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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1999
[_] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 0-21201
iMALL, INC.
______________________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Nevada 87-0553169
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
233 WILSHIRE BOULEVARD, SUITE 820, SANTA MONICA, CALIFORNIA 90401
______________________________________________________________________________
(Address of principal executive offices)
(Zip Code)
(310) 309-4000
(Issuer's telephone number including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 11, 1999, the Issuer had outstanding an aggregate of 18,265,660
common shares, par value $0.008.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements of iMALL, Inc. and
subsidiaries (the "Company") as of June 30, 1999 and for the three-month and
six-month periods ended June 30, 1999 and 1998 are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements involving risks and
uncertainties based on management's current expectations, estimates and
projections about the Internet industry and the evolution of on-line commerce
and electronic commerce services. All statements in this report related to the
Company's changing financial operations and expected future growth constitute
forward-looking statements. The actual results may differ materially from those
anticipated or expressed in such statements. The following discussion and
analysis of the Company's financial condition as of June 30, 1999 and the
Company's results of operations for the three-month and six-month periods ended
June 30, 1999 and 1998 should be read in conjunction with the Company's
unaudited condensed consolidated financial statements and notes thereto included
elsewhere in this Form 10-QSB. These results are not necessarily indicative of
the results that may be achieved by the Company for the entire year ending
December 31, 1999.
OVERVIEW
The Company provides electronic commerce services and solutions ("EC services")
to small and medium-size businesses enabling them to cost effectively and
efficiently sell their products through the Internet. The Company's unique EC
services and integrated process allow businesses to create fully commerce
enabled Web sites or add transaction capabilities to their existing ones,
establish "Internet ready" merchant accounts online, and process customer orders
securely through the Company's proprietary payment gateway. To help increase
business' online sales, the Company's shopping portals and shopper services are
integrated into its EC services. The Company's shopping portals are located at
www.stuff.com and www.imall.com.
Throughout the second quarter of 1999, the Company focused most of its time and
resources on continuing to expand and develop its EC services. The Company
established new strategic resellers of its EC services, expanded the
relationship with its existing alliances, and further developed its EC services.
New strategic resellers included IBM Corporation (through its small business web
authoring tool, HomePage Creator), SmartAge Corp. (a Web services company whose
marketing services include its SmartClicks free banner exchange service) and
BigOnline (a Web site development company). The Company continued to market and
upgrade the features of Merchantstuff, the Company's fully integrated e-commerce
solution, which was developed jointly with First Data Merchant Services ("First
Data"). The Company's EC services were customized to create "private-labeled"
solutions for resale by some of the Company's strategic resellers. By the end
of second quarter, some of these strategic resellers began to use the Company's
EC services to build fully commerce enabled sites for their merchant customers.
The Company also continued to expand its shopping portal, located at
www.stuff.com, during the second quarter. This portal is a product-level search
engine designed specifically for on-line shopping. Visitors to stuff.com can
search a proprietary index of over three million products offered among numerous
merchant sites across the Internet. The search experience is efficient and
specific to products for sale, in that it does not clutter the search results
with generic keywords or extraneous non-retail Web sites. Further, when the user
clicks on a chosen product in the listing of search results, the user is linked
directly to the relevant product page within the merchant Web site, rather than
having to restart a search from the top page of a merchant's Web site.
During the quarter, the Company also continued the transition into its new next-
generation computing architecture for existing applications and customers. The
platform, code named Emerald Lake, was in development for over a year and is
intended to allow for increased scalability, security, and reliability, while
providing a more flexible architecture for implementing future enhancements.
The Company continued the development of new features of the products and
services obtained through the acquisition of Pure Payments, Inc. in the first
quarter of 1999. The integration of Pure Payments' services into the EC
services expedites the store building process by eliminating many manual and
time-consuming steps required to integrate payment processing into a merchant's
Internet storefront. The development included the development of Merchant
Reporter, a complete, stand-alone solution for customers who need only gateway
services. Pure Payments' products and services support advanced credit card
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payment features for on-line retailers and offer corporate purchase card
processing, automatic merchant sign-up, end-to-end system-wide monitoring, and
transparent software upgrades.
Recent Developments
On July 12, 1999, the Company, At Home Corporation ("At Home") and Shop Nevada,
Inc., a wholly-owned subsidiary of At Home ("Merger Sub"), entered into an
Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Merger
Sub will be merged with and into the Company (the "Merger"), with the Company
surviving the Merger and becoming a wholly-owned subsidiary of At Home.
Pursuant to the Merger Agreement, upon the effectiveness of the Merger, each
outstanding share of Common Stock, par value $.008 per share, of the Company
will be converted into the right to receive 0.460 shares of Series A Common
Stock, par value $.01 per share, of At Home. The Merger, which is expected to
close in the fourth quarter of 1999, is subject to the satisfaction or waiver by
the parties of certain conditions, including the receipt of regulatory approvals
and approval by the stockholders of the Company. The Company may be required
to pay a substantial termination fee if the Merger is terminated for certain
specific reasons.
In connection with the Merger Agreement, certain stockholders of the Company
holding an aggregate of over 40% of the outstanding Common Stock of the Company
have entered into a voting agreements with At Home, pursuant to which such
stockholders agreed to vote their shares in favor of the approval of the Merger
Agreement and the Merger, subject to certain conditions.
RESULTS OF OPERATIONS
Comparison of Three-Month Periods Ended June 30, 1999 and 1998
Revenues. Revenues for the three months ended June 30, 1999 were $801,600
compared to $265,600 for the three months ended June 30, 1998, an increase of
$536,000 or 202%. The increase was due primarily to an increase in advertising
revenue generated through the Company's shopping portals, imall.com and
stuff.com. To generate this revenue, the Company increased its marketing and
technology expenditures with the goal of creating additional page views for sale
to advertisers, extending its brand awareness, and driving traffic to the
Company's merchant clients. The Company also received advertising revenues from
customers where the Company would pay web publishers with whom the Company had
pre-existing relationships a service fee for delivering the advertisements. The
Company is responsible for billing and collecting on these ads and assumes the
risk of non-payment from advertisers. The Company continued to grow revenues
derived from its EC services by managing its existing reseller relationships
through product training, simplifying the integration of its services with the
existing resellers' services and by the development of new reseller
relationships.
Cost of Revenues. The cost of revenues for the three months ended June 30,
1999 were $311,200 compared to $43,300 for the three months ended June 30, 1998,
an increase of $267,900 or 619%. The profit margin decreased to 61% in the three
months ended June 30, 1999 from 84% in the three months ended June 30, 1998.
Beginning in the fourth quarter of 1998 the Company received advertising
revenues from customers where the Company would pay web publishers with whom the
Company had pre-existing relationships a service fee for delivering the
advertisements. This fee is included in cost of revenues driving the profit
margin down from the relatively high margin realized on EC services. Cost of
revenues also includes labor and related costs to build Web sites as well as the
cost of any products sold on-line directly by the Company.
Selling Expenses. Selling expenses for the three months ended June 30, 1999
were $843,700 compared to $770,600 for the three months ended June 30, 1998, an
increase of $73,100 or 9%. The increase is primarily due to increased spending
on an on-line advertising campaign. The Company spent $640,000 in this on-line
advertising campaign during the quarter in an attempt to increase its traffic,
branding and further promote its focus on on-line commerce.
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Product Development. Product development expenses for the three months ended
June 30, 1999 were $1,633,200 compared to $563,300 for the three months ended
June 30, 1998, an increase of $1,069,900 or 190%. This increase is due to the
change in the Company's focus from Internet training and Web site sales to
providing integrated electronic commerce solutions to small and medium-size
businesses. In January 1998, the Company created its Electronic Commerce
Services Group (ECSG) in a separate office in Provo, Utah. This office
represents the technology arm of the Company and is focused on the development
of the Company's e-commerce software, creating the technology behind Stuff.com,
rebuilding the overall technical infrastructure and the programming of all Web
sites that make up imall.com and the Company's various partner malls. The
product development expenses consist primarily of payroll and related costs for
programmers and software developers in the ECSG office as well as the software
development costs incurred through the acquisition of Pure Payments in the first
quarter of 1999.
General and Administrative Expenses. General and administrative expenses for
the three months ended June 30, 1999 were $2,591,700 compared to $1,379,300 for
the three months ended June 30, 1998, an increase of $1,212,400 or 88%. This
increase was primarily due to higher payroll expense during 1999 accounting for
approximately $780,000. The mix of employees employed during the second quarter
of 1999 contained a significantly higher number of high-end programmers and
developers as well as a new highly experienced management staff versus those on
payroll during the second quarter of 1998. The Company's continuing operations
increased by approximately 90 employees from June 1998 to June 1999.
Depreciation and amortization attributed to general and administrative expenses
increased by over $200,000 from the second quarter of 1998 to the second quarter
of 1999 as a result of the software obtained through the Pure Payments
acquisition as well as the increased capital expenditures related to the Emerald
Lake infrastructure.
Other Income, net. Other income decreased by $72,400 from the three months
ended June 30, 1998 to the three months ended June 30, 1999 because the Company
received an out of court settlement for a copyright infringement claim for
$75,000 in the second quarter of 1998.
Interest Income, net. Net interest income for the three months ended June 30,
1999 was $124,800 compared to a net interest income of $132,000 for the three
months ended June 30, 1998, a decrease of $7,200 or 5%.
Loss from Discontinued Operations. The loss from discontinued operations
decreased by $270,100 from the three months ended June 30, 1998 to the three
months ended June 30, 1999. The seminar division, which was discontinued in
August 1998, comprised of the majority of the discontinued operations.
Comparison of Six-Month Periods Ended June 30, 1999 and 1998
Revenues. Revenues for the six months ended June 30, 1999 were $1,580,300
compared to $487,800 for the six months ended June 30, 1998, an increase of
$1,092,500 or 224%. The increase was due primarily to an increase in
advertising revenue generated through the Company's shopping portals, imall.com
and stuff.com. To generate this revenue, the Company increased its marketing
and technology expenditures with the goal of creating additional page views for
sale to advertisers, extending its brand awareness, and driving traffic to the
Company's merchant clients. The Company also received advertising revenues from
customers where the Company would pay web publishers with whom the Company had
pre-existing relationships a service fee for delivering the advertisements. The
Company is responsible for billing and collecting on these ads and assumes the
risk of non-payment from advertisers. The Company continued to grow revenues
derived from its EC services by managing its existing reseller relationships
through product training, simplifying the integration of its services with the
existing resellers' services and by the development of new reseller
relationships.
Cost of Revenues. The cost of revenues for the six months ended June 30, 1999
were $730,000 compared to $81,900 for the six months ended June 30, 1998, an
increase of $648,100 or 791%. The profit margin decreased to 54% in the six
months ended June 30, 1999 from 83% in the six months ended June 30, 1998.
Beginning in the fourth quarter of 1998, the Company received advertising
revenues from customers where the Company would pay web publishers with whom the
Company had pre-existing relationships a service fee for delivering the
advertisements. This fee is included in cost of revenues driving the profit
margin down from the relatively high margin realized on EC services. Cost of
revenues also includes labor and related costs to build Web sites as well as the
cost of any products sold on-line directly by the Company.
Selling Expenses. Selling expenses for the six months ended June 30, 1999
were $1,290,700 compared to $1,174,400 for the six months ended June 30, 1998,
an increase of $116,300 or 10%. The increase is primarily due to increased
spending on an on-line advertising campaign. The Company spent $960,000 in this
on-line advertising campaign in 1999 in an attempt to increase its traffic,
branding and further promote its focus on on-line commerce.
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Product Development. Product development expenses for the six months ended
June 30, 1999 were $2,908,900 compared to $879,300 for the six months ended June
30, 1998, an increase of $2,029,600 or 231%. This increase is due to the change
in the Company's focus from Internet training and Web site sales to providing
integrated electronic commerce solutions to small and medium-size businesses. In
January 1998, the Company created its Electronic Commerce Services Group (ECSG)
in a separate office in Provo, Utah. This office represents the technology arm
of the Company and is focused on the development of the Company's e-commerce
software, creating the technology behind Stuff.com, rebuilding the overall
technical infrastructure and the programming of all Web sites that make up
imall.com and the Company's various partner malls. The product development
expenses consist primarily of payroll and related costs for programmers and
software developers in the ECSG office as well as the software development costs
incurred through the acquisition of Pure Payments in the first quarter of 1999.
General and Administrative Expenses. General and administrative expenses for
the six months ended June 30, 1999 were $4,994,700 compared to $2,152,900 for
the six months ended June 30, 1998, an increase of $2,841,800 or 132%. This
increase was primarily due to higher payroll expense during 1999 accounting for
approximately $1.6 million. The mix of employees employed during 1999 contained
a significantly higher number of high-end programmers and developers as well as
a new highly experienced management staff versus those on payroll during 1998.
The Company's continuing operations increased by approximately 90 employees from
June 1998 to June 1999. Depreciation and amortization attributed to general and
administrative expenses increased by approximately $320,000 from 1998 to 1999 as
a result of the software obtained through the Pure Payments acquisition as well
as the increased capital expenditures related to the Emerald Lake
infrastructure.
Other Expense, net. Other expense decreased by $112,200 because the Company
received an out of court settlement for a copyright infringement claim for
$75,000 in 1998 and the Company expensed certain assets no longer in use in the
first quarter of 1999.
Interest Income, net. Net interest income for the six months ended June 30,
1999 was $245,000 compared to a net interest income of $197,200 for the six
months ended June 30, 1998, an increase of $47,800 or 24%.
Income from Discontinued Operations. The income from discontinued operations
increased by $323,400 from the six months ended June 30, 1998 to the six months
ended June 30, 1999. The seminar division, which was discontinued in August
1998, comprised of the majority of the discontinued operations. Substantially
all of the loss was accrued for in 1998. In the first quarter of 1999 the
Company recognized a gain of $96,000 on the sale of the divisions remaining
assets.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had current assets of $8,589,200 with a cash
and cash equivalents balance of $7,791,000 and current liabilities of
$1,481,100. The Company received approximately $1,200,000 from the exercise of
warrants and stock options during the second quarter of 1999.
The Company is currently generating cash receipts (exclusive of financing
activities) of approximately $250,000 per month and incurring cash expenses in
the amount of approximately $1,500,000 per month. The Company anticipates
capital expenditures will total approximately $2,500,000 in 1999 of which
$1,200,000 has been spent through the second quarter of 1999. The Company may
also spend funds to invest in various forms of advertising to increase awareness
of the Company and its services. In April of 1999 the Company paid the agreed
upon settlement of $750,000 with the Federal Trade Commission which was
previously disclosed and accrued for. If the Company is able to successfully
implement its current business plan, the Company believes that it will be able
to fund its continuing operations with existing cash, cash expected to be
generated by continuing operations and other sources for at least the next
twelve months.
In conjunction with the Merger Agreement entered into by the Company and At
Home Corporation on July 12, 1999, and upon consummation of the Merger, the
Company will become a wholly-owned subsidiary of At Home. The Merger, which is
expected to close in the fourth quarter of 1999, is subject to the satisfaction
or waiver by the parties of certain conditions, including the receipt of
regulatory approval and approval by the stockholders of the Company. The
Company may be required to pay a substantial termination fee if the Merger
Agreement is terminated for certain specific reasons. If required, payment of
this termination fee could have a material adverse effect on the Company's
business, prospects, financial condition, results of operations and its ability
to raise future capital.
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The Company's working capital requirements in the foreseeable future will
depend on a variety of factors including the Company's ability to implement its
business plan and generate positive cashflow. If the Company does not generate
positive cashflow, and the Merger Agreement is terminated, the Company will be
required to raise additional capital through debt or equity financing. There can
be no assurance, however, that the Company will be able to successfully
negotiate or obtain additional financing, or that such financing will be on
terms favorable or acceptable to the Company. If adequate funds are not
available or are not available at acceptable terms, the Company's ability to
finance its expansion, develop or enhance services or products or respond to
competitive pressures would be significantly limited. The failure to secure
necessary financing could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
Year 2000
Many currently installed computer systems, hardware and software products are
coded to accept only two digit entries in the date code field and cannot
distinguish 21st century dates from 20th century dates. These date code fields
will need to distinguish 21st century dates from 20th century dates, and as a
result, many companies' software and computer systems may need to be upgraded or
replaced in order to comply with "Year 2000" requirements.
Internal Systems
The Company's business is dependent on its operating systems and the programs
that run on them to deliver services to its customers and to manage its
business. These programs include hardware and software supplied by third
parties, as well as software the Company has developed.
The Company believes that its operating systems and the programs that run on
them are Year 2000 compliant because the Company purchased such operating
systems and programs during 1998 and 1999 from suppliers that represented them
to be Year 2000 compliant.
Nonetheless, the Company has appointed a Y2K Compliance Team, which has
designed and begun implementing a five-phase plan to mitigate possible Year 2000
effects on the Company's business and systems.
Awareness Phase: Consists of increasing Company awareness of Year 2000 issues
through education of all appropriate levels of management by the Y2K Compliance
Team.
Inventory Phase: Involves identifying all components of the Company's systems
that may be impacted by Year 2000 issues, including hardware, software,
suppliers and proprietary systems.
Assessment Phase: Includes testing essential internal hardware and software
systems as well as non-information technology systems; verifying compliance by
third-party vendors, merchants and business partners; assessing the impact of
compliance (or non-compliance) by third party vendors, merchants and business
partners; and developing a plan to repair all systems in need of correction.
Remediation Phase: Consists of implementing the plan to repair, replace or
retire those systems identified as needing correction in the Assessment Phase,
and testing all repaired and replaced systems installed for Year 2000
compliance.
Contingency Planning Phase: Involves developing the Company's response to
failure of mission critical systems and other major risks related to Year 2000
compliance.
At the present time, the Company has completed the Awareness Phase, the
Inventory Phase, and the Assessment Phases, and is substantially complete with
the Remediation Phase. The Company plans to complete the Remediation and
Contingency Planning Phases by mid-third quarter 1999.
There can be no assurance, however, that the Company will succeed in
addressing all Year 2000 issues. If the Company fails to complete its five-phase
plan, or if the Company fails to detect any Year 2000 problems during a
particular phase of testing, the Company could be subject to a material
interruption of its business or other consequences, which could have a material
adverse effect on the Company's results of operations and financial condition.
While the Company does not presently expect such a material interruption to
occur, the Company believes its worst case scenario would involve an
unanticipated defect in one or more of its critical hardware or software systems
or those of a critical outsourcing or business partner, resulting in the
inability of the Company to maintain and operate its Web sites or process
transactions generated by its Web sites, thereby
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interrupting the Company's business and exposing the Company to contract and
other claims against it by its customers, merchants and business partners.
Furthermore, Year 2000 issues may affect the purchasing patterns of merchants
and advertisers as such merchants and advertisers expend development and
financial resources to remediate their current systems.
The Company has entered into several business agreements in which the Company
warrants that it is Year 2000 compliant. Any failure by the Company to achieve
Year 2000 readiness would thus result in a breach of such agreements and expose
the Company to potential liabilities which could have a material adverse effect
on the Company's results of operations and financial condition.
Systems of Vendors, Merchants and Business Partners
The Company could be affected by failure of its vendors, merchants and
business partners to have systems that are Year 2000 compliant. For example, if
the Company's credit card processors are not Year 2000 compliant, the Company
will not be able to process credit card sales. The Company is not presently
aware of any existing third party Year 2000 issues that would materially affect
the Company. If current or future vendors, merchants or business partners fail
to achieve Year 2000 compliance, it could result in a material adverse effect on
the Company's results of operations and financial condition.
Non-Information Technology Systems
The Company could be affected by failure of non-information technology
systems and devices used by the Company in its business, such as building
systems. Failure of such systems could have a material adverse effect on the
Company's results of operations and financial condition.
Infrastructure
As with similarly situated Internet and other companies, the Company relies
upon various governmental agencies, utility companies and telecommunication
service companies, including Internet and other service providers, that are
outside of the Company's control. Failure of such parties to have systems that
are Year 2000 compliant may result in an interruption in, or a failure of,
certain normal business activities or operations, which could have a material
adverse effect on the Company's results of operations and financial condition.
Costs to Address the Company's Year 2000 Issues
To date, the Company has not incurred any material costs associated with Year
2000 compliance. Moreover, based on the Company's assumptions that its own
systems are Year 2000 compliant, the Company does not expect to incur any
material costs in the future associated with Year 2000 compliance, with the
exception of internal staff costs and expenditures. Should the Company's
assumptions prove inaccurate, the Company could be required to incur material
costs of unknown magnitude.
In addition to its efforts to confirm its Year 2000 compliance, the Company
also endeavors to mitigate the risks associated with other system failures. To
that end, the Company currently has in place dual Internet connectivity,
redundant air conditioning systems, redundant hardware and an on-site emergency
generator. There can be no assurance, however, that the Company will not
experience system outages that, if sufficiently severe, could have a material
adverse effect on the Company's results of operations and financial condition.
The above discussion regarding costs and risks is based on the Company's best
current estimates given information that is currently available to it, and is
subject to change.
Recent Accounting Pronouncements.
In June 1998, the FASB issued Statement of Financial Accounting Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, which is effective for financial periods beginning after June 15,
1999, addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. The
Company has not historically or does not currently hold any derivative
instruments or participate in any hedging activities.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in various legal proceedings in the ordinary
course of business, but is aware of no legal proceedings which appear at this
time as if they might have a material impact on its financial position, results
of operations or business.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)
2.1 Agreement and Plan of Merger, dated as of July 12, 1999, between the
Company, At Home Corporation and Shop Nevada, Inc.(1)
3.1 Fourth Amended and Restated Bylaws dated as of July 11,1999
10.1 Amendment to Investment Agreement dated as of July 12, 1999 by and
between the Company and First Data Merchant Services Corporation
10.2 Amended and Restated Development and Marketing Agreement dated as of
July 12, 1999 by and between the Company and First Data Merchant
Services Corporation
10.3 Form of Voting Agreement entered into between At Home Corporation and
certain stockholders of the Company on July 12, 1999(2)
10.4 iMALL, Inc. 1999 Stock Option Plan
10.5 Form of Amendment to Warrant between the Company and certain warrant
holders
27 Financial Data Schedule
(1) Incorporated by reference to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on July 13, 1999
(2) Incorporated by reference to Exhibit B to the Schedule 13D filed by At Home
Corporation with the Securities and Exchange Commission on August 2, 1999
(b) The following report on Form 8-K was filed during the quarter ended June 30,
1999:
Current Report on Form 8-K filed with the Securities and Exchange Commission
on May 14, 1999 (which filed the audited financial statements and related
notes of Pure Payments Inc., as of December 31, 1998, and for the period
from inception (September 23, 1998) through December 31, 1998; and pro forma
financial information required by Article 11 of Regulation S-X including an:
Unaudited Pro Forma Statement of Operations of Registrant for the year ended
December 31, 1998 and related notes; and Unaudited Pro Forma Statement of
Financial Position of Registrant as of December 31, 1998 and related notes)
in connection with the Agreement and Plan of Merger by and among the
Company, Pure Payments, Payment Solutions, Inc., Daniel Devlin, and Jeffrey
Lipp, dated March 8, 1999.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
iMALL, INC.
August 12, 1999
By: /s/ RICHARD M. ROSENBLATT
_______________________________________
Richard Rosenblatt, Chairman of the
Board and Chief Executive Officer
By: /s/ ANTHONY P. MAZZARELLA
_______________________________________
Anthony P. Mazzarella
Executive Vice President,
Chief Financial Officer,
Secretary/Treasurer, Director
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IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
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<CAPTION>
June 30, December 31,
1999 1998
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ASSETS (Unaudited)
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Current Assets:
Cash and cash equivalents $ 7,791,000 $ 11,180,700
Accounts receivable, net 503,600 264,400
Prepaid expenses 287,300 144,000
Other current assets 7,300 425,800
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Total Current Assets 8,589,200 12,014,900
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Property and Equipment, net 8,100,400 2,085,400
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Other Assets:
Other assets 150,800 152,700
Net long-term assets of discontinued operations -- 248,800
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Total Other Assets 150,800 401,500
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Total Assets $ 16,840,400 $ 14,501,800
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 392,700 $ 1,002,900
Accrued expenses 301,000 337,900
Wages payable 495,500 418,300
Deferred revenues 178,000 254,500
Dividends payable -- 898,900
Current portion of capitalized lease obligations 64,700 --
Net short term liabilities of discontinued operations 49,200 875,000
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Total Current Liabilities 1,481,100 3,787,500
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Capitalized Lease Obligations, net of current portion 74,300 --
------------ ------------
Commitments and Contingencies -- --
Stockholders' Equity:
Preferred stock, liquidation value of $0 and $16,411,500
at June 30, 1999 and December 31, 1998 respectively,
10,000,000 shares authorized, 0 and 4,102,879 shares
issued and outstanding at June 30,1999 and
December 31, 1998, respectively -- 16,411,500
Common stock, par value $.008; 37,500,000 shares
authorized, 17,942,704 and 10,635,756 shares issued
and outstanding at June 30, 1999 and
December 31, 1998, respectively 143,500 85,100
Additional paid-in capital 43,498,900 14,317,900
Accumulated deficit (27,952,400) (19,695,200)
Common stock held in treasury, at cost (405,000) (405,000)
------------ ------------
Total Stockholders' Equity 15,285,000 10,714,300
------------ ------------
Total Liabilities and Stockholders' Equity $ 16,840,400 $ 14,501,800
============ ============
</TABLE>
See notes to condensed consolidated balance sheets.
-10-
<PAGE>
IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
------------------------------- -------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES $ 801,600 $ 265,600 $ 1,580,300 $ 487,800
COST OF REVENUES 311,200 43,300 730,000 81,900
----------- ----------- ----------- -----------
Gross Profit 490,400 222,300 850,300 405,900
SELLING EXPENSES 843,700 770,600 1,290,700 1,174,400
PRODUCT DEVELOPMENT 1,633,200 563,300 2,908,900 879,300
GENERAL AND ADMINISTRATIVE EXPENSES 2,591,700 1,379,300 4,994,700 2,152,900
----------- ----------- ----------- -----------
Operating Loss (4,578,200) (2,490,900) (8,344,000) (3,800,700)
----------- ----------- ----------- -----------
OTHER INCOME AND EXPENSES:
Other Income (Expense), net 3,600 76,000 (36,200) 76,000
Interest Income, net 124,800 132,000 245,000 197,200
----------- ----------- ----------- -----------
Total Other Income, net 128,400 208,000 208,800 273,200
----------- ----------- ----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (4,449,800) (2,282,900) (8,135,200) (3,527,500)
PROVISION FOR INCOME TAXES -- -- 1,600 --
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS (4,449,800) (2,282,900) (8,136,800) (3,527,500)
(LOSS) INCOME FROM DISCONTINUED OPERATIONS -- (270,100) 78,900 (244,500)
----------- ----------- ----------- -----------
NET LOSS $(4,449,800) $(2,553,000) $(8,057,900) $(3,772,000)
=========== =========== =========== ===========
NET (LOSS) PER COMMON SHARE - BASIC AND DILUTED:
Loss from continuing operations $(0.25) $ (0.35) $ (0.53) $ (0.58)
(Loss) Income from discontinued opertations -- (0.04) 0.01 (0.03)
----------- ----------- ----------- -----------
NET LOSS $(0.25) $ (0.39) $ (0.52) $ (0.61)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 17,535,091 7,713,366 15,826,031 7,683,098
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-11-
<PAGE>
IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(8,057,900) $(3,772,000)
Adjustments to reconcile net
loss to net cash used in operating activities:
(Income) loss from discontinued operations (78,900) 244,500
Depreciation and amortization 1,069,100 266,100
Changes in assets and liabilities, net of effects from
purchase of Pure Payments, Inc. in fiscal 1999:
Accounts receivable (234,800) (73,900)
Prepaid expenses (139,800) (607,300)
Other current assets 441,600 117,400
Other assets (20,100) (27,800)
Accounts payable (610,200) 484,200
Accrued expenses (86,100) 139,100
Deferred revenues (76,500) 70,000
Wages payable (13,500) --
----------- -----------
Net cash used in Operating Activities (7,807,100) (3,159,700)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,153,100) (1,361,100)
Proceeds from sales of investments in marketable securities -- 10,000,600
Cash acquired in business acquisition 374,000 --
----------- -----------
Net cash (used in) provided by Investing Activities (779,100) 8,639,500
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 7,147,100 --
Financing cost related to private placement of
preferred stock -- (26,600)
Principal payments on obligations under capital leases (21,600) (5,900)
Dividends paid (1,098,200) --
----------- -----------
Net cash provided by (used in) Financing Activities 6,027,300 (32,500)
----------- -----------
Cash (used in) provided by continuing operations (2,558,900) 5,447,300
Cash used in discontinued operations (830,800) (1,239,900)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,389,700) 4,207,400
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,180,700 4,775,100
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,791,000 $ 8,982,500
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 3,800 $ 4,700
=========== ===========
Income taxes paid $ 4,800 $ 2,600
=========== ===========
NONCASH ACQUISITION OF PURE PAYMENTS, INC. $ 6,013,500 $ --
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-12-
<PAGE>
IMALL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Interim Condensed Consolidated Financial Statements.
The accompanying condensed consolidated financial statements have been
prepared by the Company and have not been audited. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows as
of the dates and for the periods presented herein have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission rules and regulations. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10-KSB.
The results of operations for the three-month and six-month periods ended June
30, 1999, are not necessarily indicative of the operating results for the year
ended December 31, 1999. The accounting policies followed by the Company are set
forth in the notes to the Company's consolidated financial statements in its
Form 10-KSB.
(2) Recent Accounting Pronouncements.
In June 1998, the FASB issued Statement of Financial Accounting Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, which is effective for financial periods beginning after June 15,
1999, addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. The
Company has not historically or does not currently hold any derivative
instruments or participate in any hedging activities.
(3) Net Loss Per Common Share.
Net loss per common share is based on the weighted-average number of common
shares outstanding for each period reported. In preparing the calculation of
earnings per share, the net loss was increased by $199,300 to $8,257,200 or
$0.52 per common share for the six months ended June 30, 1999. The preferred
stock was called in March 1999 so no dividends were required in the second
quarter of 1999. The net loss was increased by $450,000 to $3,003,000 or $0.39
per common share for the three months ended June 30, 1998 and by $900,000 to
$4,672,000 or $0.61 per common share for the six months ended 30, 1998. The
earnings per share computation for the 1999 and 1998 periods excludes 3.0
million and 1.6 million shares respectively for stock options/compensation
plans, warrants convertible into 2.4 million and 3.5 million shares of common
stock as well as 6.25 million shares for convertible securities in 1998 because
their effect would have been antidilutive.
(4) Stock Options
The Company has granted incentive stock options and nonqualified stock options
to officers, directors and key employees under a stock compensation plan at
prices not less than fair market value on the date of grant. The incentive and
nonqualified stock options become exercisable between one and four years from
the grant date. The incentive stock options have a maximum term of ten years
from the date of grant, or five years if the employee is a ten-percent
stockholder. The nonqualified stock options have a maximum term of ten years and
one day from the date of grant.
The Company had outstanding options to acquire an aggregate of 2,444,000
shares at December 31, 1998. During the six months ended June 30, 1999, the
Company granted a total of 670,000 new options, and assumed 17,000 options in
connection with the acquisition of Pure Payments, Inc. Also during the period
142,000 options were exercised and 37,000 options were cancelled bringing the
total outstanding options at June 30, 1999 to 2,952,000.
-13-
<PAGE>
(5) Subsequent events
At Home Merger
On July 12, 1999, the Company, At Home Corporation ("At Home") and Shop
Nevada, Inc., a wholly-owned subsidiary of At Home ("Merger Sub"), entered into
an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which
Merger Sub will be merged with and into the Company (the "Merger"), with the
Company surviving the Merger and becoming a wholly-owned subsidiary of At Home.
Pursuant to the Merger Agreement, upon the effectiveness of the Merger, each
outstanding share of Common Stock, par value $.008 per share, of the Company
will be converted into the right to receive 0.460 shares of Series A Common
Stock, par value $.01 per share, of At Home. The Merger, which is expected to
close in the fourth quarter of 1999, is subject to the satisfaction or waiver by
the parties of certain conditions, including clearance under the Hart-Scott-
Rodino Antitrust Improvements Act and approval by the stockholders of the
Company.
In connection with the Merger Agreement, certain stockholders of the Company
holding an aggregate of over 40% of the outstanding Common Stock of the Company
have entered into a voting agreements with At Home, pursuant to which such
stockholders agreed to vote their shares in favor of the adoption of the Merger
Agreement, subject to certain conditions.
The Company may be required to pay a substantial termination fee if the Merger
Agreement is terminated for certain specific reasons. The Company has filed the
Merger Agreement with the Securities and Exchange Commission on July 13, 1999
under its Report on Form 8-K.
-14-
<PAGE>
EXHIBIT 3.1
FOURTH AMENDED AND RESTATED
BYLAWS
OF
iMALL, INC.
(as Amended and Restated by the Board of Directors as of July 11, 1999)
ARTICLE 1. OFFICES
1.1. Business Office. The principal office of the corporation shall be
located at any place either within or outside the State of Nevada as designated
in the corporation's most recent document on file with the Nevada Secretary of
State, Division of Corporations. The corporation may have such other offices,
either within or without the State of Nevada as the board of directors may
designate or as the business of the corporation may require from time to time.
1.2. Registered Office. The registered office of the corporation shall be
located within the State of Nevada and may be, but need not be, identical with
the principal office. The address of the registered office may be changed from
time to time.
ARTICLE 2. SHAREHOLDERS
2.1. Annual Shareholder Meeting. The annual meeting of the shareholders
shall be held on any date and time which may from time to time be designated by
the Board of Directors. At such annual meeting, directors shall be elected and
any other business may be transacted that may properly come before the meeting.
2.2. Special Shareholder Meeting. Special meetings of the shareholders,
for any purpose or purposes described in the meeting notice, may be called by
the president, or by the board of directors, and shall be called by the
president at the request of the holders of not less than one-fourth of all
outstanding votes of the corporation entitled to be cast on any issue at the
meeting.
2.3. Place of Shareholder Meeting. The board of directors may designate
any place, either within or without the State of Nevada, as the place of meeting
for any annual or any special meeting of the shareholders, unless by written
consent, which may be in the form of waivers of notice or otherwise, all
shareholders entitled to vote at the meeting designate a different place, either
within or without the State of Nevada, as the place for the holding of such
meeting.
2.4. Notice of Shareholder Meeting. Written notice stating the date,
time, and place of any annual or special shareholder meeting shall be delivered
not less than 10 nor more than 60 days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the board of
directors, or other persons calling the meeting, to each shareholder of record
entitled to vote at such meeting and to any other shareholder entitled by the
Nevada Revised Statutes (the "Statutes") or the articles of incorporation to
receive notice of the meeting. Notice shall be deemed to be effective at the
earlier of: (1) when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock transfer books of the
corporation, with postage thereon prepaid; (2) on the date shown on the return
receipt if sent by registered or certified mail, return receipt requested, and
the receipt is signed by or on behalf of the addressee; (3) when received; or
(4) 3 days after deposit in the United States mail, if mailed postpaid and
correctly addressed to an address other than that shown in the corporation's
current record of shareholders.
If any shareholder meeting is adjourned to a different date, time or place,
notice need not be given of the new date, time and place, if the new date, time
and place is announced at the meeting before adjournment. But if the
adjournment is for more than 30 days or if a new record date for the adjourned
meeting is or must be fixed, then
<PAGE>
notice must be given pursuant to the requirements of the previous paragraph, to
those persons who are shareholders as of the new record date.
2.5. Waiver of Notice. A shareholder may waive any notice required by the
Statutes, the articles of incorporation, or these bylaws, by a writing signed by
the shareholder entitled to the notice, which is delivered to the corporation
(either before or after the date and time stated in the notice) for inclusion in
the minutes or filing with the corporate records.
A shareholder's attendance at a meeting:
(a) waives objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting because of lack of
notice or effective notice; and
(b) waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder objects to considering the matter when it is
presented.
2.6. Fixing of Record Date. For the purpose of determining shareholders
of any voting group entitled to notice of or to vote at any meeting of
shareholders, or shareholders entitled to receive payment of any distribution,
or in order to make a determination of shareholders for any other proper
purpose, the board of directors may fix in advance a date as the record date.
Such record date shall not be more than 60 days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
If no record date is so fixed by the board for the determination of shareholders
entitled to notice of, or to vote at a meeting of shareholders, the record date
for determination of such shareholders shall be at the close of business on the
day the first notice is delivered to shareholders. If no record date is fixed
by the board for the determination of shareholders entitled to receive a
distribution, the record date shall be the date the board authorizes the
distribution. With respect to actions taken in writing without a meeting, the
record date shall be the date the first shareholder signs the consent.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof unless the board of directors fixes a new
record date which it must do if the meeting is adjourned to a date more than 120
days after the date fixed for the original meeting.
2.7. Shareholder List. After fixing a record date for a shareholder
meeting, the corporation shall prepare a list of the names of its shareholders
entitled to be given notice of the meeting. The shareholder list must be
available for inspection by any shareholder, beginning on the earlier of 10 days
before the meeting for which the list was prepared or 2 business days after
notice of the meeting is given for which the list was prepared and continuing
through the meeting, and any adjournment thereof. The list shall be available
at the corporation's principal office or at a place identified in the meeting
notice in the city where the meeting is to be held
2.8. Shareholder Quorum and Voting Requirements.
2.8.1. Quorum. Except as otherwise required by the Statutes or the
articles of incorporation, a majority of the outstanding shares of the
corporation, represented by person or by proxy, shall constitute a quorum at
each meeting of the shareholders. If a quorum exists, action on a matter, other
than the election of directors, is approved if the votes cast favoring the
action exceed the votes cast opposing the action, unless the articles of
incorporation or the Statutes require a greater number of affirmative votes.
2.8.2. Voting of Shares. Unless otherwise provided in the articles
of incorporation or these bylaws, each outstanding share, regardless of class,
is entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders.
2
<PAGE>
2.9. Quorum and Voting Requirements of Voting Groups. If the articles of
incorporation or the Statutes provide for voting by a single voting group on a
matter, action on that matter is taken when voted upon by that voting group.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
Shares entitled to vote as a separate voting group may take action on a
matter at a meeting only if a quorum of those shares exists with respect to that
matter. Unless the articles of incorporation or the Statutes provide otherwise,
a majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter.
If the articles of incorporation or the Statutes provide for voting by two
or more voting groups on a matter, action on that matter is taken only when
voted upon by each of those voting groups counted separately. Action may be
taken by one voting group on a matter even though no action is taken by another
voting group entitled to vote on the matter.
If a quorum exists, action on a matter, other than the election of
directors, by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
articles of incorporation or the Statutes require a greater number of
affirmative votes.
2.10. Greater Quorum or Voting Requirements. The articles of
incorporation may provide for a greater quorum or voting requirement for
shareholders, or voting groups of shareholders, than is provided for by these
bylaws. An amendment to the articles of incorporation that adds, changes, or
deletes a greater quorum or voting requirement for shareholders must meet the
same quorum requirement and be adopted by the same vote and voting groups
required to take action under the quorum and voting requirement then in effect
or proposed to be adopted, whichever is greater.
2.11. Proxies. At all meetings of shareholders, a shareholder may vote in
person or by proxy which is executed in writing by the shareholder or which is
executed by his duly authorized attorney-in-fact. Such proxy shall be filed
with the Secretary of the corporation or other person authorized to tabulate
votes before or at the time of the meeting. No proxy shall be valid after 11
months from the date of its execution unless otherwise provided in the proxy.
All proxies are revocable unless they meet specific requirements of
irrevocability set forth in the Statutes. The death or incapacity of a voter
does not invalidate a proxy unless the corporation is put on notice. A
transferee for value who receives shares subject to an irrevocable proxy, can
revoke the proxy if he had no notice of the proxy.
2.12. Corporation's Acceptance of Votes.
2.12.1. If the name signed on a vote, consent, waiver, proxy
appointment, or proxy appointment revocation corresponds to the name of a
shareholder, the corporation, if acting in good faith, is entitled to accept the
vote, consent, waiver, proxy appointment, or proxy appointment revocation and
give it effect as the act of the shareholder.
2.12.2. If the name signed on a vote, consent, waiver, proxy
appointment, or proxy appointment revocation does not correspond to the name of
a shareholder, the corporation, if acting in good faith, is nevertheless
entitled to accept the vote, consent, waiver, proxy appointment, or proxy
appointment revocation and give it effect as the act of the shareholder if:
(a) the shareholder is an entity as defined in the Statutes and the
name signed purports to be that of an officer or agent of the entity;
(b) the name signed purports to be that of an administrator,
executor, guardian, or conservator representing the shareholder and, if the
corporation requests, evidence of fiduciary status acceptable to the
3
<PAGE>
corporation has been presented with respect to the vote, consent, waiver, proxy
appointment or proxy appointment revocation;
(c) the name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the corporation requests, evidence of this
status acceptable to the corporation has been presented with respect to the
vote, consent, waiver, proxy appointment, or proxy appointment revocation; or
(d) the name signed purports to be that of a pledgee, beneficial
owner, or attorney-in-fact of the shareholder and, if the corporation requests,
evidence acceptable to the corporation of the signatory's authority to sign for
the shareholder has been presented with respect to the vote, consent, waiver,
proxy appointment or proxy appointment revocation; or
(e) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all co-
tenants or fiduciaries.
2.12.3. If shares are registered in the names of two or more persons,
whether fiduciaries, members of a partnership, co-tenants, husband and wife as
community property, voting trustees, persons entitled to vote under a
shareholder voting agreement or otherwise, or if two or more persons (including
proxy holders) have the same fiduciary relationship respecting the same shares,
unless the secretary of the corporation or other officer or agent entitled to
tabulate votes is given written notice to the contrary and is furnished with a
copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect:
(a) if only one votes, such act binds all;
(b) if more than one votes, the act of the majority so voting bind
all;
(c) if more than one votes, but the vote is evenly split on any
particular matter, each fraction may vote the securities in question
proportionately.
If the instrument so filed or the registration of the shares shows that any
tenancy is held in unequal interests, a majority or even split for the purpose
of this Section shall be a majority or even split in interest.
2.12.4. The corporation is entitled to reject a vote, consent,
waiver, proxy appointment or proxy appointment revocation if the secretary or
other officer or agent authorized to tabulate votes, acting in good faith, has
reasonable basis for doubt about the validity of the signature on it or about
the signatory's authority to sign for the shareholder.
2.12.5. The corporation and its officer or agent who accepts or
rejects a vote, consent, waiver, proxy appointment or proxy appointment
revocation in good faith and in accordance with the standards of this Section
are not liable in damages to the shareholder for the consequences of the
acceptance or rejection.
2.12.6. Corporate action based on the acceptance or rejection of a
vote, consent, waiver, proxy appointment or proxy appointment revocation under
this Section is valid unless a court of competent jurisdiction determines
otherwise.
2.13. Action by Shareholders Without a Meeting.
2.13.1. Written Consent. Any action required or permitted to be
taken at a meeting of the shareholders may be taken without a meeting and
without prior notice if one or more consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shareholders entitled to vote with
respect to the subject matter thereof were present and voted. Action taken
under this Section
4
<PAGE>
has the same effect as action taken at a duly called and convened meeting of
shareholders and may be described as such in any document.
2.13.2. Post-Consent Notice. Unless the written consents of all
shareholders entitled to vote have been obtained, notice of any shareholder
approval without a meeting shall be given at least ten days before the
consummation of the action authorized by such approval to (i) those shareholders
entitled to vote who did not consent in writing, and (ii) those shareholders not
entitled to vote. Any such notice must be accompanied by the same material that
is required under the Statutes to be sent in a notice of meeting at which the
proposed action would have been submitted to the shareholders for action.
2.13.3. Effective Date and Revocation of Consents. No action taken
pursuant to this Section shall be effective unless all written consents
necessary to support the action are received by the corporation within a sixty-
day period and not revoked. Such action is effective as of the date the last
written consent is received necessary to effect the action, unless all of the
written consents specify an earlier or later date as the effective date of the
action. Any shareholder giving a written consent pursuant to this Section may
revoke the consent by a signed writing describing the action and stating that
the consent is revoked, provided that such writing is received by the
corporation prior to the effective date of the action.
2.13.4. Unanimous Consent for Election of Directors. Notwithstanding
subsection 2.13.1, directors may not be elected by written consent unless such
consent is unanimous by all shares entitled to vote for the election of
directors.
2.14. Voting for Directors. Unless otherwise provided in the articles of
incorporation, every shareholder entitled to vote for the election of directors
has the right to cast, in person or by proxy, all of the votes to which the
shareholder's shares are entitled for as many persons as there are directors to
be elected and for whom election such shareholder has the right to vote.
Directors are elected by a plurality of the votes cast by the shares entitled to
vote in the election at a meeting at which a quorum is present.
ARTICLE 3. BOARD OF DIRECTORS
3.1. General Powers. Unless the articles of incorporation have dispensed
with or limited the authority of the board of directors by describing who will
perform some or all of the duties of a board of directors, all corporate powers
shall be exercised by or under the authority, and the business and affairs of
the corporation shall be managed under the direction, of the board of directors.
3.2. Number, Tenure and Qualification of Directors. The authorized number
of directors shall be between one (1) and ten (10); provided, however, that if
the corporation has less than seven shareholders entitled to vote for the
election of directors, the board of directors may consist of a number of
individuals equal to or greater than the number of those shareholders. The
current number of directors shall be within the limit specified above, as
determined (or as amended form time to time) by a resolution adopted by either
the shareholders or the directors. Each director shall hold office until the
next annual meeting of shareholders or until the director's earlier death,
resignation, or removal. However, if his term expires, he shall continue to
serve until his successor shall have been elected and qualified, or until there
is a decrease in the number of directors. Directors do not need to be residents
of Nevada or shareholders of the corporation.
3.3. Regular Meetings of the Board of Directors. A regular meeting of the
board of directors shall be held without other notice than this bylaw
immediately after, and at the same place as, the annual meeting of shareholders,
for the purpose of appointing officers and transacting such other business as
may come before the meeting. The board of directors may provide, by resolution,
the time and place for the holding of additional regular meetings without other
notice than such resolution.
3.4. Special Meetings of the Board of Directors. Special meetings of the
board of directors may be called by or at the request of the president or any
director. The person authorized to call special meetings of the board of
directors may fix any place as the place for holding any special meeting of the
board of directors.
5
<PAGE>
3.5. Notice of, and Waiver of Notice for, Special Director Meeting.
Unless the articles of incorporation provide for a longer or shorter period,
notice of the date, time, and place of any special director meeting shall be
given at least two days previously thereto either orally or in writing. Any
director may waive notice of any meeting. Except as provided in the next
sentence, the waiver must be in writing and signed by the director entitled to
the notice. The attendance of a director at a meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business and at the
beginning of the meeting (or promptly upon his arrival) objects to holding the
meeting or transacting business at the meeting, and does not thereafter vote for
or assent to action taken at the meeting. Unless required by the articles of
incorporation, neither the business to be transacted at, nor the purpose of, any
special meeting of the board of directors need be specified in the notice or
waiver of notice of such meeting.
3.6. Director Quorum and Voting.
3.6.1. Quorum. A majority of the number of directors prescribed by
resolution shall constitute a quorum for the transaction of business at any
meeting of the board of directors unless the articles of incorporation require a
greater percentage.
Unless the articles of incorporation provide otherwise, any or all
directors may participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
A director who is present at a meeting of the board of directors or a
committee of the board of directors when corporate action is taken is deemed to
have assented to the action taken unless: (1) the director objects at the
beginning of the meeting (or promptly upon his arrival) to holding or
transacting business at the meeting and does not thereafter vote for or assent
to any action taken at the meeting; and (2) the director contemporaneously
requests his dissent or abstention as to any specific action be entered in the
minutes of the meeting; or (3) the director causes written notice of his dissent
or abstention as to any specific action be received by the presiding officer of
the meeting before its adjournment or to the corporation immediately after
adjournment of the meeting. The right of dissent or abstention is not available
to a director who votes in favor of the action taken.
3.7. Director Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if all the directors consent to such action in writing. Action taken by
consent is effective when the last director signs the consent, unless, prior to
such time, any director has revoked a consent by a signed writing received by
the corporation, or unless the consent specifies a different effective date. A
signed consent has the effect of a meeting vote and may be described as such in
any document.
3.8. Resignation of Directors. A director may resign at any time by
giving a written notice of resignation to the corporation. Such resignation is
effective when the notice is received by the corporation, unless the notice
specifies a later effective date.
3.9. Removal of Directors. The shareholders may remove one or more
directors at a meeting called for that purpose if notice has been given that a
purpose of the meeting is such removal. The removal may be with or without
cause unless the articles of incorporation provide that directors may only be
removed with cause. If a director is elected by a voting group of shareholders,
only the shareholders of that voting group may participate in the vote to remove
him. A director may be removed only if the number of votes cast to remove him
is not less than two-thirds of the holders of issued and outstanding shares
entitled to vote.
3.10. Board of Director Vacancies. Unless the articles of incorporation
provide otherwise, if a vacancy occurs on the board of directors, including a
vacancy resulting from an increase in the number of directors, the shareholders
may fill the vacancy. During such time that the shareholders fail or are unable
to fill such vacancies then and until the shareholders act:
(a) the board of directors may fill the vacancy; or
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(b) if the board of directors remaining in office constitute fewer
than a quorum of the board, they may fill the vacancy by the affirmative vote of
a majority of all the directors remaining in office.
If the vacant office was held by a director elected by a voting group of
shareholders:
(a) if there are one or more directors elected by the same voting
group, only such directors are entitled to vote to fill the vacancy if it is
filled by the directors; and
(b) only the holders of shares of that voting group are entitled to
vote to fill the vacancy if it is filled by the shareholders.
A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date) may be filled before the vacancy occurs
but the new director may not take office until the vacancy occurs.
3.11. Director Compensation. By resolution of the board of directors,
each director may be paid his expenses, if any, of attendance at each meeting of
the board of directors and may be paid a stated salary as director or a fixed
sum for attendance at each meeting of the board of directors or both. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
3.12. Director Committees.
3.12.1. Creation of Committees. Unless the articles of
incorporation provide otherwise, the board of directors may create one or more
committees and shall appoint at least one member of the board of directors to
serve on each of them. Each committee must have one or more members, who shall
serve at the pleasure of the board of directors.
3.12.2. Selection of Members. The creation of a committee and
appointment of members to it must be approved by the greater of (1) a majority
of all the directors in office when the action is taken or (2) the number of
directors required by the articles of incorporation to take such action.
3.12.3. Required Procedures. Those Sections of this Article 3
which govern meetings, actions without meetings, notice and waiver of notice,
quorum and voting requirements of the board of directors, apply to committees
and their members.
3.12.4. Authority. Unless limited by the articles of
incorporation, each committee may exercise those aspects of the authority of the
board of directors which the board of directors confers upon such committee in
the resolution creating the committee. Provided, however, a committee may not:
(a) authorize distributions;
(b) approve or propose to shareholders action that the Statutes
require be approved by shareholders;
(c) fill vacancies on the board of directors or on any of its
committees;
(d) amend the articles of incorporation;
(e) adopt, amend or repeal bylaws;
(f) approve a plan of merger not requiring shareholder approval;
(g) authorize or approve reacquisition of shares, except according
to a formula or method prescribed by the board of directors; or
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(h) authorize or approve the issuance or sale or contract for sale
of shares or determine the designation and relative rights, preferences, and
limitations of a class or series of shares, except that the board of directors
may authorize a committee (or an officer) to do so within limits specifically
prescribed by the board of directors.
ARTICLE 3A. CERTAIN PROVISIONS CONCERNING THE BOARD OF DIRECTORS
3A.1. Effectiveness and Interpretation.
(a) This Article 3A shall be in effect from the date of adoption
of this Article 3A until First Data Merchant Services Corporation ("FDMS") and
its permitted successors no longer have the right under Section 2.1 of the
Stockholders Agreement (the "Stockholders Agreement") dated October 30, 1998 by
and among Richard M. Rosenblatt, Mark R. Comer, Craig R. Pickering
(collectively, the "Significant Stockholders"), FDMS and the corporation to
designate as members of the board of directors the Agreed Representative Number
(as defined in the Stockholders Agreement), at which time (the "Article 3A
Termination Date"), the terms and provisions of this Article 3A shall,
immediately and automatically terminate and no longer have any force or effect.
Upon the termination of Article 3A pursuant to this Section 3A.1, the provisions
of these bylaws other than Article 3A shall be the bylaws of the corporation
until amended, modified or repealed in accordance with the terms hereof.
(b) In the event of any conflict between the provisions of this
Article 3A and any other provisions of these bylaws or, to the extent that any
of the provisions of this Article 3A overlap with and/or are more specific or
more restrictive than any other provisions contained in these bylaws, the
provisions of this Article 3A shall govern.
3A.2. Representation on the Board of Directors.
(a) The total authorized number of directors constituting the entire
board of directors shall be determined by the board of directors acting without
the participation of the FDMS Directors (as defined in Section 3A.6 below) and
any other members of the board of directors who are affiliates of FDMS (or its
permitted successors); provided, however, that such total authorized number of
-------- -------
directors shall not be less than seven (7) nor exceed ten (10).
(b) There are hereby established the following committees for
designating persons as the nominees of the board of directors for election as
directors and for filling director vacancies, as provided below: the FDMS
Committee and the Company Committee (each, a "Nominating Committee"). The two
Nominating Committees shall be comprised as follows: (i) the FDMS Committee
shall be comprised exclusively of each of the FDMS Directors (as defined in
Section 3A.6 below), (ii) the Company Committee shall be comprised of directors
named by a majority vote of the board of directors excluding the FDMS Directors
and any other members of the board of directors who are affiliates of FDMS (or
its permitted successors). Except as otherwise provided in this Article 3A, the
Nominating Committees shall exercise all power and authority of the board of
directors with respect to designating persons as the nominees of the board of
directors for election to, or appointing persons to fill vacancies on, the board
of directors.
(c) Prior to each meeting of the stockholders at which directors are
to be elected, (i) the FDMS Committee shall designate the Agreed Representative
Number of persons as nominees for election as directors and (ii) the Company
Committee shall designate the Company Number of persons as nominees for election
as directors. The Company Number shall equal the total authorized number of
directors determined in accordance with Section 3A.2(a) of these bylaws minus
the Agreed Representative Number.
(d) At each meeting of the stockholders at which directors are to be
elected, the officer of the corporation presiding at such meeting shall
nominate, on behalf of the Nominating Committees, as directors the persons
designated for nomination by the Nominating Committees in accordance with
paragraph (c) above, and the nominations so made shall be deemed to be made at
the direction of the Nominating Committees. At any meeting of stockholders at
which directors are to be elected, neither the board of directors nor any
committee thereof shall
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nominate or direct there to be nominated as a director any person not designated
by one of the Nominating Committees.
(e) If any FDMS Director is removed from the board of directors,
resigns, retires, dies or otherwise cannot continue to serve as a member of the
board of directors, then the FDMS Committee shall have the exclusive authority
to appoint a person to fill such vacancy;
(f) If any director who is one of the Company Number of directors is
removed from the board of directors, resigns, retires, dies or otherwise cannot
continue to serve as a member of the board of directors, then the Company
Committee shall have the exclusive authority to appoint a person to fill such
vacancy.
3A.3. Retirement/Removal of Directors.
(a) The board of directors shall not request that a Special Meeting
be called, at which meeting the removal of an FDMS Director from office is to be
voted on, unless the board of directors has first determined, by the affirmative
vote of at least a majority of the members of the entire board of directors and
with the concurrence of a majority of the FDMS Committee, that there exists
Cause (as defined in below) to remove such director from the board of directors.
3A.4. Actions by the Board. The board of directors shall not authorize or
approve any recommendation to the stockholders to change the number of directors
constituting the entire board of directors without the affirmative vote of each
of the FDMS Committee and the entire board of directors .
3A.5. Amendment. Article 3A of these bylaws may not be altered, amended
or repealed, nor may any provision inconsistent with Article 3A be adopted,
except by a majority of the board of directors, with the approval of a majority
of the FDMS Committee.
3A.6. Certain Definitions. The following terms as used in these bylaws
shall have the following meanings:
"Cause" means (i) willful and continued failure to substantially perform his or
her duties to the corporation in accordance with his or her established position
at the corporation, (ii) willful conduct which is significantly injurious to the
corporation, monetarily or otherwise or (iii) conviction for, or guilty plea to,
a felony. "FDMS Directors" means (i) each of the directors initially designated
as such by the board of directors (as of the Effective Time) and (ii) each other
director nominated or appointed by the FDMS Committee in accordance with this
Article 3A.
3A.7. Control Share Statute. The acquisition by FDMS (or by its permitted
transferees under the agreements referred to hereinafter in this sentence) of
voting securities of the corporation pursuant to or in compliance with the
Investment Agreement dated as of October 30, 1998 between the corporation and
FDMS and the Stockholders Agreement is hereby exempted from the provisions of
the Nevada Control Share Statute set forth in Sections 78.378 to 78.3793 of the
Statutes.
ARTICLE 4. OFFICERS
4.1. Number of Officers. The officers of the corporation shall be a
president, a secretary and a treasurer, each of whom shall be appointed by the
board of directors. Such other officers and assistant officers as may be deemed
necessary, including any vice presidents, may also be appointed by the board of
directors. If specifically authorized by the board of directors, an officer may
appoint one or more officers or assistant officers. The same individual may
simultaneously hold more than one office in the corporation.
4.2. Appointment and Term of Office. The officers of the corporation
shall be appointed by the board of directors for a term as determined by the
board of directors. If no term is specified, they shall hold office until the
first meeting of the directors held after the next annual meeting of
shareholders. If the appointment of officers shall not be made at such meeting,
such appointment shall be made as soon thereafter as is convenient. Each
officer shall
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hold office until his successor shall have been duly appointed and shall have
qualified until his death, or until he shall resign or is removed.
The designation of a specified term does not grant to the officer any
contract rights, and the board may remove the officer at any time prior to the
termination of such term.
4.3. Removal of Officers. Any officer or agent may be removed by the
board of directors at any time, with or without cause. Such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Appointment of an officer or agent shall not of itself create contract rights.
4.4. Resignation of Officers. Any officer may resign at any time, subject
to any rights or obligations under any existing contracts between the officers
and the corporation, by giving notice to the president or board of directors.
An officer's resignation shall take effect at the time specified therein, and
the acceptance of such resignation shall not be necessary to make it effective.
4.5. President. Unless the board of directors has designated the chairman
of the board as chief executive officer, the president shall be the chief
executive officer of the corporation and, subject to the control of the board of
directors, shall in general supervise and control all of the business and
affairs of the corporation. Unless there is a chairman of the board, the
president shall, when present, preside at all meetings of the shareholders and
of the board of directors. The president may sign, with the secretary or any
other proper officer of the corporation thereunder authorized by the board of
directors, certificates for shares of the corporation and deeds, mortgages,
bonds, contracts, or other instruments which the board of directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the board f directors or by these bylaws
to some other officer or agent of the corporation, or shall be required by law
to be otherwise signed or executed; and in general shall perform all duties
incident to the office of president and such other duties as may be prescribed
by the board of directors from time to time.
4.6. Vice Presidents. If appointed, in the absence of the president or in
the event of his death, inability or refusal to act, the vice president (or in
the event there be more than one vice president, the vice presidents in the
order designate at the time of their election, or in the absence of any
designation, then in the order of their appointment) shall perform the duties of
the president, and when so acting, shall have all the powers of, and be subject
to, all the restrictions upon the president.
4.7. Secretary. The secretary shall: (a) keep the minutes of the
proceedings of the shareholders, the board of directors, and any committees of
the board in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these bylaws or as
required by law; (c) be custodian of the corporate records; (d) when requested
or required, authenticate any records of the corporation; (e) keep a register of
the post office address of each shareholder which shall be furnished to the
secretary by such shareholder; (f) sign with the president, or a vice president,
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the board of directors; (g) have general charge
of the stock transfer books of the corporation; and (h) in general perform all
duties incident to the office of secretary and such other duties as from time to
time may be assigned by the president or by the board of directors. Assistant
secretaries, if any, shall have the same duties and powers, subject to the
supervision of the secretary.
4.8. Treasurer. The treasurer shall: (a) have charge and custody of and
be responsible for all funds and securities of the corporation; (b) receive and
give receipts for monies due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
bank, trust companies, or other depositaries as shall be selected by the board
of directors; and (c) in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
by the president or by the board of directors. If required by the board of
directors, the treasurer shall give a bond for the faithful discharge of his or
her duties in such sum and with such surety or sureties as the board of
directors shall determine. Assistant treasurers, if any, shall have the same
powers and duties, subject to the supervision of the treasurer.
4.9. Salaries. The salaries of the officers shall be fixed from time to
time by the board of directors.
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ARTICLE 5. INDEMNIFICATION
5.1. Indemnification and Insurance.
5.1.1. Indemnification of Directors and Officers.
(a) For purposes of this Article, (A) "Indemnitee" shall mean each
director or officer who was or is a party to, or is threatened to be made a
party to, or is otherwise involved in, any Proceeding (as hereinafter defined),
by reason of the fact that he or she is or was a director or officer of the
corporation or is or was serving in any capacity at the request of the
corporation as a director, officer, employee, agent, partner, or fiduciary of,
or in any other capacity for, another corporation or any partnership, joint
venture, trust, or other enterprise; and (B) "Proceeding" shall mean any
threatened, pending or completed action or suit (including without limitation an
action, suit or proceeding by or in the right of the corporation), whether
civil, criminal, administrative or investigative.
(b) Each Indemnitee shall be indemnified and held harmless by the
corporation for all actions taken by him or her and for all omissions
(regardless of the date of any such action or omission), to the fullest extent
permitted by Nevada law, against all expense, liability and loss (including
without limitation attorneys' fees, judgments, fines, taxes, penalties, and
amounts paid or to be paid in settlement) reasonably incurred or suffered by the
Indemnitee in connection with any Proceeding.
(c) Indemnification pursuant to this Section shall continue as to an
Indemnitee who has ceased to be a director or officer and shall inure to the
benefit of his or her heirs, executors and administrators.
5.1.2. Indemnification of Employees and Other Persons. The
corporation may, by action of its Board of Directors and to the extent provided
in such action, indemnify employees and other persons as though they were
Indemnitees.
5.1.3. Non-Exclusivity of Rights. The rights to indemnification
provided in this Article shall not be exclusive of any other rights that any
person may have or hereafter acquire under any statute, provision of the
corporation's Articles of Incorporation or Bylaws, agreement, vote of
stockholders or directors, or otherwise.
5.1.4. Insurance. The corporation may purchase and maintain
insurance or make other financial arrangements on behalf of any person who is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him or her and liability and
expenses incurred by him or her in his or her capacity as a director, officer,
employee or agent, or arising out of his or her status as such, whether or not
the corporation has the authority to indemnify him or her against such liability
and expenses.
5.1.5. Other Financial Arrangements. The other financial
arrangements which may be made by the corporation may include the following (i)
the creation of a trust fund; (ii) the establishment of a program of self-
insurance; (iii) the securing of its obligation of indemnification by granting a
security interest or other lien on any assets of the corporation; (iv) the
establishment of a letter of credit, guarantee or surety. No financial
arrangement made pursuant to this subsection may provide protection for a person
adjudged by a court of competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable for intentional misconduct, fraud, or a knowing
violation of law, except with respect to advancement of expenses or
indemnification ordered by a court.
5.1.6. Others Matters Relating to Insurance or Financial
Arrangements. Any insurance or other financial arrangement made on behalf of a
person pursuant to this section may be provided by the corporation or any other
person approved by the Board of Directors, even if all or part of the other
person's stock or other securities is owned by the corporation. In the absence
of fraud:
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(a) the decision of the Board of Directors as to the propriety of the
terms and conditions of any insurance or other financial arrangement made
pursuant to this section and the choice of the person to the provide the
insurance or other financial arrangement is conclusive; and
(b) the insurance or other financial arrangement:
(i) is not void or voidable; and
(ii) does not subject any director approving it to personal
liability for his action, even if a director approving the
insurance or other financial arrangement is a beneficiary of
the insurance or other financial arrangement.
5.1.7. Payment of Expenses. In addition to any other rights of
indemnification permitted by the Statutes as may be provided for by the
corporation in its Articles of Incorporation or by agreement, the expenses of an
Indemnitee incurred in defending a civil or criminal action, suit or proceeding,
involving alleged acts or omissions of such Indemnitee in his or her capacity as
an officer or director of the corporation, must be paid, by the corporation or
through insurance purchased and maintained by the corporation or through other
financial arrangements made by the corporation, as they are incurred and in
advance of the final disposition of the action, suit or proceeding, upon receipt
of an undertaking by or on behalf of the Indemnitee to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he or she is not
entitled to be indemnified by the corporation.
5.2. Amendment. The provisions of this Article relating to
indemnification shall constitute a contract between the corporation and each of
its directors and officers which may be modified as to any director or officer
only with that person's consent or as specifically provided in this Section.
Notwithstanding any other provision of these Bylaws relating to their amendment
generally, any repeal or amendment of this Article which is adverse to any
director or officer shall apply to such director or officer only on a
prospective basis and shall not limit the rights of an Indemnitee to
indemnification with respect to any action or failure to act occurring prior to
the time of such repeal or amendment. Notwithstanding any other provision of
these Bylaws, no repeal or amendment of these Bylaws shall affect any or all of
this Article so as to limit or reduce the indemnification in any manner unless
adopted by (a) the unanimous vote of the directors of the corporation then
serving, or (b) by the stockholders as set forth in Article VIII hereof;
provided that no such amendment shall have retroactive effect inconsistent with
the preceding sentence.
ARTICLE 6. STOCK
6.1. Issuance of Shares. The issuance or sale by the corporation of any
shares of its authorized capital stock of any class, including treasury shares,
shall be made only upon authorization by the board of directors, unless
otherwise provided by statute. The board of directors may authorize the
issuance of shares for consideration consisting of any tangible or intangible
property or benefit to the corporation, including cash, promissory notes,
services performed, contracts or arrangements for services to be performed, or
other securities of the corporation. Shares shall be issued for such
consideration expressed in dollars as shall be fixed from time to time by the
board of directors.
6.2. Certificates for Shares.
6.2.1. Content. Certificates representing shares of the corporation
shall at minimum, state on their face the name of the issuing corporation and
that it is formed under the laws of the State of Nevada; the name of the person
to whom issued; and the number and class of shares and the designation of the
series, if any, the certificate represents; and be in such form as determined by
the board of directors. Such certificates shall be signed (either manually or
by facsimile) by the president or a vice president and by the secretary or an
assistant secretary and may be sealed with a corporate seal or a facsimile
thereof. Each certificate for shares shall be consecutively numbered or
otherwise identified.
6.2.2. Legend as to Class or Series. If the corporation is
authorized to issue different classes of shares or different series within a
class, the designations, relative rights, preferences and limitations applicable
to
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each class and the variations in rights, preferences and limitations determined
for each series (and the authority of the board of directors to determine
variations for future series) must be summarized on the front or back of each
certificate. Alternatively, each certificate may state conspicuously on its
front or back that the corporation will furnish the shareholder this information
on request in writing and without charge.
6.2.3. Shareholder List. The name and address of the person to whom
the shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the corporation.
6.2.4. Transferring Shares. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and canceled, except that in cash of a lost, destroyed, or mutilated
certificate, a new one may be issued therefor upon such terms and indemnity to
the corporation as the board of directors may prescribe.
6.3. Shares Without Certificates.
6.3.1. Issuing Shares Without Certificates. Unless the articles of
incorporation provide otherwise, the board of directors may authorize the issue
of some or all the shares of any or all of its classes or series without
certificates. The authorization does not affect shares already represented by
certificates until they are surrendered to the corporation.
6.3.2. Information Statement Required. Within a reasonable time
after the issue or transfer of shares without certificates, the corporation
shall send the shareholder a written statement containing, at a minimum, the
information required by the Statutes.
6.4. Registration of the Transfer of Shares. Registration of the transfer
of shares of the corporation shall be made only on the stock transfer books of
the corporation. In order to register a transfer, the record owner shall
surrender the shares to the corporation for cancellation, properly endorsed by
the appropriate person or persons with reasonable assurances that the
endorsements are genuine and effective. Unless the corporation has established
a procedure by which a beneficial owner of shares held by a nominee is to be
recognized by the corporation as the owner, the person in whose name shares
stand in the books of the corporation shall be deemed by the corporation to be
the owner thereof for all purposes.
6.5. Restrictions on Transfer or Registration of Shares. The board of
directors or shareholders may impose restrictions on the transfer or
registration of transfer of shares (including any security convertible into, or
carrying a right to subscribe for or acquire shares). A restriction does not
affect shares issued before the restriction was adopted unless the holders of
the shares are parties to the restriction agreement or voted in favor of or
otherwise consented to the restriction.
A restriction on the transfer or registration of transfer of shares may be
authorized:
(a) to maintain the corporation's status when it is dependent on the
number or identity of its shareholders;
(b) to preserve entitlements, benefits or exemptions under federal
or local laws; and
(c) for any other reasonable purpose.
A restriction on the transfer or registration of transfer of shares may:
(a) obligate the shareholder first to offer the corporation or other
persons (separately, consecutively or simultaneously) an opportunity to acquire
the restricted shares;
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(b) obligate the corporation or other persons (separately,
consecutively or simultaneously) to acquire the restricted shares;
(c) require as a condition to such transfer or registration, that
any one or more persons, including the holders of any of its shares, approve the
transfer or registration if the requirement is not manifestly unreasonable; or
(d) prohibit the transfer or the registration of transfer of the
restricted shares to designated persons or classes of persons, if the
prohibition is not manifestly unreasonable.
A restriction on the transfer or registration of transfer of shares is
valid and enforceable against the holder or a transferee of the holder if the
restriction is authorized by this Section and its existence is noted
conspicuously on the front or back of the certificate or is contained in the
information statement required by this Article 6 with regard to shares issued
without certificates. Unless so noted, a restriction is not enforceable against
a person without knowledge of the restriction.
6.6. Corporation's Acquisition of Shares. The corporation may acquire its
own shares and the shares so acquired constitute authorized but unissued shares.
If the articles of incorporation prohibit the reissue of acquired shares,
the number of authorized shares is reduced by the number of shares acquired,
effective upon amendment of the articles of incorporation, which amendment may
be adopted by the shareholders or the board of directors without shareholder
action. The articles of amendment must be delivered to the Secretary of State
and must set forth:
(a) the name of the corporation;
(b) the reduction in the number of authorized shares, itemized by
class and series;
(c) the total number of authorized shares, itemized by class and
series, remaining after reduction of the shares; and
(d) a statement that the amendment was adopted by the board of
directors without shareholder action and that shareholder action was not
required.
ARTICLE 7. DISTRIBUTIONS
7.1. Distributions to Shareholders. The board of directors may authorize,
and the corporation may make, distributions to the shareholders of the
corporation subject to any restriction sin the corporation's articles of
incorporation and in the Statutes.
7.2. Unclaimed Distributions. If the corporation has mailed three
successive distributions to a shareholder at the shareholder's address as shown
on the corporation's current record of shareholders and the distributions have
been returned as undeliverable, no further attempt to deliver distributions to
the shareholder need be made until another address for the shareholder is made
known to the corporation, at which time all distributions accumulated by reason
of this Section, except as otherwise provided by law, be mailed to the
shareholder at such other address.
ARTICLE 8. MISCELLANEOUS
8.1. Inspection of Records by Shareholders and Directors. A shareholder
or director of a corporation is entitled to inspect and copy, during regular
business hours at the corporation's principal office, any of the records of the
corporation required to be maintained by the corporation under the Statutes, if
such person gives the corporation written notice of the demand at least five
business days before the date on which such a person wishes to inspect and copy.
The scope of such inspection right shall be as provided under the Statutes.
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8.2. Corporate Seal. The board of directors may provide a corporate seal
which may be circular in form and have inscribed thereon any designation
including the name of the corporation, the state of incorporation, and the words
"Corporate Seal."
8.3. Amendments. The corporation's board of directors may amend or repeal
the corporation's bylaws at any time unless:
(a) the articles of incorporation or the Statutes reserve this power
exclusively to the shareholders in whole or part; or
(b) the shareholders in adopting, amending, or repealing a particular
bylaw provide expressly that the board of directors may not amend or repeal that
bylaw; or
(c) the bylaw either establishes, amends, or deletes, a greater
shareholder quorum or voting requirement.
Any amendment which changes the voting or quorum requirement for the board
must meet the same quorum requirement and be adopted by the same vote and voting
groups required to take action under the quorum and voting requirements then in
effect or proposed to be adopted, whichever are greater.
8.4. Fiscal Year. The fiscal year of the corporation shall be established
by the board of directors.
ARTICLE 9. INAPPLICABILITY OF ACQUISITION OF CONTROLLING INTEREST STATUTE
9.1. Acquisition of Controlling Interest Statute Shall Not Apply to the
Corporation. Notwithstanding any other provision in the bylaws to the contrary,
the provisions of Sections 78.378 to 78.3793, inclusive, of the Statutes (or any
successor thereto), relating to acquisitions of controlling interests in the
corporation do not apply to the corporation. Once that certain Agreement and
Plan of Merger by and among the corporation, At Home Corporation ("Excite@Home")
and Shop Nevada, Inc., a wholly-owned subsidiary of Excite@Home (the "Merger
Agreement") has been executed by all the parties thereto, this Article 9 shall
not be amended or repealed in a manner adverse to Excite@Home without
Excite@Home's prior written consent, unless the Merger Agreement has been
terminated in accordance with its terms.
DATED as of this 11th day of July, 1999.
15
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 1 TO INVESTMENT AGREEMENT
This Amendment No. 1, dated as of July 12, 1999 (this "Amendment") to the
Investment Agreement, dated as of October 30, 1998 (the "Agreement"), 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 and Investor entered into the Agreement pursuant
to which, among other things, (i) Investor purchased from the Corporation an
aggregate of 2,000,000 shares of common stock of the Corporation, and (ii) the
Corporation committed to issue to Investor a warrant for 5,000,000 shares of
common stock of the Corporation subject to the satisfaction of certain
performance objectives;
WHEREAS, concurrently with the execution of this Amendment, the
Corporation, At Home Corporation, a Delaware corporation ("Parent"), and Shop
Nevada, Inc., a Nevada corporation ("Merger Sub"), are entering into an
Agreement and Plan of Merger which provides for the merger (the "Merger") of
Merger Sub with and into the Corporation; and
WHEREAS, in connection with the execution of the Merger Agreement, the
Corporation and Investor desire to amend certain provisions of the Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. The first sentence of Section 8.1(b) of the Agreement shall be amended
and restated to read as follows:
"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; provided, however, that the Warrant shall not be
issued at any time the Merger Agreement is in full force and effect."
1. At the Effective Time (as defined in the Merger Agreement), Sections
5.2, 6.1, 6.2, 6.5, 6.6, 6.7, Article VII and Article VIII shall be deleted in
their entirety and replaced with the words "Intentionally Omitted."
2. THE VALIDITY, MEANING AND EFFECT OF THIS AMENDMENT SHALL BE DETERMINED
IN ACCORDANCE WITH THE LAWS OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN THAT STATE.
<PAGE>
3. 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.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on this
12th day of July, 1999.
iMall, Inc.
/s/ Richard M. Rosenblatt
\ ---------------------------------
By: Richard M. Rosenblatt
Title: Chairman and Chief Executive Officer
First Data Merchant Services Corporation
/s/ Richard E. Aiello
---------------------------------
By: Richard E. Aiello
Title: Senior Vice President
2
<PAGE>
EXHIBIT 10.2
FIRST AMENDED AND RESTATED
DEVELOPMENT AND MARKETING AGREEMENT
THIS FIRST AMENDED AND RESTATED DEVELOPMENT AND MARKETING AGREEMENT
(this "Agreement") is effective as of this 12th day of July, 1999, between
---------
iMall, Inc., a Nevada corporation ("Company"), and First Data Merchant Services
-------
Corporation, a Florida corporation ("FDMS").
----
RECITALS
--------
WHEREAS, the Company and FDMS are parties to a certain Investment
Agreement dated as of the 30th day of October, 1998 (the "Investment Agreement")
pursuant to which FDMS acquired Common Stock (as defined therein) and has the
right to acquire additional Common Stock and a Warrant (as defined therein);
WHEREAS, in connection with the Investment Agreement, the parties
agreed to enter into the Development and Marketing Agreement dated October 30,
1998 (the "Original Agreement"); and
WHEREAS, the parties desire to amend and restate their respective
rights and obligations set forth in the Original Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. For the purposes of this Agreement, the following terms shall
have the definitions indicated below, and shall be equally applicable to the
singular and plural forms. Any agreement referred to herein shall mean such
agreement as amended, supplemented and modified from time to time to the extent
permitted by the applicable provisions thereof. When a reference is made in
this Agreement to an article, section or exhibit, such reference shall be to an
article, section or exhibit of this Agreement unless otherwise indicated. The
table of contents, if any, and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes," or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
1.1 "Affiliate" means any Person which, directly or indirectly, owns or
---------
controls, is owned or is controlled by or is under common ownership or control
with another Person, and in the case of FDMS, shall also include Alliances. As
used herein, "control" means the power to direct the management affairs of a
Person, and "ownership" means the beneficial ownership of the voting equity
securities or other equivalent voting interests of the Person. Notwithstanding
the foregoing, each of the Company and FDMS shall not be deemed to be
Affiliates.
<PAGE>
1.2 "Alliance" means any venture (in any form, including in corporate,
--------
partnership or limited liability company form) or contractual alliance now or
hereafter entered into between FDMS (or any of its Affiliates) and one or more
third parties for the provision of any Merchant Acquiring Business services
pursuant to an arrangement whereby FDMS (or any of its Affiliates) shares the
economic benefits of ownership of merchant contracts through profit sharing,
revenue sharing, a royalty interest or otherwise.
1.3 "Arbitration Panel" shall have the meaning set forth in Section 2.1 of
----------------- -----------
Exhibit 11.10.
- -------------
1.4 "Brochure Site" means a non-commerce enabled single or multi-page
-------------
website.
1.5 "Card Association" means MasterCard International, Inc., VISA U.S.A.,
----------------
Inc., VISA International, Inc., American Express, Discover, and other
Transaction Card associations and their respective successors and assigns.
1.6 "Cash Register Service" means the ability of a merchant to receive
---------------------
payment services only (i.e., shipping instructions, sales tax calculation and
payment method selection, but no shopping cart or catalog features) by
connecting through the Gateway.
1.7 "Change Order" shall have the meaning set forth in Section 2.9.
------------ -----------
1.8 "Company" shall have the meaning set forth in the first paragraph
-------
hereof.
1.9 "Company Indemnified Persons" shall have the meaning set forth in
---------------------------
Section 7.2.
- -----------
1.10 "Company Marks" means iStore, Bolt-on e-commerce, stuff-related marks
-------------
(other than those stuff-related marks owned by FDMS, its Affiliates or FDMS
Merchants), and iMall.
1.11 "Company Software" means all proprietary software, technical and user
----------------
documentation, tools, utilities and related materials used by the Company in
connection with its performance of Development and Operational Services and
Marketing Services, together with all updates, modifications and enhancements
thereto.
1.12 "Confidential Information" shall have the meaning set forth in
------------------------
Section 9.1.
- -----------
1.13 "Development and Operational Services" shall have the meaning set
------------------------------------
forth in Section 2.1.
-----------
1.14 "Dispute" means any and all disputes, controversies and claims
-------
between the parties arising from or in connection with this Agreement or the
relationship of the parties under this Agreement, whether based on contract,
tort, common law, equity, statute, regulation, order or otherwise.
1.15 "Effective Date" means the date first written above.
--------------
<PAGE>
1.16 "Electronic Commerce Tools" means the Company-owned proprietary
-------------------------
software, technical and user documentation, tools, utilities and related
materials commonly known as "electronic commerce tools," which includes i.Store,
bolt-on e-commerce and bolt-on e-commerce with on-line payment processing,
together with all updates, modifications and enhancements thereto.
1.17 "Escrow Agreement" means that certain Source Code Escrow Agreement
----------------
dated as of October 31, 1998, between the Company, FDMS, and Data Securities
International, Inc.
1.18 "Event of Default" shall have the meaning set forth in Section 10.3.
---------------- ------------
1.19 "FDMS" shall have the meaning set forth in the first paragraph
----
hereof.
1.20 "FDMS Gateway" means the customized version of the Gateway prepared
------------
by Company for FDMS, including the FDMS Gateway Enhancements.
1.21 "FDMS Gateway Enhancements" means all FDMS-funded software or other
-------------------------
interfaces embedded in or otherwise integrated with the Gateway at the direction
of or by or on behalf of FDMS that provide additional or modified functionality
or features to the Gateway as originally delivered by the Company to FDMS.
1.22 "FDMS Indemnified Persons" shall have the meaning set forth in
------------------------
Section 7.1.
- -----------
1.23 "FDMS Marks" means First Data Merchant Services, First Data Merchant
----------
Services (stylized), Moneta, YourStatement, InstaApp, VirtualApp, VirtualApp.com
and MerchantStuff.com.
1.24 "FDMS Merchants" means: (i) those Persons with which FDMS or any of
--------------
its Affiliates presently or may in the future have a relationship relating to
the Merchant Acquiring Business; or (ii) those Persons that are solicited by
FDMS, its Alliances, other Affiliates or their respective Third-Party Resellers
to participate in the Mall Site or to buy e-commerce services; or (iii) those
Persons that FDMS or any of its Affiliates solicits to purchase a Merchant Site,
Brochure Site, or Electronic Commerce Tools.
1.25 "FDMS Merchant Sites" means those Merchant Sites of FDMS Merchants
-------------------
contained in the Mall Site.
1.26 "FDMS Software" means the proprietary software commonly known as
-------------
"merchant online application software", "Online Emerald" or "VirtualApp", and
"Moneta," together with all updates, modifications and enhancements thereto, and
all technical and user documentation and related materials (if any).
1.27 "Gateway" means the hardware, software and telecommunications tools
-------
necessary to perform protocol conversion between different networks or
applications and all associated software required to transmit transaction
information.
<PAGE>
1.28 "IMall Site" means the World Wide Web site accessed using web browser
----------
software directed to the following underlined URL: http://www.iMall.com or any
--------------------
other URL used by the Company to replace or add to the foregoing.
1.29 "Infringement Claims" shall have the meaning set forth in Section
------------------- -------
7.1.2.
- -----
1.30 "Initial Term" shall have the meaning set forth in Section 10.1.
------------ ------------
1.31 "Investment Agreement" shall have the meaning set forth in the first
--------------------
paragraph of the recitals of this Agreement.
1.32 "Linking Image" means the words and/or graphical symbols resident on
-------------
the Stuff Site that, when selected by a user, will cause the user to access the
Mall Site or any Brochure Site or Merchant Site.
1.33 "Losses" shall have the meaning set forth in Section 7.1.
------ -----------
1.34 "Mall" means an Internet-based virtual shopping mall that is
----
comprised of entities operating Brochure Sites or Merchant Sites.
1.35 "Mall Site" means the IMall Site, or any other URL used by the
---------
Company to replace or add to the IMall Site that becomes the Primary Shopping
Website.
1.36 "Mall Tenant" means any Person (including, FDMS Merchants), that has
-----------
a Merchant Site or a Brochure Site in the Mall Site.
1.37 "Marketing Services" shall have the meaning set forth in Section 2.2.
------------------ -----------
1.38 "Merchant Acquiring Business" means a business providing any of the
---------------------------
following services or products to Persons with respect to Transaction Cards:
(i) the authorization and/or capture of transactions; (ii) the submission of
such transactions for interchange settlement or other settlement; (iii) the
preparation of statements or reports based on such transactions; chargebacks and
other exception items (including electronic access); (iv) the provision of
customer service or other office services in respect of any of such
transactions; (v) clearing and settlement services; (vi) enhancements or
modifications to any of the foregoing services; and (vii) other services or
products developed in support of merchants to allow such merchants to remain
competitive in the Transaction Card industry.
1.39 "Merchant Site" means an e-commerce enabled website.
-------------
1.40 "Notice of Default" shall have the meaning set forth in Section 10.4.
----------------- ------------
1.41 "Original Agreement" shall have the meaning set forth in the second
------------------
recital to this Agreement.
<PAGE>
1.42 "Person" means an individual, partnership, corporation, limited
------
liability company, trust, joint stock company, association, joint venture, or
any other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
1.43 "Primary Shopping Website" means the Internet shopping portal or
------------------------
website mall in which the Company and its Affiliates, taken as a whole, invest
the greatest percentage of promotional, marketing, advertising, research and
development time and expenditures, as compared to any other website owned,
operated or controlled by the Company or any of its Affiliates.
1.44 "Renewal Term" shall have the meaning set forth in Section 10.2.
------------ ------------
1.45 "Stuff Card" shall have the meaning set forth in Section 3.6.
---------- -----------
1.46 "Stuff Search Engine" means the product search engine resident on the
-------------------
Stuff Site, as described in Exhibit 2.1.
-----------
1.47 "Stuff Site" means the site on the World Wide Web portion of the
----------
Internet, accessed by using web browser software directed to the following
underlined URL: http://www.stuff.com or any other URL used by the Company to
--------------------
replace or add to the foregoing.
1.48 "Term" means the Initial Term and each and every Renewal Term (if
----
any).
1.49 "Third-Party Reseller" means third Persons with whom FDMS, the
--------------------
Company or their respective Affiliates may enter into a separate agreement
relating to the distribution of Electronic Commerce Tools.
1.50 "Transaction Card" means: (i) a card or other device or service used
----------------
for credit or debit transactions; (ii) a private label or retail debit or credit
card or other device or service used for similar services; (iii) a stored value
or other prepayment service card or other similar device or service used for
stored value or prepayment services; or (iv) an electronic coupon, electronic
benefit card, signature/security card, or similar device or service used in
connection with electronic financial transactions or other similar services.
1.51 "URL" means Uniform Resource Locator.
---
1.52 "Wallet" means the ability to uniquely identify shoppers at a web
------
site and to register Transaction Card numbers and/or shipping and billing
addresses with such web site.
2. Rights and Obligations of the Company.
2.1 Development and Operational Services. During the Term, the Company
------------------------------------
shall perform the website development and operational services substantially as
set forth in Exhibit 2.1 (the "Development and Operational Services") in
-----------
accordance with the performance and design specifications, time frames, and
other obligations set forth in Exhibit 2.1 and elsewhere in this Agreement in
-----------
order to design, develop, implement, operate, maintain and update the Gateway,
<PAGE>
FDMS Gateway Enhancements, Electronic Commerce Tools, Stuff Site, Mall Site,
Brochure Sites, Merchant Sites, and Linking Images resident thereon and such
other deliverables and services set forth on Exhibit 2.1.
------------
2.2 Marketing Services. The Company shall perform the advertising and
------------------
promotion services substantially as set forth in Exhibit 2.2 (the "Marketing
-----------
Services") in accordance with the performance and design specifications and
other obligations set forth in Exhibit 2.2 and elsewhere in this Agreement.
-----------
2.3 Customer Service. The Company shall provide the customer support
----------------
services substantially as set forth in Exhibit 2.3.
-----------
2.4 Internet Gateway. The Company hereby grants to FDMS and its
----------------
Affiliates and the FDMS Merchants a perpetual, exclusive (except as expressly
provided herein), royalty-free, right and license to use and access the FDMS
Gateway as set forth herein. The Company shall provide the FDMS Gateway at its
cost and expense from it to FDMS' authorization center exclusively for the use
of FDMS, its Affiliates and the Company. Notwithstanding the foregoing, FDMS or
its Affiliates, at their sole discretion, may use a different Gateway between
the Company and FDMS or its Affiliates, as applicable. The Company acknowledges
and agrees that FDMS and its Affiliates may, in their sole discretion, use the
FDMS Gateway for purposes other than the Stuff Site and Mall Site, provided that
--------
FDMS pays to the Company the related Gateway fees. The Company shall not permit
the removal of or otherwise remove an FDMS Merchant from the FDMS Gateway
without FDMS' approval, which approval FDMS may withhold in its sole discretion,
provided that such FDMS Merchant is paying applicable fees relating thereto.
- --------
The Company shall not make any modifications or enhancements to the FDMS Gateway
without first discussing with and obtaining the prior written approval of FDMS.
FDMS may request the Company to make modifications or enhancements to the
Gateway. The parties shall negotiate in good faith regarding the sharing of
development costs (if any) relating to modifications or enhancements and related
changes to Gateway fees (if any).
2.5 Preferred Merchant Processor.
----------------------------
2.5.1 New Merchants. Within thirty (30) days after FDMS provides the
-------------
Company with operable FDMS Software, the Company shall modify its
electronic commerce system so that FDMS and such Affiliates as FDMS elects
shall be the merchant provider of Internet merchant accounts unless a
merchant specifically rejects FDMS, in which event the system may default
to a different provider.
2.5.2 Existing Electronic Commerce Merchants. At FDMS' request from
--------------------------------------
time to time, to the extent not contractually prohibited from doing so, the
Company shall deliver an electronic mail message, at its cost and expense,
to each then-existing electronic commerce merchant residing on the IMall
Site, and such other Company or Affiliate owned or operated websites as
FDMS shall designate, that does not use FDMS or an Affiliate of FDMS for
services comprising the Merchant Acquiring Business, inviting such merchant
to have FDMS or an Affiliate of FDMS provide services comprising the
Merchant Acquiring Business.
<PAGE>
FDMS shall provide the Company with suggested content for each such
electronic mail message. The Company shall approve each such electronic
mail message, which approval shall not be unreasonably withheld or delayed.
At FDMS' request from time to time, to the extent not contractually
prohibited from doing so, the Company shall deliver to FDMS a list, which
shall include the name, address, e-mail address, telephone number and such
other information as FDMS reasonably requests, of all then-existing
electronic commerce merchants residing on the IMall Site, and such other
Company or Affiliate owned or operated websites as FDMS shall designate,
that do not use FDMS or an Affiliate of FDMS for services comprising the
Merchant Acquiring Business.
2.5.3 Leads. Within three (3) business days after obtaining a
-----
merchant account lead, the Company and its Affiliates shall provide such
lead exclusively to FDMS, regardless of the origin of such lead.
2.6 Product Search Preference. The Company shall design the Stuff Search
-------------------------
Engine to ensure that, regardless of the type or level of product search query
conducted, all FDMS Merchant Sites containing products that match the search
query shall be given the sole segregated preferential listing treatment as set
forth in Exhibit 2.6 or such other form and format as the parties may agree.
-----------
2.7 Re-Branding of Electronic Commerce Tools. The Company shall, at its
----------------------------------------
sole cost and expense, promptly re-brand the Electronic Commerce Tools as
reasonably requested by FDMS. FDMS shall be permitted to use the same in
accordance with the license granted in Section 4.1.
-----------
2.8 Transfer of Internet Domain Names. Promptly after the Effective Date,
---------------------------------
the Company shall cause all right, title and interest in and to the following
underlined URL: http://www.merchantstuff.com to be assigned to FDMS to the
----------------------------
extent that the Company owns the same.
2.9 Change in Scope.
---------------
2.9.1 If during the Term, either party requests the other to provide
any additional services or deliverables, or modify existing Development and
Operational Services or Marketing Services or deliverables, either party
may make a request for such addition or modification pursuant to a written
change order ("Change Order"). Each Change Order shall identify with
reasonable specificity the addition or modification, associated tasks,
timetables, deliverables, fees and charges. Within five (5) days after the
receipt of a Change Order, the parties shall discuss the same and the
availability of personnel, resources and fees and charges (if any), to
implement the Change Order, which implementation shall not be unreasonably
denied by either party. Each Change Order executed by the parties shall be
incorporated into and constitute an amendment to this Agreement. The terms
of any Change Order shall control over any inconsistent provisions set
forth in this Agreement with regard to the additional services or
deliverables or modification of existing Development and Operational
Services or Marketing Services.
<PAGE>
2.9.2 If the Company is unable or unwilling to provide the additional
services or deliverables, FDMS may elect to do so at its sole cost and
expense, provided that doing so does not have a material adverse effect on
--------
the infrastructure or operations of the Company. In such case, the Company
shall permit FDMS (or its consultants) access to the Company's facilities
and materials (including, software and hardware) to complete the additional
services or deliverables contemplated by the Change Order.
2.9.3 Notwithstanding the foregoing, if a Card Association,
governmental agency or other regulatory body requires changes to the
Development and Operational Services, the Company shall provide the same
pursuant to a Change Order at its sole cost and expense, provided that the
Company may pass through costs on a pro rata basis if such changes
materially increase the cost of providing services and such pass through
does not make the increased costs of services more than similar services in
the market place.
2.10 Third Party Resellers. The Company shall notify FDMS in writing
----------------------
(which may in this case be by email) of each of the following events: (i) the
Company has made contact with a potential Third-Party Reseller of the Electronic
Commerce Tools and Gateway services, and has, in good faith, begun negotiations
with such party for the potential distribution of the Electronic Commerce Tools;
and (ii) the Company has entered into a written agreement with a Third Party
Reseller for the distribution of the Electronic Commerce Tools and Gateway
services. Such notices shall set forth the name of such Third Party Reseller.
3. FDMS's Rights and Obligations.
3.1 FDMS Merchant Offers. Subject to Section 3.3, FDMS shall use
-------------------- -----------
commercially reasonable efforts to offer Electronic Commerce Tools, Merchant
Sites and Brochure Sites to all domestic Alliances. FDMS shall name the Company
as a preferred e-commerce provider in such offers.
3.2 Customer Service. FDMS or the Company, as applicable, shall provide
----------------
the customer support services listed in Exhibit 2.3.
-----------
3.3 Tenancy Approval Right. The Company and FDMS shall jointly develop a
----------------------
policy regarding objective criteria to be used to determine whether to include
or exclude Mall Tenants and to determine all terms and conditions of Mall
tenancy; such policy may be amended from time to time upon mutual agreement of
the parties.
3.4 Development Approval Right. FDMS shall have the right to participate
--------------------------
in and provide input to direct the Development and Operational Services and
shall retain the final right of approval over all design, development, content,
features and revisions relating thereto, which approval shall not be
unreasonably withheld or delayed.
3.5 FDMS Solicitation of Existing Electronic Commerce Merchants. The
-----------------------------------------------------------
Company shall permit FDMS or an Affiliate of FDMS to contact (by telephone or
mail) the merchants set forth in the lists periodically created by the Company
pursuant to Section 2.5.2 for the purpose of inviting such merchants to have
-------------
FDMS or an Affiliate of FDMS provide services comprising the Merchant
<PAGE>
Acquiring Business. FDMS shall provide the Company with copies of promotional
materials to be used in such solicitation for its review and approval, which
approval shall not be unreasonably withheld or delayed.
3.6 Stuff Card Development Right. FDMS shall have the exclusive right to
----------------------------
develop, broker, and process private label or co-branded Stuff Site-related,
Mall Site-related (or other Primary Shopping Website-related) Transaction Cards
(each a "Stuff Card"). FDMS shall use commercially reasonable efforts to
develop, market and broker Stuff Cards to potential issuers. Nothing herein
shall be deemed to limit or restrict the right of FDMS or any of its Affiliates
to develop, broker or process any other private label or co-branded Transaction
Card.
3.7 Duplicate System Right.
----------------------
3.7.1 No later than November 1, 1999, the Company shall specify,
configure and deploy a fully redundant and operational system at a facility
chosen by FDMS. FDMS shall pay the associated hardware and third-party
software expenses. Thereafter, the Company shall promptly provide and
install all future upgrades and updates to such system.
3.7.2 If the Company fails to specify, configure and deploy such
system (other than due to the failure of FDMS) by November 1, 1999, the
Company shall pay to FDMS, as liquidated damages and not as a penalty,
$5,000 per day for each day after November 1, 1999 that such system is not
specified, configured and deployed. If the Company still fails to specify,
configure and deploy such system (other than due to the failure of FDMS) by
February 1, 2000, in addition to the liquidated damages set forth in the
previous sentence, the Company shall pay to FDMS in cash as liquidated
damages and not as a penalty, $10,000 per day for each day commencing
February 1, 2000 that such system is not specified, configured and
deployed. The Company shall pay to FDMS such cash liquidated damages
monthly.
3.8 Third Party Resellers. FDMS shall notify the Company in writing
----------------------
(which may in this case be by email) of each of the following events: (i) FDMS
has made contact with a potential Third-Party Reseller of the Electronic
Commerce Tools and has, in good faith, begun negotiations with such party for
the potential distribution of the Electronic Commerce Tools and Gateway
services; and (ii) FDMS has entered into a written agreement with a Third Party
Reseller for the distribution of the Electronic Commerce Tools and Gateway
services. Such notices shall set forth the name of such Third Party Reseller.
4. License and Ownership.
4.1 License to Electronic Commerce Tools. The Company hereby grants to
------------------------------------
FDMS, its Affiliates, and their respective successors and assigns, a non-
exclusive, worldwide, limited, non-transferable (subject to Section 11.13),
-------------
royalty-free (subject to payment obligations set forth in Exhibit 6) license
---------
during the Term to use, execute, license and market (in object code only and in
accordance with the Company's standard terms and conditions) the Electronic
Commerce Tools internally or externally: (a) through any and all means now known
or hereafter invented; and (b) on
<PAGE>
any and all platforms now known or hereafter invented; and (c) on any and all
media now known or hereafter invented.
4.2 License to Company Software. The Company hereby grants to FDMS, its
---------------------------
Affiliates, and their respective successors and assigns, a non-exclusive,
worldwide, limited, non-transferable (subject to Section 11.13), royalty-free
-------------
license during the Term to: (a) use and execute the Company Software solely in
connection with the duplicate system contemplated in Section 3.7 and Exhibit
----------- -------
2.1; and (b) copy the same for back-up, disaster recovery and archival purposes
- ---
only.
4.3 License to Link to FDMS Software. FDMS hereby grants to the Company a
--------------------------------
non-exclusive, nontransferable, limited right, exercisable during the Term, to
link to the FDMS Software solely to perform its obligations set forth herein.
4.4 License to Company Marks.
------------------------
4.4.1 License Grant. The Company hereby grants to FDMS and its
-------------
Affiliates a revocable, royalty-free, nontransferable, nonexclusive right
and license to use the Company Marks for the Term in connection with the
performance by FDMS of its obligations set forth in this Agreement. FDMS'
use of the Company Marks shall be limited to display of the same on or in
connection with advertising and marketing materials promoting the Company's
services and Electronic Commerce Tools. FDMS accepts such grant,
acknowledges and admits that it has no right, title or interest in the
Company Marks other than the right to use the Company Marks as set forth in
this Agreement, and agrees to knowingly do nothing inconsistent with the
Company's ownership rights that would in any material way cause dilution of
any of the Company Marks.
4.4.2 Quality Control. FDMS shall use the Company Marks only in
---------------
connection with the performance of its obligations set forth herein.
Without limitation, the Company Marks may be used only in ways that comply
in all material respects with applicable law and that meet standards
generally accepted in the Internet and Transaction Card industries. FDMS
shall provide to the Company copies of all advertising and marketing
brochures and other materials bearing the Company Marks, upon the request
of the Company. In addition, FDMS shall provide to the Company such
information as the Company may reasonably request for the purpose of
determining whether FDMS has complied with the foregoing standards. If, in
the reasonable opinion of the Company, FDMS fails to conform to the
foregoing standards at any time, the Company shall so notify FDMS. Upon
such notification, FDMS shall promptly take steps reasonably satisfactory
to the Company to cause its use of the Company Marks to conform to the
foregoing standards. All advertising and marketing brochures and other
materials bearing Company Marks shall be subject to the prior review and
approval of the Company, which approval shall not be unreasonably withheld
or delayed.
4.4.3 Display of Company Marks. FDMS agrees to take reasonable steps
------------------------
to guard against the dilution or misuse of Company Marks by using and
displaying the same, it being
<PAGE>
understood that such display shall be in accordance with the depiction of
the Company Marks provided to FDMS from time to time.
4.4.4 Infringement or Unfair Competition. FDMS shall notify the
----------------------------------
Company of any conflicting uses of or any acts of infringement or unfair
competition involving the Company Marks by unauthorized persons of which
FDMS becomes aware. The Company shall have the right, at its option, to
engage or not engage in infringement or unfair competition proceedings
involving Company Marks, or to authorize FDMS to engage in such
proceedings.
4.5 License to FDMS Marks.
---------------------
4.5.1 License Grant. FDMS hereby grants to the Company a revocable,
-------------
royalty-free, nontransferable, nonexclusive right and license to use the
FDMS Marks for the Term in connection with the performance by the Company
of its obligations set forth in this Agreement. The Company's use of the
FDMS Marks shall be limited to display of the same on the Stuff Site and
Mall Site or in connection with advertising and marketing materials
promoting the Stuff Site and Mall Site and FDMS' Merchant Acquiring
Business. The Company accepts such grant, acknowledges and admits that it
has no right, title or interest in the FDMS Marks other than the right to
use the FDMS Marks as set forth in this Agreement, and agrees to knowingly
do nothing inconsistent with FDMS' ownership rights that would in any
material way cause dilution of any of the FDMS Marks.
4.5.2 Quality Control. The Company shall use the FDMS Marks only in
---------------
connection with the performance of its obligations set forth herein.
Without limitation, the FDMS Marks may be used only in ways that comply in
all material respects with applicable law and that meet standards generally
accepted in the Internet and Transaction Card industries. The Company
shall provide to FDMS copies of all advertising and marketing brochures and
other materials (including screen shots) bearing the FDMS Marks, upon the
request of FDMS. In addition, the Company shall provide to FDMS such
information as FDMS may reasonably request for the purpose of determining
whether the Company has complied with the foregoing standards. If, in the
reasonable opinion of FDMS, the Company fails to conform to the foregoing
standards at any time, FDMS shall so notify the Company. Upon such
notification, the Company shall promptly take steps reasonably satisfactory
to FDMS to cause the Company's use of the FDMS Marks to conform to the
foregoing standards. All advertising and marketing brochures and other
materials (including screen shots) bearing FDMS Marks shall be subject to
the prior review and approval of FDMS, which approval shall not be
unreasonably withheld or delayed.
4.5.3 Display of FDMS Marks. The Company agrees to take reasonable
---------------------
steps to guard against the dilution or misuse of FDMS Marks by using and
displaying the same, it being understood that such display shall be in
accordance with the depiction of the FDMS Marks provided to the Company
from time to time.
<PAGE>
4.5.4 Infringement or Unfair Competition. The Company shall notify
----------------------------------
FDMS of any conflicting uses of or any acts of infringement or unfair
competition involving the FDMS Marks by unauthorized persons of which the
Company becomes aware. FDMS shall have the right, at its option, to engage
or not engage in infringement or unfair competition proceedings involving
FDMS Marks, or to authorize the Company to engage in such proceedings.
4.6 FDMS Gateway Use. The Company retains the right to access and use the
----------------
FDMS Gateway solely in connection with its performance of the Development and
Operational Services, the Marketing Services, and its other obligations under
this Agreement or such other uses as the parties may agree. The Company shall
not allow competitors of FDMS access or connectivity to the FDMS Gateway without
FDMS's prior written consent, which FDMS may withhold in its sole discretion.
4.7 VirtualApp License. The parties acknowledge and agree that the
------------------
Company is developing and launching the following underlined URL:
http://www.OneStopCommerce.com, that allows resellers who host and manage
- ------------------------------
websites ("Third-Party Resellers") to commerce-enable their customer web sites
by accessing the Electronic Commerce Tools. In addition, the Company sells the
Electronic Commerce Tools to Third-Party Resellers through other promotions.
FDMS hereby grants to the Company a limited, royalty-free, revocable right and
license to sublicense to such Third-Party Resellers the Linking Image to the
VirtualApp, provided that: (a) the Company obtains FDMS' prior written approval
--------
by submitting to FDMS for its signature a Third-Party Reseller Request for
Approval Form, in substantially the form attached as Exhibit 4.7, which request
-----------
FDMS may in its sole discretion approve or deny on a case by case basis; and (b)
FDMS retains the right to approve the final "look and feel" of each such Linking
Image sublicensed by the Company hereunder.
4.8 Preferred Placement of Linking Image. The Company shall use
------------------------------------
commercially reasonable efforts to negotiate an exclusive or a "preferred"
placement of the Linking Image for each sublicense granted to a Third-Party
Reseller, meaning that the Linking Image will be at least as prominent as
references to other providers of on-line payment processing services at the
Third-Party Reseller web site.
4.9 Channel Conflicts. In light of the fact that each party may
------------------
distribute the Electronic Commerce Tools and Gateway services through a Third-
Party Reseller, the first party to provide the notice under Section 2.10 (as to
------------
the Company) or Section 3.8 (as to FDMS) with respect to any individual Third-
-----------
Party Reseller has the first right, but not the obligation, to enter into an
agreement with such Third-Party Reseller for the distribution of the Electronic
Commerce Tools and Gateway services, provided that if the party providing such
--------
notice does not execute an agreement with such Third-Party Reseller within three
(3) months after the date of such first notice, then the other party is not
restricted from initiating or otherwise pursuing negotiations with such Third-
Party Reseller.
<PAGE>
4.10 Ownership.
---------
4.10.1 By the Company. As between FDMS and the Company, the Company
--------------
shall own the Gateway, the Company Marks, the Electronic Commerce Tools,
the Company Software, the Stuff Site, the Mall Site, and, subject to FDMS'
ownership rights under Sections 4.10.2 and 4.10.3 and FDMS' ownership of
-------- ------ ------
all works (including software and other deliverables) developed by FDMS
employees or consultants pursuant to Section 2.9, all other deliverables
-----------
under this Agreement.
4.10.2 By FDMS. As between FDMS and the Company, FDMS shall own the
-------
FDMS Gateway Enhancements, the FDMS Marks, the FDMS Software, the FDMS
Security Mark Software, the hardware and related materials identified in
Section 3.7.1, private label branded versions of "Stuff" websites of
-------------
Affiliates and Third-Party Resellers, and the following underlined URL:
http://www.merchantstuff.com or any other URL used by FDMS to replace or
----------------------------
add to the foregoing.
4.10.3 Joint Ownership. To the extent the parties jointly fund the
---------------
development of enhancements to the Gateway, the parties shall mutually
agree at such time regarding the ownership of such enhancements, provided
--------
that if the parties fail to agree at the time of such development the
ownership of the same, the parties shall each own an undivided fifty
percent (50%) interest in and to the same, with the full right to exploit
the same without the consent of the other party or an accounting therefor.
4.10.4 Enabling Provision. The Company acknowledges that the FDMS
------------------
Security Mark Software and any other deliverable requested by FDMS (for
which FDMS has provided funding) and developed by the Company at FDMS's
direction are works specially ordered and commissioned for use as
contributions to a collective work and are a work made for hire pursuant to
U.S. Copyright Law. If the FDMS Security Mark Software or any other
deliverable or any portion of either is not considered a work made for
hire, or if the Company may be entitled to claim any other ownership
interest in the same, the Company hereby transfers, grants, conveys,
assigns, and relinquishes exclusively to FDMS all of the Company's right,
title, and interest in and to the same, under patent, copyright, trade
secret and trademark law, in perpetuity or for the longest period otherwise
permitted by law.
4.11 Third-Party Materials. Except for the materials listed in Exhibit
--------------------- -------
4.11 to this Agreement, as such exhibit may be amended by the parties from time
- ----
to time, the Company shall not incorporate into the Development and Operational
Services or Marketing Services or deliverables any content, software or other
materials owned by third parties except such other additional third party
materials identified to FDMS and approved by FDMS, which approval shall not be
unreasonably withheld or delayed. With respect to third party materials that
are so identified in Exhibit 4.11 or other such additional third party materials
------------
identified to FDMS and approved by FDMS, the Company shall provide to FDMS
copies of any agreements or other agreements between the Company and such third
party governing use of such third party materials.
<PAGE>
4.12 Use of Data. Neither the Company nor any of its Affiliates shall
-----------
sell, use or otherwise disclose any consumer or other data that the Company
collects or accesses through cookies or otherwise at the Mall Site or any
"stuff" websites of Affiliates or Third-Party Resellers of FDMS (except to the
extent that use or disclosure is required to perform the Company's obligations
set forth in this Agreement), and as between the parties, such data shall be
deemed to be Confidential Information of FDMS.
5. Payment Terms.
5.1 Payment By FDMS to the Company. FDMS shall pay the Company for the
------------------------------
Development and Operational Services and Marketing Services performed under this
Agreement at the rates and according to the payment schedule set forth in
Exhibit 5.
- ---------
5.2 Payment By the Company to FDMS. The Company shall pay FDMS for the
------------------------------
performance of its obligations under this Agreement at the rates and according
to the payment schedule set forth in Exhibit 5.
---------
5.3 Most Favored Pricing. Notwithstanding anything to the contrary set
--------------------
forth herein, the Company represents and warrants that the prices and benefits
granted by the Company hereunder are at least as favorable as the benefits and
terms granted by the Company to any other Person. If the Company or any
Affiliate of the Company enters into any subsequent or renewal agreement with
any other Person during the Term that provides for pricing or benefits more
favorable than those contained in this Agreement, this Agreement shall be deemed
to be modified to provide FDMS with those more favorable benefits and terms.
The Company shall notify FDMS promptly of the existence of such more favorable
pricing or benefits and FDMS shall have the right to receive the same
immediately. If requested in writing by FDMS, the Company shall amend this
Agreement to contain the more favorable terms and conditions. FDMS may, at its
own expense, audit the Company's records to verify that FDMS is receiving the
most favorable pricing and benefits granted by the Company to any other Person;
provided that such audit is conducted during normal business hours and in a
- --------
manner that will not unreasonably interfere with the Company's business
operations.
5.4 Costs. Except as set forth herein, each party shall be responsible
-----
for all costs and expenses incurred by it in connection with the performance of
its respective obligations under this Agreement.
6. Representations, Warranties and Covenants. The Company represents,
warrants and covenants to FDMS as follows:
6.1 Leading Technology.
-------------------
<PAGE>
6.1.1 The Company shall perform the Development and Operational
Services and the Marketing Services: (i) in a professional and workmanlike
manner in accordance with the highest applicable industry standards; (ii)
in compliance with all Development and Operational Services and Marketing
Services obligations and specifications set forth in this Agreement and its
exhibits; and (iii) so that the technology used in connection with the
Stuff Site and Mall Site is considered leading technology relative to other
shopping portals and Internet mall hosting providers. In furtherance of
the foregoing, FDMS may elect, at its sole cost and expense, no more
frequently than twice in any twelve (12) month period, to cause a third
Person to review and benchmark the technologies used in the Stuff Site and
Mall Site to ensure that the same is equal to or better than the top ten
percent (10%) of all providers of similar services. FDMS and the Company
shall promptly agree on the identity of a third Person to perform such
review and benchmark services.
6.1.2 If any review and benchmark reveals that the technology does
not meet the foregoing standards, and such failure substantially impairs
the ability of FDMS to: (i) service its current customers using the
Development and Operational Services provided by the Company hereunder; or
(ii) add additional customers to use the Development and Operational
Services, FDMS shall notify the Company of the same, and the fees payable
by FDMS hereunder shall be reduced by fifty percent (50%) commencing upon
the Company's receipt of the notice of the failure provided by FDMS and
ending on the date on which either: (a) the parties agree that such
failure has been cured; or (b) an Arbitration Panel determines that such
failure has been cured. If the Company fails to remedy such failure within
six (6) months after FDMS' notification to the Company of the same, the
Company shall pay FDMS for all reasonable conversion costs and expenses
incurred by FDMS and its Affiliates associated with the deconversion of
FDMS Merchants.
6.2 Primary Shopping Sites. The Stuff Site and Mall Site shall be the
----------------------
Primary Shopping Websites of the Company and its Affiliates.
6.3 Exclusive Mall Site. The Mall Site shall be the exclusive shopping
-------------------
mall displayed on the Stuff Site.
6.4 Exclusive On-Line Internet Accessible Merchant Application Process.
------------------------------------------------------------------
Except to the extent the Company may be obligated under separate existing
agreements with CardService International and Sage Networks, FDMS and its
Affiliates shall be the only Persons that the Company or its Affiliates permit
to offer to third Persons on-line Internet accessible application processes
relating to the Merchant Acquiring Business, including, the Mall Site and the
Stuff Site, that are owned, operated or controlled by the Company or any of its
Affiliates.
6.5 Year 2000. The Development and Operational Services, Marketing
---------
Services, Electronic Commerce Tools, and Company Software are and shall remain
year 2000 compliant in that:
6.5.1 date data from at least 1900 through 2101 will process
without error or interruption due solely to the change in century, in any
level of computer hardware, software
<PAGE>
or services, including, microcode, firmware, system and application
programs, files, databases and computer services;
6.5.2 there will be no loss of functionality of any of the foregoing
due solely to the change in century, with respect to the introduction,
processing or output of records containing dates falling on or after
January 1, 2000; and
6.5.3 on and after January 1, 2000, all of the foregoing will
continue to be interoperable, in the same manner as they are prior to
January 1, 2000, with software and hardware that may deliver records to,
receive records from or interact with the foregoing in the course of
processing data, provided that such other software and hardware uses a
--------
century windowing or interpretive approach (with a pivot year of 50).
6.6 Non-Competition. The Company shall not solicit FDMS Merchants for the
---------------
purpose of promoting, advertising or selling goods or services unrelated to the
Mall Site without first obtaining FDMS' written approval.
7. Indemnification.
7.1 By the Company. The Company shall indemnify, defend and hold FDMS,
--------------
its Affiliates and their respective directors, officers, employees and agents
(collectively, the "FDMS Indemnified Persons") harmless from and against and in
respect of any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest,
penalties, court costs and attorneys' fees (collectively, "Losses"), that any
FDMS Indemnified Person shall incur or suffer, which arise, result from, or
relate to:
7.1.1 any breach or alleged breach of, or failure or alleged failure
by the Company to perform, any of its representations, warranties or
covenants set forth in Section 6.5; and
-----------
7.1.2 any infringement, misappropriation or violation of any issued
United States patent or any copyright, trade secret or other intellectual
property rights (collectively, "Infringement Claims") asserted by any third
Person against any FDMS Indemnified Person relating to the Electronic
Commerce Tools, Development and Operational Services, Marketing Services,
the Gateway or Company Software.
7.2 By FDMS. FDMS shall indemnify, defend and hold the Company, its
-------
Affiliates and their respective directors, officers, employees and agents
(collectively, the "Company Indemnified Persons") harmless from and against and
in respect of any and all Losses that any of the Company Indemnified Persons
shall incur or suffer, which arise, result from, or relate to any Infringement
Claim asserted by any third Person against any of the Company Indemnified
Persons relating to the FDMS Software.
7.3 Third Party. If any indemnifiable claim by a third Person is made
-----------
against any indemnified Person, such indemnified Person shall promptly provide
written notice, as applicable, to the Company or FDMS of such claim; provided
--------
that the failure to give such notice shall not affect
<PAGE>
any rights of such indemnified Person hereunder except to the extent the Company
or FDMS, as applicable, is materially prejudiced by such failure to give notice.
By delivering written notice to such indemnified Person within 15 days after
receipt of such indemnified Person's notice, the Company, or FDMS may, as
applicable, or upon written request of such indemnified Person shall, assume the
defense of such claim at its sole expense through counsel reasonably
satisfactory to such indemnified Person, provided that: (i) the Company or FDMS,
-------- ----
as applicable, shall not permit any lien, encumbrance or other adverse charge
upon any asset of such indemnified Person; (ii) the Company or FDMS, as
applicable, shall permit such indemnified Person to participate in such
settlement or defense through counsel selected by such indemnified Person at
such indemnified Person's expense; and (iii) the Company or FDMS, as applicable,
shall agree to promptly reimburse such indemnified Person for the full amount of
its liability to the claimant provided such liability is indemnifiable under
--------
Section 7. If the Company or FDMS, as applicable, shall not have employed
- ---------
counsel to defend such claim or if such indemnified Person shall have reasonably
concluded (with the written advice of counsel) that the position of such
indemnified Person and the Company or FDMS, as applicable, may be in conflict,
the Company or FDMS, as applicable, shall not have the right to direct the
defense of any such claim on behalf of such indemnified Person and the
reasonable legal and other expenses incurred by such indemnified Person shall be
borne by the Company or FDMS, as applicable. No settlement of a claim that
involves a remedy other than the payment of money by the Company or FDMS, as
applicable, shall be entered into by the Company or FDMS, as applicable, without
the prior consent of the indemnified Party, which consent shall not be
unreasonably withheld or delayed.
8. Limitation of Liability. EXCEPT IN THE EVENT OF A BREACH OF SECTION 9
---------
OR PURSUANT TO THE COMPANY'S INDEMNITY OBLIGATIONS SET FORTH IN SECTION 7.1,
-----------
NEITHER PARTY SHALL BE LIABLE FOR (I) ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES OF
ANY KIND (INCLUDING, LOST INCOME OR LOST REVENUE), OR (II) ANY PUNITIVE, SPECIAL
OR EXEMPLARY DAMAGES, REGARDLESS OF THE CAUSE OF ACTION, EVEN IF THE OTHER PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
9. Confidentiality.
9.1 Definition of Confidential Information. "Confidential Information"
--------------------------------------
means any information or materials that could reasonably be considered
confidential and disclosed by either party in any form or medium and whether or
not designated either orally, visually or in writing as confidential (or like
designation) at the time of disclosure, including any data or information that
is competitively sensitive material, and not generally known to the public,
including products, planning information, marketing strategies, plans, finance,
operations, customer relationships, customer profiles, sales estimates, business
plans, and internal performance results relating to the past, present or future
business activities of a party, their respective Affiliates and the customers,
clients and suppliers of any of the foregoing, and the nature and terms of this
Agreement.
9.2 Exclusions. Notwithstanding the foregoing Section 9.1, the parties'
---------- -----------
obligations respecting confidentiality shall not apply to any particular
information of a party that the other party
<PAGE>
can demonstrate: (i) was, at the time of disclosure to it, in the public domain;
(ii) after disclosure to it, is published or otherwise becomes part of the
public domain through no fault of the receiving party; (iii) was in the
possession of the receiving party at the time of disclosure to it without being
subject to another confidentiality agreement; (iv) was received after disclosure
to it from a third party who had a lawful right to disclose such information to
it; (v) was independently developed by the receiving party without reference to
Confidential Information of the furnishing party; (vi) was required to be
disclosed to any regulatory body having jurisdiction over FDMS or the Company or
any of their respective clients; or (vii) that disclosure is necessary by reason
of legal, accounting or regulatory requirements beyond the reasonable control of
the receiving party. In the case of any disclosure pursuant to Section 9.2(vi)
---------------
or 9.2(vii), to the extent practical, the disclosing party shall give prior
--------
notice to the other party of the required disclosure and shall use commercially
reasonable efforts to obtain a protective order covering such disclosure. If
such a protective order is obtained, such information shall continue to be
deemed to be Confidential Information.
9.3 Non-Disclosure Obligation. Each party to this Agreement shall: (i)
-------------------------
safeguard the confidentiality of the disclosing party's Confidential
Information, exercising at least the same degree of care as it would with its
own Confidential Information of a similar nature, but never less than reasonable
care; (ii) hold in confidence, and not disclose or reveal to any Person, any
Confidential Information disclosed under this Agreement without the clear and
express prior written consent of a duly authorized representative of the
disclosing party; and (iii) not use or disclose any of the Confidential
Information for any purpose at any time, other than for the limited purpose of
performance under this Agreement. Subject to Section 4, upon termination of
---------
this Agreement for any reason, each party shall promptly return to the
disclosing party all Confidential Information (and any copies thereof) in its
possession.
9.4 Irreparable Harm. Each party acknowledges that if it breaches (or
----------------
threatens to breach) its obligations under this Section 9, the other party will
---------
suffer immediate and irreparable harm, it being acknowledged that legal remedies
are inadequate. Accordingly, if a court of competent jurisdiction should find
that a party has breached (or threatened to breach) any such obligations, such
party will not oppose the entry of an appropriate order compelling performance
by such party and restraining it from any further breaches (or threatened
breaches).
10. Term, Termination and Exclusivity Termination.
10.1 Initial Term. This Agreement shall be effective on the Effective
------------
Date and shall continue for a period of ten (10) years (the "Initial Term"),
unless earlier terminated as set forth herein.
10.2 Renewal Term. This Agreement shall automatically renew for an
------------
additional two (2) year term (each, a "Renewal Term") unless either party
provides notice of termination at least ninety (90) days prior to the expiration
of the Initial Term or the then-current Renewal Term. Terminations pursuant to
this Section 10.2 shall be subject to the termination consequences set forth in
------------
Section 10.6.1.
- --------------
10.3 Events of Default. The occurrence of any of the following events
-----------------
(individually, an "Event of Default") shall constitute an Event of Default under
this Agreement:
<PAGE>
10.3.1 Certain Payment of Obligations Under this Agreement. The
---------------------------------------------------
failure by either party to make any payment totaling less than $500,000 to
the other within ninety (90) days of when such payment is due and owing
pursuant to the terms and conditions of this Agreement.
10.3.2 Payment of Obligations Under this Agreement. The failure by
-------------------------------------------
either party to make any payment totaling $500,000 or more to the other
within ninety (90) days of when such payment is due and owing pursuant to
the terms and conditions of this Agreement.
10.3.3 Material Failure to Perform Under this Agreement. The failure
------------------------------------------------
of any party to perform any material term or obligation contained in this
Agreement that substantially impairs the ability of FDMS to: (i) service
its current customers using the Development and Operational Services
provided by the Company hereunder; or (ii) add additional customers to use
the Development and Operational Services.
10.3.4 Other Failure to Perform Under this Agreement. The failure of
---------------------------------------------
any party to perform any other material term or obligation contained in
this Agreement other than those set forth in Section 10.3.3.
--------------
10.3.5 Certain Failures Relating to the Warrant. The failure of the
----------------------------------------
Company to issue the Warrant (as defined in the Investment Agreement) or
the underlying shares if required by the terms of the Investment Agreement.
10.3.6 Breach of Representation, Warranty or Covenant. A material
----------------------------------------------
breach by the Company of its covenants or any representation or warranty
set forth in Section 6 shall prove to have been false in any material
---------
respect upon the date when made or thereafter.
10.3.7 Insolvency, Bankruptcy, Etc.
---------------------------
(i) If any party shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay or shall
generally fail to pay its debts as they mature or become due, or shall
petition or apply for the appointment of a trustee or other custodian,
liquidator or receiver of such party or of any substantial part of the
assets of such party or shall commence any case or other proceeding
relating to such party under any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation or
similar law of any jurisdiction, now or hereafter in effect, or shall
take any action to authorize or in furtherance of any of the
foregoing, or any such petition or application shall be filed or any
such case or other proceeding shall be commenced against such party
and such party shall indicate its approval thereof, consent thereto,
or acquiescence therein.
(ii) If a decree or order shall be entered appointing any such
trustee, custodian, liquidator, or receiver, or adjudicating any party
bankrupt or insolvent, or approving a petition in any such case or
other proceeding, or a decree or order for relief shall be
<PAGE>
entered in respect of such party in an involuntary case under Federal
bankruptcy laws as now or hereafter in effect.
(iii) If the available cash equivalent is less than the sum of the
prior three (3) months gross revenues of the Company, less core
expenses. As used in this Section 10.3.7, the term "available cash
--------------
equivalent" means the month end cash and cash equivalents of the
Company, plus current (i.e., less than thirty (30) days) receivables
of the Company, plus any amounts owed from FDMS other than amounts
disputed in good faith, and the term "core expenses" means those non-
discretionary expenses of the Company necessary to maintain the
current levels of business. In furtherance of the foregoing, the
Company shall provide information relating to the foregoing as
reasonably requested by FDMS.
10.3.8 Change in Control. In the event of a change in Control of the
-----------------
Company where: (i) such Control is acquired, directly or indirectly, in a
single transaction or series of related transactions by a competitor of
FDMS or any Affiliate of FDMS; (ii) all or substantially all of the assets
of the Company are acquired by a competitor of FDMS or any Affiliate of
FDMS; or (iii) the Company is merged with or into another entity to form a
new entity, and such entity is a competitor of FDMS or any Affiliate of
FDMS.
10.3.9 Material Change to Stuff.com Product or Brand. A material
---------------------------------------------
change to the Stuff.com product or brand to which FDMS reasonably objects.
10.4 Notice of Breach; Right to Terminate. If any Event of Default shall
------------------------------------
have occurred, the non-defaulting party shall notify the defaulting party in
writing (the "Notice of Default") of such Event of Default. If such Event of
Default has not been cured or waived in writing within thirty (30) days after
the date of the Notice of Default, the non-defaulting party may, in its
discretion, immediately terminate this Agreement. The foregoing termination
right is not intended to be exclusive of any other remedy given hereunder.
10.5 Limitation on Termination Right. The parties acknowledge and agree
-------------------------------
that if the Company commits an Event of Default with respect to Section 6.2, the
-----------
Company shall be deemed to have cured such Event of Default if the Company,
within five (5) business days, moves the Mall Site to its or its Affiliate's new
Primary Shopping Website under similar terms and conditions to the operation of
the Mall Site.
<PAGE>
10.6 Effect of Expiration or Termination.
-----------------------------------
10.6.1 Generally. Upon expiration or termination of this Agreement
---------
for any reason: (i) the Company and FDMS shall promptly comply with the
provisions of Section 9.3 regarding the return of Confidential Information
-----------
to the extent that a party is not permitted to use the same as contemplated
by this Agreement; (ii) the Company and FDMS shall promptly remit to the
other party any and all fees due and owing to the other party; (iii) the
rights granted in Sections 4.1, 4.2, 4.3 and 4.5 shall terminate; and (iv)
-------- --- --- --- ---
except as to FDMS Merchants, the Company shall disenable, to the extent
feasible, all FDMS Gateway Enhancements. Upon any such termination, FDMS
may: (a) continue to have existing sublicenses of Electronic Commerce
Tools previously granted hereunder to sublicensees continue, provided that
--------
FDMS continues to pay the Company for such rights in accordance with this
Agreement; or (b) terminate such sublicenses granted to sublicensees
hereunder, in which case the Company may elect to license Electronic
Commerce Tools to such former sublicensees directly.
10.6.2 Specific Termination Consequences. Upon termination of this
---------------------------------
Agreement for an Event of Default by the Company set forth in Sections
--------
10.3.2, 10.3.3, 10.3.5, 10.3.6, 10.3.7, 10.3.8, or 10.3.9, it being
------ ------ ------ ------ ------ ------ ------
understood that this Section 10.6.2 shall not apply to an Event of Default
--------------
relating to Section 6.1 or 6.5, in addition to the consequences set forth
------- --- ---
in Section 10.6.1, FDMS may exercise its rights set forth in the Escrow
--------------
Agreement. In addition, following the specified cure period, the on-going
payment obligations set forth in Exhibit 5 shall cease.
---------
10.6.3 Effect of Termination on Gateway. Upon termination of this
---------------------------------
Agreement for any reason the Company hereby grants to FDMS a perpetual,
royalty-free right and license to use and access the FDMS Gateway so long
as FDMS pays all applicable Gateway Fees. In addition, the Company shall
disenable, to the extent feasible, all FDMS Gateway Enhancements, and cease
support of such FDMS Gateway Enhancements, except as to FDMS Merchants or
as mutually agreed upon between the parties.
10.6.4 Dispute Resolution. If the Company disputes whether an Event
------------------
of Default set forth in Section 10.6.2 has occurred, the Company may
--------------
initiate the procedures set forth in Section 2 of Exhibit 11.10 to
--------- -------------
determine whether any such Event of Default had occurred. If the
Arbitration Panel rules that an Event of Default shall have occurred, this
Agreement shall immediately terminate as set forth herein. If the
Arbitration Panel rules that no Event of Default shall have occurred: (i)
FDMS shall promptly return to the escrow agent set forth in the Escrow
Agreement the Deposit Materials and all copies thereof made by FDMS; (ii)
the license granted pursuant to the Escrow Agreement shall terminate; (iii)
the parties shall promptly comply with their payment obligations (if any)
set forth in Exhibit 5 for the period of time during which the parties
---------
ceased such obligations; and (iv) the Agreement shall remain in full force
and effect.
10.6.5 Limitation. Notwithstanding anything to the contrary set
----------
forth in Section 10.6.2, if the Company disputes whether an Event of
--------------
Default shall have occurred pursuant to
<PAGE>
Section 10.3.3, FDMS and the Company shall continue to make all payments
--------------
under the Agreement during the pendency of any procedures set forth in
Section 2 of Exhibit 11.10. If the Arbitration Panel determines that an
--------- -------------
Event of Default pursuant to Section 10.3.3 shall have occurred, this
--------------
Agreement shall immediately terminate as set forth herein, provided that
the parties shall promptly repay to the other all fees paid (if any) during
the pendency of the procedures set forth in Section 2 of Exhibit 11.10.
--------- -------------
10.6.6 Survival. The parties' respective rights and obligations in
--------
Sections 2.4, 4.6, 4.10, 4.12, 6.5, 7, 8, 10.6, and 11 shall survive the
-------- --- --- ---- ---- --- - - ---- --
expiration or termination of this Agreement.
10.7 Exclusivity. If FDMS and its Affiliates have failed to obtain in the
-----------
aggregate at least 10,000 FDMS Merchant Sites, Brochure Sites and licenses of
Electronic Commerce Tools (whether or not re-branded) by the thirty-six (36)
month anniversary of October 30, 1998, the Company shall no longer be obligated
to comply with Sections 3.6 or 6.3, Section 1 of Exhibit 2.2, and the license
-------- --- --- --------- -----------
granted to FDMS in accordance with Sections 4.1 and 4.2 shall terminate.
------------ ---
11. Miscellaneous Terms.
11.1 Escrow Agreement. No later than November 15, 1998, the Company and
----------------
FDMS shall enter into the Escrow Agreement substantially in the form set forth
in Exhibit 11.1. The parties acknowledge and agree the Escrow Agreement is an
------------
agreement supplementary to this Agreement.
11.2 Further Assurances. Each party hereto agrees to cooperate with the
------------------
other party, at such other party's request and at such other party's expense, to
execute any and all documents or instruments, or to obtain any consents, in
order to assign, transfer, perfect, record, maintain, enforce or otherwise carry
out the intent of the terms of this Agreement.
11.3 Delays and Omissions. No delay or omission to exercise any right,
--------------------
power or remedy accruing to a party upon any breach or default of a party under
this Agreement shall impair any such right, power or remedy of any such party
nor shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of any similar breach or default thereafter occurring;
nor shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of any such
holder of any provisions or conditions of this Agreement must be made in writing
and shall be effective only to the extent specifically set forth in such
writing. All remedies, under this Agreement shall be cumulative and not
alternative.
11.4 Amendments. Except as otherwise expressly provided herein, the
----------
provisions of this Agreement may be amended only by a writing signed by the
parties hereto.
11.5 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors and permitted assigns of the parties hereto, whether so
expressed or not.
<PAGE>
11.6 Final Agreement. This Agreement, together with those documents which
---------------
are exhibits hereto, constitute the final agreement of the parties concerning
the matters referred to herein and therein, and supersedes all prior and
contemporaneous agreements and understandings.
11.7 Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
11.8 Descriptive Heading. The descriptive headings of this Agreement are
-------------------
inserted for convenience of reference only and do not constitute a part of this
Agreement.
11.9 Notices. Any notices required, desired or permitted to be given
-------
hereunder, shall be delivered personally, sent by overnight courier or mailed,
registered or certified mail, return receipt requested, to the following
addresses (or to such other address as each party may specify in a notice given
hereunder) or transmitted by facsimile transmission (with such transmission
promptly confirmed by writing delivered personally, by overnight courier or
mailed as provided in this Section 11.9) and shall be deemed to have been
------------
received on the day of personal delivery, one business day after delivery to the
overnight courier service, three business days after such mailing or, in the
case of facsimile transmission, when received:
If to FDMS:
First Data Merchant Services Corporation
6200 South Quebec Street
Englewood, Colorado 80111
Attention: President
Facsimile: (303) 488-8705
-and-
First Data Merchant Services Corporation
6200 South Quebec Street
Englewood, Colorado 80111
Attention: General Counsel
Facsimile: (303) 889-6566
with a copy in the case of a notice to FDMS to:
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Attention: Frederick C. Lowinger, Esq.
Facsimile: (312) 853-7036
<PAGE>
If to the Company:
iMall, Inc.
233 Wilshire Boulevard
Santa Monica, California 90401
Attention: Richard M. Rosenblatt
Facsimile: (310) 309-4100
with a copy in the case of a notice to the Company to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071
Attention: Brian G. Cartwright, Esq.
Facsimile: (213) 891-8763
11.10 Dispute Resolution.
------------------
11.10.1 In the event of a Dispute, the parties shall resolve the
same in accordance with the terms set forth in Exhibit 11.10.
-------------
11.10.2 Notwithstanding anything to the contrary set forth herein,
neither party shall be required to submit any dispute or disagreement
regarding the interpretation of any provision of this Agreement, the
performance by either party of such party's obligations under this
Agreement or a default hereunder to the mechanisms set forth in Section
-------
11.10.1, if such submission would solely be seeking equitable relief from
-------
irreparable harm.
11.11 Governing Law. THE VALIDITY, MEANING AND EFFECT OF THIS AGREEMENT
-------------
SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE.
11.12 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.
11.13 Assignment. This Agreement may not be assigned or transferred by
----------
operation of law or otherwise by either party without the prior written consent
of the other party, which consent shall not be unreasonably withheld or delayed,
provided, however, FDMS may assign or transfer, by operation of law or
- -------- -------
otherwise, its rights, or delegate its duties under this Agreement to any
Affiliate if such Affiliate agrees to abide by the terms and conditions of this
Agreement and FDMS provides the Company with thirty (30) days prior notice of
such assignment or transfer, and provided further that FDMS may assign or
-------- -------
transfer this Agreement by operation of law or otherwise pursuant to: (i) a
sale of substantially all of the assets of FDMS; or (ii) a merger or other
combination of FDMS. Subject
<PAGE>
to the foregoing, the rights and obligations of each party under this Agreement
shall inure to the benefit of and shall be binding upon the permitted successors
and assigns of each party.
11.14 Independent Contractor. The relationship of the parties shall be
----------------------
solely that of independent contractor and not that of a joint venture,
partnership, or any other joint relationship.
11.15 Draft Exhibits. As of the Effective Date, Exhibit 2.1 and 4.11 are
-------------- ------- --- ----
set forth in draft form that are substantially complete. Such Exhibits are
subject to further good faith discussions by the parties hereto for fifteen (15)
days after the Effective Date. Neither party shall be required to negotiate in
good faith changes to such Exhibits after such fifteen (15) day period. If any
changes to such Exhibits have been approved by the parties hereto by the end of
such fifteen (15) day period, then such Exhibits shall be modified to reflect
such change and such modified Exhibits (signed and delivered by the parties
hereto) shall replace the form of the corresponding Exhibit attached hereto. If
the parties fail to agree to any changes to an Exhibit, the parties agree that
any such Exhibit shall be deemed to be complete in the form originally attached
hereto.
11.16 Press Release; Public Announcements. Neither party or their
-----------------------------------
respective Affiliates shall make any reference to the other party or its
Affiliates directly or indirectly in any press release or public announcement
without such other party's prior written consent, which consent shall not be
unreasonably withheld or delayed. FDMS shall use commercially reasonable
efforts to make reference to the Company in press releases related to FDMS'
arrangements with a Third-Party Reseller, provided that the Company acknowledges
--------
that FDMS may not be able to obtain the consent of such Third-Party Reseller to
reference the Company in a press release as a result of the absence of a written
agreement between the Company and such Third-Party Reseller. The Company shall
use commercially reasonable efforts to make reference to FDMS in press releases
related to the Company's arrangements with a Third-Party Reseller, provided that
--------
FDMS acknowledges that the Company may not be able to obtain the consent of such
Third-Party Reseller to reference FDMS in a press release as a result of the
absence of a written agreement between FDMS and such Third-Party Reseller.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
IMALL, INC.
By: /s/ Richard Rosenblatt
--------------------------------------------
Name: Richard Rosenblatt
Title: Chairman and Chief Executive Officer
FIRST DATA MERCHANT SERVICES CORPORATION
By: /s/ Richard E. Aiello
--------------------------------------------
Name: Richard E. Aiello
Title: Senior Vice President
<PAGE>
Exhibit 10.4
iMALL, INC.
1999 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to provide incentives to attract,
-------
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent and Subsidiaries, by
offering them an opportunity to participate in the Company's future performance
through awards of Options. This Plan is intended to meet the "broadly based
plan" exemption from the stockholder approval requirement under the Nasdaq
National Market listing rules. Capitalized terms not defined in the text are
defined in Section 21.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 16, the
--------------------------
total number of Shares reserved and available for grant and issuance pursuant to
this Plan will be 660,000 Shares.
Subject to Sections 2.2 and 16 hereof, Shares that are subject to
issuance upon exercise of an Option granted under this Plan that cease to be
subject to such Option for any reason other than exercise of such Option will
again be available for grant and issuance in connection with future Options
under this Plan.
At all times the Company shall reserve and keep available a sufficient
number of Shares as shall be required to satisfy the requirements of all
outstanding Options granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of outstanding
--------------------
Shares is changed by a stock dividend, recapitalization, stock split, reverse
stock split, subdivision, combination, reclassification or similar change in the
capital structure of the Company without consideration, then (a) the number of
Shares reserved for issuance under this Plan, and (b) the Exercise Prices of and
number of Shares subject to outstanding Options will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
-------- -------
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. Options may be granted to employees, officers,
-----------
consultants, independent contractors and advisors of the Company or any Parent
or Subsidiary of the Company; provided such consultants, contractors and
--------
advisors render bona fide services not in
<PAGE>
connection with the offer and sale of securities in a capital-raising
transaction. A person may be granted more than one Option under this Plan.
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Option Agreement and
any other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating
to this Plan or any Option;
(c) select persons to receive Options;
(d) determine the form and terms of Options;
(e) determine the number of Shares or other consideration subject
to Options;
(f) determine whether Options will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other awards under any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;
(g) grant waivers of Plan or Option conditions;
(h) determine the vesting, exercisability and payment of Options;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Option or any Option Agreement;
(j) determine whether an Option has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the Committee
--------------------
with respect to any Option will be made in its sole discretion at the time of
grant of the Option or, unless in contravention of any express term of this Plan
or Option, at any later time, and such determination will be final and binding
on the Company and on all persons having an interest in
2
<PAGE>
any Option under this Plan. The Committee may delegate to one or more officers
of the Company the authority to grant an Option under this Plan to Participants
who are not Insiders of the Company.
5. OPTIONS. The Committee may grant Options to eligible persons and will
-------
determine the number of Shares subject to the Option, the Exercise Price of the
Option, the period during which the Option may be exercised, and all other terms
and conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will be
--------------------
evidenced by a Stock Option Agreement (an "Option Agreement") which will be in
such form and contain such provisions (which need not be the same for each
Participant) as the Committee may from time to time approve, and which will
comply with and be subject to the terms and conditions of this Plan. No Option
granted under this Plan will be an "incentive stock option" within the meaning
of Section 422 of the Code.
5.2 Date of Grant. The date of grant of an Option will be the date on
-------------
which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Option Agreement and a copy of this
Plan will be delivered to the Participant within a reasonable time after the
granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times or
---------------
upon the events determined by the Committee as set forth in the Option Agreement
governing such Option; provided, however, that no Option will be exercisable
-------- -------
after the expiration of ten (10) years from the date the Option is granted. The
Committee also may provide for Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number of Shares or percentage
of Shares as the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant. Payment for the
Shares purchased may be made in accordance with Section 6 of this Plan.
5.5 Method of Exercise. Options may be exercised only by delivery to
------------------
the Company of a written stock option exercise agreement (the "Exercise
Agreement") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth in
-----------
the Option Agreement, exercise of an Option will always be subject to the
following:
3
<PAGE>
(a) If the Participant is Terminated for any reason except death
or Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options would
have been exercisable upon the Termination Date no later than
three (3) months after the Termination Date (or such shorter or
longer time period not exceeding five (5) years as may be
determined by the Committee), but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three (3)
months after a Termination other than because of Participant's
Disability or Cause), then Participant's Options may be exercised
only to the extent that such Options would have been exercisable
by Participant on the Termination Date and must be exercised by
Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination
Date (or such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee), but in any event no
later than the expiration date of the Options.
(c) If a Participant is terminated for Cause, then the Participant
may exercise such Participant Options only to the extent that such
Options would have been exercisable upon the Termination Date no
later than one (1) month after the Termination Date (or such
shorter period as may be determined by the Committee), but in any
event, no later than the expiration date of the Options. In making
such determination, the Board shall give the Participant an
opportunity to present to the Board evidence on his behalf. For
the purpose of this paragraph, termination of service shall be
deemed to occur on the date when the Company dispatches notice or
advice to the Participant that his service is terminated.
5.7 Limitations on Exercise. The Committee may specify a reasonable
-----------------------
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 Modification, Extension or Renewal. The Committee may modify,
----------------------------------
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
-------- -------
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
4
<PAGE>
6. PAYMENT FOR SHARE PURCHASES.
---------------------------
6.1 Payment. Payment for Shares purchased pursuant to this Plan may
-------
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares); or (2) were
obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing interest at
a rate sufficient to avoid imputation of income under Sections 483
and 1274 of the Code; provided, however, that Participants who are
-------- -------
not employees or directors of the Company will not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant
for services rendered;
(e) provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD Dealer")
whereby the Participant irrevocably elects to exercise the
Option and to sell a portion of the Shares so purchased to
pay for the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward
the Exercise Price directly to the Company; or
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security for a loan
from the NASD Dealer in the amount of the Exercise Price, and
whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the
Company; or
5
<PAGE>
(f) by any combination of the foregoing.
6.2 Loan Guarantees. The Committee may help the Participant pay for
---------------
Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
7. WITHHOLDING TAXES.
-----------------
7.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Options granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Options are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
7.2 Stock Withholding. When, under applicable tax laws, a Participant
-----------------
incurs tax liability in connection with the exercise or vesting of any Option
that is subject to tax withholding and the Participant is obligated to pay the
Company the amount required to be withheld, the Committee may in its sole
discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee
8. PRIVILEGES OF STOCK OWNERSHIP.No Participant will have any of the
-----------------------------
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that the
--------
Participant will have no right to retain such stock dividends or stock
distributions with respect to Shares that are repurchased at the Participant's
Exercise Price pursuant to Section 10.
9. TRANSFERABILITY. Options granted under this Plan, and any interest
---------------
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as determined by the Committee and
set forth in the Option Agreement. During the lifetime of the Participant an
Option will be exercisable only by the Participant, and any elections with
respect to an Option may be made only by the Participant unless otherwise
determined by the Committee and set forth in the Option Agreement.
10. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Option Agreement a
right to
6
<PAGE>
repurchase a portion of or all Unvested Shares held by a Participant following
such Participant's Termination at any time within ninety (90) days after the
later of Participant's Termination Date and the date Participant purchases
Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price.
11. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
12. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
-------- -------
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
13. EXCHANGE AND BUYOUT OF OPTIONS. The Committee may, at any time or
------------------------------
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Options in exchange for the surrender and
cancellation of any or all outstanding Options. The Committee may at any time
buy from a Participant an Option previously granted with payment in cash, Shares
or other consideration, based on such terms and conditions as the Committee and
the Participant may agree.
14. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Option will not be
----------------------------------------------
effective unless such Option is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Option and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any
7
<PAGE>
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
15. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
-----------------------
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
16. CORPORATE TRANSACTIONS.
----------------------
16.1 Assumption or Replacement of Options by Successor. In the event
-------------------------------------------------
of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Options granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, any or all outstanding Options may be assumed, converted or
replaced by the successor corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Options or provide substantially
similar consideration to Participants as was provided to stockholders (after
taking into account the existing provisions of the Options). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participant, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. In the event such
successor corporation (if any) refuses to assume or substitute Options, as
provided above, pursuant to a transaction described in this Subsection 16.1, the
Options will become exercisable in full prior to the consummation of such event
at such times and on such conditions as the Committee determines, and if such
Options are not exercised prior to the consummation of the corporate
transaction, they shall terminate in accordance with the provisions of this
Plan.
8
<PAGE>
16.2 Other Treatment of Options. Subject to any greater rights
--------------------------
granted to Participants under the foregoing provisions of this Section 16, in
the event of the occurrence of any transaction described in Section 16.1, any
outstanding Options will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
16.3 Assumption of Options by the Company. The Company, from time to
------------------------------------
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Option under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Option
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Option under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
- -------
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
17. EFFECTIVE DATE. This Plan will become effective on the date on which
--------------
it is adopted by the Board (the "Effective Date"). Upon the Effective Date, the
Committee may grant Options pursuant to this Plan.
18. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.
19. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
--------------------------------
or amend this Plan in any respect, including without limitation amendment of any
form of Option Agreement or instrument to be executed pursuant to this Plan;
provided, however, that the Board will not, without the approval of the
- -------- -------
stockholders of the Company, amend this Plan in any manner that requires such
stockholder approval.
20. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
--------------------------
Board nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
9
<PAGE>
21. DEFINITIONS. As used in this Plan, the following terms will have the
-----------
following meanings:
"Board" means the Board of Directors of the Company.
"Cause" means the commission of an act of theft, embezzlement, fraud,
dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board.
"Company" means iMall, Inc. or any successor corporation.
"Disability" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Price" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of a share of the
Company's common stock, par value $.001 per share (the "Common Stock"),
determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination (or, if no trading takes place on such date,
the closing price on the last trading date immediately preceding
the date of determination) as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on
a national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
--------
Street Journal;
--------------
10
<PAGE>
(d) if none of the foregoing is applicable, by the Committee in
good faith.
"Insider" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"Option" means an award of an option to purchase Shares pursuant to
Section 5.
"Option Agreement" means, with respect to each Option, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Option.
"Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
"Participant" means a person who receives an Option under this Plan.
"Plan" means this iMall, Inc. 1999 Stock Option Plan, as amended from
time to time.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means shares of the Company's Common Stock reserved for
issuance under this Plan or any other compensatory arrangement of the Company,
as adjusted pursuant to Sections 2 and 16, and any successor security.
"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"Termination" or "Terminated" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
11
<PAGE>
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Option while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option Agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "Termination Date").
"Unvested Shares" means "Unvested Shares" as defined in the Option
Agreement.
12
<PAGE>
EXHIBIT 10.5
AGREEMENT AND AMENDMENT TO WARRANT TO PURCHASE
COMMON STOCK
THIS AGREEMENT AND AMENDMENT TO WARRANT TO PURCHASE COMMON STOCK (the
"Amendment") is made as of July 12, 1999 by and among At Home Corporation, a
---------
Delaware corporation ("Parent"), iMall, Inc., a Nevada corporation (the
------
"Company"), and the undersigned holder of that certain Warrant to Purchase
-------
Common Stock executing this Amendment (the "Holder").
------
R E C I T A L S
A. WHEREAS, the Company has previously issued to and Holder
-------------
currently holds that certain Warrant to Purchase Common Stock of iMall, Inc.
under which the Holder may acquire up to shares of the Company's
------------
Common Stock at a per share price of three dollars and twenty cents ($3.20)
during the period from December 19, 1997 until December 5, 2002 (the "Warrant").
-------
B. WHEREAS, in connection with the merger of the Company and a wholly-owned
subsidiary of Parent pursuant to that certain Agreement and Plan of Merger dated
as of July 12, 1999 (the "Merger Agreement") among Parent, the Company and Shop
----------------
Nevada, Inc., a Nevada corporation and a wholly-owned subsidiary of Parent (the
"Merger"), in order to induce Parent to consummate the Merger, Holder and the
------
Company have agreed to amend the Warrant and to certain other agreements
pursuant to this Amendment.
C. WHEREAS, pursuant to the Merger Agreement, at the effective time of the
Merger each Company Warrant whether or not then exercisable will be assumed by
Parent. Each Company Warrant so assumed by Parent will continue to have, and be
subject to, the same terms and conditions set forth in the applicable Company
Warrant except as amended hereby and each Company Warrant will be exercisable
(or will become exercisable in accordance with its terms) at an exercise price
and for a number of whole shares of Parent Common Stock as adjusted by the
exchange ratio.
NOW THEREFORE, in consideration of the foregoing recitals and mutual
promises set forth herein, the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree as follows:
1. Subsections (f)(2), (f)(4), (f)(5), (f)(7) and (f)(8) of the Warrant
are each hereby terminated in their entirety and deleted from the Warrant.
2. Subsection (f)(6) of the Warrant is hereby renumbered as subsection
(f)(2) and amended in its entirely to read as follows:
(2) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to Subsection (1) above, the number of Shares
purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of
<PAGE>
Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the product
so obtained by the Exercise Price, as adjusted.
3. Subsection (f)(9) of the Warrant is hereby renumbered as subsection
(f)(3) and the first sentence of such subsection is amended in its entirely to
read as follows:
(3) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five
cents ($0.05) in such price; provided, however, that any adjustments
which by reason of this Subsection (3) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations under this
Section (f) shall be made to the nearest cent or to the nearest one-
hundredth of a share, as the case may be. Anything in this Section
(f) to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Exercise Price,
in addition to those required by this Section (f), as it shall
determine, in its sole discretion, to be advisable in order that any
dividend or distribution in shares of Common Stock, or any
subdivision, reclassification or combination of Common Stock hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible
into Common Stock (including Warrants).
4. Subsection (f)(10) of the Warrant is hereby renumbered as subsection
(f)(4) and amended in its entirety to read as follows:
(4) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than 10 days after any request for
such an adjustment by the Holder, cause a notice setting forth the
adjusted Exercise Price and adjusted number of Shares issuable upon
exercise of each Warrant, and, if requested, information describing
the transactions giving rise to such adjustments, to be mailed to the
Holders at their last addresses appearing in the Warrant Register, and
shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certified
public accountants selected by the Board of Directors (who may be the
regular accountants employed by the Company) to make any computation
required by this Section (f), and a certificate signed by such firm
shall be conclusive evidence of the correctness of such adjustment.
2
<PAGE>
5. Subsection (f)(11) of the Warrant is hereby renumbered as subsection
(f)(5) and amended in its entirety to read as follows:
(5) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (1) above, the Holder of this Warrant
thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of this Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common
Stock contained in Subsection (1) above.
6. Subsection (f)(12) of the Warrant is hereby renumbered as subsection
(f)(6).
7. Section (k)(2) of the Warrant is hereby terminated in its entirety and
deleted from the Warrant.
8. Agreement Regarding Registration Rights. Parent agrees (i) to file
---------------------------------------
with the Securities and Exchange Commission a registration statement on Form S-3
within 30 days of the effective time of the Merger (subject to the normal
blackout policies of Parent; provided that Parent will cause the registration
statement to be filed as quickly as practicable thereafter); (ii) to use all
commercially reasonable efforts to cause the registration statement to be
declared effective as soon as possible; (iii) to promptly deliver prospectuses
relating to such registration statement to Holder upon the request of Holder;
and (iv) to maintain the effectiveness of such registration statement for one
year after the effective time of the Merger (subject to customary blackouts). In
consideration of the foregoing, the undersigned Holder of the Warrant on behalf
of such Holder and all assignees and transferees of the Warrant (the "Warrant
-------
Holder"), hereby waives, following the effective time of the Merger, all rights
- ------
to require that the Company or any successor thereof register the Warrant or any
Warrant Shares or to otherwise participate in a registration of the Warrant or
any Warrant Shares pursuant to subsection (j)(2) of the Warrant, and hereby
agrees not to provide the Company or any successor thereof with notice pursuant
to subsection (j)(2) of the Warrant.
9. Conditioned Effectiveness. Notwithstanding anything to the contrary
-------------------------
herein, the effectiveness of this Amendment is expressly conditioned
upon the effectiveness of the Merger of Parent and the Company.
Except as expressly amended hereunder, each term, condition and provision
of the Warrant shall remain in full force and effect.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have executed this Amendment to
the Warrant as of the date first written above.
THE COMPANY PARENT
iMall, Inc. At Home Corporation
By: By:
-------------------------- --------------------------
Name: Name:
------------------------ ------------------------
Title: Title:
------------------------ -----------------------
HOLDER
By:
--------------------------
Name:
------------------------
Title:
-----------------------
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,791,000
<SECURITIES> 0
<RECEIVABLES> 563,600
<ALLOWANCES> 60,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,589,200
<PP&E> 9,942,900
<DEPRECIATION> 1,842,500
<TOTAL-ASSETS> 16,840,400
<CURRENT-LIABILITIES> 1,481,100
<BONDS> 0
0
0
<COMMON> 143,500
<OTHER-SE> 15,141,500
<TOTAL-LIABILITY-AND-EQUITY> 16,840,400
<SALES> 0
<TOTAL-REVENUES> 1,580,300
<CGS> 0
<TOTAL-COSTS> 730,000
<OTHER-EXPENSES> 9,143,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,800
<INCOME-PRETAX> (8,135,200)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (8,136,800)
<DISCONTINUED> 78,900
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,057,900)
<EPS-BASIC> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
