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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21201
iMALL, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 87-0553169
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
OF INCORPORATION OR ORGANIZATION)
233 WILSHIRE BOULEVARD, SUITE 820, SANTA MONICA, CALIFORNIA 90401
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(310) 309-4000
(ISSUER'S TELEPHONE NUMBER INCLUDING AREA CODE)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 6, 1998, the Issuer had outstanding an aggregate of 9,291,145
common shares, par value $0.008 after deducting 118,750 shares held in treasury.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements of iMALL, Inc. and
subsidiaries (the "Company") as of September 30, 1998 and for the three month
and nine month periods ended September 30, 1998 and 1997 are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION.
The following Management's Discussion and Analysis of Financial Condition or
Plan of Operation contains forward-looking statements involving risks and
uncertainties based on management's current expectations, estimates and
projections about the Internet industry and the evolution of on-line commerce
and electronic commerce services. All statements in this report related to the
Company's changing financial operations and expected future growth constitute
forward-looking statements. The actual results may differ materially from those
anticipated or expressed in such statements. The following discussion and
analysis of the Company's financial condition as of September 30, 1998 and the
Company's results of operations for the three month and nine month periods ended
September 30, 1998 and 1997 should be read in conjunction with the Company's
unaudited condensed consolidated financial statements and notes thereto included
elsewhere in this Form 10-QSB. These results are not necessarily indicative of
the results that may be achieved by the Company for the entire year ending
December 31, 1998.
OVERVIEW
The Company's mission is to maintain and expand its position as a pioneer and
leader in electronic commerce services by providing merchants the ability,
through its proprietary software, to transact commerce online. Electronic
commerce services include the ability to import, organize and retrieve products
electronically, process transactions securely, and receive credit card payments
over the Internet. The company operates the largest shopping mall on the
Internet, located at www.imall.com, as well as malls for Sage Networks and
animalhouse.com. On November 1, 1998, the Company launched an innovative
shopping portal and proprietary product-level search engine, located at
www.stuff.com.
Prior to August 28, 1998, the Company derived the majority of its revenues from
Web site sales and maintenance fees, Internet training, education and consulting
services which were operated by the Company's seminar and training division.
Effective August 28, 1998, the Company discontinued the operations of its
seminar and training division. The Company is currently engaged in discussions
for the sale of some of or all of the assets associated with the division.
Management believes the low margin, highly competitive, and non-recurring nature
of the revenue stream from the seminar and training division made it
incompatible with the Company's E-Commerce focus. The division historically has
accounted for approximately 95% of the revenues of the Company, including
approximately $1 million of revenue for the quarter ended September 30, 1998.
The seminar and training division has not been profitable. Except as indicated,
the discussion set forth below in "RESULTS OF OPERATIONS" does not include the
financial results from the seminar and training division.
As a result of the discontinuance of the seminar and training division, the
Company is now deriving substantially all of its revenue from Web site sales and
maintenance fees, Internet advertising sales and recurring monthly fees for
electronic commerce services. The Company believes its future revenues will
consist increasingly of revenue from providing electronic commerce services to
businesses (through Web sites which include the tools necessary to consummate
transactions online), selling Internet advertising and selling products over the
Internet.
During the 3rd quarter of 1998, the Company focused much of its resources on the
expansion of its electronic commerce services ("EC services") business. The
Company began marketing its new product, Bolt-on e-commerce(TM), which allows
any existing Web Site to be upgraded seamlessly to a fully commerce-enabled Web
site without having to rebuild the site from scratch. Using the Company's
proprietary Web design tools, these EC services can also be incorporated into
any newly constructed Web site. When using the Company's EC services, the
merchant's product data and purchase transactions are hosted on the Company's
servers, freeing the merchant from needing to purchase or install any hardware
or software.
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The Company offers its electronic commerce services directly to merchants, as
well as through partnerships with Internet Service Providers, Web hosting firms,
and financial service companies with an Internet focus. As of the end of the
quarter, the Company began offering its EC services through reseller
arrangements with Verio Web Hosting, GEN International, and Cardservice
International. The Company offers its EC services on a freestanding basis (for
Web sites located anywhere on the Internet), or within an Internet mall
environment. The mall environment can also be private labeled to further promote
the brand of the Company's reseller partners. Management believes the Company's
reseller partnerships afford the Company the ability to leverage the partners'
large sales forces and bases of existing clients, in the pursuit of revenue
growth.
Subsequent to the end of the quarter, the Company launched its shopping portal,
located at www.stuff.com. This portal is a product-level search engine designed
specifically for online shopping. Visitors to stuff.com can search a proprietary
index of over a million products offered among numerous merchant sites across
the Internet. The search experience is efficient and specific to products for
sale, in that it does not clutter the search results with generic keywords or
extraneous non-retail Web sites. Further, when the user clicks on a chosen
product in the listing of search results, the user is linked directly to the
relevant product page within the merchant Web site, rather than having to
restart a search from the top page of a merchant's Web site. The Company plans
to devote marketing and advertising resources to the expansion of its Stuff.com
shopping portal during the next several quarters. The Company anticipates that
Stuff.com will provide the Company revenues through advertising sold on the
site, royalties earned from referral fee contracts and through upgrades to the
Company's other e-commerce services.
Subsequent to the end of the quarter, the Company entered into a strategic
marketing agreement with First Data Merchant Services, a subsidiary of First
Data Corporation. In connection with this agreement, First Data Merchant
Services purchased two million shares of the Company common stock for a total
purchase price of $14 million. $10.8 million of this amount was funded on
November 2, 1998. The remaining amount will be funded in early 1999, subject to
Company shareholder approval. Details of this transaction are provided in Item 5
of this report.
RESULTS OF OPERATIONS
Comparison of Three Month Periods Ended September 30, 1998 and 1997
Revenues. Revenues for the three months ended September 30, 1998 were $355,000
compared to $238,000 for the three months ended September 30, 1997, an increase
of $117,000 or 49%. The increase was due primarily to greater marketing spending
as part of the Company's current focus on expanding its advertising revenue in
conjunction with its continued move towards electronic commerce services in
1998. Management expects its advertising revenues to continue to increase with
rollout of its product level search engine, which, if successful, will create a
substantial amount of new page views available for advertising. Web site sales
and related maintenance fees derived from the Company's internal sales force
increased as part of a planned effort to better diversify the product selection
on the shopping mall. During the quarter, the Company continued the process of
shifting resources to develop its new businesses in electronic commerce.
Cost of Revenues. The cost of revenues for the three months ended September 30,
1998 was $87,000 compared to $59,000 for the three months ended September 30,
1997, an increase of $28,000 or 47%. Cost of revenues consisted primarily of
labor and related costs to build Web sites. The cost of revenues also includes
the cost of any products sold on-line directly by the Company. The gross profit
margin was approximately 75% of revenues, which is reflective of the Company's
new revenue streams from electronic commerce services and Internet advertising.
Selling Expenses. Selling expenses increased by $271,000 for the three months
ended September 30, 1998. The increase is primarily due to the implementation of
an on-line advertising campaign that began at the end of 1997. All of the
selling expenses incurred in the third quarter of 1997 was in support of the
seminar and training division. These expenses are now reflected in the loss from
discontinued operations. The Company spent $185,000 on its online advertising
campaign during the third quarter of 1998 in support of its branding efforts,
and to further promote its new focus on online commerce. Corporate personnel
expenses relating to sales and marketing are reflected in total general and
administrative expenses. The Company expects to increase its selling expenses in
the fourth quarter of 1998 and into 1999 to promote the new product level search
engine.
Product Development. Product development expenses for the three months ended
September 30, 1998 were $702,000 compared to $145,000 for the three months ended
September 30, 1997, an increase of $557,000 or 384%. This increase is due to the
change in the Company's focus in mid 1997 from Internet training and Web site
sales toward electronic commerce. In January 1998, the Company created its
Electronic Commerce Services Group (ECSG) in a separate office in Provo, Utah.
This office represents the technology
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arm of the Company and is focused on the development of the Company's e-commerce
software, creating the technology behind the new product level search engine,
rebuilding the overall technical infrastructure and the programming of all Web
sites that make up the iMALL and the Company's various partner malls. The
product development expenses consist primarily of payroll and related costs for
programmers and software developers in the ECSG office. During the three months
ended September 30, 1997, product development consisted mainly of upgrades to
the iMALL Web site and related infrastructure.
General and Administrative Expenses. General and administrative expenses for the
three months ended September 30, 1998 were $1,718,000 compared to $579,000 for
the three months ended September 30, 1997, an increase of $1,139,000 or 197%.
This increase was primarily due to an increase of $300,000 in payroll expense
resulting from the hiring of a new management team in order to evolve the
Company toward its current focus on electronic commerce services. The total
marketing and corporate sales personnel increased from twenty-four people in
September 1997 to over forty people in September 1998. The Company also incurred
$250,000 in professional fees during the three months ended September 30, 1998.
These fees include the hiring of a new PR firm, an investor relations firm,
legal and accounting fees. A large portion of these related expenses in the
three months ended September 30, 1997 were in support of the seminar and
training division, which is now included in the loss from discontinued
operations.
Interest income (expense), net. Net interest income for the three months ended
September 30, 1998 was $231,000 compared to net expense of $4,000 for the three
months ended September 30, 1997. This increase was due to the investment of
available funds in short-term debt securities in the third quarter of 1998 as
well as the pay down of all outstanding debt in the first quarter of 1998.
Comparison of Nine-Month Periods Ended September 30, 1998 and 1997
Revenues. Revenues for the nine months ended September 30, 1998 were $842,000
compared to $754,000 for the nine months ended September 30, 1997, an increase
of $88,000 or 12%. The increase was due primarily to an increase in advertising
revenue as part of the Company's continuing move toward recurring revenue
streams and electronic commerce services in 1998. Management expects its
advertising revenues to continue to increase in conjunction with its product
level search engine roll out, which, if successful, will create an abundance of
new page views available for advertising. Web site sales and related maintenance
fees derived from the Company's internal sales force increased as part of a
planned effort to better diversify the product selection on the shopping mall.
During the 1998 period, the Company continued the process of shifting resources
to develop its new businesses in electronic commerce.
Cost of Revenues. The cost of revenues for the nine months ended September 30,
1998 was $169,000 compared to $136,000 for the nine months ended September 30,
1997, an increase of $33,000 or 24%. Cost of revenues consisted primarily of
labor and related costs to build Web sites. The cost of revenues also includes
the cost of any products sold on-line directly by the Company. The gross profit
margin was approximately 80% of revenues, which is reflective of the Company's
new revenue streams from electronic commerce services and Internet advertising.
Selling Expenses. Selling expenses increased by $1,445,000 for the nine months
ended September 30, 1998. The increase is primarily due to the implementation of
an on-line advertising campaign that began at the end of 1997. All of the
selling expenses incurred through the third quarter of 1997 was in support of
the seminar and training division. These expenses are now reflected in the loss
from discontinued operations. The Company spent $985,000 on its online
advertising campaign during the first nine months of 1998 in support of its
branding efforts, and to further promote its new focus on online commerce.
Corporate personnel expenses relating to sales and marketing are reflected in
total general and administrative expenses. The Company expects to increase its
selling expenses in the fourth quarter of 1998 and into 1999 to promote its new
product level search engine.
Product Development. Product development expenses for the nine months ended
September 30, 1998 were $1,581,000 compared to $507,000 for the nine months
ended September 30, 1997, an increase of $1,074,000 or 212%. This increase is
due to the change in the Company's focus in mid 1997 from Internet training and
Web site sales toward electronic commerce. In January, 1998 the Company created
its Electronic Commerce Services Group (ECSG) in a separate office in Provo,
Utah. This office represents the technology arm of the Company and is focused on
the development of the Company's e-commerce software, creating the technology
behind the new product level search engine, rebuilding the overall technical
infrastructure and the programming of all Web sites that make up the iMALL and
the Company's various partner malls. The product development expenses consist
primarily of payroll and related costs for programmers and software developers
in the ECSG office. During the nine months ended September 30, 1997, the
Company's product development efforts were focused mainly on the development of
the iMALL Web site and related infrastructure.
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General and Administrative Expenses. General and administrative expenses for the
nine months ended September 30, 1998 were $3,871,000 compared to $2,030,000 for
the nine months ended September 30, 1997, an increase of $1,841,000 or 91%. This
increase was largely due to an increase of $600,000 in payroll expense resulting
from the hiring of a new management team in order to evolve the Company toward
its current focus on electronic commerce services. The total marketing and
corporate sales personnel increased from twenty-four people in September 1997 to
over forty people in September 1998. The Company also incurred approximately
$700,000 in professional fees during the nine months ended September 30, 1998.
These fees include the hiring of a new PR firm, an investor relations firm,
legal and accounting fees. A large portion of these related expenses in the nine
months ended September 30, 1997 were in support of the seminar and training
division, which is now included in the loss from discontinued operations.
Other income (expense), net. Net other income increased by $76,000 for the nine
months ended September 30, 1998. This was primarily due to an out of court
settlement for a copyright infringement claim for $75,000 during 1998.
Interest income (expense), net. Net interest income for the nine months ended
September 30, 1998 was $429,000 compared to net expense of $5,000 for the nine
months ended September 30, 1997. This increase was due to the investment of
available funds in short-term debt securities during 1998 as well as the pay
down of all outstanding debt in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
In October 1998, the Company entered into a strategic marketing agreement with
First Data Merchant Services, a subsidiary of First Data Corporation. In
connection with this agreement, First Data Merchant Services purchased two
million shares of the Company's common stock for a total purchase price of
$14,000,000. $10,780,000 of this amount was funded on November 2, 1998. The
remaining amount will be funded in early 1999, subject to iMALL shareholder
approval. Details of this transaction are provided in Item 5 of this report.
As of September 30, 1998, the Company had current assets of $6,008,000 and
current liabilities of $2,262,000.
The Company is currently generating cash receipts (exclusive of financing
activities) of approximately $100,000 per month and incurring cash expenses in
the amount of approximately $1,200,000 per month, of which fixed costs account
for approximately $400,000. The Company anticipates capital expenditures will
total approximately $2,700,000 in 1998 of which $1,970,000 has been spent
through September 1998. In August 1998, the Company signed an amendment to its
pre-existing contract with Animalhouse.com securing a five year exclusive right
to sell all travel and music sold on the animalhouse.com Web site. The Company
paid an additional $300,000 to Animalhouse.com as an advance against first year
royalties in accordance with this amendment. In July 1998, the Company paid a
cash dividend of $989,000 on its Convertible Preferred Stock. The Company may
also spend funds to invest in various forms of advertising to increase awareness
of the Company and its services. The Company believes that it will be able to
fund its continuing operations with existing cash and cash expected to be
generated by continuing operations for at least the next twelve months.
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
Based on a recent internal assessment, the Company has determined that certain
of its Internet and accounting software programs will have to be modified or
replaced so that its computer systems will properly utilize dates beyond
December 31, 1999. The Company presently believes that the cost to modify its
existing software and/or convert to new software will not be significant.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed, the Federal Trade Commission ("FTC") has conducted a
nonpublic investigation of the Company's Internet related business opportunity
programs. The Company has entered into settlement discussions with the FTC. In
connection therewith, the Company has reserved $750,000, representing the
Company's present estimate of the amount required to settle the investigation.
There can be no assurance, however, that the Company will be able to reach a
settlement with the FTC for such amount, if at all. If the Company is unable to
reach a settlement, the FTC could bring a formal action seeking substantial
monetary damages or injunctive relief, or both, which if ultimately resolved
unfavorably to the Company, could have a material adverse effect on the
Company's financial condition and earnings.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On October 30, 1998, the Company entered into agreements with First Data
Merchant Services Corporation, a Florida corporation ("FDMS"), relating to the
issuance of common stock of the Company, par value $.008 per share (the "Common
Stock"), and warrants to purchase shares of Common Stock of the Company to FDMS
and the joint marketing of certain Internet commerce services by the Company and
FDMS.
Under the terms of an Investment Agreement, FDMS purchased 1.54 million shares
of Common Stock at a cash price of $7.00 per share and, subject to approval by
shareholders of the Company in satisfaction of the rules of The Nasdaq Stock
Market, will purchase an additional 460,000 shares of Common Stock at a cash
price of $7.00 per share. Immediately after its initial purchase of 1.54 million
shares of Common Stock, FDMS held 16.6% of the Common Stock of the Company then
outstanding, and 7.4% of such Common Stock on a fully diluted basis after giving
effect to the exercise or conversion of all then outstanding warrants, options
and convertible securities. After giving effect to the anticipated purchase by
FDMS of the additional 460,000 shares of Common Stock, FDMS would have held at
such time 21.5% of the Common Stock of the Company then outstanding, and 9.6% of
such Common Stock on a fully diluted basis after giving effect to the exercise
or conversion of all then outstanding warrants, options and convertible
securities. Although definitive agreements with FDMS were entered into on
October 30, 1998, the purchase price of $7.00 per share was agreed upon by
representatives of FDMS and the Company during the third week of October, at
which time the market price of the Company's Common Stock had been below such
price for more than one week.
The Investment Agreement further provides that FDMS may earn warrants to
purchase up to 5 million shares of Common Stock at an exercise price of $17.00
per share. The warrants are earned if at any time through the second anniversary
of the successful testing of the systems and technologies provided by the
Company to logistically support the Company's Internet shopping mall to be used
by FDMS, FDMS has implemented either 25,000 merchant web sites using the
Company's e-commerce services or 50,000 total merchant web sites using any
Company products or services. The warrants, if issued, will expire in October
2003, and may be redeemed, at the option of the Company, at a redemption price
equal to 0.266 shares of Common Stock per warrant share if the market price of
the Common Stock is equal to or exceeds $25.50 for at least twenty out of thirty
consecutive trading days. FDMS also received certain registration rights
covering the Common Stock and the shares underlying the warrants. The Investment
Agreement also provides that
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FDMS will be subject to certain standstill restrictions and generally will be
restricted from owning more than 39.9% of the Company's voting securities as
calculated pursuant to the terms of the Investment Agreement.
In addition, the Company and FDMS entered into a Stockholders Agreement with
Messrs. Richard Rosenblatt, Mark Comer and Craig Pickering (the "Significant
Stockholders"), each of whom is a beneficial owner of more than 5% of the
outstanding Common Stock of the Company and a director of the Company. Mr.
Rosenblatt is also Chief Executive Officer and Chairman of the Company. The
Stockholders Agreement provides that FDMS will initially receive one seat on the
Company's Board of Directors and, in the event that FDMS earns and exercises the
warrants or purchases additional voting securities, will be entitled to increase
its future representation on the Board of Directors proportional to its overall
share of the Company's voting securities. The Stockholders Agreement further
provides that FDMS will, prior to December 31, 1999, vote all of its voting
stock in favor of the nominees to the Board of Directors designated by a
majority of the members of the Board of Directors (excluding members who are
affiliates of FDMS or who were designated by FDMS pursuant to the terms of the
agreement) and that the Significant Stockholders will vote their securities in
favor of, among other things, the nominees to the Board of Directors designated
by FDMS. Subject to certain exceptions, each party to the Stockholders Agreement
will have certain rights of first refusal on the transfer of any Common Stock or
warrants, options and convertible securities of the Company then outstanding by
any other party to the agreement.
The Company and FDMS also entered into a Development and Marketing Agreement
(the "Marketing Agreement") pursuant to which the Company and FDMS will jointly
market Internet commerce solutions to FDMS' clients and their merchant
businesses. The Marketing Agreement has an initial term of ten years and, unless
terminated by either party, will be renewed for additional two-year terms
thereafter. Under the terms of the Marketing Agreement, FDMS is obligated to use
its commercially reasonable efforts to offer the Company's e-commerce tools,
e-commerce enabled Web sites and non-commerce enabled Web sites to all of its
domestic alliances and to name the Company as its preferred e-commerce provider
in such offers. The Marketing Agreement requires the Company to maintain and
upgrade, if necessary, the technology used in connection with the Stuff.com site
and certain other mall sites to ensure that such technology is equal to or
better than that of the top ten percent of all similar services. In the event
that the Company fails to meet the foregoing standard and such failure
substantially impairs the ability of FDMS to service its current customers or
add additional customers, FDMS will have the right to reduce its payments to the
Company under the Marketing Agreement by fifty percent, and if such technology
is not upgraded to meet the standard described above within a set period of
time, require the Company to pay FDMS for all reasonable conversion costs and
expenses incurred by FDMS and its affiliates associated with the deconversion of
FDMS merchants.
The Marketing Agreement provides that each of the following constitutes an event
of default by the Company: (i) failure to make certain payment obligations owed
to FDMS under the Marketing Agreement, (ii) failure to perform a material term
or obligation under the Marketing Agreement which substantially impairs the
ability of FDMS to service its customers or add additional customers, (iii)
failure to issue the warrants in accordance with the Investment Agreement, (iv)
a material breach of certain representations, warranties or covenants contained
in the Marketing Agreement, (v) certain events of bankruptcy or insolvency with
respect to the Company, (vi) a material change to the Stuff.com product or brand
to which FDMS reasonably objects, or (vii) certain change-of-control events
specific to the Company and FDMS competitors. If any such event of default
occurs and is not cured within a set period of time, FDMS will have the right to
terminate the Marketing Agreement.
The Company and FDMS also entered into a source code escrow agreement (the
"Escrow Agreement") pursuant to which the Company will be required to deposit in
an escrow account the source code for certain Company software and certain
e-commerce tools (the "Source Code"). The Escrow Agreement provides that any
termination by FDMS of the Marketing Agreement for the events of default
described above will cause the escrow agent under the Escrow Agreement to,
without any further payment by FDMS to the Company, release the Source Code
deposited in the escrow account to FDMS. In addition, the Company is obligated
under the Marketing Agreement to build, at FDMS' expense, a duplicate and
redundant data center and computer system which would be transferred to FDMS in
the event of certain defaults by the Company. The Marketing Agreement also
contains certain other events of default that would give either party the right
to terminate the agreement without the transfer of technology described above.
The foregoing summary of certain terms of the agreements does not purport to be
complete and is qualified by reference to the actual agreements which have been
filed as exhibits hereto.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Second Amended and Restated Bylaws dated as of November 9, 1998
10.1 Investment Agreement dated as of October 30, 1998 by and between the
Company and First Data Merchant Services Corporation
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10.2 Stockholders Agreement dated as of October 30, 1998 by and between the
Company, First Data Merchant Services Corporation, Richard M.
Rosenblatt, Mark R. Comer and Craig R. Pickering
10.3 Registration Rights Agreement dated as of October 30, 1998 by and
between the Company and First Data Merchant Services Corporation
10.4 Form of Warrant issuable to First Data Merchant Services Corporation
pursuant to the Investment Agreement dated as of October 30, 1998 by and
between the Company and First Data Merchant Services Corporation
10.5 Development and Marketing Agreement dated as of October 30, 1998 by and
between the Company and First Data Merchant Services Corporation
10.6 Form of Source Code Escrow Agreement dated as of October 31, 1998 by and
among the Company, Data Securities International, Inc. and First Data
Merchant Services Corporation
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on form 8-K on September 23, 1998.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
iMALL, INC.
November 5, 1998
By: /s/ RICHARD M. ROSENBLATT
Richard Rosenblatt, Chairman of the
Board and Chief Executive Officer
By: /s/ ANTHONY P. MAZZARELLA
Anthony P. Mazzarella Executive Vice
President, Chief Financial Officer,
Secretary/Treasurer, Director
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IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
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ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,834,825 $ 4,775,127
Short term investments -- 10,000,600
Accounts receivable, net 125,940 57,419
Prepaid expenses 846,332 18,113
Income tax receivable 166,231 166,231
Other current assets 34,573 119,207
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Total Current Assets 6,007,901 15,136,697
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Property and Equipment, Net 1,776,471 337,610
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Other Assets:
Intangible assets, net 184,210 258,482
Deposits and other assets 57,721 21,411
Net long term assets of discontinued operations 254,786 262,612
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Total Other Assets 496,717 542,505
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Total Assets $ 8,281,089 $ 16,016,812
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 502,160 $ 172,373
Accrued expenses and other current liabilities 1,414,562 101,539
Deferred revenues 345,137 73,322
Current portion of capitalized lease obligations -- 5,901
Net short term liabilities of discontinued operations -- 1,309,462
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Total Current Liabilities 2,261,859 1,662,597
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Commitments and Contingencies
Stockholders' Equity
Preferred stock, liquidation value of
$20,000,000; 10,000,000 shares authorized,
5,000,000 shares issued and outstanding at
September 30, 1998 and December 31, 1997 19,611,778 19,355,788
Common stock, par value $.008; 37,500,000
shares authorized, 7,743,082 and 7,651,810
shares issued and outstanding at
September 30, 1998 and December 31,
1997 respectively 62,897 62,114
Accumulated deficit (13,250,445) (4,658,687)
Common stock held in treasury, at cost (405,000) (405,000)
------------ ------------
Total Stockholders' Equity 6,019,230 14,354,215
------------ ------------
Total Liabilities and Stockholders' Equity $ 8,281,089 $ 16,016,812
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
10
<PAGE> 11
IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
---------------------------------------- ----------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES $ 354,616 $ 237,918 $ 842,386 $ 754,226
COST OF REVENUES 86,988 59,057 168,841 135,545
----------- ----------- ----------- -----------
GROSS MARGINS 267,628 178,861 673,545 618,681
SELLING EXPENSES 271,017 -- 1,445,450 --
PRODUCT DEVELOPMENT 701,762 144,833 1,581,097 507,397
GENERAL AND ADMINISTRATIVE EXPENSES 1,718,107 579,334 3,870,962 2,029,588
----------- ----------- ----------- -----------
Operating Loss (2,423,258) (545,306) (6,223,964) (1,918,303)
----------- ----------- ----------- -----------
OTHER INCOME AND EXPENSES:
Other Income, net -- -- 75,957 --
Interest Income (Expense), net 231,429 (4,295) 428,623 (4,566)
----------- ----------- ----------- -----------
Total Other Income, net 231,429 (4,295) 504,580 (4,566)
----------- ----------- ----------- -----------
LOSS BEFORE PROVISION FOR
INCOME TAXES (2,191,829) (549,601) (5,719,384) (1,922,869)
PROVISION FOR INCOME TAXES -- (115,006) -- (115,006)
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS (2,191,829) (664,607) (5,719,384) (2,037,875)
LOSS FROM DISCONTINUED OPERATIONS (1,638,899) (749,437) (1,883,406) (668,172)
----------- ----------- ----------- -----------
NET LOSS $(3,830,728) $(1,414,044) $(7,602,790) $(2,706,047)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE - BASIC AND DILUTED:
Loss from continuing operations $ (0.34) $ (0.09) $ (0.92) $ (0.27)
Loss from discontinued operations $ (0.21) $ (0.10) $ (0.24) $ (0.09)
----------- ----------- ----------- -----------
NET LOSS $ (0.55) $ (0.19) $ (1.16) $ (0.36)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 7,743,909 7,519,527 7,703,591 7,447,285
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
11
<PAGE> 12
IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (5,719,384) $ (2,037,875)
Adjustments to reconcile net
loss to net cash used in operating activities
Depreciation and amortization 438,492 120,719
Provision for losses on accounts receivable 30,000 12,923
Provision for losses on notes receivable 109,105 --
Provision for income taxes -- 115,006
Changes in assets and liabilities, net of effects from purchase of
subsidiaries:
(Increase) decrease in:
Accounts receivable (98,521) (43,623)
Prepaid expenses (828,219) 6,045
Income tax receivable -- 276,940
Other current assets (11,224) 160,536
Deposits (36,310) (4,323)
Increase (decrease) in:
Accounts payable 329,787 93,639
Accrued liabilities 1,458,769 313,757
Deferred revenues 271,815 (22,500)
------------ ------------
Net Cash Used in Operating Activities (4,055,690) (1,008,756)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,816,328) (26,541)
Proceeds from sales and maturity of investments in
marketable securities 10,000,600 --
------------ ------------
Net Cash Provided by Investing Activities 8,184,272 (26,541)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 187,618 --
Proceeds from private placement of common stock -- 875,000
Financing cost related to equity funding (76,591) --
Principal payments on notes payable -- (12,500)
Proceeds from notes payable to related parties -- 175,303
Proceeds from repayment of notes receivable -- 75,750
Dividends paid on preferred stock (988,968) --
Principal payments on obligations under capital leases (5,901) (4,362)
------------ ------------
Net Cash (Used in) Provided by Financing Activities (883,842) 1,109,191
------------ ------------
Cash provided by continuing operations 3,244,740 73,894
Cash used in discontinued operations (3,185,042) (95,077)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 59,698 (21,183)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,775,127 57,055
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,834,825 $ 35,872
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 222 $ 4,566
============ ============
Income taxes paid $ 1,800 $ --
============ ============
</TABLE>
See notes to condensed consolidated financial statements
12
<PAGE> 13
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 and have not been audited. 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 10K-SB.
The results of operations for the three months and nine months ended September
30, 1998, are not necessarily indicative of the operating results for the year
ended December 31, 1998. The accounting policies followed by the Company are set
forth in the notes to the Company's consolidated financial statements in its
Form 10K-SB.
(2) Discontinued Operations.
Effective August 28, 1998, the Company discontinued the operations of its
seminar and training division. The Company is currently engaged in discussions
for the sale of some of all of the assets associated with the division. The
Company expects to sell the division's assets for approximately their net book
value and does not expect to recognize a material loss as a result of the
transaction. The division historically has accounted for approximately 95% of
the revenues of the Company, and has operated at a loss in 1997 and 1998. In
accordance with generally accepted accounting principles, the operations of this
division have been included in the accompanying income statements as loss from
discontinued operations and all assets and liabilities of this division have
been reflected in the accompanying balance sheets as net long term assets and
net short term liabilities of discontinued operations.
(3) Recent Accounting Pronouncements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS
130 establishes standards for reporting comprehensive income and its components
in a financial statement. Comprehensive income as defined includes all changes
in equity (net assets) during a period from non-owner sources. Examples of items
to be included in comprehensive income, which are excluded from net income,
include foreign currency translation adjustment and unrealized gain/loss on
available for sale securities. The Company had no income that would fall under
the comprehensive income rules in the 1998 or 1997 periods.
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The
disclosures prescribed by SFAS 131 are effective for fiscal years beginning
after December 15, 1997, but it need not be applied to interim financial
statements in the initial year of its application.
(4) Net (Loss) Per Common Share.
Net (loss) per common share is based on the weighted average number of common
shares outstanding for each period reported. 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 No. 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. In preparing the
calculation of earnings per share, the net loss was increased by $450,000 to
$4,281,000 or $0.55 per common share for the three months ended September 30,
1998 and by $1,350,000 to $8,953,000 or $1.16 per common share for the nine
months ended September 30, 1998 due to the effect of cumulative preferred stock
dividends. The earnings per share computation for the 1998 period excludes 1.8
million shares for stock options/compensation plans, 6.25 million shares for
convertible securities, and warrants convertible into 3.5 million shares of
common stock because their effect would have been antidilutive. There were no
common stock equivalents in existence during the first three quarters of 1997.
Share and per share data presented reflect a one for eight reverse stock split
effective February 12, 1998.
(5) Stock Options
13
<PAGE> 14
The Company has granted incentive stock options and nonqualified stock options
to officers, directors and key employees under a stock compensation plan at
prices not less than fair market value on the date of grant. The incentive and
nonqualified stock options become exercisable between one and four years from
the grant date. The incentive stock options have a maximum term of ten years
from the date of grant, or five years if the employee is a ten-percent
stockholder. The nonqualified stock options have a maximum term of ten years and
one day from the date of grant.
The Company had a total of 954,970 options at December 31, 1997. During the nine
months ended September 30, 1998, the Company granted a total of 1,004,100 new
options, 34,578 options were exercised and 87,770 options were cancelled during
this period bringing the total outstanding options at September 30, 1998 to
1,836,722.
(6) Subsequent Events
On October 30, 1998, the Company entered into agreements with First Data
Merchant Services Corporation, a Florida corporation ("FDMS"), relating to the
issuance of common stock of the Company, par value $.008 per share (the "Common
Stock"), and warrants to purchase shares of Common Stock of the Company to FDMS
and the joint marketing of certain Internet commerce services by the Company and
FDMS.
Under the terms of an Investment Agreement, FDMS purchased 1.54 million shares
of Common Stock at a cash price of $7.00 per share and, subject to approval by
shareholders of the Company in satisfaction of the rules of The Nasdaq Stock
Market, will purchase an additional 460,000 shares of Common Stock at a cash
price of $7.00 per share. Immediately after its initial purchase of 1.54 million
shares of Common Stock, FDMS held 16.6% of the Common Stock of the Company then
outstanding, and 7.4% of such Common Stock on a fully diluted basis after giving
effect to the exercise or conversion of all then outstanding warrants, options
and convertible securities. After giving effect to the anticipated purchase by
FDMS of the additional 460,000 shares of Common Stock, FDMS would have held at
such time 21.5% of the Common Stock of the Company then outstanding, and 9.6% of
such Common Stock on a fully diluted basis after giving effect to the exercise
or conversion of all then outstanding warrants, options and convertible
securities. Although definitive agreements with FDMS were entered into on
October 30, 1998, the purchase price of $7.00 per share was agreed upon by
representatives of FDMS and the Company during the third week of October, at
which time the market price of the Company's Common Stock had been below such
price for more than one week.
The Investment Agreement further provides that FDMS may earn warrants to
purchase up to 5 million shares of Common Stock at an exercise price of $17.00
per share. The warrants are earned if at any time through the second anniversary
of the successful testing of the systems and technologies provided by the
Company to logistically support the Company's Internet shopping mall to be used
by FDMS, FDMS has implemented either 25,000 merchant web sites using the
Company's e-commerce services or 50,000 total merchant web sites using any
Company products or services. The warrants, if issued, will expire in October
2003, and may be redeemed, at the option of the Company, at a redemption price
equal to 0.266 shares of Common Stock per warrant share if the market price of
the Common Stock is equal to or exceeds $25.50 for at least twenty out of thirty
consecutive trading days. FDMS also received certain registration rights
covering the Common Stock and the shares underlying the warrants. The Investment
Agreement also provides that FDMS will be subject to certain standstill
restrictions and generally will be restricted from owning more than 39.9% of the
Company's voting securities as calculated pursuant to the terms of the
Investment Agreement.
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No.
- -------
<S> <C>
3.1 Second Amended and Restated Bylaws dated as of November 9, 1998
10.1 Investment Agreement dated as of October 30, 1998 by and between the
Company and First Data Merchant Services Corporation
10.2 Stockholders Agreement dated as of October 30, 1998 by and between the
Company, First Data Merchant Services Corporation, Richard M.
Rosenblatt, Mark R. Comer and Craig R. Pickering
10.3 Registration Rights Agreement dated as of October 30, 1998 by and
between the Company and First Data Merchant Services Corporation
10.4 Form of Warrant issuable to First Data Merchant Services Corporation
pursuant to the Investment Agreement dated as of October 30, 1998 by and
between the Company and First Data Merchant Services Corporation
10.5 Development and Marketing Agreement dated as of October 30, 1998 by and
between the Company and First Data Merchant Services Corporation
10.6 Form of Source Code Escrow Agreement dated as of October 31, 1998 by and
among the Company, Data Securities International, Inc. and First Data
Merchant Services Corporation
Exhibit 27 - Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
BYLAWS
OF
IMALL, INC.
(as Amended and Restated by the Board of Directors as of November 9, 1998)
ARTICLE 1. OFFICES
1.1 Business Office. The principal office of the corporation shall be
located at any place either within or outside the State of Nevada as designated
in the corporation's most recent document on file with the Nevada Secretary of
State, Division of Corporations. The corporation may have such other offices,
either within or without the State of Nevada as the board of directors may
designate or as the business of the corporation may require from time to time.
1.2 Registered Office. The registered office of the corporation shall be
located within the State of Nevada and may be, but need not be, identical with
the principal office. The address of the registered office may be changed from
time to time.
ARTICLE 2. SHAREHOLDERS
2.1 Annual Shareholder Meeting. The annual meeting of the shareholders
shall be held on any date and time which may from time to time be designated by
the Board of Directors. At such annual meeting, directors shall be elected and
any other business may be transacted that may properly come before the meeting.
2.2 Special Shareholder Meeting. Special meetings of the shareholders, for
any purpose or purposes described in the meeting notice, may be called by the
president, or by the board of directors, and shall be called by the president at
the request of the holders of not less than one-fourth of all outstanding votes
of the corporation entitled to be cast on any issue at the meeting.
2.3 Place of Shareholder Meeting. The board of directors may designate any
place, either within or without the State of Nevada, as the place of meeting for
any annual or any special meeting of the shareholders, unless by written
consent, which may be in the form of waivers of notice or otherwise, all
shareholders entitled to vote at the meeting designate a different place, either
within or without the State of Nevada, as the place for the holding of such
meeting.
2.4 Notice of Shareholder Meeting. Written notice stating the date, time,
and place of any annual or special shareholder meeting shall be delivered not
less than 10 nor more than 60 days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the board of
directors, or other persons calling the meeting, to each shareholder of record
entitled to vote at such meeting and to any other shareholder entitled by the
Nevada Revised Statutes (the "Statutes") or the articles of incorporation to
receive notice of the meeting. Notice shall be deemed to be effective at the
earlier of: (1) when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock transfer books of the
corporation, with postage thereon prepaid; (2) on the date shown on the return
receipt if sent by registered or certified mail, return receipt requested, and
the receipt is signed by or on behalf of the addressee; (3) when received; or
(4) 3 days after deposit in the United States mail, if mailed postpaid and
correctly addressed to an address other than that shown in the corporation's
current record of shareholders.
If any shareholder meeting is adjourned to a different date, time or
place, notice need not be given of the new date, time and place, if the new
date, time and place is announced at the meeting before adjournment. But if the
adjournment is for more than 30 days or if a new record date for the adjourned
meeting is or must
<PAGE> 2
be fixed, then notice must be given pursuant to the requirements of the previous
paragraph, to those persons who are shareholders as of the new record date.
2.5 Waiver of Notice. A shareholder may waive any notice required by the
Statutes, the articles of incorporation, or these bylaws, by a writing signed by
the shareholder entitled to the notice, which is delivered to the corporation
(either before or after the date and time stated in the notice) for inclusion in
the minutes or filing with the corporate records.
A shareholder's attendance at a meeting:
(a) waives objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting because of lack of
notice or effective notice; and
(b) waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder objects to considering the matter when it is
presented.
2.6 Fixing of Record Date. For the purpose of determining shareholders of
any voting group entitled to notice of or to vote at any meeting of
shareholders, or shareholders entitled to receive payment of any distribution,
or in order to make a determination of shareholders for any other proper
purpose, the board of directors may fix in advance a date as the record date.
Such record date shall not be more than 70 days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
If no record date is so fixed by the board for the determination of shareholders
entitled to notice of, or to vote at a meeting of shareholders, the record date
for determination of such shareholders shall be at the close of business on the
day the first notice is delivered to shareholders. If no record date is fixed by
the board for the determination of shareholders entitled to receive a
distribution, the record date shall be the date the board authorizes the
distribution. With respect to actions taken in writing without a meeting, the
record date shall be the date the first shareholder signs the consent.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof unless the board of directors fixes a new
record date which it must do if the meeting is adjourned to a date more than 120
days after the date fixed for the original meeting.
2.7 Shareholder List. After fixing a record date for a shareholder
meeting, the corporation shall prepare a list of the names of its shareholders
entitled to be given notice of the meeting. The shareholder list must be
available for inspection by any shareholder, beginning on the earlier of 10 days
before the meeting for which the list was prepared or 2 business days after
notice of the meeting is given for which the list was prepared and continuing
through the meeting, and any adjournment thereof. The list shall be available at
the corporation's principal office or at a place identified in the meeting
notice in the city where the meeting is to be held
2.8 Shareholder Quorum and Voting Requirements.
2.8.1 Quorum. Except as otherwise required by the Statutes or the
articles of incorporation, a majority of the outstanding shares of the
corporation, represented by person or by proxy, shall constitute a quorum at
each meeting of the shareholders. If a quorum exists, action on a matter, other
than the election of directors, is approved if the votes cast favoring the
action exceed the votes cast opposing the action, unless the articles of
incorporation or the Statutes require a greater number of affirmative votes.
2.8.2 Voting of Shares. Unless otherwise provided in the articles of
incorporation or these bylaws, each outstanding share, regardless of class, is
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders.
<PAGE> 3
2.9 Quorum and Voting requirements of Voting Groups. If the articles of
incorporation or the Statutes provide for voting by a single voting group on a
matter, action on that matter is taken when voted upon by that voting group.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
Shares entitled to vote as a separate voting group may take action on a
matter at a meeting only if a quorum of those shares exists with respect to that
matter. Unless the articles of incorporation or the Statutes provide otherwise,
a majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter.
If the articles of incorporation or the Statutes provide for voting by two
or more voting groups on a matter, action on that matter is taken only when
voted upon by each of those voting groups counted separately. Action may be
taken by one voting group on a matter even though no action is taken by another
voting group entitled to vote on the matter.
If a quorum exists, action on a matter, other than the election of
directors, by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
articles of incorporation or the Statutes require a greater number of
affirmative votes.
2.10 Greater Quorum or Voting Requirements. The articles of incorporation
may provide for a greater quorum or voting requirement for shareholders, or
voting groups of shareholders, than is provided for by these bylaws. An
amendment to the articles of incorporation that adds, changes, or deletes a
greater quorum or voting requirement for shareholders must meet the same quorum
requirement and be adopted by the same vote and voting groups required to take
action under the quorum and voting requirement then in effect or proposed to be
adopted, whichever is greater.
2.11 Proxies. At all meetings of shareholders, a shareholder may vote in
person or by proxy which is executed in writing by the shareholder or which is
executed by his duly authorized attorney-in-fact. Such proxy shall be filed with
the Secretary of the corporation or other person authorized to tabulate votes
before or at the time of the meeting. No proxy shall be valid after 11 months
from the date of its execution unless otherwise provided in the proxy. All
proxies are revocable unless they meet specific requirements of irrevocability
set forth in the Statutes. The death or incapacity of a voter does not
invalidate a proxy unless the corporation is put on notice. A transferee for
value who receives shares subject to an irrevocable proxy, can revoke the proxy
if he had no notice of the proxy.
2.12 Corporation's Acceptance of Votes.
2.12.1 If the name signed on a vote, consent, waiver, proxy
appointment, or proxy appointment revocation corresponds to the name of a
shareholder, the corporation, if acting in good faith, is entitled to accept the
vote, consent, waiver, proxy appointment, or proxy appointment revocation and
give it effect as the act of the shareholder.
2.12.2 If the name signed on a vote, consent, waiver, proxy
appointment, or proxy appointment revocation does not correspond to the name of
a shareholder, the corporation, if acting in good faith, is nevertheless
entitled to accept the vote, consent, waiver, proxy appointment, or proxy
appointment revocation and give it effect as the act of the shareholder if:
(a) the shareholder is an entity as defined in the Statutes
and the name signed purports to be that of an officer or agent of the entity;
(b) the name signed purports to be that of an administrator,
executor, guardian, or conservator representing the shareholder and, if the
corporation requests, evidence of fiduciary status acceptable to the
<PAGE> 4
corporation has been presented with respect to the vote, consent, waiver, proxy
appointment or proxy appointment revocation;
(c) the name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the corporation requests,
evidence of this status acceptable to the corporation has been presented with
respect to the vote, consent, waiver, proxy appointment, or proxy appointment
revocation; or
(d) the name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the corporation
requests, evidence acceptable to the corporation of the signatory's authority to
sign for the shareholder has been presented with respect to the vote, consent,
waiver, proxy appointment or proxy appointment revocation; or
(e) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all co-
tenants or fiduciaries.
2.12.3 If shares are registered in the names of two or more persons,
whether fiduciaries, members of a partnership, co-tenants, husband and wife as
community property, voting trustees, persons entitled to vote under a
shareholder voting agreement or otherwise, or if two or more persons (including
proxy holders) have the same fiduciary relationship respecting the same shares,
unless the secretary of the corporation or other officer or agent entitled to
tabulate votes is given written notice to the contrary and is furnished with a
copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect:
(a) if only one votes, such act binds all;
(b) if more than one votes, the act of the majority so voting
bind all;
(c) if more than one votes, but the vote is evenly split on any
particular matter, each fraction may vote the securities in question
proportionately.
If the instrument so filed or the registration of the shares shows that
any tenancy is held in unequal interests, a majority or even split for the
purpose of this Section shall be a majority or even split in interest.
2.12.4 The corporation is entitled to reject a vote, consent,
waiver, proxy appointment or proxy appointment revocation if the secretary or
other officer or agent authorized to tabulate votes, acting in good faith, has
reasonable basis for doubt about the validity of the signature on it or about
the signatory's authority to sign for the shareholder.
2.12.5 The corporation and its officer or agent who accepts or
rejects a vote, consent, waiver, proxy appointment or proxy appointment
revocation in good faith and in accordance with the standards of this Section
are not liable in damages to the shareholder for the consequences of the
acceptance or rejection.
2.12.6 Corporate action based on the acceptance or rejection of a
vote, consent, waiver, proxy appointment or proxy appointment revocation under
this Section is valid unless a court of competent jurisdiction determines
otherwise.
2.13 Action by Shareholders Without a Meeting.
2.13.1 Written Consent. Any action required or permitted to be taken
at a meeting of the shareholders may be taken without a meeting and without
prior notice if one or more consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding shares having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shareholders entitled to vote with respect to
the subject matter thereof were present and voted. Action taken
<PAGE> 5
under this Section has the same effect as action taken at a duly called and
convened meeting of shareholders and may be described as such in any document.
2.13.2 Post-Consent Notice. Unless the written consents of all
shareholders entitled to vote have been obtained, notice of any shareholder
approval without a meeting shall be given at least ten days before the
consummation of the action authorized by such approval to (i) those shareholders
entitled to vote who did not consent in writing, and (ii) those shareholders not
entitled to vote. Any such notice must be accompanied by the same material that
is required under the Statutes to be sent in a notice of meeting at which the
proposed action would have been submitted to the shareholders for action.
2.13.3 Effective Date and Revocation of Consents. No action taken
pursuant to this Section shall be effective unless all written consents
necessary to support the action are received by the corporation within a
sixty-day period and not revoked. Such action is effective as of the date the
last written consent is received necessary to effect the action, unless all of
the written consents specify an earlier or later date as the effective date of
the action. Any shareholder giving a written consent pursuant to this Section
may revoke the consent by a signed writing describing the action and stating
that the consent is revoked, provided that such writing is received by the
corporation prior to the effective date of the action.
2.13.4 Unanimous Consent for Election of Directors. Notwithstanding
subsection (a), directors may not be elected by written consent unless such
consent is unanimous by all shares entitled to vote for the election of
directors.
2.14 Voting for Directors. Unless otherwise provided in the articles of
incorporation, every shareholder entitled to vote for the election of directors
has the right to cast, in person or by proxy, all of the votes to which the
shareholder's shares are entitled for as many persons as there are directors to
be elected and for whom election such shareholder has the right to vote.
Directors are elected by a plurality of the votes cast by the shares entitled to
vote in the election at a meeting at which a quorum is present.
ARTICLE 3. BOARD OF DIRECTORS
3.1 General Powers. Unless the articles of incorporation have dispensed
with or limited the authority of the board of directors by describing who will
perform some or all of the duties of a board of directors, all corporate powers
shall be exercised by or under the authority, and the business and affairs of
the corporation shall be managed under the direction, of the board of directors.
3.2 Number, Tenure and Qualification of Directions. The authorized number
of directors shall be seven (7); provided, however, that if the corporation has
less than seven shareholders entitled to vote for the election of directors, the
board of directors may consist of a number of individuals equal to or greater
than the number of those shareholders. The current number of directors shall be
within the limit specified above, as determined (or as amended form time to
time) by a resolution adopted by either the shareholders or the directors. Each
director shall hold office until the next annual meeting of shareholders or
until the director's earlier death, resignation, or removal. However, if his
term expires, he shall continue to serve until his successor shall have been
elected and qualified, or until there is a decrease in the number of directors.
Directors do not need to be residents of Nevada or shareholders of the
corporation.
3.3 Regular Meetings of the Board of Directors. A regular meeting of the
board of directors shall be held without other notice than this bylaw
immediately after, and at the same place as, the annual meeting of shareholders,
for the purpose of appointing officers and transacting such other business as
may come before the meeting. The board of directors may provide, by resolution,
the time and place for the holding of additional regular meetings without other
notice than such resolution.
3.4 Special Meetings of the Board of Directors. Special meetings of the
board of directors may be called by or at the request of the president or any
director. The person authorized to call special meetings of the board of
directors may fix any place as the place for holding any special meeting of the
board of directors.
<PAGE> 6
3.5 Notice of, and Waiver of Notice for, Special Director Meeting. Unless
the articles of incorporation provide for a longer or shorter period, notice of
the date, time, and place of any special director meeting shall be given at
least two days previously thereto either orally or in writing. Any director may
waive notice of any meeting. Except as provided in the next sentence, the waiver
must be in writing and signed by the director entitled to the notice. The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business and at the beginning of the
meeting (or promptly upon his arrival) objects to holding the meeting or
transacting business at the meeting, and does not thereafter vote for or assent
to action taken at the meeting. Unless required by the articles of
incorporation, neither the business to be transacted at, nor the purpose of, any
special meeting of the board of directors need be specified in the notice or
waiver of notice of such meeting.
3.6 Director Quorum and Voting.
3.6.1 Quorum. A majority of the number of directors prescribed by
resolution shall constitute a quorum for the transaction of business at any
meeting of the board of directors unless the articles of incorporation require a
greater percentage.
Unless the articles of incorporation provide otherwise, any or all
directors may participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
A director who is present at a meeting of the board of directors or
a committee of the board of directors when corporate action is taken is deemed
to have assented to the action taken unless: (1) the director objects at the
beginning of the meeting (or promptly upon his arrival) to holding or
transacting business at the meeting and does not thereafter vote for or assent
to any action taken at the meeting; and (2) the director contemporaneously
requests his dissent or abstention as to any specific action be entered in the
minutes of the meeting; or (3) the director causes written notice of his dissent
or abstention as to any specific action be received by the presiding officer of
the meeting before its adjournment or to the corporation immediately after
adjournment of the meeting. The right of dissent or abstention is not available
to a director who votes in favor of the action taken.
3.7 Director Action Without a Meeting. Any action required or permitted to
be taken by the board of directors at a meeting may be taken without a meeting
if all the directors consent to such action in writing. Action taken by consent
is effective when the last director signs the consent, unless, prior to such
time, any director has revoked a consent by a signed writing received by the
corporation, or unless the consent specifies a different effective date. A
signed consent has the effect of a meeting vote and may be described as such in
any document.
3.8 Resignation of Directors. A director may resign at any time by giving
a written notice of resignation to the corporation. Such resignation is
effective when the notice is received by the corporation, unless the notice
specifies a later effective date.
3.9 Removal of Directors. The shareholders may remove one or more
directors at a meeting called for that purpose if notice has been given that a
purpose of the meeting is such removal. The removal may be with or without cause
unless the articles of incorporation provide that directors may only be removed
with cause. If a director is elected by a voting group of shareholders, only the
shareholders of that voting group may participate in the vote to remove him. A
director may be removed only if the number of votes cast to remove him exceeds
the number of votes cast not to remove him.
3.10 Board of Director Vacancies. Unless the articles of incorporation
provide otherwise, if a vacancy occurs on the board of directors, including a
vacancy resulting from an increase in the number of directors,
<PAGE> 7
the shareholders may fill the vacancy. During such time that the shareholders
fail or are unable to fill such vacancies then and until the shareholders act:
(a) the board of directors may fill the vacancy; or
(b) if the board of directors remaining in office constitute
fewer than a quorum of the board, they may fill the vacancy by the affirmative
vote of a majority of all the directors remaining in office.
If the vacant office was held by a director elected by a voting group of
shareholders:
(a) if there are one or more directors elected by the same
voting group, only such directors are entitled to vote to fill the vacancy if it
is filled by the directors; and
(b) only the holders of shares of that voting group are
entitled to vote to fill the vacancy if it is filled by the shareholders.
A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date) may be filled before the vacancy occurs
but the new director may not take office until the vacancy occurs.
3.11 Director Compensation. By resolution of the board of directors, each
director may be paid his expenses, if any, of attendance at each meeting of the
board of directors and may be paid a stated salary as director or a fixed sum
for attendance at each meeting of the board of directors or both. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
3.12 Director Committees.
3.12.1 Creation of Committees. Unless the articles of incorporation
provide otherwise, the board of directors may create one or more committees and
appoint members of the board of directors to serve on them. Each committee must
have one or more members, who shall serve at the pleasure of the board of
directors.
3.12.2 Selection of Members. The creation of a committee and
appointment of members to it must be approved by the greater of (1) a majority
of all the directors in office when the action is taken or (2) the number of
directors required by the articles of incorporation to take such action.
3.12.3 Required Procedures. Those Sections of this Article 3 which
govern meetings, actions without meetings, notice and waiver of notice, quorum
and voting requirements of the board of directors, apply to committees and their
members.
3.12.4 Authority. Unless limited by the articles of incorporation,
each committee may exercise those aspects of the authority of the board of
directors which the board of directors confers upon such committee in the
resolution creating the committee. Provided, however, a committee may not:
(a) authorize distributions;
(b) approve or propose to shareholders action that the Statutes
require be approved by shareholders;
(c) fill vacancies on the board of directors or on any of its
committees;
(d) amend the articles of incorporation pursuant to the
authority of directors to do so;
(e) adopt, amend or repeal bylaws;
<PAGE> 8
(f) approve a plan of merger not requiring shareholder
approval;
(g) authorize or approve reacquisition of shares, except
according to a formula or method prescribed by the board of directors; or
(h) authorize or approve the issuance or sale or contract for
sale of shares or determine the designation and relative rights, preferences,
and limitations of a class or series of shares, except that the board of
directors may authorize a committee (or an officer) to do so within limits
specifically prescribed by the board of directors.
ARTICLE 3A.
CERTAIN PROVISIONS CONCERNING THE BOARD OF DIRECTORS
3A.1. Effectiveness and Interpretation. (a) This Article 3A shall be in
effect from the date of adoption of this Article 3A until First Data Merchant
Services Corporation ("FDMS") and its permitted successors no longer have the
right under Section 2.1 of the Stockholders Agreement (the "Stockholders
Agreement") dated October 30, 1998 by and among Richard M. Rosenblatt, Mark R.
Comer, Craig R. Pickering (collectively, the "Significant Stockholders"), FDMS
and the corporation to designate as members of the board of directors the Agreed
Representative Number (as defined in the Stockholders Agreement), at which time
(the "Article 3A Termination Date"), the terms and provisions of this Article 3A
shall, immediately and automatically terminate and no longer have any force or
effect. Upon the termination of Article 3A pursuant to this Section 3A.1, the
provisions of these bylaws other than Article 3A shall be the bylaws of the
corporation until amended, modified or repealed in accordance with the terms
hereof.
(b) In the event of any conflict between the provisions of this Article
3A and any other provisions of these bylaws or, to the extent that any of the
provisions of this Article 3A overlap with and/or are more specific or more
restrictive than any other provisions contained in these bylaws, the provisions
of this Article 3A shall govern.
3A.2. Representation on the Board of Directors. (a) The total
authorized number of directors constituting the entire board of directors shall
be determined by the board of directors acting without the participation of the
FDMS Directors (as defined in Section 3A.6 below) and any other members of the
board of directors who are affiliates of FDMS (or its permitted successors);
provided, however, that such total authorized number of directors shall not be
less than seven (7) nor exceed ten (10).
(b) There are hereby established the following committees for
designating persons as the nominees of the board of directors for election as
directors and for filling director vacancies, as provided below: the FDMS
Committee and the Company Committee (each, a "Nominating Committee"). The two
Nominating Committees shall be comprised as follows: (i) the FDMS Committee
shall be comprised exclusively of each of the FDMS Directors (as defined in
Section 3A.6 below), (ii) the Company Committee shall be comprised of directors
named by a majority vote of the board of directors excluding the FDMS Directors
and any other members of the board of directors who are affiliates of FDMS (or
its permitted successors). Except as otherwise provided in this Article 3A, the
Nominating Committees shall exercise all power and authority of the board of
directors with respect to designating persons as the nominees of the board of
directors for election to, or appointing persons to fill vacancies on, the board
of directors.
(c) Prior to each meeting of the stockholders at which directors are to
be elected, (i) the FDMS Committee shall designate the Agreed Representative
Number of persons as nominees for election as directors and (ii) the Company
Committee shall designate the Company Number of persons as nominees for election
as directors. The Company Number shall equal the total authorized number of
directors determined in accordance with Section 3A.2(a) of these bylaws minus
the Agreed Representative Number.
<PAGE> 9
(d) At each meeting of the stockholders at which directors are to be
elected, the officer of the corporation presiding at such meeting shall
nominate, on behalf of the Nominating Committees, as directors the persons
designated for nomination by the Nominating Committees in accordance with
paragraph (c) above, and the nominations so made shall be deemed to be made at
the direction of the Nominating Committees. At any meeting of stockholders at
which directors are to be elected, neither the board of directors nor any
committee thereof shall nominate or direct there to be nominated as a director
any person not designated by one of the Nominating Committees.
(e) If any FDMS Director is removed from the board of directors,
resigns, retires, dies or otherwise cannot continue to serve as a member of the
board of directors, then the FDMS Committee shall have the exclusive authority
to appoint a person to fill such vacancy;
(f) If any director who is one of the Company Number of directors is
removed from the board of directors, resigns, retires, dies or otherwise cannot
continue to serve as a member of the board of directors, then the Company
Committee shall have the exclusive authority to appoint a person to fill such
vacancy.
3A.3. Retirement/Removal of Directors.
(a) The board of directors shall not request that a Special Meeting be
called, at which meeting the removal of an FDMS Director from office is to be
voted on, unless the board of directors has first determined, by the affirmative
vote of at least a majority of the members of the entire board of directors and
with the concurrence of a majority of the FDMS Committee, that there exists
Cause (as defined in below) to remove such director from the board of directors.
3A.4. Actions by the Board. The board of directors shall not authorize
or approve any recommendation to the stockholders to change the number of
directors constituting the entire board of directors without the affirmative
vote of each of the FDMS Committee and the entire board of directors .
3A.5. Amendment. Article 3A of these bylaws may not be altered, amended
or repealed, nor may any provision inconsistent with Article 3A be adopted,
except by a majority of the board of directors, with the approval of a majority
of the FDMS Committee.
3A.6. Certain Definitions. The following terms as used in these bylaws
shall have the following meanings:
"Cause" means (i) willful and continued failure to substantially perform his or
her duties to the corporation in accordance with his or her established position
at the corporation, (ii) willful conduct which is significantly injurious to the
corporation, monetarily or otherwise or (iii) conviction for, or guilty plea to,
a felony. "FDMS Directors" means (i) each of the directors initially designated
as such by the board of directors (as of the Effective Time) and (ii) each other
director nominated or appointed by the FDMS Committee in accordance with this
Article 3A.
3A.7. Control Share Statute. The acquisition by FDMS (or by its
permitted transferees under the agreements referred to hereinafter in this
sentence) of voting securities of the corporation pursuant to or in compliance
with the Investment Agreement dated as of October 30, 1998 between the
corporation and FDMS and the Stockholders Agreement is hereby exempted from the
provisions of the Nevada Control Share Statute set forth in Sections 78.378 to
78.3793 of the Nevada General Corporation Law.
ARTICLE 4.OFFICERS
4.1 Number of Officers. The officers of the corporation shall be a
president, a secretary and a treasurer, each of whom shall be appointed by the
board of directors. Such other officers and assistant officers as may be deemed
necessary, including any vice presidents, may also be appointed by the board of
<PAGE> 10
directors. If specifically authorized by the board of directors, an officer may
appoint one or more officers or assistant officers. The same individual may
simultaneously hold more than one office in the corporation.
4.2 Appointment and Term of Office. The officers of the corporation shall
be appointed by the board of directors for a term as determined by the board of
directors. If no term is specified, they shall hold office until the first
meeting of the directors held after the next annual meeting of shareholders. If
the appointment of officers shall not be made at such meeting, such appointment
shall be made as soon thereafter as is convenient. Each officer shall hold
office until his successor shall have been duly appointed and shall have
qualified until his death, or until he shall resign or is removed.
The designation of a specified term does not grant to the officer any
contract rights, and the board may remove the officer at any time prior to the
termination of such term.
4.3 Removal of Officers. Any officer or agent may be removed by the board
of directors at any time, with or without cause. Such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Appointment
of an officer or agent shall not of itself create contract rights.
4.4 Resignation of Officers. Any officer may resign at any time, subject
to any rights or obligations under any existing contracts between the officers
and the corporation, by giving notice to the president or board of directors. An
officer's resignation shall take effect at the time specified therein, and the
acceptance of such resignation shall not be necessary to make it effective.
4.5 President. Unless the board of directors has designated the chairman
of the board as chief executive officer, the president shall be the chief
executive officer of the corporation and, subject to the control of the board of
directors, shall in general supervise and control all of the business and
affairs of the corporation. Unless there is a chairman of the board, the
president shall, when present, preside at all meetings of the shareholders and
of the board of directors. The president may sign, with the secretary or any
other proper officer of the corporation thereunder authorized by the board of
directors, certificates for shares of the corporation and deeds, mortgages,
bonds, contracts, or other instruments which the board of directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the board f directors or by these bylaws
to some other officer or agent of the corporation, or shall be required by law
to be otherwise signed or executed; and in general shall perform all duties
incident to the office of president and such other duties as may be prescribed
by the board of directors from time to time.
4.6 Vice Presidents. If appointed, in the absence of the president or in
the event of his death, inability or refusal to act, the vice president (or in
the event there be more than one vice president, the vice presidents in the
order designate at the time of their election, or in the absence of any
designation, then in the order of their appointment) shall perform the duties of
the president, and when so acting, shall have all the powers of, and be subject
to, all the restrictions upon the president.
4.7 Secretary. The secretary shall: (a) keep the minutes of the
proceedings of the shareholders, the board of directors, and any committees of
the board in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these bylaws or as
required by law; (c) be custodian of the corporate records; (d) when requested
or required, authenticate any records of the corporation; (e) keep a register of
the post office address of each shareholder which shall be furnished to the
secretary by such shareholder; (f) sign with the president, or a vice president,
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the board of directors; (g) have general charge
of the stock transfer books of the corporation; and (h) in general perform all
duties incident to the office of secretary and such other duties as from time to
time may be assigned by the president or by the board of directors. Assistant
secretaries, if any, shall have the same duties and powers, subject to the
supervision of the secretary.
4.8 Treasurer. The treasurer shall: (a) have charge and custody of and be
responsible for all funds and securities of the corporation; (b) receive and
give receipts for monies due and payable to the corporation
<PAGE> 11
from any source whatsoever, and deposit all such moneys in the name of the
corporation in such bank, trust companies, or other depositaries as shall be
selected by the board of directors; and (c) in general perform all of the duties
incident to the office of treasurer and such other duties as from time to time
may be assigned by the president or by the board of directors. If required by
the board of directors, the treasurer shall give a bond for the faithful
discharge of his or her duties in such sum and with such surety or sureties as
the board of directors shall determine. Assistant treasurers, if any, shall have
the same powers and duties, subject to the supervision of the treasurer.
4.9 Salaries. The salaries of the officers shall be fixed from time to
time by the board of directors.
ARTICLE 5. INDEMNIFICATION OF DIRECTORS,
OFFICERS, AGENTS, AND EMPLOYEES
5.1 Indemnification of Directors. Unless otherwise provided in the
articles of incorporation, the corporation shall indemnify any individual made a
party to a proceeding because the individual is or was a director of the
corporation, against liability incurred in the proceeding, but only if such
indemnification is both (i) determined permissible and (ii) authorized, as such
are defined in subsection (a) of this Section 5.1.
5.1.1 Determination of Authorization. The corporation shall not
indemnify a director under this Section unless:
(a) a determination has been made in accordance with the
procedures set forth in the Statutes that the director met the standard of
conduct set forth in subsection (b) below, and
(b) payment has been authorized in accordance with the
procedures set forth in the Statutes based on a conclusion that the expenses are
reasonable, the corporation has the financial ability to make the payment, and
the financial resources of the corporation should be devoted to this use rather
than some other use by the corporation.
5.1.2 Standard of Conduct. The individual shall demonstrate that:
(a) he or she conducted himself in good faith; and
(b) he or she reasonably believed:
(i) in the case of conduct in his official capacity with
the corporation, that his conduct was in its best interests;
(ii) in all other cases, that his conduct was at least not
opposed to its best interests; and
(iii) in the case of any criminal proceeding, he or she
had no reasonable cause to believe his conduct was unlawful.
5.1.3 Indemnification in Derivative Actions Limited. Indemnification
permitted under this Section in connection with a proceeding by or in the right
of the corporation is limited to reasonable expenses incurred in connection with
the proceeding.
5.1.4 Limitation on Indemnification. The corporation shall not
indemnify a director under this Section of Article 5:
(a) in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation; or
(b) in connection with any other proceeding charging improper
personal benefit to the director, whether or not involving action in his or her
official capacity, in which he or she was adjudged liable on the basis that
personal benefit was improperly received by the director.
<PAGE> 12
5.2 Advance of Expenses for Directors. If a determination is made
following the procedures of the Statutes, that the director has met the
following requirements, and if an authorization of payment is made following the
procedures and standards set forth in the Statutes, then unless otherwise
provided in the articles of incorporation, the corporation shall pay for or
reimburse the reasonable expenses incurred by a director who is a party to a
proceeding in advance of final disposition of the proceeding, if:
(a) the director furnishes the corporation a written
affirmation of his good faith belief that he has met the standard of conduct
described in this section;
(b) the director furnishes the corporation a written
undertaking, executed personally or on his behalf, to repay the advance if it is
ultimately determined that he did not meet the standard of conduct;
(c) a determination is made that the facts then known to those
making the determination would not preclude indemnification under this Section
or the Statutes.
5.3 Indemnification of Officers, Agents and Employees Who Are Not
Directors. Unless otherwise provided in the articles of incorporation, the board
of directors may indemnify and advance expenses to any officer, employee, or
agent of the corporation, who is not a director of the corporation, to the same
extent as to a director, or to any greater extent consistent with public policy,
as determined by the general or specific actions of the board of directors.
5.4 Insurance. By action of the board of directors, notwithstanding any
interest of the directors in such action, the corporation may purchase and
maintain insurance on behalf of a person who is or was a director, officer,
employee, fiduciary or agent of the corporation, against any liability asserted
against or incurred by such person in that capacity or arising from such
person's status as a director, officer, employee, fiduciary, or agent, whether
or not the corporation would have the power to indemnify such person under the
applicable provisions of the Statutes.
<PAGE> 13
ARTICLE 6. STOCK
6.1 Issuance of Shares. The issuance or sale by the corporation of any
shares of its authorized capital stock of any class, including treasury shares,
shall be made only upon authorization by the board of directors, unless
otherwise provided by statute. The board of directors may authorize the issuance
of shares for consideration consisting of any tangible or intangible property or
benefit to the corporation, including cash, promissory notes, services
performed, contracts or arrangements for services to be performed, or other
securities of the corporation. Shares shall be issued for such consideration
expressed in dollars as shall be fixed from time to time by the board of
directors.
6.2 Certificates for Shares.
6.2.1 Content. Certificates representing shares of the corporation
shall at minimum, state on their face the name of the issuing corporation and
that it is formed under the laws of the State of Nevada; the name of the person
to whom issued; and the number and class of shares and the designation of the
series, if any, the certificate represents; and be in such form as determined by
the board of directors. Such certificates shall be signed (either manually or by
facsimile) by the president or a vice president and by the secretary or an
assistant secretary and may be sealed with a corporate seal or a facsimile
thereof. Each certificate for shares shall be consecutively numbered or
otherwise identified.
6.2.2 Legend as to Class or Series. If the corporation is authorized
to issue different classes of shares or different series within a class, the
designations, relative rights, preferences and limitations applicable to each
class and the variations in rights, preferences and limitations determined for
each series (and the authority of the board of directors to determine variations
for future series) must be summarized on the front or back of each certificate.
Alternatively, each certificate may state conspicuously on its front or back
that the corporation will furnish the shareholder this information on request in
writing and without charge.
6.2.3 Shareholder List. The name and address of the person to whom
the shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the corporation.
6.2.4 Transferring Shares. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and canceled, except that in cash of a lost, destroyed, or mutilated
certificate, a new one may be issued therefor upon such terms and indemnity to
the corporation as the board of directors may prescribe.
6.3 Shares Without Certificates.
6.3.1 Issuing Shares Without Certificates. Unless the articles of
incorporation provide otherwise, the board of directors may authorize the issue
of some or all the shares of any or all of its classes or series without
certificates. The authorization does not affect shares already represented by
certificates until they are surrendered to the corporation.
6.3.2 Information Statement Required. Within a reasonable time after
the issue or transfer of shares without certificates, the corporation shall send
the shareholder a written statement containing, at a minimum, the information
required by the Statutes.
6.4 Registration of the Transfer of Shares. Registration of the transfer
of shares of the corporation shall be made only on the stock transfer books of
the corporation. In order to register a transfer, the record owner shall
surrender the shares to the corporation for cancellation, properly endorsed by
the appropriate person or persons with reasonable assurances that the
endorsements are genuine and effective. Unless the corporation has established a
procedure by which a beneficial owner of shares held by a nominee is to be
<PAGE> 14
recognized by the corporation as the owner, the person in whose name shares
stand in the books of the corporation shall be deemed by the corporation to be
the owner thereof for all purposes.
6.5 Restrictions on Transfer or Registration of Shares. The board of
directors or shareholders may impose restrictions on the transfer or
registration of transfer of shares (including any security convertible into, or
carrying a right to subscribe for or acquire shares). A restriction does not
affect shares issued before the restriction was adopted unless the holders of
the shares are parties to the restriction agreement or voted in favor of or
otherwise consented to the restriction.
A restriction on the transfer or registration of transfer of shares may be
authorized:
(a) to maintain the corporation's status when it is dependent
on the number or identity of its shareholders;
(b) to preserve entitlements, benefits or exemptions under
federal or local laws; and
(c) for any other reasonable purpose.
A restriction on the transfer or registration of transfer of shares may:
(a) obligate the shareholder first to offer the corporation or
other persons (separately, consecutively or simultaneously) an opportunity to
acquire the restricted shares;
(b) obligate the corporation or other persons (separately,
consecutively or simultaneously) to acquire the restricted shares;
(c) require as a condition to such transfer or registration,
that any one or more persons, including the holders of any of its shares,
approve the transfer or registration if the requirement is not manifestly
unreasonable; or
(d) prohibit the transfer or the registration of transfer of
the restricted shares to designated persons or classes of persons, if the
prohibition is not manifestly unreasonable.
A restriction on the transfer or registration of transfer of shares is
valid and enforceable against the holder or a transferee of the holder if the
restriction is authorized by this Section and its existence is noted
conspicuously on the front or back of the certificate or is contained in the
information statement required by this Article 6 with regard to shares issued
without certificates. Unless so noted, a restriction is not enforceable against
a person without knowledge of the restriction.
6.6 Corporation's Acquisition of Shares. The corporation may acquire its
own shares and the shares so acquired constitute authorized but unissued shares.
If the articles of incorporation prohibit the reissue of acquired shares,
the number of authorized shares is reduced by the number of shares acquired,
effective upon amendment of the articles of incorporation, which amendment may
be adopted by the shareholders or the board of directors without shareholder
action. The articles of amendment must be delivered to the Secretary of State
and must set forth:
(a) the name of the corporation;
(b) the reduction in the number of authorized shares, itemized
by class and series;
(c) the total number of authorized shares, itemized by class
and series, remaining after reduction of the shares; and
<PAGE> 15
(d) a statement that the amendment was adopted by the board of
directors without shareholder action and that shareholder action was not
required.
ARTICLE 7. DISTRIBUTIONS
7.1 Distributions to Shareholders. The board of directors may authorize,
and the corporation may make, distributions to the shareholders of the
corporation subject to any restriction sin the corporation's articles of
incorporation and in the Statutes.
7.2 Unclaimed Distributions. If the corporation has mailed three
successive distributions to a shareholder at the shareholder's address as shown
on the corporation's current record of shareholders and the distributions have
been returned as undeliverable, no further attempt to deliver distributions to
the shareholder need be made until another address for the shareholder is made
known to the corporation, at which time all distributions accumulated by reason
of this Section, except as otherwise provided by law, be mailed to the
shareholder at such other address.
ARTICLE 8. MISCELLANEOUS
8.1 Inspection of Records by Shareholders and Directors. A shareholder or
director of a corporation is entitled to inspect and copy, during regular
business hours at the corporation's principal office, any of the records of the
corporation required to be maintained by the corporation under the Statutes, if
such person gives the corporation written notice of the demand at least five
business days before the date on which such a person wishes to inspect and copy.
The scope of such inspection right shall be as provided under the Statutes.
8.2 Corporate Seal. The board of directors may provide a corporate seal
which may be circular in form and have inscribed thereon any designation
including the name of the corporation, the state of incorporation, and the words
"Corporate Seal."
8.3 Amendments. The corporation's board of directors may amend or repeal
the corporation's bylaws at any time unless:
(a) the articles of incorporation or the Statutes reserve this
power exclusively to the shareholders in whole or part; or
(b) the shareholders in adopting, amending, or repealing a
particular bylaw provide expressly that the board of directors may not amend or
repeal that bylaw; or
(c) the bylaw either establishes, amends, or deletes, a greater
shareholder quorum or voting requirement.
Any amendment which changes the voting or quorum requirement for the board
must meet the same quorum requirement and be adopted by the same vote and voting
groups required to take action under the quorum and voting requirements then in
effect or proposed to be adopted, whichever are greater.
8.4 Fiscal Year. The fiscal year of the corporation shall be established
by the board of directors.
DATED as of this 9th day of November, 1998.
<PAGE> 1
EXHIBIT 10.1
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INVESTMENT AGREEMENT
DATED AS OF
OCTOBER 30, 1998
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<PAGE> 2
INVESTMENT AGREEMENT
This Investment Agreement (this "Agreement") dated as of October
30, 1998 is made by and between iMall, Inc., a Nevada corporation (the
"Corporation"), and First Data Merchant Services Corporation, a Florida
corporation ("Investor").
RECITALS
WHEREAS, the Corporation is in the business of developing
Internet commerce concepts;
WHEREAS, in order to finance the Corporation's continued
growth, the Corporation desires to issue and sell to Investor, and Investor
desires to purchase from the Corporation, an aggregate of two million
(2,000,000) shares of the authorized and unissued shares of common stock of the
Corporation, par value $.008 per share (the "Common Stock"); and
WHEREAS, in order to provide additional incentive for the
future cooperation of the Corporation and Investor, the Corporation desires to
commit to the issuance to Investor and Investor desires to receive from the
Corporation a warrant (the "Warrant") in the form set forth in Exhibit A to
purchase an additional five million (5,000,000) shares of Common Stock subject
to the satisfaction of certain performance objectives.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
Sale of Common Shares
1.1. Sale of Common Shares. Subject to the terms and
conditions herein set forth and in reliance upon the representations and
warranties of the Corporation set forth herein or in certificates delivered
pursuant hereto, the Corporation agrees to issue, sell and deliver to Investor,
free and clear of any liens, claims, charges and encumbrances whatsoever, except
as set forth in the Stockholders Agreement (as defined below), and Investor
agrees to purchase from the Corporation, the Common Shares (as defined below)
for $7.00 per share in cash.
1.2. Closing. (a) The closing of the sale and purchase (the
"First Closing") of 1,540,000 shares of Common Stock (the "First Common Shares")
shall be held at the offices of Sidley & Austin, One First National Plaza,
Chicago, Illinois, at 3:30 p.m. local time, on October 30, 1998 or such other
time, date and place as may be agreed to in writing by the Corporation and
Investor (such time and date are herein called the "First Closing Date").
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(b) The closing of the sale and purchase (the "Second
Closing") of 460,000 shares of Common Stock (the "Second Common Shares" and,
together with the First Common Shares, the "Common Shares") shall be held at the
offices of Sidley & Austin, One First National Plaza, Chicago, Illinois, at
10:00 a.m., local time, on the second business day following the day on which
the last of the conditions set forth in Sections 4.3 and 4.4 shall have been
fulfilled or waived (if permissible) or such other time, date and place as may
be agreed to in writing by the Corporation and Investor (such time and date are
herein called the "Second Closing Date").
1.3. Delivery. (a) At the First Closing, the Corporation will
issue and deliver to Investor, against the payment by such Investor of the
aggregate purchase price of $10,780,000 by wire transfer of immediately
available funds to an account which has been designated in writing by the
Corporation, the First Common Shares, duly executed by the Corporation and
registered in the name of Investor.
(b) At the Second Closing, the Corporation will issue and
deliver to Investor, against the payment by such Investor of the aggregate
purchase price of $3,220,000 by wire transfer of immediately available funds to
an account which has been designated in writing by the Corporation, the Second
Common Shares, duly executed by the Corporation and registered in the name of
Investor.
(c) Unless otherwise specified by Investor, all of the First
Common Shares shall be represented by a single certificate and all the Second
Common Shares shall be represented by a single certificate.
ARTICLE II
Representations and Warranties of the Corporation
The Corporation hereby represents and warrants to Investor as
follows:
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Section 2.1. Organization, Qualifications and Corporate Power.
The Corporation is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Nevada, and is duly licensed or
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification, except where the failure to be so licensed or qualified or in
good standing would not in the aggregate have a Material Adverse Effect (as
defined herein). The Corporation has the power and authority to own and hold its
properties and to carry on its business as now conducted and as proposed to be
conducted. The Corporation has the corporate power and authority to execute,
deliver and perform this Agreement, the Registration Rights Agreement between
the Corporation and Investor in the form of Exhibit B attached hereto (the
"Registration Rights Agreement"), the Stockholders Agreement in the form of
Exhibit C attached hereto (the "Stockholders Agreement"), and the Marketing
Agreement in the form of Exhibit D attached hereto (the "Marketing Agreement"),
and to issue, sell and deliver the First Common Shares and, subject to the
approval of the stockholders contemplated by Section 8.3, to issue, sell and
deliver the Second Common Shares and to issue, sell, perform and deliver the
Warrant and the Warrant Shares (as defined in the Warrant). The Corporation is
in compliance in all material respects with all of the terms and provisions of
the Corporation's Articles of Incorporation, as amended (the "Charter"), and the
Corporation's By-laws (the "By-laws").
Section 2.2. Authorization of Agreements, Etc. (a) The
execution, delivery and performance by the Corporation of this Agreement, the
Registration Rights Agreement, the Stockholders Agreement and the Marketing
Agreement, and the issuance, sale, delivery and performance of the First Common
Shares and, assuming the approval of the stockholders contemplated by Section
8.3, the Second Common Shares, the Warrant and the Warrant Shares, (i) have been
duly authorized by all requisite corporate action, (ii) will not violate (v) any
provision of law, (w) the rules of the Nasdaq Stock Market, (x) any order of any
court or other agency of government, (y) the Charter or the By-laws, or (z) any
provision of any indenture, agreement or other instrument to which the
Corporation or any of its respective properties or assets is bound, (iii) will
not conflict with, result in a breach of or constitute (with due notice or lapse
of time or both) a default under any such order, indenture, agreement or other
instrument, and (iv) will not result in the creation or imposition of any lien,
charge, restriction, claim or encumbrance of any nature whatsoever upon any of
the properties or assets of the Corporation except for such exceptions to
clauses (ii)(z), (iii) and (iv) which, individually and in the aggregate, could
not reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), results of operations or business, prospects or
property of the Corporation and its subsidiaries, taken as a whole (a "Material
Adverse Effect"), and which, individually and in the aggregate, could not
reasonably be expected to have any adverse effect on the rights of Investor
under this Agreement, the Stockholders Agreement, the Registration Rights
Agreement, the Marketing Agreement and the Warrant.
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(b) The First Common Shares and, assuming the approval of the
stockholders contemplated by Section 8.3, the Second Common Shares, the Warrant
and the Warrant Shares, have been duly authorized and the Common Shares and the
Warrant Shares, when issued in accordance with this Agreement or the Warrant, as
applicable, will be validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof and will be free and clear
of all liens, charges, restrictions, claims and encumbrances, except as set
forth in the Stockholders Agreement. The issuance, sale and delivery of the
Common Shares, the Warrant and the Warrant Shares are not subject to any
preemptive right of stockholders of the Corporation or to any right of first
refusal or other right in favor of any Person.
Section 2.3. Validity. This Agreement has been duly executed
and delivered by the Corporation and, assuming the due authorization, execution
and delivery thereof by Investor, constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. Each of the Registration Rights Agreement, the
Stockholders Agreement, the Marketing Agreement and the Warrant, when executed
and delivered in accordance with this Agreement and assuming the due
authorization, execution and delivery thereof by the other parties thereto, will
constitute a legal, valid and binding obligation of the Corporation, enforceable
in accordance with their respective terms, except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles of general
applicability.
Section 2.4. Authorized Capital Stock. (a) The authorized
capital stock of the Corporation consists of 37,500,000 shares of Common Stock
and 10,000,000 shares of Preferred Stock, par value $.001 per share, of which
5,250,000 shares have been designated Series A 9% Convertible Preferred Stock
(the "Series A Preferred Stock"). On October 30, 1998, 7,756,006 shares of
Common Stock and 5,000,000 shares of Series A Preferred Stock will be validly
issued and outstanding, fully paid and nonassessable with no personal liability
attaching to the ownership thereof. The Series A Preferred Stock is the only
series of Preferred Stock of the Corporation issued and outstanding. The
designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of each class and series of authorized capital stock of
the Corporation are as set forth in the Charter and the Certificate of
Designation of the Series A Preferred Stock and amendments thereto (the
"Certificate of Designation"), and all such designations, powers, preferences,
rights, qualifications, limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws. Except as set forth in
the Charter, Certificate of Designation or SEC Documents (as defined herein),
(i) no subscription, warrant, option, convertible security, or other right
(contingent or otherwise) to purchase or otherwise acquire equity securities of
the Corporation from the Corporation or any of its subsidiaries is authorized or
outstanding and (ii) there is no commitment by the Corporation to
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<PAGE> 6
issue shares, subscriptions, warrants, options, convertible securities, or
other such rights or to distribute to holders of any of its equity securities
any evidence of indebtedness or asset. Except as provided for in the Charter or
the Certificate of Designation or as set forth in the SEC Documents, the
Corporation has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interest therein or to pay
any dividend or make any other distribution in respect thereof. The Corporation
does not know of any voting trusts or agreements, stockholders agreements,
pledge agreements, buy-sell agreements, rights of first refusal, preemptive
rights or proxies relating to any securities of the Corporation or any of its
subsidiaries (whether or not any of them is a party thereto), except for this
Agreement and the Stockholders Agreement. All of the outstanding securities of
the Corporation have been issued in compliance in all material respects with all
applicable Federal and state securities laws. Except for the Registration Rights
Agreement, or as set forth in the SEC Documents or as set forth in Schedule 2.4
hereof, there are no agreements or understandings granting to any Person any
right to cause the Corporation to effect the registration under the Securities
Act of 1933, as amended (the "Securities Act"), of any shares of its capital
stock.
(b) The Corporation has reserved, and at all times from and
after the date hereof will keep reserved, free from preemptive rights, out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the Warrant, sufficient shares of Common Stock to
provide for the full exercise of the Warrant. The foregoing reservation of
shares of Common Stock shall at all times assume that the Warrant will be
exercisable into the maximum number of shares of Common Stock issuable upon such
exercise.
Section 2.5. SEC Documents. Except as set forth in Schedule
2.5(a) hereof, the Corporation has filed all documents required to be filed by
it with the Securities and Exchange Commission (the "SEC") since January 1,
1996. As of their respective dates, all documents filed by the Corporation with
the SEC since January 1, 1996 (the "SEC Documents") complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and none of the SEC Documents included an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The consolidated financial statements of the Corporation
included in the SEC Documents complied as to form in all material respects with
the applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of the unaudited statements,
as permitted by Form 10-QSB of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto)
and fairly present the consolidated financial position of the Corporation and
its consolidated subsidiaries as of the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the respective periods then ended (subject, in the case of the unaudited
statements, to normal year-end audit adjustments and to any other adjustments
described therein). Except as set forth in the SEC
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Documents and Schedule 2.5(b) hereof, since January 1, 1998, (i) there has been
no change in the assets, liabilities or financial condition of the Corporation,
except for changes in the ordinary course of business which individually or in
the aggregate have not been materially adverse, and (ii) the condition
(financial or otherwise), results of operations or business, prospects or
property of the Corporation has not been materially adversely affected by any
occurrence, state of facts or development, individually or in the aggregate,
whether or not insured against.
Section 2.6. Events Subsequent to January 1, 1998. Except as
set forth in the SEC Documents and in Schedule 2.6, since January 1, 1998, the
Corporation has not (i) issued any stock, bond or other security (except shares
issued in connection with the exercise of employee stock options), (ii) borrowed
any amount or incurred or become subject to any liability (absolute, accrued or
contingent), except current liabilities incurred in the ordinary course of
business and liabilities under contracts entered into in the ordinary course of
business, (iii) declared or made any payment or distribution to equity holders
or purchased or redeemed any share of its capital stock or other security, (iv)
mortgaged, pledged or subjected to lien any of its assets, tangible or
intangible, other than liens for current taxes not yet due and payable, except
for mortgages, pledges or liens that do not exceed $50,000 in the aggregate, (v)
sold, assigned or transferred any of its assets except in the ordinary course of
business, or canceled any debt or claim, (vi) suffered any material loss of
property or waived any right of substantial value whether or not in the ordinary
course of business, (vii) made any material change to the Corporation's employee
benefit plans, (viii) made any change in the Corporation's accounting principles
and practices, (ix) made any material change in the manner of business or
operations, (x) entered into any material transaction except in the ordinary
course of business or as otherwise contemplated hereby or (xi) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
Section 2.7. Litigation; Compliance with Law. Except as set
forth in the SEC Documents and in Schedule 2.7, there is no (i) action, suit,
claim, proceeding or investigation pending or, to the knowledge of the
Corporation, threatened against the Corporation or its assets, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) arbitration proceeding relating to the Corporation or (iii)
governmental inquiry pending or, to the knowledge of the Corporation, threatened
against or affecting the Corporation (including, without limitation, any inquiry
as to the qualification of the Corporation to hold or receive any license or
permit), and there is no basis for any of the foregoing which, in each case,
could reasonably be expected to have a Material Adverse Effect. The Corporation
is not in default with respect to any order, writ, injunction or decree known to
or served upon the Corporation of any court or of any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. There is no action or suit by the
Corporation pending or threatened against others. The Corporation has complied
with all laws, rules, regulations and orders applicable to its business,
operations, properties, assets, products and services, except for such failures
to comply which, individually and in the aggregate, would
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not have a Material Adverse Effect, and the Corporation has all necessary
permits, licenses and other authorizations required to conduct its business in
all material respects as conducted. To the knowledge of the Corporation, there
is no existing rule, regulation or order, whether Federal or state, which would
prohibit or restrict the Corporation from, or otherwise materially adversely
affect the Corporation in, conducting its business in any jurisdiction in which
it is now conducting business or in which it proposes to conduct business.
Section 2.8. Proprietary Information of Third Parties;
Intellectual Property. (a) No third party has claimed in writing or, to the
knowledge of the Corporation, has a valid basis to claim that any Person
employed by or affiliated with the Corporation has (i) violated or is violating
any of the terms or conditions of such Person's employment, non-competition or
nondisclosure agreement with such third party, (ii) disclosed or is disclosing
or utilized or is utilizing any trade secret or proprietary information or
documentation of such third party or (iii) interfered or is interfering in the
employment relationship between such third party and any of its present or
former employees. No third party has requested in writing information from the
Corporation which could reasonably be interpreted to suggest that such a claim
might be contemplated. To the knowledge of the Corporation, no Person employed
by or affiliated with the Corporation has employed or proposes to employ, any
trade secret or any information or documentation in violation of the proprietary
rights of any former employer, and, to the knowledge of the Corporation, no
Person employed by or affiliated with the Corporation has violated any
confidential relationship which such Person may have had with any third party,
in connection with the development, manufacture or sale of any product or
proposed product or the development or sale of any service or proposed service
of the Corporation and there is no reason to believe there will be any such
employment or violation. To the knowledge of the Corporation, none of the
execution, delivery or performance of this Agreement, or the carrying on of the
business of the Corporation as officers, employees or agents by any officer,
director or key employee of the Corporation or the conduct or proposed conduct
of the business of the Corporation will conflict with or result in a breach of
the terms, conditions or provisions of or constitute a default under any
contract, covenant or instrument under which any such Person is obligated.
(b) The Corporation owns or possesses all licenses or other
rights to use all patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, Internet domain names,
trade names, software, copyrights, manufacturing processes, formulae, trade
secrets and know how (collectively, "Intellectual Property") necessary to the
conduct of its business as conducted and, to the knowledge of the Corporation,
as proposed to be conducted, and no claim is pending or, to the knowledge of the
Corporation, threatened to the effect that the operations of the Corporation
infringe upon, misappropriate, violate or conflict with the asserted rights of
any other Person under any Intellectual Property. To the knowledge of the
Corporation there is no valid basis for any such claim (whether or not pending
or threatened). No claim is pending or, to the knowledge of the Corporation,
threatened to the effect that any
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such Intellectual Property owned or licensed by the Corporation, or which the
Corporation otherwise has the right to use, is invalid or unenforceable by the
Corporation, and, to the knowledge of the Corporation, there is no basis for any
such claim (whether or not pending or threatened). Except as set forth in
Schedule 2.8 hereof, the Corporation has not granted or assigned to any other
Person or entity any right to license or sell the software of the Corporation.
Section 2.9. Title to Properties. The Corporation has good
title to its properties and assets reflected on the balance sheet included in
the Corporation's 10-QSB for the quarter ended June 30, 1998 (the "Balance
Sheet") or acquired since the date of the Balance Sheet (other than properties
and assets disposed of in the ordinary course of business since the date of the
Balance Sheet), and all such properties and assets of the Corporation are, and
at each of the First Closing and Second Closing will be, free and clear of
mortgages, pledges, security interests, liens, charges, claims, restrictions and
other encumbrances, except for liens for or current taxes not yet due and
payable and minor imperfections of title, if any, not material in nature or
amount and not materially detracting from the value or impairing the use of the
property subject thereto or impairing the operations or proposed operations of
the Corporation.
Section 2.10. Taxes. (i) The Corporation has timely filed all
Federal, state, county, local and foreign tax returns required to be filed by it
except where failures to file such tax returns would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Corporation; (ii) all such tax returns are complete and accurate except where
failures of such tax returns to be complete and accurate would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
the Corporation; (iii) the Corporation has paid all taxes shown to be due by
such returns as well as all other taxes, assessments and governmental charges
that have become due or payable except where failures to pay such taxes would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Corporation; (iv) the Corporation has withheld and
collected all amounts required to be withheld from amounts owing to employees,
creditors and third parties except where failures to withhold and collect such
taxes would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on the Corporation; (v) adequate reserves have
been established for all taxes accrued but not yet payable except where failures
to establish such reserves would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Corporation;
(vi) no deficiency or adjustment of the Corporation's Federal, state, county,
local or foreign taxes has been asserted or proposed, or is pending or
threatened except where such deficiencies or adjustments did not or would not
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect on the Corporation; (vii) there are no tax liens outstanding
against the assets, properties or business of the Corporation other than liens
for current taxes not yet due and payable except where such liens would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Corporation; and (viii) the Corporation has never been a
member of any "affiliated
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group" for federal income tax purposes, or any similar group for tax purposes,
other than the group of which it is currently a member.
Section 2.11. Status of Contracts. The Corporation and, to the
knowledge of the Corporation, each other party thereto have in all material
respects performed all the obligations required to be performed by them to date,
have received no notice of default and are not in default (with due notice or
lapse of time or both) under any lease, agreement or contract now in effect to
which the Corporation is a party or by which it or its property may be bound nor
is there or is there alleged to be any basis for termination thereof, other than
for such exceptions to the foregoing, which, individually and in the aggregate,
would not have a Material Adverse Effect.
Section 2.12. Governmental Approvals. Subject to the accuracy
of the representations and warranties of Investor set forth in Section 3.3, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Corporation
of this Agreement, the Registration Rights Agreement, the Stockholders
Agreement, the Marketing Agreement or the issuance, sale and delivery of the
Common Shares, the Warrant and the Warrant Shares, other than filings to be made
with the SEC in connection with the stockholders meeting contemplated by Section
8.3 and with respect to the Registration Rights Agreement, the registration of
the shares covered thereby with the SEC and filings pursuant to state securities
laws provided therein and those filings that may be required under any
applicable state securities laws which filings shall be made in a timely
fashion.
Section 2.13. Disclosure. This Agreement does not contain any
untrue statement of a material fact. The statements, documents, certificates or
other items prepared and supplied by the Corporation with respect to the
transactions contemplated hereby, taken together with the SEC Documents, do not
contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained therein not misleading.
Section 2.14. Brokers. Except as set forth in Schedule 2.14,
the Corporation has no contract, arrangement or understanding with any broker,
finder or similar agent with respect to the transactions contemplated by this
Agreement for which the Corporation shall have any liability or responsibility.
Section 2.15. Transactions With Affiliates. Except as
disclosed in the SEC Documents and Schedule 2.15, no director, officer, employee
or stockholder owning more than 5% of the outstanding capital stock of the
Corporation, or member of the family of any such Person, or any corporation,
partnership, trust or other entity in which any such Person, or any member of
the family of any such Person, has a substantial interest or is an officer,
director, trustee, partner or holder of more than 5% of the outstanding capital
stock thereof, is a party to any transaction with the Corporation, including any
contract, agreement or other arrangement
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providing for the employment of, furnishing of services by, rental of real or
personal property from or otherwise requiring payments to any such Person, if in
each case such transaction was required to be disclosed in such SEC Documents.
The Corporation has terminated its relationship with Sierra Advertising and has
no obligation to make any further payments in excess of $10,000 in the aggregate
to, or obtain services from, Sierra Advertising.
Section 2.16. Employees. To the knowledge of the Corporation,
other than in connection with the closing of the seminar division, no officer or
key employee of the Corporation has advised the Corporation, orally or in
writing, that he or she intends to terminate employment with the Corporation
during the 24 months succeeding the date hereof. The Corporation has complied in
all material respects with all applicable laws relating to the employment of
labor, including provisions relating to wages, hours, equal opportunity and
collective bargaining, and with the Employee Retirement Income Security Act of
1974, as amended, except for such failures to comply which, individually and in
the aggregate, would not have a Material Adverse Effect.
Section 2.17. Significant Customers and Suppliers. No customer
or supplier which was significant to the Corporation during the last 12 months
or is significant to its projected future results for the next 12 months, has
terminated, materially reduced or threatened to terminate or materially reduce
its purchases from or provision of products or services to it.
ARTICLE III
Representations and Warranties of Investor
Investor represents and warrants to the Corporation as
follows:
Section 3.1. Organization, Qualifications and Corporate Power.
Investor is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Florida. The Corporation has the
corporate power and authority to execute, deliver and perform this Agreement,
the Registration Rights Agreement, the Stockholders Agreement, and the Marketing
Agreement, and to purchase and receive the Common Shares and the Warrant.
Section 3.2. Authorization of Agreements, Etc. Investor has
taken all corporate action necessary to authorize its execution and delivery of
this Agreement, the Registration Rights Agreement, the Stockholders Agreement
and the Marketing Agreement, its performance of the obligations thereunder, and
its consummation of the transactions contemplated thereby. This Agreement has
been executed and delivered by an authorized representative of Investor in
accordance with such authorization. Assuming the due authorization, execution
and delivery hereof by the Corporation, this Agreement constitutes the legal,
valid and binding obligation of Investor, enforceable in accordance with its
terms. Each of the Registration Rights Agreement,
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the Stockholders Agreement and the Marketing Agreement, when executed and
delivered in accordance with this Agreement and assuming the due authorization,
execution and delivery thereof by the other parties thereto, will constitute a
legal, valid and binding obligation of Investor, enforceable in accordance with
their respective terms, except as (i) the enforceability thereof may be limited
by bankruptcy, insolvency or similar laws affecting creditors' rights generally
and (ii) rights of acceleration and the availability of equitable remedies may
be limited by equitable principles of general applicability.
Section 3.3. Investment Representation. Investor is acquiring
the Common Shares and will acquire the Warrant and Warrant Shares for Investor's
own account and not with a view to reselling or distributing such securities in
any transaction which would constitute a "distribution" within the meaning of
the Securities Act. Investor has such knowledge and experience in financial and
business matters that Investor is capable of evaluating the merits and risks of
the investment in the Common Shares and the Warrant. Investor understands that
the Common Shares and, when issued, the Warrant and the Warrant Shares have not
been registered under the Securities Act or any applicable state securities laws
(collectively, the "Acts") and that the Corporation is relying upon exemptions
from registration under the Acts based in part on Investor's representations
under this Agreement, and that the Common Shares and, when issued, the Warrant
and the Warrant Shares may not be resold without registration under the Acts or
an exemption therefrom. Investor has had the opportunity to ask questions of,
and receive answers from, the Corporation concerning the terms and conditions of
the offering of the Common Shares and the Warrant and the Warrant Shares and to
obtain additional information (including, without limitation, documents) about
the Corporation and it has obtained such information. Investor is not an entity
formed solely to make this investment. Investor is an "accredited investor" as
defined in Rule 501 promulgated under the Securities Act.
Section 3.4. Brokers and Finders. No Person or entity acting
on behalf or under the authority of Investor is or will be entitled to any
broker's, finder's or similar fee or commission in connection with the
transaction contemplated hereby.
ARTICLE IV
Conditions to First Closing and Second Closing
Section 4.1. Conditions to First Closing by Investor. The
obligation of Investor to purchase the First Common Shares at the First Closing
is subject to the fulfillment to the reasonable satisfaction of Investor at or
prior to the First Closing of each of the following conditions:
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(a) Accuracy of Representations and Warranties. The
representations and warranties of the Corporation contained in this Agreement or
any agreement, instrument or certificate delivered pursuant hereto which are
qualified as to materiality shall be true, correct and complete, and those
representation and warranties which are not so qualified shall be true, correct
and complete in all material respects, in each case, on and as of the First
Closing Date, and the Corporation, with respect to the representations and
warranties of the Corporation, shall have delivered to Investor a certificate of
the President and Chief Financial Officer of the Corporation, dated the First
Closing Date, to that effect.
(b) Performance. All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the Corporation
on or prior to the First Closing Date shall have been performed or complied with
in all material respects and the Corporation shall have delivered to Investor a
certificate of the President and Chief Financial Officer of the Corporation,
dated the First Closing Date, to that effect.
(c) Qualifications. On or prior to the First Closing Date, all
authorizations, approvals or permits of, or filings with, any governmental
authority that are required prior to the First Closing in connection with the
issuance of the First Common Shares and the consummation of the transactions
contemplated by this Agreement shall have been duly obtained and shall be
effective on and as of the First Closing Date.
(d) Secretary's Certificate. At the First Closing, the
Corporation shall have delivered to Investor copies of the Charter, certified by
the Secretary of State of the State of Nevada, and copies of each of the
following, in each case certified as of the First Closing Date by the Secretary
of the Corporation:
(i) the By-laws;
(ii) resolutions of the Board of Directors of the
Corporation, authorizing and approving, as appropriate, this
Agreement and the transactions contemplated hereby, the
execution, issuance, sale and delivery of the Common Shares
and execution, issuance, sale, delivery and performance of the
Warrant, and the execution, delivery and performance of the
Registration Rights Agreement, the Stockholders Agreement, the
Marketing Agreement and the transactions contemplated hereby
and thereby; and
(iii) the signatures and incumbency of the officers
of the Corporation authorized to execute and deliver the
documents to which the Corporation is a party.
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(e) Good Standing Certificates. At the First Closing, the
Corporation shall have delivered to Investor a good standing certificate dated
not more than five business days prior to the First Closing Date relating to the
Corporation from the State of Nevada.
(f) Consents. At the First Closing, the Corporation shall have
delivered to Investor copies of all consents and approvals of third parties
required under any licenses or agreements or otherwise in connection with the
execution, delivery or performance by the Corporation of this Agreement or any
of the other agreements or documents contemplated hereby.
(g) Registration Rights Agreement. At the First Closing, the
Corporation shall have executed and delivered to Investor the Registration
Rights Agreement.
(h) Stockholders Agreement. At the First Closing, the
Corporation and the other parties thereto (other than Investor) shall have
executed and delivered to Investor the Stockholders Agreement.
(i) Marketing Agreement. At the First Closing, the Corporation
shall have executed and delivered to Investor the Marketing Agreement.
(j) Legal Opinion. At the First Closing, Latham & Watkins
shall have delivered to Investor an opinion, dated the First Closing Date,
addressed to the Investor and in the form attached hereto as Exhibit E.
(k) Additional Documents. Investor shall have received such
other documents, instruments, approvals or opinions as Investor may reasonably
request.
Section 4.2. Conditions to First Closing by the Corporation.
The obligation of the Corporation to issue the First Common Shares at the First
Closing is subject to the fulfillment to the reasonable satisfaction of
Corporation at or prior to the First Closing of each of the following
conditions:
(a) Stockholders Agreement. At the First Closing, the Investor
shall have executed and delivered to the Corporation the Stockholders Agreement.
(b) Marketing Agreement. At the First Closing, the Investor
shall have executed and delivered to the Corporation the Marketing Agreement.
Section 4.3. Conditions to Second Closing by Investor. The
obligation of Investor to purchase the Second Common Shares at the Second
Closing is subject to the
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fulfillment to the reasonable satisfaction of Investor at or prior to the Second
Closing of each of the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of the Corporation contained in this Agreement or
any agreement, instrument or certificate delivered pursuant hereto which are
qualified as to materiality shall be true, correct and complete, and those
representation and warranties which are not so qualified shall be true, correct
and complete in all material respects, in each case, on and as of the Second
Closing Date, and the Corporation, with respect to the representations and
warranties of the Corporation, shall have delivered to Investor a certificate of
the President and Chief Financial Officer of the Corporation, dated the Second
Closing Date, to that effect.
(b) Stockholder Approval. The issuance of the Second Common
Shares, the Warrant and the Warrant Shares shall have been approved by the
requisite vote of stockholders of the Corporation in accordance with the
applicable Nasdaq Marketplace Rules.
(c) Performance. All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the Corporation
on or prior to the Second Closing Date shall have been performed or complied
with in all material respects and the Corporation shall have delivered to
Investor a certificate of the President and Chief Financial Officer of the
Corporation, dated the Second Closing Date, to that effect.
(d) Qualifications. On or prior to the Second Closing Date,
all authorizations, approvals or permits of, or filings with, any governmental
authority that are required prior to the Second Closing in connection with the
issuance of the Second Common Shares and the consummation of the transactions
contemplated by this Agreement shall have been duly obtained and shall be
effective on and as of the Second Closing Date.
(e) Secretary's Certificate. At the Second Closing, the
Corporation shall have delivered to Investor copies of the Charter, certified by
the Secretary of State of the State of Nevada, and copies of each of the
following, in each case certified as of the Second Closing Date by the Secretary
of the Corporation:
(i) the By-laws;
(ii) resolutions of the Board of Directors of the
Corporation, authorizing and approving, as appropriate, this
Agreement and the transactions contemplated hereby and the
execution, issuance, sale and delivery of the Second Common
Shares; and
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(iii) the signatures and incumbency of the officers
of the Corporation authorized to execute and deliver the
documents to which the Corporation is a party.
(f) Good Standing Certificates. At the Second Closing, the
Corporation shall have delivered to Investor a good standing certificate dated
not more than five business days prior to the Second Closing Date relating to
the Corporation from the State of Nevada.
(g) Consents. At the Second Closing, the Corporation shall
have delivered to Investor copies of all consents and approvals of third parties
required under any licenses or agreements or otherwise in connection with the
execution, delivery or performance by the Corporation of this Agreement or any
of the other agreements or documents contemplated hereby.
(h) Legal Opinion. At the Second Closing, Latham & Watkins
shall have delivered to Investor an opinion, dated the Second Closing Date,
addressed to the Investor and in the form attached hereto as Exhibit E.
(i) Additional Documents. Investor shall have received such
other documents, instruments, approvals or opinions as Investor may reasonably
request.
Section 4.4. Conditions to Second Closing by the Corporation.
The obligation of the Corporation to issue the Second Common Shares at the
Second Closing is subject to the fulfillment to the reasonable satisfaction of
Corporation at or prior to the Second Closing of the following condition:
(a) Stockholder Approval. The issuance of the Second Common
Shares, the Warrant and the Warrant Shares shall have been approved by the
requisite vote of stockholders of the Corporation in accordance with the
applicable Nasdaq Marketplace Rules. .
ARTICLE V
Reporting and Inspection
The Corporation hereby covenants and agrees:
5.1. Confidential Information. Each party hereto agrees that
it will keep (and will cause each of its affiliates and its and their respective
directors, officers, employees, representatives, agents, advisors, consultants,
counsel, external or internal auditors and independent contractors to whom
disclosure may be made in connection with the negotiation and
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performance of this Agreement or any agreement entered into in connection with
this Agreement to keep) in confidence all documents, materials and other
information which it shall have obtained or will obtain regarding the other
parties during the course of the negotiations leading to the execution of this
Agreement (whether obtained before or after the date of this Agreement) or at
any time at which Investor or any of its affiliates own Common Stock. Such
documents, information and materials shall not be communicated to any third
person (other than counsel, accountants or financial advisors of Investor, the
Corporation, employees of Investor and the Corporation and their affiliates who
have a need to know and any Alliance that has agreed to bound by the provision
of this Section 5.1). Investor shall not use such documents, materials and other
information in any manner competitive with the Corporation. The obligation of
each party to treat such documents, materials and other information in
confidence shall not apply to any information which (i) is or becomes available
to such party from a source other than another party, which source was not
itself known to such party after due inquiry to be bound by a confidentiality
agreement and was not known by such party after due inquiry to have received
such information, directly or indirectly, from a person or entity so bound, (ii)
is or becomes available to the public other than as a result of disclosure by
such party or its agents, (iii) is required to be disclosed under applicable
requirements of law or judicial or administrative process, but only to the
extent it must be disclosed or (iv) such party reasonably deems necessary to
disclose in connection with any judicial or arbitral proceeding to enforce any
rights of such party under this Agreement or any agreement entered into in
connection herewith or otherwise relating to the transactions contemplated
hereby or thereby, but subject to cooperation with the other party to maintain
the confidentiality of such disclosed information.
Section 5.2. Certain Information. The Corporation will provide
to Investor by telephone communication to a representative of Investor
designated for this purpose (or, at the election of the Corporation, in
writing):
(a) promptly upon the occurrence thereof, notice of any
material disputes with any significant customer or supplier or the
occurrence of any other event which has had, or could reasonably be
expected to have, a Material Adverse Effect;
(b) promptly upon the Corporation's receipt of written notice
thereof, written notice of (i) any material pending litigation
affecting the Corporation or any of its subsidiaries, whether or not
the claim is considered by the Corporation to be covered by insurance,
and (ii) any material pending administrative or arbitration proceeding
or investigation, or the receipt by the Corporation or any of its
subsidiaries of any material notice or order from any regulatory body
or agency having jurisdiction over the Corporation or any of its
subsidiaries;
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(c) promptly upon the Corporation obtaining knowledge thereof,
notice of (i) any change in the business or affairs of the Corporation
or any of its subsidiaries which has had, or could have, a Material
Adverse Effect; (ii) any breach of any of its covenants,
representations or warranties set forth in this Agreement; and (iii) a
default by the Corporation or any of its subsidiaries under any note,
indenture, loan agreement, mortgage, lease, deed or other material
agreement to which the Corporation or such subsidiary is a party or by
which the Corporation or any such subsidiary is bound, which default
constitutes a payment default or a default that entitles, or with
notice or lapse of time or both would entitle, the holder of such note,
indenture, loan agreement, mortgage, lease, deed or other agreement to
accelerate the payment or other obligations of the Corporation or such
subsidiary thereunder provided such acceleration would constitute a
Material Adverse Effect; and
(d) with reasonable promptness, such other data, reports and
information as from time to time Investor may reasonably request and
such data, press releases, reports and information as the Corporation
or any of its subsidiaries may from time to time furnish to holders of
its securities.
ARTICLE VI
Additional Covenants
Section 6.1. Directors' Expenses. The Corporation shall
reimburse each of its directors for the reasonable out-of-pocket expenses
incurred by such director in attending meetings of the Board of Directors or any
committee thereof and for otherwise fulfilling his fiduciary obligations as a
director of the Corporation.
Section 6.2. Directors' Meetings. The Corporation shall use
its reasonable best efforts to cause meetings of its Board of Directors
periodically but not less often than quarterly.
Section 6.3. Indemnification. (a) The Corporation shall
indemnify, defend and hold Investor and its directors, officers, employees,
affiliates and agents (collectively, the "Indemnified Persons") harmless from
and against and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including, without limitation, interest, penalties, court costs and attorneys'
fees (collectively, "Losses"), that any Indemnified Person shall incur or
suffer, which arise, result from, or relate to (i) any breach or alleged breach
of, or failure or alleged failure by the Corporation to perform, any of its
representations, warranties, covenants or agreements in this Agreement the
Warrant, the Registration Rights Agreement, the Stockholders Agreement, or in
any other agreement or any
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schedule, certificate, exhibit or instrument furnished or to be furnished by the
Corporation hereunder or thereunder (other than the Marketing Agreement), or
(ii) any claim, litigation, investigation or proceeding (whether or not such
Indemnified Person is a party thereto) relating to the performance of this
Agreement or any instrument, document or agreement executed or delivered in
connection herewith (other than the Marketing Agreement); provided, however,
that the indemnity under clause (ii) of this Section 6.3(a) shall not apply to
any such Losses finally determined by a court of competent jurisdiction to have
arisen from the recklessness or willful misconduct of such Indemnified Person.
If the Corporation breaches any representation and warranty contained in Section
2.8 based upon the Corporation's infringement upon, misappropriation, violation
or conflict with a third party's Intellectual Property, which Intellectual
Property is used in the performance of the Corporation's obligations under the
Marketing Agreement, the Indemnified Person shall have the right to require the
Corporation to either (i) promptly license the right to use such Intellectual
Property or (ii) promptly create Intellectual Property with substantially the
same functionality.
(b) If any indemnifiable claim by a third party is made
against any Indemnified Person, such Indemnified Person shall promptly provide
written notice to the Corporation of such claim; provided that the failure to
give such notice shall not affect any rights of such Indemnified Person
hereunder except to the extent the Corporation is materially prejudiced by such
failure to give notice. By delivering written notice to such Indemnified Person
within 15 days after receipt of such Indemnified Person's notice, the
Corporation may, or upon written request of such Indemnified Person shall,
assume the defense of such claim at its sole expense through counsel reasonably
satisfactory to such Indemnified Person, provided that (i) the Corporation shall
not permit any lien, encumbrance or other adverse charge upon any asset of such
Indemnified Person, (ii) the Corporation shall permit such Indemnified Person to
participate in such settlement or defense through counsel selected by such
Indemnified Person at such Indemnified Person's expense, and (iii) the
Corporation shall agree to promptly reimburse such Indemnified Person for the
full amount of its liability to the third party claimant provided such liability
is indemnifiable under Section 6.3(a). If the Corporation shall not have
employed counsel to defend such claim or if such Indemnified Person shall have
reasonably concluded (with the written advice of counsel) that the position of
such Indemnified Person and the Corporation may be in conflict, the Corporation
shall not have the right to direct the defense of any such claim on behalf of
such Indemnified Person and the reasonable legal and other expenses incurred by
such Indemnified Person shall be borne by the Corporation. Notwithstanding the
foregoing, each Indemnified Person shall have the right to pay or settle any
such claim provided in such event it shall waive its right to indemnity therefor
by the Corporation.
Section 6.4. No Solicitation. From and after the date hereof
and through the date of the stockholders meeting contemplated by Section 8.3,
the Corporation shall not, and shall use its reasonable best efforts to ensure
that any of its directors, officers, employees, attorneys, financial advisors,
agents or other representatives or those of any of its subsidiaries do not,
directly or indirectly, solicit, initiate or encourage any competing offers,
investments or
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transactions similar to the transactions contemplated hereby, which offers,
investments or transactions would reasonably be considered inconsistent with or
would materially delay the consummation of the transactions contemplated hereby,
nor engage in or continue discussions or negotiations relating to any such
offers, investments or transactions; provided, however, that the Corporation may
engage in discussions or negotiations with, or furnish information concerning
the Corporation and its properties, assets and business to (without, in each
case, directly or indirectly soliciting, initiating or encouraging discussions
or negotiations) any Person if the Board of Directors of the Corporation
reasonably concludes in good faith after consultation with its outside counsel
that the failure to take such action would be inconsistent with the fiduciary
obligations of such Board of Directors under applicable law.
Section 6.5. Use of Proceeds. The Corporation shall use the
net proceeds received by the Corporation from the sale of the Common Shares
solely for activities directly related to (i) the Stuff Site and the Mall Site
(as such terms are defined in the Marketing Agreement), (ii) the Corporation's
electronic commerce solutions, designed so as to benefit Investor, and (iii)
such other purposes to which the Corporation and Investor agree in writing.
Section 6.6. Sale of Common Stock. Without limiting the effect
of Section 8.4, Investor shall use reasonable best efforts to ensure that it
shall not transfer any of the Common Shares, the Warrant Shares or the Warrant
to any Person or group which, to the knowledge of Investor, after due inquiry,
owns, or as a result of such transfer would own, more than 5% of the outstanding
Voting Securities or more than 5% of the Total Voting Power (as each is defined
below) of the Corporation; provided that, the foregoing shall not prohibit
Investor from making any transfer to: (i) any Significant Stockholder (as
defined in the Stockholders Agreement) pursuant to the exercise by such
Significant Stockholder of an Option (as defined in the Stockholders Agreement);
(ii) any affiliate of Investor that agrees to be bound by the terms and
provisions of Section 6.6, Article VII and Section 8.4 of this Agreement and the
Stockholders Agreement as though a party to such provisions or agreement,
respectively; (iii) any Alliance that agrees to be bound by the terms and
provisions of Section 6.6, Article VII and Section 8.4 of this Agreement and the
Stockholders Agreement as though a party to such provisions or agreement,
respectively; provided, however, that, subject to Section 3.1(a) of the
Stockholders Agreement, such Alliance shall not be required to bind any of its
affiliates to any of the provisions of this Agreement or the Stockholders
Agreement; (iv) at any time after December 31, 1999, an offeror under any tender
or exchange offer made pursuant to Section 14(d) of the Securities Exchange Act
of 1934, as amended; or (v) at any time on or before December 31, 1999, an
offeror under any tender or exchange offer made pursuant to Section 14(d) of the
Securities Exchange Act of 1934, as amended, whose tender offer or exchange
offer is recommended by the Board of Directors.
Section 6.7. Exchange of Certificates. Upon surrender by any
holder to the Corporation of any certificate or certificates evidencing any
securities (including the Common
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Shares, the Warrant Shares and the Warrant), the Corporation at its expense will
issue in exchange therefor, and deliver to such holder, new certificates, as the
case may be, in such denomination or denominations as may be requested by such
holder. Upon receipt of evidence reasonably satisfactory to the Corporation of
the loss, theft, destruction or mutilation of any security issued by it and in
case of any such loss, theft or destruction, upon delivery of an indemnity
agreement reasonably satisfactory to the Corporation, and in the case of any
such mutilation, upon surrender and cancellation of such security, the
Corporation at its expense will issue and deliver to any such holder a new
security of like tenor, in lieu of such lost, stolen, destroyed or mutilated
certificate.
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ARTICLE VII
Standstill
Section 7.1. Certain Definitions. For purposes of this
Agreement: (i) the term "beneficially own" (or any similar phrase) has the
meaning set forth in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended; (ii) the term "Voting Securities" shall mean any securities entitled to
vote generally in the election of directors of the Corporation or its
successors, securities convertible or exchangeable into or exchangeable for such
securities and any rights or options to acquire any of the foregoing securities;
(iii) the term "Voting Power" shall mean the power to vote generally in the
election of directors (or Persons serving similar functions) of the Corporation
or its successors; (iv) the term "Total Voting Power" shall mean the total
combined Voting Power of all Voting Securities then outstanding plus the
prospective Voting Power of all Voting Securities issuable upon exercise of any
options or warrants beneficially owned by the Investor or any of its
Subsidiaries; (v) the term "Subsidiary", with respect to any Person, shall mean
any corporation or other entity (a) of which a majority of the securities or
other ownership interests generally having Voting Power to elect a majority of
the board of directors or other individuals performing similar functions are at
the time directly or indirectly owned by such Person or (b) as to which such
Person directly or indirectly has the power to elect or designate such majority
of the board of directors or such other individuals; provided, however, such
term shall not include the Alliances (as defined in the Stockholders Agreement);
(vi) the term "Person" shall mean an individual, a corporation, a limited
liability company, a partnership, an association, a trust or any other entity or
organization; and (vii) "Acquisition Proposal" means any proposed acquisition of
Voting Securities representing more than 20% of the Total Voting Power, whether
by business combination, tender or exchange offer, or otherwise, or the proposed
acquisition of all or substantially all the assets of the Corporation and its
Subsidiaries, taken as a whole. A Person shall not be deemed to beneficially own
securities held in a pension fund controlled by the Person. For the purpose of
calculating the Total Voting Power during the Warrant Term (as defined below),
the Investor shall be deemed to beneficially own the Warrant. For purposes of
this Article VII, the term "Affiliate" shall mean First Data Corporation and its
Subsidiaries.
Section 7.2. Acquisitions. Subject to Section 7.3, from the
First Closing until the earlier of (i) the fifth anniversary of the First
Closing or (ii) the third anniversary of the first date as of which the Investor
and its Subsidiaries beneficially own Voting Securities representing less than
5% of the Total Voting Power, without the prior approval of a majority of the
members of the Board of Directors of the Corporation who are not employees or
officers of the Corporation or the Investor or any of their Subsidiaries or
otherwise designated by Investor pursuant to the Stockholders Agreement, the
Investor will not, and will cause each of its Subsidiaries and Affiliates (other
than Alliances) not to, acquire any Voting Securities such that, after giving
effect to such acquisition, the sum of (i) the Voting Securities beneficially
owned by Investor, its
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Subsidiaries and its Affiliates (other than Alliances) and (ii) the Voting
Securities owned by any Alliance which have been transferred to such Alliance by
Investor or any of its Affiliates in compliance with Section 3.1(a) of the
Stockholders Agreement represents more than 39.9% of Total Voting Power;
provided, however, that the provisions of this Section 7.2 shall not require the
Investor, any of its Subsidiaries or Affiliates or any Alliance to sell or
otherwise dispose of Voting Securities representing more than 39.9% of Total
Voting Power (such Voting Securities representing Voting Power in excess of
39.9% of Total Voting Power, "Excess Voting Securities") to the extent that such
Voting Securities constitute Excess Voting Securities as a result of a
repurchase or other retirement of Voting Securities by the Corporation or any of
its Subsidiaries or as a result of purchases made by the Investor, its
Subsidiaries and Affiliates or any Alliance during any period in which the
restrictions contained in this Section 7.2 were suspended pursuant to Section
7.3(b) (irrespective of any subsequent reinstatement thereunder).
Section 7.3. Suspension; Termination. (a) In the event that
the Corporation enters into a written agreement pursuant to which an Acquisition
Proposal is to be effected, then the restrictions set forth in Section 7.2 shall
thereupon terminate.
(b) In the event that any Person (other than the Investor or
any of its Subsidiaries or Affiliates or any Person acting on behalf of or in
participation with any of the foregoing) commences a tender or exchange offer
that, if fully consummated, would result in such Person, together with such
Person's Subsidiaries, or any other Person acting on behalf of or in
participation with such Person or its Subsidiaries, becoming the beneficial
owner of Voting Securities representing more than 20% of the Total Voting Power,
then the restrictions set forth in Section 7.2 shall thereupon be suspended (and
during such period of suspension be of no force and effect). If, upon the
expiration of such tender or exchange offer, the Person making such tender or
exchange offer does not acquire an amount of Voting Securities sufficient to
make the provisions of paragraph (c) of this Section 7.3 applicable, then such
restrictions shall thereupon be reinstated, subject to further suspension or
reinstatement in the event of the occurrence of further events described in the
preceding sentence or this sentence, respectively.
(c) In the event that it is publicly announced or the Investor
or the Corporation shall become aware (in which case it shall promptly notify
the other) that any Person (other than the Investor or any of its Subsidiaries
or Affiliates or any Person acting on behalf of or in participation with any of
the foregoing), together with such Person's Subsidiaries, or any other Person
acting on behalf of or in participation with such Person or its Subsidiaries,
has become the beneficial owner of Voting Securities representing more than 20%
of the Total Voting Power, then the restrictions set forth in Section 7.2 shall
thereupon terminate.
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ARTICLE VIII
Warrant
Section 8.1. Issuance of Warrant. As additional consideration
for entering into this Agreement, subject to Section 8.3, the Corporation shall
issue the Warrant to Investor on the terms and subject to the conditions
provided herein.
(a) Certain Definitions. For purposes of this Agreement: (i)
"Beta Test" shall mean the successful testing of the systems and technologies
provided by the Corporation to logistically support the Mall (as defined in the
Marketing Agreement) as reasonably determined by Investor; (ii) "Electronic
Commerce Tools" shall have the meaning set forth in the Marketing Agreement;
(iii) "Mall Tenant" shall have the meaning set forth in the Marketing Agreement;
(iv) "Subscribers" shall mean all Mall Tenants that Investor and any of its
affiliates or Alliances participated in soliciting; and (iv) "Warrant Term"
shall mean the term beginning on the Closing Date and ending on the earlier of
(A) the second anniversary of the date of completion of the Beta Test and (B)
the date of issuance of the Warrant.
(b) If, at any time during the Warrant Term, the Corporation
has either (i) 25,000 Subscribers using Electronic Commerce Tools or (ii) 50,000
Subscribers for any product, then the Investor shall be entitled to issuance of
the Warrant. Within five business days after the number Subscribers shall have
been determined and such determination shall have become final and binding
pursuant to Section 8.2, if the Investor is entitled to issuance of the Warrant
pursuant to the preceding sentence, the Corporation shall deliver the Warrant to
Investor duly executed by the Corporation and registered in the name of
Investor.
(c) At the time of issuance, the Warrant shall entitle the
holder thereof to purchase 5,000,000 shares of Common Stock at an exercise price
of $17.00 per share; provided, however, that if the Warrant had been issued on
the First Closing Date with such terms and prior to the time at which it is
actually issued pursuant to Section 8.1(b) the number of shares of Common Stock
covered by the Warrant, the exercise price per share or the type of securities
deliverable upon exercise of the Warrant would have been adjusted or changed
pursuant to the terms of the Warrant, then the Warrant shall be issued with such
adjusted or changed terms.
Section 8.2. Determination of Subscribers. (a) Not later than
45 days following the end of each calendar quarter during the Warrant Term and
at the end of the Warrant Term, the Corporation shall deliver to Investor a
certificate (each such certificate being referred to as a "Preliminary Report")
setting forth the Corporation's determination, with respect to such quarter (or,
as applicable, as of the final date of the Warrant Term), the number of
Subscribers using the Electronic Commerce Tools and the number of Subscribers
for any product. Such certificate
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shall be accompanied by a system generated report, if available, and such other
documentation reasonably available and necessary to establish the basis for the
calculation thereof.
(b) Following receipt of the Preliminary Report, Investor may
review the same and, within 30 business days after the date of such receipt, may
deliver to the Corporation a certificate setting forth any objections to the
determinations set forth in the Preliminary Report, together with a summary of
the reasons therefor and calculations which, in its view, are necessary to
eliminate such objections. If Investor does not object within such 30 business
day period, the determinations set forth in the Preliminary Report shall be
final and binding on the Corporation and Investor.
(c) If Investor timely objects within such 30-day period, the
Corporation and Investor shall use their respective reasonable best efforts to
resolve within 60 days after such timely objection by written agreement (the
"Agreed Changes") any differences as to the determinations set forth in the
Preliminary Report. If Investor and the Corporation so resolve any such
differences, the determinations set forth in the Preliminary Report, as adjusted
by the Agreed Changes, shall be final and binding on the Corporation and
Investor.
(d) If any objections timely raised by Investor are not
resolved by the Agreed Changes within the 60-day period contemplated in Section
2.7(c), then the Corporation and Investor shall submit the objections that are
then unresolved to Ernst & Young LLP or any independent accountants of
nationally recognized standing in the United States reasonably satisfactory to
Investor and the Corporation (the "Accounting Firm"). The Accounting Firm shall
be directed by the Corporation and Investor to seek to resolve the unresolved
objections as promptly as reasonably practicable and to deliver written notice
to each of the Corporation and Investor setting forth its resolution of the
disputed matters, and the determinations set forth in the Preliminary Report as
adjusted by the Agreed Changes and such party's resolution of such objections
shall be final and binding on the Corporation and Investor.
(e) The parties hereto shall make available to the Corporation
and Investor, and, if applicable, the Accounting Firm, as the case may be, such
books, records and other information (including work papers) as any of the
foregoing may reasonably request to prepare or review any Preliminary Report or
any matters submitted to the Accounting Firm or system auditor, as the case may
be.
(f) The reasonable fees and expenses of the Accounting Firm
shall be shall be divided equally between the Corporation and Investor.
Section 8.3. Stockholder Meeting; Termination Fee. (a) The
Corporation shall call a meeting of its the stockholders for the purpose of
voting upon approval of the issuance of the Second Common Shares, the Warrant
and the Warrant Shares (the "Share Issuance") to
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Investor pursuant to the terms of this Agreement in accordance with the Nasdaq
Marketplace Rules. Such stockholders meeting shall be held no later than the
later of (a) January 31, 1999 or (b) 45 days after the Corporation has cleared
all comments made by the SEC on the proxy statement (the "Proxy Statement")
filed by the Corporation with the SEC in connection with the vote contemplated
by this Section 8.3 (the "Termination Date"). The Corporation shall, through its
Board of Directors, recommend to the stockholders of the Corporation approval of
issuance of the Warrant and shall not withdraw such recommendation.
(b) The Corporation shall promptly prepare and file with the
SEC the Proxy Statement; provided, however, the Corporation agrees to file a
preliminary copy of the Proxy Statement with the SEC no later than December 11,
1998. The Corporation shall use its reasonable best efforts to have the Proxy
Statement cleared by the SEC as promptly as practicable after such filing. As
promptly as practicable after all of the SEC's comments on the Proxy Statement
have been cleared, the Corporation shall mail the Proxy Statement to its
stockholders.
(c) If the stockholders of the Corporation fail to approve the
Share Issuance prior to the Termination Date, then the Corporation shall pay to
Investor, within five business days after written demand by Investor, the sum of
(i) $1,000,000 and (ii) the Spread Amount (as defined below) by wire transfer of
immediately available funds. "Spread Amount" shall mean the product of (i)
460,000 and (ii) the difference, if positive, between (A) the Closing Price (as
defined in the Warrant) on the last trading day prior to the Termination Date
and (B) $7.00. The Spread Amount shall be equitably adjusted in the event of any
reclassification, stock split or stock dividend with respect to the Common
Stock, any change or conversion of the Common Stock into other securities of the
Corporation or any other dividend or distribution with respect to the Common
Stock prior to the Termination Date. Nothing contained in this Section 8.3(c)
shall be deemed to limit any remedies available to Investor for any breach of
this Agreement by the Corporation which such remedies shall be in addition to
any amounts received by Investor pursuant to this Section 8.3(c); provided,
however, Investor's damages for failure of the stockholders to approve the Share
Issuance shall be limited to the amount provided for in the first sentence of
this Section 8.3(c).
Section 8.4. Non-Transferable Right. During the Warrant Term,
Investor shall not transfer its rights pursuant to this Article VIII other than
to an affiliate of Investor or to an Alliance.
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ARTICLE IX
Miscellaneous
Section 9.1 Confidentiality. Neither the Corporation nor
Investor shall make, nor allow their respective financial consultants,
accountants or lawyers to make, without the prior written consent of the other,
any release to the press or any other public disclosure concerning this
Agreement, the Registration Rights Agreement, the Stockholders Agreement, the
Marketing Agreement or the transactions contemplated hereby or thereby, except
for disclosures made by the Corporation or Investor to their financial
consultants, accountants or lawyers or such public disclosure as may be required
under any applicable law, regulation or government order.
Section 9.2. Amendments. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended only by a
waiver of any rights of any such holders.
Section 9.3. Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by any party
in connection herewith will survive the execution and delivery of this
Agreement, the consummation of any closing, and any investigation made at any
time by or on behalf of Investor.
Section 9.4. Successors and Assigns. Except as otherwise
expressly provided herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto,
whether so expressed or not. In addition, and whether or not any express
assignment has been made, the provisions of this Agreement which are for the
benefit of Investor or holders of the Common Shares or the Warrant are also for
the benefit of, and enforceable by, any subsequent holders.
Section 9.5. Severability. Whenever possible, each provision
of this Agreement will be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
Section 9.6. Descriptive Headings. The descriptive headings of
this Agreement are inserted for convenience of reference only and do not
constitute a part of this Agreement.
Section 9.7. Notices. Any notices required, desired or
permitted to be given hereunder, shall be delivered personally, sent by
overnight courier or mailed, registered or certified mail, return receipt
requested, to the following addresses (or to such other address as each party
may specify in a notice given hereunder) or transmitted by facsimile
transmission
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(with such transmission promptly confirmed by writing delivered
personally, by overnight courier or mailed as provided in this Section 9.7) and
shall be deemed to have been received on the day of personal delivery, one
business day after delivery to the overnight courier service, three business
days after such mailing or, in the case of facsimile transmission, when
received:
If to Investor:
First Data Merchant Services Corporation
6200 South Quebec Street
Englewood, Colorado 80111
Attention: President
Facsimile: (303) 488-8705
-and-
First Data Merchant Services Corporation
6200 South Quebec Street
Englewood, Colorado 80111
Attention: General Counsel
Facsimile: (303) 889-6566
with a copy in the case of a notice to Investor to:
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Attention: Frederick C. Lowinger, Esq.
Facsimile: (312) 853-7036
If to the Corporation:
iMall, Inc.
233 Wilshire Boulevard
Santa Monica, California 90401
Attention: Richard M. Rosenblatt
Facsimile: (310) 309-4100
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<PAGE> 29
with a copy in the case of a notice to the Corporation to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071
Attention: Brian G. Cartwright, Esq.
Facsimile: (213) 891-8763
SECTION 9.8. GOVERNING LAW. THE VALIDITY, MEANING AND EFFECT
OF THIS AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE.
Section 9.9. Final Agreement. This Agreement, together with
those documents which are exhibits hereto, constitute the final agreement of the
parties concerning the matters referred to herein and therein, and supersedes
all prior and contemporaneous agreements and understandings.
Section 9.10. Delays or Omissions. No delay or omission to
exercise any right, power or remedy accruing to any holder of Common Shares or
the Warrant upon any breach or default of the Corporation under this Agreement,
the Common Shares, the Warrant, the Registration Rights Agreement, the
Stockholders Agreement, the Marketing Agreement, the Charter or the By-laws, or
any other agreement contemplated hereby or thereby shall impair any such right,
power or remedy of any such holder nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any such holder of any provisions or conditions of this
Agreement, the Common Shares, the Warrant, the Registration Rights Agreement,
the Stockholders Agreement, the Marketing Agreement, the Charter, or the By-laws
must be made in writing and shall be effective only to the extent specifically
set forth in such writing. All remedies, under either this Agreement, the Common
Shares, the Warrant, the Registration Rights Agreement, the Stockholders
Agreement, the Marketing Agreement, the Charter or the By-laws or otherwise
afforded to any holder of Common Shares or Warrant shall be cumulative and not
alternative.
Section 9.11. Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed an original and such counterparts together shall
constitute one instrument.
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Section 9.12. Attorneys' Fees. In the event of any action or
suit based upon or arising out of any actual or alleged breach by any party of
any representation, warranty or agreement in this Agreement, the prevailing
party shall be entitled to recover its reasonable attorneys' fees and expenses
of such action or suit from the other party, in addition to any other relief
ordered by the court.
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<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the 30th day of October, 1998.
iMall, Inc.
----------------------------------------
By: Richard M. Rosenblatt
Title: Chairman and Chief Executive
Officer
First Data Merchant Services Corporation
----------------------------------------
By: Richard E. Aiello
Title: Senior Vice President
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<PAGE> 32
EXHIBITS
A Form of Warrant
B Form of Registration Rights Agreement
C Form of Stockholders Agreement
D Form of Marketing Agreement
E Form of Opinion of Counsel
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<PAGE> 1
EXHIBIT 10.2
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (this "Agreement") dated as of
October 30, 1998 is made by and among Richard M. Rosenblatt, Mark R. Comer and
Craig R. Pickering (collectively, the "Significant Stockholders"), First Data
Merchant Services Corporation, a Florida corporation ("Investor") (each
Significant Stockholder and Investor and each other person that may become a
party hereto as contemplated hereby are hereinafter collectively referred to as
the "Parties" and individually a "Party"), and iMall, Inc., a Nevada corporation
(the "Corporation").
RECITALS
WHEREAS, the Corporation has authorized capital stock
consisting of 37,500,000 shares of Common Stock, and 10,000,000 shares of
Preferred Stock, having the respective rights and powers set forth in the
articles of incorporation of the Corporation (as amended from time to time, the
"Charter");
WHEREAS, the Significant Stockholders in the aggregate are, on
the date hereof, the legal and beneficial owners of approximately 58% of the
issued and outstanding shares of Common Stock of the Corporation, none of the
issued and outstanding shares of the Series A Preferred Stock of the Corporation
and 7% of certain rights to purchase Common Stock calculated on a Fully Diluted
Basis (as defined below);
WHEREAS, Investor has agreed to purchase 2,000,000 shares of
Common Stock of the Corporation pursuant to the Investment Agreement dated
October 30, 1998 between Investor and the Corporation;
WHEREAS, Investor and the Corporation have entered into a
marketing agreement as of the date hereof; and
WHEREAS, the Parties have agreed, among other things, to make
certain provisions for the management of the Corporation and its subsidiaries,
and to restrict the transfer of their Capital Stock.
NOW, THEREFORE, in consideration of the covenants and
agreements made herein, the Parties and the Corporation agree as follows:
<PAGE> 2
ARTICLE 1
CERTAIN DEFINED TERMS
1.1 Certain Terms. In addition to terms defined elsewhere in
this Agreement, for purposes of this Agreement, except as otherwise set forth
herein or the context otherwise requires, the following terms shall have the
following meanings:
"Affiliate" of a Party means, in the case of a Party who is a
natural person, such Party's spouse, siblings, parents, descendants (including
the issue of such Party or such Party's spouse, including any by adoption), such
Party's estate and any trust entirely for the benefit of any one or more of such
Party, such Party's estate, such Party's spouse, siblings, parents or
descendants, and, with respect to any Party which is not a natural person, any
other person which directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with such person.
"Alliance" means any venture (in any form, including in
corporate, partnership or limited liability company form) or contractual
alliance now or hereafter entered into between Investor (or any of its
Affiliates) and one or more third parties for the provision of any Merchant
Acquiring Business services pursuant to an arrangement whereby Investor (or any
of its Affiliates) shares the economic benefits of ownership of merchant
contracts through profit sharing, revenue sharing, a royalty interest or
otherwise.
"Board of Directors" means the board of directors of the
Corporation.
"Capital Stock" means the Common Stock, the Preferred Stock
(including, without limitation, the Series A Preferred Stock) and any other
class of capital stock of the Corporation that may be outstanding from time to
time.
"Common Stock" means the Common Stock of the Corporation, par
value $.008 per share.
"Common Stock Equivalents" means (without duplication with any
other Common Stock or Common Stock Equivalents) rights, warrants, options
(including, without limitation, employee stock options), convertible securities
or indebtedness, exchangeable securities or indebtedness, or other rights,
exercisable for or convertible or exchangeable into, directly or indirectly,
Common Stock and securities convertible or exchangeable into Common Stock,
whether at the time of issuance or upon the passage of time or the occurrence of
some future event. For purposes of this Agreement, the number of Common Stock
Equivalents shall be (i) in the case of all or a portion of any right, warrant
or other security which may be exercised for a share or shares of Common Stock,
the number of shares of Common Stock receivable upon exercise of such security
(or such portion of such security), and (ii) in the case of any security
convertible or exchangeable into a share or shares of
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<PAGE> 3
Common Stock, the number of shares of Common Stock that would be received if
such security were converted or exchanged on such date.
"Fully Diluted Basis" means, at any time, the then outstanding
Common Stock owned by such person plus (without duplication) all shares of
Common Stock issuable, whether at such time or upon the passage of time or the
occurrence of future events, upon the exercise, conversion or exchange of all
then outstanding Common Stock Equivalents owned by such person.
"Fully Diluted Common Stock" means, at any time, the then
outstanding Common Stock of the Corporation plus (without duplication) all
shares of Common Stock issuable, whether at such time or upon the passage of
time or the occurrence of future events, upon the exercise, conversion or
exchange of all then outstanding Common Stock Equivalents.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Investment Agreement" means the Investment Agreement dated as
of October 30, 1998 between the Corporation and the Investor.
"Market Price" means the average of the daily per share
closing prices of a security for the 20 consecutive trading days immediately
prior to the date of determination. The closing price for each day shall be the
last sale price of such security on the national securities exchange on which
such security is listed and principally traded or, if such security is not
listed on any national securities exchange, as reported by The Nasdaq Stock
Market, or, if not so reported by The Nasdaq Stock Market, the average of the
high bid and low asked quotations for such security as reported by the National
Quotations Bureau Incorporated or similar organization, or, if on any such date
such security is not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in such security selected in good faith by a majority of the members of the
Board of Directors, excluding therefrom any directors designated by the
Transferor (or any Affiliate thereof).
"Market Sale" means a proposed transfer of shares of Common
Stock pursuant to which the shares are to be sold in the public market at the
prevailing market price so that the price cannot be determined at the time of
the Transferor's Notice. The date of determination for the Market Price shall be
the date of the Transferor's Notice for such Market Sale.
"Merchant Acquiring Business" means a business providing any
of the following services or products to merchants with respect to Transaction
Cards (as hereinafter defined): (i) the authorization and capture of
transactions; (ii) the submission of such transactions for interchange
settlement or other settlement; (iii) the preparation of statements or reports
based on such transactions, chargebacks and other exception items (including by
electronic access); (iv) the provision of customer service or other back office
services in respect of any of such transactions; (v) clearing and settlement
services; (vi) enhancements or modifications to any of
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<PAGE> 4
the foregoing services; and (vii) new services or products developed in support
of merchants to allow such merchants to remain competitive in the Transaction
Card industry.
"Preferred Stock" means the Preferred Stock of the
Corporation, par value $.001 per share, in such series as may be designated by
the Corporation from time to time.
"SEC" means the Securities and Exchange Commission or any
successor governmental agency.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Stock" means the Series A 9% Convertible
Preferred Stock of the Corporation, designated as a series of the Preferred
Stock.
.
"Subsidiary" means any corporation or other entity, a majority
of whose capital stock or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other persons performing
similar functions is at the time held by the Corporation or any subsidiary
thereof.
"Transaction Card" means (a) a card used for credit or debit
transactions, (b) a private label or retail debit or credit card, (c) a stored
value or other prepayment service card, or (d) an electronic coupon, electronic
benefit card, or signature/security card used in connection with electronic
financial transactions or other similar services.
"Transfer Restricted Equivalents" means any Common Stock
Equivalent other than the Warrant. For purposes of this Agreement, the number of
Transfer Restricted Equivalents shall be (i) in the case of all or a portion of
any right, warrant or other security which may be exercised for a share or
shares of Common Stock, the number of shares of Common Stock receivable upon
exercise of such security (or such portion of such security), and (ii) in the
case of any security convertible or exchangeable into a share or shares of
Common Stock, the number of shares of Common Stock that would be received if
such security were converted or exchanged on such date.
"Voting Stock" means any class of Capital Stock entitled to
cast a vote in the election of directors of the Corporation. For purposes of
this Agreement, the number of shares of Voting Stock outstanding shall be equal
to the total number of votes which any outstanding share of Capital Stock is
entitled to cast in the election of directors.
"Warrant" means the Warrant to be issued to Investor pursuant
to the Investment Agreement.
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ARTICLE 2
MANAGEMENT OF THE CORPORATION AND CERTAIN ACTIVITIES
2.1 Board of Directors.
(a) The Parties and the Corporation hereby acknowledge and
agree that, during the term of this Agreement, they shall use their respective
reasonable best efforts to cause the Board of Directors to consist of (i) not
less than seven and (ii) not more than ten members, with the following
composition:
(i) not less than (A) the Agreed Representative Number (as
hereinafter defined) of directors designated in writing by Investor and
(B) two directors who are current or former officers of the Corporation
or any of its Subsidiaries and who are designated by a majority of the
members of the Board of Directors (excluding members who are Affiliates
of Investor or were otherwise designated by Investor); and
(ii) not more than (A) the Agreed Representative Number of
directors who are Affiliates of Investor and (B) two directors who are
current or former officers of the Corporation or any Subsidiary.
The "Agreed Representative Number" shall be equal to the product, rounded to the
nearest whole number, of (A) the total number of members of the Board of
Directors and (B) a fraction with a numerator equal to the number of shares of
Common Stock that Investor, its Affiliates and the Alliances ("Investor Group")
own, on a primary basis, and a denominator equal to the number of shares of
Voting Stock then outstanding; provided, however, that, so long as the Investor
Group owns in the aggregate at least 1,000,000 shares of Common Stock or Common
Stock Equivalents (the "Amount of Owned Equity"), the Agreed Representative
Number shall be not less than one. The Amount of Owned Equity shall be equitably
adjusted in the event of any reclassification, stock split or stock dividend
with respect to the Common Stock, any change or conversion of the Common Stock
into other securities of the Corporation or any dividend or distribution with
respect to the Common Stock. Accordingly, immediately following the Closing of
the Investment Agreement, the Board of Directors shall use its reasonable best
efforts to amend the by-laws of the Corporation, take all necessary actions to
increase the size of the Board of Directors, if necessary, cause two members of
the Board of Directors who are current or former officers to resign and fill any
vacancies created thereby with the Agreed Representative Number of persons
designated in writing by Investor. The Parties and the Corporation thereafter
agree to use their respective reasonable best efforts, including, but not
limited to, the voting of Voting Stock of the Corporation owned by them or as to
which they otherwise possess the power (directly or indirectly) to vote,
required to cause the Board of Directors to at all times include the persons
designated pursuant to Section 2.1(a). Unless otherwise agreed upon in writing
by the Investor and the Corporation, the Corporation agrees that it shall cause
the board of directors of all Subsidiaries of the Corporation to consist of the
same members as of the Board of Directors. For purposes of this Agreement, only
shares transferred to Alliances in accordance with
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Sections 6.6 and 8.4 of the Investment Agreement and Section 3.1(a) of this
Agreement shall be deemed to be owned by any such Alliances.
(b) In the event that any director (a "Withdrawing Director")
designated pursuant to Section 2.1(a)(i) is unable or unwilling to serve, or
once having commenced to serve, is removed or withdraws from the Board of
Directors, such Withdrawing Director's replacement (the "Substitute Director")
on the Board of Directors will be designated by the person entitled to designate
such director pursuant to Section 2.1(a)(i); provided, however, that a director
designated pursuant to Section 2.1(a)(i) may only be removed by the persons
entitled to designate such director pursuant to Section 2.1(a)(i). The
Corporation and each of the Parties agree to use their reasonable best efforts,
including, but not limited to, the voting of Voting Stock of the Corporation, to
cause the election of such Substitute Director as soon as practicable following
such designation.
(c) In the event Investor ceases to be entitled to designate a
director or directors pursuant to this Agreement, the vacancy or vacancies
resulting therefrom shall be filled by the directors or by the stockholders in
the manner provided by applicable law. In the event Investor chooses not to
designate any director or directors, such directorship or directorships shall
not otherwise be filled and the size of the Board of Directors shall be
correspondingly reduced until such time as Investor elects to designate a
director or directors in accordance with this Agreement.
(d) The Corporation and the Parties agree that no action shall
be taken at any meeting of the Board of Directors unless each director shall
receive at least one business day's notice of such meeting or shall waive such
notice. The Corporation and each of the Parties agree to use their reasonable
best efforts, including, but not limited to, the voting of Voting Stock of the
Corporation, to prevent action from being taken without such notice unless such
notice is waived by all of the members of the Board of Directors.
(e) The Corporation and the Parties shall vote to approve and
adopt amendments to the by-laws set forth in Exhibit A attached hereto and to
take such other actions in furtherance of, and to give effect to, the agreements
and provisions set forth in this Agreement and the Investment Agreement, and
shall not vote to repeal or adopt any by-law or amendment to the Charter if such
repeal or adoption is in violation of, or inconsistent with, such agreements or
provisions, or take any other action in violation of, or inconsistent with, such
agreements and provisions.
(f) Upon the request of the person entitled to designate a
director pursuant to Section 2.1(a)(i) to remove a director designated by such
person, the Parties shall vote all of their Voting Stock (and all Voting Stock
that they otherwise possess the power, directly or indirectly, to vote) in favor
of the removal of such director. Except as contemplated by the immediately
preceding sentence, no Party shall vote its Voting Stock (or any Voting Stock
that it otherwise possesses the power, directly or indirectly, to vote) in favor
of the removal of a director nominated pursuant to Section 2.1(a)(i).
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<PAGE> 7
(g) Prior to December 31, 1999, Investor shall vote all of its
Voting Stock together with Voting Stock held by any Affiliate of Investor (and
all Voting Stock that it otherwise possesses the power, directly or indirectly,
to vote) in favor of the nominees to the Board of Directors designated by a
majority of the members of the Board of Directors (excluding members who are
Affiliates of Investor or who were designated by Investor pursuant to Section
2.1(a)(i)).
2.2 Other Activities of the Parties; Fiduciary Duties. It is
understood and accepted that the Parties and their Affiliates have interests in
other business ventures which may be in conflict with the activities of the
Corporation and its Subsidiaries and that, subject to applicable law, nothing in
this Agreement shall limit the current or future business activities of the
Parties, whether or not such activities are competitive with those of the
Corporation and its Subsidiaries; provided, however, that the foregoing shall
not limit Investor's obligation under Section 5.1 of the Investment Agreement.
Nothing in this Agreement, express or implied, shall relieve any officer or
director of the Corporation or any of its Subsidiaries, or any Party, of any
fiduciary or other duties or obligations they may have to the Corporation's
stockholders.
2.3 Issuance of the Warrant. Each of the Significant
Stockholders hereby agrees to attend each shareholder meeting of the
Corporation, in person or by proxy, and to vote (or cause to be voted) all
shares of Voting Stock, whether issued heretofore or hereafter, that such Party
owns or has the right to vote, for approval of the issuance of the Second Common
Shares (as defined in the Investment Agreement), the Warrant and the Warrant
Shares (as defined in the Investment Agreement) to Investor. Each of the
Significant Stockholders agrees not to grant any proxies or enter into any
voting agreement or arrangement inconsistent with this Agreement.
2.4 No Adverse Actions. The Corporation will not adopt any
amendment to its Charter or by-laws or enter into or adopt any plans,
agreements, arrangements or understandings which have the effect of materially
impeding, preventing or prohibiting the Investor Group from beneficially owning,
in the aggregate, 39.9% of the outstanding Voting Stock, such percentage to be
calculated by dividing (i) the number of shares of Common Stock beneficially
owned, on a Fully Diluted Basis, by the Investor Group, by (ii) the sum of the
number of outstanding shares of Voting Stock plus the number of Common Stock
Equivalents beneficially owned by the Investor Group. For the purpose of the
preceding sentence only, during the Warrant Term (as defined in the Investment
Agreement), Investor shall be deemed to beneficially own the Warrant. Each of
the Parties agree to use their reasonable best efforts, including, but not
limited to, the voting of Voting Stock of the Corporation, to prevent any such
action from being taken by the Corporation.
2.5 Preservation of Corporate Existence and Property. During
the Warrant Term (as defined in the Investment Agreement), the Corporation shall
preserve and maintain its corporate existence and its rights franchises and
privileges.
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2.6 Increase in Employee Stock Options. Investor and each
Significant Stockholder agree to vote in favor of a one-time 1,500,000 share
increase in the number of options available under the Corporation's employee
stock option plan.
ARTICLE 3
TRANSFER OF SECURITIES
3.1 Transfers. During the term hereof, no Party shall sell,
transfer or otherwise dispose of, hypothecate or otherwise encumber (voluntarily
or involuntarily) (any such sale, transfer, disposition, hypothecation or
encumbrance being referred to as a "transfer") any Common Stock or Transfer
Restricted Equivalents except as expressly permitted in this Section 3.1.
(a) Investor or its permitted assigns may transfer shares of
Common Stock or Transfer Restricted Equivalents and its rights hereunder to any
subsidiary of First Data Corporation or to any Alliance; provided, however, that
Investor shall first deliver to the Corporation the written agreement of such
subsidiary or Alliance to be bound by the terms and provisions of this Agreement
as though a Party; provided, further, that such Alliance shall not be required
to bind any of its Affiliates to any of the provisions of this Agreement;
provided, further, that any such Alliance shall be allowed to transfer to any of
its Affiliates shares of Common Stock and Transfer Restricted Equivalents
received from Investor or its Affiliates, if such Affiliate shall deliver to the
Corporation the written agreement of such Affiliate to vote any such shares
transferred in accordance with the provisions of Section 2.1 of this Agreement.
(b) A Party may transfer up to 25,000 shares of Common Stock
or Transfer Restricted Equivalents during each calendar quarter, subject to
compliance with the requirements of the Securities Act.
(c) Any Significant Stockholder may transfer Common Stock or
Transfer Restricted Equivalents to any member of such Significant Stockholder's
immediate family (including any spouse, parent grandparent, child or grandchild,
whether by blood, marriage or adoption), any trust or trustee for the benefit of
such person or any entity substantially all of the equity of which is directly
or indirectly owned by the transferor and/or one or more of the foregoing
persons; provided, however, that such Significant Stockholder shall first
deliver to the Corporation a written agreement of such person to be bound by the
terms and provisions of this Agreement as though a Party. Any Significant
Stockholder may also pledge to a lender in connection with a bona fide personal
loan one-third of such Significant Stockholder's Common Stock; provided,
however, such Significant Stockholder shall not pledge Common Stock with a
market value in excess of $5,000,000 based on the Market Price of the Common
Stock on the date of such pledge; provided, further, that so long as any such
shares of Common Stock are pledged, such Significant Stockholder shall own at
least twice as many shares of Common Stock as have been pledged.
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<PAGE> 9
(d) No Party may transfer any shares of Common Stock or
Transfer Restricted Equivalents except as provided in Section 3.1(a), (b), (c),
(d) or (f). If a Party (the "Transferor") proposes to transfer any shares or
Transfer Restricted Equivalents pursuant to this Section 3.1(d), the Transferor
shall give written notice (the "Transferor's Notice") to the Corporation and the
other Parties (the "Other Parties") that either it proposes to complete a Market
Sale of any or all shares of such Party's Common Stock or it has received a bona
fide written offer to purchase any or all shares of such Party's Common Stock or
Transfer Restricted Equivalents and that such Party desires to transfer any or
all of such shares or Transfer Restricted Equivalents. In the case of a Market
Sale, the Transferor's Notice shall specify the number of shares of Common Stock
to be transferred and the Market Price. In the case of all other proposed
transfers pursuant to Section 3.1(d), the Transferor's Notice shall specify the
proposed transferee thereof, all material terms of the proposed transaction,
including the number of shares of Common Stock or Transfer Restricted
Equivalents to be transferred and the amount and type of consideration to be
received therefor and shall be accompanied by a copy of such bona fide offer.
The shares or Transfer Restricted Equivalents proposed to be transferred as set
forth in the Transferor's Notice (the "Transfer Securities") shall be subject to
the following options:
(i) The Transferor shall offer to sell (the "First Option")
all such Transfer Securities to the Other Parties at the Market Price,
in the case of a Market Sale, and at the same price per Transfer
Security as to be paid by the proposed transferee (or at the cash
equivalent as determined pursuant to this Section 3.1(d)(i)), in all
other cases. To the extent the consideration to be paid by the proposed
transferee consists of assets other than cash, the cash equivalent of
such consideration shall be determined reasonably and in good faith by
the Corporation. The cash equivalent determination required by the
preceding sentence, in any particular instance, shall be made in good
faith by the Board of Directors, excluding therefrom any directors
designated by the Transferor or the proposed transferee (or any
Affiliate thereof), who may be counted for quorum purposes but shall
abstain from any such decision, utilizing any method and/or advisory
assistance the Board of Directors deems appropriate, and the
Corporation shall give the Transferor and the Other Parties written
notice of such determination within twenty days after receipt of the
Transferor's Notice. Each Other Party may purchase the number of
Transfer Securities equal to the product of (A) the aggregate number of
Transfer Securities and (B) a fraction with a numerator equal to the
number of shares of Common Stock that such Other Party owns on a Fully
Diluted Basis and a denominator equal to the number of shares of Common
Stock owned in the aggregate, on a Fully Diluted Basis, by the Other
Parties.
(ii) If any of the Other Parties (A) fails to notify the
Transferor within ten days after (i) receipt of the Transferor's
Notice, if the consideration to be paid by the proposed transferee is
solely cash; or (ii) receipt of notice of the determination by the
Board of Directors of the cash equivalent of the consideration to be
paid by the proposed transferee that it elects to accept the First
Option or (B) by written notice rejects the First Option, in whole or
in part, the Transferor shall offer to sell (the "Second Option") the
Transfer Securities not so purchased by the Other Parties to the
Corporation for cash at the same
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<PAGE> 10
price as the First Option, and the Transferor shall promptly provide
written notice thereof (the "Second Notice") to the Corporation and the
Other Parties. The Second Option may be accepted by the Corporation by
written notice delivered to the Transferor within the ten days after
receipt of the Second Notice.
(iii) If the Corporation (A) fails to notify the Transferor
within ten days after receipt of the Second Notice that it elects to
exercise the Second Option or (B) by written notice rejects the Second
Option, in whole or in part, the Transferor shall offer to sell (the
"Third Option") the Transfer Securities not purchased pursuant to the
First Option or the Second Option for cash at the same price as the
First Option to the Other Parties which exercised the First Option in
full, and the Transferor shall promptly provide written notice thereof
(the "Third Notice") to the Corporation and the Other Parties. Such
Other Parties may purchase the number of Transfer Securities as they
shall mutually agree, or, in absence of such agreement, that number
equal to the product of (A) the aggregate number of Transfer Securities
remaining following the First Option and the Second Option and (B) a
fraction with a numerator equal to the number of shares of Common Stock
that such Other Party owns on a Fully Diluted Basis and a denominator
equal to the number of shares of Common Stock owned in the aggregate,
on a Fully Diluted Basis, by each Other Party which elects to exercise
the Third Option, without reference to the number of shares of Common
Stock owned by any Other Party not eligible or declining to exercise
the Third Option. Each Other Party eligible to participate in the Third
Option shall have ten days to provide written notice to the Transferor
of its election to exercise the Third Option.
Unless, through exercise of the First Option, the Second Option or the Third
Option (collectively, the "Options"), all the Transfer Securities proposed to be
transferred in the Transferor's Notice are to be acquired by the Corporation and
Other Parties, the Transferor may transfer any Transfer Securities covered by
the Transferor's Notice which are not purchased by the Corporation or the Other
Parties in the market, in the case of a Market Sale, and to the proposed
transferee upon the terms of such transfer set forth in the Transferor's Notice,
in all other cases; provided, however, that such transfer must occur no later
than 60 days after the date the Transferor's Notice was received by the
Corporation or five days after the expiration or termination of any waiting
period applicable to such transfer pursuant to the HSR Act, whichever is later.
If any of the Options is exercised, the Transferor shall transfer any such
shares or Transfer Restricted Equivalents (free of all liens and encumbrances
except this Agreement) to the respective purchasers thereof within 20 days after
the date such offer is accepted by the Corporation and/or Other Parties, as
applicable, against delivery by the purchasers of the consideration for such
shares; provided, however, that, if the HSR Act is applicable to the Options,
such date shall be extended to the date which is five days after the date the
applicable waiting period expires or is terminated.
(e) Other than transfers pursuant to Section 3.1(b), (c), or
(f), or Market Sales pursuant to Section 3.1(d), no transfers of shares of
Common Stock or Transfer Restricted Equivalents shall be made unless prior to
the consummation thereof, the Party transferring such
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<PAGE> 11
shares delivers to the Corporation in form reasonably acceptable to the
Corporation a written agreement of the proposed transferee to become a Party and
be bound by the terms hereof.
(f) In the case of any tender or exchange offer made pursuant
to Section 14(d) of the Securities Exchange Act of 1934, as amended, any Party
shall be permitted (i) on or before December 31, 1999, to tender shares of
Common Stock to the offeror if such tender offer or exchange offer is
recommended by the Board of Directors and (ii) after December 31, 1999 to tender
shares of Common Stock to the offeror whether or not the tender or exchange
offer is recommended by the Board of Directors, provided that such Party
complies with Section 3.1(d), as modified as follows:
(i) a Party may transfer its shares or Common Stock
Equivalents only if the Transferor has delivered the Transferor's
Notice not later than ten business days prior to expiration of such
tender or exchange offer;
(ii) in an exchange offer, when the Board of Directors is
required to determine the cash equivalent of the consideration being
offered, the value of securities which are publicly traded shall be
deemed to be the Market Price of such securities on the date of the
Transferor's Notice and the Board of Directors shall make such
determination within two business days of receipt of the Transferor's
Notice; and
(iii) the time periods during which the Options may be
exercised shall be reduced as follows: the First Option must be
exercised within two business days of receipt of the Transferor's
Notice, the Second Option must be exercised within two business days of
receipt of the Second Notice, and the Third Option must be exercised
not later than one business day prior to the date the tender or
exchange offer is to expire.
(g) Transfers pursuant to Sections 3.1(a) and 3.1(b) shall not
be subject to Section 3.1(d). Any purported transfer of Common Stock or Transfer
Restricted Equivalents by a Party which is not permitted by the foregoing
provisions of this Section, or which is in violation of such provisions, shall
be void and of no force and effect whatsoever.
3.2 Certain Events Not Deemed Transfers. In no event shall any
of the following constitute a transfer of shares or Transfer Restricted
Equivalents for purposes of Section 3.1: an exchange, reclassification or other
conversion of shares into any cash, securities or other property pursuant to (i)
the terms of such security providing for exchange or conversion thereof, (ii) a
merger, consolidation or recapitalization of the Corporation or any Subsidiary
with any person or entity, or (iii) a sale or transfer by the Corporation or any
Subsidiary of all or substantially all its assets to any person or entity.
ARTICLE 4
TERMINATION
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<PAGE> 12
4.1 Termination. All provisions of this Agreement shall
terminate (a) in respect of any Party, when such Party (and its Affiliates who
acquired shares of Common Stock from such Party) no longer owns any Common Stock
or Common Stock Equivalents following compliance with Section 3.1; and (b) in
any event, upon the dissolution of the Corporation. The provisions contained in
Article 3 of the Agreement shall terminate (a) if Investor and its Affiliates
own in the aggregate less than 500,000 shares of Common Stock (which number
shall be equitably adjusted in the event of any reclassification, stock split or
stock dividend with respect to the Common Stock, any change or conversion of the
Common Stock into other securities of the Corporation or any dividend or
distribution with respect to the Common Stock) or (b) in any event, on October
30, 2008.
ARTICLE 5
MISCELLANEOUS
5.1 Amendment. This Agreement shall not be amended, modified
or supplemented except by a written instrument signed by an authorized
representative of the Corporation, Investor and the holders of a majority of
shares of Common Stock owned, on a Fully Diluted Basis, by the Significant
Stockholders.
5.2 Equitable Relief. The Parties and the Corporation
recognize that the obligations imposed on them in this Agreement are special,
unique, and of extraordinary character, and that in the event of breach by any
party, damages will be an insufficient remedy; consequently, it is agreed that
the Parties hereto and the Corporation may have specific performance,
injunction, injunctive or other equitable relief (in addition to damages) as a
remedy for the enforcement hereof, without proving damages.
5.3 Assignment. Except as otherwise expressly provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the Parties and
the Corporation. No such assignment shall relieve the assignor from any
liability hereunder. No assignment hereof shall be effective until the Party
making an assignment hereof delivers to the Corporation an executed counterpart
of this Agreement by the transferee or an agreement in writing executed by the
transferee to be bound by the terms hereof to the same extent as if such
transferee was a Party hereto.
5.4 Shares Subject to this Agreement. All shares of Common
Stock or Common Stock Equivalents now owned or hereafter acquired by any of the
Parties shall be subject to the terms of this Agreement.
5.5 Legend. (a) Certificates evidencing shares of Common Stock
or Transfer Restricted Equivalents owned by the Parties shall bear a legend in
substantially the following form:
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<PAGE> 13
THIS SECURITY IS SUBJECT TO RESTRICTIONS ON TRANSFER, VOTING
RESTRICTIONS AND OTHER TERMS AND CONDITIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT, DATED AS OF OCTOBER 30, 1998, AS
AMENDED FROM TIME TO TIME, AND THE INVESTMENT AGREEMENT, DATED
OCTOBER 30, 1998, AS AMENDED FROM TIME TO TIME, A COPY OF EACH
OF WHICH MAY BE OBTAINED FROM THE CORPORATION AT ITS PRINCIPAL
EXECUTIVE OFFICES AND MAY NOT BE SOLD, ASSIGNED, PLEDGED OR
OTHERWISE DISPOSED OF WITHOUT COMPLIANCE WITH THE TERMS AND
CONDITIONS OF SUCH AGREEMENTS.
5.6 Notices. Any notice, demand or delivery required or
permitted by this Agreement shall be in writing and shall be given to the
specified party at its address (or facsimile number) set forth below, or such
other address (or facsimile number) as shall have been furnished to the party
giving or making such notice, demand or delivery:
If to the Corporation: iMall, Inc.
233 Wilshire Boulevard
Santa Monica, California 90401
Attention: Richard Rosenblatt
Facsimile: (310) 309-4100
with a copy to: Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071
Attention: Brian G. Cartwright, Esq.
Facsimile: (213) 891-8763
If to Investor: First Data Merchant Services Corporation
6200 South Quebec Street
Englewood, Colorado 80111
Attention: President
Facsimile: (303) 488-8705
-and-
First Data Merchant Services Corporation
6200 South Quebec Street
Englewood, Colorado 80111
Attention: General Counsel
Facsimile: (303) 889-6566
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<PAGE> 14
with copies to: Sidley & Austin
One First National Plaza
Chicago, IL 60603
Attention: Frederick C. Lowinger, Esq.
Facsimile: (312) 853-7036
If to Richard M. Rosenblatt, to: Richard M. Rosenblatt
549 El Medio
Pacific Palisades, California 90272
If to Mark R. Comer, to: Mark R. Comer
1736 North Cherapple Drive
Orem, Utah 84057
If to Craig R. Pickering, to: Craig R. Pickering
1208 E. Hobble Creek Drive
Springville, Utah 84633
5.7 Counterparts. This Agreement may be executed in two or
more counterparts and each counterpart shall be deemed to be an original and
which counterparts together shall constitute one and the same agreement of the
parties hereto.
5.8 Section Headings. Headings contained in this Agreement are
inserted only as a matter of convenience and in no way define, limit or extend
the scope or intent of this Agreement or any provisions hereof.
5.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF NEVADA, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS
PRINCIPLES THEREOF.
5.10 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto respecting the subject matter hereof, and
supersedes all prior agreements, discussions and understandings.
5.11 Cumulative Rights. The rights of the Parties and the
Corporation under this Agreement are cumulative and in addition to all similar
and other rights of the parties under other agreements, including the Investment
Agreement.
5.12 Severability. Should any particular provision of this
Agreement be adjudicated to be invalid or unenforceable, such provision shall be
deemed deleted and the remainder of the Agreement, nevertheless, shall remain
unaffected and fully enforceable; further, to the extent any provision herewith
is deemed unenforceable by virtue of its scope but may be made enforceable by
limitation thereof, the parties hereto agree the same shall, nevertheless, be
enforceable to the fullest extent permissible.
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<PAGE> 15
5.13 No Waiver. No delay on the part of any party hereunder in
exercising any right, power or privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude other or further exercise thereof, or
the exercise of any other right, power of privilege.
5.14 Headings. The headings in this Agreement are intended
solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
5.15 Attorneys Fees. In the event of any action or suit based
upon or arising out of any actual or alleged breach by any party of any
representation, warranty or agreement in this Agreement, the prevailing party
shall be entitled to recover its reasonable attorneys' fees and expenses of such
action or suit from the other party, in addition to any other relief ordered by
the court.
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
iMALL, INC.
By: _________________________
Name:
Title:
FIRST DATA MERCHANT SERVICES CORPORATION
By: _________________________
Name: Richard E. Aiello
Title: Senior Vice President
_________________________
Richard Rosenblatt
_________________________
Mark R. Comer
STATE OF _____________ )
| ss.
COUNTY OF ____________ )
On this 30th day of October, 1998, personally appeared before
me Mark R. Comer, personally known to me or proved to me on the basis of
satisfactory evidence to be the person whose name is signed above, and
acknowledged to me that he signed it voluntarily and for its stated purpose.
_________________________
NOTARY PUBLIC
STAMP
<PAGE> 17
_________________________
Craig R. Pickering
STATE OF _____________ )
| ss.
COUNTY OF ___________ )
On this __ day of October, 1998, personally appeared before me
Craig R. Pickering, personally known to me or proved to me on the basis of
satisfactory evidence to be the person whose name is signed above, and
acknowledged to me that he signed it voluntarily and for its stated purpose.
_________________________
NOTARY PUBLIC
STAMP
<PAGE> 1
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") dated as
of October 30, 1998, is made by and between iMall, Inc., a Nevada corporation
(the "Corporation"), and First Data Merchant Services Corporation, a Florida
corporation (the "Investor").
RECITALS
WHEREAS, the Investor is acquiring, on the date hereof from
the Corporation 1,540,000 shares of the authorized but unissued shares of Common
Stock, $.008 par value per share, of the Corporation (the "Common Stock"), has
agreed to acquire an additional 460,000 shares of Common Stock (the "Second
Closing Shares") and may in the future be issued a warrant (the "Warrant") to
acquire 5,000,000 shares of the Common Stock (subject to adjustment under
certain circumstances), in each case as contemplated by that certain Investment
Agreement dated as of October 30, 1998 (the "Investment Agreement"), between the
Corporation and the Investor, provided that certain registration rights are
granted to the Investor; and
WHEREAS, the Corporation deems it desirable for the
Corporation to grant certain registration rights to the Investor in order to
induce the Investor to consummate the transactions contemplated by the
Investment Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. As used in this Agreement:
(a) "Commission" means the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(b) "Exchange Registrable Securities" means the
securities of the Corporation that are covered by the Exchange Registration
Agreements.
(c) "Exchange Registration Agreements" means the
agreement of the Corporation to register under the Securities Act under certain
limited circumstances the Common Stock of the Corporation contained in the Share
Exchange Agreement between the Corporation and Madison York Associates dated
January 15, 1996, the Share Exchange Agreement between the Corporation and
Cabot, Richards & Reed, Inc. dated January 15, 1996, the Share Exchange
Agreement between the Corporation and R&R Advertising, Inc. dated January 15,
1996, the Share Exchange Agreement between the Corporation and Physicomp
Corporation dated April 26, 1996 (including the Registration Rights Agreement
attached thereto) and the Share Exchange Agreement between the Corporation and
Interactive Marketing Group, Inc. dated March 5, 1996.
<PAGE> 2
(d) "Other Registrable Securities" means the securities
of the Corporation that are covered by the Other Registration Agreements and any
securities of the Corporation that the Corporation grants "piggyback
registration" rights in the future that have a priority in primary and secondary
registrations comparable to those of the Registrable Shares.
(e) "Other Registration Agreements" means the agreements
of the Corporation to register under the Securities Act certain securities of
the Corporation contained in the Common Stock Purchase Agreements (the "Common
Stock Purchase Agreement"), dated August/September 1997, among the Corporation
and various parties, the Warrants to purchase shares of Common Stock of the
Corporation issued in connection with the Subscription Agreement (as defined
below) and/or related bridge loan as part of the December 1997 private
placement, the Warrants issued in connection with the Common Stock Purchase
Agreement as part of the October 1997 private placement, the Warrant Agreement,
dated December 5, 1997, among the Corporation, Signature Stock Transfer, Inc.
and Commonwealth Associates and the Subscription Agreements (the "Subscription
Agreement") by and among the Corporation and the subscribers identified therein
pursuant to which the Corporation issued Series A 9% Convertible Preferred Stock
and the Warrants issued in December 1997.
(f) "Person" means an individual, partnership,
corporation, limited liability company, trust, joint stock company, association,
joint venture, or any other entity or organization, including a government or
political subdivision or any agency or instrumentality thereof.
(g) "Registrable Shares" means at any time (i) the
shares of the Common Stock being acquired by the Investor on the date hereof
from the Corporation; (ii) the Second Closing Shares; (iii) any shares of the
Common Stock then issued or issuable upon exercise of the Warrant; (iv) any
shares of the Common Stock then outstanding which were issued as, or were issued
directly or indirectly upon the conversion or exercise of other securities
issued as, a dividend or other distribution with respect to or in replacement of
other Registrable Shares; and (v) any shares of the Common Stock then issuable
directly or indirectly upon the conversion or exercise of other securities which
were issued as a dividend or other distribution with respect to or in
replacement of other Registrable Shares; provided, however, that Registrable
Shares shall not include any shares (i) the sale of which has been registered
pursuant to the Securities Act and which shares have been sold pursuant to such
registration or (ii) which have been sold to the public pursuant to Rule 144 of
the Commission under the Securities Act. For purposes of this Agreement, a
Person will be deemed to be a holder of Registrable Shares whenever such Person
has the then existing right to acquire such Registrable Shares (by exercise,
conversion or otherwise), whether or not such acquisition has actually been
effected.
(h) "Registration Expenses" has the meaning ascribed to
it in Section 6 of this Agreement.
(i) "Securities Act" means the Securities Act of 1933,
as amended.
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<PAGE> 3
(j) "Securities Exchange Act" means the Securities
Exchange Act of 1934, as amended.
(k) "Stockholders Agreement" means the Stockholders
Agreement dated as of the date hereof relating to the Corporation and among
Investor and the other parties named therein as such agreement may be amended
from time to time.
2. Demand Registrations.
(a) Requests for Registration. Investor or the holders of at
least 50% of the then outstanding Registrable Shares at any time may request
registration under the Securities Act of all or part of their Registrable Shares
for sale in the manner specified in such request. Within ten days after receipt
of any request pursuant to this paragraph 2(a), the Corporation will give
written notice of such request to all other holders of Registrable Shares and
will include in such registration all Registrable Shares with respect to which
the Corporation has received written requests for inclusion therein within 15
days after the receipt of the Corporation's notice. All registrations requested
pursuant to this paragraph 2(a) are referred to herein as "Demand
Registrations."
(b) Number of Demand Registrations. The Corporation shall be
obligated to register Registrable Shares pursuant to a Demand Registration on
two occasions only; provided, however, that a registration will not count as a
Demand Registration until it has become effective and unless the holders of
Registrable Shares requesting such Registration are able to register and sell at
least 90% of the Registrable Shares requested to be included in such
registration; provided, further, that a registration that is withdrawn at the
request of the holders of Registrable Shares who demanded such Demand
Registration will count as a Demand Registration unless the Company is
reimbursed by holders of Registrable Shares for all reasonable out-of-pocket
expenses incurred by the Company in connection with such registration.
(c) Priority on Demand Registrations. If a Demand Registration
is an underwritten public offering, the holders of a majority of the Registrable
Shares to be sold pursuant to such offering may designate the managing
underwriter(s) for such offering, subject to the approval of the Corporation,
which approval may not be unreasonably withheld. If in such an underwritten
public offering the managing underwriter(s) advise the Corporation in writing
that in their opinion the number of Registrable Shares and other securities
requested to be included (x) creates a substantial risk that the price per share
in such registration will be materially and adversely affected or (y) exceeds
the number of Registrable Shares and other securities which can be sold in such
offering, except to the extent the Other Registration Agreements provide
otherwise, the Corporation will include in such registration, prior to the
inclusion of any securities which are not Registrable Shares, the number of
Registrable Shares requested to be included which in the opinion of such
underwriters can be sold, pro rata among the respective holders on the basis of
the number of Registrable Shares owned by such holders, with further successive
pro rata allocations among the holders of Registrable Shares if any such holder
of
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<PAGE> 4
Registrable Shares has requested the registration of less than all such
Registrable Shares it is entitled to register.
(d) Restrictions on Registrations. The Corporation may
postpone for up to three months the filing or the effectiveness of a
registration statement for a Demand Registration (but no more than once in any
twelve-month period or twice in total) if the Corporation's board of directors
determines in good faith that such Demand Registration is reasonably likely to
have a material adverse effect on any proposal or plan by the Corporation or any
of its subsidiaries to engage in any acquisition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender offer,
material financing or similar transaction. In the event of any such
postponement, the holders of Registrable Shares requesting such Demand
Registration will be entitled to withdraw such request and, if such request is
so withdrawn, such Demand Registration will not count as a Demand Registration.
3. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Corporation proposes to
register any of its securities under the Securities Act (other than a Demand
Registration) and the registration form to be used may be used for the
registration of Registrable Shares (a "Piggyback Registration"), the Corporation
will give prompt written notice to all holders of Registrable Shares of its
intention to effect such a registration (which notice shall be given not less
than 30 days prior to the date the registration statement is to be filed) and
subject to the terms hereof will include in such registration all Registrable
Shares with respect to which the Corporation has received written requests for
inclusion therein within 15 days after the receipt of the Corporation's notice.
Notwithstanding the pendency of any Piggyback Registration, the Corporation
shall have the right in its sole discretion to terminate such registration and
any related offering at any time without any liability to any person pursuant to
this Agreement, it being understood that any Registrable Shares previously
included in such withdrawn registration statement shall not cease to be
Registrable Shares by reason of such inclusion or withdrawals; provided,
however, that if such registration is withdrawn, the Corporation will reimburse
the holders of Registrable Shares requesting inclusion in such registration
statement for all reasonable out-of-pocket expenses incurred by the Company in
connection with such registration.
(b) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Corporation, and the managing underwriter(s) advise the Corporation in writing
that in their opinion the number of securities requested to be included in such
registration (i) creates a substantial risk that the price per share in such
registration will be materially and adversely affected, or (ii) exceeds the
number which can be reasonably sold in such offering, except to the extent the
Other Registration Agreements provide otherwise, the Corporation will include in
such registration (x) first, the securities the Corporation proposes to sell,
(y) second, the Registrable Shares, Other Registrable Securities and Exchange
Registrable Securities requested to be included in such registration which in
such opinion of such underwriter(s) can be sold, pro rata among the holders of
such Registrable
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<PAGE> 5
Shares, Other Registrable Securities and Exchange Registrable Securities on the
basis of the number of Registrable Shares, Registrable Securities and Exchange
Registrable Securities owned by such holders, with further successive pro rata
allocations among the holders of Registrable Shares, Other Registrable
Securities if any such holder of Registrable Shares, Other Registrable
Securities or Exchange Registrable Securities had requested the registration of
less than all such Registrable Shares, Other Registrable Securities or Exchange
Registrable Securities it is entitled to register, and (z) third, other
securities requested to be included in such registration.
(c) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Corporation's securities, and the managing underwriter(s) advise the
Corporation in writing that in their opinion the number of securities requested
to be included in such registration (i) creates a substantial risk that the
price per share in such registration will be materially and adversely affected,
or (ii) exceeds the number which can reasonably be sold in such offering, except
to the extent the Other Registration Agreements provide otherwise, the
Corporation will include in such registration (x) first, the securities
requested to be included therein by the holders requesting such registration,
(y) second, the Registrable Shares and Other Registrable Securities requested to
be included in such registration which in such opinion of such underwriter(s)
can be sold, pro rata among the holders of such Registrable Shares and Other
Registrable Securities on the basis of the number of Registrable Shares and
Other Registrable Securities owned or deemed to be owned by such holders, with
further successive pro rata allocations among the holders of Registrable Shares
and Other Registrable Securities if any such holder of Registrable Shares or
Other Registrable Securities has requested the registration of less than all
such Registrable Shares or Other Registrable Securities it is entitled to
register, and (z) third, other securities requested to be included in such
registration.
(d) Other Registrations. Except to the extent the Other
Registration Agreements provide otherwise, if the Corporation has previously
received a request for a Demand Registration pursuant to paragraph 2 or has
previously filed a registration statement with respect to Registrable Securities
pursuant to this paragraph 3, and if such previous request or registration has
not been withdrawn or abandoned, the Corporation will not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-8 or any successor form), whether on its
own behalf or at the request of any holder or holders of such securities, until
a period of 90 days has elapsed from the effective date of such Demand
Registration or previous registration, as the case may be.
4. Holdback Agreements.
(a) Each of the holders of Registrable Shares agrees not to
effect any public sale or distribution of equity securities of the Corporation,
or any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 90-day period beginning on
the effective date of any underwritten registration (except as part of such
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<PAGE> 6
underwritten registration), unless the underwriter(s) managing the registered
public offering otherwise agree.
(b) The Corporation agrees (i) not to effect any public sale
or distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 90-day period beginning on the effective date of any underwritten
Demand Registration or any underwritten Piggyback Registration (except as part
of such underwritten registration or pursuant to registrations on Form S-4 or
S-8 or any successor form), unless the underwriters managing the registered
public offering otherwise agree, and (ii) to use its reasonable best efforts to
cause each holder of at least 5% (on a fully-diluted basis) of its equity
securities (other than equity securities acquired in a public trading market),
or any securities convertible into or exchangeable or exercisable for such
securities, purchased from the Corporation at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public sale or distribution of any such securities during such period
(except as part of such underwritten registration, if otherwise permitted),
unless the underwriters managing the registered public offering otherwise agree.
5. Registration Procedures.
(a) Whenever the holders of Registrable Shares have requested
that any Registrable Shares be registered pursuant to this Agreement, the
Corporation will use its reasonable best efforts to effect the registration and
the sale of such Registrable Shares in accordance with the intended method of
disposition thereof, and pursuant thereto the Corporation will as expeditiously
as possible:
(i) prepare and file with the Commission a
registration statement with respect to such Registrable Shares
and use its reasonable best efforts to cause such registration
statement to become effective;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a
period of, in the case of any registration not constituting a
shelf registration, not less than nine months (or such longer
period as is necessary for the underwriters in an underwritten
offering to sell unsold allotments), or, in the case of a
shelf registration, two years (or, in the case of any
registration statement, such shorter period which will
terminate when all Registrable shares covered by such
registration statement have been sold or withdrawn, but not
prior to the expiration of any applicable period referred to
in Section 4(3) of the Securities Act or Rule 174 thereunder)
and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement during such period in accordance with
the intended methods of disposition by the sellers thereof set
forth in such registration statement;
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<PAGE> 7
(iii) furnish to each seller of Registrable Shares
and the underwriters of the securities being registered such
number of copies of such registration statement, each
amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary
prospectus) and such other documents as such seller or
underwriters may reasonably request in order to facilitate the
disposition of the Registrable Shares owned by such seller or
the sale of such securities by such underwriters;
(iv) use its reasonable best efforts to register or
qualify such Registrable Shares under such other securities or
blue sky laws of such jurisdictions as any seller reasonably
requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the
Registrable Shares owned by such seller; provided, however,
that the Corporation will not be required to (A) qualify
generally to do business in any jurisdiction where it would
not otherwise be required to qualify but for this subparagraph
or (B) consent to general service of process in any such
jurisdiction;
(v) cause all such Registrable Shares to be listed or
authorized for quotation on each securities exchange or
automated quotation system on which similar securities issued
by the Corporation are then listed or quoted;
(vi) provide a transfer agent and registrar for all
such Registrable Shares not later than the effective date of
such registration statement;
(vii) enter into such customary agreements (including
underwriting agreements in customary form) and take all such
other actions as the holders of a majority of the Registrable
Shares being sold or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of
such Registrable Shares (including, without limitation, making
members of the Corporation's management available for
customary participation in any "road show" in connection with
an underwritten public offering);
(viii) make available for inspection by the seller of
Registrable Shares, any underwriter participating in any
disposition pursuant to such registration statement, and any
attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the
Corporation, and cause the Corporation's officers, directors,
employees and independent accountants to supply all
information reasonably requested by any such seller,
underwriter, attorney, accountant or agent, in each case for
the sole purpose of establishing a "due diligence" defense in
connection with such registration statement;
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<PAGE> 8
(ix) notify each seller of such Registrable Shares,
promptly after it shall receive notice thereof, of the time
when such registration statement has become effective or a
supplement to any prospectus forming a part of such
registration statement has been filed;
(x) notify each seller of such Registrable Shares of
any request by the Commission for the amending or
supplementing of such registration statement or prospectus or
for additional information;
(xi) prepare and file with the Commission, promptly
upon the request of any seller of such Registrable Shares, any
amendments or supplements to such registration statement or
prospectus which, in the opinion of counsel selected by the
holders of a majority of the Registrable Shares being
registered, is required under the Securities Act or the rules
and regulations thereunder in connection with the distribution
of Registrable Shares by such seller;
(xii) prepare and promptly file with the Commission
and promptly notify each seller of such Registrable Shares of
the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be
delivered under the Securities Act, any event shall have
occurred as the result of which any such prospectus or any
other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(xiii) advise each seller of such Registrable Shares,
promptly after it shall receive notice or obtain knowledge
thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for such
purpose and promptly use its reasonable best efforts to
prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(xiv) at least forty-eight hours prior to the filing
of any registration statement or prospectus or any amendment
or supplement to such registration statement or prospectus,
furnish a copy thereof to each seller of such Registrable
Shares and refrain from filing any such registration
statement, prospectus, amendment or supplement to which
counsel selected by the holders of a majority of the
Registrable Shares being registered shall have objected on the
grounds that such amendment or supplement does not comply in
all material respects with the requirements of the Securities
Act or the rules and regulations thereunder, unless, in the
case of an amendment or supplement, in the opinion of counsel
for the Corporation, the filing of such amendment or
supplement is reasonably necessary
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<PAGE> 9
to protect the Corporation from any liabilities under any
applicable federal or state law and such filing will not
violate applicable laws;
(xv) at the request of any seller of such Registrable
Shares in connection with an underwritten offering, furnish on
the date or dates provided for in the underwriting agreement:
(i) an opinion of counsel, addressed to the underwriters and
the sellers of Registrable Shares, covering such matters as
such underwriters and sellers may reasonably request and as
are customarily covered by the issuer's counsel in an
underwritten offering; and (ii) a letter or letters from the
independent certified public accountants of the Corporation
addressed to the underwriters and the sellers of Registrable
Shares, covering such matters as such underwriters and sellers
may reasonably request and as are customarily covered in
accountant's letters in connection with an underwritten
offering; and
(xvi) otherwise use its reasonable best efforts to
comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such
registration statement in accordance with the intended method
of disposition and to make generally available to its security
holders, as soon as reasonably practicable, an earnings
statement satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
(b) Each holder of Registrable Shares that sells Registrable
Shares pursuant to a registration under this Agreement agrees that in connection
with registration as follows:
(i) Such seller shall cooperate as reasonably
requested by the Corporation with the Corporation in
connection with the preparation of the registration statement,
and for so long as the Corporation is obligated to file and
keep effective the registration statement, shall provide to
the Corporation, in writing, for use in the registration
statement, all such information regarding such seller and its
plan of distribution of the Registrable Shares as may be
reasonably necessary to enable the Corporation to prepare the
registration statement and prospectus covering the Registrable
Shares, to maintain the currency and effectiveness thereof and
otherwise to comply with all applicable requirements of law in
connection therewith.
(ii) During such time as such seller may be engaged
in a distribution of the Registrable Shares, such seller shall
comply with Regulation M promulgated under the Securities
Exchange Act and pursuant thereto it shall, among other
things: (x) not engage in any stabilization activity in
connection with the securities of the Corporation in
contravention of such regulation; (y) distribute the
Registrable Shares under the registration statement solely in
the manner described in the registration statement; (z) cease
distribution of such Registrable Shares pursuant to such
registration statement upon receipt of written notice from the
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<PAGE> 10
Corporation that the prospectus covering the Registrable
Shares contains any untrue statement of a material fact or
omits a material fact required to be stated therein or
necessary to make the statements therein not misleading.
6. Registration Expenses.
All expenses incident to the Corporation's performance of or
compliance with this Agreement, including, without limitation, all registration
and filing fees, fees of transfer agents and registrars, fees and expenses of
compliance with securities or blue sky laws, fees of the National Association of
Securities Dealers, Inc., printing expenses, messenger and delivery expenses,
and fees and disbursements of counsel for the Corporation and its independent
certified public accountants, underwriters (excluding discounts and commissions
attributable to the Registrable Shares included in such registration) and other
Persons retained by the Corporation (all such expenses being herein called
"Registration Expenses"), will be borne by the Corporation. In addition, the
Corporation will pay its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit or quarterly review, the
expense of any liability insurance obtained by the Corporation and the expenses
and fees for listing or authorizing for quotation the securities to be
registered on each securities exchange on which any shares of common stock are
then listed or quoted.
7. Indemnification.
(a) The Corporation agrees to indemnify, to the fullest extent
permitted by law, each seller of Registrable Shares, its officers and directors
and each Person who controls such seller (within the meaning of the Securities
Act or the Exchange Act) against all losses, claims, damages, liabilities and
expenses (including, without limitation, attorneys' fees except as limited by
paragraph 7(c)) caused by any untrue or alleged untrue statement of a material
fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to the
Corporation by such seller expressly for use therein or by such seller's failure
to deliver a copy of the most recently dated version of such registration
statement or prospectus or any amendments or supplements thereto after the
Corporation has furnished such seller with at least the number of copies of the
same reasonably requested by such seller. In connection with an underwritten
offering, the Corporation will indemnify such underwriters, their officers and
directors and each Person who controls such underwriters (within the meaning of
the Securities Act or the Exchange Act) to the same extent as provided above
with respect to the indemnification of the sellers of Registrable Shares and in
connection therewith the Corporation shall enter into an underwriting agreement
in customary form containing such provisions for indemnification and
contribution as shall be reasonably requested by the underwriters. The
reimbursements required by this
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<PAGE> 11
paragraph 7(a) will be made by periodic payments during the course of the
investigation or defense, as and when bills are received or expenses incurred.
(b) In connection with any registration statement in which a
seller of Registrable Shares is participating, each such seller will furnish to
the Corporation in writing such information and affidavits as the Corporation
reasonably requests for use in connection with any such registration statement
or prospectus and, to the fullest extent permitted by law, will indemnify the
Corporation, its directors and officers and each Person who controls the
Corporation (within the meaning of the Securities Act) against any losses,
claims, damages, liabilities and expenses (including, without limitation,
attorneys' fees except as limited by paragraph 7(c)) resulting from any untrue
statement of a material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by such seller; provided, however, that the obligation to indemnify
will be several, not joint and several, among such sellers of Registrable
Shares, and the liability of each such seller of Registrable Shares will be in
proportion to, and provided further that such liability will be limited to, the
net amount received by such seller from the sale of Registrable Shares pursuant
to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification (provided that the failure to give such notice
shall not limit the rights of such Person except to the extent such failure to
give notice shall materially prejudice the rights of the indemnifying party) and
(ii) unless in such indemnified party's reasonable judgment (with written advice
of counsel) a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party will not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim.
(d) Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 7(a) or Section 7(b) are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages, liabilities or expenses (or actions in respect
thereof) referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and the indemnified party as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
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<PAGE> 12
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the holders or any underwriters or all of them were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in this
Section 7(d). The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or expenses (or actions in respect
thereof) referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such indemnified party in connection with
investigating or, except as provided in Section 7(c), defending any such action
or claim. Notwithstanding the provisions of this Section 7(d), no holder shall
be required to contribute an amount greater than the dollar amount of the
proceeds received by such holder with respect to the sale of any Registrable
Shares. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The holders'
obligations in this Section 7(d) to contribute shall be several in proportion to
the amount of Registrable Shares registered by them and not joint.
(e) The indemnification and contribution provided for under
this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling Person of such indemnified party and will survive for
such indemnified party and such officers, directors or controlling Persons of
such indemnified party the transfer of securities.
8. Compliance with Rule 144. The Corporation shall (i) make
and keep public information available, as those terms are understood and defined
in Rule 144 of the Commission, (ii) file with the Commission in a timely manner
all reports and other documents required of the Corporation under the Securities
Act and the Exchange Act and (iii) at the request of any holder who proposes to
sell securities in compliance with Rule 144, forthwith furnish to such holder a
written statement of compliance with the reporting requirements of the
Commission as set forth in Rule 144 as such rule may be amended from time to
time and make available to the public and such holders such information as will
enable the holders to make sales pursuant to Rule 144.
9. Other Securities. In the event the Registrable Shares shall
be changed into any other securities of the Corporation or any other Person or
other securities of the Corporation or any other Person are issued in lieu of or
in connection with Registrable Shares, then the holders of such other securities
shall be entitled, pursuant to this Agreement, to registration rights with
respect to such other securities that are substantially identical to those
expressly provided herein with respect to the Registrable Shares.
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<PAGE> 13
10. No Inconsistent Agreements. The Corporation will not
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the holders of the Registrable Shares in
this Agreement.
11. Adjustments Affecting Registrable Shares. The Corporation
will not take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the holders of
Registrable Shares to include such Registrable Shares in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Shares in any such registration (including,
without limitation, effecting a stock split or a combination of shares).
12. Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
13. Amendments and Waivers. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended or waived at
any time only by the written agreement of the Corporation and the holders of a
majority of the Registrable Shares provided that any such amendment or waiver
shall apply equally to all holders of Registrable Shares except to the extent a
holder of Registrable Shares adversely affected by unequal treatment otherwise
consents. Any waiver, permit, consent or approval of any kind or character on
the part of any such holders of any provision or condition of this Agreement
must be made in writing and shall be effective only to the extent specifically
set forth in writing.
14. Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto (other than an assign to
which assignment would violate the terms of the Stockholders Agreement if such
agreement shall remain in effect), whether so expressed or not. In addition and
whether or not any express assignment has been made, the provisions of this
Agreement which are for the benefit of purchasers or holders of Registrable
Shares are also for the benefit of, and enforceable by, any subsequent holder of
Registrable Shares who consents in writing to be bound by this Agreement.
15. Final Agreement. This Agreement constitutes the final
agreement of the parties concerning the matters referred to herein, and
supersedes all prior agreements and understandings.
16. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will
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<PAGE> 14
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
17. Descriptive Heading. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of and shall not be utilized in interpreting this Agreement.
18. Notices. Any notice, demand or delivery required or
permitted by this Agreement shall be in writing and shall be given to the
specified party at its address (or facsimile number) set forth below, or such
other address (or facsimile number) as shall have been furnished to the party
giving or making such notice, demand or delivery:
If to the Corporation: iMall, Inc.
233 Wilshire Boulevard
Santa Monica, California 90401
Attention: Richard M. Rosenblatt
Facsimile: (310) 309-4100
with a copy to: Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071
Attention: Brian G. Cartwright, Esq.
Facsimile: (213) 891-8763
If to the Investor: First Data Merchant Services Corporation
6200 South Quebec Street
Englewood, Colorado 80111
Attention: President
Facsimile: (303) 488-8705
-and-
First Data Merchant Services Corporation
6200 South Quebec Street
Englewood, Colorado 80111
Attention: General Counsel
Facsimile: (303) 889-6566
with a copy to: Sidley & Austin
One First National Plaza
Chicago, IL 60603
Attention: Frederick C. Lowinger, Esq.
Facsimile: (312) 853-7036
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<PAGE> 15
If to any other holder of
Registrable Shares: Address set forth on the stock record
books of the Corporation.
Each such notice, demand or delivery shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the intended recipient confirms the receipt of such telecopy, or (ii)
if given by any other means, when received at the address specified herein.
19. GOVERNING LAW. THE VALIDITY, MEANING AND EFFECT OF THIS
AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE.
20. Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument. Each
party shall receive a duplicate original of the counterpart copy or copies
executed by it and the Corporation.
21. Attorneys Fees. In the event of any action or suit based
upon or arising out of any actual or alleged breach by any party of any
representation, warranty or agreement in this Agreement, the prevailing party
shall be entitled to recover its reasonable attorneys' fees and expenses of such
action or suit from the other party, in addition to any other relief ordered by
the court.
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<PAGE> 16
This Registration Agreement was executed on the date first set
forth above.
iMALL, INC.
By:_____________________________________
Name: Richard M. Rosenblatt
Title: Chairman and Chief Executive
Officer
FIRST DATA MERCHANT SERVICES CORPORATION
By:_____________________________________
Name: Richard E. Aiello
Title: Senior Vice President
<PAGE> 1
EXHIBIT 10.4
iMALL, INC.
WARRANT FOR THE PURCHASE OF SHARES OF
COMMON STOCK OF iMALL, INC.
ISSUE DATE ,
WARRANT NO. W-1 [5,000,000]* WARRANT SHARES
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED OR DISPOSED OF UNLESS REGISTERED OR QUALIFIED UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL THAT SUCH REGISTRATION, QUALIFICATION OR
OTHER SUCH ACTIONS ARE NOT REQUIRED UNDER ANY SUCH LAWS.
FOR VALUE RECEIVED, iMALL, INC., a Nevada corporation (the
"Company"), hereby certifies that First Data Merchant Services Corporation, a
Florida corporation, its successor or permitted assigns (collectively, the
"Holder"), is entitled, subject to the provisions of this Warrant, to purchase
from the Company, at the times specified herein, a number of the fully paid and
non-assessable shares of Common Stock of the Company, par value $.008 per share
(the "Common Stock"), equal to the Warrant Share Amount (as hereinafter defined)
at a purchase price per share equal to the Exercise Price (as hereinafter
defined).
SECTION 1. Definitions. (a) The following terms, as used
herein, have the following meanings:
"Affiliate" shall have the meaning given to such term in Rule
12b-2 promulgated under the Securities Exchange Act of 1934, as amended.
"Articles of Incorporation" means the Articles of
Incorporation, as amended, of the Company.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized by
law to close.
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* The actual number shall be subject to anti-dilution adjustment as provided
in Section 8.1(c) of the Investment Agreement.
<PAGE> 2
"Closing Price" on any day means: (1) if the shares of Common
Stock then are listed and traded on a national securities exchange, the closing
price on such day as reported by such national securities exchange on which the
shares of Common Stock are listed and traded; (2) if the shares of Common Stock
then are not listed and traded on any such securities exchange, the last
reported sale price on such day on the National Market of The National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ");
or (3) if the shares of Common Stock then are not traded on the NASDAQ National
Market, the average of the highest reported bid and the lowest reported asked
price on such day as reported by NASDAQ.
"Common Share Equivalent" means, with respect to any security
of the Company and as of a given date, a number which is, (i) in the case of a
share of Common Stock, one, (ii) in the case of all or a portion of any right,
warrant or other security which may be exercised for a share or shares of Common
Stock, the number of shares of Common Stock receivable upon exercise of such
security (or such portion of such security), and (iii) in the case of any
security convertible or exchangeable into a share or shares of Common Stock, the
number of shares of Common Stock that would be received if such security were
converted or exchanged on such date.
"Common Stock" shall have the meaning set forth in the first
paragraph hereof.
"Company" shall have the meaning set forth in the first
paragraph hereof.
"Convertible Securities" shall have the meaning set forth in
Section 7(d).
"Determination Date" shall have the meaning set forth in
Section 7(f).
"Exercise Price" means a price per Warrant Share equal to
$[17.00]**.
"Expiration Date" means 5:00 p.m., New York City time on
October 30, 2003.
"Fair Market Value" as at any date of determination means, as
to shares of the Common Stock, if the Common Stock is publicly traded at such
time, the average of the daily Closing Prices of a share of Common Stock for the
ten (10) consecutive trading days ending on the most recent trading day prior to
the date of determination. If the shares of Common Stock are not publicly traded
at such time, and as to all things other than the Common Stock, Fair Market
Value shall be determined in good faith by an independent nationally recognized
investment banking firm selected by the Company and acceptable to the Holder and
which shall have no other substantial relationship with the Company.
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** Subject to anti-dilution adjustment as provided in Section 8.1(c) of
the Investment Agreement.
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<PAGE> 3
"Holder" shall have the meaning set forth in the first
paragraph hereof.
"Options" shall have the meaning set forth in Section 7(d).
"Person" means an individual, partnership, corporation,
limited liability company, trust, joint stock company, association, joint
venture, or any other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, any
corporation or other entity of which a majority of the capital stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the time
directly or indirectly owned by such Person.
"Warrant Share Amount" means [5,000,000 (Five Million)]***
shares of Common Stock as such number may be adjusted pursuant to Sections 7 and
9.
"Warrant Shares" means the shares of Common Stock deliverable
upon exercise of this Warrant, as adjusted from time to time.
SECTION 2. Exercise of Warrant. (a) Subject to the terms of
Section 8, the Holder is entitled to exercise this Warrant in whole or in part
at any time, or from time to time, until the Expiration Date or, if such day is
not a Business Day, then on the next succeeding day that shall be a Business
Day. To exercise this Warrant, the Holder shall deliver to the Company this
Warrant, including the Warrant Exercise Subscription Form forming a part hereof
duly executed by the Holder, together with payment of the applicable Exercise
Price. Upon such delivery and payment, the Holder shall be deemed to be the
holder of record of the number of Warrant Shares equal to the Warrant Share
Amount (or, in the case of a partial exercise of this Warrant, a ratable number
of such shares), notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares shall not
then be actually delivered to the Holder.
(b) At the option of the Holder, the Exercise Price may be
paid in cash (including by wire transfer of immediately available funds) or by
certified or official bank check or bank cashier's check payable to the order of
the Company or by any combination of such cash or check. If the Holder requests
the Company to permit a cashless exercise of the Warrant as provided for below
in this paragraph (b) and the Company consents to such cashless exercise,
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*** The actual number shall be subject to anti-dilution adjustment as provided
in Section 8.1(c) of the Investment Agreement.
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<PAGE> 4
then the Exercise Price may be paid in whole or in part by reducing the number
of shares of Common Stock issuable to the Holder by a number of shares of Common
Stock that have a Fair Market Value equal to the Exercise Price which otherwise
would have been paid (so that the net number of shares of Common Stock issued in
respect of such exercise shall equal the number of shares of Common Stock that
would have been issuable had the Exercise Price been paid entirely in cash, less
a number of shares of Common Stock with a Fair Market Value equal to the portion
of the Exercise Price paid in kind). The Company shall pay any and all
documentary, or similar issue or transfer taxes payable in respect of the issue
or delivery of the Warrant Shares. The Company shall not, however, be required
to pay any transfer tax which may be payable in respect of any transfer involved
in the issue or delivery of Warrants or Warrant Shares (or other securities or
assets) in a name other than that in which the Warrants so exercised were
registered, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Company the amount of such transfer
tax or has established, to the satisfaction of the Company, that such transfer
tax has been paid.
(c) If the Holder exercises this Warrant in part, this Warrant
shall be surrendered by the Holder to the Company and a new Warrant of the same
tenor and for the unexercised number of Warrant Shares shall be executed by the
Company. The Company shall register the new Warrant in the name of the Holder or
in such name or names of its transferee pursuant to Section 6 as may be directed
in writing by the Holder and deliver the new Warrant to the Person or Persons
entitled to receive the same.
(d) Upon surrender of this Warrant in conformity with the
foregoing provisions, the Company shall, subject to the expiration of any
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act, transfer to the Holder of this Warrant appropriate evidence of ownership of
the shares of Common Stock or other securities or property (including any money)
to which the Holder is entitled, registered or otherwise placed in, or payable
to the order of, the name or names of the Holder or such transferee as may be
directed in writing by the Holder, and shall deliver such evidence of ownership
and any other securities or property (including any money) to the Person or
Persons entitled to receive the same, together with an amount in cash in lieu of
any fraction of a share as provided in Section 5, subject to any required
withholding.
SECTION 3. Restrictive Legend. Each certificate representing
shares of Common Stock issued pursuant to this Warrant, unless at the time of
exercise such shares are registered under the Securities Act, shall bear a
legend substantially in the form of the legend set forth on the first page of
this Warrant.
SECTION 4. Reservation of Shares. The Company hereby agrees
that at all times there shall be reserved for issuance and delivery upon
exercise of this Warrant such number of its authorized but unissued shares of
Common Stock or other securities of the Company from time to time issuable upon
exercise of this Warrant as will be sufficient to permit the exercise in full of
this Warrant. The Company hereby represents and agrees that all such
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<PAGE> 5
shares shall be duly authorized and, when issued upon such exercise, shall be
validly issued, fully paid and non-assessable, free and clear of all liens,
security interests, charges and other encumbrances or restrictions on sale and
free and clear of all preemptive or similar rights, except to the extent imposed
by or as a result of the status, act or omission of, the Holder.
SECTION 5. Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Warrant
and in lieu of delivery of any such fractional share upon any exercise hereof,
the Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Fair Market Value thereof; provided, however, that, in the
event that the Company combines or reclassifies the outstanding shares of its
Common Stock into a smaller number of shares, it shall be required to issue
fractional shares to the Holder if the Holder exercises all or any part of this
Warrant, unless the Holder has consented in writing to such reduction and
provided the Company with a written waiver of its right to receive fractional
shares in accordance with this Section 5.
SECTION 6. Transfer, Exchange or Assignment of Warrant. (a)
Each taker and holder of this Warrant by taking or holding the same, consents
and agrees that the registered holder hereof may be treated by the Company and
all other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby.
(b) Subject to the terms of the Investment Agreement, dated as
of October 30, 1998, between the Company and First Data Merchant Services
Corporation, the Stockholders Agreement, dated as of October 30, 1998, among the
Company, First Data Merchant Services Corporation, Richard M. Rosenblatt, Mark
R. Comer and Craig R. Pickering, and the requirements of state and federal
securities laws, the Holder shall be entitled, without obtaining the consent of
the Company, to assign and transfer this Warrant, at any time in whole or from
time to time in part, to any Person or Persons; provided, however, that unless
such transfer is pursuant to an effective registration statement under the
Securities Act, as a condition to any such transfer the Company shall be
entitled to receive an opinion of counsel that such transfer is exempt from the
registration and prospectus delivery requirements of the Securities Act and any
applicable qualification requirements of any state securities laws. Purported
transfers in violation hereof shall be void. Subject to the first sentence of
this Section 6(b), upon surrender of this Warrant to the Company, together with
the attached Warrant Assignment Form duly executed, the Company shall, without
charge, execute and deliver a new Warrant in the name of the assignee or
assignees named in such instrument of assignment and, if the Holder's entire
interest is not being assigned, in the name of the Holder and this Warrant shall
promptly be canceled.
(c) Upon receipt by the Company of evidence satisfactory to it
(in the exercise of its reasonable discretion) of the loss, theft, destruction
or mutilation of this Warrant, and (in the case of loss, theft or destruction)
of indemnification or security reasonably required by the Company, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
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<PAGE> 6
(d) The Company shall pay all expenses, documentary or similar
issue taxes (other than transfer taxes) and other charges payable in connection
with the preparation, issuance and delivery of Warrants hereunder.
SECTION 7. Anti-Dilution Provisions. So long as any Warrants
are outstanding, the Warrant Share Amount shall be subject to change or
adjustment as follows:
(a) Common Stock Dividends, Subdivisions, Combinations. In
case the Company shall (i) pay or make a dividend or other distribution to all
holders of its Common Stock in shares of Common Stock, (ii) subdivide or split
the outstanding shares of its Common Stock into a larger number of shares, or
(iii) combine the outstanding shares of its Common Stock into a smaller number
of shares (which in the case of this clause (iii) shall not in any event be done
without the express written approval of Holders of a majority of the outstanding
Warrants, which approval shall not be unreasonably withheld), then in each such
case the Warrant Share Amount shall be adjusted to equal the number of such
shares to which the holder of this Warrant would have been entitled upon the
occurrence of such event had this Warrant been exercised immediately prior to
the happening of such event or, in the case of a stock dividend or other
distribution, prior to the record date for determination of shareholders
entitled thereto. An adjustment made pursuant to this Section 7(a) shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.
(b) Reorganization or Reclassification. In case of any capital
reorganization or any reclassification or similar transaction affecting the
capital stock of the Company pursuant to a transaction not the subject of
Section 9 below, this Warrant shall thereafter be exercisable for the number of
shares of capital stock or other securities or property receivable upon such
capital reorganization or reclassification of capital stock or other
transaction, as the case may be, by a holder of the number of shares of Common
Stock into which this Warrant was exercisable immediately prior to such capital
reorganization or reclassification of capital stock; and, in any case,
appropriate adjustment (as determined in good faith by the Board of Directors of
the Company) shall be made for the application of the provisions herein set
forth with respect to the rights and interests thereafter of the Holder to the
end that the provisions set forth herein shall thereafter be applicable, as
nearly as reasonably practicable, in relation to any shares of capital stock or
other securities or property thereafter deliverable upon the exercise of this
Warrant. An adjustment made pursuant to this Section 7(b) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(c) Distributions of Assets or Securities Other than Common
Stock. In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock shares of any class of its capital stock (other than
Common Stock), or other debt or equity securities or evidences of indebtedness
of the Company, or options, rights or warrants to purchase any of such
securities, cash or other assets, then in each such case the Warrant Share
Amount shall be adjusted by multiplying the Warrant Share Amount immediately
prior to the date of such dividend or distribution by a fraction, of which the
numerator shall be the Fair Market Value per
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<PAGE> 7
share of Common Stock at the record date for determining shareholders entitled
to such dividend or distribution, and of which the denominator shall be such
Fair Market Value per share less the Fair Market Value of the portion of the
securities, cash, other assets or evidences of indebtedness so distributed
applicable to one share of Common Stock. An adjustment made pursuant to this
Section 7(c) shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.
(d) Below Market Issuances of Common Stock and Convertible
Securities. In case the Company shall issue Common Stock (or options, rights or
warrants to purchase shares of Common Stock (collectively, "Options") or other
securities convertible into or exchangeable or exercisable for shares of Common
Stock (such other securities, collectively, "Convertible Securities")) at a
price per share (or having an effective exercise, exchange or conversion price
per share together with the purchase price thereof) less than the Fair Market
Value per share of Common Stock on the date such Common Stock (or Options or
Convertible Securities), is sold or issued (provided that no sale of securities
pursuant to an underwritten public offering shall be deemed to be for less than
Fair Market Value), then in each such case the Warrant Share Amount shall
thereafter be adjusted by multiplying the Warrant Share Amount immediately prior
to the date of issuance of such Common Stock (or Options or Convertible
Securities) by a fraction, the numerator of which shall be (x) the sum of (i)
the number of Common Share Equivalents represented by all securities outstanding
immediately prior to such issuance and (ii) the number of additional Common
Share Equivalents represented by all securities so issued multiplied by (y) the
Fair Market Value of a share of Common Stock immediately prior to the date of
such issuance, and the denominator of which shall be (x) the product of (A) the
Fair Market Value of a share of Common Stock immediately prior to the date of
such issuance and (B) the number of Common Share Equivalents represented by all
securities outstanding immediately prior to such issuance plus (y) the aggregate
consideration received by the Company for the total number of securities so
issued plus, (z) in the case of Options or Convertible Securities, the
additional consideration required to be received by the Company upon the
exercise, exchange or conversion of such securities; provided, however, that no
adjustment shall be required in respect of issuances of Common Stock (or options
to purchase Common Stock) pursuant to stock option or other employee benefit
plans in effect on the date hereof, or approved by the Board of Directors of the
Company after the date hereof. Notwithstanding anything herein to the contrary,
(1) no further adjustment to the Warrant Share Amount shall be made upon the
issuance or sale of Common Stock pursuant to (x) the exercise of any Options or
(y) the conversion or exchange of any Convertible Securities, if in each case
the adjustment in the Warrant Share Amount was made as required hereby upon the
issuance or sale of such Options or Convertible Securities or no adjustment was
required hereby at the time such Option or Convertible Security was issued, and
(2) no adjustment to the Warrant Share Amount shall be made upon the issuance or
sale of Common Stock upon the exercise of any Options existing on the original
issue date hereof, without regard to the exercise price thereof. An adjustment
made pursuant to this Section 7(d) shall become effective immediately after such
Common Stock, Options or Convertible Securities are sold. This Warrant and all
Warrants of like tenor shall be deemed not to be Options or Convertible
Securities.
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<PAGE> 8
(e) Below Market Distributions or Issuances of Preferred Stock
or Other Securities. In case the Company shall issue non-convertible and
non-exchangeable preferred stock (or other debt or equity securities or
evidences of indebtedness of the Company (other than Common Stock or Options or
Convertible Securities) or options, rights or warrants to purchase any of such
securities) at a price per share (or other similar unit) less than the Fair
Market Value per share (or other similar unit) of such preferred stock (or other
security) on the date such preferred stock (or other security) is sold (provided
that no sale of preferred stock or other security pursuant to an underwritten
public offering shall be deemed to be for less than its Fair Market Value), then
in each such case the Warrant Share Amount shall thereafter be adjusted by
multiplying the Warrant Share Amount immediately prior to the date of issuance
of such preferred stock (or other security) by a fraction, the numerator of
which shall be the product of (i) the number of Common Share Equivalents
represented by all securities outstanding immediately prior to such issuance and
(ii) the Fair Market Value of a share of Common Stock immediately prior to the
date of such issuance, and the denominator of which shall be (x) the product of
(A) the number of Common Share Equivalents represented by all securities
outstanding immediately prior to such issuance and (B) the Fair Market Value of
a share of the Common Stock immediately prior to the date of such issuance minus
(y) the difference between (1) the aggregate Fair Market Value of such preferred
stock (or other security) and (2) the aggregate consideration received by the
Company for such preferred stock (or other security). An adjustment made
pursuant to this Section 7(e) shall become effective immediately after such
preferred stock (or other security) is sold.
(f) Above Market Repurchases of Common Stock. If at any time
or from time to time the Company or any Subsidiary thereof shall repurchase, by
self-tender offer, private purchase or otherwise, any shares of Common Stock (or
any Options or Convertible Securities) at a purchase price in excess of the Fair
Market Value thereof, on the Business Day immediately prior to the earliest of
(i) the date of such repurchase, (ii) the commencement of an offer to
repurchase, or (iii) the public announcement of either (such date being referred
to as the "Determination Date"), the Warrant Share Amount shall be determined by
multiplying the Warrant Share Amount immediately prior to such Determination
Date by a fraction, the numerator of which shall be the product of (1) the
number of Common Share Equivalents represented by all securities outstanding
immediately prior to such Determination Date minus the number of Common Share
Equivalents represented by the securities repurchased or to be purchased by the
Company or any Subsidiary thereof in such repurchase and (2) the Fair Market
Value of a share of Common Stock immediately prior to such Determination Date,
and the denominator of which shall be (x) the product of (A) the number of
Common Share Equivalents represented by all securities outstanding immediately
prior to the Determination Date and (B) the Fair Market Value of a share of
Common Stock immediately prior to such Determination Date minus (y) the sum of
(1) the aggregate consideration paid by the Company in connection with such
repurchase and (2) in the case of Options or Convertible Securities, the
additional consideration required to be received by the Company upon the
exercise, exchange or conversion of such securities.
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<PAGE> 9
(g) Above Market Repurchases of Preferred Stock or Other
Securities. If at any time or from time to time the Company or any Subsidiary
thereof shall repurchase, by self-tender offer, private purchase or otherwise,
any shares of non-convertible and non-exchangeable preferred stock (or other
debt or equity securities or evidences of indebtedness of the Company (other
than Common Stock or Options or Convertible Securities) or options, rights or
warrants to purchase any of such securities), at a purchase price in excess of
the Fair Market Value thereof, on the Business Day immediately prior to the
Determination Date, the Warrant Share Amount shall be determined by multiplying
the Warrant Share Amount immediately prior to the Determination Date by a
fraction, the numerator of which shall be the product of (i) the number of
Common Share Equivalents represented by all securities outstanding immediately
prior to such Determination Date and (ii) the Fair Market Value of a share of
Common Stock immediately prior to such Determination Date, and the denominator
of which shall be (x) the product of (A) the number of Common Share Equivalents
represented by all securities outstanding immediately prior to such
Determination Date and (B) the Fair Market Value of a share of Common Stock
immediately prior to such Determination Date minus (y) the difference between
(1) the aggregate consideration paid by the Company in connection with such
repurchase and (2) the aggregate Fair Market Value of such preferred stock (or
other security).
(h) Other Dilutive Events. In case any event shall occur as to
which the other provisions of this Section 7 are not strictly applicable but as
to which the failure to make any adjustment would not fairly protect the
purchase rights represented by this Warrant in accordance with the essential
intent and principles hereof, then, upon the written request of the Holder, the
Company shall determine what adjustments, if any, are required to be made to the
Exercise Price and/or the Warrant Share Amount on a basis consistent with the
essential intent and principles established herein as a result of such event in
order to preserve the purchase rights represented by this Warrant, which
determination shall be made in good faith by the Board of Directors of the
Company.
(i) Readjustment of Warrant Share Amount. If (i) the purchase
price provided for in any Option or the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities or the
rate at which any Convertible Securities are convertible into or exchangeable
for Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution upon an event which results in a
related adjustment pursuant to this Section 7), or (ii) any Options or
Convertible Securities shall have irrevocably terminated, lapsed or expired, the
Warrant Share Amount then in effect shall forthwith be readjusted (effective
only with respect to any exercise of this Warrant after such readjustment) to
the Warrant Share Amount which would then be in effect had the adjustment made
upon the issuance, sale, distribution or grant of such Options or Convertible
Securities been made based upon such changed purchase price, additional
consideration or conversion rate, as the case may be (in the case of any event
referred to in clause (i) of this paragraph (i)) or had such adjustment not been
made (in the case of any event referred to in clause (ii) of this paragraph i)).
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<PAGE> 10
(j) Exercise Price Adjustment. Upon each adjustment of the
Warrant Share Amount pursuant to this Section 7, the Exercise Price shall
thereafter be equal to an adjusted Exercise Price determined (to the nearest
cent) by multiplying the Exercise Price immediately prior to such adjustment by
a fraction, the numerator of which shall be the Warrant Share Amount in effect
immediately prior to such adjustment and the denominator of which shall be the
Warrant Share Amount in effect immediately after such adjustment.
(k) Consideration. If any shares of Common Stock, Options or
Convertible Securities shall be issued, sold or distributed for cash, the
consideration received in respect thereof shall be deemed to be the amount
received by the Company therefor, before deduction therefrom of any reasonable,
customary and adequately documented expenses incurred in connection therewith.
If any shares of Common Stock, Options or Convertible Securities shall be
issued, sold or distributed for a consideration other than cash, the amount of
the consideration other than cash received by the Company shall be deemed to be
the Fair Market Value of such consideration, before deduction of any reasonable,
customary and adequately documented expenses incurred in connection therewith.
If any shares of Common Stock, Options or Convertible Securities shall be issued
in connection with any merger in which the Company is the surviving corporation,
the amount of consideration therefor shall be deemed to be the Fair Market Value
of such portion of the assets and business of the non-surviving corporation as
shall be attributable to such Common Stock, Options or Convertible Securities,
as the case may be. If any Options shall be issued in connection with the
issuance and sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
without consideration.
(l) No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, 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 7 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the Holder against
impairment. Without limiting the generality of the foregoing, the Company will
not increase the par value of any shares of Common Stock receivable on the
exercise of the Warrants above the amount payable therefor on such exercise.
(m) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Warrant Share Amount pursuant to this Section
7, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to the Holder a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request at any time of the Holder, furnish or cause to
be furnished to the Holder a like certificate setting forth (1) such adjustments
and readjustments and (2) the number
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<PAGE> 11
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the exercise of this Warrant.
(n) Proceedings Prior to Any Action Requiring Adjustment. As a
condition precedent to the taking of any action which would require an
adjustment pursuant to this Section 7, the Company shall take any action which
may be necessary, including obtaining regulatory approvals or exemptions, in
order that the Company may thereafter validly and legally issue as fully paid
and nonassessable all shares of Common Stock which the Holder is entitled to
receive upon exercise thereof.
(o) Notice of Adjustment. Upon the record date or effective
date, as the case may be, of any action which requires or might require an
adjustment or readjustment pursuant to this Section 7, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal executive office and with its stock transfer agent or its warrant
agent, if any, an officers' certificate showing the adjusted Warrant Share
Amount determined as herein provided, setting forth in reasonable detail the
facts requiring such adjustment and the manner of computing such adjustment.
Each such officers' certificate shall be signed by the chairman, president,
chief financial officer or secretary of the Company. Each such officers'
certificate shall be made available at all reasonable times for inspection by
the Holder or any Holder of a Warrant executed and delivered pursuant to Section
6(b) and the Company shall, forthwith after each such adjustment, mail a copy,
by first-class mail, of such certificate to the Holder or any such Holder.
(p) Payments in Lieu of Adjustment. The Holder shall, at its
option, be entitled to receive, in lieu of the adjustment pursuant to Section
7(c) otherwise required thereof, on (but not prior to) the date of exercise of
the Warrants, the evidences of indebtedness, other securities, cash, property or
other assets which such Holder would have been entitled to receive if it had
exercised its Warrants for shares of Common Stock immediately prior to the
record date with respect to such distribution. The Holder may exercise its
option under this Section 7(p) by delivering to the Company a written notice of
such exercise simultaneously with its notice of exercise of this Warrant.
SECTION 8. Redemption. (a) Subject to the other provisions of
this Section 8, the Warrant may be redeemed, at the option of the Company, at
any time at a redemption price equal to 0.266 shares of Common Stock (subject to
adjustment as provided in paragraph (f) of this Section 8) per Warrant Share if,
and only if, the Closing Price of a share of Common Stock for at least twenty
(20) out of thirty (30) consecutive trading days ending not more than thirty
(30) calendar days preceding the date on which notice of redemption is first
given to the Holder shall have been at least $25.50 (subject to adjustment as
provided in paragraph (f) of this Section 8; such amount, as so adjusted, being
hereinafter referred to as the "Target Price").
(b) If the Company is entitled to redeem this Warrant pursuant
to paragraph (a) of this Section 8 and desires to effect such redemption, it
shall furnish (in accordance with Section
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<PAGE> 12
11) a notice of redemption to the Holder at least ninety (90) calendar days
before the date fixed for redemption.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, (iii) the place where this Warrant
shall be delivered and the redemption price paid and (iv) that the right to
exercise the Warrant shall terminate at 5:00 p.m. (New York time) on the
Business Day immediately preceding the date fixed for redemption.
(d) Any right to exercise the Warrant shall terminate at 5:00
p.m. (New York time) on the Business Day immediately preceding the date fixed
for redemption.
(e) If the Warrant has not been exercised prior to the date
fixed for redemption, then on such date the Company shall deliver or cause to be
delivered to or upon the written order of the Holder the shares of Common Stock
constituting the redemption price. No surrender of this Warrant shall be
required, which on and after the date fixed for redemption shall confer on the
Holder no rights except the right to receive the redemption price.
(f) If the shares of 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 and the
redemption price per Warrant Share shall be proportionately adjusted to reflect
such event.
(g) If, prior to the termination of exercisability of this
Warrant pursuant to paragraph (d) of this Section, the Holder is not entitled to
exercise all or any portion of this Warrant due to its failure to receive any
third party approval or the existence of any injunction or regulatory restraint
prohibiting such exercise (including, without limitation, any required clearance
under the Hart-Scott-Rodino Antitrust Improvements Act), the date fixed for
redemption shall automatically be deemed to be extended to a date that is the
later of (i) the date fixed for redemption in the notice of redemption and (ii)
the fifteenth business day following the receipt of such approval or the lifting
or elimination of such injunction or restraint. The Holder and the Company shall
use reasonable best efforts to obtain all such approvals and to cause any such
injunctions or restraints to be lifted or eliminated as soon as practicable.
(h) In the event the Holder exercises this Warrant after
receipt of a notice of redemption sent pursuant to Section 8(b), then the
Company shall make a payment (the "Lost Interest Payment") to compensate the
Holder on an after-tax basis for the loss of the time value of money with
respect to the aggregate income tax payable by the Holder as a result of the
exercise of this Warrant prior to the Expiration Date. The Lost Interest Payment
(including, without limitation, the amount needed to compensate the Holder on an
after-tax basis) shall be calculated based on the following terms and
assumptions (as well as any others upon which the Holder and the Company shall
reasonably agree):
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<PAGE> 13
(i) it shall be assumed that all income realized by the Holder
is subject to federal, and all applicable state, local and other,
taxation at the highest marginal rates in effect for the taxable year
or period during which the exercise occurs;
(ii) a 7% per annum interest rate (compounded quarterly) shall
be used;
(iii) the calculation shall be based on the period from and
including the date of exercise of this Warrant through and including
the Expiration Date; and
(iv) the same amount of income would have been recognized if
this Warrant had been exercised on the Expiration Date rather than on
the date of exercise after receipt of a notice of redemption sent
pursuant to Section 8(b).
If, prior to the Expiration Date, the Holder shall sell or otherwise dispose of
(in a taxable transaction) all or a portion of the shares of Common Stock
received upon an exercise after receipt of a notice of redemption sent pursuant
to Section 8(b), then the Holder shall refund to the Company the allocable
portion of the Lost Interest Payment.
SECTION 9. Consolidation, Merger or Sale or Assets. In case of
any consolidation of the Company with, or merger of the Company into, any other
Person, any merger of another Person into the Company (other than a merger which
does not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock) or any sale or transfer of all or
substantially all of the assets of the Company to the Person formed by such
consolidation or resulting from such merger or which acquires such assets, as
the case may be, the Holder shall have the right thereafter to exercise this
Warrant for the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by a holder of the
number of shares of Common Stock for which this Warrant may have been exercised
immediately prior to such consolidation, merger, sale or transfer. Adjustments
for events subsequent to the effective date of such a consolidation, merger,
sale or transfer of assets shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Warrant. In any such event, effective
provisions shall be made in the certificate or articles of incorporation of the
resulting or surviving corporation, in any contract of sale, merger, conveyance,
lease, transfer or otherwise so that the provisions set forth herein for the
protection of the rights of the Holder shall thereafter continue to be
applicable; and any such resulting or surviving corporation shall expressly
assume the obligation to deliver, upon exercise, such securities, cash and other
property. The provisions of this Section 9 shall similarly apply to successive
consolidations, mergers, sales, leases or transfers.
SECTION 10. Notices. Any notice, demand or delivery required
or permitted by this Warrant shall be in writing and shall be given to the
Holder or to the Company, as the case may be, at its address (or facsimile
number) set forth below, or such other address (or facsimile number) as shall
have been furnished to the party giving or making such notice, demand or
delivery:
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<PAGE> 14
If to the Company: iMall, Inc.
233 Wilshire Boulevard
Santa Monica, California 90401
Attention: Richard M. Rosenblatt
Facsimile: (310) 309-4100
with a copy to: Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071
Attention: Brian G. Cartwright, Esq.
Facsimile: (213) 891-8763
If to the Holder: First Data Merchant Services Corporation
6200 South Quebec Street
Englewood, Colorado 80111
Attention: President
Facsimile: (303) 488-8705
-and-
First Data Merchant Services Corporation
6200 South Quebec Street
Englewood, Colorado 80111
Attention: General Counsel
Facsimile: (303) 889-6566
with a copy to: Sidley & Austin
One First National Plaza
Chicago, IL 60603
Attention: Frederick C. Lowinger, Esq.
Facsimile: (312) 853-7036
Each such notice, demand or delivery shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the intended recipient confirms the receipt of such telecopy, or (ii)
if given by any other means, when received at the address specified herein.
SECTION 11. Rights of the Holder. Prior to the exercise of any
Warrant, the Holder shall not, by virtue hereof, be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to vote, to
receive dividends or other distributions, to exercise any preemptive right or to
receive any notice of meetings of shareholders or any notice of any proceedings
of the Company, except as may be specifically provided for herein.
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<PAGE> 15
SECTION 12. Governing Law. This Warrant and all rights arising
hereunder shall be construed and determined in accordance with the internal laws
of the State of Nevada and the performance thereof shall be governed and
enforced in accordance with such laws.
SECTION 13. Amendments; Waivers. Any provision of this Warrant
may be amended or waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by the Holder and the Company, or in
the case of a waiver, by the party against whom the waiver is to be effective.
No failure or delay by either party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 14. Interpretation. When a reference is made in this
Warrant to a Section, such reference shall be to a Section of this Warrant
unless otherwise indicated. Whenever the words "include", "includes" or
"including" are used in this Warrant, they shall be deemed to be followed by the
words "without limitation". The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Warrant shall refer to this Warrant as
a whole and not to any particular provision of this Warrant. The definitions
contained in this Warrant are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such term. References to a person are also to its permitted
successors and assigns and, in the case of an individual, to his heirs and
estate, as applicable. If the Holder represents more than one Person, then
wherever in this Warrant there is contemplated any authorization, direction or
other action by the Holder such authorization, direction or other action shall
be deemed to have been effected if the holders of Warrants (or portions of this
Warrant) covering a majority of the Warrant Shares approve in writing such
authorization, direction or other action.
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<PAGE> 16
IN WITNESS WHEREOF, the Company has duly caused this Warrant
to be signed by its duly authorized officer and to be dated as of the date first
above written.
iMALL, INC.
By:_____________________________________
Name: Richard M. Rosenblatt
Title: Chairman and Chief Executive Officer
ATTEST:
By:_______________________________
Name: Anthony P. Mazzarella
Title: Executive Vice President, Secretary/Treasurer
and Chief Financial Officer
ACKNOWLEDGED AND AGREED:
FIRST DATA MERCHANT SERVICES CORPORATION
By:_______________________________
Name: Richard E. Aiello
Title: Senior Vice President
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WARRANT EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of the Warrant
after delivery of the Warrant Exercise Notice)
To: iMall, Inc.
The undersigned irrevocably exercises the Warrant for the purchase of
__________ shares (the "Shares") of Common Stock, par value $.008 per share
("Common Stock"), of iMall, Inc. (the "Company") at an exercise price of
$_______ per Share and herewith makes payment of $__________ (such payment being
made in cash or by certified or official bank or bank cashier's check payable to
the order of the Company or by any permitted combination of such cash or check
or, if permitted by the terms of paragraph (b) of Section 2 of the Warrant, by
the reduction of the number of shares of Common Stock that otherwise would be
issued upon this exercise by the number of shares of Common Stock that have a
value equal to such exercise price), all on the terms and conditions specified
in this Warrant, surrenders this Warrant and all right, title and interest
therein to the Company and directs that the Shares deliverable upon the exercise
of this Warrant be registered or placed in the name and at the address specified
below and delivered thereto.
Date: _________, ____.
________________________________________
(Name - Please Print)
________________________________________
(Signature of Owner)
________________________________________
(Street Address)
________________________________________
(City) (State) (Zip Code)
<PAGE> 18
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Any unexercised portion of the Warrant evidenced by the within Warrant to be
issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
<PAGE> 19
WARRANT ASSIGNMENT FORM
FOR VALUE RECEIVED, _______________________ hereby sells, assigns and transfers
unto (the "Assignee"), _________________________________________________________
(please type or print in block letters)
________________________________________________________________________________
(insert address)
its right to purchase up to _____ shares of Common Stock represented by this
Warrant and does hereby irrevocably constitute and appoint
_________________________ Attorney, to transfer the same on the books of the
Company, with full power of substitution in the premises.
Signature: _____________________________________
<PAGE> 1
EXHIBIT 10.5
DEVELOPMENT AND MARKETING AGREEMENT
THIS DEVELOPMENT AND MARKETING AGREEMENT (this "Agreement") is
effective as of this 30th day of October, 1998, between iMall, Inc., a Nevada
corporation ("Company"), and First Data Merchant Services Corporation, a Florida
corporation ("FDMS").
RECITALS
WHEREAS, the Company and FDMS are parties to a certain
Investment Agreement dated as of the 30th day of October, 1998 (the "Investment
Agreement") pursuant to which FDMS acquired Common Stock (as defined therein)
and has the right to acquire additional Common Stock and a Warrant (as defined
therein); and
WHEREAS, in connection with the Investment Agreement, the
parties agreed to enter into this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. DEFINITIONS. For the purposes of this Agreement, the following terms shall
have the definitions indicated below, and shall be equally applicable to the
singular and plural forms. Any agreement referred to herein shall mean such
agreement as amended, supplemented and modified from time to time to the extent
permitted by the applicable provisions thereof. When a reference is made in this
Agreement to an article, section or exhibit, such reference shall be to an
article, section or exhibit of this Agreement unless otherwise indicated. The
table of contents, if any, and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes," or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
1.1 "Affiliate" shall mean any Person which, directly or indirectly,
owns or controls, is owned or is controlled by or is under common ownership or
control with another Person, and in the case of FDMS, shall also include
Alliances. As used herein, "control" means the power to direct the management
affairs of a Person, and "ownership" means the beneficial ownership of the
voting equity securities or other equivalent voting interests of the Person.
Notwithstanding the foregoing, each of the Company and FDMS shall not be deemed
to be Affiliates.
1.2 "Alliance" means any venture (in any form, including in corporate,
partnership or limited liability company form) or contractual alliance now or
hereafter entered into between FDMS (or any of its Affiliates) and one or more
third parties for the provision of any Merchant Acquiring Business services
pursuant to an arrangement whereby Investor (or any of its Affiliates) shares
the
<PAGE> 2
economic benefits of ownership of merchant contracts through profit sharing,
revenue sharing, a royalty interest or otherwise.
1.3 "Animalhouse Site" means the World Wide Web site accessed by using
web browser software directed to the following underlined URL:
http://mall.animalhouse.com or any other URL used by the Company to replace or
add to the foregoing.
1.4 "Arbitration Panel" shall have the meaning set forth in Section 2.1
of Exhibit 13.10.
1.5 "Brochure Site" means a non-commerce enabled single or multi-page
website.
1.6 "Card Association" means MasterCard International, Inc., VISA
U.S.A., Inc., VISA International, Inc., American Express, Discover, and other
Transaction Card associations and their respective successors and assigns.
1.7 "Cash Register Service" means the ability of a merchant to receive
payment services only (i.e., no shopping cart or catalog features).
1.8 "Change Order" shall have the meaning set forth in Section 2.10
1.9 "Company" shall have the meaning set forth in the first paragraph
hereof.
1.10 "Company Marks" means iStore, Bolt-on e-commerce, stuff related
marks, and iMall.
1.11 "Company Software" means all proprietary software, technical and
user documentation, tools, utilities and related materials used by the Company
in connection with its performance of Development and Operational Services and
Marketing Services, together with all updates, modification and enhancements
thereto.
1.12 "Confidential Information" shall have the meaning set forth in
Section 11.1.
1.13 "Development and Operational Services" shall have the meaning set
forth in Section 2.1.
1.14 "Dispute" means any and all disputes, controversies and claims
between the parties arising from or in connection with this Agreement or the
relationship of the parties under this Agreement, whether based on contract,
tort, common law, equity, statute, regulation, order or otherwise.
1.15 "Effective Date" means the date first written above.
1.16 "Electronic Commerce Tools" means the Company-owned proprietary
software, technical and user documentation, tools, utilities and related
materials commonly known as
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<PAGE> 3
"electronic commerce tools," which includes i.Store,
bolt-on e-commerce and bolt-on e-commerce with on-line payment processing,
together with all updates, modification and enhancements thereto.
1.17 "Escrow Agreement" means that certain Source Code Escrow Agreement
dated as of October 31, 1998, between the Company, FDMS, and Data Securities
International, Inc.
1.18 "Event of Default" shall have the meaning set forth in Section
12.3.
1.19 "FDMS" shall have the meaning set forth in the first paragraph
hereof.
1.20 "FDMS Marks" means First Data Merchant Services, First Data
Merchant Services (stylized) and Moneta.
1.21 "FDMS Merchants" means: (i) those Persons with which FDMS or any
of its Affiliates presently or may in the future have a relationship relating to
the Merchant Acquiring Business; or (ii) those Persons that are solicited by
FDMS or its Alliances or other Affiliates to participate in the Mall Site or to
buy e-commerce services; or (iii) those Persons which FDMS or any of its
Affiliates solicits to purchase a Merchant Site, Brochure Site, or Electronic
Commerce Tools.
1.22 "FDMS Merchant Sites" means those Merchant Sites of FDMS Merchants
contained in the Mall Site.
1.23 "FDMS Software" means the proprietary software commonly known as
"merchant online application software" or "Online Emerald," and "Moneta,"
together with all updates, modifications and enhancements thereto, and all
technical and user documentation and related materials (if any).
1.24 "Gateway" means all hardware, software and telecommunications
tools necessary to perform protocol conversion between different networks or
applications.
1.25 "Imall Site" means the World Wide Web site accessed using web
browser software directed to the following underlined URL: http://www.imall.com
or any other URL used by the Company to replace or add to the foregoing.
1.26 "Indemnified Persons" shall have the meaning set forth in Section
9.1, 9.2.
1.27 "Initial Term" shall have the meaning set forth in Section 12.1.
1.28 "Investment Agreement" shall have the meaning set forth in the
first paragraph of the recitals of this Agreement.
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<PAGE> 4
1.29 "Linking Image" means the words and/or graphical symbols resident
on the Stuff Site that, when selected by a user, will cause the user to access
the Mall Site or any Brochure Site or Merchant Site.
1.30 "Losses" shall have the meaning set forth in Section 9.1.
1.31 "Mall" means an Internet-based virtual shopping mall that is
comprised of entities operating Brochure Sites or Merchant Sites.
1.32 "Mall Site" means the stand-alone website on the World Wide Web
portion of the Internet to be owned by FDMS through which Brochure Sites and
Merchant Sites are accessible. The Mall Site shall be accessible to Internet
users by using web browser software directed to one of the following underlined
URLs: http://www.stuffmall.com, http://www.stuffmarket.com,
http://www.stuffstores.com, or such other URL as FDMS may designate, or any
other URL used by the Company to replace or add to the foregoing that becomes
the Primary Shopping Website.
1.33 "Mall Tenant" means any Person (including, FDMS Merchants), that
has a Merchant Site or a Brochure Site in the Mall Site.
1.34 "Marketing Services" shall have the meaning set forth in Section
2.2.
1.35 "Merchant Acquiring Business" means a business providing any of
the following services or products to merchants with respect to Transaction
Cards: (i) the authorization and/or capture of transactions; (ii) the submission
of such transactions for interchange settlement or other settlement; (iii) the
preparation of statements or reports based on such transactions; chargebacks and
other exception items (including by electronic access); (iv) the provision of
customer service or other office services in respect of any of such
transactions; (v) clearing and settlement services; (vi) enhancements or
modifications to any of the foregoing services; and (vii) other services or
products developed in support of merchants to allow such merchants to remain
competitive in the Transaction Card industry.
1.36 "Merchant Site" means an e-commerce enabled website.
1.37 "Notice of Default" shall have the meaning set forth in Section
12.4.
1.38 "Person" means an individual, partnership, corporation, limited
liability company, trust, joint stock company, association, joint venture, or
any other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
1.39 "Primary Shopping Website" means the Internet shopping portal or
website mall in which the Company and its Affiliates, taken as a whole, invest
the greatest percentage of promotional, marketing, advertising, research and
development time and expenditures, as compared to any other website owned,
operated or controlled by the Company or any of its Affiliates.
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<PAGE> 5
1.40 "Renewal Term" shall have the meaning set forth in Section 12.2.
1.41 "SPV" shall have the meaning set forth in Section 5.
1.42 "SPV Rights" shall have the meaning set forth in Section 5.
1.43 "Stuff Card" shall have the meaning set forth in Section 3.6.
1.44 "Stuff Search Engine" means the product search engine resident on
the Stuff Site, as described in Exhibit 2.1.
1.45 "Stuff Site" means the site on the World Wide Web portion of the
Internet, accessed by using web browser software directed to the following
underlined URL: http://www.stuff.com or any other URL used by the Company to
replace or add to the foregoing.
1.46 "Term" shall mean the Initial Term and each and every Renewal Term
(if any).
1.47 "Transaction Card" means: (i) a card or other device or service
used for credit or debit transactions; (ii) a private label or retail debit or
credit card or other device or service used for similar services; (iii) a stored
value or other prepayment service card or other similar device or service used
for stored value or prepayment services; or (iv) an electronic coupon,
electronic benefit card, signature/security card, or similar device or service
used in connection with electronic financial transactions or other similar
services.
1.48 "URL" means Uniform Resource Locator.
1.49 "Wallet" means the ability to uniquely identify shoppers at a Mall
Site, and register a preferred Transaction Card number with such Mall Site.
2. RIGHTS AND OBLIGATIONS OF THE COMPANY.
2.1 Development and Operational Services. During the Term, the Company
shall perform the website development and operational services substantially as
set forth in Exhibit 2.1 (the "Development and Operational Services") in
accordance with the performance and design specifications, time frames, and
other obligations set forth in Exhibit 2.1 and elsewhere in this Agreement in
order to design, develop, implement, operate, maintain and update the Gateway,
Electronic Commerce Tools, Stuff Site, Mall Site, Brochure Sites, Merchant
Sites, and Linking Images resident thereon and such other deliverables and
services set forth on Exhibit 2.1.
2.2 Marketing Services. The Company shall perform the advertising and
promotion services substantially as set forth in Exhibit 2.2 (the "Marketing
Services") in accordance with the performance and design specifications and
other obligations set forth in Exhibit 2.2 and elsewhere in this Agreement.
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<PAGE> 6
2.3 Customer Service. The Company shall provide the customer support
services substantially as set forth in Exhibit 2.3.
2.4 Internet Gateway. The Company shall provide a Gateway at its cost
and expense from it to FDMS' authorization center exclusively for the use of
FDMS, its Affiliates and the Company. Notwithstanding the foregoing, FDMS or its
Affiliates, at their sole discretion, may use a different Gateway between the
Company and FDMS or its Affiliates, as applicable. The Company acknowledges and
agrees that FDMS and its Affiliates may, in their sole discretion, use the
Gateway for purposes other than the Stuff Site and Mall Site, provided that FDMS
pays to the Company the related Cash Register Service fees. The Company shall
not permit the removal of or otherwise remove a FDMS Merchant from the Gateway
without FDMS' approval, which approval FDMS may withhold in its sole discretion,
provided that such FDMS Merchant is paying applicable fees relating thereto.
2.5 Preferred Merchant Processor.
2.5.1 New Merchants. Within thirty (30) days after FDMS
provides the Company with operable FDMS Software, the Company shall
modify its electronic commerce system so that FDMS and such Affiliates
as FDMS elects shall be the merchant provider of Internet merchant
accounts unless a merchant specifically rejects FDMS, in which event
the system may default to a different provider.
2.5.2 Existing Electronic Commerce Merchants. Within sixty
(60) days after the Effective Date, and thereafter at FDMS' request
from time to time, to the extent not contractually prohibited from
doing so, the Company shall deliver an electronic mail message, at its
cost and expense, to each then-existing electronic commerce merchant
residing on the Imall Site, and such other Company or Affiliate owned
or operated websites as FDMS shall designate, that does not use FDMS or
an Affiliate of FDMS for services comprising the Merchant Acquiring
Business, inviting such merchant to have FDMS or an Affiliate of FDMS
provide services comprising the Merchant Acquiring Business. FDMS shall
provide the Company with suggested content for each such electronic
mail message. The Company shall approve each such electronic mail
message, which approval shall not be unreasonably withheld or delayed.
At FDMS' request from time to time, to the extent not contractually
prohibited from doing so, the Company shall deliver to FDMS a list,
which shall include the name, address, e-mail address, telephone number
and such other information as FDMS reasonably requests, of all
then-existing electronic commerce merchants residing on the Imall Site,
and such other Company or Affiliate owned or operated websites as FDMS
shall designate, that do not use FDMS or an Affiliate of FDMS for
services comprising the Merchant Acquiring Business.
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<PAGE> 7
2.5.3 Leads. Within three (3) business days after obtaining a
merchant account lead, the Company and its Affiliates shall provide
such lead exclusively to FDMS, regardless of the origin of such lead.
2.6 Merchant Transfer. Within thirty (30) days after receipt of a
request from FDMS, the Company shall (to the extent that the Company is not
prohibited contractually from doing so) cause those merchant sites accessible
from the Imall Site that are identified by FDMS to become Mall Tenants
concurrently accessible from the Mall Site, subject to merchant approval.
2.7 Product Search Preference. The Company shall design the Stuff
Search Engine to ensure that, regardless of the type or level of product search
query conducted, all FDMS Merchant Sites containing products that match the
search query shall be given the sole segregated preferential listing treatment
as set forth in Exhibit 2.7 or such other form and format as the parties may
agree.
2.8 Re-Branding of Electronic Commerce Tools. The Company shall, at its
sole cost and expense, promptly re-brand the Electronic Commerce Tools as
reasonably requested by FDMS. FDMS shall be permitted to use the same in
accordance with the license granted in Section 4.1.
2.9 Transfer of Internet Domain Names. Promptly after the Effective
Date or as soon as reasonably practicable, the Company shall cause all right,
title and interest in and to the Internet domain names set forth in Section 1.32
to be assigned to FDMS to the extent that the Company owns the same.
2.10 Change in Scope.
2.10.1 If during the Term, either party requests the other to
provide any additional services or deliverables, or modify existing
Development and Operational Services or Marketing Services or
deliverables, either party may make a request for such addition or
modification pursuant to a written change order ("Change Order"). Each
Change Order shall identify with reasonable specificity the addition or
modification, associated tasks, timetables, deliverables, fees and
charges. Within five (5) days after the receipt of a Change Order, the
parties shall discuss the same and the availability of personnel,
resources and fees and charges (if any), to implement the Change Order,
which implementation shall not be unreasonably denied by either party.
Each Change Order executed by the parties shall be incorporated into
and constitute an amendment to this Agreement. The terms of any Change
Order shall control over any inconsistent provisions set forth in this
Agreement with regard to the additional services or deliverables or
modification of existing Development and Operational Services or
Marketing Services.
2.10.2 If the Company is unable or unwilling to provide the
additional services or deliverables, FDMS may elect to do so at its
sole cost and expense, provided that doing so does not have a material
adverse effect on the infrastructure or operations of the Company. In
such case, the Company shall permit FDMS (or its consultants) access to
the Company's
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<PAGE> 8
facilities and materials (including, software and hardware) to complete
the additional services or deliverables contemplated by the Change
Order.
2.10.3 Notwithstanding the foregoing, if a Card Association,
governmental agency or other regulatory body requires changes to the
Development and Operational Services, the Company shall provide the
same pursuant to a Change Order at its sole cost and expense, provided
that the Company may pass through costs on a pro rata basis if such
changes materially increase the cost of providing services and such
pass through does not make the increased costs of services more than
similar services in the market place.
3. FDMS'S RIGHTS AND OBLIGATIONS.
3.1 FDMS Merchant Offers. Subject to Section 3.3, FDMS shall use
commercially reasonable efforts to offer Electronic Commerce Tools, Merchant
Sites and Brochure Sites to all domestic Alliances. FDMS shall name the Company
as a preferred e-commerce provider in such offers.
3.2 Customer Service. FDMS shall provide the customer support services
listed in Exhibit 2.3.
3.3 Tenancy Approval Right. As between the Company and FDMS, FDMS shall
have the exclusive right to include or exclude Mall Tenants and to determine all
terms and conditions of Mall tenancy. FDMS shall have the exclusive right to
approve or disapprove, in its sole discretion, all Mall Tenant applications
regardless of the origin of such application.
3.4 Development Approval Right. FDMS shall have the right to
participate in and provide input to direct the Development and Operational
Services and shall retain the final right of approval over all design,
development, content, features and revisions relating thereto, which approval
shall not be unreasonably withheld or delayed.
3.5 FDMS Solicitation of Existing Electronic Commerce Merchants. The
Company shall permit FDMS or an Affiliate of FDMS to contact (by telephone or
mail) the merchants set forth in the lists periodically created by the Company
pursuant to Section 2.5.2 for the purpose of inviting such merchants to have
FDMS or an Affiliate of FDMS provide services comprising the Merchant Acquiring
Business. FDMS shall provide the Company with copies of promotional materials to
be used in such solicitation for its review and approval, which approval shall
not be unreasonably withheld or delayed.
3.6 Stuff Card Development Right. FDMS shall have the exclusive right
to develop, broker, and process private label or co-branded Stuff Site-related,
Mall Site-related (or other Primary Shopping Website-related) Transaction Cards
(each a "Stuff Card"). FDMS shall use commercially reasonable efforts to
develop, market and broker Stuff Cards to potential issuers. Nothing herein
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<PAGE> 9
shall be deemed to limit or restrict the right of FDMS or any of its Affiliates
to develop, broker or process any other private label or co-branded Transaction
Card.
3.7 Duplicate System Right.
3.7.1 No later than May 1, 1999, the Company shall specify,
configure and deploy a back up and redundant system at a facility
chosen by FDMS. FDMS shall pay the associated hardware and third-party
software expenses. Thereafter, the Company shall promptly provide and
install all future upgrades and updates to such up system. FDMS may
install the equipment as a non-operational back up system (until such
time of breach or termination of this Agreement as set forth herein),
or operate the same as a third data center relating to the Company's
obligations set forth herein.
3.7.2 If the Company fails to specify, configure and deploy
such system (other than due to the failure of FDMS) by May 1, 1999, the
Company shall pay to FDMS, as liquidated damages and not as a penalty,
$5,000 per day for each day after May 1, 1999 that such system is not
specified, configured and deployed. If the Company still fails to
specify, configure and deploy such system (other than due to the
failure of FDMS) by July 1, 1999, in addition to the liquidated damages
set forth in the previous sentence, the Company shall pay to FDMS in
cash as liquidated damages and not as a penalty, $10,000 per day for
each day commencing July 1, 1999 that such system is not specified,
configured and deployed. The Company shall pay to FDMS such cash
liquidated damages monthly.
4. LICENSE AND OWNERSHIP.
4.1 License to Electronic Commerce Tools. The Company hereby grants to
FDMS, its Affiliates, and their respective successors and assigns, a
non-exclusive, worldwide, limited, non-transferable (subject to Section 13.13),
royalty-free (subject to payment obligations set forth in Exhibit 7) license
during the Term to use, execute, license and market (in object code only and in
accordance with the Company's standard terms and conditions) the Electronic
Commerce Tools internally or externally: (a) through any and all means now known
or hereafter invented; and (b) on any and all platforms now known or hereafter
invented; and (c) on any and all media now known or hereafter invented.
4.2 License to Company Software. The Company hereby grants to FDMS, its
Affiliates, and their respective successors and assigns, a non-exclusive,
worldwide, limited, non-transferable (subject to Section 13.13), royalty-free
license during the Term to: (a) use and execute the Company Software solely in
connection with the duplicate system contemplated in Section 3.7 and Exhibit
2.1; and (b) copy the same for back-up, disaster recovery and archival purposes
only.
4.3 License to Link to FDMS Software. FDMS hereby grants to the Company
a non-exclusive, nontransferable, limited right, exercisable during the Term, to
link to the FDMS Software solely to perform its obligations set forth herein.
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4.4 License to Company Marks.
4.4.1 License Grant. The Company hereby grants to FDMS and its
Affiliates a revocable, royalty-free, nontransferable, nonexclusive
right and license to use the Company Marks for the Term in connection
with the performance by FDMS of its obligations set forth in this
Agreement. FDMS' use of the Company Marks shall be limited to display
of the same on or in connection with advertising and marketing
materials promoting the Company's services and Electronic Commerce
Tools. FDMS accepts such grant, acknowledges and admits that it has no
right, title or interest in the Company Marks other than the right to
use the Company Marks as set forth in this Agreement, and agrees to
knowingly do nothing inconsistent with the Company's ownership rights
which would in any material way cause dilution of any of the Company
Marks.
4.4.2 Quality Control. FDMS shall use the Company Marks only
in connection with the performance of its obligations set forth herein.
Without limitation, the Company Marks may be used only in ways that
comply in all material respects with applicable law and that meet
standards generally accepted in the Internet and Transaction Card
industries. FDMS shall provide to the Company copies of all advertising
and marketing brochures and other materials bearing the Company Marks,
upon the request of the Company. In addition, FDMS shall provide to the
Company such information as the Company may reasonably request for the
purpose of determining whether FDMS has complied with the foregoing
standards. If, in the reasonable opinion of the Company, FDMS fails to
conform to the foregoing standards at any time, the Company shall so
notify FDMS. Upon such notification, FDMS shall promptly take steps
reasonably satisfactory to the Company to cause its use of the Company
Marks to conform to the foregoing standards. All advertising and
marketing brochures and other materials bearing Company Marks shall be
subject to the prior review and approval of the Company, which approval
shall not be unreasonably withheld or delayed.
4.4.3 Display of Company Marks. FDMS agrees to take reasonable
steps to guard against the dilution or misuse of Company Marks by using
and displaying the same, it being understood that such display shall be
in accordance with the depiction of the Company Marks provided to FDMS
from time to time.
4.4.4 Infringement or Unfair Competition. FDMS shall notify
the Company of any conflicting uses of or any acts of infringement or
unfair competition involving the Company Marks by unauthorized persons
to which FDMS becomes aware. The Company shall have the right, at its
option, to engage or not engage in infringement or unfair competition
proceedings involving Company Marks, or to authorize FDMS to engage in
such proceedings.
4.5 License to FDMS Marks.
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4.5.1 License Grant. FDMS hereby grants to the Company a
revocable, royalty-free, nontransferable, nonexclusive right and
license to use the FDMS Marks for the Term in connection with the
performance by the Company of its obligations set forth in this
Agreement. The Company's use of the FDMS Marks shall be limited to
display of the same on the Stuff Site and Mall Site or in connection
with advertising and marketing materials promoting the Stuff Site and
Mall Site and FDMS' Merchant Acquiring Business. The Company accepts
such grant, acknowledges and admits that it has no right, title or
interest in the FDMS Marks other than the right to use the FDMS Marks
as set forth in this Agreement, and agrees to knowingly do nothing
inconsistent with FDMS' ownership rights which would in any material
way cause dilution of any of the FDMS Marks.
4.5.2 Quality Control. The Company shall use the FDMS Marks
only in connection with the performance of its obligations set forth
herein. Without limitation, the FDMS Marks may be used only in ways
that comply in all material respects with applicable law and that meet
standards generally accepted in the Internet and Transaction Card
industries. The Company shall provide to FDMS copies of all advertising
and marketing brochures and other materials (including screen shots)
bearing the FDMS Marks, upon the request of FDMS. In addition, the
Company shall provide to FDMS such information as FDMS may reasonably
request for the purpose of determining whether the Company has complied
with the foregoing standards. If, in the reasonable opinion of FDMS,
the Company fails to conform to the foregoing standards at any time,
FDMS shall so notify the Company. Upon such notification, the Company
shall promptly take steps reasonably satisfactory to FDMS to cause the
Company's use of the FDMS Marks to conform to the foregoing standards.
All advertising and marketing brochures and other materials (including
screen shots) bearing FDMS Marks shall be subject to the prior review
and approval of FDMS, which approval shall not be unreasonably withheld
or delayed.
4.5.3 Display of FDMS Marks. The Company agrees to take
reasonable steps to guard against the dilution or misuse of FDMS Marks
by using and displaying the same, it being understood that such display
shall be in accordance with the depiction of the FDMS Marks provided to
the Company from time to time.
4.5.4 Infringement or Unfair Competition. The Company shall
notify FDMS of any conflicting uses of or any acts of infringement or
unfair competition involving the FDMS Marks by unauthorized persons to
which the Company becomes aware. FDMS shall have the right, at its
option, to engage or not engage in infringement or unfair competition
proceedings involving FDMS Marks, or to authorize the Company to engage
in such proceedings.
4.6 Gateway Use Right. FDMS hereby grants the Company the right to
access and use the Gateway during the Term solely in connection with its
performance of the Development and Operational Services, the Marketing Services,
and its other obligations under this Agreement or such other uses as the parties
may agree.
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4.7 Delivery. Promptly after the execution of this Agreement, the
parties shall determine the timing, format and frequency of the delivery of the
Electronic Commerce Tools, Company Software and FDMS Software.
4.8 Ownership.
4.8.1 By the Company. As between FDMS and the Company, the
Company shall own the Electronic Commerce Tools, Company Software,
Stuff Site, and, subject to FDMS' ownership rights under Section 4.8.2
and subject to FDMS' ownership of all works (including software and
other deliverables) developed by FDMS employees or consultants pursuant
to Section 2.10, all other deliverables under this Agreement.
4.8.2 By FDMS. As between FDMS and the Company, FDMS shall own
the FDMS Software, the Mall Site, the FDMS Security Mark Software, the
hardware and related materials identified in Section 3.7.1, "Stuff"
websites of Affiliates and the Gateway.
4.8.3 Enabling Provision. The Company acknowledges that the
Gateway and FDMS Security Mark Software is a work specially ordered and
commissioned for use as a contribution to a collective work and is a
work made for hire pursuant to U.S. Copyright Law. If the Gateway or
the FDMS Security Mark Software or any portion of either is not
considered a work made for hire, or if the Company may be entitled to
claim any other ownership interest in the same, the Company hereby
transfers, grants, conveys, assigns, and relinquishes exclusively to
FDMS all of the Company's right, title, and interest in and to the
same, under patent, copyright, trade secret and trademark law, in
perpetuity or for the longest period otherwise permitted by law.
4.9 Third Party Materials. Except for the materials listed in Exhibit
4.9 to this Agreement, as such exhibit may be amended by the parties from time
to time, the Company shall not incorporate into the Development and Operational
Services or Marketing Services or deliverables any content, software or other
materials owned by third parties except such other additional third party
materials identified to FDMS and approved by FDMS, which approval shall not be
unreasonably withheld or delayed. With respect to third party materials that are
so identified in Exhibit 4.9 or other such additional third party materials
identified to FDMS and approved by FDMS, the Company shall provide to FDMS
copies of any agreements or other agreements between the Company and such third
party governing use of such third party materials.
5. CERTAIN ADDITIONAL ACTIONS. Within sixty (60) days after the
Effective Date of this Agreement, the Company shall establish a special purpose
corporation, trust, limited liability company or other vehicle (the "SPV") and
shall transfer to the SPV all of its right, title and interest in and to the URL
for the Stuff Site and all associated trademark and service mark rights
(collectively, the "SPV Rights"). The transfer of the SPV Rights shall be
structured to be irrevocable and absolute so that the SPV Rights would not, in
the event of a bankruptcy proceeding involving the Company, constitute property
of the Company's bankruptcy estate. The SPV shall be
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further structured, both in respects to its capitalization and ongoing
operations, to be "bankruptcy-remote" by limitations on its business and by
causing it to follow procedures which will maintain its corporate separateness
from the Company and the Company's Affiliates and shall minimize the possibility
of the SPV being consolidated with the Company or any such Affiliate in the
event of a bankruptcy proceeding involving the Company or such Affiliates. Such
protections are likely to include, appointment of at least one outside director
which is independent from the Company, special charter provisions restricting
the SPV's ability to file for bankruptcy without 100% director consent, separate
bank accounts, separate books and records, and general maintenance of
arms'-length relations between the SPV and its Affiliates. In order to further
minimize the possibility of consolidation in bankruptcy, FDMS shall have the
option, but not the obligation, to subscribe for an equity interest in the SPV.
In connection with the formation of the SPV, the SPV shall enter into: (i) a
license agreement with the Company providing for the Company's exclusive use of
all of the SPV Rights, which right shall only be terminable in the case of an
Event of Default as set forth in Section 12.3.7 and (ii) a license agreement
with FDMS providing (at a minimum) for the transfer of use of the SPV Rights
exclusively to FDMS if the Company undergoes an Event of Default set forth in
Section 12.3.7, which license agreement shall be irrevocable and terminable only
upon FDMS' consent or in accordance with Section 12.7.
6. PROCESSOR FOR SHOPPING MALL LOCATED ON ANIMALHOUSE SITE. The Company
agrees that FDMS shall, for a period ending six (6) months after the Effective
Date, have the option to be the exclusive merchant processor, at a then
reasonable rate for similar merchant processing services, for the shopping mall
located on the Animalhouse Site.
7. PAYMENT TERMS.
7.1 Payment By FDMS to the Company. FDMS shall pay the Company for the
Development and Operational Services and Marketing Services performed under this
Agreement at the rates and according to the payment schedule set forth in
Exhibit 7.
7.2 Payment By the Company to FDMS. The Company shall pay FDMS for the
performance of its obligations under this Agreement at the rates and according
to the payment schedule set forth in Exhibit 7.
7.3 Most Favored Pricing. Notwithstanding anything to the contrary set
forth herein, the Company represents and warrants that the prices and benefits
granted by the Company hereunder are at least as favorable as the benefits and
terms granted by the Company to any other Person. If the Company or any
Affiliate of the Company enters into any subsequent or renewal agreement with
any other Person during the Term that provides for pricing or benefits more
favorable than those contained in this Agreement, this Agreement shall be deemed
to be modified to provide FDMS with those more favorable benefits and terms. The
Company shall notify FDMS promptly of the existence of such more favorable
pricing or benefits and FDMS shall have the right to receive the same
immediately. If requested in writing by FDMS, the Company shall amend this
Agreement to contain the more favorable terms and conditions. FDMS may, at its
own expense, audit the
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Company's records to verify that FDMS is receiving the most favorable pricing
and benefits granted by the Company to any other Person; provided that such
audit is conducted during normal business hours and in a manner that will not
unreasonably interfere with the Company's business operations.
7.4 Costs. Except as set forth herein, each party shall be responsible
for all costs and expenses incurred by it in connection with the performance of
its respective obligations under this Agreement.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Company represents,
warrants and covenants to FDMS as follows:
8.1 Leading Technology.
8.1.1 The Company shall perform the Development and
Operational Services and the Marketing Services: (i) in a professional
and workmanlike manner in accordance with the highest applicable
industry standards; (ii) in compliance with all Development and
Operational Services and Marketing Services obligations and
specifications set forth in this Agreement and its exhibits; and (iii)
so that the technology used in connection with the Stuff Site and Mall
Site is considered leading technology relative to other shopping
portals and Internet mall hosting providers. In furtherance of the
foregoing, FDMS may elect, at its sole cost and expense, no more
frequently than twice in any twelve (12) month period, to cause a third
Person to review and benchmark the technologies used in the Stuff Site
and Mall Site to ensure that the same is equal to or better than the
top ten percent (10%) of all providers of similar services. FDMS and
the Company shall promptly agree on the identity of a third Person to
perform such review and benchmark services.
8.1.2 If any review and benchmark reveals that the technology
does not meet the foregoing standards, and such failure substantially
impairs the ability of FDMS to: (i) service its current customers using
the Development and Operational Services provided by the Company
hereunder; or (ii) add additional customers to use the Development and
Operational Services, FDMS shall notify the Company of the same, and
the fees payable by FDMS hereunder shall be reduced by fifty percent
(50%) commencing upon the Company's receipt of the notice of the
failure provided by FDMS and ending on the date on which either: (a)
the parties agree that such failure has been cured; or (b) an
Arbitration Panel determines that such failure has been cured. If the
Company fails to remedy such failure within six (6) months after FDMS'
notification to the Company of the same, the Company shall pay FDMS for
all reasonable conversion costs and expenses incurred by FDMS and its
Affiliates associated with the deconversion of FDMS Merchants.
8.2 Primary Shopping Site. The Stuff Site shall be the Primary Shopping
Website of the Company and its Affiliates.
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8.3 Exclusive Mall Site. The Mall Site shall be the exclusive shopping
mall displayed on the Stuff Site.
8.4 Exclusive On-Line Internet Accessible Merchant Application Process.
Excluding CardServices International and Sage Networks, FDMS and its Affiliates
shall be the only Persons that the Company or its Affiliates permit to offer to
third Persons on-line Internet accessible application processes relating to the
Merchant Acquiring Business, including, the Mall Site and the Stuff Site, that
are owned, operated or controlled by the Company or any of its Affiliates.
8.5 Year 2000. The Development and Operational Services, Marketing
Services, Electronic Commerce Tools, and Company Software are and shall remain
year 2000 compliant in that:
8.5.1 date data from at least 1900 through 2101 will process
without error or interruption due solely to the change in century, in
any level of computer hardware, software or services, including,
microcode, firmware, system and application programs, files, databases
and computer services;
8.5.2 there will be no loss of functionality of any of the
foregoing due solely to the change in century, with respect to the
introduction, processing or output of records containing dates falling
on or after January 1, 2000; and
8.5.3 on and after January 1, 2000, all of the foregoing will
continue to be interoperable, in the same manner as they are prior to
January 1, 2000, with software and hardware that may deliver records
to, receive records from or interact with the foregoing in the course
of processing data, provided that such other software and hardware uses
a century windowing or interpretive approach (with a pivot year of 50).
8.6 Non-Competition. The Company shall not solicit FDMS Merchants for
the purpose of promoting, advertising or selling goods or services unrelated to
the Mall Site without first obtaining FDMS' written approval.
9. INDEMNIFICATION.
9.1 Obligation. The Company shall indemnify, defend and hold FDMS and
its directors, officers, employees, affiliates and agents (collectively, the
"Indemnified Persons") harmless from and against and in respect of any and all
claims, demands, losses, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies, including interest, penalties, court costs and
attorneys' fees (collectively, "Losses"), that any Indemnified Person shall
incur or suffer, which arise, result from, or relate to any breach or alleged
breach of, or failure or alleged failure by the Company to perform, any of its
representations, warranties or covenants set forth in Section 8.5.
9.2 Third Party. If any indemnifiable claim by a third Person is made
against any Indemnified Person, such Indemnified Person shall promptly provide
written notice to the Company
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of such claim; provided that the failure to give such notice shall not affect
any rights of such Indemnified Person hereunder except to the extent the Company
is materially prejudiced by such failure to give notice. By delivering written
notice to such Indemnified Person within 15 days after receipt of such
Indemnified Person's notice, the Company may, or upon written request of such
Indemnified Person shall, assume the defense of such claim at its sole expense
through counsel reasonably satisfactory to such Indemnified Person, provided
that: (i) the Company shall not permit any lien, encumbrance or other adverse
charge upon any asset of such Indemnified Person; (ii) the Company shall permit
such Indemnified Person to participate in such settlement or defense through
counsel selected by such Indemnified Person at such Indemnified Person's
expense; and (iii) the Company shall agree to promptly reimburse such
Indemnified Person for the full amount of its liability to the claimant provided
such liability is indemnifiable under Section 9.1. If the Company shall not have
employed counsel to defend such claim or if such Indemnified Person shall have
reasonably concluded (with the written advice of counsel) that the position of
such Indemnified Person and the Company may be in conflict, the Company shall
not have the right to direct the defense of any such claim on behalf of such
Indemnified Person and the reasonable legal and other expenses incurred by such
Indemnified Person shall be borne by the Company. Notwithstanding the foregoing,
each Indemnified Person shall have the right to pay or settle any such claim
provided in such event it shall waive its right to indemnity therefor by the
Company.
10. LIMITATION OF LIABILITY. EXCEPT IN THE EVENT OF A BREACH OF SECTION
11 OR PURSUANT TO THE COMPANY'S INDEMNITY OBLIGATIONS SET FORTH IN SECTION 9,
NEITHER PARTY SHALL BE LIABLE FOR (I) ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES OF
ANY KIND (INCLUDING, LOST INCOME OR LOST REVENUE), OR (II) ANY PUNITIVE, SPECIAL
OR EXEMPLARY DAMAGES, REGARDLESS OF THE CAUSE OF ACTION, EVEN IF THE OTHER PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
11. CONFIDENTIALITY.
11.1 Definition of Confidential Information. "Confidential Information"
shall mean any information or materials which could reasonably be considered
confidential and disclosed by either party in any form or medium and whether or
not designated either orally, visually or in writing as confidential (or like
designation) at the time of disclosure, including any data or information that
is competitively sensitive material, and not generally known to the public,
including products, planning information, marketing strategies, plans, finance,
operations, customer relationships, customer profiles, sales estimates, business
plans, and internal performance results relating to the past, present or future
business activities of a party, their respective Affiliates and the customers,
clients and suppliers of any of the foregoing, and the nature and terms of this
Agreement.
11.2 Exclusions. Notwithstanding the foregoing Section 11.1, the
parties' obligations respecting confidentiality shall not apply to any
particular information of a party that the other party can demonstrate: (i) was,
at the time of disclosure to it, in the public domain; (ii) after disclosure to
it, is published or otherwise becomes part of the public domain through no fault
of the receiving
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party; (iii) was in the possession of the receiving party at the time of
disclosure to it without being subject to another confidentiality agreement;
(iv) was received after disclosure to it from a third party who had a lawful
right to disclose such information to it; (v) was independently developed by the
receiving party without reference to Confidential Information of the furnishing
party; (vi) was required to be disclosed to any regulatory body having
jurisdiction over FDMS or the Company or any of their respective clients; or
(vii) that disclosure is necessary by reason of legal, accounting or regulatory
requirements beyond the reasonable control of the receiving party. In the case
of any disclosure pursuant to Section 11.2(vi) or 11.2(vii), to the extent
practical, the disclosing party shall give prior notice to the other party of
the required disclosure and shall use commercially reasonable efforts to obtain
a protective order covering such disclosure. If such a protective order is
obtained, such information shall continue to be deemed to be Confidential
Information.
11.3 Non-Disclosure Obligation. Each party to this Agreement shall: (i)
safeguard the confidentiality of the disclosing party's Confidential
Information, exercising at least the same degree of care as it would with its
own Confidential Information of a similar nature, but never less than reasonable
care; (ii) hold in confidence, and not disclose or reveal to any Person, any
Confidential Information disclosed under this Agreement without the clear and
express prior written consent of a duly authorized representative of the
disclosing party; and (iii) not use or disclose any of the Confidential
Information for any purpose at any time, other than for the limited purpose of
performance under this Agreement. Subject to Section 4, upon termination of this
Agreement for any reason, each party shall promptly return to the disclosing
party all Confidential Information (and any copies thereof) in its possession.
11.4 Irreparable Harm. Each party acknowledges that if it breaches (or
attempts to breach) its obligations under this Section 11, the other party will
suffer immediate and irreparable harm, it being acknowledged that legal remedies
are inadequate. Accordingly, if a court of competent jurisdiction should find
that a party has breached (or attempted to breach) any such obligations, such
party will not oppose the entry of an appropriate order compelling performance
by such party and restraining it from any further breaches (or attempted
breaches).
12. TERM, TERMINATION AND EXCLUSIVITY TERMINATION.
12.1 Initial Term. This Agreement shall be effective on the Effective
Date and shall continue for a period of ten (10) years (the "Initial Term"),
unless earlier terminated as set forth herein.
12.2 Renewal Term. This Agreement shall automatically renew for an
additional two (2) year term (each, a "Renewal Term") unless either party
provides notice of termination at least ninety (90) days prior to the expiration
of the Initial Term or the then-current Renewal Term. Terminations pursuant to
this Section 12.2 shall be subject to the termination consequences set forth in
Section 12.6.1.
12.3 Events of Default. The occurrence of any of the following events
(individually, an "Event of Default") shall constitute an Event of Default under
this Agreement:
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12.3.1 Certain Payment of Obligations under this Agreement.
The failure by either party to make any payment totaling less than
$500,000 to the other within ninety (90) days of when such payment is
due and owing pursuant to the terms and conditions of this Agreement.
12.3.2 Payment of Obligations under this Agreement. The
failure by either party to make any payment totaling $500,000 or more
to the other within ninety (90) days of when such payment is due and
owing pursuant to the terms and conditions of this Agreement.
12.3.3 Material Failure to Perform Under this Agreement. The
failure of any party to perform any material term or obligation
contained in this Agreement that substantially impairs the ability of
FDMS to: (i) service its current customers using the Development and
Operational Services provided by the Company hereunder; or (ii) add
additional customers to use the Development and Operational Services.
12.3.4 Other Failure to Perform Under this Agreement. The
failure of any party to perform any other material term or obligation
contained in this Agreement other than those set forth in Section
12.3.3.
12.3.5 Certain Failures Relating to the Warrant. The failure
of the Company to issue the Warrant (as defined in the Investment
Agreement) or the underlying shares if required by the terms of the
Investment Agreement.
12.3.6 Breach of Representation, Warranty or Covenant. A
material breach by the Company of its covenants or any representation
or warranty set forth in Section 8 shall prove to have been false in
any material respect upon the date when made or thereafter.
12.3.7 Insolvency, Bankruptcy, Etc.
(i) If any party shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay or
shall generally fail to pay its debts as they mature or become
due, or shall petition or apply for the appointment of a
trustee or other custodian, liquidator or receiver of such
party or of any substantial part of the assets of such party
or shall commence any case or other proceeding relating to
such party under any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation or similar
law of any jurisdiction, now or hereafter in effect, or shall
take any action to authorize or in furtherance of any of the
foregoing, or any such petition or application shall be filed
or any such case or other proceeding shall be commenced
against such party and such party shall indicate its approval
thereof, consent thereto, or acquiescence therein.
(ii) If a decree or order shall be entered appointing any such
trustee, custodian, liquidator, or receiver, or adjudicating
any party bankrupt or insolvent, or approving
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a petition in any such case or other proceeding, or a decree
or order for relief shall be entered in respect of such party
in an involuntary case under Federal bankruptcy laws as now or
hereafter in effect.
(iii) If the available cash equivalent is less than the sum of
the prior three (3) months gross revenues of the Company, less
core expenses. As used in this Section 12.3.7, the term
"available cash equivalent" means the month end cash and cash
equivalents of the Company, plus current (i.e., less than
thirty (30) days) receivables of the Company, plus any amounts
owed from FDMS other than amounts disputed in good faith, and
the term "core expenses" means those non-discretionary
expenses of the Company necessary to maintain the current
levels of business. In furtherance of the foregoing, the
Company shall provide information relating to the foregoing as
reasonably requested by FDMS.
12.3.8 Change in Control. In the event of a change in Control
of the Company where: (i) such Control is acquired, directly or
indirectly, in a single transaction or series of related transactions
by a competitor of FDMS or any Affiliate of FDMS; (ii) all or
substantially all of the assets of the Company are acquired by a
competitor of FDMS or any Affiliate of FDMS; or (iii) the Company is
merged with or into another entity to form a new entity, and such
entity is a competitor of FDMS or any Affiliate of FDMS.
12.3.9 Material Change to Stuff.com Product or Brand. A
material change to the Stuff.com product or brand to which FDMS
reasonably objects.
12.4 Notice of Breach; Right to Terminate. If any Event of Default
shall have occurred, the non-defaulting party shall notify the defaulting party
in writing (the "Notice of Default") of such Event of Default. If such Event of
Default has not been cured or waived in writing within thirty (30) days after
the date of the Notice of Default, the non-defaulting party may, in its
discretion, immediately terminate this Agreement. The foregoing termination
right is not intended to be exclusive of any other remedy given hereunder.
12.5 Limitation on Termination Right. The parties acknowledge and agree
that if the Company commits an Event of Default with respect to Section 8.2, the
Company shall be deemed to have cured such Event of Default if the Company,
within five (5) business days, moves the Mall Site to its or its Affiliate's new
Primary Shopping Website under similar terms and conditions to the operation of
the Mall Site.
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12.6 Effect of Expiration or Termination.
12.6.1 Generally. Upon expiration or termination of this
Agreement for any reason: (i) the Company and FDMS shall promptly
comply with the provisions of Section 11.3 regarding the return of
Confidential Information to the extent that a party is not permitted to
use the same as contemplated by this Agreement; (ii) the Company and
FDMS shall promptly remit to the other party any and all fees due and
owing to the other party; and (iii) the rights granted in Sections 4.1,
4.2, 4.3, 4.5 and 4.6 shall terminate. Upon any such termination, FDMS
may: (a) continue to have existing sublicenses of Electronic Commerce
Tools previously granted hereunder to sublicensees continue, provided
that FDMS continues to pay the Company for such rights in accordance
with this Agreement; or (b) terminate such sublicenses granted to
sublicensees hereunder, in which case the Company may elect to license
Electronic Commerce Tools to such former sublicensees directly.
12.6.2 Specific Termination Consequences. Upon termination of
this Agreement for an Event of Default by the Company set forth in
Sections 12.3.2, 12.3.3, 12.3.5, 12.3.6, 12.3.7, 12.3.8, or 12.3.9, it
being understood that this Section 12.6.2 shall not apply to an Event
of Default relating to Section 8.1 or 8.5, in addition to the
consequences set forth in Section 12.6.1, FDMS may exercise its rights
set forth in the Escrow Agreement. In addition, following the specified
cure period, the on-going payment obligations set forth in Exhibit 7
shall cease.
12.6.3 Dispute Resolution. If the Company disputes whether an
Event of Default set forth in Section 12.6.2 has occurred, the Company
may initiate the procedures set forth in Section 2 of Exhibit 13.10 to
determine whether any such Event of Default had occurred. If the
Arbitration Panel rules that an Event of Default shall have occurred,
this Agreement shall immediately terminate as set forth herein. If the
Arbitration Panel rules that no Event of Default shall have occurred:
(i) FDMS shall promptly return to the escrow agent set forth in the
Escrow Agreement the Deposit Materials and all copies thereof made by
FDMS; (ii) the license granted pursuant to the Escrow Agreement shall
terminate; (iii) the parties shall promptly comply with their payment
obligations (if any) set forth in Exhibit 7 for the period of time
during which the parties ceased such obligations; and (iv) the
Agreement shall remain in full force and effect.
12.6.4 Limitation. Notwithstanding anything to the contrary
set forth in Section 12.6.2, if the Company disputes whether an Event
of Default shall have occurred pursuant to Section 12.3.3, FDMS and the
Company shall continue to make all payments under the Agreement during
the pendency of any procedures set forth in Section 2 of Exhibit 13.10.
If the Arbitration Panel determines that an Event of Default pursuant
to Section 12.3.3 shall have occurred, this Agreement shall immediately
terminate as set forth herein, provided that the parties shall promptly
repay to the other all fees paid (if any) during the pendency of the
procedures set forth in Section 2 of Exhibit 13.10.
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<PAGE> 21
12.6.5 Survival. The parties' respective rights and
obligations in Sections 4.8, 7, 8.5, 9, 10, 11, 12.6.1 and 13 shall
survive the expiration or termination of this Agreement.
12.7 Exclusivity. If FDMS and its Affiliates have failed to obtain in
the aggregate at least 10,000 FDMS Merchant Sites, Brochure Sites and licenses
of Electronic Commerce Tools (whether or not re-branded) by the thirty-six (36)
month anniversary of the Effective Date, the Company shall no longer be
obligated to comply with Sections 3.6, 6 or 8.3 of this Agreement, Section 1 of
Exhibit 2.2, and the license granted to FDMS in accordance with Section 5 shall
terminate.
13. MISCELLANEOUS TERMS.
13.1 Escrow Agreement. Within fifteen (15) days after the execution of
this Agreement, the Company and FDMS shall enter into the Escrow Agreement
substantially in the form set forth in Exhibit 13.1. The parties acknowledge and
agree the Escrow Agreement is an agreement supplementary to this Agreement.
13.2 Further Assurances. Each party hereto agrees to cooperate with the
other party, at such other party's request and at such other party's expense, to
execute any and all documents or instruments, or to obtain any consents, in
order to assign, transfer, perfect, record, maintain, enforce or otherwise carry
out the intent of the terms of this Agreement.
13.3 Delays and Omissions. No delay or omission to exercise any right,
power or remedy accruing to upon any breach or default of a party under this
Agreement shall impair any such right, power or remedy of any such holder nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of any similar breach or default thereafter occurring;
nor shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any such holder of
any provisions or conditions of this Agreement must be made in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, under this Agreement shall be cumulative and not alternative.
13.4 Amendments. Except as otherwise expressly provided herein, the
provisions of this Agreement may be amended only by a writing signed by the
parties hereto.
13.5 Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors and permitted assigns of the parties hereto, whether so
expressed or not.
13.6 Final Agreement. This Agreement, together with those documents
which are exhibits hereto, constitute the final agreement of the parties
concerning the matters referred to herein and therein, and supersedes all prior
and contemporaneous agreements and understandings.
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<PAGE> 22
13.7 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
13.8 Descriptive Heading. The descriptive headings of this Agreement
are inserted for convenience of reference only and do not constitute a part of
this Agreement.
13.9 Notices. Any notices required, desired or permitted to be given
hereunder, shall be delivered personally, sent by overnight courier or mailed,
registered or certified mail, return receipt requested, to the following
addresses (or to such other address as each party may specify in a notice given
hereunder) or transmitted by facsimile transmission (with such transmission
promptly confirmed by writing delivered personally, by overnight courier or
mailed as provided in this Section 13.9) and shall be deemed to have been
received on the day of personal delivery, one business day after delivery to the
overnight courier service, three business days after such mailing or, in the
case of facsimile transmission, when received:
If to FDMS:
First Data Merchant Services Corporation
6200 South Quebec Street
Englewood, Colorado 80111
Attention: President
Facsimile: (303) 488-8705
-and-
First Data Merchant Services Corporation
6200 South Quebec Street
Englewood, Colorado 80111
Attention: General Counsel
Facsimile: (303) 889-6566
with a copy in the case of a notice to FDMS to:
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Attention: Frederick C. Lowinger, Esq.
Facsimile: (312) 853-7036
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<PAGE> 23
If to the Company:
iMall, Inc.
233 Wilshire Boulevard
Santa Monica, California 90401
Attention: Richard M. Rosenblatt
Facsimile: (310) 309-4100
with a copy in the case of a notice to the Company to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071
Attention: Brian G. Cartwright, Esq.
Facsimile: (213) 891-8763
13.10 Dispute Resolution.
13.10.1 In the event of a Dispute, the parties shall resolve
the same in accordance with the terms set forth in Exhibit 13.10.
13.10.2 Notwithstanding anything to the contrary set forth
herein, neither party shall be required to submit any dispute or
disagreement regarding the interpretation of any provision of this
Agreement, the performance by either party of such party's obligations
under this Agreement or a default hereunder to the mechanisms set forth
in Section 13.10.1, if such submission would solely be seeking
equitable relief from irreparable harm.
13.11 Governing Law. THE VALIDITY, MEANING AND EFFECT OF THIS AGREEMENT
SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE.
13.12 Execution in Counterparts. Execution in Counterparts. This
Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original, and such counterparts
together shall constitute one instrument.
13.13 Assignment. This Agreement may not be assigned or transferred by
operation of law or otherwise by either party without the prior written consent
of the other party, which consent shall not be unreasonably withheld or delayed,
provided, however, FDMS may assign or transfer, by operation of law or
otherwise, its rights, or delegate its duties under this Agreement to any
Affiliate if such Affiliate agrees to abide by the terms and conditions of this
Agreement and FDMS provides the Company with thirty (30) days prior notice of
such assignment or transfer, and provided further that FDMS may assign or
transfer this Agreement by operation of law or otherwise pursuant to: (i)
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<PAGE> 24
a sale of substantially all of the assets of FDMS; or (ii) a merger or other
combination of FDMS. Subject to the foregoing, the rights and obligations of
each party under this Agreement shall inure to the benefit of and shall be
binding upon the permitted successors and assigns of each party.
13.14 Independent Contractor. The relationship of the parties shall be
solely that of independent contractor and not that of a joint venture,
partnership, or any other joint relationship.
13.15 Draft Exhibits. As of the Effective Date, Exhibits 2.1 and 4.9
are set forth in draft form that are substantially complete. Such Exhibits are
subject to further good faith discussions by the parties hereto for fifteen (15)
days after the Effective Date. Neither party shall be required to negotiate in
good faith changes to such Exhibits after such fifteen (15) day period. If any
changes to such Exhibits have been approved by the parties hereto by the end of
such fifteen (15) day period, then such Exhibits shall be modified to reflect
such change and such modified Exhibits (signed and delivered by the parties
hereto) shall replace the form of the corresponding Exhibit attached hereto. If
the parties fail to agree to any changes to an Exhibit, the parties agree that
any such Exhibit shall be deemed to be complete in the form originally attached
hereto.
13.16 Press Release; Public Announcements. Neither party or their
respective Affiliates shall make any reference to the other party or its
Affiliates directly or indirectly in any press release or public announcement
without such other party's prior written consent, which consent shall not be
unreasonably withheld or delayed.
[REMAINDER LEFT INTENTIONALLY BLANK]
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<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
IMALL, INC.
By:_____________________________________
Name: Richard Rosenblatt
Title: Chairman and Chief Executive Officer
FIRST DATA MERCHANT SERVICES CORPORATION
By:_____________________________________
Name: John Duncan
Title: Executive Vice President, Business
Development
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<PAGE> 26
EXHIBIT LIST TO MARKETING AGREEMENT
Exhibit 2.1 - Development and Operational Services. [To be completed by the
parties]
Exhibit 2.2 - Marketing Services. [Details of marketing obligations of the
Company and FDMS under the Marketing Agreement]
Exhibit 2.3 - Customer Service Obligations. [Details of customer support
obligations of the Company and FDMS under the Marketing Agreement]
Exhibit 2.7 - Product Search Preference. [To be completed by the parties]
Exhibit 4.9 - Third Party Materials. [To be completed by the parties]
Exhibit 7 - Payment Terms. [Details of fees with respect to the Company and FDMS
under the Marketing Agreement]
Exhibit 13.1 - Source Code Escrow Agreement. [Agreement regarding source code
escrow arrangements]
Exhibit 13.10 - Dispute Resolution Procedures. [Details of dispute resolution
procedures]
<PAGE> 1
EXHIBIT 10.6
SOURCE CODE ESCROW AGREEMENT
THIS SOURCE CODE ESCROW AGREEMENT ("Escrow Agreement") is effective as
of October 31, 1998, by and among Data Securities International, Inc., a
Delaware corporation ("DSI"), iMall, Inc., a Nevada corporation ("Depositor"),
and First Data Management Services Corporation, a Florida corporation ("FDMS").
WHEREAS, Depositor and FDMS have entered into that certain Development
and Marketing Agreement dated October 31, 1998 as such agreement may be amended
from time to time (the "Marketing Agreement") regarding, inter alia, the Company
Software and Electronic Commerce Tools (as defined in the Marketing Agreement,
collectively, the "Company Materials");
WHEREAS, Depositor and FDMS desire this Escrow Agreement to be
supplementary to such Development and Marketing Agreement pursuant to 11 United
States Code Section 365(n);
WHEREAS, availability of or access to the Source Code is critical to
the conduct of FDMS' business; and
WHEREAS, Depositor will deposit with DSI proprietary data to provide
for FDMS' access to the Source Code under conditions specified herein.
NOW THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and in consideration of the promises, mutual
covenants and conditions contained herein, the parties hereto agree as follows:
1. Deposit Account. Following the delivery of the executed Escrow
Agreement, DSI shall open a deposit account ("Deposit Account") for
Depositor. The opening of the Deposit Account means that DSI shall
establish an account ledger in the name of Depositor, assign a deposit
account number ("Deposit Account Number"), calendar renewal notices to
be sent to Depositor as provided in Section 30, and request the initial
deposit ("Initial Deposit") from Depositor. Depositor has an obligation
to make the Initial Deposit within thirty (30) days after the Effective
Date set forth in the Marketing Agreement. Unless and until Depositor
makes the Initial Deposit with DSI, DSI shall request the Initial
Deposit from Depositor.
2. FDMS Account. Following the execution and delivery of this Escrow
Agreement, DSI shall open an account for FDMS ("FDMS Account"). The
opening of the FDMS Account means that DSI shall establish under the
Deposit Account an account ledger with a unique registration number
("Registration Number") in the name of FDMS, calendar renewal notices
to be sent to FDMS as provided in Section 30, and request the Initial
Deposit from Depositor. DSI shall notify FDMS upon receipt of Initial
Deposit.
3. Term of Escrow Agreement. The term of this Escrow Agreement shall be
coterminous with the Term of the Marketing Agreement, and shall
commence as of the date first written above and shall continue in full
force unless terminated earlier as provided in this Escrow Agreement.
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<PAGE> 2
4. Exhibit A, Notices and Communications. Notices and invoices to
Depositor and FDMS shall be sent to the parties at the addresses set
forth in Exhibit A.
Documents, payment of fees, deposits of material, and any written
communication to DSI shall be sent to the DSI offices set forth in
Exhibit A.
Depositor and FDMS agree to each name their respective designated
contact ("Designated Contact") to receive notices from DSI and to act
on their behalf in the performance of their obligations as set forth in
this Escrow Agreement. Depositor and FDMS agree to notify DSI promptly
of a change of their Designated Contact in the manner set forth in
Exhibit A.
5. Exhibit B and Deposit Material. Depositor shall submit source code and
related material for the Company Materials ("Deposit Material") to DSI
for retention and administration in the Deposit Account.
The Company shall submit the Deposit Material together with a completed
document called a "Description of Deposit Material", hereafter referred
to as Exhibit B. Each Exhibit B shall be signed by Depositor prior to
submission to DSI and shall be signed by DSI upon completion of the
Deposit Material inspection.
Depositor represents, warrants and covenants that it lawfully possesses
all Deposit Material, can transfer the Deposit Material to DSI and has
the authority to store the Deposit Material in accordance with the
terms of this Escrow Agreement.
6. Deposit Material Inspection. Upon receipt of an Exhibit B and Deposit
Material, DSI shall be responsible only for reasonably matching the
labeling of the materials to the item descriptions listed on the
Exhibit B and validating the count of the materials to the quantity
listed on the Exhibit B. DSI shall not be responsible for any other
claims made by the Depositor on the Exhibit B. Acceptance shall occur
when DSI reasonably concludes that the Deposit Material Inspection is
complete. Upon acceptance, DSI shall sign the Exhibit B and assign it
the next Exhibit B number. DSI shall issue a copy of the Exhibit B to
Depositor and FDMS within ten (10) days after acceptance.
7. Initial Deposit. The Initial Deposit shall consist of all material
initially supplied by Depositor to DSI.
8. Deposit Changes. Depositor shall update the Deposit Account with
supplemental Deposit Material at least once every thirty (30) days, or
at such other intervals as the parties may agree.
Supplemental Deposit ("Supplemental") is Deposit Material which is to
be added to the Deposit Account.
2
<PAGE> 3
Replacement Deposit ("Replacement") is Deposit Material which will
replace existing Deposit Material as identified by any one or more
Exhibit B(s) in the Deposit Account. Replaced Deposit Material will be
destroyed or returned to Depositor.
9. Deposit. The existing deposit ("Deposit") means all Exhibit B(s) and
their associated Deposit Material currently in DSI's possession.
Destroyed or returned Deposit Material is not part of the Deposit;
however, DSI shall keep records of the destruction or return of Deposit
Material.
10. Replacement Option. Within ten (10) days after receipt of Replacement
from Depositor, DSI shall send a letter to FDMS stating that Depositor
requests to replace existing Deposit Material, and DSI shall include a
copy of the new Exhibit B(s) listing the new Deposit Material.
FDMS has twenty (20) days from the receipt of such letter by DSI to
instruct DSI to retain the existing Deposit Material held by DSI, and
if so instructed, DSI shall change the Replacement to a Supplemental.
Conversion to Supplemental may cause an additional storage unit fee as
specified by DSI's Fee and Services Schedule.
If FDMS does not instruct DSI to retain the existing Deposit Material,
DSI shall permit such Deposit Material to be replaced with the
Replacement. Within ten (10) days after acceptance of the Replacement
by DSI, DSI shall issue a copy of the executed Exhibit B(s) to
Depositor and FDMS. DSI shall either destroy or return to Depositor all
Deposit Material replaced by the Replacement.
11. Verification Rights. Depositor grants to FDMS the option to verify the
Deposit for accuracy, completeness and sufficiency. Depositor agrees to
permit DSI and at least one employee of FDMS to be present at
Depositor's facility to verify, audit and inspect of the Deposit for
the benefit of FDMS. If DSI is present or is selected to perform the
verification, DSI shall be paid according to DSI's then current
verification service hourly rates and any out of pocket expenses.
12. Title to Media. Subject to the terms of this Escrow Agreement, title to
the media, upon which the proprietary data is written or stored, is and
shall be irrevocably vested in DSI. Notwithstanding the foregoing,
Depositor shall retain ownership of the proprietary data contained on
the media including all copyright, trade secret, patent or other
intellectual property ownership rights subsisting in such proprietary
data.
13. Storage Unit. DSI shall store the Deposit in defined units of space,
called storage units. The cost of the first storage unit will be
included in the annual Deposit Account fee.
14. Deposit Obligations of Confidentiality. DSI shall establish a locked
receptacle in which it shall place the Deposit and shall put the
receptacle under the administration of one or more of its officers,
selected by DSI, whose identity shall be available to Depositor at all
times.
3
<PAGE> 4
DSI shall exercise a professional level of care in carrying out the
terms of this Escrow Agreement.
DSI acknowledges Depositor's assertion that the Deposit shall contain
proprietary data and that DSI has an obligation to preserve and protect
the confidentiality of the Deposit.
Except as provided for in this Escrow Agreement, DSI agrees that it
shall not divulge, disclose, make available to third parties, or make
any use whatsoever of the Deposit.
15. Audit Rights. DSI agrees to keep records of the activities undertaken
and materials prepared pursuant to this Escrow Agreement. DSI shall
issue to Depositor and FDMS an annual report profiling the Deposit
Account. Such annual report will identify the Depositor, FDMS, the
current Designated Contacts, selected special services, and the Exhibit
B history, which includes Deposit Material acceptance and destruction
or return dates.
Upon reasonable notice, during normal business hours and during the
term of this Escrow Agreement, Depositor or FDMS shall be entitled to
inspect the records of DSI pertaining to this Escrow Agreement, and
accompanied by an employee of DSI, inspect the physical status and
condition of the Deposit. The Deposit may not be changed during the
audit.
16. Expiration. If this Escrow Agreement is not renewed, or is otherwise
terminated, all duties and obligations of DSI to Depositor and FDMS
shall terminate, provided that DSI may extend the period of this Escrow
Agreement to cover the processing of any outstanding instruction made
during any period of this Escrow Agreement. If Depositor requests the
return of the Deposit, DSI shall return the Deposit to Depositor only
after any outstanding invoices and the Deposit return fee are paid. If
the fees are not received by the Expiration Date of this Escrow
Agreement, DSI, at its option, may destroy the Deposit.
17. Certification by Depositor. Depositor represents and warrants to FDMS
that:
a. The Deposit delivered to DSI consists of the following: source
code of the Company Materials deposited on computer magnetic
media; all necessary and available information, proprietary
information, and technical documentation which shall enable a
reasonably skilled programmer of FDMS to create, maintain
and/or enhance the proprietary technology without the aid of
Depositor or any other person or reference to any other
materials; maintenance tools (test programs and program
specifications); proprietary or third party system utilities
(compiler and assembler descriptions); description of the
system/program generation; descriptions and locations of
programs not owned by Depositor but required for use and/or
support; and names of key developers for the technology on
Depositor's staff.
b. The Deposit shall be defined in Exhibit B(s).
These representations and warranties shall be deemed to be made
continuously throughout the term of this Escrow Agreement.
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<PAGE> 5
18. Indemnification. Depositor and FDMS agree to defend and indemnify DSI
and hold DSI harmless from and against any and all claims, actions and
suits, whether in contract or in tort, and from and against any and all
liabilities, losses, damages, costs, charges, penalties, counsel fees,
and other expenses of any nature (including, without limitation,
settlement costs) incurred by DSI as a result of performance of this
Escrow Agreement except in the event of a judgment which specifies that
DSI acted with gross negligence or willful misconduct.
19. Filing for Release of Deposit by FDMS. Upon notice to DSI by FDMS of
the occurrence of a release condition as defined in Section 21 and
payment of the release request fee, DSI shall: (a) promptly notify
Depositor by certified mail or commercial express mail service with a
copy of the notice from FDMS; and (b) proceed with its obligations set
forth in Section 22.
20. Intentionally Left Blank.
21. Release Conditions of Deposit to FDMS. Capitalized terms not otherwise
defined in this Escrow Agreement shall have the meaning set forth in
the Marketing Agreement (as the same may be amended from time to time).
The following shall constitute a Release Condition: a termination of
the Marketing Agreement pursuant to Section 12.4 thereof, permitting
FDMS to exercise its rights under this Agreement pursuant to Section
12.6.2 of the Marketing Agreement.
22. Release of Deposit to FDMS. Upon DSI's receipt of notice from FDMS that
a Release Condition has occurred ("Release Condition Notice"), DSI is
authorized to and shall release the Deposit to FDMS, within five (5)
business days after receipt of a Release Condition Notice, without
Depositor's approval or permission, and regardless of any contrary
instruction DSI may receive from Depositor, provided that FDMS pays all
fees due to DSI including Deposit copying and delivery fees.
23. Grant of Use License. Subject to the terms and conditions of this
Escrow Agreement, Depositor hereby transfers and upon execution by DSI,
DSI hereby accepts, a non-exclusive, irrevocable, perpetual, and
royalty-free Use License which DSI shall transfer to FDMS upon
controlled release of the Deposit as described in this Escrow
Agreement. The Use License shall be for the sole purpose of continuing
the benefits afforded to FDMS through any existing license,
maintenance, or other agreement with Depositor, it being understood
that if the Arbitration Panel (as defined in the Marketing Agreement)
rules that no Release Condition shall have occurred: (i) FDMS shall
promptly return to DSI the Deposit Materials and all copies thereof
made by FDMS; and (ii) the license granted pursuant to this Section 23
shall immediately terminate. After any such re-deposit, the terms and
conditions of this Escrow Agreement shall remain in full force and
effect.
24. Use License Representation. Depositor represents and warrants to FDMS
and DSI that it has no knowledge of any incumbrance or infringement of
the Deposit, or that any claim has been made that the Deposit
infringes, misappropriates, or violates any patent, trade secret,
copyright or other proprietary right of any third party. Depositor
represents and warrants that
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<PAGE> 6
it has the full right, power, and ability to enter into and perform
this Escrow Agreement, to grant the foregoing Use License, and to
permit the Deposit to be placed with DSI.
25. Miscellaneous Terms.
a. Further Assurances. Each party hereto agrees to cooperate with the other
party, at such other party's request and at such other party's expense, to
execute any and all documents or instruments, or to obtain any consents, in
order to assign, transfer, perfect, record, maintain, enforce or otherwise carry
out the intent of the terms of this Escrow Agreement.
b. Amendments. Except as otherwise expressly provided herein, the provisions of
this Escrow Agreement may be amended only by a writing signed by the parties
hereto.
c. Delays or Omissions. No delay or omission to exercise any right, power or
remedy accruing upon any breach or default of a party under this Escrow
Agreement shall impair any such right, power or remedy of any such holder nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of any similar breach or default thereafter occurring;
nor shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any such holder of
any provisions or conditions of this Escrow Agreement must be made in writing
and shall be effective only to the extent specifically set forth in such
writing. All remedies, under this Escrow Agreement shall be cumulative and not
alternative.
d. Governing Law. THE VALIDITY, MEANING AND EFFECT OF THIS AGREEMENT SHALL BE
DETERMINED IN ACCORDANCE WITH THE LAWS OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED IN THAT STATE.
e. Successors and Assigns. Except as otherwise expressly provided herein, all
covenants and agreements contained in this Escrow Agreement by or on behalf of
any of the parties hereto will bind and inure to the benefit of the respective
successors and assigns of the parties hereto, whether so expressed or not.
f. Final Agreement. This Escrow Agreement, together with those documents which
are exhibits hereto, constitute the final agreement of the parties concerning
the matters referred to herein and therein, and supersedes all prior and
contemporaneous agreements and understandings.
g. Severability. Whenever possible, each provision of this Escrow Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Escrow Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Escrow Agreement.
h. Descriptive Heading. The descriptive headings of this Escrow Agreement are
inserted for convenience of reference only and do not constitute a part of this
Escrow Agreement.
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<PAGE> 7
i. Independent Contractor. The relationship of the parties shall be solely that
of independent contractor and not that of a joint venture, partnership, or any
other joint relationship.
j. Dispute Resolution. In the event of a Dispute, the parties shall resolve the
same in accordance with the terms set forth in Exhibit 12.11 of the Marketing
Agreement.
26. General. DSI may act in reliance upon any instruction, instrument, or
signature believed to be genuine and may assume that any employee
giving any written notice, request, advice or instruction in connection
with or relating to this Escrow Agreement has apparent authority and
has been duly authorized to do so. DSI may provide copies of this
Escrow Agreement or account history information to any employee of
Depositor or FDMS upon their request. For purposes of termination or
replacement, Deposit Material shall be returned only to Depositor's
Designated Contact, unless otherwise instructed by Depositor's
Designated Contact.
DSI is not responsible for failure to fulfill its obligations under
this Escrow Agreement due to causes beyond DSI's reasonable control.
27. Termination of Rights. The Use License as described above shall
terminate in the event that this Escrow Agreement is terminated without
the Use License transferring to FDMS.
28. Fees. Fees are due upon receipt of signed contract, receipt of Deposit
Material, or when service is requested, whichever is earliest. If
invoiced fees are not paid within sixty (60) days after the date of the
invoice, DSI may terminate this Escrow Agreement. If the payment is not
timely received by DSI, DSI shall have the right to accrue and collect
interest at the rate of one percent per month (12% per annum) from the
date of the invoice for all late payments.
Renewal fees shall be due in full upon the receipt of invoice unless
otherwise specified by the invoice. If renewal fees are not received
thirty (30) days prior to the Expiration Date, DSI shall so notify
Depositor and FDMS. If the renewal fees are not received by the
Expiration Date, DSI may terminate this Escrow Agreement without
further notice and without liability of DSI to Depositor or FDMS.
DSI shall not be required to process any request for service unless the
payment for such request shall be made or provided for in a manner
satisfactory to DSI.
All service fees and renewal fees will be those specified in DSI's Fee
and Services Schedule in effect at the time of renewal or request for
service, except as otherwise agreed. For any increase in DSI's standard
fees, DSI shall notify Depositor and FDMS at least ninety (90) days
prior to the renewal of this Escrow Agreement. For any service not
listed on the Fee and Services Schedule, DSI shall provide a quote
prior to rendering such service.
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<PAGE> 8
IMALL, INC. FIRST DATA MANAGEMENT SERVICES
CORPORATION
By:_______________________________ By:________________________________
Name:_____________________________ Name:______________________________
Title:____________________________ Title:_____________________________
DATA SECURITIES
INTERNATIONAL, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE> 9
EXHIBIT A
DESIGNATED CONTACT
Account Number: _______
NOTICES, DEPOSIT MATERIAL RETURNS AND COMMUNICATION, INCLUDING DELINQUENCIES TO
DEPOSITOR SHOULD BE ADDRESSED TO:
iMall, Inc.
Designated Contact: President/Chief Executive Officer
Telephone:__________________________________
Facsimile:__________________________________
State of Incorporation: Nevada
NOTICES AND COMMUNICATION, INCLUDING DELINQUENCIES TO FDMS
SHOULD BE ADDRESSED TO:
First Data Management Services Corporation
Designated Contact: Vice President, Technical Support
Services
Telephone: ( )_____________________
Facsimile: ( )_____________________
CONTRACTS, DEPOSIT MATERIAL AND NOTICES TO DSI SHOULD BE
ADDRESSED TO:
DSI
Attn: Contract Administration
6165 Greenwich Drive
Suite 220
San Diego, CA 92122
Telephone: (619) 457-5199
Facsimile: (619) 457-4252
Date: October 30, 1998
INVOICES TO DEPOSITOR SHOULD BE ADDRESSED TO:
iMall, Inc.
Invoice Contact:____________________________
INVOICES TO FDMS SHOULD BE ADDRESSED TO:
First Data Management Services Corporation
Invoice Contact:____________________________
INVOICE INQUIRIES AND FEE REMITTANCES TO DSI
SHOULD BE ADDRESSED TO:
DSI
Attn: Accounts Receivable
49 Stevenson Street
Suite 550
San Francisco, CA 94105
Telephone: (415) 541-9013
Facsimile: (415) 541-9424
<PAGE> 10
EXHIBIT B
DESCRIPTION OF DEPOSIT MATERIAL
Deposit Account Number:_________________________________________________________
Depositor Company Name: iMall, Inc.
DEPOSIT TYPE:
__________ Initial ___________ Supplemental __________ Replacement
If Replacement: ___________ Destroy Deposit ___________ Return Deposit
ENVIRONMENT:
Host System CPU/OS:_____________________________________________________________
Version:________________________________________________________________________
Backup:_________________________________________________________________________
Source System CPU/OS:___________________________________________________________
Version:________________________________________________________________________
Compiler:_______________________________________________________________________
Special Instructions:___________________________________________________________
DEPOSIT MATERIAL:
Exhibit B Name:_________________________ Version:_______________________________
Item Label Description Media Quantity
For DSI, I received the above
For Depositor, I certify that the described Deposit Material subject
above described Deposit Material to the terms on the reverse side
was sent to DSI: of this Exhibit:
By:_______________________________ By:_________________________________
Print Name:_______________________ Print Name:_________________________
Date:_____________________________ Date of Acceptance:_________________
ISE:___________ EXHIBIT B#:_________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,834,825
<SECURITIES> 0
<RECEIVABLES> 215,940
<ALLOWANCES> 90,000
<INVENTORY> 0
<CURRENT-ASSETS> 6,007,901
<PP&E> 2,447,409
<DEPRECIATION> 670,938
<TOTAL-ASSETS> 8,281,089
<CURRENT-LIABILITIES> 2,261,859
<BONDS> 0
0
19,611,778
<COMMON> 62,897
<OTHER-SE> (405,000)
<TOTAL-LIABILITY-AND-EQUITY> 8,289,089
<SALES> 0
<TOTAL-REVENUES> 842,386
<CGS> 0
<TOTAL-COSTS> 168,841
<OTHER-EXPENSES> 6,897,509
<LOSS-PROVISION> 159,105
<INTEREST-EXPENSE> 4,566
<INCOME-PRETAX> (5,719,384)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,719,384)
<DISCONTINUED> (1,883,406)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,602,790)
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
</TABLE>
