<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
</TABLE>
iMALL, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
IMALL, INC.
233 WILSHIRE BOULEVARD
SUITE 820
SANTA MONICA, CALIFORNIA 90401
, 1999
To Our Stockholders:
You are cordially invited to the Special Meeting of Stockholders (the
"Special Meeting") of iMALL, Inc. (the "Company") to be held at
on , at a.m. local time.
The formal Notice of the Special Meeting and Proxy Statement describing the
matters to be acted upon at the Special Meeting are contained in the following
pages. Stockholders also are entitled to vote on any other matters which
properly come before the meeting.
Enclosed is a proxy which will enable you to vote your shares on the
matters to be considered at the Special Meeting even if you are unable to attend
the Special Meeting. Please mark the proxy to indicate your vote, date and sign
the proxy and return it in the enclosed envelope as soon as possible for receipt
prior to the Special Meeting.
WHETHER YOU OWN FEW OR MANY SHARES OF STOCK, PLEASE BE SURE YOU ARE
REPRESENTED AT THE MEETING EITHER BY ATTENDING IN PERSON OR BY RETURNING YOUR
PROXY AS SOON AS POSSIBLE.
Sincerely,
Richard M. Rosenblatt,
Chairman and Chief Executive Officer
<PAGE> 3
[IMALL LOGO]
IMALL, INC.
233 WILSHIRE BOULEVARD
SUITE 820
SANTA MONICA, CALIFORNIA 90401
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1999
To our Stockholders:
Our Board of Directors has called a Special Meeting of Stockholders to be
held on , 1999, at a.m. at (the "Special
Meeting") for the following purposes:
1. To consider and vote upon a proposal to approve the issuance to First
Data Merchant Services Corporation (or certain successors or permitted
transferees) of (A) 460,000 shares of iMALL's common stock, (B) a
warrant to purchase 5,000,000 shares (subject to certain antidilution
adjustments) of iMALL's common stock, and (C) the shares of iMALL's
common stock issuable upon the exercise of such warrant, in each case
pursuant to the terms of the Investment Agreement dated as of October
30, 1998 between iMALL and First Data; and
2. To transact other business, if any, which may be properly brought before
the Special Meeting.
You are cordially invited to attend the Special Meeting. Please carefully
read the attached Proxy Statement for information about the matters to be
considered and acted upon at the Special Meeting
If you were a stockholder at the close of business on , 1999,
you may vote at the Special Meeting.
Whether or not you intend to attend the Special Meeting in person, you are
requested to complete, sign, date and promptly return the enclosed proxy in the
accompanying postage-paid envelope. The prompt return of your proxy will save
expenses involved in further communication. If you attend the Special Meeting,
you may withdraw your proxy and vote in person.
By order of the Board of Directors,
Anthony P. Mazzarella
Executive Vice President,
Chief Financial Officer and Secretary
Santa Monica, California
, 1999
<PAGE> 4
IMALL, INC.
233 WILSHIRE BOULEVARD
SUITE 820
SANTA MONICA, CALIFORNIA 90401
------------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1999
BACKGROUND
On October 30, 1998, iMALL, Inc. (which we will refer to as "we," "us" or
the "Company") and First Data Merchant Services Corporation (which we will
abbreviate as "First Data") entered into an Investment Agreement (the
"Investment Agreement") and other related agreements which provide for the
purchase of our securities by First Data and the joint marketing of our Internet
commerce services. Pursuant to the Investment Agreement:
- First Data purchased 1,540,000 shares of our common stock;
- we agreed to issue and sell to First Data an additional 460,000 shares of
our common stock, subject to your approval and certain other conditions;
and
- we agreed to issue to First Data, upon the achievement of certain
performance objectives by First Data, a warrant to purchase up to
5,000,000 shares of our common stock, subject to your approval and
certain other conditions.
The rules of the National Association of Securities Dealers, Inc. (which is
commonly referred to as the "NASD") require that we obtain your approval prior
to issuing greater than 20% of our outstanding common stock at a price below its
market value. The initial purchase by First Data represented less than 20% of
our common stock, but the proposed sale of an additional 460,000 shares, when
combined with the initial purchase, would represent greater than 20% of our
common stock. Because the price of the additional shares at the time of sale and
the exercise price of the warrant at the time of its issuance or exercise may be
below the market price of our common stock, we are required by the rules of the
NASD, and we have agreed in the Investment Agreement, to obtain your approval
before issuing the additional shares or the warrant. (See "Description of the
Transactions" below for a detailed description of the Investment Agreement and
the other agreements we entered into with First Data).
Our Board of Directors has therefore called a Special Meeting of
Stockholders to be held at , on , 1999, at a.m.
(local time), and any other dates or times to which the meeting may be
adjourned. The Board of Directors has sent you this Proxy Statement to solicit
your proxy to vote on your behalf at the Special Meeting. Only stockholders of
record as of the close of business on , 1999 will be entitled to
notice of, and to vote at, the Special Meeting. Our Board of Directors is first
sending this Proxy Statement and the accompanying form of proxy to our
stockholders on or about , 1999.
At the Special Meeting, we will ask you:
- to consider and vote upon a proposal (the "Proposal") to approve the
issuance to First Data (or certain successors or transferees permitted by
the Investment Agreement) of: (A) 460,000 shares of our common stock, (B)
a warrant to purchase up to 5,000,000 shares (subject to certain
antidilution adjustments) of our common stock, and (C) the shares of our
common stock issuable upon the exercise of the warrant, in each case
pursuant to the terms of the Investment Agreement; and
- to transact other business, if any, that may properly come before the
Special Meeting.
<PAGE> 5
In the event you do not approve the Proposal, the Investment Agreement
requires us to pay to First Data the sum of (i) $1,000,000 and (ii) the product
of (A) 460,000 and (B) the positive difference between the closing price of our
common stock on the Termination Date (as that term is defined in the Investment
Agreement) and $7.00.
We will pay all expenses incurred in this proxy solicitation. We have hired
MacKenzie Partners, Inc. to assist us in soliciting proxies for a fee of
plus out of pocket expenses. We also may make additional
solicitations by telephone, facsimile, e-mail, or other forms of communication.
Brokers, banks and others who hold our stock for beneficial owners will be
reimbursed by us for their expenses related to forwarding our proxy materials to
the beneficial owners.
We have entered into a Stockholders Agreement with First Data and Messrs.
Richard Rosenblatt, Mark Comer and Craig Pickering, pursuant to which Messrs.
Rosenblatt, Comer and Pickering have agreed to vote all of their shares of our
capital stock in favor of the Proposal. As of December 10, 1998, Messrs.
Rosenblatt, Comer and Pickering beneficially owned an aggregate of 4,225,333
shares of our common stock, which represented 26.0% of the voting power at the
special meeting.
Our Board of Directors has approved the Investment Agreement, and believes
that it is desirable and in the best interest of the Company to issue and sell
its securities as provided therein. Our Board of Directors strongly urges the
stockholders to approve the Proposal.
INFORMATION ABOUT VOTING
If you are a stockholder of record as of , 1999, you may vote
your shares:
- By Proxy: You may vote by completing, signing and dating the enclosed
proxy card and returning it to us by mail. The instructions for voting
are contained on the enclosed proxy card. The individuals named on the
card, your "proxies," will vote your shares as you indicate. If you sign
your card without indicating how you wish to vote, all of your shares
will be voted FOR the approval of the Proposal, and, in the discretion of
your proxy, on any other matter that may be properly brought before the
meeting. You may revoke your proxy at any time before it is voted at the
meeting by sending a written notice to our Secretary (at the address at
the top of the page) that you have revoked the proxy, by providing a
later dated proxy, or by voting in person at the Special Meeting.
- In Person: You may attend the Special Meeting and vote in person.
If you held your shares in an account with a bank or broker or other entity
on the record date, please follow the instructions given to you on your ballot
regarding casting your vote.
VOTING RIGHTS AND RECORD DATE
At the close of business on December 10, 1998, we had 9,326,188 shares of
common stock, par value $.008 per share ("Common Stock") outstanding, and
5,000,004 shares of Series A 9% Convertible Preferred Stock outstanding. As of
December 10, 1998, each share of Series A 9% Convertible Preferred Stock would
have been convertible into 1.389 shares of Common Stock. Each stockholder
entitled to vote at the Special Meeting may cast in person or by proxy one vote
for each share of Common Stock and votes for each share of Series
A 9% Convertible Preferred Stock held by such stockholder. The total number of
votes entitled to be cast at the Special Meeting is . Only
stockholders of record at the close of business on , , 1999,
will be entitled to vote.
QUORUM AND REQUIRED VOTES
Holders of a majority of the outstanding shares of iMALL must be present in
person or by proxy in order for a quorum to be present. The approval of the
Proposal will require the affirmative vote of a majority of the votes cast on
the matter. Abstentions and broker non-votes will be counted toward the quorum
requirement, but will not be counted as votes cast on a matter. In accordance
with NASD requirements, the
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<PAGE> 6
1,540,000 shares of Common Stock owned by First Data will be counted toward the
quorum requirement, but will not be counted as votes cast on the approval of the
Proposal.
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<PAGE> 7
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
DIRECTORS AND OFFICERS
This table shows the beneficial ownership of Common Stock and Series A 9%
Convertible Preferred Stock as of December 10, 1998, by each director, each
nominee for election as a director at the Company's annual meeting of
stockholders scheduled to be held on December 31, 1999, each executive officer,
and all directors and executive officers as a group. Unless stated otherwise in
the notes to the table, each person named below has sole authority to vote and
dispose of the shares shown. Under Rule 13d-3(d)(1) of the Securities Exchange
Act of 1934, as amended, in calculating percentage ownership, each person named
below is deemed to beneficially own securities that such person has the right to
acquire within sixty days through the exercise of any option or warrant or
through the conversion of any security, but securities subject to options,
warrants or conversion rights owned by others (even if exercisable or
convertible within sixty days) are not deemed to be outstanding shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED PERCENT OF CLASS(1)
------------------------------- -------------------------------
SERIES A 9% SERIES A 9%
CONVERTIBLE CONVERTIBLE
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK PREFERRED STOCK COMMON STOCK PREFERRED STOCK
- ------------------------------------ ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Richard M. Rosenblatt.............. 1,798,333(2) -- 18.93% --
233 Wilshire Boulevard Suite 820
Santa Monica, California 90401
Anthony P. Mazzarella.............. 433,782(3) -- 4.47% --
233 Wilshire Boulevard Suite 820
Santa Monica, California 90401
Philip J. Windley.................. 185,449(4) -- 1.97% --
5314 North 250 West #110
Provo, Utah 84604
Steven E. Rossow................... 70,313(5) -- * --
233 Wilshire Boulevard Suite 820
Santa Monica, California 90401
Stephen W. Fulling................. 58,542(6) -- * --
5314 North 250 West #110
Provo, Utah 84604
Daniel S. Odette................... -- -- -- --
233 Wilshire Boulevard Suite 820
Santa Monica, California 90401
Marshall S. Geller................. 385,598(7) -- 4.01% --
1875 Century Park East Suite 2200
Los Angeles, California 90067
Harold S. Blue..................... 46,267(8) 12,500 * *
2501 Davie Road
Ft. Lauderdale, Florida 33317
Leonard M. Schiller................ 58,153(9) 18,750 * *
33 N. Dearborn, #1030
Chicago, Illinois 60602
Howard A. Goldberg................. 25,000(10) -- * --
1300 Atlantic Avenue, #800
Atlantic City, New Jersey 08401
Richard H. Rogel................... 136,806(11) 62,500 1.45% 1.25%
56 Rosecrown
Avon, California 81620
John F. Duncan..................... 1,540,000(12) -- 16.51% --
265 Broad Hallow Road
Melville, New York 11747
All directors and executive officers
as a group (12 persons).......... 4,738,244 93,750 44.67% 1.88%
</TABLE>
4
<PAGE> 8
- ---------------
* Less than one percent
(1) Calculations based upon 9,326,188 shares of Common Stock and 5,000,004
shares of Series A 9% Convertible Stock issued and outstanding on December
10, 1998.
(2) Consists of 125,000 shares issuable upon currently exercisable options and
48,333 shares issuable upon options exercisable within the next sixty days.
Does not include 1,500,000 shares issuable upon the exercise of options to
Commonwealth Associates and its affiliates with respect to which Mr.
Rosenblatt is the beneficiary of a proxy.
(3) Includes 125,000 shares issuable upon currently exercisable warrants,
125,000 shares issuable upon currently exercisable options and 128,333
shares and 4,167 shares issuable upon options and warrants, respectively,
exercisable within the next sixty days.
(4) Includes 62,500 shares issuable upon currently exercisable options and
9,375 shares issuable upon options exercisable within the next sixty days.
(5) Includes 62,500 shares issuable upon currently exercisable options and
7,813 shares issuable upon options exercisable within the next sixty days.
(6) Includes 43,334 shares issuable upon currently exercisable options and
15,208 shares issuable upon options exercisable within the next sixty days.
(7) Includes 250,000 shares issuable upon currently exercisable warrants,
12,500 shares issuable upon currently exercisable options, 8,333 shares
issuable upon warrants exercisable within sixty days and 12,500 shares
issuable upon options exercisable within the next sixty days.
(8) Consists of 17,361 shares issuable upon conversion of Series A 9%
Convertible Preferred Stock, 12,500 shares issuable upon currently
exercisable options, 3,906 shares issuable upon warrants exercisable within
sixty days and 12,500 shares issuable upon options exercisable within the
next sixty days.
(9) Consists of 26,044 shares issuable upon conversion of Series A 9%
Convertible Preferred Stock, 12,500 shares issuable upon currently
exercisable options, 7,109 shares issuable upon warrants exercisable within
sixty days and 12,500 shares issuable upon options exercisable within the
next sixty days.
(10) Consists of 12,500 shares issuable upon currently exercisable options and
12,500 shares issuable upon options exercisable within the next sixty days.
(11) Consists of 12,500 shares issuable upon currently exercisable options,
86,806 shares issuable upon conversion of Series A 9% Convertible Preferred
Stock and 12,500 shares issuable upon options exercisable within the next
sixty days.
(12) Represents 1,540,000 shares beneficially owned by First Data Merchant
Services Corporation. Mr. Duncan disclaims beneficial ownership of such
shares.
5
<PAGE> 9
CERTAIN BENEFICIAL OWNERS
The following persons are known by us to own more than five percent of the
outstanding Common Stock and Series A 9% Convertible Preferred Stock, other than
directors, director nominees and executive officers, who are listed in the table
above under "-- Directors and Officers." Under Rule 13d-3(d)(1) of the
Securities Exchange Act of 1934, as amended, in calculating percentage
ownership, each person named below is deemed to beneficially own securities that
such person has the right to acquire within sixty days through the exercise of
any option or warrant or through the conversion of any security, but securities
subject to options, warrants or conversion rights owned by others (even if
exercisable or convertible within sixty days) are not deemed to be outstanding
shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED PERCENT OF CLASS(1)
------------------------------- -------------------------
SERIES A 9% SERIES A 9%
CONVERTIBLE COMMON CONVERTIBLE
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK PREFERRED STOCK STOCK PREFERRED STOCK
------------------------------------ ------------ --------------- ------ ---------------
<S> <C> <C> <C> <C>
Mark R. Comer.......................... 990,000 -- 10.62% --
233 Wilshire Boulevard, Suite 820
Santa Monica, California 90401
Craig R. Pickering..................... 1,437,000(2) -- 15.39% --
1185 South Mike Jense Circle
Provo, Utah 84601
Michael S. Falk........................ 1,234,492(3) 43,600 11.79% *
830 Third Avenue
New York, New York 10022
First Data Merchant Services
Corporation.......................... 1,540,000(4) -- 16.51% --
6200 South Quebec Street
Englewood, Colorado 80111
Cramer Rosenthal McGlynn Inc........... 2,757,516(5) 1,566,098 24.83% 31.32%
707 Westchester Avenue
White Plains, New York 10604
</TABLE>
- ---------------
* Less than one percent
(1) Calculations based upon 9,326,188 shares of Common Stock and 5,000,004
shares of Series A Convertible Stock issued and outstanding on December 10,
1998.
(2) Includes 12,500 shares issuable upon currently exercisable options.
(3) Includes 722,499 shares and 343,307 shares issuable upon currently
exercisable warrants owned by Commonwealth Associates and Michael Falk,
respectively. Mr. Falk is the Chairman and controlling equity owner of
Commonwealth Management Co., Inc., the corporate general partner of
Commonwealth Associates. Also includes (i) 60,560 shares issuable upon the
conversion of 43,600 shares of Series A 9% Convertible Preferred Stock of
which Mr. Falk directly owns 37,500 shares and The Falk Family Foundation, a
charitable trust for which Mr. Falk serves as trustee, owns 6,100 shares and
(ii) 15,625 shares issuable upon warrants exercisable within the next sixty
days of which Mr. Falk directly owns 11,719 and the Falk Family Foundation
owns 3,906.
(4) Does not include (a) 460,000 shares of Common Stock which the Company has
agreed to issue to First Data upon approval by the stockholders of the
Proposal for a cash price of $7.00 per share and (b) 5,000,000 shares
issuable upon exercise of warrants at an exercise price of $17.00 per share.
The warrant has not been issued to First Data and will be earned and issued
only if, before 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 First Data, First Data has
implemented either 25,000 merchant web sites using the Company's e-commerce
services or 50,000 total merchant web sites using any of the Company's
products or services. Issuance of the warrant also is subject to approval by
the stockholders of the Proposal. Please see the section below entitled
"Description of Transactions" for a further discussion of the issuance of
Common Stock and the warrant to First Data.
(5) Includes (i) 828,350 shares owned by third parties of which Cramer Rosenthal
McGlynn, LLC, a registered investment advisor ("CRM LLC"), has the sole
voting and investment power; (ii) 436,146
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<PAGE> 10
shares issuable upon conversion of Series A 9% Convertible Preferred Stock
of which CRM LLC has the sole voting and investment power; (iii) 78,125
shares issuable upon warrants exercisable within the next sixty days of
which CRM LLC has the sole voting and investment power; (iv) 148,224 shares
owned by limited partnerships and limited liability companies of which
Cramer Rosenthal McGlynn Inc. ("CRM Inc.") is a partner or member and has
the sole voting and investment power; (v) 1,129,952 shares issuable upon
conversion of Series A 9% Convertible Preferred Stock owned by limited
partnerships and limited liability companies of which CRM Inc. is the
general partner or managing member and has the sole voting and investment
power; and (vi) 136,719 shares issuable upon the exercise of warrants
exercisable within the next sixty days owned by limited partnerships and
limited liability companies of which CRM Inc. is the general partner or
managing member and has the sole voting and investment power. CRM Inc. owns
in excess of 50% of the membership interest of CRM LLC.
THE PROPOSAL
The Proposal you are being asked to vote on at the Special Meeting is to
approve the issuance to First Data (or certain successors or transferees
permitted by the Investment Agreement) pursuant to the terms of the Investment
Agreement of:
- 460,000 shares of the Company's Common Stock at a price per share of
$7.00;
- a warrant to purchase up to 5,000,000 shares (subject to certain
antidilution adjustments) of the Company's Common Stock with an exercise
price of $17.00 per share (subject to certain antidilution adjustments),
provided that First Data meets certain performance requirements, all as
set forth in the Investment Agreement; and
- any and all shares issuable upon exercise of the warrant.
In the event that the Company's stockholders do not approve the Proposal,
the Investment Agreement requires the Company to pay to First Data the sum of
(i) $1,000,000 and (ii) the product of (A) 460,000 and (B) the positive
difference between the closing price of the Common Stock on the Termination Date
(as defined in the Investment Agreement) and $7.00.
Below, we summarize the terms of the Investment Agreement and related
agreements with First Data, describe the terms of the warrant and describe the
NASD rules that require us to seek the approval of the Company's stockholders.
DESCRIPTION OF TRANSACTIONS
On October 30, 1998, the Company entered into agreements with First Data,
relating to the issuance of Common Stock and a warrant to purchase shares of
Common Stock of the Company to First Data and the joint marketing of certain
Internet commerce services by the Company and First Data. Mr. John F. Duncan is
Executive Vice President of Business Development of First Data. First Data has
designated Mr. Duncan to serve as its representative on the Company's Board of
Directors and our Board of Directors has nominated Mr. Duncan for election as a
director at the Company's annual meeting of stockholders scheduled to be held on
December 31, 1998.
Investment Agreement
Under the terms of the Investment Agreement, First Data purchased 1,540,000
shares of Common Stock at a cash price of $7.00 per share and, subject to
approval by the stockholders of the Company of the Proposal and certain other
conditions, will purchase an additional 460,000 shares of Common Stock at a cash
price of $7.00 per share. The Company intends to issue the additional 460,000
shares on the second business day after the stockholders approve the Proposal.
Immediately after its initial purchase of 1,540,000 shares of Common Stock,
First Data 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
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<PAGE> 11
outstanding warrants, options and convertible securities. After giving effect to
the anticipated purchase by First Data of the additional 460,000 shares of
Common Stock, First Data 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. As of ,
1999, the additional 460,000 shares represent % of the Common Stock of the
Company then outstanding and % 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.
The Investment Agreement further provides that First Data (or certain
successors or permitted transferees) may, subject to approval by the
stockholders of the Proposal, earn a warrant (the "Warrant") to purchase up to
5,000,000 shares of Common Stock at an exercise price of $17.00 per share,
subject to adjustment as described below under "Description of
Warrant -- Adjustments." The Company will issue the Warrant if at any time prior
to the earlier of (i) expiration date of the Warrant and (ii) the date that is
two years after 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 First Data (the "Issue Date"), First Data has implemented either
25,000 merchant web sites using the Company's e-commerce services or 50,000
total merchant web sites using any of the Company's products or services. The
Investment Agreement also provides that First Data will be subject to certain
standstill restrictions and subject to certain exceptions 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
The Investment Agreement requires the Company to use, and the Company
intends to use, the net proceeds from the sale to First Data of the 1,540,000
shares of Common Stock, and the proposed sale of 460,000 shares of Common Stock,
for activities related to (i) the Internet mall sites to be jointly developed by
the Company and First Data, (ii) the Company's electronic commerce solutions
designed so as to benefit First Data and (iii) such other purposes upon which
the Company and First Data agree. Under the terms of the Investment Agreement,
the warrant will only be issued to First Data upon the achievement of certain
performance objectives by First Data, as described above. Accordingly, the Board
of Directors will determine the appropriate use of proceeds, if any, from the
exercise of the warrant if and when the warrant is issued and First Data
exercises the warrant.
In the event that the Company's stockholders do not approve the Proposal,
the Investment Agreement requires the Company to pay to First Data the sum of
(i) $1,000,000 and (ii) the product of (A) 460,000 and (B) the positive
difference between the closing price of the Common Stock Termination Date (as
defined in the Investment Agreement) and $7.00.
Description of Warrant.
General. The Warrant, when exercised, will entitle the holder thereof (the
"Holder") to receive 5,000,000 shares of Common Stock (the "Warrant Shares"), at
an exercise price of $17.00 per share, subject to adjustment (the "Exercise
Price"). The Exercise Price and the number of Warrant Shares are both subject to
adjustment in certain cases referred to below. On the date of this Proxy
Statement, assuming the Warrant was issued and exercisable, First Data would be
entitled to purchase shares of Common Stock representing approximately % of
Common Stock on a fully diluted basis (assuming exercise of all outstanding
warrants and conversion of all shares of Series A Convertible Preferred Stock).
The Warrant will be exercisable at any time on or after the Issue Date. Unless
exercised, the Warrant will automatically expire at 5:00 p.m. New York City time
on October 30, 2003 (the "Expiration Date").
Payment of the Exercise Price may be made at the Holder's election (i) 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, or (ii) with the consent of
the Company, 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 (as
defined below) equal to the Exercise Price which otherwise would have been paid.
Upon surrender of the warrant certificate and payment of the Exercise Price, the
Company will deliver, to or upon the written order of such Holder, appropriate
evidence of ownership of
8
<PAGE> 12
whole Warrant Shares or other securities or property to which the Holder is
entitled. If the Holder exercises the Warrant in part, a new warrant certificate
will be issued for the remaining number of Warrant Shares.
No fractional Warrant Shares will be issued upon exercise of the Warrant
unless the Company has combined or reclassified the outstanding shares of Common
Stock into a smaller number of shares, to which combination or reclassification
the Holder of the Warrant has not consented and provided a written waiver of its
right to reserve fractional shares. The Company will pay to the Holder of the
Warrant at the time of exercise an amount in cash equal to the current market
value of any such fractional Warrant Shares less a corresponding fraction of the
Exercise Price.
No Holder of the Warrant will have the right to vote on matters submitted
to the stockholders of the Company and will have no right to receive dividends.
No Holder of the Warrant will be entitled to share in the assets of the Company
in the event of liquidation, dissolution or the winding up of the Company.
Redemption. The Warrant may be redeemed, at the option of the Company, at a
redemption price equal to 0.266 shares of Common Stock (subject to adjustment as
provided below) per Warrant Share if the closing price of the Common Stock is
equal to or exceeds $25.50, subject to adjustment as provided below (the "Target
Price"), for at least twenty out of thirty consecutive trading days ending not
more than thirty days prior to the date on which the Company furnishes notice of
the redemption to the Holder. To redeem the Warrant, the Company is required to
furnish a notice of redemption to the Holder specifying the redemption price and
the date fixed for redemption (the "Redemption Date") at least 90 days prior to
the Redemption Date. Any right to exercise the Warrant will terminate at 5:00
p.m. New York City time on the business day immediately preceding the Redemption
Date. If the Warrant is not exercised prior to the Redemption Date, the Company
will deliver, to or upon the written order of such Holder, the shares of Common
Stock constituting the redemption price. On and after the Redemption Date, the
Warrant shall confer on the Holder no rights except the right to receive the
redemption price.
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, stock
splits or reverse stock splits, the Target Price and the redemption price per
Warrant Share will be proportionately adjusted to reflect such event. If, prior
to the date immediately preceding the Redemption Date the Holder is not entitled
to exercise any portion of the Warrant due to its failure to receive any third
party approval or the existence of any injunction or regulatory restraint
prohibiting such exercise, the Redemption Date will be extended until 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 will 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. If
the Holder exercises the Warrant after the receipt of a notice of redemption
from the Company, the Company will make a payment to compensate the Holder on an
after-tax basis for the loss of the time value of money with respect to the
income tax payable by the Holder as a result of the exercise of the Warrant
prior to the Expiration Date.
Adjustments. The number of Warrant Shares and the Exercise Price will be
subject to adjustment in certain events occurring after October 30, 1998,
including: (i) the payment by the Company of dividends and other distributions
on the Common Stock in Common Stock, (ii) subdivisions, splits, combinations,
reorganizations or reclassifications of the Common Stock, (iii) certain
distributions to all holders of Common Stock of any of the Company's assets or
shares of the Company's capital stock (other than Common Stock), debt or equity
securities or evidences of indebtedness of the Company, or any options, rights
or warrants to purchase any such securities, (iv) the issuance of shares of
Common Stock or other securities convertible into or exchangeable or exercisable
for shares of Common Stock for a price per share (or having an effective
exercise, exchange or conversion price per share together with the purchase
price thereof) less than the then Fair Market Value per share of Common Stock
(subject to certain exceptions), (v) the issuance of non-convertible and
non-exchangeable preferred 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) for a price per share less than the then Fair
Market Value per share of such preferred stock or other security at the time of
issuance of such preferred stock or other security (excluding securities issued
in transactions referred to in clause (iv) above), (vi) the repurchase by the
Company of any shares of Common Stock or other debt or
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equity securities or evidences of indebtedness of the Company or options, rights
or warrants to purchase any of such securities at a purchase price in excess of
the Fair Market Value thereof, and (vii) certain other events that could have
the effect of depriving a Holder of the Warrant of the benefit of all or a
portion of the purchase rights evidenced by the Warrant.
"Fair Market Value" as at any date of determination means, as to shares of
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 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 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.
In the case of certain consolidations or mergers of the Company, or the
sale of all or substantially all of the assets of the Company to another person
or entity, (i) the Warrant will thereafter be exercisable for the right to
receive the kind and amount of shares of stock or other securities or property
to which the Holder would have been entitled as a result of such consolidation,
merger or sale had the Warrant been exercised immediately prior thereto; (ii)
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 the Warrant; (iii) 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 in the Warrant for
the protection of the rights of the Holder shall thereafter continue to be
applicable; and (iv) any such resulting or surviving corporation shall expressly
assume the obligation to deliver, upon exercise, such securities, cash and other
property.
Reservation of Shares. The Company has authorized and reserved for issuance
and will at all times reserve and keep available such number of shares of Common
Stock as will be issuable upon the exercise in full of the Warrant. Such shares
of Common Stock, when issued upon exercise of the Warrant, will be duly and
validly issued, fully paid and non-assessable, free of preemptive and similar
rights and free from all taxes, liens, charges, security interests and other
encumbrances or restrictions on sale with respect to the issuance thereof.
Registration Rights. Pursuant to the Registration Rights Agreement dated as
of October 30, 1998 between the Company and First Data (the "Registration Rights
Agreement"), the Company has granted First Data certain rights to cause the
Company to register under the Securities Act of 1933, as amended, the Common
Stock purchased or to be purchased pursuant to the Investment Agreement and the
Common Stock issuable upon exercise of the Warrant. The Company granted First
Data two demand registrations and unlimited "piggyback" registration rights.
Stockholders Agreement
In addition, the Company and First Data entered into a Stockholders
Agreement dated as of October 30, 1998 (the "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. Mr. Rosenblatt is also Chief Executive
Officer and Chairman of the Company. The Stockholders Agreement provides that
First Data will be entitled to representation on the Board of Directors
proportional to its overall share of the Company's voting securities, which
representation will not be less than, and will initially be set at, one
representative. First Data has designated Mr. John F. Duncan to serve as its
initial representative on the Company's Board of Directors. The Stockholders
Agreement further provides that First Data 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 First Data or who were designated by First Data
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 First Data. The parties are also obligated to
approve and adopt amendments to the Company's bylaws containing these and
related provisions.
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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.
Marketing Agreement
The Company and First Data also entered into a Development and Marketing
Agreement dated as of October 30, 1998 (the "Marketing Agreement") pursuant to
which the Company and First Data will jointly market Internet commerce solutions
to First Data's 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, First Data 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 a preferred e-commerce provider in such offers. Under the terms
of the Marketing Agreement, the Company is obligated to use commercially
reasonable efforts to promote First Data and its affiliates' merchant acquiring
business to merchants which the Company has a relationship with now or in the
future and to maintain the Stuff.com website as the primary shopping website of
the Company and its affiliates. In addition, the Company is obligated to perform
certain website development and operational services relating to the Company
gateway, e-commerce tools, mall site, brochure sites, merchant sites and linking
images resident thereon. The Marketing Agreement also 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.
The foregoing summaries of certain terms of the Investment Agreement, the
Warrant, the Stockholders Agreement, the Marketing Agreement and the
Registration Rights Agreement do not purport to be complete and are qualified by
reference to the actual agreements which have been filed as exhibits to the
Company's Quarterly Report on Form 10-QSB for the period ended September 30,
1998. A copy of the Investment Agreement is attached as Annex A and the form of
Warrant is attached as Annex B to this Proxy Statement.
NASDAQ APPROVAL REQUIREMENT
The issuance by the Company of Common Stock is subject to stockholder
approval pursuant to the rules of the NASD applicable to companies whose
securities are traded on the Nasdaq SmallCap Market. Rule 4310(c)(25)(H)(i)d of
the NASD (the "20% Rule") requires companies that are listed on the Nasdaq
SmallCap Market to obtain stockholder approval prior to issuing common stock (or
shares exercisable or convertible into common stock) in a transaction other than
a public offering at a price less than the market value of the common stock,
where the amount of common stock to be issued (or issuable upon exercise or
conversion) is or will be greater than 20% of the common stock or voting power
of the Company outstanding prior to the issuance.
The initial purchase by First Data of 1,540,000 shares of Common Stock
represented less than 20% of the outstanding Common Stock at the time of
purchase. However, the proposed sale of an additional 460,000 shares of the
Common Stock, when combined with the initial purchase, would represent greater
than 20% of the outstanding Common Stock at the time of issuance. In addition,
the exercise price of the warrant may be below the market price of the Common
Stock at the time of its issuance or exercise. Because the shares of Common
Stock are being issued in a transaction other than a public offering and because
the Investment Agreement provides for (i) the issuance of an aggregate number of
shares of Common Stock exceeding 20% of the outstanding Common Stock, (ii) the
sale of 460,000 shares of Common Stock subsequent to stockholder approval at a
price which may be below the current market price and (iii) the issuance of a
warrant which may be exercised for shares of Common Stock at a price which may
be below the current market price at the time of issuance or exercise, approval
of the Proposal by the Company's stockholders is required under the 20% Rule.
Pursuant to the Stockholders Agreement, Messrs. Rosenblatt, Comer and
Pickering have agreed to vote all of their shares of capital stock in favor of
the Proposal. As of December 10, 1998, Messrs. Rosenblatt,
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Comer and Pickering beneficially owned an aggregate of 4,225,333 shares of
Common Stock, which represented 26.0% of the voting power at the special
meeting.
THE BOARD OF DIRECTORS BELIEVES THE PROPOSAL TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL OF THE
PROPOSAL.
OTHER MATTERS
We do not know of any other matters to be presented at the Special Meeting
other than those discussed in this proxy statement. If, however, other matters
are properly brought before the Special Meeting, your proxies will be able to
vote those matters in their discretion.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholder proposals for inclusion in the 1999 Proxy Statement must be
received by August 18, 1999. In addition, if the Company has not received notice
on or before November 1, 1999 of any matter a shareholder intends to propose for
a vote at the 1999 Annual Meeting, then a proxy solicited by the Board of
Directors may be voted on such matter in the discretion of the proxy holder,
without a discussion of the matter in the proxy statement soliciting such proxy
and without such matter appearing as a separate matter on the proxy card. Any
proposals must be mailed to iMALL, Inc., Attention: Secretary, 233 Wilshire
Boulevard, Suite 820, Santa Monica, California 90401.
By the order of the Board of Directors,
Anthony P. Mazzarella
Executive Vice President,
Chief Financial Officer and Secretary
Santa Monica, California
, 1999
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ANNEX A
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").
(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
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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:
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.
(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
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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 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
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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 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 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.
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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 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
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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 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 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.
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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, 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.
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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:
(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.
(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.
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(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 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.
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(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
(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 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
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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;
(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
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Registration Rights Agreement, the Stockholders Agreement, or in any other
agreement or any 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
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.
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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 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.
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
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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 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.
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
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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 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
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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 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.
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
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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 (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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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.
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.
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> 34
ANNEX B
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.
"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.
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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> 35
"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.
"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, 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
- ---------------
** Subject to anti-dilution adjustment as provided in Section 8.1(c) of the
Investment Agreement.
*** 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> 36
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 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
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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.
(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
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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 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.
(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
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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.
(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.
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(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)).
(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 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.
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(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 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.
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(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):
(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
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<PAGE> 43
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 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.
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
B-10
<PAGE> 44
"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.
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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<PAGE> 45
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)
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:
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<PAGE> 46
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:
- ---------------------------------------------
B-13
<PAGE> 47
FORM OF PROXY
iMALL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR SPECIAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Richard M. Rosenblatt and Anthony P.
Mazzarella, and each of them, as proxies, with full power of substitution, to
represent and vote all shares of Common Stock and all shares of Series A
Convertible Preferred Stock which the undersigned would be entitled to vote at
the Special Meeting of iMALL, Inc., to be held at , on ,
, 1999, at a.m., and at any adjournments thereof on proposal 1
as I have specified and such other matters as may come before the meeting.
You are encouraged to specify your choices by marking the appropriate boxes
on the reverse side, but you need not mark any boxes if you wish to vote in
accordance with the board of director's recommendations.
See Reverse Side
<PAGE> 48
[X] Please mark your votes as in this example.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1.
The Board of Directors recommends a vote FOR Proposal 1.
1. Approval of issuance of (A) 460,000 shares of the Company's common stock, (B)
a warrant to purchase up to 5,000,000 shares (subject to certain antidilution
adjustments) of the Company's common stock, and (C) the shares of the
Company's common stock issuable upon the exercise of such warrant;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In the discretion of the proxies on any other matters that may properly
come before the meeting or any adjournment thereof.
Change of Address/Comments on reverse side [ ]
If more than one of the proxies listed on the reverse side shall be present
at the meeting or any adjournment thereof, the majority of said proxies so
present and voting shall exercise all of the powers conferred hereby.
The undersigned hereby revokes any proxy heretofore given to vote upon or
act with respect to such shares and hereby ratifies and confirms all that the
proxies listed on the reverse side, or either of them, may lawfully do by virtue
hereof.
<TABLE>
<C> <S> <C> <C>
- ------------------------ Date: ------------------------------ Dated:
Signature ---------------- , Signature if Held Jointly ---------------- ,
1999 1999
</TABLE>
NOTE: Please sign exactly as name appears on the certificate or certificates
representing shares to be voted by this proxy, as shown on the label
above. When signing as executor, administrator, attorney, trustee, or
guardian, please give full title as such. If a corporation, please sign
full corporation name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person(s).
