than fifteen days past
any pay period, Employee shall have the right to cease providing services
hereunder and shall have the right immediately to receive the severance pay
described in Paragraph (b) with respect to Company Termination.
(d) Continuation of Payments. In the event of a dispute
between the parties for any reason whatsoever, the Company shall continue to pay
all compensation due to Employee hereunder and shall not have the right to
terminate such compensation except under adjudication of a court of competent
jurisdiction or pursuant to an award of arbitration. In the event of a dispute,
the Company agrees to pay reasonable legal fees of and for Employee on a current
basis, and in the event of a final adjudication by a court of competent
jurisdiction or an arbitration award in favor of the Company, which judgment or
award confirms that Employee is not entitled to retain such fees, Employee
agrees to reimburse the Company all such fees and legal expenses.
10. Employee's Rights and Benefits Personal. Except as may
herein otherwise be specifically provided, the rights, benefits and obligations
of Employee under this Agreement are personal to Employee, and no such rights or
benefits shall be subject to voluntary or involuntary alienation, assignment or
transfer.
11. Company's Insurance of Employee. Employee acknowledges that
the Company may, from time to time, apply for and take out in its own name and
at the Company's expense, life, health, accident and other insurance upon
Employee that the Company may deem necessary or advisable to protect its
interest hereunder, and Employee will submit to any medical or other examination
necessary for such purpose and assist and cooperate with the Company on
procuring such insurance; and Employee acknowledges that he shall have no right,
title or interest in or to such insurance (except to the extent that such
insurance is part of the fringe benefits to which Employee is entitled under
this Agreement).
12. Indemnity. The Company shall indemnify Employee and hold him
harmless from any cost, expense or liability arising out of or relating to any
acts, omissions or decisions made by him in the course of performing his
services under this Agreement to the fullest extent not prohibited under law.
This indemnity shall include but not be limited to all expenses incurred by
Employee in connection with or relating to defending any claim, action or suit
brought against him in respect of any matter whatsoever. In the event of any
request for indemnity, Employee shall promptly notify the Company in writing and
the Company shall have the right to assume and control the defense thereof by
counsel reasonably satisfactory to Employee. Without limiting rights which
Employee may have under or outside of
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this Agreement, this provision shall survive the termination or expiration of
this Agreement.
13. Entire Agreement; Modification; Waiver. This Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter contained in it and supersedes all prior written or oral agreements,
representations, understandings and/or discussion between the parties relating
thereto. No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by the party making the waiver.
14. Notices. Any notice required or permitted hereunder shall be
given in writing and shall be conclusively deemed effectively given upon
personal delivery, or three (3) business days after deposit in the United States
mail, by registered or certified mail (or air mail, if notice shall be sent
outside the United States), return receipt requested, postage prepaid, or two
(2) days after delivery to a nationally known air courier or delivery company,
addressed to the applicable party hereto at its or his last known address (or as
otherwise directed in a notice given in accordance herewith).
15. Effect of Headings. The subject headings of this Agreement
are included for purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
16. Arbitration; Attorneys' Fees. Any controversy or claim
arising out of or to this Agreement, or the breach hereof, shall be resolved by
JAMS/ENDdispute in accord with its rules and regulations and judgment an the
award so rendered may be entered in any court having jurisdiction thereof. Any
such proceeding shall be had in the County of Los Angeles, State of California.
If any action or proceeding is brought to enforce any provisions of this
Agreement, the prevailing party shall be entitled to its costs and expenses in
connection therewith, including without limitation reasonable attorneys' fees.
17. Applicable Law. The validity, interpretation and enforcement
of this Agreement shall be governed by the laws of the State of California
except that the Federal Arbitration Act shall govern any arbitration proceeding.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same Agreement.
19. Severability. If any provision of this Agreement shall be
declared invalid, illegal and/or unenforceable, such provision shall be severed
and the remaining provisions shall continue in full force and effect.
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20. Successor and Assigns. The provisions hereof shall inure to
the benefit of, be binding upon, and be enforceable by the successors and
assigns of the Company.
21. Assignment; Successors; Affiliates. Subject to the
provisions of sections 9 and 10 above, the Company may assign this Agreement (or
the interest of the Company herein) to any affiliate of the Company or to any
entity which is a party to a merger, reorganization, or consolidation with the
Company or to a subsidiary of the Company or to an entity or entities acquiring
substantially all of the assets of the Company or of any division with respect
to which Employee is providing services (providing any such assignee assumes the
Company's obligation under the Agreement). Employee shall, if requested by the
Company, perform Employee's services and duties, as specified in this Agreement,
to or for the benefit of any affiliate of the Company, including, without
limitation, any parent or subsidiary of the Company or any other subsidiary of
any parent of the Company. Upon such assignment, acquisition, merger,
consolidation, or reorganization, the term "Company" as used herein shall be
deemed to refer to such assignee or such successor entity. Employee shall not
have the right to assign Employee's interest in this Agreement, any rights under
this Agreement or any duties imposed under this Agreement nor shall Employee (or
Employee's spouse, heirs, beneficiaries, administrators or executors) have the
right to pledge, hypothecate or otherwise encumber Employee's right to receive
compensation hereunder without the consent of the Company.
22. Further Assurances. The Company and Employee each agree to
execute and deliver any and all additional instruments and to perform any and
all additional acts by either party to be necessary or proper to carry into
affect the terms, conditions and provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
EMPLOYEE: THE COMPANY:
iMall, Inc.,
/s/ Anthony P. Mazzarella a Nevada corporation
- -----------------------------------
Anthony P. Mazzarella
By: /s/
Its Chief Executive
Officer
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of
December 9, 1997, by and between iMall, Inc., a Nevada corporation (the
"Company") and Phillip J. Windley, an individual ("Employee"), with reference to
the following:
A. The Company desires to employ Employee on the terms and
conditions set forth in this Agreement.
B. Employee desires to be so employed.
NOW, THEREFORE, based on the foregoing premises and in consideration
of the covenants set forth in this Agreement, the parties hereto hereby agree as
follows:
1. Term of Employment. The Company hereby employs Employee and
Employee accepts such employment commencing on January 1, 1998 and terminating
on that date which is two years thereafter, unless sooner terminated in
accordance with the terms of this Agreement.
2. Services to be Rendered.
2.1 Duties. Employee shall serve as Chief Technology
Officer of the Company and shall have the responsibilities, duties and powers
customarily associated with such position. Employee shall report directly to the
Chief Executive Officer of the Company, and shall perform his duties pertaining
to the business of the Company (the "Company Business") subject to the direction
of the Chief Executive Officer and to such limits upon Employee's authority as
the Chief Executive Officer may from time to time impose. Employee's principal
place of work hereunder shall be located in Provo, Utah or such other location
within the State of Utah as may be designated by the Chief Executive Officer
from time to time. However, Employee shall also render services at such other
place or places within or without the United States as the Chief Executive
Officer may direct from time to time. Employee shall be subject to the policies
and procedures generally applicable to senior executive employees of the Company
to the extent the same are not inconsistent with any term of this Agreement.
2.2 Exclusive Services. Employee shall at all times
faithfully, industriously and to the best of his ability, experience and talent
perform to the satisfaction of the Chief Executive Officer all of the duties
that may be assigned to Employee hereunder and shall devote all of his
productive time and efforts to the performance of such duties; provided,
however, that Employee may devote time to personal and family investments to the
extent that the time so spent does not conflict with the Company Business. The
existence of such a conflict shall be determined in good faith by the Chief
Executive Officer.
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3. Compensation and Benefits. The Company shall pay the
following compensation and benefits to Employee during the term hereof, and
Employee shall accept the same as payment in full for all services rendered by
Employee to or for the benefit of the Company:
3.1 Salary. A salary ("Salary") of $145,000 per annum. The
Salary shall accrue in equal monthly installments in arrears and shall be
payable in accordance with the payroll practices of the Company in effect from
time to time.
3.2 Car Allowance. The Company shall pay to Employee a car
allowance of $750 per month, which shall accrue in monthly installments in
arrears and be payable in accordance with the practices of the Company in effect
from time to time.
3.3 Fringe Benefits. Employee shall be entitled to
participate in benefits under the Company's benefit plans and arrangements,
including, without limitation, any employee benefit plan or arrangement made
available in the future by the Company to its senior executives, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans and arrangements. The Company shall have the right to amend or delete
any such benefit plan or arrangement made available by the Company to its senior
executives and not otherwise specifically provided for herein.
3.4 Expenses. The Company shall reimburse Employee for
reasonable out-of-pocket expenses incurred in connection with the Company
Business and the performance of his duties hereunder, subject to (i) such
policies as the Chief Executive Officer may from time to time establish, (ii)
Employee furnishing the Company with evidence in the form of receipts
satisfactory to the Company substantiating the claimed expenditures, and (iii)
Employee receiving advance approval from the Chief Executive Officer in case of
expenses (or a series of related expenses) in excess of $500.
3.5 Vacation. Employee shall be entitled to the number of
paid vacation days in each calendar year determined by the Company from time to
time for its senior executive officers. Employee shall also be entitled to all
paid holidays given to the Company's senior executive officers.
3.6 Bonus. In addition to the Salary to which Employee is
entitled pursuant to Section 3.1, the Company may grant to Employee an annual
bonus or bonuses up to a maximum aggregate annual amount of $35,000, at the sole
and exclusive discretion of the Chief Executive Officer and the Compensation
Committee of the Company and at such times and in such manner as the Chief
Executive Officer and the Compensation Committee may determine.
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3.7 Withholding and other Deductions. All compensation
payable to Employee hereunder shall be subject to such deductions as the Company
is from time to time required to make pursuant to law, governmental regulation
or order.
4. Stock Options. The Company has granted Employee, as of
December 9, 1997 and under the iMall, Inc. 1997 Stock Option Plan, options to
purchase shares of the common stock of the Company ("Options"). The principal
terms of the Options are set forth below and all of the terms of the Options are
set forth in a stock option agreement (a copy of which is attached hereto as
Exhibit A and incorporated herein by this reference). Effective as of December
9, 1997, the Board of Directors of the Company authorized and approved the grant
by the Company of 700,000 options under the 1997 Stock Option Plan at the
exercise price of $.65 per share of common stock, each of which will entitle
Employee the right to purchase from the Company one share of the common stock of
the Company. The Options will vest in Employee as follows: (i) at the rate of
100,000 Options per full quarter for the first year during which Employee
remains employed by the Company, commencing as of January 1, 1998, and (ii) at
the rate of 75,000 Options per full quarter for the second year during which
Employee remains employed by the Company, commencing on that date which is one
year after January 1, 1998.
4.1 Expiration of Options. All unexercised Options shall
expire on that date which is five (5) years after the date on which such Options
have vested.
4.2 Effect of Employee's Termination. If Employee is
terminated pursuant to 9.1 below, all Options that are unexercised at that time
shall expire on that date which is sixty (60) days after the date of such
termination. If Employee is terminated pursuant to Section 9.2 below, all
Options that are unexercised at that time shall expire immediately.
4.3 Effect of Employee's Improper Termination of This
Agreement. If Employee resigns or terminates this Agreement for any reason other
than based on a material breach hereof by the Company, all Options that are not
vested in Employee at that time shall expire immediately.
4.4 Effect of Sale of the Company. All of the Options shall
vest in Employee immediately upon (i) the sale by the Company of all or
substantially all of its assets, (ii) the sale of 50% or more of its outstanding
shares, or (iii) the merger of the Company into another company whereby the
Company is not the surviving entity.
5. Representations and Warranties of Employee. Employee
represents and warrants to the Company that (a) Employee is under no contractual
or other restriction or obligation which is inconsistent with the execution of
this Agreement, the performance of his duties hereunder, or the other rights of
the Company
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hereunder and (b) Employee is under no physical or mental disability that would
hinder the performance of his duties under this Agreement.
6. Certain Covenants.
6.1 Noncompetition. The parties hereto acknowledge that if
Employee were to compete with the Company, Employee would necessarily use
Confidential Information (as defined below) in doing so. Accordingly, during the
term of this Agreement (including, if Employee is terminated for good cause or
voluntarily terminates his employment hereunder, for the remainder of the term
of this Agreement after such termination) (the "Restricted Period"), Employee
shall not have any ownership interest (of record or beneficial) in, or have any
interest as an employee, salesman, consultant, officer or director in, or
otherwise aid or assist in any manner, any firm, corporation, partnership,
proprietorship or other business that engages in any county, city or part
thereof in the United States and/or any foreign country in a business which is
similar to that in which the Company is engaged in such county, city or part
thereof, so long as the Company, or any successor in interest of the Company the
business and goodwill of the Company, remains engaged in such business in such
county, city or part thereof or continues to solicit customers or potential
customers therein; provided, however, that Employee may own, directly or
indirectly, solely as an investment, securities of any entity which are traded
on any national securities exchange if Employee (a) is not a controlling person
of, or a member of a group which controls, such entity or (b) does not, directly
or indirectly, own one percent (1%) or more of any class of securities of any
such entity.
6.2 Trade Secrets. Employee acknowledges that the nature of
Employee's engagement by the Company is such that Employee will have access to
Confidential Information which has great value to the Company and that except
for Employee's engagement by the Company, Employee would not otherwise have
access to the Confidential Information. During the term of this Agreement and at
all times thereafter, Employee shall keep all of the Confidential Information in
confidence and shall not disclose any of the same to any other person, except
the Company's personnel entitled thereto and other persons designated in writing
by the Company. Employee shall not cause, suffer or permit the Confidential
Information to be used for the gain or benefit of any party outside of the
Company or for Employee's personal gain or benefit outside the scope of
Employee's engagement by the Company.
6.3 Solicitation of Business. Employee shall not during the
Restricted Period solicit or assist any other person to solicit any business
(other than for the Company) from any present or past customer of the Company;
or request or advise any present or future customer of the Company to withdraw,
curtail or cancel its business dealings with the Company; or commit any other
act or assist others to commit any other act which might injure the business of
the Company.
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6.4 Solicitation of Employees. Employee shall not during
the Restricted Period, directly or indirectly, hire, solicit or encourage to
leave the employment of the Company or any of its affiliates, any employee of
the Company or any of its affiliates or hire any such employee who has left the
employment of the Company or any of its affiliates within one year of the
termination of such employee's employment with the Company or any of its
affiliates.
6.5 Solicitation of Consultants. Employee shall not during
the Restricted Period, directly or indirectly, hire, solicit or encourage to
cease work with the Company or any of its affiliates any consultant then under
contract with the Company or any of its affiliates within one year of the
termination of such consultant's engagement by the Company or any of its
affiliates.
6.6 Rights and Remedies Upon Breach. If Employee breaches
or threatens to commit a breach of any of the provisions of this Section 6 (the
"Restrictive Covenants"), the Company shall have the following rights and
remedies, each of which rights and remedies shall be independent of the other
and severally enforceable, and all of which rights and remedies shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or in equity:
(a) Specific Performance. The right and remedy to
have the Restrictive Covenants specifically enforced by any court having equity
jurisdiction, all without the need to post a bond or any other security or to
prove any amount of actual damage or that money damages would not provide an
adequate remedy, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide adequate remedy to the Company; and
(b) Accounting and Indemnification. The right and
remedy to require Employee (i) to account for and pay over to the Company all
compensation, profits, monies, accruals, increments or other benefits derived or
received by Employee or any associated party deriving such benefits as a result
of any such breach of the Restrictive Covenants; and (ii) to indemnify the
Company against any other losses, damages (including special and consequential
damages), costs and expenses, including actual attorneys' fees and court costs,
which may be incurred by them and which result from or arise out of any such
breach or threatened breach of the Restrictive Covenants.
6.7 Severability of Covenants/Blue Pencilling. If any court
determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions. If any court determines that any of the Restrictive Covenants,
or any part thereof, are unenforceable because of
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the duration of such provision or the area covered thereby, such court shall
have the power to reduce the duration or area of such provision and, in its
reduced form, such provision shall then be enforceable and shall be enforced.
Employee hereby waives any and all right to attack the validity of the
Restrictive Covenants on the grounds of the breadth of their geographic scope or
the length of their term.
6.8 Enforceability in Jurisdictions. The Company
and Employee intend to and do hereby confer jurisdiction to enforce the
Restrictive Covenants upon the courts of any jurisdiction within the
geographical scope of such covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of
the breadth of such scope or otherwise, it is the intention of the Company and
Employee that such determination not bar or in any way affect the right of the
Company to the relief provided above in the courts of any other jurisdiction
within the geographical scope of such covenants, as to breaches of such
covenants in such other respective jurisdictions, such covenants as they relate
to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
6.9 Definitions.
(a) In Sections 6.1 - 6.9 above, all references to the
Company mean not only the Company, but also any company, partnership or entity
which, directly or indirectly, controls, is controlled by or is under common
control with the Company.
(b) The term "Confidential Information", as used in this
Agreement, means all information or material not generally known by non-Company
personnel which (i) gives the Company some competitive business advantage or the
opportunity of obtaining such advantage or the disclosure of which could be
detrimental to the interests of the Company; (ii) which is owned by the Company
or in which the Company has an interest and (iii) which is either (A) marked
"Confidential Information," "Proprietary Information" or other similar marking,
(B) known by Employee to be considered confidential and proprietary by the
Company or (C) from all the relevant circumstances should reasonably be assumed
by Employee to be confidential and proprietary to the Company. Confidential
Information includes, but is not limited to, the following types of information
and other information of a similar nature (whether or not reduced to writing):
trade secrets, inventions, drawings, file data, documentation, diagrams,
specifications, know how, processes, formulas, models, flow charts, software in
various stages of development, source codes, object codes, categories of
information unique to the business, research and development procedures,
research or development and test results, marketing techniques and materials,
marketing and development plans, price lists, pricing policies, business plans,
information relating to customers and/or suppliers' identities, characteristics
and agreements, financial information and projections, and employee files.
Confidential Information also includes any information described above which the
Company obtains from another party and which the Company treats as proprietary
or
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designates as Confidential Information, whether or not owned or developed by the
Company. NOTWITHSTANDING THE ABOVE, HOWEVER, NO INFORMATION CONSTITUTES
CONFIDENTIAL INFORMATION IF IT IS GENERIC INFORMATION OR GENERAL KNOWLEDGE WHICH
COVENANTOR WOULD HAVE LEARNED IN THE COURSE OF SIMILAR EMPLOYMENT ELSEWHERE IN
THE TRADE OR IF IT IS OTHERWISE PUBLICLY KNOWN AND IN THE PUBLIC DOMAIN.
7. Proprietary Rights.
7.1 Disclosure of Employee's Knowledge. Employee shall
make available to the Company at no cost to the Company all knowledge possessed
by him relating to any methods, developments, inventions and/or improvements,
whether patented, patentable or unpatentable, which concern in any way the
Company Business, acquired by Employee during the term of employment, provided
that nothing herein shall be construed as requiring any disclosure where any
such method, development, invention and/or improvement is lawfully protected
from disclosure as a trade secret of any third party or by any other lawful bar
to such disclosure.
7.2 Ownership of Patent Rights, Copyrights, and Trade
Secrets. To the fullest extent permitted by California law, Employee shall
assign, and does hereby assign, to the Company all of Employee's right, title
and interest in and to all inventions, improvements, developments, trade
secrets, discoveries, computer software, tradenames and trademarks conceived,
improved, developed, discovered or written by Employee, alone or in
collaboration with others, during the term of this Agreement which relate in any
manner to the Company Business, whether or not the same shall be conceived,
improved, developed, discovered or written during customary working hours on the
Company's premises. During the term of this Agreement Employee shall promptly
and fully disclose to the Company all matters within the scope of this Section
7.2, and shall, upon request of the Company, execute, acknowledge, deliver and
file any and all documents necessary or useful to vest in the Company all of
Employee's right, title and interest in and to all such matters. All expenses
incurred in connection with the execution, acknowledgment, delivery and filing
of any papers or documents within the scope of this Section 7.2 shall be borne
by the Company. All matters within the scope of this Section 7.2 shall
constitute trade secrets of the Company subject to the provisions of Section
6.2, until such matters cease to be trade secrets by operation of law.
Notwithstanding the foregoing, however, Employee shall be under no obligation to
assign to the Company any right in or to any invention which qualifies fully
under the provisions of Section 2870 of the California Labor Code, which section
is reproduced in Exhibit B attached hereto.
8. Insurance. The Company shall have the right to take out
life, health, accident, "key-man" or other insurance covering Employee, in the
name of the Company and at the Company's expense in any amount deemed
appropriate by the
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Company. Employee shall assist the Company in obtaining such insurance,
including, without limitation, submitting to any required examinations and
providing information and data required by insurance companies.
9. Termination.
9.1 Death or Total Disability of Employee. If Employee
dies or becomes totally disabled during the term of this Agreement, Employee's
employment hereunder shall automatically terminate. For these purposes Employee
shall be deemed totally disabled if Employee shall become physically or mentally
incapacitated or disabled or otherwise unable fully to discharge Employee's
duties hereunder for a period of 90 consecutive calendar days or for 120
calendar days in any 180 calendar-day period.
9.2 Termination for Good Cause. Employee's employment
hereunder may be terminated by the Company for "good cause." The term "good
cause" is defined as any one or more of the following occurrences:
(a) Employee's breach of any of the covenants
contained in Section 6 of this Agreement;
(b) Employee's conviction by, or entry of a plea of
guilty or nolo contendere in, a court of competent and final jurisdiction for
any crime involving moral turpitude or punishable by imprisonment in the
jurisdiction involved;
(c) Employee's commission of an act of fraud, whether
prior to or subsequent to the date hereof upon the Company;
(d) Employee's willful failure or refusal to perform
Employee's duties as required by this Agreement for any reason whatsoever
(including, without limitation, Employee's inability to comply with any laws,
rules or regulations of any governmental entity with respect to Employee's
employment by the Company);
(e) Employee's gross negligence, insubordination or
material violation of any duty of loyalty to the Company or any other material
misconduct on the part of Employee;
(f) Employee's commission of any act which is
detrimental to the Company's business or goodwill; or
(g) Employee's breach of any other provision of this
Agreement, provided that termination of Employee's employment pursuant to this
subsection (g) shall not constitute valid termination for good cause unless
Employee shall have first received written notice from the Chief Executive
Officer stating with specificity the
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nature of such breach and affording Employee at least fifteen (15) days to
correct the breach alleged.
9.3 Other Events. The Company may terminate Employee's
employment, with two weeks prior written notice, upon the happening of any of
the following events:
(a) At such time, if any, as the Company ceases to
conduct business for any reason whatsoever.
(b) At the option of the Company, upon the sale by
the Company of all or a substantial portion of its assets, the sale of 50% or
more of its outstanding shares, or a merger of the Company into another company
whereby the Company is not the surviving entity.
9.4 Severance Compensation. Upon the occurrence of any of
the events referred to in Sections 9.1, 9.2 and 9.3 above, Employee (or
Employee's heirs or representatives) shall be entitled to receive only such
portion (if any) of the Salary as may theretofore have accrued but be unpaid on
the date on which the termination shall take effect.
9.5 Return of the Company's Property. If this
Agreement is terminated for any reason whatsoever, the Company shall have the
right, at its option, to require Employee to vacate his offices prior to the
effective date of termination and to cease all activities on the Company's
behalf. Upon the termination of his employment in any manner, Employee shall
immediately surrender to the Company all lists, books and records of, or in
connection with, the Company's business, and all other property belonging to the
Company, it being distinctly understood that all such lists, books and records,
and other documents, are the property of the Company.
10. Arbitration. Any claim or controversy arising out of or
relating to this Agreement shall be settled by arbitration in Los Angeles,
California, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment on the award rendered by the arbitrators
may be entered in any court having jurisdiction. There shall be three
arbitrators, one to be chosen directly by each party at will, and the third
arbitrator to be selected by the two arbitrators so chosen. Each party shall pay
the fees of the arbitrator it selects and of its own attorneys, the expenses of
its witnesses and all other expenses connected with presenting its case. Other
costs of the arbitration, including the cost of any record or transcripts of the
arbitration, administrative fees, the fee of the third arbitrator, and all other
fees and costs, shall be borne equally by the parties.
11. General Relationship. Employee shall be considered an
employee of the Company within the meaning of all federal, state and local laws
and regulations
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including, but not limited to, laws and regulations governing unemployment
insurance, workers' compensation, industrial accident, labor and taxes.
12. Miscellaneous.
12.1 Modification; Prior Claims. This Agreement sets forth
the entire understanding of the parties with respect to the subject matter
hereof, supersedes all existing agreements between them (and between the Company
and PJW, L.C., a Utah limited liability company) concerning such subject matter
(including, without limitation, that certain Consulting Agreement dated
September 10, 1996, by and between the Company and PJW, L.C.), and may be
modified only by a written instrument duly executed by each party. Employee
hereby waives any claims that may exist on the date hereof arising from his
prior employment, if any, with the Company, other than for compensation payable
or reimbursement of reasonable expenses, all as incurred in the ordinary course
of business.
12.2 Assignment. The rights of the Company under this
Agreement may, without the consent of Employee, be assigned by the Company, in
its sole and unfettered discretion, to any person, firm, corporation or other
business entity which at any time, whether by purchase, merger or otherwise,
directly or indirectly, acquires all or substantially all of the assets or
business of the Company or an affiliate of the Company.
12.3 Survival. The covenants, agreements, representations
and warranties contained in or made pursuant to this Agreement shall survive
Employee's termination of employment.
12.4 Third-Party Beneficiaries. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
12.5 Waiver. The failure of either party hereto at any time
to enforce performance by the other party of any provision of this Agreement
shall in no way affect such party's rights thereafter to enforce the same, nor
shall the waiver by either party of any breach of any provision hereof be deemed
to be a waiver by such party of any other breach of the same or any other
provision hereof.
12.6 Hiring At Will. Any continuance of Employee's
employment by the Company after the term hereof shall be deemed a hiring at will
(unless such continuance is the subject of a new written agreement) and shall be
subject to termination with or without cause by either party upon delivery of
notice thereof.
12.7 Section Headings. The headings of the several sections
in this Agreement are inserted solely for the convenience of the parties and are
not a part of
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and are not intended to govern, limit or aid in the construction of any term or
provision hereof.
12.8 Notices. All notices, requests and other
communications hereunder shall be in writing and shall be delivered by courier
or other means of personal service (including by means of a nationally
recognized courier service or professional messenger service), or sent by telex
or telecopy or mailed first class, postage prepaid, by certified mail, return
receipt requested, in all cases, addressed to:
Company:
iMall, Inc.
4400 Coldwater Canyon Boulevard
Suite 200
Studio City, California 91604
Attention: Richard Rosenblatt
With a copy to:
Loeb & Loeb LLP
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017
Attention: David L. Ficksman, Esq.
Employee:
Phillip J. Windley
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With a copy to:
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Attention:
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All notices, requests and other communications shall be deemed given on the date
of actual receipt or delivery as evidenced by written receipt, acknowledgement
or other evidence of actual receipt or delivery to the address. In case of
service by telecopy, a copy of such notice shall be personally delivered or sent
by registered or certified
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mail, in the manner set forth above, within three business days thereafter. Any
party hereto may from time to time by notice in writing served as set forth
above designate a different address or a different or additional person to which
all such notices or communications thereafter are to be given.
12.9 Severability. All Sections, clauses and covenants
contained in this Agreement are severable, and in the event any of them shall be
held to be invalid by any court, this Agreement shall be interpreted as if such
invalid Sections, clauses or covenants were not contained herein.
12.10 Governing Law and Venue. This Agreement is to be
governed by and construed in accordance with the laws of the State of Utah
applicable to contracts made and to be performed wholly within such State, and
without regard to the conflicts of laws principles thereof. Any suit brought
hereon shall be brought in the state or federal courts sitting in Los Angeles,
California, the parties hereto hereby waiving any claim or defense that such
forum is not convenient or proper. Each party hereby agrees that any such court
shall have in personam jurisdiction over it and consents to service of process
in any manner authorized by California law.
12.11 Non-transferability of Interest. None of the rights
of Employee to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Employee. Any attempted assignment, transfer, conveyance, or other disposition
(other than as aforesaid) of any interest in the rights of Employee to receive
any form of compensation to be made by the Company pursuant to this Agreement
shall be void.
12.12 Attorneys' Fees. Subject to the provisions of Section
10 hereof with respect to arbitration, if any legal action, arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of any
alleged dispute, breach, default or misrepresentation in connection with this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs it incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
12.13 Gender. Where the context so requires, the use of the
masculine gender shall include the feminine and/or neuter genders and the
singular shall include the plural, and vice versa, and the word "person" shall
include any corporation, firm, partnership or other form of association.
12.14 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same Agreement.
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12.15 Construction. The language in all parts of this
Agreement shall in all cases be construed simply, according to its fair meaning,
and not strictly for or against any of the parties hereto. Without limitation,
there shall be no presumption against any party on the ground that such party
was responsible for drafting this Agreement or any part thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date hereinabove set forth.
THE COMPANY
iMall, Inc.
By:/s/
--------------------------------
Its:
-------------------------------
Title:
-----------------------------
EMPLOYEE
/s/ Phillip J. Windley
-----------------------------------
Phillip J. Windley
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<PAGE> 14
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE> 15
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of
December 9, 1997, by and between iMall, Inc., a Nevada corporation (the
"Company") and Steve Rossow, an individual ("Employee"), with reference to the
following:
A. The Company desires to employ Employee on the terms and
conditions set forth in this Agreement.
B. Employee desires to be so employed.
NOW, THEREFORE, based on the foregoing premises and in consideration
of the covenants set forth in this Agreement, the parties hereto hereby agree as
follows:
1. Term of Employment. The Company hereby employs Employee and
Employee accepts such employment commencing on January 12, 1998 and terminating
on that date which is four years thereafter, unless sooner terminated in
accordance with the terms of this Agreement.
2. Services to be Rendered.
2.1 Duties. Employee shall serve as Vice President of
Marketing and Sales of the Company and shall have the responsibilities, duties
and powers customarily associated with such position. Employee shall report
directly to the Chief Executive Officer of the Company, and shall perform his
duties pertaining to the business of the Company (the "Company Business")
subject to the direction of the Chief Executive Officer and to such limits upon
Employee's authority as the Chief Executive Officer may from time to time
impose. Employee's principal place of work hereunder shall be located in Studio
City or such other location within Los Angeles County as may be designated by
the Chief Executive Officer from time to time. However, Employee shall also
render services at such other place or places within or without the United
States as the Chief Executive Officer may direct from time to time. Employee
shall be subject to the policies and procedures generally applicable to senior
executive employees of the Company to the extent the same are not inconsistent
with any term of this Agreement.
2.2 Exclusive Services. Employee shall at all times
faithfully, industriously and to the best of his ability, experience and talent
perform to the satisfaction of the Chief Executive Officer all of the duties
that may be assigned to Employee hereunder and shall devote all of his
productive time and efforts to the performance of such duties; provided,
however, that Employee may devote time to personal and family investments to the
extent that the time so spent does not conflict with the Company Business. The
existence of such a conflict shall be determined in good faith by the Chief
Executive Officer.
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3. Compensation and Benefits. The Company shall pay the
following compensation and benefits to Employee during the term hereof, and
Employee shall accept the same as payment in full for all services rendered by
Employee to or for the benefit of the Company:
3.1 Salary. A salary ("Salary") of $120,000 per annum. The
Salary shall accrue in equal monthly installments in arrears and shall be
payable in accordance with the payroll practices of the Company in effect from
time to time.
3.2 Signing Bonus. Within ten (10) days after the date of
this Agreement the Company shall pay to Employee a one-time signing bonus in the
amount of $20,000.
3.3 Car Allowance. The Company shall pay to Employee a car
allowance of $700 per month, which shall accrue in monthly installments in
arrears and be payable in accordance with the practices of the Company in effect
from time to time.
3.4 Fringe Benefits. Employee shall be entitled to
participate in benefits under the Company's benefit plans and arrangements,
including, without limitation, any employee benefit plan or arrangement made
available in the future by the Company to its senior executives, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans and arrangements. The Company shall have the right to amend or delete
any such benefit plan or arrangement made available by the Company to its senior
executives and not otherwise specifically provided for herein.
3.5 Expenses. The Company shall reimburse Employee for
reasonable out-of-pocket expenses incurred in connection with the Company
Business and the performance of his duties hereunder, subject to (i) such
policies as the Chief Executive Officer may from time to time establish, (ii)
Employee furnishing the Company with evidence in the form of receipts
satisfactory to the Company substantiating the claimed expenditures, and (iii)
Employee receiving advance approval from the Chief Executive Officer in case of
expenses (or a series of related expenses) in excess of $500.
3.6 Vacation. Employee shall be entitled to the number of
paid vacation days in each calendar year determined by the Company from time to
time for its senior executive officers. Employee shall also be entitled to all
paid holidays given to the Company's senior executive officers.
3.7 Bonus. In addition to the Salary to which Employee is
entitled pursuant to Section 3.1, the Company may grant to Employee an annual
bonus or bonuses up to a maximum aggregate annual amount of $30,000, at the sole
and
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exclusive discretion of the Chief Executive Officer and the Compensation
Committee of the Company and at such times and in such manner as the Chief
Executive Officer and the Compensation Committee may determine.
3.8 Withholding and other Deductions. All compensation
payable to Employee hereunder shall be subject to such deductions as the Company
is from time to time required to make pursuant to law, governmental regulation
or order.
4. Stock Options. The Company has granted Employee, as of
December 9, 1997 and under the iMall, Inc. 1997 Stock Option Plan, options to
purchase shares of the common stock of the Company ("Options"). The principal
terms of the Options are set forth below and all of the terms of the Options are
set forth in a stock option agreement (a copy of which is attached hereto as
Exhibit A and incorporated herein by this reference). Effective as of December
9, 1997, the Board of Directors of the Company authorized and approved the grant
by the Company of 1,000,000 options under the 1997 Stock Option Plan at the
exercise price of $.65 per share of common stock, each of which will entitle
Employee the right to purchase from the Company one share of the common stock of
the Company. The Options will vest in Employee as follows: (i) at the rate of
125,000 Options per full quarter for the first year during which Employee
remains employed by the Company, commencing as of January 12, 1998, and (ii) at
the rate of 62,500 Options per full quarter for the second and third years
during which Employee remains employed by the Company, commencing on that date
which is one year after January 12, 1998.
4.1 Expiration of Options. All unexercised Options shall
expire on that date which is five (5) years after the date on which such Options
have vested.
4.2 Effect of Employee's Termination. If Employee is
terminated pursuant to 9.1 below, all Options that are unexercised at that time
shall expire on that date which is sixty (60) days after the date of such
termination. If Employee is terminated pursuant to Section 9.2 below, all
Options that are unexercised at that time shall expire immediately.
4.3 Effect of Employee's Improper Termination of This
Agreement. If Employee resigns or terminates this Agreement for any reason other
than based on a material breach hereof by the Company, all Options that are not
vested in Employee at that time shall expire immediately.
4.4 Effect of Sale of the Company. All of the Options shall
vest in Employee immediately upon (i) the sale by the Company of all or
substantially all of its assets, (ii) the sale of 50% or more of its outstanding
shares, or (iii) the merger of the Company into another company whereby the
Company is not the surviving entity.
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<PAGE> 4
5. Representations and Warranties of Employee. Employee
represents and warrants to the Company that (a) Employee is under no contractual
or other restriction or obligation which is inconsistent with the execution of
this Agreement, the performance of his duties hereunder, or the other rights of
the Company hereunder and (b) Employee is under no physical or mental disability
that would hinder the performance of his duties under this Agreement.
6. Certain Covenants.
6.1 Noncompetition. The parties hereto acknowledge that if
Employee were to compete with the Company, Employee would necessarily use
Confidential Information (as defined below) in doing so. Accordingly, during the
term of this Agreement (including, if Employee is terminated for good cause or
voluntarily terminates his employment hereunder, for the remainder of the term
of this Agreement after such termination) (the "Restricted Period"), Employee
shall not have any ownership interest (of record or beneficial) in, or have any
interest as an employee, salesman, consultant, officer or director in, or
otherwise aid or assist in any manner, any firm, corporation, partnership,
proprietorship or other business that engages in any county, city or part
thereof in the United States and/or any foreign country in a business which is
similar to that in which the Company is engaged in such county, city or part
thereof, so long as the Company, or any successor in interest of the Company the
business and goodwill of the Company, remains engaged in such business in such
county, city or part thereof or continues to solicit customers or potential
customers therein; provided, however, that Employee may own, directly or
indirectly, solely as an investment, securities of any entity which are traded
on any national securities exchange if Employee (a) is not a controlling person
of, or a member of a group which controls, such entity or (b) does not, directly
or indirectly, own one percent (1%) or more of any class of securities of any
such entity.
6.2 Trade Secrets. Employee acknowledges that the nature of
Employee's engagement by the Company is such that Employee will have access to
Confidential Information which has great value to the Company and that except
for Employee's engagement by the Company, Employee would not otherwise have
access to the Confidential Information. During the term of this Agreement and at
all times thereafter, Employee shall keep all of the Confidential Information in
confidence and shall not disclose any of the same to any other person, except
the Company's personnel entitled thereto and other persons designated in writing
by the Company. Employee shall not cause, suffer or permit the Confidential
Information to be used for the gain or benefit of any party outside of the
Company or for Employee's personal gain or benefit outside the scope of
Employee's engagement by the Company.
6.3 Solicitation of Business. Employee shall not during the
Restricted Period solicit or assist any other person to solicit any business
(other than for the Company) from any present or past customer of the Company;
or request or advise
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<PAGE> 5
any present or future customer of the Company to withdraw, curtail or cancel its
business dealings with the Company; or commit any other act or assist others to
commit any other act which might injure the business of the Company.
6.4 Solicitation of Employees. Employee shall not during
the Restricted Period, directly or indirectly, hire, solicit or encourage to
leave the employment of the Company or any of its affiliates, any employee of
the Company or any of its affiliates or hire any such employee who has left the
employment of the Company or any of its affiliates within one year of the
termination of such employee's employment with the Company or any of its
affiliates.
6.5 Solicitation of Consultants. Employee shall not during
the Restricted Period, directly or indirectly, hire, solicit or encourage to
cease work with the Company or any of its affiliates any consultant then under
contract with the Company or any of its affiliates within one year of the
termination of such consultant's engagement by the Company or any of its
affiliates.
6.6 Rights and Remedies Upon Breach. If Employee breaches
or threatens to commit a breach of any of the provisions of this Section 6 (the
"Restrictive Covenants"), the Company shall have the following rights and
remedies, each of which rights and remedies shall be independent of the other
and severally enforceable, and all of which rights and remedies shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or in equity:
(a) Specific Performance. The right and remedy to
have the Restrictive Covenants specifically enforced by any court having equity
jurisdiction, all without the need to post a bond or any other security or to
prove any amount of actual damage or that money damages would not provide an
adequate remedy, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide adequate remedy to the Company; and
(b) Accounting and Indemnification. The right and
remedy to require Employee (i) to account for and pay over to the Company all
compensation, profits, monies, accruals, increments or other benefits derived or
received by Employee or any associated party deriving such benefits as a result
of any such breach of the Restrictive Covenants; and (ii) to indemnify the
Company against any other losses, damages (including special and consequential
damages), costs and expenses, including actual attorneys' fees and court costs,
which may be incurred by them and which result from or arise out of any such
breach or threatened breach of the Restrictive Covenants.
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<PAGE> 6
6.7 Severability of Covenants/Blue Pencilling. If any court
determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions. If any court determines that any of the Restrictive Covenants,
or any part thereof, are unenforceable because of the duration of such provision
or the area covered thereby, such court shall have the power to reduce the
duration or area of such provision and, in its reduced form, such provision
shall then be enforceable and shall be enforced. Employee hereby waives any and
all right to attack the validity of the Restrictive Covenants on the grounds of
the breadth of their geographic scope or the length of their term.
6.8 Enforceability in Jurisdictions. The Company and
Employee intend to and do hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
such covenants. If the courts of any one or more of such jurisdictions hold the
Restrictive Covenants wholly unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of the Company and Employee that such
determination not bar or in any way affect the right of the Company to the
relief provided above in the courts of any other jurisdiction within the
geographical scope of such covenants, as to breaches of such covenants in such
other respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and independent
covenants.
6.9 Definitions.
(a) In Sections 6.1 - 6.9 above, all references to the
Company mean not only the Company, but also any company, partnership or entity
which, directly or indirectly, controls, is controlled by or is under common
control with the Company.
(b) The term "Confidential Information", as used in this
Agreement, means all information or material not generally known by non-Company
personnel which (i) gives the Company some competitive business advantage or the
opportunity of obtaining such advantage or the disclosure of which could be
detrimental to the interests of the Company; (ii) which is owned by the Company
or in which the Company has an interest and (iii) which is either (A) marked
"Confidential Information," "Proprietary Information" or other similar marking,
(B) known by Employee to be considered confidential and proprietary by the
Company or (C) from all the relevant circumstances should reasonably be assumed
by Employee to be confidential and proprietary to the Company. Confidential
Information includes, but is not limited to, the following types of information
and other information of a similar nature (whether or not reduced to writing):
trade secrets, inventions, drawings, file data, documentation, diagrams,
specifications, know how, processes, formulas, models, flow charts, software in
various stages of development, source codes, object codes, categories of
information unique to the business, research and development procedures,
research or development and test results, marketing techniques and
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<PAGE> 7
materials, marketing and development plans, price lists, pricing policies,
business plans, information relating to customers and/or suppliers' identities,
characteristics and agreements, financial information and projections, and
employee files. Confidential Information also includes any information described
above which the Company obtains from another party and which the Company treats
as proprietary or designates as Confidential Information, whether or not owned
or developed by the Company. NOTWITHSTANDING THE ABOVE, HOWEVER, NO INFORMATION
CONSTITUTES CONFIDENTIAL INFORMATION IF IT IS GENERIC INFORMATION OR GENERAL
KNOWLEDGE WHICH COVENANTOR WOULD HAVE LEARNED IN THE COURSE OF SIMILAR
EMPLOYMENT ELSEWHERE IN THE TRADE OR IF IT IS OTHERWISE PUBLICLY KNOWN AND IN
THE PUBLIC DOMAIN.
7. Proprietary Rights.
7.1 Disclosure of Employee's Knowledge. Employee shall make
available to the Company at no cost to the Company all knowledge possessed by
him relating to any methods, developments, inventions and/or improvements,
whether patented, patentable or unpatentable, which concern in any way the
Company Business, acquired by Employee during the term of employment, provided
that nothing herein shall be construed as requiring any disclosure where any
such method, development, invention and/or improvement is lawfully protected
from disclosure as a trade secret of any third party or by any other lawful bar
to such disclosure.
7.2 Ownership of Patent Rights, Copyrights, and Trade
Secrets. To the fullest extent permitted by California law, Employee shall
assign, and does hereby assign, to the Company all of Employee's right, title
and interest in and to all inventions, improvements, developments, trade
secrets, discoveries, computer software, tradenames and trademarks conceived,
improved, developed, discovered or written by Employee, alone or in
collaboration with others, during the term of this Agreement which relate in any
manner to the Company Business, whether or not the same shall be conceived,
improved, developed, discovered or written during customary working hours on the
Company's premises. During the term of this Agreement Employee shall promptly
and fully disclose to the Company all matters within the scope of this Section
7.2, and shall, upon request of the Company, execute, acknowledge, deliver and
file any and all documents necessary or useful to vest in the Company all of
Employee's right, title and interest in and to all such matters. All expenses
incurred in connection with the execution, acknowledgment, delivery and filing
of any papers or documents within the scope of this Section 7.2 shall be borne
by the Company. All matters within the scope of this Section 7.2 shall
constitute trade secrets of the Company subject to the provisions of Section
6.2, until such matters cease to be trade secrets by operation of law.
Notwithstanding the foregoing, however, Employee shall be under no obligation to
assign to the Company any right
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in or to any invention which qualifies fully under the provisions of Section
2870 of the California Labor Code, which section is reproduced in Exhibit B
attached hereto.
8. Insurance. The Company shall have the right to take out
life, health, accident, "key-man" or other insurance covering Employee, in the
name of the Company and at the Company's expense in any amount deemed
appropriate by the Company. Employee shall assist the Company in obtaining such
insurance, including, without limitation, submitting to any required
examinations and providing information and data required by insurance companies.
9. Termination.
9.1 Death or Total Disability of Employee. If Employee dies
or becomes totally disabled during the term of this Agreement, Employee's
employment hereunder shall automatically terminate. For these purposes Employee
shall be deemed totally disabled if Employee shall become physically or mentally
incapacitated or disabled or otherwise unable fully to discharge Employee's
duties hereunder for a period of 90 consecutive calendar days or for 120
calendar days in any 180 calendar-day period.
9.2 Termination for Good Cause. Employee's employment
hereunder may be terminated by the Company for "good cause." The term "good
cause" is defined as any one or more of the following occurrences:
(a) Employee's breach of any of the covenants
contained in Section 6 of this Agreement;
(b) Employee's conviction by, or entry of a plea of
guilty or nolo contendere in, a court of competent and final jurisdiction for
any crime involving moral turpitude or punishable by imprisonment in the
jurisdiction involved;
(c) Employee's commission of an act of fraud, whether
prior to or subsequent to the date hereof upon the Company;
(d) Employee's willful failure or refusal to perform
Employee's duties as required by this Agreement for any reason whatsoever
(including, without limitation, Employee's inability to comply with any laws,
rules or regulations of any governmental entity with respect to Employee's
employment by the Company);
(e) Employee's gross negligence, insubordination or
material violation of any duty of loyalty to the Company or any other material
misconduct on the part of Employee;
(f) Employee's commission of any act which is
detrimental to the Company's business or goodwill; or
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(g) Employee's breach of any other provision of this
Agreement, provided that termination of Employee's employment pursuant to this
subsection (g) shall not constitute valid termination for good cause unless
Employee shall have first received written notice from the Chief Executive
Officer stating with specificity the nature of such breach and affording
Employee at least fifteen (15) days to correct the breach alleged.
9.3 Other Events. The Company may terminate Employee's
employment, with two weeks prior written notice, upon the happening of any of
the following events:
(a) At such time, if any, as the Company ceases to
conduct business for any reason whatsoever.
(b) At the option of the Company, upon the sale by
the Company of all or a substantial portion of its assets, the sale of 50% or
more of its outstanding shares, or a merger of the Company into another company
whereby the Company is not the surviving entity.
9.4 Severance Compensation. Upon the occurrence of any of
the events referred to in Section 9.2 above, Employee (or Employee's heirs or
representatives) shall be entitled to receive only such portion (if any) of the
Salary as may theretofore have accrued but be unpaid on the date on which the
termination shall take effect. Upon the occurrence of any of the events referred
to in Sections 9.1 and 9.3 above, Employee (or Employee's heirs or
representations) shall be entitled to receive such portion (if any) of the
Salary as may theretofore have accrued but be unpaid on the date on which the
termination shall take effect, plus the amount of $30,000.
9.5 Return of the Company's Property. If this Agreement is
terminated for any reason whatsoever, the Company shall have the right, at its
option, to require Employee to vacate his offices prior to the effective date of
termination and to cease all activities on the Company's behalf. Upon the
termination of his employment in any manner, Employee shall immediately
surrender to the Company all lists, books and records of, or in connection with,
the Company's business, and all other property belonging to the Company, it
being distinctly understood that all such lists, books and records, and other
documents, are the property of the Company.
10. Arbitration. Any claim or controversy arising out of or
relating to this Agreement shall be settled by arbitration in Los Angeles,
California, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment on the award rendered by the arbitrators
may be entered in any court having jurisdiction. There shall be three
arbitrators, one to be chosen directly by each party at will, and the third
arbitrator to be selected by the two arbitrators so chosen. Each party shall pay
the fees of the arbitrator it selects and of its own attorneys, the
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expenses of its witnesses and all other expenses connected with presenting its
case. Other costs of the arbitration, including the cost of any record or
transcripts of the arbitration, administrative fees, the fee of the third
arbitrator, and all other fees and costs, shall be borne equally by the parties.
11. General Relationship. Employee shall be considered an
employee of the Company within the meaning of all federal, state and local laws
and regulations including, but not limited to, laws and regulations governing
unemployment insurance, workers' compensation, industrial accident, labor and
taxes.
12. Miscellaneous.
12.1 Modification; Prior Claims. This Agreement sets forth
the entire understanding of the parties with respect to the subject matter
hereof, supersedes all existing agreements between them concerning such subject
matter, and may be modified only by a written instrument duly executed by each
party. Employee hereby waives any claims that may exist on the date hereof
arising from his prior employment, if any, with the Company, other than for
compensation payable or reimbursement of reasonable expenses, all as incurred in
the ordinary course of business.
12.2 Assignment. The rights of the Company under this
Agreement may, without the consent of Employee, be assigned by the Company, in
its sole and unfettered discretion, to any person, firm, corporation or other
business entity which at any time, whether by purchase, merger or otherwise,
directly or indirectly, acquires all or substantially all of the assets or
business of the Company or an affiliate of the Company.
12.3 Survival. The covenants, agreements, representations
and warranties contained in or made pursuant to this Agreement shall survive
Employee's termination of employment.
12.4 Third-Party Beneficiaries. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
12.5 Waiver. The failure of either party hereto at any time
to enforce performance by the other party of any provision of this Agreement
shall in no way affect such party's rights thereafter to enforce the same, nor
shall the waiver by either party of any breach of any provision hereof be deemed
to be a waiver by such party of any other breach of the same or any other
provision hereof.
12.6 Hiring At Will. Any continuance of Employee's
employment by the Company after the term hereof shall be deemed a hiring at will
(unless such
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continuance is the subject of a new written agreement) and shall be subject to
termination with or without cause by either party upon delivery of notice
thereof.
12.7 Section Headings. The headings of the several sections
in this Agreement are inserted solely for the convenience of the parties and are
not a part of and are not intended to govern, limit or aid in the construction
of any term or provision hereof.
12.8 Notices. All notices, requests and other
communications hereunder shall be in writing and shall be delivered by courier
or other means of personal service (including by means of a nationally
recognized courier service or professional messenger service), or sent by telex
or telecopy or mailed first class, postage prepaid, by certified mail, return
receipt requested, in all cases, addressed to:
Company:
iMall, Inc.
4400 Coldwater Canyon Boulevard
Suite 200
Studio City, California 91604
Attention: Richard Rosenblatt
With a copy to:
Loeb & Loeb LLP
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017
Attention: David L. Ficksman, Esq.
Employee:
Steve Rossow
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With a copy to:
------------------------------
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Attention:
-------------------
All notices, requests and other communications shall be deemed given on the date
of actual receipt or delivery as evidenced by written receipt, acknowledgement
or other evidence of actual receipt or delivery to the address. In case of
service by telecopy, a copy of such notice shall be personally delivered or sent
by registered or certified mail, in the manner set forth above, within three
business days thereafter. Any party hereto may from time to time by notice in
writing served as set forth above designate a different address or a different
or additional person to which all such notices or communications thereafter are
to be given.
12.9 Severability. All Sections, clauses and covenants
contained in this Agreement are severable, and in the event any of them shall be
held to be invalid by any court, this Agreement shall be interpreted as if such
invalid Sections, clauses or covenants were not contained herein.
12.10 Governing Law and Venue. This Agreement is to be
governed by and construed in accordance with the laws of the State of California
applicable to contracts made and to be performed wholly within such State, and
without regard to the conflicts of laws principles thereof. Any suit brought
hereon shall be brought in the state or federal courts sitting in Los Angeles,
California, the parties hereto hereby waiving any claim or defense that such
forum is not convenient or proper. Each party hereby agrees that any such court
shall have in personam jurisdiction over it and consents to service of process
in any manner authorized by California law.
12.11 Non-transferability of Interest. None of the rights
of Employee to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Employee. Any attempted assignment, transfer, conveyance, or other disposition
(other than as aforesaid) of any interest in the rights of Employee to receive
any form of compensation to be made by the Company pursuant to this Agreement
shall be void.
12.12 Attorneys' Fees. Subject to the provisions of Section
10 hereof with respect to arbitration, if any legal action, arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of any
alleged dispute, breach, default or misrepresentation in connection with this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs
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it incurred in that action or proceeding, in addition to any other relief to
which it may be entitled.
12.13 Gender. Where the context so requires, the use of the
masculine gender shall include the feminine and/or neuter genders and the
singular shall include the plural, and vice versa, and the word "person" shall
include any corporation, firm, partnership or other form of association.
12.14 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same Agreement.
12.15 Construction. The language in all parts of this
Agreement shall in all cases be construed simply, according to its fair meaning,
and not strictly for or against any of the parties hereto. Without limitation,
there shall be no presumption against any party on the ground that such party
was responsible for drafting this Agreement or any part thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date hereinabove set forth.
THE COMPANY
iMall, Inc.
By:/s/
--------------------------------
Its:
-------------------------------
Title:
-----------------------------
EMPLOYEE
/s/ Steve Rossow
-----------------------------------
Steve Rossow
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<PAGE> 14
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE> 15
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of
December 9, 1997, by and between iMall, Inc., a Nevada corporation (the
"Company") and Stephen W. Fulling, an individual ("Employee"), with reference to
the following:
A. The Company desires to employ Employee on the terms and
conditions set forth in this Agreement.
B. Employee desires to be so employed.
NOW, THEREFORE, based on the foregoing premises and in consideration
of the covenants set forth in this Agreement, the parties hereto hereby agree as
follows:
1. Term of Employment. The Company hereby employs Employee and
Employee accepts such employment commencing on January 1, 1998 and terminating
on that date which is three years thereafter, unless sooner terminated in
accordance with the terms of this Agreement.
2. Services to be Rendered.
2.1 Duties. Employee shall serve as Vice President of
Technology of the Company and shall have the responsibilities, duties and powers
customarily associated with such position. Employee shall report directly to the
Chief Executive Officer of the Company, and shall perform his duties pertaining
to the business of the Company (the "Company Business") subject to the direction
of the Chief Executive Officer and to such limits upon Employee's authority as
the Chief Executive Officer may from time to time impose. Employee's principal
place of work hereunder shall be located in Provo, Utah or such other location
within the State of Utah as may be designated by the Chief Executive Officer
from time to time. However, Employee shall also render services at such other
place or places within or without the United States as the Chief Executive
Officer may direct from time to time. Employee shall be subject to the policies
and procedures generally applicable to senior executive employees of the Company
to the extent the same are not inconsistent with any term of this Agreement.
2.2 Exclusive Services. Employee shall at all times
faithfully, industriously and to the best of his ability, experience and talent
perform to the satisfaction of the Chief Executive Officer all of the duties
that may be assigned to Employee hereunder and shall devote all of his
productive time and efforts to the performance of such duties; provided,
however, that Employee may devote time to personal and family investments to the
extent that the time so spent does not conflict with the Company Business. The
existence of such a conflict shall be determined in good faith by the Chief
Executive Officer.
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3. Compensation and Benefits. The Company shall pay the
following compensation and benefits to Employee during the term hereof, and
Employee shall accept the same as payment in full for all services rendered by
Employee to or for the benefit of the Company:
3.1 Salary. A salary ("Salary") of $85,000 per annum. The
Salary shall accrue in equal monthly installments in arrears and shall be
payable in accordance with the payroll practices of the Company in effect from
time to time. The Company shall review Employee's performance within thirty (30)
days after the end of the first and second years of Employee's employment
hereunder. Based upon such reviews, the Company may increase the Salary in such
amounts as the Chief Executive Officer and the Compensation Committee of the
Company determine at their sole discretion, except that at a minimum the Company
shall increase the Salary for the second and third years of Employee's
employment hereunder by an amount equal to seven percent (7%) of the total
amount of Salary due to Employee during the immediately-preceding year. The
Company shall continue to pay to Employee the Salary paid during the
immediately-preceding year until the review has been conducted, at which time
the Company shall pay to Employee the amount that is necessary to effect the
adjustment under this Section 3.1 with respect to the installments of Salary
theretofore paid by the Company to Employee during such second or third year,
and payment of the adjusted Salary shall continue thereafter.
3.2 Car Allowance. The Company shall pay to Employee a car
allowance of $575 per month, which shall accrue in monthly installments in
arrears and be payable in accordance with the practices of the Company in effect
from time to time.
3.3 Fringe Benefits. Employee shall be entitled to
participate in benefits under the Company's benefit plans and arrangements,
including, without limitation, any employee benefit plan or arrangement made
available in the future by the Company to its senior executives, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans and arrangements. The Company shall have the right to amend or delete
any such benefit plan or arrangement made available by the Company to its senior
executives and not otherwise specifically provided for herein.
3.4 Expenses. The Company shall reimburse Employee for
reasonable out-of-pocket expenses incurred in connection with the Company
Business and the performance of his duties hereunder, subject to (i) such
policies as the Chief Executive Officer may from time to time establish, (ii)
Employee furnishing the Company with evidence in the form of receipts
satisfactory to the Company substantiating the claimed expenditures, and (iii)
Employee receiving advance approval from the Chief Executive Officer in case of
expenses (or a series of related expenses) in excess of $500.
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<PAGE> 3
3.5 Vacation. Employee shall be entitled to the number of
paid vacation days in each calendar year determined by the Company from time to
time for its senior executive officers. Employee shall also be entitled to all
paid holidays given to the Company's senior executive officers.
3.6 Bonus. In addition to the Salary to which Employee is
entitled pursuant to Section 3.1, the Company may grant to Employee an annual
bonus or bonuses up to a maximum aggregate annual amount of $25,000, at the sole
and exclusive discretion of the Chief Executive Officer and the Compensation
Committee of the Company and at such times and in such manner as the Chief
Executive Officer and the Compensation Committee may determine.
3.7 Withholding and other Deductions. All compensation
payable to Employee hereunder shall be subject to such deductions as the Company
is from time to time required to make pursuant to law, governmental regulation
or order.
4. Stock Options. The Company has granted Employee, as of
December 9, 1998 and under the iMall, Inc. 1997 Stock Option Plan, options to
purchase shares of the common stock of the Company ("Options"). The principal
terms of the Options are set forth below and all of the terms of the Options are
set forth in a stock option agreement (a copy of which is attached hereto as
Exhibit A and incorporated herein by this reference). Effective as of December
9, 1997, the Board of Directors of the Company authorized and approved the grant
by the Company of 680,000 options under the 1997 Stock Option Plan at the
exercise price of $.65 per share of common stock, each of which will entitle
Employee the right to purchase from the Company one share of the common stock of
the Company. The Options will vest in Employee as follows: (i) at the rate of
86,667 Options per full quarter for the first year during which Employee remains
employed by the Company, commencing as of January 1, 1998, (ii) at the rate of
41,667 Options per full quarter for the second year and per the first three full
quarters of the third year during which Employee remains employed by the
Company, commencing on that date which is one year after January 1, 1998, and
(iii) at the rate of 41,663 Options per the fourth full quarter of the third
year during which Employee remains employed by the Company.
4.1 Expiration of Options. All unexercised Options shall
expire on that date which is five (5) years after the date on which such Options
have vested.
4.2 Effect of Employee's Termination. If Employee is
terminated pursuant to 9.1 below, all Options that are unexercised at that time
shall expire on that date which is sixty (60) days after the date of such
termination. If Employee is terminated pursuant to Section 9.2 below, all
Options that are unexercised at that time shall expire immediately.
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<PAGE> 4
4.3 Effect of Employee's Improper Termination of This
Agreement. If Employee resigns or terminates this Agreement for any reason other
than based on a material breach hereof by the Company, all Options that are not
vested in Employee at that time shall expire immediately.
4.4 Effect of Sale of the Company. All of the Options
shall vest in Employee immediately upon (i) the sale by the Company of all or
substantially all of its assets, (ii) the sale of 50% or more of its outstanding
shares, or (iii) the merger of the Company into another company whereby the
Company is not the surviving entity.
5. Representations and Warranties of Employee. Employee
represents and warrants to the Company that (a) Employee is under no contractual
or other restriction or obligation which is inconsistent with the execution of
this Agreement, the performance of his duties hereunder, or the other rights of
the Company hereunder and (b) Employee is under no physical or mental disability
that would hinder the performance of his duties under this Agreement.
6. Certain Covenants.
6.1 Noncompetition. The parties hereto acknowledge that if
Employee were to compete with the Company, Employee would necessarily use
Confidential Information (as defined below) in doing so. Accordingly, during the
term of this Agreement (including, if Employee is terminated for good cause or
voluntarily terminates his employment hereunder, for the remainder of the term
of this Agreement after such termination) (the "Restricted Period"), Employee
shall not have any ownership interest (of record or beneficial) in, or have any
interest as an employee, salesman, consultant, officer or director in, or
otherwise aid or assist in any manner, any firm, corporation, partnership,
proprietorship or other business that engages in any county, city or part
thereof in the United States and/or any foreign country in a business which is
similar to that in which the Company is engaged in such county, city or part
thereof, so long as the Company, or any successor in interest of the Company the
business and goodwill of the Company, remains engaged in such business in such
county, city or part thereof or continues to solicit customers or potential
customers therein; provided, however, that Employee may own, directly or
indirectly, solely as an investment, securities of any entity which are traded
on any national securities exchange if Employee (a) is not a controlling person
of, or a member of a group which controls, such entity or (b) does not, directly
or indirectly, own one percent (1%) or more of any class of securities of any
such entity.
6.2 Trade Secrets. Employee acknowledges that the nature
of Employee's engagement by the Company is such that Employee will have access
to Confidential Information which has great value to the Company and that except
for Employee's engagement by the Company, Employee would not otherwise have
access to the Confidential Information. During the term of this Agreement and at
all times
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<PAGE> 5
thereafter, Employee shall keep all of the Confidential Information in
confidence and shall not disclose any of the same to any other person, except
the Company's personnel entitled thereto and other persons designated in writing
by the Company. Employee shall not cause, suffer or permit the Confidential
Information to be used for the gain or benefit of any party outside of the
Company or for Employee's personal gain or benefit outside the scope of
Employee's engagement by the Company.
6.3 Solicitation of Business. Employee shall not during
the Restricted Period solicit or assist any other person to solicit any business
(other than for the Company) from any present or past customer of the Company;
or request or advise any present or future customer of the Company to withdraw,
curtail or cancel its business dealings with the Company; or commit any other
act or assist others to commit any other act which might injure the business of
the Company.
6.4 Solicitation of Employees. Employee shall not during
the Restricted Period, directly or indirectly, hire, solicit or encourage to
leave the employment of the Company or any of its affiliates, any employee of
the Company or any of its affiliates or hire any such employee who has left the
employment of the Company or any of its affiliates within one year of the
termination of such employee's employment with the Company or any of its
affiliates.
6.5 Solicitation of Consultants. Employee shall not during
the Restricted Period, directly or indirectly, hire, solicit or encourage to
cease work with the Company or any of its affiliates any consultant then under
contract with the Company or any of its affiliates within one year of the
termination of such consultant's engagement by the Company or any of its
affiliates.
6.6 Rights and Remedies Upon Breach. If Employee breaches
or threatens to commit a breach of any of the provisions of this Section 6 (the
"Restrictive Covenants"), the Company shall have the following rights and
remedies, each of which rights and remedies shall be independent of the other
and severally enforceable, and all of which rights and remedies shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or in equity:
(a) Specific Performance. The right and remedy to
have the Restrictive Covenants specifically enforced by any court having equity
jurisdiction, all without the need to post a bond or any other security or to
prove any amount of actual damage or that money damages would not provide an
adequate remedy, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide adequate remedy to the Company; and
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<PAGE> 6
(b) Accounting and Indemnification. The right and
remedy to require Employee (i) to account for and pay over to the Company all
compensation, profits, monies, accruals, increments or other benefits derived or
received by Employee or any associated party deriving such benefits as a result
of any such breach of the Restrictive Covenants; and (ii) to indemnify the
Company against any other losses, damages (including special and consequential
damages), costs and expenses, including actual attorneys' fees and court costs,
which may be incurred by them and which result from or arise out of any such
breach or threatened breach of the Restrictive Covenants.
6.7 Severability of Covenants/Blue Pencilling. If any
court determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions. If any court determines that any of the Restrictive Covenants,
or any part thereof, are unenforceable because of the duration of such provision
or the area covered thereby, such court shall have the power to reduce the
duration or area of such provision and, in its reduced form, such provision
shall then be enforceable and shall be enforced. Employee hereby waives any and
all right to attack the validity of the Restrictive Covenants on the grounds of
the breadth of their geographic scope or the length of their term.
6.8 Enforceability in Jurisdictions. The Company and
Employee intend to and do hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
such covenants. If the courts of any one or more of such jurisdictions hold the
Restrictive Covenants wholly unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of the Company and Employee that such
determination not bar or in any way affect the right of the Company to the
relief provided above in the courts of any other jurisdiction within the
geographical scope of such covenants, as to breaches of such covenants in such
other respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and independent
covenants.
6.9 Definitions.
(a) In Sections 6.1 - 6.9 above, all references to the
Company mean not only the Company, but also any company, partnership or entity
which, directly or indirectly, controls, is controlled by or is under common
control with the Company.
(b) The term "Confidential Information", as used in this
Agreement, means all information or material not generally known by non-Company
personnel which (i) gives the Company some competitive business advantage or the
opportunity of obtaining such advantage or the disclosure of which could be
detrimental to the interests of the Company; (ii) which is owned by the Company
or in which the Company has an interest and (iii) which is either (A) marked
"Confidential Informa-
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<PAGE> 7
tion," "Proprietary Information" or other similar marking, (B) known by Employee
to be considered confidential and proprietary by the Company or (C) from all the
relevant circumstances should reasonably be assumed by Employee to be
confidential and proprietary to the Company. Confidential Information includes,
but is not limited to, the following types of information and other information
of a similar nature (whether or not reduced to writing): trade secrets,
inventions, drawings, file data, documentation, diagrams, specifications, know
how, processes, formulas, models, flow charts, software in various stages of
development, source codes, object codes, categories of information unique to the
business, research and development procedures, research or development and test
results, marketing techniques and materials, marketing and development plans,
price lists, pricing policies, business plans, information relating to customers
and/or suppliers' identities, characteristics and agreements, financial
information and projections, and employee files. Confidential Information also
includes any information described above which the Company obtains from another
party and which the Company treats as proprietary or designates as Confidential
Information, whether or not owned or developed by the Company. NOTWITHSTANDING
THE ABOVE, HOWEVER, NO INFORMATION CONSTITUTES CONFIDENTIAL INFORMATION IF IT IS
GENERIC INFORMATION OR GENERAL KNOWLEDGE WHICH COVENANTOR WOULD HAVE LEARNED IN
THE COURSE OF SIMILAR EMPLOYMENT ELSEWHERE IN THE TRADE OR IF IT IS OTHERWISE
PUBLICLY KNOWN AND IN THE PUBLIC DOMAIN.
7. Proprietary Rights.
7.1 Disclosure of Employee's Knowledge. Employee shall
make available to the Company at no cost to the Company all knowledge possessed
by him relating to any methods, developments, inventions and/or improvements,
whether patented, patentable or unpatentable, which concern in any way the
Company Business, acquired by Employee during the term of employment, provided
that nothing herein shall be construed as requiring any disclosure where any
such method, development, invention and/or improvement is lawfully protected
from disclosure as a trade secret of any third party or by any other lawful bar
to such disclosure.
7.2 Ownership of Patent Rights, Copyrights, and Trade
Secrets. To the fullest extent permitted by California law, Employee shall
assign, and does hereby assign, to the Company all of Employee's right, title
and interest in and to all inventions, improvements, developments, trade
secrets, discoveries, computer software, tradenames and trademarks conceived,
improved, developed, discovered or written by Employee, alone or in
collaboration with others, during the term of this Agreement which relate in any
manner to the Company Business, whether or not the same shall be conceived,
improved, developed, discovered or written during customary working hours on the
Company's premises. During the term of this Agreement Employee shall promptly
and fully disclose to the Company all matters
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<PAGE> 8
within the scope of this Section 7.2, and shall, upon request of the Company,
execute, acknowledge, deliver and file any and all documents necessary or useful
to vest in the Company all of Employee's right, title and interest in and to all
such matters. All expenses incurred in connection with the execution,
acknowledgment, delivery and filing of any papers or documents within the scope
of this Section 7.2 shall be borne by the Company. All matters within the scope
of this Section 7.2 shall constitute trade secrets of the Company subject to the
provisions of Section 6.2, until such matters cease to be trade secrets by
operation of law. Notwithstanding the foregoing, however, Employee shall be
under no obligation to assign to the Company any right in or to any invention
which qualifies fully under the provisions of Section 2870 of the California
Labor Code, which section is reproduced in Exhibit B attached hereto.
8. Insurance. The Company shall have the right to take out
life, health, accident, "key-man" or other insurance covering Employee, in the
name of the Company and at the Company's expense in any amount deemed
appropriate by the Company. Employee shall assist the Company in obtaining such
insurance, including, without limitation, submitting to any required
examinations and providing information and data required by insurance companies.
9. Termination.
9.1 Death or Total Disability of Employee. If Employee
dies or becomes totally disabled during the term of this Agreement, Employee's
employment hereunder shall automatically terminate. For these purposes Employee
shall be deemed totally disabled if Employee shall become physically or mentally
incapacitated or disabled or otherwise unable fully to discharge Employee's
duties hereunder for a period of 90 consecutive calendar days or for 120
calendar days in any 180 calendar-day period.
9.2 Termination for Good Cause. Employee's employment
hereunder may be terminated by the Company for "good cause." The term "good
cause" is defined as any one or more of the following occurrences:
(a) Employee's breach of any of the covenants
contained in Section 6 of this Agreement;
(b) Employee's conviction by, or entry of a plea of
guilty or nolo contendere in, a court of competent and final jurisdiction for
any crime involving moral turpitude or punishable by imprisonment in the
jurisdiction involved;
(c) Employee's commission of an act of fraud, whether
prior to or subsequent to the date hereof upon the Company;
(d) Employee's willful failure or refusal to perform
Employee's duties as required by this Agreement for any reason whatsoever
(including, without
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<PAGE> 9
limitation, Employee's inability to comply with any laws, rules or regulations
of any governmental entity with respect to Employee's employment by the
Company);
(e) Employee's gross negligence, insubordination or
material violation of any duty of loyalty to the Company or any other material
misconduct on the part of Employee;
(f) Employee's commission of any act which is
detrimental to the Company's business or goodwill; or
(g) Employee's breach of any other provision of this
Agreement, provided that termination of Employee's employment pursuant to this
subsection (g) shall not constitute valid termination for good cause unless
Employee shall have first received written notice from the Chief Executive
Officer stating with specificity the nature of such breach and affording
Employee at least fifteen (15) days to correct the breach alleged.
9.3 Other Events. The Company may terminate Employee's
employment, with two weeks prior written notice, upon the happening of any of
the following events:
(a) At such time, if any, as the Company ceases to
conduct business for any reason whatsoever.
(b) At the option of the Company, upon the sale by
the Company of all or a substantial portion of its assets, the sale of 50% or
more of its outstanding shares, or a merger of the Company into another company
whereby the Company is not the surviving entity.
9.4 Termination by Employee. Employee may terminate his
employment if the Company requires that Employee change his principal place of
work to a location outside the State of Utah.
9.5 Severance Compensation. Upon the occurrence of any of
the events referred to in Sections 9.1, 9.2 and 9.3 above, Employee (or
Employee's heirs or representatives) shall be entitled to receive only such
portion (if any) of the Salary as may theretofore have accrued but be unpaid on
the date on which the termination shall take effect. Notwithstanding the
foregoing sentence, if Employee terminates his employment under Section 9.4
above, Employee (or Employee's heirs or representations) shall be entitled to
receive such portion (if any) of the Salary as may theretofore have accrued but
be unpaid on the date on which the termination shall take effect, plus the
amount of $21,250.
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9.6 Return of the Company's Property. If this Agreement
is terminated for any reason whatsoever, the Company shall have the right, at
its option, to require Employee to vacate his offices prior to the effective
date of termination and to cease all activities on the Company's behalf. Upon
the termination of his employment in any manner, Employee shall immediately
surrender to the Company all lists, books and records of, or in connection with,
the Company's business, and all other property belonging to the Company, it
being distinctly understood that all such lists, books and records, and other
documents, are the property of the Company.
10. Arbitration. Any claim or controversy arising out of or
relating to this Agreement shall be settled by arbitration in Los Angeles,
California, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment on the award rendered by the arbitrators
may be entered in any court having jurisdiction. There shall be three
arbitrators, one to be chosen directly by each party at will, and the third
arbitrator to be selected by the two arbitrators so chosen. Each party shall pay
the fees of the arbitrator it selects and of its own attorneys, the expenses of
its witnesses and all other expenses connected with presenting its case. Other
costs of the arbitration, including the cost of any record or transcripts of the
arbitration, administrative fees, the fee of the third arbitrator, and all other
fees and costs, shall be borne equally by the parties.
11. General Relationship. Employee shall be considered an
employee of the Company within the meaning of all federal, state and local laws
and regulations including, but not limited to, laws and regulations governing
unemployment insurance, workers' compensation, industrial accident, labor and
taxes.
12. Miscellaneous.
12.1 Modification; Prior Claims. This Agreement sets forth
the entire understanding of the parties with respect to the subject matter
hereof, supersedes all existing agreements between them concerning such subject
matter, and may be modified only by a written instrument duly executed by each
party. Employee hereby waives any claims that may exist on the date hereof
arising from his prior employment, if any, with the Company, other than for
compensation payable or reimbursement of reasonable expenses, all as incurred in
the ordinary course of business. Notwithstanding the foregoing two sentences,
nothing contained in this Agreement shall in any way effect those certain
options previously granted by the Company to Employee which, upon their
exercise, entitle Employee to purchase 26,700 shares of the common stock of the
Company, such options to vest in such amounts and at such times, and to be
exercisable at such price, as previously agreed upon by the Company and
Employee.
12.2 Assignment. The rights of the Company under this
Agreement may, without the consent of Employee, be assigned by the Company, in
its sole and
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unfettered discretion, to any person, firm, corporation or other business entity
which at any time, whether by purchase, merger or otherwise, directly or
indirectly, acquires all or substantially all of the assets or business of the
Company or an affiliate of the Company.
12.3 Survival. The covenants, agreements, representations
and warranties contained in or made pursuant to this Agreement shall survive
Employee's termination of employment.
12.4 Third-Party Beneficiaries. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
12.5 Waiver. The failure of either party hereto at any time
to enforce performance by the other party of any provision of this Agreement
shall in no way affect such party's rights thereafter to enforce the same, nor
shall the waiver by either party of any breach of any provision hereof be deemed
to be a waiver by such party of any other breach of the same or any other
provision hereof.
12.6 Hiring At Will. Any continuance of Employee's
employment by the Company after the term hereof shall be deemed a hiring at will
(unless such continuance is the subject of a new written agreement) and shall be
subject to termination with or without cause by either party upon delivery of
notice thereof.
12.7 Section Headings. The headings of the several sections
in this Agreement are inserted solely for the convenience of the parties and are
not a part of and are not intended to govern, limit or aid in the construction
of any term or provision hereof.
12.8 Notices. All notices, requests and other
communications hereunder shall be in writing and shall be delivered by courier
or other means of personal service (including by means of a nationally
recognized courier service or professional messenger service), or sent by telex
or telecopy or mailed first class, postage prepaid, by certified mail, return
receipt requested, in all cases, addressed to:
Company:
iMall, Inc.
4400 Coldwater Canyon Boulevard
Suite 200
Studio City, California 91604
Attention: Richard Rosenblatt
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With a copy to:
Loeb & Loeb LLP
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017
Attention: David L. Ficksman, Esq.
Employee:
Stephen W. Fulling
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With a copy to:
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Attention:
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All notices, requests and other communications shall be deemed given on the date
of actual receipt or delivery as evidenced by written receipt, acknowledgement
or other evidence of actual receipt or delivery to the address. In case of
service by telecopy, a copy of such notice shall be personally delivered or sent
by registered or certified mail, in the manner set forth above, within three
business days thereafter. Any party hereto may from time to time by notice in
writing served as set forth above designate a different address or a different
or additional person to which all such notices or communications thereafter are
to be given.
12.9 Severability. All Sections, clauses and covenants
contained in this Agreement are severable, and in the event any of them shall be
held to be invalid by any court, this Agreement shall be interpreted as if such
invalid Sections, clauses or covenants were not contained herein.
12.10 Governing Law and Venue. This Agreement is to be
governed by and construed in accordance with the laws of the State of Utah
applicable to contracts made and to be performed wholly within such State, and
without regard to the conflicts of laws principles thereof. Any suit brought
hereon shall be brought in the state or federal courts sitting in Los Angeles,
California, the parties hereto hereby waiving any claim or defense that such
forum is not convenient or proper. Each
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party hereby agrees that any such court shall have in personam jurisdiction over
it and consents to service of process in any manner authorized by California
law.
12.11 Non-transferability of Interest. None of the rights
of Employee to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Employee. Any attempted assignment, transfer, conveyance, or other disposition
(other than as aforesaid) of any interest in the rights of Employee to receive
any form of compensation to be made by the Company pursuant to this Agreement
shall be void.
12.12 Attorneys' Fees. Subject to the provisions of Section
10 hereof with respect to arbitration, if any legal action, arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of any
alleged dispute, breach, default or misrepresentation in connection with this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs it incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
12.13 Gender. Where the context so requires, the use of the
masculine gender shall include the feminine and/or neuter genders and the
singular shall include the plural, and vice versa, and the word "person" shall
include any corporation, firm, partnership or other form of association.
12.14 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same Agreement.
13
<PAGE> 14
12.15 Construction. The language in all parts of this
Agreement shall in all cases be construed simply, according to its fair meaning,
and not strictly for or against any of the parties hereto. Without limitation,
there shall be no presumption against any party on the ground that such party
was responsible for drafting this Agreement or any part thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date hereinabove set forth.
THE COMPANY
iMall, Inc.
By:/s/
-------------------------------------------
Its:
------------------------------------------
Title:
----------------------------------------
EMPLOYEE
/s/ Stephen W. Fulling
----------------------------------------------
Stephen W. Fulling
14
<PAGE> 15
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE> 16
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
<PAGE> 1
EXHIBIT 10.12
SERVICES AND LICENSE AGREEMENT
THIS SERVICES AND LICENSE AGREEMENT ("Agreement") is entered into as
of the 19th day of August, 1997, by and between iMALL, INC., a Nevada
corporation ("IMALL"), and KOINONIA SYSTEM CO. LTD., INC./IMALL Korea, a Korean
corporation and all of its subsidiaries, affiliates and related parties both
within the United States and any foreign counties (collectively, "KOINONIA"),
with reference to the following facts:
RECITALS:
A. iMALL has developed certain techniques, formats, procedures and
know-how for the preparation, marketing and sale of Internet products and
services. This includes information and services relating to the creation of a
large commerce enabled Internet mall ("iMALL") and marketing programs (including
a unique seminar model for selling Web sites) for the sale of those products and
services (the "Proprietary Information") and, in connection with the use and
development of the Proprietary Information, has developed or acquired certain
trademark and trade name rights in and to the name "iMALL" and certain stylized
logos, trade dressage, and stylized renderings related thereto or used in
connection therewith (collectively the "Trademarks").
B. iMALL has agreed to provide to Kononia certain services relating
to the initiation and operation of an "Internet mall" business in Korea which
are similar to the business operations of iMALL in the United States.
C. iMALL has also agreed to grant to Koinonia and Koinonia has
agreed to accept from iMALL, a license for the use of the Proprietary
Information and the Trademarks.
D. Koinonia intends to sell merchants and businesses located in
Korea two iMALL Web sites as well as other iMALL related advertising,
consulting, and web building services. The two Web sites will be nearly
identical in context except that one Web site will be in English and the other
in Hangul (Korea's native language). The English Web sites will be located on
the main iMALL server in the U.S. and the Korean Web sites will be located on an
iMALL server in Seoul, Korea.
The parties desire to memorialize the terms of their agreement by
entering into this Agreement.
1
<PAGE> 2
AGREEMENT
NOW, THEREFORE, for any in consideration of the foregoing recitals
and other good and valuable consideration, the parties agree as follows:
1. License to Proprietary Information. Subject to the terms of this
Agreement, and in consideration of the receipt by iMALL of the consideration set
forth in paragraph 5, iMALL hereby assigns, transfers and conveys to Koinonia,
and Koinonia hereby accepts from iMALL, a non-transferable exclusive license to
use the Proprietary Information, but only in conjunction with the use of the
Trademarks. Koinonia's license to the Proprietary Information hereunder shall
encompass, and shall be exercisable only throughout, the territory represented
by Korea (the "Territory"). Any rights with respect to the Proprietary
Information which are not expressly granted to Koinonia by the terms of this
paragraph are reserved in their entirety to iMALL.
2. License to Trademarks. Subject to the terms of this Agreement,
and in consideration of the receipt by iMALL of the consideration set forth in
paragraph 5, iMALL hereby assigns, transfers and conveys to Koinonia, and
Koinonia hereby accepts from iMALL, a non-transferable exclusive license to use
the Trademarks in conjunction with the Proprietary Information. Koinonia's
rights in the Trademarks shall encompass, and shall be exercisable only
throughout, the Territory. iMALL shall be entitled to review and shall approve
prior to use on any products, all labels, packaging and advertising using or
incorporating any of the Trademarks. Any rights with respect to the Trademarks
which are not expressly granted to Koinonia by the terms of this Agreement are
reserved in their entirety to iMALL.
3. Fee to iMALL. The total amount of consideration to be paid to
iMALL under this Agreement by Koinonia is Two Hundred Thousand Dollars (U.S.
$200,000) to be allocated as provided herein. As consideration for the training
services to be provided by iMALL pursuant to subparagraphs 4(a)(vi) - (vii),
Koinonia shall deliver to iMALL the nonrefundable sum of One Hundred and Seventy
Thousand Dollars U.S. (U.S. $170,000). As consideration for all other
obligations of iMALL under this Agreement, Koinonia shall deliver to iMALL the
nonrefundable sum of Thirty Thousand Dollars U.S. (U.S. $30,000). The total
amount owed by Koinonia to iMALL shall be paid as follows:
(i) Ten Thousand Dollars U.S. (10,000 U.S.) one day after
receipt of this Agreement.
(ii) One Hundred and Ninety Thousand Dollars U.S. ($190,000)
U.S.) within seven days of signing and registering this Agreement.
2
<PAGE> 3
4. Services and Duties. During the term hereof, the parties agree as
follows:
(a) iMALL's Services. iMALL agrees to provide the following
services Koinonia:
(i) iMALL will continue to supply Koinonia with an iMALL
web server, configured to operate with existing iMALL equipment, proprietary
software, and architectures. The server was set-up by iMALL's technical staff,
last month, according to 4(vii) below.
(ii) iMALL will continue to provide one "flag" on the
iMALL International Center for Korea. The flag links to a related "Internet
mall" referred to as iMALL Korea and will contain the Web sites of the merchants
Koinonia or its partners sell in each Country.
(iii) After Koinonia, or its staff, creates the foreign
merchant's iMALL Web sites, it will mirror the English language-based Web site
on the main iMALL server in the United States. This gives the millions of
English speaking iMALL visitors the opportunity to see the foreign business Web
site. The Korean iMALL Web site and the English-language based Web site will be
hosted on a server in Korea at a location mutually acceptable to iMALL and
Koinonia.
(iv) iMALL will use commercially reasonable efforts to
provide Koinonia with the identity of any persons or entities from whom or which
it receives requests for information relating to iMALL Korea.
(v) iMALL will provide, upon Koinonia's request, a total
of up to 30 consecutive days (comprised of not more than 180 hours in the
aggregate) of training to Koinonia's seminar division representatives at a
facility to be chosen by iMALL. If Koinonia requests onsite training in Korea,
it will provide business class air travel and reasonable accommodations for
iMALL's training staff, and iMALL will pay all payroll and consulting fees of
iMALL's training staff.
(vi) iMALL will provide, upon Koinonia's request, a total
of up to 30 consecutive days (comprised of not more than 180 hours in the
aggregate) of training to representatives of Koinonia's customer service
division at a training facility to be chosen by iMALL. If Koinonia requests
onsite training in Korea, it will provide business class air travel and
reasonable accommodations for iMALL's training staff, and iMALL will pay all
payroll and consulting fees of iMALL's training staff.
(vii) iMALL will provide, upon Koinonia's request, a
total of up to 30 consecutive days (comprised of not more than 160 hours in the
aggregate) of training to representatives of Koinonia's technical division
regarding the building of
3
<PAGE> 4
iMALL Web pages using iMALL's web building program title "iSTORE" and iMALL
server related issue. If Koinonia requests onsite training in Korea, it will
provide business class air travel and reasonable accommodations for iMALL's
training staff, and iMALL will pay all payroll and consulting fees of iMALL's
training staff.
(b) Koinonia Services. Koinonia shall provide the following
services and have the following duties:
(i) Koinonia will use its best efforts to advertise and
market, through seminars or other iMALL approved marketing means, the sale of
two Web sites, one in English and the other in Korean, and ongoing maintenance
fees.
(ii) Koinonia will construct, maintain and upgrade (as
appropriate), the Web sites it sells using iSTORE and other iMALL software
programs. iMALL's software will allow the Web sites to be built directly on
Koinonia's iMALL services to be placed in iMALL Korea.
(iii) Koinonia will maintain, in accordance with the
procedures and specifications established from time to time by iMALL, a high
level of customer service for its merchants.
(iv) Koinonia will advertise, in accordance with such
procedures as shall be established from time to time by iMALL.
(v) Koinonia will implement a system for the maintenance
ad use of small translations from English to Hangul and Hangul to English to
help in the sale of goods and services.
(vi) Koinonia will implement and maintain procedures for
following up on all potential merchants forwarded by iMALL to Koinonia pursuant
to paragraph 4(a)(iv).
5. Consideration for Training Services. In consideration of the
licenses to the Trademarks and Proprietary Information granted by iMALL to
Koinonia hereunder, Koinonia agrees to perform diligently the services and
duties described in paragraph 4b and to pay to iMALL the following:
a. An amount equal to ten percent (10%) of the gross
revenues from (1) all sales of, or revenue generated from: seminars, marketing
programs, advertising, consulting and web building services relating to the
Internet conducted by Koinonia or its affiliates, joint venturers, agents or
partners using iMALL's Proprietary Information, and (2) all maintenance fees
generated by Koinonia or its affiliates, joint venturers, partners or agents
with respect to seminars or marketing
4
<PAGE> 5
efforts relating to the Internet and using iMALL's Proprietary Information. All
such royalty fees shall be due and payable on a quarterly basis, within 15 days
of the end of the preceding quarter. During the term of this Agreement and for a
period of two (2) years thereafter, Koinonia will maintain records reasonably
sufficient in detail and scope to provide iMALL with a basis for verifying the
actual amount of royalty fees due with respect to any particular period. iMALL
shall bear the cost of any such audit or verification of the amounts due
pursuant to this paragraph (i), unless such an audit or review shall show that
Koinonia shall have underreported the amounts actually due by five percent (5%)
or more, and in which case Koinonia shall be solely responsible for, and pay,
all of the costs of such audit or review (and the amount by which it
underreported the amounts due); and
(b) An amount equal to 2.5% of the gross sales iMALL Korea
merchants transact through their iMALL Web site at time as Koinonia begins to
charge its merchants a percentage of sales. iMALL's brand is growing very
rapidly and iMALL USA is now able to charge its merchants 10-15% of gross sales
transacted on their iMALL Web sites. When COMMERCIALLY REASONABLE, Koinonia will
also charge a percentage of sales and iMALL will receive 2.5% iMALL's commerce
software (IRIS) will be modified to track and report these transactions.
(c) An amount equal to iMALL's cost, based on iMALL's current
billing rates, of all Web sites iMALL is asked to build. In addition, Koinonia
will supply iMALL with translations for the basis structural pages of iMALL
Korea (i.e., Home Pages and Marketplace Pages) or pay iMALL's costs in having
the translations done. All such amounts shall be payable by Koinonia to iMALL
within 15 days of Koinonia's receipt of an invoice thereafter, and
(d) An amount equal to iMALL's costs for any expenses related
to travel, including business class airfare and hotels, incurred by iMALL at the
request of Koinonia or its partners and affiliates.
Any amounts due iMALL hereunder which are not paid by Koinonia within thirty
(30) days of their due date shall bear interest, until paid in full, at the rate
of the lesser of one and one-half percent (1.5%) per month of the maximum
interest rate deity by law.
6. Consideration for Trademark. In consideration of the services to
be provided by iMALL to or for the benefit of Koinonia under the provisions of
paragraph 4(a), above, Koinonia agrees to perform diligently the services and
duties described in paragraph 4b and to pay to iMALL the following:
(a) An amount equal to five percent (5%) of the gross
revenues from (1) all sales of, or revenues generated from: seminars, marketing
programs, advertising, consulting and web building services relating to the
Internet conducted by
5
<PAGE> 6
Koinonia or its affiliates, joint venturers, agents or partners using iMALL's
Proprietary Information, and (2) all maintenance fees generated by Koinonia or
its affiliates, joint venturers, partners or agents with respect to seminars or
marketing efforts relating to the Internet and using iMALL's Proprietary
Information. All such royalty fees shall be due and payable on a quarterly
basis, within 15 days of the end of the preceding quarter. During the term of
this Agreement and for a period of two (2) years thereafter, Koinonia will
maintain records reasonably sufficient in detail and scope to provide iMALL with
a basis for verifying the actual amount of any royalty fees due with respect to
any particular period. iMALL shall bear the cost of any such audit or
verification of the amounts due pursuant to this paragraph (i), unless such an
audit or review shall show that Koinonia shall have underreported the amounts
actually due by five percent (5%) or more, and in which case Koinonia shall be
solely responsible for, and pay, all of the costs of such audit or review (and
the amount by which it underreported the amounts due).
7. Title. Title to the licenses granted hereunder shall not
constitute title to the underlying Proprietary Information or Trademarks, and
Koinonia hereby disclaims any claim to any right, title or interest in the
Proprietary Information or the Trademarks except as is granted it hereunder.
8. Restrictions. Without the prior written consent of iMALL (which
consent shall not be unreasonably withheld), Koinonia shall not transfer, rent,
lease, loan, sublicense, share, or otherwise transfer any right in or to the
license to the Proprietary Information or Trademarks granted to it hereunder, or
any part thereof, to any person, entity, or group and shall not use or allow any
other person (including Koinonia's representatives, agents, or employees) to use
the Proprietary Information or Trademarks outside of the Territory or allow the
sale of any product incorporating the Proprietary Information unless such
product is labeled with the Trademarks. Except as specifically provided herein,
without the prior written consent of iMALL (which may be withheld in iMALL's
sole discretion), Koinonia shall also not copy for its own use, and shall not
allow any other company, entity, or person to access, use, or copy for its own
use, and shall not allow any other company, entity, or person to access, use, or
copy any written information constituting all or a part of the Proprietary
Information on any terms which are inconsistent with the terms of this
Agreement. Koinonia hereby acknowledges and agrees that the Proprietary
Information is comprised of trade secrets and confidential information which is
the sole and exclusive property of iMALL (subject to the terms hereof), and
Koinonia diligently agrees to protect the same against transfer or disclosure
to, or discovery by, persons not specifically authorized by iMALL hereunder and
to institute or enforce such policies and procedures as shall be appropriate, in
iMALL's reasonable opinion, to ensure that its representatives, agents, and
employees maintain and observe such confidentiality and non-disclosure
restrictions.
6
<PAGE> 7
9. Disclaimer of Warranties. iMALL MAKES NO WARRANTY,
REPRESENTATION, OR PROMISE NOT EXPRESSLY SET FORTH IN THIS AGREEMENT AND
EXPRESSLY DISCLAIMS AND EXCLUDES ANY AND ALL IMPLIED WARRANTIES OR
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT
WITH RESPECT TO ALL OR ANY PORTION OF THE PROPRIETARY INFORMATION OR THE
TRADEMARKS. iMALL does not warrant or make any representations regarding the use
or the results of the use of the Proprietary Information and/or the Trademarks.
10. Indemnification and Limitations Thereon. Subject to the
limitations of this paragraph, iMALL will indemnify Ioinonia harmless from any
and all damages, claims, causes of action, suits, losses, liabilities, expenses
and costs, including reasonable attorneys' fees, caused by any breach of this
Agreement, including any breach of warranty, by iMALL, provided, that in no case
shall iMALL's liability to Koinonia under this paragraph exceed the
consideration actually received by iMALL hereunder. iMALL shall not be
responsible for any special, incidental, consequential, punitive, or indirect
damages, even if iMALL has been advised of the possibility of such damages.
Further, iMALL shall not be responsible for lost profits or revenue, loss of use
of any software, loss of data, costs of recreating lost date, the cost of any
substitute programs or claims by any other party other than the Koinonia.
Koinonia's sole and exclusive remedies, and iMALL's sole and exclusive
liabilities with respect to this Agreement, are set forth herein. This agreement
defines a mutually agreed upon allocation of risk, and the amount payable to
iMALL hereunder reflects such allocation of risk. Koinonia will indemnify iMALL
and hold iMALL harmless from any and all damages, claims, causes of action,
suits, losses, liabilities, expenses and costs, including reasonable attorneys'
fees, caused by any breach of this Agreement, including without limitation, any
breach of warranty, by Koinonia.
11. Governmental Approval. Koinonia shall not market, sell, or
otherwise distribute any product with utilizes or incorporates the Proprietary
Information or the Trademarks until it has obtained all required registrations,
authorizations and approvals necessary for the marketing, sale, or distribution
of such product from all appropriate governmental agencies.
12. Term and Termination. The term of this Agreement will commence
on the date first written above and will continue for a period of 10 years,
subject to earlier termination upon the occurrence of any of the following
events:
(a) At the option of iMALL, by providing written notice to
Koinonia, if Koinonia is in breach of this Agreement and has failed to cure such
breach (or to take such steps as are commercially reasonable to cure such
breach) within thirty (30) days after receiving written notice of the breach.
7
<PAGE> 8
(b) At the option of iMALL, by providing thirty (30) days'
written notice to Koinonia, if Koinonia decides to no longer offer, market, sell
or otherwise promote products utilizing the Proprietary Information and/or the
Trademarks, or if the amounts payable to iMALL pursuant to the provisions of
paragraph 5(a)(1) [or through a lump sum payment at the end of the period if the
quota is not met] shall be less than $200,000 during the first consecutive 12
months of this Agreement or less than $450,000 during any 12 consecutive month
period thereafter.
(c) At the option of the parties, upon their mutual written
consent.
(d) In the event of the bankruptcy, dissolution, or other
termination of the action business operations of Koinonia, or in the event of
Koinonia is individually placed into bankruptcy (and such involuntary bankruptcy
is not dismissed within 45 days), or makes a general assignment for the benefit
of its creditors.
Upon the termination of this Agreement, the rights and obligations of the
parties hereunder will cease, excepting only the following, which will continue:
(i) The rights of each party with respect to any breach of this Agreement by the
other party; and (ii) The rights and obligations set forth in paragraphs 6, 7
and 8.
13. Independent Contractors. iMALL and Koinonia are independent
contractors, and shall not be deemed employees, agents, or representatives of
one another. Neither party has a right to bind the other party to any agreement.
Unless expressly stated herein to the contrary, each party will bear all of the
expenses and costs associated with the performance of its obligations hereunder.
14. Notices. Notices will be sent to the parties at the addresses
stated at the signature lines hereto or at such other addresses as the parties
may provide to one another from time to time in writing. Notices may be sent by
facsimile, by hand delivery, or by certified, registered, or regular mail,
postage prepaid, and will be effective when actually received.
15. General Provisions.
(a) This Agreement may be amended only by a writing signed by
both parties, will be governed by and construed in accordance with the laws of
the state of Utah (without reference to choice of law rules), is neither
assignable nor or delegable by Koinonia without the written consent of iMALL,
contains the entire understanding between the parties regarding the subject
matter hereof, and supersedes any prior discussions or agreements concerning
such subject matter.
(b) This Agreement may be executed in one or more counterparts
which, together, will constitute one document.
8
<PAGE> 9
(c) This Agreement will not operate for the benefit of any
person or entity not a party to it.
(d) If any provision of this Agreement is found unenforceable
in whole or in part by a court, the remainder of such provision will be
construed by limiting or reducing it to preserve the enforceability to the
maximum extent permitted and compatible with applicable law.
(e) No delay in the enforcement or extension of time or
failure to exercise any right hereunder will be deemed to be a waiver of any
right by the other party.
(f) In the event of any dispute regarding this Agreement, the
parties shall submit that dispute to binding arbitration in accordance with the
provisions of the Commercial Arbitration Rules of American Arbitration
Association. Any such arbitration shall be held before one arbitrator, which
shall be mutually chosen by the parties (or in default thereof, one arbitrator
chosen by each of the parties and a third arbitrator chosen by the two
arbitrators chosen by the parties), shall be held in the State of Utah, and any
decision thereof shall be specifically enforceable by a court of law in the
State of Utah. The parties hereby specifically consent to the jurisdiction of
the courts of Utah for purposes of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
written above.
iMALL, Inc. Koinonia System Co. Ltd.
By: By:
------------------------------- -----------------------------------
Mark Comer Mr. Seo Sun Man
President President
Koinonia System Co. Ltd.
By:
-------------------------------
Ms. Moon Jung Sook
Representative
9
<PAGE> 10
ADDENDUM
This Addendum ("Addendum") relates to the Services and Licenses
Agreement ("Agreement") between iMALL and Koinonia. Capitalized terms not
defined herein shall have the meaning ascribed to them in the Agreement.
1. Koinonia shall pay to Eric Murray the sum of $2,500 per month for so long
as the Agreement is in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the day and year first written
above.
iMALL, Inc. Koinonia System Co. Ltd.
By: By:
------------------------------- -----------------------------------
Mark Comer Mr. Seo Sun Man
President President
Koinonia System Co. Ltd.
By:
-----------------------------------
Ms. Moon Jung Sook
Representative
10
<PAGE> 11
ADDENDUM
This Addendum ("Addendum") relates to the Services and Licenses
Agreement ("Agreement") between iMALL and Koinonia. Capitalized terms not
defined herein shall have the meaning ascribed to them in the Agreement.
1. Koinonia shall pay to Eric Murray the sum of $2,500 per month for so long
as the Agreement is in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the day and year first written
above.
iMALL, Inc. Koinonia System Co. Ltd.
By: By:
------------------------------- -----------------------------------
Mark Comer Mr. Seo Sun Man
President President
Koinonia System Co. Ltd.
By:
-----------------------------------
Ms. Moon Jung Sook
Representative
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 574,832
<SECURITIES> 0
<RECEIVABLES> 331,181
<ALLOWANCES> (26,400)
<INVENTORY> 165,434
<CURRENT-ASSETS> 1,044,506
<PP&E> 1,392,796
<DEPRECIATION> (643,494)
<TOTAL-ASSETS> 1,997,680
<CURRENT-LIABILITIES> 2,839,007
<BONDS> 0
0
0
<COMMON> 61,733
<OTHER-SE> (957,909)
<TOTAL-LIABILITY-AND-EQUITY> 1,997,680
<SALES> 13,645,695
<TOTAL-REVENUES> 13,645,695
<CGS> 10,689,453
<TOTAL-COSTS> 16,277,223
<OTHER-EXPENSES> (147,431)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,235
<INCOME-PRETAX> (2,542,332)
<INCOME-TAX> 163,715
<INCOME-CONTINUING> (2,706,047)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,706,047)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
