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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
iMall, Inc.
(Name of Issuer)
Common Stock, par value $.001 per share
(Title of Class of Securities)
45244 X 20 7
(CUSIP Number)
Michael Lyall, 830 Third Avenue, Fourth Floor, New York, NY 10022
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
December 5, 1997
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
(Continued on the following page(s))
Page 1 of 74 Pages
<PAGE>
- ---------------------- ------------------
CUSIP No. 45244 X 20 7 13D Page 2 of 74 Pages
- ---------------------- ------------------
- --------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Commonwealth Associates
13-3467952
- --------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
SEC USE ONLY
3
- --------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
New York
- --------------------------------------------------------------------------------
NUMBER OF SOLE VOTING POWER
7
SHARES
------------------------------------------------------------
BENEFICIALLY SHARED VOTING POWER
8
OWNED BY ------------------------------------------------------------
SOLE DISPOSITIVE POWER
EACH 9
------------------------------------------------------------
REPORTING SHARED DISPOSITIVE POWER
10 12,000,000
PERSON WITH
- --------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
12,000,000
- --------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [ ]
- --------------------------------------------------------------------------------
PERCENTAGE CLASS REPRESENTED BY AMOUNT IN ROW (11)
13 16.3%
- --------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14 PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
- ---------------------- ------------------
CUSIP No. 45244 X 20 7 13D Page 3 of 74 Pages
- ---------------------- ------------------
- --------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Commonwealth Management Co., Inc.
13-3468747
- --------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
SEC USE ONLY
3
- --------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
New York
- --------------------------------------------------------------------------------
NUMBER OF SOLE VOTING POWER
7
SHARES
------------------------------------------------------------
BENEFICIALLY SHARED VOTING POWER
8
OWNED BY ------------------------------------------------------------
SOLE DISPOSITIVE POWER
EACH 9
------------------------------------------------------------
REPORTING SHARED DISPOSITIVE POWER
10 12,000,000
PERSON WITH
- --------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
12,000,000
- --------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [ ]
- --------------------------------------------------------------------------------
PERCENTAGE CLASS REPRESENTED BY AMOUNT IN ROW (11)
13 16.3%
- --------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14 CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
- ---------------------- ------------------
CUSIP No. 45244 X 20 7 13D Page 4 of 74 Pages
- ---------------------- ------------------
- --------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Michael S. Falk
- --------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
SEC USE ONLY
3
- --------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
USA
- --------------------------------------------------------------------------------
NUMBER OF SOLE VOTING POWER
7 500,000
SHARES
------------------------------------------------------------
BENEFICIALLY SHARED VOTING POWER
8
OWNED BY ------------------------------------------------------------
SOLE DISPOSITIVE POWER
EACH 9 500,000
------------------------------------------------------------
REPORTING SHARED DISPOSITIVE POWER
10 12,000,000
PERSON WITH
- --------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
12,500,000
- --------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [ ]
- --------------------------------------------------------------------------------
PERCENTAGE CLASS REPRESENTED BY AMOUNT IN ROW (11)
13 16.8%
- --------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14 IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 5 of 74 Pages
Item 1. Security and Issuer.
This statement relates to the common stock, par value $.001 per share
("Common Stock"), of iMall, Inc., a Nevada corporation (the
"Company"). The address of the Company's principal executive office
is 4400 Coldwater Canyon Blvd., Suite 200, Studio City, CA 91604.
The shares of Common Stock that are the subject of this statement are
issuable (i) upon exercise of warrants (the "Agent's Warrants")
issued to Commonwealth to purchase 12,000,000 shares of Common Stock,
subject to adjustment in certain instances, at an exercise price of
$.40 per share, and (ii) upon conversion of the shares of the
Company's Series A Convertible Preferred stock, par value $.001 per
share (the "Series A Preferred Stock"), initially at a conversion
rate of ten shares of Common Stock for each share of Series A
Preferred Stock, subject to adjustment in certain instances.
Item 2. Identity and Background.
This statement is filed jointly by Commonwealth Associates
("Commonwealth"), a limited partnership organized under the laws of
New York, whose principal business is investment banking and advisory
services, Commonwealth Management Co., Inc., the corporate general
partner of Commonwealth (the "General Partner"), and Michael S. Falk
(the "Reporting Persons"). Mr Falk is the Chairman and controlling
equity owner of the General Partner. The business address for
Commonwealth, the General Partner and Mr. Falk is 830 Third Avenue,
4th Floor, New York, New York 10022. During the past five years, none
of the Reporting Persons has been convicted in a criminal proceeding
or been a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction and as a result of such proceeding,
was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violation with
respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
Commonwealth acquired the Agent's Warrants on December 5 and December
19, 1997 for a purchase price of $40 with funds provided from working
capital pursuant to an Agency Agreement dated as of November 26, 1997
with the Company (the "Agency Agreement") filed as Exhibit (1)
hereto, pursuant to which Commonwealth acted as placement agent in
connection with a private placement (the "Private Placement") of
Units (the "Units"), each Unit consisting of 25,000 shares of Series
A Preferred Stock and 62,500 warrants (the "Warrants") to purchase
the Company's Common Stock. In no case were any funds borrowed. The
Warrants are exercisable at $.40 per share for a period commencing
December 5, 1998 and expiring on December 5, 2002. The Agent's
Warrants are exercisable at any time during the five-year period
commencing December 19, 1997 and terminating on December 5, 2002 at
an exercise price of $.40 per share. Further, the
<PAGE>
Page 6 of 74 Pages
Agent's Warrants are convertible, at the option of Commonwealth, into
an equal number of warrants with identical terms as the Warrants.
Mr. Falk acquired 37,500 Shares of Series A Preferred Stock in the
Private Placement, initially convertible into 375,000 shares of
Common Stock, for a purchase price of $150,000, which amount was
provided from Mr. Falk's personal funds. The Falk Family Foundation
(the "Trust"), a charitable trust for which Mr. Falk serves as
trustee, acquired 12,500 Shares of Series A Preferred Stock in the
Private Placement, initially convertible into 125,000 shares of
Common Stock, for a purchase price of $50,000, which amount was
provided from Mr. Falk's personal funds. Mr. Falk and the Trust are
herein referred to collectively as "Falk." In no case were any funds
borrowed.
Item 4. Purpose of Transaction.
The Agent's Warrants were acquired by Commonwealth as compensation
for its services in connection with the Private Placement solely for
investment purposes and not for the purpose of acquiring control of
the Company. The Series A Preferred Stock was acquired by Falk to
make a profitable investment.
The text of Item 5 of the Company's Current Report on Form 8-K filed
on December 12, 1997 is hereby incorporated herein by reference to
describe the transaction pursuant to which the Series A Preferred
Stock, Warrants and Agent's Warrants were issued by the Company.
Other than as set forth above, the Reporting Persons have no present
plans or proposals which relate to, or could result in, any of the
matters referred to in paragraphs (a) through (j), inclusive, of Item
4 of Schedule 13D. The Reporting Persons may, at any time and from
time to time, review or reconsider their position and formulate plans
or proposals with respect thereto, but have no present intention of
doing so.
Item 5. Interest in Securities of the Issuer.
(a) Commonwealth is the beneficial owner of a total of 12,000,000
shares of Common Stock, representing approximately 9.7% of the
issued and outstanding shares of Common Stock of the Company.
The General Partner is the beneficial owner of Commonwealth's
12,000,000 shares of Common Stock. Mr. Falk is the beneficial
owner of an aggregate of 12,500,000 shares of Common Stock,
consisting of 500,000 shares of Common Stock which he and the
Trust have the right to acquire at any time upon conversion of
the shares of Series A Preferred Stock held by Falk and the
12,000,000 shares of Common Stock beneficially owned by
Commonwealth, representing approximately 10.1% of the issued
and outstanding shares of Common Stock of the Company. In his
capacity as Chairman and controlling equity owner of the
General Partner, Mr. Falk shares voting and dispositive power
with respect to the securities beneficially owned by
Commonwealth and may be deemed to be the beneficial owner of
such securities. The shares beneficially owned by Mr. Falk do
<PAGE>
Page 7 of 74 Pages
not include shares of Common Stock issuable upon exercise of
93,750 Warrants issued to him in connection with his purchase
of Units in the Private Placement, which Warrants are not
exercisable within 60 days of the date hereof.
The percentages of outstanding shares of Common Stock of the
Company set forth in the preceding paragraph is computed based
on a total of 111,742,239 shares of Common Stock outstanding
as of December 30, 1997, which figure includes 50,000,000
shares of Series A Preferred Stock. Holders of the Series A
Preferred Stock vote together with holders of the Common Stock
on the basis of one vote for each share of Common Stock into
which the Series A Preferred Stock is convertible (currently,
a one-for-one basis). If the shares of Series A Preferred
Stock are excluded from Common Stock outstanding,
Commonwealth, the General Partner and Mr. Falk would
beneficially own approximately 16.3%, 16.3% and 16.8%,
respectively, of the issued and outstanding shares of Common
Stock of the Company.
(b) Number of shares as to which each such person has:
(i) sole power to vote or to direct the vote:
Mr. Falk has the sole power to vote or to direct the
vote of the 375,000 shares owned by him and the 125,000
shares owned by the Trust.
(ii) shared power to vote or to direct the vote:
On December 30, 1997, Commonwealth granted to Richard
Rosenblatt, Chief Executive Officer of the Company, an
irrevocable proxy (the "Proxy") filed as Exhibit 3
hereto to vote the 12,000,000 shares of Common Stock
issuable upon exercise of the Agent's Warrants for a
period of one year and, accordingly, neither
Commonwealth, the General Partner or Mr. Falk has the
power to vote or to direct the vote of such shares
during the term of the Proxy.
(iii) sole power to dispose or to direct the disposition of:
Mr. Falk has the sole power to dispose of or to direct
the disposition of the 375,000 shares of Common Stock
beneficially owned by him and the 125,000 shares
beneficially owned by the Trust.
(iv) shared power to dispose of or to direct the disposition
of:
Commonwealth, the General Partner and Mr. Falk share the
power to dispose or direct the disposition of all of the
12,000,000 shares of Common Stock beneficially owned by
Commonwealth.
<PAGE>
Page 8 of 74 Pages
(c) Inapplicable
(d) Inapplicable
(e) Inapplicable
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
Under the terms of the Proxy, Commonwealth granted Richard Rosenblatt
a one-year irrevocable proxy to vote the 12,000,000 shares of Common
Stock issuable upon exercise of the Agent's Warrants and any
additional shares of Common Stock issued or issuable in respect of
the Agent's Warrants during the term of the Proxy. The Proxy shall
terminate prior to December 30, 1998 (i) upon the death or disability
of Mr. Rosenblatt, (ii) if Mr. Rosenblatt is no longer serving as the
Chairman or Chief Executive Officer of the Company, or (iii) if
Commonwealth and its affiliates beneficially own less than 10% of the
outstanding Common Stock of the Company.
Pursuant to the Agency Agreement, Commonwealth has the right until
December 5, 2000 (subject to earlier termination in the event of
conversion of the Series A Preferred Stock) to nominate one person
for election to the Board of Directors of the Company or to appoint
an observer to attend meetings of the Board of Directors.
Under the terms of the Subscription Agreement filed as Exhibit 4
hereto between the Company and the purchasers of Series A Preferred
Stock in the Private Placement, the Company is required to prepare
and file a registration statement with the Securities and Exchange
Commission (the "SEC") with respect to the Series A Preferred Stock,
the Warrants and the shares of Common Stock underlying the Warrants
and the Series A Preferred Stock. Pursuant to the terms of the
Agent's Warrant filed as Exhibit 5 hereto, the Company has agreed to
register the shares of Common Stock underlying the Agent's Warrants
with the SEC under certain circumstances.
<PAGE>
Page 9 of 74 Pages
Item 7. Materials to be Filed as Exhibits.
(1) Agency Agreement dated as of November 26, 1997 between
Commonwealth and the Company.
(2) Certificate of Designation, Preferences and Rights of Series A
9% Convertible Preferred Stock.
(3) Irrevocable Proxy dated as of December 30, 1997 between
Commonwealth and Richard Rosenblatt.
(4) Subscription Agreement regarding purchase of the Company's
Series A Preferred Stock.
(5) Agent's Warrant dated December 19, 1997 to purchase 12,000,000
shares of Common Stock issued to Commonwealth.
(6) Joint Statement on Schedule 13D, as required by Rule
13d-1(f)(1) under the Exchange Act.
<PAGE>
Page 10 of 74 Pages
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certify that the information set forth in this statement is true,
complete and correct.
Dated: December 30, 1997 Commonwealth Associates, a New York limited
New York, New York partnership
By: Commonwealth Management Co., Inc., its
general partner
By: /s/ Joseph Wynne
-----------------------
Joseph Wynne
Chief Financial
Dated: December 30, 1997 /s/ Michael S. Falk
New York, New York --------------------------
Michael S. Falk
<PAGE>
Page 11 of 74 Pages
EXHIBIT INDEX
Exhibit No. Page
- ----------- ----
(1) Agency Agreement dated as of November 26, 1997
between Commonwealth and the Company....................................12
(2) Certificate of Designation, Preferences and Rights of
Series A 9% Convertible Preferred Stock.................................31
(3) Irrevocable Proxy dated as of December 30, 1997 between
Commonwealth and Richard Rosenblatt.....................................43
(4) Subscription Agreement regarding purchase of the Company's
Series A Preferred Stock................................................45
(5) Agent's Warrant dated December 19, 1997 to purchase12,000,000 shares
of Common Stock issued to Commonwealth..................................59
(6) Joint Statement on Schedule 13D, as required by Rule 13d-1(f)(1)
under the Exchange Act..................................................74
Page 12 of 74 Pages
Exhibit 1
iMALL, INC.
AGENCY AGREEMENT
Commonwealth Associates
830 Third Avenue
New York, New York 10022
as of November 26, 1997
Gentlemen:
iMALL, INC. a Nevada corporation (the "Company"), proposes to offer for
sale to "accredited investors", in a private placement, up to 200 units
("Units"), each Unit consisting of 25,000 shares ("Shares") of the Company's
Series A 9% Convertible Preferred Stock ("Preferred Stock") and 62,500 common
stock purchase warrants ("Warrants"). Such offering and sale are referred to
herein as the "Offering." Each Warrant will be exercisable during the four-year
period commencing one year after the initial closing to purchase one share of
the Company's Common Stock, $.001 par value (the "Common Stock"), at an exercise
price of $.40 per share. A minimum of 50 Units ("Minimum Offering") and a
maximum of 200 Units ("Maximum Offering") will be sold in the offering at
$100,000 per Unit. The Units will be offered pursuant to those terms and
conditions acceptable to you as reflected in the Private Placement Memorandum
(the "Memorandum"). Of the Units, 50 will be offered on a "best efforts -
all-or-none" basis and the remaining 150 Units will be offered on a "best
efforts" basis. The Units are being offered pursuant to the Memorandum and
related documents in accordance with Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act") and Regulation D promulgated thereunder. The
Preferred Stock shall have the rights and preferences set forth in the form of
Certificate of Designation, Preferences and Rights (the "Designation").
Commonwealth Associates is sometimes referred to herein as the "Placement
Agent." The Memorandum (including the exhibits thereto), as it may be amended
from time to time, and the form of proposed subscription agreement between the
Company and each subscriber (the "Subscription Agreement") and the exhibits
which are part of the Memorandum and/or Subscription Agreement are collectively
referred to herein as the "Offering Documents."
The Company will prepare and deliver to the Placement Agent a reasonable
number of copies of the Offering Documents in form and substance satisfactory to
counsel to the Placement Agent.
<PAGE>
Page 13 of 74 Pages
Each prospective investor subscribing to purchase Units ("Subscriber") will
be required to deliver, among other things, a Subscription Agreement and a
confidential purchaser questionnaire ("Questionnaire") in the form to be
provided to offerees. Capitalized terms used herein, unless otherwise defined or
unless the context otherwise indicates, shall have the same meanings provided in
the Offering Documents.
1. Appointment of Placement Agent.
(a) You are hereby appointed exclusive Placement Agent of the Company
(subject to your right to have Selected Dealers, as defined in Section 1(c)
hereof, participate in the Offering) during the Offering Period herein specified
for the purposes of assisting the Company in finding qualified Subscribers
pursuant to the offering (the "Offering") described in the Offering Documents.
The Offering Period shall commence on the day (the "Commencement Date") the
Offering Documents are first made available to you by the Company for delivery
in connection with the offering for sale of the Units and shall continue until
the earlier to occur of (i) the sale of all of the Maximum Offering or (ii) 60
days after the Commencement Date (unless extended for a period of up to 60 days
under circumstances specified in the Memorandum). If the Minimum Offering is not
sold prior to the end of the Offering Period, the Offering will be terminated
and all funds received from Subscribers will be returned, without interest and
without any deduction. The day that the Offering Period terminates is
hereinafter referred to as the "Termination Date."
(b) Subject to the performance by the Company of all of its obligations to
be performed under this Agreement and to the completeness and accuracy of all
representations and warranties of the Company contained in this Agreement,
Commonwealth Associates hereby accepts such agency and agrees to use its best
efforts to assist the Company in finding qualified subscribers pursuant to the
Offering described in the Offering Documents. It is understood that the
Placement Agent has no commitment to sell the Units. Your agency hereunder is
not terminable by the Company except upon termination of the Offering Period.
(c) You may engage other persons, selected by you in your discretion, that
are members of the National Association of Securities Dealers, Inc., ("NASD")
and that have executed a Selected Dealers Agreement substantially in the form
attached hereto as Schedule A, to assist you in the Offering (each such person
being hereinafter referred to as a "Selected Dealer") and you may allow such
persons such part of the compensation and payment of expenses payable to you
hereunder as you shall determine. Each Selected Dealer shall be required to
agree in writing to comply with the provisions of, and to make the
representations, warranties and covenants contained in, this Section 1.
(d) Subscriptions for Units shall be evidenced by the execution by
Subscribers of a Subscription Agreement. No Subscription Agreement shall be
effective unless and until it is accepted by the Company. Any subscription may
be rejected at the sole discretion of the Company or the Placement Agent. Until
the Closing, all subscription funds received shall be held as described in the
Subscription Agreement. The Placement Agent shall not have any obligation to
independently verify the accuracy or completeness of any information contained
in any Subscription
<PAGE>
Page 14 of 74 Pages
Agreement or the authenticity, sufficiency, or validity of any check delivered
by any prospective investor in payment for Units.
(e) The Placement Agent and its affiliates may purchase Units sold in
the Offering.
2. Representations and Warranties of the Company. The Company represents
and warrants to the Placement Agent and each Selected Dealer, if any, as
follows:
(a) Securities Law Compliance. The Offering Documents conform in all
respects with the requirements of Section 4(2) of the Securities Act and
Regulation D promulgated thereunder and with the requirements of all other
published rules and regulations of the Securities and Exchange Commission
(the "Commission") currently in effect relating to "private offerings" to
"accredited investors" of the type contemplated by the Company. The
Offering Documents will not contain an untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances in which they were made,
not misleading. If at any time prior to the completion of the Offering or
other termination of this Agreement any event shall occur as a result of
which it might become necessary to amend or supplement the Offering
Documents so that they do not include any untrue statement of any material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances then existing, not
misleading, the Company will promptly notify you and will supply you with
amendments or supplements correcting such statement or omission. The
Company will also provide the Placement Agent for delivery to all offerees
and purchasers and their representatives, if any, any information,
documents and instruments which the Placement Agent deems necessary to
comply with applicable state and federal law.
(b) Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and has
all requisite corporate power and authority to own and lease its
properties, to carry on its business as currently conducted and as proposed
to be conducted, to execute and deliver this Agreement and to carry out the
transactions contemplated by this Agreement, as appropriate, and is duly
licensed or qualified to do business as a foreign corporation in
California, Utah and in each other jurisdiction in which the conduct of its
business or ownership or leasing of its properties requires it to be so
qualified, except where the failure to be so licensed or qualified would
not have a material adverse effect on the business, financial condition or
prospects of the Company (a "Material Adverse Effect").
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company prior to the consummation of the transactions
contemplated hereby is as set forth in the Offering Documents. All issued
and outstanding shares of the Company are validly issued, fully paid and
nonassessable and have not been issued in violation of the preemptive
rights of any stockholder of the Company. All prior sales of securities of
the Company were either registered under the Act and applicable state
securities laws or exempt from such registration, and no security holder
has any rescission rights with respect thereto.
<PAGE>
Page 15 of 74 Pages
(d) Warrants, Preemptive Rights, Etc. Except for the warrants to
purchase shares of the Company's Common Stock to be issued to you or your
designees in consideration for your acting as Placement Agent hereunder
(the "Agent's Warrants"), and except as set forth in or contemplated by the
Memorandum, there are not, nor will there be immediately after the Closing
(as hereinafter defined), any outstanding warrants, options, agreements,
convertible securities, preemptive rights to subscribe for or other
commitments pursuant to which the Company is, or may become, obligated to
issue any shares of its capital stock or other securities of the Company
and this Offering will not cause any anti-dilution adjustments to such
securities or commitments except as reflected in the Memorandum.
(e) Subsidiaries and Investments. Except as set forth in Exhibit A,
the Company has no other subsidiaries. The subsidiaries listed in Exhibit A
(the "Subsidiaries") are corporations duly organized and validly existing
under the laws of the States of Utah and California. The Company owns all
of the capital stock of the Subsidiaries free and clear of all liens,
security interests and encumbrances.
(f) Financial Statements. The financial information contained in the
Offering Documents is accurate in all material respects. The Company's Form
10-QSB for the nine months ended September 30, 1997 contains the Company's
(i) Balance Sheets at September 30, 1997, (ii) Statements of Operations for
the year ended December 31, 1996 and for the three and nine months ended
September 30, 1997, and (iii) Statements of Cash Flows for each of the year
ended December 31, 1996 and the nine months ended September 30, 1997 (such
financial statements attached to the Offering Documents hereinafter
referred to collectively as the "Financial Statements"). The Financial
Statements have been prepared in conformity with generally accepted
accounting principles consistently applied and show all material
liabilities, absolute or contingent, of the Company required to be recorded
thereon and present fairly the financial position and results of operations
of the Company as of the dates and for the periods indicated.
(g) Absence of Changes. Since the date of the Memorandum, the Company
has not incurred any liabilities or obligations, direct or contingent, not
in the ordinary course of business, or entered into any transaction not in
the ordinary course of business, which is material to the business of the
Company, and, except as set forth in Schedule G to this Agreement there has
not been any change in the capital stock of, or any incurrence of long-term
debt by, the Company, or any issuance of options, warrants or other rights
to purchase the capital stock of the Company, or any adverse change or any
development involving, so far as the Company can now reasonably foresee, a
prospective adverse change in the condition (financial or otherwise), net
worth, results of operations, business, key personnel or properties which
would be material to the business or financial condition of the Company,
and the Company has not become a party to, and neither the business nor the
property of the Company has become the subject of, any material litigation
whether or not in the ordinary course of business.
(h) Title. Except as set forth on Schedule H hereto, the Company has
good and marketable title to all properties and assets, owned by it, free
and clear of all liens, charges, encumbrances or restrictions, except such
as are not materially significant or important in relation to the Company's
business; all of the material leases and subleases under which the Company
is the
<PAGE>
Page 16 of 74 Pages
lessor or sublessor of properties or assets or under which the Company
holds properties or assets as lessee or sublessee are in full force and
effect, and the Company is not in default in any material respect with
respect to any of the terms or provisions of any of such leases or
subleases, and no material claim has been asserted by anyone adverse to
rights of the Company as lessor, sublessor, lessee or sublessee under any
of the leases or subleases mentioned above, or affecting or questioning the
right of the Company to continued possession of the leased or subleased
premises or assets under any such lease or sublease. The Company owns or
leases all such properties as are necessary to its operations as now
conducted and to be conducted, as presently planned.
(i) Proprietary Rights. Except as set forth in Schedule I hereto, the
Company owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, service marks, copyrights, trade
secrets, processes, formulations, technology or know-how used or proposed
to be used in the conduct of its business as described in or contemplated
by the Memorandum (the "Proprietary Rights"). The Company has not received
any notice of any claims, nor does it have any knowledge of any threatened
claims, and knows of no facts which would form the basis of any claim,
asserted by any person to the effect that the sale or use of any product or
process now used or offered by the Company or proposed to be used or
offered by the Company infringes on any patents or infringes upon the use
of any such Proprietary Rights of another person and, to the best of the
Company's knowledge, no others have infringed the Company's Proprietary
Rights.
(j) Litigation. There is no material action, suit, investigation,
customer complaint, claim or proceeding at law or in equity by or before
any arbitrator, governmental instrumentality or other agency now pending
or, to the knowledge of the Company, threatened against the Company (or
basis therefore known to the Company) the adverse outcome of which would
have a Material Adverse Effect. The Company is not subject to any judgment,
order, writ, injunction or decree of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign which would have a Material Adverse
Effect.
(k) Non-Defaults; Non-Contravention. The Company is not in violation
of or default under, nor will the execution and delivery of this Agreement
or any of the Offering Documents, the Fund Escrow Agreement (as defined
herein), the Advisory Agreement (as defined herein) or the Agent's Warrants
(as defined herein) or consummation of the transactions contemplated herein
or therein result in a violation of or constitute a default in the
performance or observance of any obligation (i) under its Articles of
Incorporation, as amended, or its By-laws, or any indenture, mortgage,
contract, material purchase order or other agreement or instrument to which
the Company is a party or by which it or its property is bound or affected
or (ii) with respect to any material order, writ, injunction or decree of
any court of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic
or foreign, and there exists no condition, event or act which constitutes,
nor which after notice, the lapse of time or both, could constitute a
default under any of the foregoing, which in either case would have a
Material Adverse Effect.
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Page 17 of 74 Pages
(l) Taxes. The Company has filed all Federal, state, local and foreign
tax returns which are required to be filed by it and all such returns are
true and correct in all material respects. The Company has paid all taxes
pursuant to such returns or pursuant to any assessments received by it or
which it is obligated to withhold from amounts owing to any employee,
creditor or third party. The Company has properly accrued all taxes
required to be accrued. The tax returns of the Company have never been
audited by any state, local or Federal authorities. The Company has not
waived any statute of limitations with respect to taxes or agreed to any
extension of time with respect to any tax assessment or deficiency.
(m) Compliance With Laws; Licenses, Etc. The Company has not received
notice of any violation of or noncompliance with any Federal, state, local
or foreign, laws, ordinances, regulations and orders applicable to its
business which has not been cured, the violation of, or noncompliance with
which, would have a Material Adverse Effect. The Company has all licenses
and permits and other governmental certificates, authorizations and permits
and approvals (collectively, "Licenses") required by every Federal, state
and local government or regulatory body for the operation of its business
as currently conducted and the use of its properties, except where the
failure to be licensed would not have a Material Adverse Effect. The
Licenses are in full force and effect and no violations are or have been
recorded in respect of any License and no proceeding is pending or
threatened to revoke or limit any thereof.
(n) Authorization of Agreement, Etc. This Agreement has been duly and
validly authorized, executed and delivered by the Company and the
execution, delivery and performance by the Company of this Agreement, the
Subscription Agreement, the Warrant Agreement, the Fund Escrow Agreement,
the Advisory Agreement and the M/A Agreement have been duly authorized by
all requisite corporate action by the Company and when delivered,
constitute or will constitute the legal, valid and binding obligations of
the Company, enforceable in accordance with their respective terms.
(o) Authorization of Shares and Warrants, Etc. The issuance, sale and
delivery of the Shares and Warrants and the Agent's Warrants have been, or
prior to issuance and delivery will be, duly authorized by all requisite
corporate action of the Company. When so issued, sold and delivered, the
Shares, the Warrants and the Agent's Warrants will be duly executed, issued
and delivered and will constitute valid and legal obligations of the
Company enforceable in accordance with their respective terms and, in each
case, will not be subject to preemptive or any other similar rights of the
stockholders of the Company or others which rights shall not have been
waived prior to the Initial Closing.
(p) Authorization of Reserved Shares. The issuance, sale and delivery
by the Company of the shares of Common Stock issuable upon conversion of
the Shares and the underlying Common Stock issuable upon the exercise of
the Warrants and the Agent's Warrants (collectively, the "Reserved Shares")
have been duly authorized by all requisite corporate action of the Company,
and the Reserved Shares have been duly reserved for issuance upon
conversion of all or any of the Shares and exercise of the Agent's Warrants
and when so issued, sold, paid for and delivered, the Reserved Shares will
be validly issued and outstanding, fully paid and nonassessable,
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Page 18 of 74 Pages
and not subject to preemptive or any other similar rights of the
stockholders of the Company or others which rights shall not have been
waived prior to the Initial Closing.
(q) Exemption from Registration. Assuming (i) the accuracy of the
information provided by the respective Subscribers in the Subscription
Documents and (ii) that the Placement Agent has complied in all material
respects with the provisions of Regulation D promulgated under the
Securities Act, the offer and sale of the Units pursuant to the terms of
this Agreement are exempt from the registration requirements of the
Securities Act and the rules and regulations promulgated thereunder (the
"Regulations"). The Company is not disqualified from the exemption under
Regulation D by virtue of the disqualifications contained in Rule
505(b)(2)(iii) or Rule 507 promulgated thereunder.
(r) Registration Rights. Except with respect to holders of the Units
and the Agent's Warrants, and except as set forth in the Memorandum, no
person has any right to cause the Company to effect the registration under
the Securities Act of any securities of the Company. The Company shall
grant registration rights under the Securities Act of 1933, as amended to
the investors in the Offering and/or their transferees with respect to the
Shares, including the Common Stock issuable upon conversion of the Shares,
and the Warrants, including the Common Stock issuable upon exercise of the
Warrants, purchased in the Offering as more fully described in the
Subscription Agreement between the Company and the investors. The Company
will also grant one demand registration commencing six months after the
Closing, which, at the discretion of the Company, may be filed on any
applicable short form registration statement that the Company is eligible
to use, and unlimited "piggyback" registrations to Commonwealth Associates
with respect to its Agent's Warrants and the Common Stock underlying such
securities. The procedure to implement these registration rights will be as
described in the Agent's Warrants.
(s) Brokers. Neither the Company nor any of its officers, directors,
employees or stockholders has employed any broker or finder in connection
with the transactions contemplated by this Agreement other than the
Placement Agent.
(t) Title to Units. When certificates representing the securities
comprising the Units and/or the Reserved Shares shall have been duly
delivered to the purchasers and payment shall have been made therefor, the
several purchasers shall have good and marketable title to the Shares,
Warrants and/or the Reserved Shares free and clear of all liens,
encumbrances and claims whatsoever (with the exception of claims arising or
through the acts of the purchasers and except as arising from applicable
Federal and state securities laws), and the Company shall have paid all
taxes, if any, in respect of the original issuance thereof.
(u) Right of First Refusal. Except for the right of first refusal
granted to the Placement Agent under Section 4(j) hereof, no person, firm
or other business entity is a party to any agreement, contract or
understanding, written or oral entitling such party to a right of first
refusal with respect to the Company.
(v) Securities Exchange Act Compliance. The Company has filed with the
Securities and Exchange Commission ("SEC") on a timely basis all filings
required of a
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Page 19 of 74 Pages
company whose securities have been registered under the Securities Exchange
Act of 1934, as amended ("Exchange Act"). All information contained in such
filings is true, accurate and complete in all material respects. The
Company covenants to maintain the registration of its Common Stock under
the Exchange Act and to make all filings thereunder on a timely basis. For
the purpose of this paragraph, filings pursuant to Rule 12b-25 of the
Exchange Act shall be deemed timely.
(w) Non-Affiliated Directors. Within two months after the Initial
Closing, the Company's Board of Directors will have a majority (but not
less than four) directors who qualify under the criteria of the Nasdaq
Stock Market as independent directors, one of which may be a designee of
Commonwealth. Unless any of such individuals refuse to serve, the following
shall be the four appointees: Marshall Geller, Anthony P. Mazzarella,
Harold S. Blue and Leonard M. Schiller.
3. Closing; Placement and Fees.
(a) Closing. Provided the Minimum Offering shall have been subscribed for
and funds representing the sale thereof shall have cleared, a closing (the
"Initial Closing") shall take place at the offices of the Placement Agent, 830
Third Avenue, New York, New York within ten (10) days following the Termination
Date (which date (the "Closing Date") may be accelerated or adjourned by
agreement between the Company and the Placement Agent). At the Initial Closing,
payment for the Units issued and sold by the Company shall be made against
delivery of certificates representing the Shares and Warrants comprising such
Units. In addition, subsequent closings (if applicable) may be scheduled at the
discretion of the Company and Placement Agent, each of which shall be deemed a
"Closing" hereunder.
(b) Conditions to Placement Agent's Obligations. The obligations of the
Placement Agent hereunder will be subject to the accuracy of the representations
and warranties of the Company herein contained as of the date hereof and as of
each Closing Date, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(i) Due Qualification or Exemption. (A) The offering contemplated by
this Agreement will become qualified or be exempt from qualification under
the securities laws of the several states pursuant to paragraph 4(e) below
not later than the Closing Date, and (B) at the Closing Date no stop order
suspending the sale of the Units shall have been issued, and no proceeding
for that purpose shall have been initiated or threatened;
(ii) No Material Misstatements. Neither the Blue Sky qualification
materials nor the Memorandum, nor any supplement thereto, will contain an
untrue statement of a fact which in the opinion of the Placement Agent is
material, or omits to state a fact, which in the opinion of the Placement
Agent is material and is required to be stated therein, or is necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading;
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Page 20 of 74 Pages
(iii) Compliance with Agreements. The Company will have complied with
all agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to each Closing;
(iv) Corporate Action. The Company will have taken all necessary
corporate action, including, without limitation, obtaining the approval of
the Company's board of directors, for the execution and delivery of this
Agreement, the performance by the Company of its obligations hereunder and
the offering contemplated hereby;
(v) Opinion of Counsel. The Placement Agent shall receive the opinion
of Loeb & Loeb LLP, dated the Closing(s), substantially to the effect that:
(A) the Company has been duly organized and is validly existing
and in good standing under the laws of the State of Nevada, has all
requisite power and authority necessary to own or hold its respective
properties and conduct its business and is duly qualified or licensed
to do business as a foreign corporation and is in good standing in the
State of California, Utah and in each other jurisdiction in which the
ownership or leasing of its properties or conduct of its business
requires such qualification, except where the failure to so qualify or
be licensed would not have a Material Adverse Effect;
(B) each of this Agreement, the Fund Escrow Agreement, the
Warrant Agreement, the Subscription Agreement, the Advisory Agreement,
the M/A Agreement and the Agent's Warrants has been duly and validly
authorized, executed and delivered by the Company, and is the valid
and binding obligation of the Company, enforceable against it in
accordance with its terms, subject to any applicable bankruptcy,
insolvency or other laws affecting the rights of creditors generally
and to general equitable principles;
(C) the authorized, issued and outstanding capital stock of the
Company as of the date hereof (before giving effect to the
transactions contemplated by this Agreement) is as set forth in the
Offering Documents. Except for the Shares, the Warrants and the
Agent's Warrants to be issued as contemplated by this Agreement, to
such counsel's knowledge, there are no outstanding warrants, options,
agreements, convertible securities, preemptive rights or other
commitments pursuant to which the Company is, or may become, obligated
to issue any shares of its capital stock or other securities of the
Company other than as set forth in the Memorandum. All of the issued
shares of capital stock of the Company issued in connection with the
Company's acquisition of Madison, York & Associates on January 16,
1997 and subsequent thereof have been duly and validly authorized and
issued, are fully paid and nonassessable and have not been issued in
violation of the preemptive rights of any securityholder of the
Company. The offers and sales of such outstanding securities were
either registered under the Act and applicable state securities laws
or exempt from such registration requirements. The Shares and the
Warrants included in the Units and the Agent's Warrants have been duly
authorized, validly issued, fully paid and nonassessable and no
personal liability will attach to the ownership thereof. The Reserved
Shares have been, or prior to the issuance and delivery of the Shares,
the Warrants and the Agent's Warrants will be, duly reserved, and when
issued in accordance with the terms of the Shares, the Warrants and
the Agent's
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Page 21 of 74 Pages
Warrants will be validly issued, fully paid and nonassessable and not
subject to preemptive or any other similar rights and no personal
liability will attach to the ownership thereof;
(D) assuming (i) the accuracy of the information provided by the
Subscribers in the Subscription Documents and (ii) that the Placement
Agent has complied in all material respects with the requirements of
section 4(2) of the Securities Act (and the provisions of Regulation D
promulgated thereunder), the issuance and sale of the Units is exempt
from registration under the Securities Act and Regulation D
promulgated thereunder;
(E) neither the execution and delivery of this Agreement, the
Fund Escrow Agreement, the Warrant Agreement, the Subscription
Agreement, the Advisory Agreement, the M/A Agreement or the Agent's
Warrants nor compliance with the terms hereof or thereof, nor the
consummation of the transactions herein or therein contemplated, nor
the issuance of the Shares, the Warrants or the Agent's Warrants, has,
nor will, conflict with, result in a breach of, or constitute a
default under the Articles of Incorporation, as amended, or By-laws of
the Company, or any material contract, instrument or document to which
the Company is a party, or by which it or any of its properties is
bound or violate any applicable law, rule, regulation, judgment, order
or decree of any governmental agency or court having jurisdiction over
the Company or any of its properties or business;
(F) to the best of such counsel's knowledge after due inquiry,
there are no claims, actions, suits, investigations or proceedings
before or by any arbitrator, court, governmental authority or
instrumentality pending or, to the knowledge of such counsel,
threatened, against or affecting the Company or involving the
properties of the Company which might materially and adversely affect
the business, properties or financial condition of the Company or
which might materially adversely affect the transactions or other acts
contemplated by this Agreement or the validity or enforceability of
this Agreement, except as set forth in or contemplated by the Offering
Documents; and
(G) such counsel has participated in the preparation of the
Offering Documents and nothing has come to the attention of such
counsel to cause them to have reason to believe that the Offering
Documents contained any untrue statement of a material fact required
to be stated therein or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading (except for the financial statements, notes thereto and
other financial information and statistical data contained therein, as
to which such counsel need express no opinion).
(vi) Opinion of Trademark and Copyright Counsel. The Placement Agent
shall receive the opinion of special trademark and copyright counsel to the
Company, dated the Closing(s), in form and substance satisfactory to
counsel for the Placement Agent, to the effect that:
(a) The Company holds a valid registered trademark for "iMALL" (the
"Trademark");
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Page 22 of 74 Pages
(b) Neither the Company nor its subsidiaries has received any notice
challenging the validity or enforceability of the Trademark;
(c) there have been no claims asserted against the Company relating to the
potential infringement of or conflict with any trademarks, copyrights or trade
secrets of others.
(vii) Officers' Certificate. The Placement Agent shall receive a
certificate of the Company, signed by the President and Secretary thereof,
that the representations and warranties contained in Section 2 hereof are
true and accurate in all material respects at such Closing with the same
effect as though expressly made at such Closing.
(viii) Fund Escrow Agreement. The Placement Agent shall receive a copy
of a duly executed escrow agreement in the form acceptable to the Company
and the Placement Agent regarding the deposit of funds pending the
Closing(s) with a bank or trust company acceptable to the Placement Agent
(the "Fund Escrow Agreement").
(ix) Lock-Up Agreements. On or prior to the Initial Closing, the
Placement Agent shall receive agreements from each of Messrs. Craig R.
Pickering, Mark R. Comer, Richard Rosenblatt and Martin Rosenblatt to the
effect that (i) such individual shall not publicly sell, assign or transfer
any of their securities of the Company for a period of 12 months from the
final Closing of this offering without the prior written consent of the
Placement Agent.
(x) Transmittal Letters. The Placement Agent shall receive copies of
all letters from the Company to the investors transmitting the Warrants and
Shares and shall receive a letter from the Company confirming transmittal
of the securities to the investors.
(xi) Charter Amendment. On or prior to the Initial Closing, the
Company shall have obtained the necessary board of director and shareholder
approval of an amendment to the Company's articles of incorporation
authorizing the Preferred Stock and shall have filed such amendment with
the Secretary of State of the State of Nevada.
(c) Blue Sky. A summary blue sky survey shall be prepared by counsel to the
Placement Agent stating the extent to which and the conditions upon which offers
and sales of the Units may be made in certain jurisdictions. It is understood
that such survey may be based on or rely upon (i) the representations of each
Subscriber set forth in the Subscription Agreement delivered by such Subscriber,
(ii) the representations, warranties and agreements of the Company set forth in
Section 2 of this Agreement, (iii) the representations and warranties of the
Placement Agent, and (iv) the representations of the Company set forth in the
certificate to be delivered at the Closing pursuant to paragraph (vii) of
Section 3(b).
(d) Placement Fee and Expenses. Simultaneously with payment for and
delivery of the Units at each Closing as provided in paragraph 3(a) above, the
Company shall at such Closing pay to the Placement Agent (i) a commission equal
to 7% of the aggregate purchase price of the Units sold; (ii) a structuring fee
equal to 3% of the aggregate purchase price of the Units sold; and (iii) an
expense allowance of $200,000. The Company shall also pay all expenses in
connection
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Page 23 of 74 Pages
with the qualification of the Units under the securities or Blue Sky laws of the
states which the Placement Agent shall designate. The Company will, at each
Closing, issue to you or your designees (which may include any Selected Dealer
or any officer of the Placement Agent or a Selected Dealer) the Agent's Warrants
in the form annexed hereto as Exhibit 1 to purchase 5,500,000 shares of Common
Stock in case of the Minimum Offering and increasing by 500,000 shares for each
additional $1,000,000 raised up to a total of 10,500,000 shares in the case of
the Maximum Offering, at an exercise price of $.40 per share. The number of
warrants to be issued to the Placement Agent will be reduced on a pro rata basis
for each $1.00 less than the Maximum Offering raised. In th event that any of
the Overallotment Units (as defined herein) are sold in the Offering, the number
of warrants to be issued to the Placement Agent will be increased on a pro rata
basis for each $1.00 in excess of the Maximum Offering raised. The Agent's
Warrants will be exercisable for a period of five years from the Initial
Closing. At the Initial Closing, the Company shall enter into (i) a 12-month
financial advisory agreement (the "Advisory Agreement") with the Placement Agent
under which it will pay the Placement Agent $5,000 per month for 12 months and
(ii) a two-year agreement regarding mergers and acquisitions ("M/A Agreement")
pursuant to which it will pay the Placement Agent 5% of any consideration
received in such a transaction with a party introduced by the Placement Agent.
(f) Bring-Down Opinions and Certificates. If there is more than one
Closing, then at each such Closing there shall be delivered to the Placement
Agent updated opinions and certificates as described in (v), (vi) and (vii) of
Section 3(b) above, respectively.
(g) No Adverse Changes. There shall not have occurred, at any time prior to
the Closing or, if applicable, any additional Closing, (i) any domestic or
international event, act or occurrence which has materially disrupted, or in the
Placement Agent's opinion will in the immediate future materially disrupt, the
securities markets; (ii) a general suspension of, or a general limitation on
prices for, trading in securities on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market; (iii) any outbreak of major
hostilities or other national or international calamity; (iv) any banking
moratorium declared by a state or federal authority; (v) any moratorium declared
in foreign exchange trading by major international banks or other persons; (vi)
any material interruption in the mail service or other means of communication
within the United States; (vii) any material adverse change in the business,
properties, assets, results of operations, or financial condition of the
Company; or (viii) any change in the market for securities in general or in
political, financial, or economic conditions which, in the Placement Agent's
reasonable judgment, makes it inadvisable to proceed with the offering, sale,
and delivery of the Units.
4. Covenants of the Company.
(a) Use of Proceeds. The net proceeds of the Offering will be used by the
Company substantially as set forth in the Memorandum. The Company shall not use
more than $650,000 of the proceeds from the Offering to repay any indebtedness
of the Company, including but not limited to indebtedness to any current
executive officers, directors or principal stockholders of the Company, other
than as set forth in the Memorandum.
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Page 24 of 74 Pages
(b) Break-Up Fee. If the Private Placement is not completed for any reason
except those specified in the next sentence, the Company shall be liable for the
Placement Agent's out of pocket expenses, not to exceed $200,000, in addition to
the other costs and expenses of the Offering set forth in Section 3(d). If the
Placement Agent raises at least $5,000,000 in escrow and if, within 60 days from
the printing of a final Memorandum, the Private Placement is not completed
because the Company prevents it or because of a breach by the Company of any
such covenants, representations or warranties, the Company shall, in addition to
the payments set forth above and in Section 3(d), pay the Placement Agent
$500,000. In such event, the Placement Agent shall receive 5,500,000 Warrants to
purchase Common Stock with an exercise price of $.40 per share.
(c) Reservation of Common Stock. The Company shall reserve and keep
available that maximum number of its authorized but unissued shares of Common
Stock which are issuable upon conversion and/or exercise of the Shares and the
Warrants, including the shares underlying the Agent's Warrants.
(d) Notification. The Company shall notify the Placement Agent immediately,
and in writing, (A) when any event shall have occurred during the period
commencing on the date hereof and ending on the later of the last Closing or the
Termination Date as a result of which the Offering Documents would include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (B) of the receipt of any notification with respect to the modification,
rescission, withdrawal or suspension of the qualification or registration of the
Units, or of any exemption from such registration or qualification, in any
jurisdiction. The Company will use its best efforts to prevent the issuance of
any such modification, rescission, withdrawal or suspension and, if any such
modification, rescission, withdrawal or suspension is issued and you so request,
to obtain the lifting thereof as promptly as possible.
(e) Blue Sky. The Company will use its best efforts to qualify or register
the Units for offering and sale under, or establish an exemption from such
qualification or registration under, the securities or "blue sky" laws of such
jurisdictions as you may reasonably request; provided however, that the Company
will not be obligated to qualify as a dealer in securities in any jurisdiction
in which it is not so qualified. The Company will not consummate any sale of
Units in any jurisdiction in which it is not so qualified or in any manner in
which such sale may not be lawfully made.
(f) Form D Filing. The Company shall file five copies of a Notice of Sales
of Securities on Form D with the Securities and Exchange Commission (the
"Commission") no later than 15 days after the first sale of the Units. The
Company shall file promptly such amendments to such Notices on Form D as shall
become necessary and shall also comply with any filing requirement imposed by
the laws of any state or jurisdiction in which offers and sales are made. The
Company shall furnish the Placement Agent with copies of all such filings.
(g) Press Releases, Etc. The Company shall not, during the period
commencing on the date hereof and ending on the later of the last Closing and
the Termination Date,
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Page 25 of 74 Pages
issue any press release or other communication, or hold any press conference
with respect to the Company, its financial condition, results of operations,
business, properties, assets, or liabilities, or the Offering, without the prior
consent of the Placement Agent, which consent shall not be unreasonably
withheld.
(h) Form 10-QSB The Company will provide to the Placement Agent, promptly
upon the filing thereof with the Commission (and in any event no later than 5
days of such filing), a copy of its Annual Report in Form 10-KSB for the year
ended December 31, 1997.
(i) Restrictions on Issuance of Securities. Prior to the Initial Closing
Date, the Company will not, without the prior written consent of the Placement
Agent, issue additional shares of Common Stock or grant any warrants, options or
other securities of the Company.
(j) Absence of Changes. Subsequent to the date of the Memorandum and prior
to the Closing, the Company will not, without the prior written consent of the
Placement Agent, incur any liabilities or obligations, direct or contingent, not
in the ordinary course of business, or enter into any transaction not in the
ordinary course of business, which is material to the business of the Company,
and there will not be any change in the capital stock of, or any incurrence of
long-term debt by, the Company, or any issuance of options, warrants or other
rights to purchase the capital stock of the Company.
(k) Advisory Agreement. Prior to or on the Initial Closing, the Company
shall execute and deliver to the Placement Agent the Advisory Agreement in the
form previously delivered to the Company by the Placement Agent.
(l) Key-Man Insurance. Prior to the Initial Closing, the Company shall have
obtained "key-man" life insurance policies in the amount of at least $2,000,000
on each of the lives of Messrs. Rosenblatt, Comer and Pickering. Such policies
will be kept in for at least three years from the Initial Closing Date or the
term of the employment agreements with such officers, whichever period is
longer.
(m) Executive Compensation. The compensation of the executive officers of
the Company shall not increase from the date of this Agreement until 12 months
from the Termination Date.
(n) Board Designee. The Company shall, for a period of three years
following the Initial Closing Date or such earlier date after the second
anniversary of the Initial Closing Date as the Preferred Stock has been
converted pursuant to the automatic conversion feature set forth in Section 6(B)
of the Designation, at the Placement Agent's option, nominate a designee of the
Placement Agent to the Company's Board of Directors or, at the option of the
Placement Agent appoint an observer selected by the Placement Agent to attend
all meetings of the Company's Board of Directors.
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Page 26 of 74 Pages
(o) Accounting Firm. The Company shall retain an accounting firm acceptable
to the Placement Agent promptly following the Initial Closing Date and for a
period of three years following the Initial Closing Date, shall not effect a
change in such accounting firm, without the prior written consent of the
Placement Agent, unless such new firm is a "big four" accounting firm.
(p) Reports. The Company will deliver to all purchasers in this Offering
(and/or their transferees), within 45 days after the close of each of the
Company's first three fiscal quarters, a quarterly report and shareholders
letter substantially similar in form and substance to a Form 10-QSB under the
Securities Exchange Act of 1934 and an abbreviated form of an annual report
within 90 days after its year end.
(q) M/A Agreement. Prior to or on the Initial Closing, the Company shall
execute and deliver to the Placement Agent the M/A Agreement in the form
previously delivered to the Company by the Placement Agent.
(r) Checks. For a period of one year following the Final Closing, all
checks, wires or money transfers issued by the Company for an amount over $500
must bear two signatures, one of which must be that of Richard Rosenblatt.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Placement Agent
and each Selected Dealer, if any, and their respective shareholders, directors,
officers, agents and controlling persons (an "Indemnified Party") against any
and all loss, liability, claim, damage and expense whatsoever (and all actions
in respect thereof), and to reimburse the Placement Agent for legal fees and
related expenses as incurred (including, but not limited to the costs of giving
testimony or furnishing documents in response to a subpoena or otherwise, and
the costs of investigating, preparing or defending any such action or claim
whether or not in connection with litigation in which the Placement Agent is a
party), arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Offering Documents or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(b) The Company agrees to indemnify and hold harmless an Indemnified Party
to the same extent as the foregoing indemnity, against any and all loss,
liability, claim, damage and expense whatsoever directly arising out of the
exercise by any person of any right under the Securities Act or the Exchange Act
or the securities or Blue Sky laws of any state on account of violations of the
representations, warranties or agreements set forth in Section 2 hereof.
(c) Promptly after receipt by a person entitled to indemnification pursuant
to the foregoing subsection (a) or (b) (an "indemnified party") under this
Section of notice of the commencement of any action, the indemnified party will,
if a claim in respect thereof is to be made against the Company under this
Section, notify in writing the Company of the commencement
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Page 27 of 74 Pages
thereof; but the omission so to notify the Company will not relieve it from any
liability which it may have to the indemnified party otherwise than under this
Section. In case any such action is brought against an indemnified party, and it
notifies the Company of the commencement thereof, the Company will be entitled
to participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, subject to
the provisions herein stated, with counsel reasonably satisfactory to the
indemnified party, and after notice from the Company to the indemnified party of
its election so to assume the defense thereof, the Company will not be liable to
the indemnified party under this Section for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the Company if the Company has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that the fees and expenses of such counsel shall be at the
expense of the Company if (i) the employment of such counsel has been
specifically authorized in writing by the Company or (ii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party or parties and the Company and, in the judgment of the indemnified party,
it is advisable for the indemnified party or parties to be represented by
separate counsel (in which case the Company shall not have the right to assume
the defense of such action on behalf of the indemnified party or parties, it
being understood, however, that the Company shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys for the indemnified party or parties. No settlement of any action
against an indemnified party shall be made without the consent of the
indemnified party, which shall not be unreasonably withheld in light of all
factors of importance to the indemnified party.
6. Contribution.
To provide for just and equitable contribution, if (i) an indemnified party
makes a claim for indemnification pursuant to Section (5) but it is found in a
final judicial determination, not subject to further appeal, that such
indemnification may not be enforced in such case, even though this Agreement
expressly provides for indemnification in such case, or (ii) any indemnified or
indemnifying party seeks contribution under the Securities Act, the Exchange
Act, or otherwise, then the Company (including for this purpose any contribution
made by or on behalf of any officer, director, employee or agent for the
Company, or any controlling person of the Company), on the one hand, and the
Placement Agent and any Selected Dealers (including for this purpose any
contribution by or on behalf of an indemnified party), on the other hand, shall
contribute to the losses, liabilities, claims, damages, and expenses whatsoever
to which any of them may be subject, in such proportions as are appropriate to
reflect the relative benefits received by the Company, on the one hand, and the
Placement Agent and the Selected Dealers, on the other hand; provided, however,
that if applicable law does not permit such allocation, then other relevant
equitable considerations such as the relative fault of the Company and the
Placement Agent and the Selected Dealers in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses shall also
be considered. In no case shall the Placement Agent or a Selected Dealer be
responsible for a portion of the contribution obligation in excess of the
compensation
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Page 28 of 74 Pages
received by it pursuant to Section 3 hereof or the Selected Dealer Agreement, as
the case may be. No person guilty of a fraudulent misrepresentation shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 6, each person, if any, who
controls the Placement Agent or a Selected Dealer within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act and each officer,
director, stockholder, employee and agent of the Placement Agent or a Selected
Dealer, shall have the same rights to contribution as the Placement Agent or the
Selected Dealer, and each person, if any who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act
and each officer, director, employee and agent of the Company, shall have the
same rights to contribution as the Company, subject in each case to the
provisions of this Section 6. Anything in this Section 6 to the contrary
notwithstanding, no party shall be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 6 is intended to supersede any right to contribution under the
Securities Act, the Exchange Act, or otherwise.
7. Miscellaneous.
(a) Survival. Any termination of the Offering without consummation thereof
shall be without obligation on the part of any party except that the
indemnification provided in Section 5 hereof and the contribution provided in
Section 6 hereof shall survive any termination and shall survive the Closing for
a period of five years.
(b) Representations, Warranties and Covenants to Survive Delivery. The
respective representations, warranties, indemnities, agreements, covenants and
other statements of the Company as of the date hereof shall survive execution of
this Agreement and delivery of the Shares and the Warrants. All of the Company's
obligations for the payment of fees and expenses shall survive termination of
this Agreement, subject to the maximum amounts payable by the Company provided
in Section 4(b) hereof.
(c) No Other Beneficiaries. This Agreement is intended for the sole and
exclusive benefit of the parties hereto and their respective successors and
controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York without regard to conflict of
law provisions. The Placement Agent and the Company will attempt to settle any
claim or controversy arising out of this Agreement through consultation and
negotiation in good faith and a spirit of mutual cooperation. Should such
attempts fail, then the dispute will be mediated by a mutually acceptable
mediator to be chosen by the Placement Agent and the Company within 15 days
after written notice from either party demanding mediation. Neither party may
unreasonably withhold consent to the selection of a mediator, and the parties
will share the costs of the mediation equally. Any dispute which the parties
cannot resolve through negotiation or mediation within six months of the date of
the initial demand for it by one of the parties may then be submitted to the
courts for resolution. The use of mediation will not be construed under the
doctrine of latches, waiver or estoppel to affect adversely the rights of either
party. Nothing in this paragraph will prevent either party from
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Page 29 of 74 Pages
resorting to judicial proceedings if (a) good faith efforts to resolve the
dispute under these procedures have been unsuccessful or (b) interim relief from
a court if necessary to prevent serious and irreparable injury.
(e) Counterparts. This Agreement may be signed in counterparts with the
same effect as if both parties had signed one and the same instrument.
(f) Notices. Any communications specifically required hereunder to be in
writing, if sent to the Placement Agent, will be mailed, delivered and confirmed
to it at Commonwealth Associates, 830 Third Avenue, New York, New York 10022,
Att: Keith Rosenbloom, with a copy to Bachner, Tally, Polevoy & Misher LLP, 380
Madison Avenue, New York, New York 10017, Att: Fran M. Stoller, Esq. and if sent
to the Company, will be mailed, delivered or telegraphed and confirmed to it at
4400 Coldwater Canyon Boulevard, Suite 200, Studio City, California 91604, Att:
Richard Rosenblatt, with a copy to Loeb & Loeb LLP, 1000 Wilshire Boulevard,
Suite 1800, Los Angeles, California 90017, Att: David L. Ficksman, Esq.
(g) Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the matters herein referred and supersedes all prior
agreements and understandings, written and oral, between the parties with
respect to the subject matter hereof. Neither this Agreement nor any term hereof
may be changed, waived or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver or
termination is sought.
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Page 30 of 74 Pages
If you find the foregoing is in accordance with our understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement between us.
Very truly yours,
iMALL, INC.
By: ______________________
Name: Richard Rosenblatt
Title: Chief Executive Officer
Agreed:
COMMONWEALTH ASSOCIATES,
a New York limited partnership
By: COMMONWEALTH MANAGEMENT CO., INC.
a New York corporation,
its general partner
By: _____________________________
Name: Joseph Wynne
Title: Chief Financial Officer
Page 31 of 74 Pages
Exhibit 2
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A 9% CONVERTIBLE
PREFERRED STOCK
-OF-
iMALL, INC.
iMALL, INC., a corporation organized and existing under the laws of the
State of Nevada (the "Company"), by its President and Secretary, does hereby
certify that, pursuant to authority conferred upon the Board of Directors by
Article IV of the Articles of Incorporation, as amended, of the Company,
authorizing a class of 10,000,000 shares of preferred stock of the Company, the
Board of Directors of the Company, by unanimous written consent, has duly
adopted resolutions providing for the issuance out of such class of a series of
up to 5,000,000 shares of Series A 9% Convertible Preferred Stock at an issuance
price of $4.00 per share (the "Original Purchase Price") and setting forth the
voting powers, designation, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions
thereof, which resolution is as follows:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Company in accordance with the provisions of its Articles of
Incorporation, as amended, there be, and hereby is, created out of the class of
10,000,000 shares of preferred stock of the Company authorized in of Article IV
of its Articles of Incorporation, as amended, a series of preferred stock of the
Company with the following voting powers, designation, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions:
1. Designation and Number of Shares.
5,000,000 shares of preferred stock are hereby designated as Series A 9%
Convertible Preferred Stock (the "Series A Preferred Stock").
2. Dividends.
(A) Commencing on the date of issuance (the "Issuance Date"), each issued
and outstanding share of Series A Preferred Stock shall entitle the holder of
record thereof to receive, when, as and if declared by the Board of Directors,
out of any funds legally available therefor, dividends as follows: for the
period commencing with the first closing date (the "First Closing") of the
private placement of the Series A Preferred Stock pursuant to a Confidential
Placement Memorandum, dated November 7, 1997 (the "Private Placement") through
Commonwealth Associates as placement agent until conversion, at the rate (the
"Dividend Rate") of $.36 per annum per share of Series A Preferred Stock,
subject to adjustment in each case as hereinafter set forth, for the semi-annual
period (or, in the case of the first dividend period, the period commencing on
the Date of Issuance) ending on the date immediately preceding the Dividend
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Page 32 of 74 Pages
Payment Date payable semi-annually on each January 2 and July 1 (the "Dividend
Payment Date"), to holders of record on December 15 and June 15 ("Dividend
Record Date"). Dividends per share shall be payable, at the Company's option,
either (i) in cash or (ii) in shares of Series A Preferred Stock, valued at
$4.00 per share.
(B) Dividends shall accrue from the date of issuance and shall accrue from
day to day, whether or not earned or declared. Cash dividends shall be paid on
the Series A Preferred Stock only when, as and if declared by the Board of
Directors, out of funds legally available therefor. Such dividends shall be
cumulative so that, if such dividends in respect of any previous or current
semi-annual period, at the annual rate specified above (subject to adjustment as
herein provided), shall not have been paid or declared and a sum sufficient for
payment thereof set apart, the deficiency shall first be fully paid before any
dividend or other distribution shall be paid on or set apart for any equity
securities of the Company which is junior to the Series A Preferred Stock. Any
accumulation of dividends on the Series A Preferred Stock shall not bear
interest.
(C) Unless full cumulative dividends on the Series A Preferred Stock for
all past dividend periods and the then current dividend period shall have been
paid or declared and a sum sufficient for the payment thereof set apart: (i) no
dividend whatsoever shall be paid or declared, and no distribution shall be
made, on any equity security of the Company which is junior to the Series A
Preferred Stock, and (ii) no shares of any equity security which is junior to
the Series A Preferred Stock of the Company shall be purchased, redeemed, or
acquired by the Company and no funds shall be paid into or set aside or made
available for a sinking fund for the purchase, redemption, or acquisition
thereof.
(D) As set forth in the Company's Articles of Incorporation, as amended,
the par value of the Series A Preferred Stock is $.001 per share.
(E) If any dividend previously due on the Series A Preferred Stock has not
been paid in full, then no dividends shall be paid or declared upon any shares
of any class or series of stock of the Company ranking on a parity with the
Series A Preferred Stock in the payment of dividends for any period unless a
like proportionate dividend for the current period, ratably in proportion to the
respective annual dividend rates fixed thereupon, shall be paid upon or declared
for the Series A Preferred Stock then issued and outstanding.
(F) In the event of a split or subdivision of the outstanding shares of
Series A Preferred Stock, or the combination or the outstanding shares of Series
A Preferred Stock, as the case may be, the dividends provided for in this
Section 2 shall automatically and without any further action be decreased, in
the case of a split or subdivision, or increased, in the case of a combination,
in proportion to the increase or decrease in the number of shares of Series A
Preferred Stock outstanding immediately before such split, subdivision or
combination.
<PAGE>
Page 33 of 74 Pages
3. Redemption.
The Series A Preferred Stock is not redeemable.
4. Liquidation
Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary ("Liquidation"), the holders of record of the shares of
the Series A Preferred Stock shall be entitled to receive, before and in
preference to any distribution or payment of assets of the Company or the
proceeds thereof may be made or set apart for the holders of Common Stock of the
Company, par value $.001 per share (the "Common Stock") or any other security
junior to the Series A Preferred Stock in respect of distributions upon
Liquidation out of the assets of the Company legally available for distribution
to its stockholders, an amount in cash equal to the Original Purchase Price per
share (subject to adjustment if the Series A Preferred Stock has been adjusted
pursuant to Paragraph 2(F) hereof) plus an amount equal to accrued and unpaid
dividends on each share of Series A Preferred Stock on the date fixed for the
distribution of assets of the Company (the "Liquidation Preference"). If, upon
such Liquidation, the assets of the Company available for distribution to the
holders of Series A Preferred Stock and any other series of preferred stock then
outstanding ranking on parity with the Series A Preferred Stock upon liquidation
("Parity Stock") shall be insufficient to permit payment in full to the holders
of the Series A Preferred Stock and Parity Stock, then the entire assets and
funds of the Company legally available for distribution to such holders and the
holders of the Parity Stock then outstanding shall be distributed ratably among
the holders of the Series A Preferred Stock and Parity Stock based upon the
proportion the total amount distributable on each share upon liquidation bears
to the aggregate amount available for distribution on all shares of the Series A
Preferred Stock and of such Parity Stock, if any. A merger or consolidation
shall be considered a Liquidation except in the event that in such a
transaction, the holders of the Series A Preferred Stock receive securities of
the surviving corporation having substantially similar rights as the Series A
Preferred Stock and the stockholders of the Company immediately prior to such
transaction are holders of at least a majority of the voting securities of the
surviving corporation immediately thereafter. Notwithstanding Section 7 hereof,
such provision may be waived in writing by a majority of the holders of the then
outstanding Series A Preferred Stock.
5. Priority.
(A) So long as any shares of Series A Preferred Stock shall be outstanding,
no dividends, whether in cash or property, shall be paid or declared, nor shall
any other distribution be made, on the Common Stock of the Company or any other
security junior to the Series A Preferred Stock as to dividend rights, unless
all dividends on the Series A Preferred Stock for all past quarterly dividend
periods and the full dividends for the then current semi-annual period shall
have been paid or declared and duly provided for. The provisions of this Section
5 shall not, however, apply to a dividend payable in Common Stock or any other
security of the Company junior to the Series A Preferred Stock. If any dividend
previously due on the Series A Preferred Stock has not been paid in full, then
no dividends shall be paid or declared upon any shares of any class or series of
stock of the Company ranking on a parity with the Series A Preferred Stock in
the payment of
<PAGE>
Page 34 of 74 Pages
dividends for any period unless a like proportionate dividend for the current
period, ratably in proportion to the respective annual dividend rates fixed
thereupon, shall be paid upon or declared for the Series A Preferred Stock then
issued and outstanding.
(B) The Company may issue, in the future, without the consent of holders of
the Series A Preferred Stock, other series of preferred stock which rank on
parity with or junior to the Series A Preferred Stock as to dividend and/or
liquidation rights. In accordance with Paragraph 7(C) hereof, the consent of the
holders of two-thirds of the outstanding shares of the Series A Preferred Stock
is required for the issuance of any series of preferred stock which is senior as
to dividend and/or liquidation rights to the Series A Preferred Stock.
6. Conversion Rights.
Each holder of record of shares of the Series A Preferred Stock shall have
the right to convert all or any part of such holder's share of Series A
Preferred Stock into Common Stock as follows:
(A) Voluntary Conversion. Each share of the Series A Preferred Stock shall
be convertible at any time, at the option of the respective holders thereof, at
the office of any transfer agent for the Series A Preferred Stock, or if there
is none, then at the office of the transfer agent for the Common Stock, or if
there is no such transfer agent, at the principal executive office of the
Company, into that number of fully paid and non-assessable shares of Common
Stock of the Company equal to the Original Purchase Price divided by the
conversion price in effect at the time of conversion (the "Conversion Price"),
determined as hereinafter provided. The Conversion Price shall initially be
$.40. The number of shares of Common Stock into which each share of Preferred
Stock is convertible is herein referred to as the "Conversion Rate." Dividends
accrued and payable at the time of conversion shall be paid, at the Company's
option, either (i) in cash or (ii) in such number of shares of Series A
Preferred Stock equal to the quotient resulting from dividing the amount of any
unpaid and accrued dividends by the Conversion Price. For purposes of this
Paragraph 6(A), such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series A Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date.
(B) Automatic Conversion. Commencing one year after the final closing of
the Private Placement (the "Final Closing"), at the Company's option upon 30
days' prior written notice to each holder of record, each share of Series A
Preferred Stock then outstanding shall, by virtue of such conditions and without
any action on the part of the holder thereof, be deemed automatically converted
into that number of shares of Common Stock into which the Series A Preferred
Stock would then be converted at the then effective Conversion Rate provided (i)
the closing price (determined, other than the time period, in accordance with
Paragraph 6(G)(ii)) of the Company's Common Stock equals or exceeds $1.00 per
share for 30 consecutive trading days and (ii) a registration statement covering
the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock has been declared effective by the Securities and Exchange Commission.
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Page 35 of 74 Pages
The Company's right to force conversion pursuant to this Paragraph 6(B) shall
terminate on the fifth anniversary of the Final Closing.
(C) Mechanics of Conversion. Before any holder of Series A Preferred Stock
shall be entitled to convert the same into shares of Common Stock, such holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Company or of any transfer agent for the Series A Preferred Stock,
and shall give written notice to the Company at its principal corporate office,
of the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. The Company shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Series A Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid.
(D) All Common Stock which may be issued upon conversion of the Series A
Preferred Stock will, upon issuance, be duly issued, fully paid and
non-assessable and free from all taxes, liens, and charges with respect to the
issuance thereof. At all times that any shares of Series A Preferred Stock are
outstanding, the Company shall have authorized and shall have reserved for the
purpose of issuance upon such conversion into Common Stock of all Series A
Preferred Stock, a sufficient number of shares of Common Stock to provide for
the conversion of all outstanding shares of Series A Preferred Stock at the then
effective Conversion Rate. Without limiting the generality of the foregoing, if,
at any time, the Conversion Price is decreased, the number of shares of Common
Stock authorized and reserved for issuance upon the conversion of the Series A
Preferred Stock shall be proportionately increased.
(E) The Conversion Price shall be subject to adjustment from time to time
as follows:
(i) (a) In case the Company shall issue shares of Common Stock or any
securities convertible into or exchangeable for Common Stock, other than
"Excluded Securities" (as defined below), for a consideration per share
(the "Offering Price") less than the Conversion Price, the Conversion Price
shall be adjusted immediately thereafter so that it shall equal the price
determined by multiplying the Conversion Price in effect immediately prior
to the date of issuance by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received for the issuance of such
additional shares would purchase at the Conversion Price in effect
immediately prior to the date of such issuance, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made. Notwithstanding anything to
the contrary contained herein, in the event that at any time during the
18-month period following the final closing of the Private Placement, the
market price of the Company's Common Stock (determined in accordance with
the provisions of Paragraph 6(G)(ii) hereof), is less than $.40, the
Conversion Price shall be automatically adjusted to equal such lower market
price. In addition, notwithstanding anything to the contrary contained
herein, in the event the Company shall, at any time during the 18-month
period commencing on the date of the initial closing of the Private
Placement, sell any shares
<PAGE>
Page 36 of 74 Pages
of Common Stock for a consideration per share less than the Conversion
Price (including the securities described in subparagraphs 6(E)(ii)(c) and
6(E)(ii)(d)), the Conversion Price shall be immediately adjusted to equal
such issuance price. The provisions of this subparagraph 6(E)(i) shall not
apply retroactively to any Series A Preferred Stock which has been
converted prior to the date of the adjustment.
(b) Except as otherwise provided in subparagraph 6(E)(iii) below, in
no event shall the Conversion Price be increased above the initial
Conversion Price, as otherwise adjusted pursuant to this Section 6.
(c) Upon each adjustment of the Conversion Price pursuant to this
subparagraph 6(E)(i). the total number of shares of Common Stock
purchasable upon the conversion of each share of Series A Preferred Stock
shall be such number of shares (calculated to the nearest one-hundredth and
pursuant to the terms of subparagraph 6(G)(i); provided, however, that in
no event shall the Conversion Price increase as a result of such rounding
calculation) purchasable at the Conversion Price in effect immediately
prior to such adjustment multiplied by a fraction, the numerator of which
shall be the Conversion Price in effect immediately prior to such
adjustment and the denominator of which shall be the Conversion Price in
effect immediately after such adjustment.
(d) No adjustment in the Conversion Price or the number of shares of
Common Stock into which a share of Series A Preferred Stock may be
converted shall be required unless such adjustment (plus any adjustments
not previously made by reason of this subparagraph (d)) would require an
increase or decrease of at least 1% in the number of shares of Common Stock
into which each share of the Series A Preferred Stock is then convertible,
provided, however, that any adjustments which are not required to be made
by reason of this subparagraph (d) shall be carried forward and taken into
account in any subsequent adjustment. All calculations and adjustments
shall be made to the nearest cent or to the nearest 1/100th of a share, as
the case may be.
(e) After each adjustment of the Conversion Price the Company shall
promptly prepare a certificate signed by its President or Chief Financial
Officer and a Secretary or Assistant Secretary setting forth the Conversion
Price, as so adjusted; the number of shares of Common Stock into which the
Series A Preferred Stock may be converted, and a statement of the facts
upon which such adjustment is based, and such certificate shall forthwith
be filed with the transfer agent, if any, for the Series A Preferred Stock,
and the Company shall cause such a copy of statement to be sent by ordinary
first class mail to each holder of Series A Preferred Stock.
(f) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed,
paid or incurred by this Company for any underwriting or otherwise in
connection with the issuance and sale thereof.
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Page 37 of 74 Pages
(g) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined in
good faith by the Board of Directors.
(h) In the case of the issuance after the Issuance Date of options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this subparagraph
6(E)(i) and subparagraph 6(E)(ii):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any conditions
to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of
such options to purchase or rights to subscribe for Common Stock shall
be deemed to have been issued at the time such options or rights were
issued and for a consideration (determined in the manner provided in
subparagraphs 6(E)(i)(f) and 6(E)(i)(g)), if any, received by the
Company upon the issuance of such options or rights plus the minimum
exercise price provided in such options or rights (without taking into
account potential antidilution adjustments) for the Common Stock
covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for (assuming the
satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking
into account potential antidilution adjustments) any such convertible
or exchangeable securities or upon the exercise of options to purchase
or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof, shall be deemed to have
been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration,
if any, received by the Company for any such securities and related
options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Company (without taking
into account potential antidilution adjustments) upon the conversion
or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the
manner provided in subparagraphs 6(E)(i)(f) and 6(E)(i)(g)).
(3) In the event of any change in the number of shares of Common
Stock deliverable or in the consideration payable to the Company upon
exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities (excluding a
change resulting solely from the antidilution provisions thereof if
such change results from an
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Page 38 of 74 Pages
event which gives rise to an antidilution adjustment under this
Paragraph 6(E)), the Conversion Price of the Series A Preferred Stock,
to the extent in any way affected by or computed using such options,
rights or securities, shall be recomputed to reflect such change, but
no further adjustment shall be made for the actual issuance of Common
Stock or any payment of such consideration upon the exercise of any
such options or rights or the conversion or exchange of such
securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A
Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related
to such securities, shall be recomputed to reflect the issuance of
only the number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect) actually issued upon
the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or
rights related to such securities.
(5) The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to subparagraphs
6(E)(i)(h)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either
subparagraph 6(E)(i)(h)(3) or (4).
(6) Notwithstanding the provisions of subparagraphs
6(E)(i)(h)(1)-(5) above, in the event that on or after the date hereof
the Company issues any options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to
subscribe for such convertible or exchangeable securities, if the
conversion or exercise price is not then determinable or is based on
future events, such shares of Common Stock shall not be deemed to be
issued until the price is determinable or such event has occurred and
the conversion or exercise price shall be subject to adjustment
pursuant to subparagraph 6(E)(i) above at the time of such
determination or the occurrence of such event even if the price is
determined or such event occurs after such date.
(i) In the event that the Company fails to (i) effect a Registration
Statement covering the securities sold in the Private Placement within
seven months of the Initial Closing or (ii) make any semi-annual dividend
payment when due, the Conversion Price then in effect shall be adjusted
downward by 10%.
<PAGE>
Page 39 of 74 Pages
(ii) The following issuances of Common Stock ("Excluded Securities")
shall be excluded from the adjustments set forth in this Paragraph 6(E)
(except as otherwise set forth in Paragraph 6(E)(i)(a)):
(a) shares of capital stock issued pursuant to a stock dividend
or a stock split or other subdivision or recombination of shares;
(b) Common Stock issued upon exercise of any warrants, options or
other securities outstanding on the date of the Final Closing;
(c) securities issued by the Company in an underwritten public
offering at not less than the then market price of the Common Stock
(determined in accordance with the provisions of Paragraph 6(G)(ii));
(d) securities issued pursuant to the direct or indirect bona
fide acquisition by the Company of any Person, whether by merger,
purchase of stock, purchase of assets or otherwise;
(e) securities issued upon exercise, conversion or exchange of
capital stock, rights, options or subscription calls, warrants or
other securities;
(f) Common Stock or options or warrants to purchase Common Stock
issued to officers, directors or employees of or consultants to the
Company pursuant to any compensation agreement, plan or arrangement or
the issuance of Common Stock upon the exercise of any such options or
warrants, provided such issuances do not exceed 10% of the Company's
outstanding Common Stock and preferred stock on the date of the Final
Closing; and
(iii) In case the Company shall (a) issue Common Stock as a dividend
or distribution on any class of the capital stock of the Company, (b) split
or otherwise subdivide its outstanding Common Stock, (c) combine the
outstanding Common Stock into a smaller number of shares, or (d) issue by
reclassification of its Common Stock (except in the case of a merger,
consolidation or sale of all or substantially all of the assets of the
Company as set forth in subparagraph 6(E)(iv) below) any shares of the
capital stock of the Company, any shares of the capital stock of the
Company, the Conversion Price in effect on the record date for any stock
dividend or the effective date of any such other event shall be decreased
(or increased in the case of a reverse stock split) so that the holder of
each share of the Series A Preferred Stock shall thereafter be entitled to
receive, upon the conversion of such share, the number of shares of Common
Stock or other capital stock which it would own or be entitled to receive
immediately after the happening of any of the events mentioned above had
such share of the Series A Preferred Stock been converted immediately prior
to the close of business on such record date or effective date. The
adjustments herein provided shall become effective immediately following
the record date for any such stock dividend or the effective date of any
such other events. There shall be no reduction in the Conversion Price in
the event that the Company pays a cash dividend.
<PAGE>
Page 40 of 74 Pages
(iv) In case of any reclassification or similar change of outstanding
shares of Common Stock of the Company, or in case of the consolidation or
merger of the Company with another corporation, or the conveyance of all or
substantially all of the assets of the Company in a transaction in which
holders of the Common Stock receive shares of stock or other property
including cash, each share of the Series A Preferred Stock shall, after
such event and subject to the other rights of the Series A Preferred Stock
as set forth elsewhere herein, be convertible only into the number of
shares of stock or other securities or property, including cash, to which a
holder of the number of shares of Common Stock of the Company deliverable
upon conversion of such shares of the Series A Preferred Stock would have
been entitled upon such reclassification, change, consolidation, merger or
conveyance had such share been converted immediately prior to the effective
date of such event.
(F) The Company shall at all times reserve and keep available, out of its
authorized but unissued shares of Common Stock or out of shares of Common Stock
held in its treasury, solely for the purpose of effecting the conversion of the
shares of the Series A Preferred Stock, the full number of shares of Common
Stock deliverable upon the conversion of all shares of the Series A Preferred
Stock from time to time outstanding. The Company shall from time to time in
accordance with Nevada law take all steps necessary to increase the authorized
amount of its Common Stock if at any time the authorized number of shares of
Common Stock remaining unissued shall not be sufficient to permit the conversion
of all of the shares of the Series A Preferred Stock.
(G) (i) No fractional shares or scrip representing fractional shares of
Common Stock shall be issued upon the conversion of the Series A Preferred
Stock. In lieu of any fractional shares to which a holder would otherwise be
entitled, the Company shall pay cash, equal to such fraction multiplied by the
closing price (determined as provided in subparagraph (ii) of this Paragraph
6(G) of the Common Stock on the day of conversion.
(ii) For the purposes of any computation under subparagraph 6(G)(i),
the current market price per share of Common Stock on any date shall be
deemed to be the average of the daily closing prices for the 20 consecutive
business days prior to the day in question. The closing price for each day
shall be the last sales price regular way or in case no sale takes place on
such day, the average of the closing high bid and low asked prices regular
way, in either case (a) as officially quoted by the Nasdaq SmallCap Market
or the Nasdaq National Market or such other market on which the Common
Stock is then listed for trading, or (b) if, in the reasonable judgment of
the Board of Directors of the Company, the Nasdaq SmallCap Market or the
Nasdaq National Market is no longer the principal United States market for
the Common Stock, then as quoted on the principal United States market for
the Common Stock, as determined by the Board of Directors of the Company,
or (c) if, in the reasonable judgment of the Board of Directors of the
Company, there exists no principal United States market for the Common
Stock, then as reasonably determined by the Board of Directors of the
Company.
(H) The Company will pay any taxes that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of shares of the
Series A Preferred
<PAGE>
Page 41 of 74 Pages
Stock. However, the Company shall not be required to pay any tax which may be
payable in respect to any transfer involved in the issue and delivery of shares
of Common Stock upon conversion in a name other than that in which the shares of
the Series A Preferred Stock so converted were registered, and no such issue or
delivery shall be made unless and until the person requesting such issue or
delivery has paid to the Company the amount of any such tax, or has established,
to the satisfaction of the Company, that such tax has been paid.
(I) The Company will not, by amendment of its Articles of Incorporation, as
amended, or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Stock against impairment.
(J) No shares of Series A Preferred Stock which have been converted to
Common Stock shall be reissued by the Company, provided, however, that any such
share, upon being converted and cancelled, shall be restored to the status of an
authorized but unissued share of preferred stock without designation as to
series, rights or preferences and may thereafter be issued as a share of
preferred stock not designated as Series A Preferred Stock.
7. Voting Rights.
(A) In addition to any other rights provided for herein or by law, the
holders of Series A Preferred Stock shall be entitled to vote, together with the
holders of Common Stock as one class, on all matters as to which holders of
Common Stock shall be entitled to vote, in the same manner and with the same
effect as such Common Stock holders. In any such vote each share of Series A
Preferred Stock shall entitle the holder thereof to the number of votes per
share that equals the number of whole shares of Common Stock into which each
such share of Series A Preferred Stock is then convertible, calculated to the
nearest of a share.
(B) In the event that the holders of the Series A Preferred Stock are
required to vote as a class, the affirmative vote of holders of not less than
two-thirds of the outstanding shares of Series A Preferred Stock shall be
required to approve each such matter to be voted upon and if any matter is
approved by such requisite percentage of holders of Series A Preferred Stock,
such matter shall bind all holders of Series A Preferred Stock.
(C) So long as any shares of the Series A Preferred Stock remain
outstanding, the consent of the holders of a two-thirds of the then outstanding
Series A Preferred Stock, voting as one class, together with any other series of
preferred stock then entitled to vote on such matter, regardless of series,
either expressed in writing or at a meeting called for that purpose, shall be
necessary to permit, effect or validate the creation and issuance of any series
of preferred
<PAGE>
Page 42 of 74 Pages
stock of the Company which is senior as to liquidation and/or dividend rights to
the Series A Preferred Stock.
(D) So long as any shares of the Series A Preferred Stock remain
outstanding, the consent of two-thirds of the holders of the then outstanding
Series A Preferred Stock, voting as one class, either expressed in writing or at
a meeting called for that purpose, shall be necessary to repeal, amend or
otherwise change this Certificate of Designation, Preferences and Rights or the
Articles of Incorporation of the Company, as amended, in a manner which would
alter or change the powers, preferences, rights privileges, restrictions and
conditions of the Series A Preferred Stock so as to adversely affect the
Preferred Stock.
(E) Each share of the Series A Preferred Stock shall entitle the holder
thereof to one vote on all matters to be voted on by the holders of the Series A
Preferred Stock, as set forth above.
8. Miscellaneous.
(A) There is no sinking fund with respect to the Series A Preferred Stock.
(B) The shares of the Series A Preferred Stock shall not have any
preferences, voting powers or relative, participating, optional, preemptive or
other special rights except as set forth above in this Certificate of
Designation, Preferences and Rights and in the Articles of Incorporation of the
Company, as amended.
(C) The holders of the Series A Preferred Stock shall be entitled to
receive all communications sent by the Company to the holders of the Common
Stock.
IN WITNESS WHEREOF, iMALL, INC., Inc. has caused this Certificate to be
signed by Richard Rosenblatt, its Chief Executive Officer, on this ____ day of
November, 1997, and such person hereby affirms under penalty of perjury that
this Certificate is the act and deed of iMall, Inc. and that the facts stated
herein are true and correct.
iMALL, INC.
By: _____________________________________
Richard Rosenblatt, Chief Executive Officer
Attest:
___________________________________________
Craig Lewis, Secretary
Page 43 of 74 Pages
Exhibit 3
IRREVOCABLE PROXY
For good and valuable consideration, receipt of which is hereby
acknowledged, the undersigned, Commonwealth Associates, hereby appoints Richard
Rosenblatt ("Rosenblatt"), the proxy of the undersigned for a period of one year
(the "Proxy Term") commencing on the date hereof, with full power to vote at any
meeting of iMall, Inc.(the "Company") in such manner as he, in his sole
discretion, deems proper with respect to (i) the 12,000,000 shares of Common
Stock, $.001 par value per share, of the Company ("Common Stock") issuable upon
exercise of the Warrants to purchase Common Stock of the Company, dated December
19, 1997, owned by the undersigned (the "Warrants") and (ii) any additional
shares of Common Stock issued or issuable in respect of the Warrants during the
Proxy Term.
This proxy is irrevocable. At any time and from time to time during the
Proxy Term, the undersigned shall execute and deliver to Rosenblatt or his
designees such additional proxies or instruments as may be deemed by Rosenblatt
necessary or desirable to effectuate the purposes of this Proxy or further to
evidence the right and powers granted hereby.
Upon the death or disability of Rosenblatt or his no longer serving as the
Chairman or Chief Executive Officer of the Company, this proxy will terminate.
This proxy shall terminate at such time that the undersigned and its affiliates
beneficially own less than 10% of the outstanding Common Stock of the Company.
If the undersigned sells or otherwise transfers any of the Warrants or the
shares issued upon exercise of the Warrants to any affiliate of the undersigned,
such shares underlying the Warrants will remain subject to this proxy during the
remainder of the Proxy Term. If the undersigned sells or otherwise transfers any
of the Warrants or the shares issued upon the exercise of Warrants to a person
unaffiliated with the undersigned, this proxy will terminate in respect to the
shares underlying the Warrants.
<PAGE>
Page 44 of 74 Pages
IN WITNESS WHEREOF, the undersigned has executed this irrevocable proxy as
of the 30th day of December, 1997.
COMMONWEALTH ASSOCIATES
By: Commonwealth Management Co., Inc.,
its General Partner
By: _________________________________
Authorized Officer
Richard Rosenblatt hereby in good faith affirms that he will independently
vote the stock without influence from the grantor of the above proxy and will
vote the stock in accord with what he believes to be the best interests of the
Company and independently of the interests of the grantor of such proxy.
_________________________________
Richard Rosenblatt
Page 45 of 74 Pages
Exhibit 4
iMALL, INC.
SUBSCRIPTION AGREEMENT made as of this ____ day of ________, 1997 between
iMall, Inc., a Nevada corporation with offices at 4400 Coldwater Canyon Blvd.,
Suite 200, Studio City, California 91604 (the "Company") and the undersigned
(the "Subscriber").
WHEREAS, the Company desires to issue a minimum of 50 and a maximum of 150
units ("Units") in a private placement, each Unit consisting of 25,000 shares
(the "Shares") of Series A Convertible Preferred Stock, par value $.001 per
share (the "Convertible Preferred Stock")(which Shares are each convertible into
10 shares of the Company's Common Stock, $.001 par value (the "Common Stock"))
as described in the Certificate of the Designations, Powers, Preferences and
Rights (the "Designation") of the Series A Convertible Preferred Stock included
as Exhibit A to the Memorandum (defined below)) and 62,500 common stock purchase
warrants (the "Warrants") in the form as set forth in the Warrant Agreement
attached hereto as Exhibit B on the terms and conditions hereinafter set forth
and the Subscriber desires to acquire the number of Units set forth on the
signature page hereof;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto do hereby agree as follows:
I. SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY AND COVENANTS OF
SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby subscribes for and agrees to purchase from the Company such
number of Units as is set forth upon the signature page hereof at a price equal
to $100,000 per Unit, and the Company agrees to sell such Units to the
Subscriber for said purchase price subject to the Company's right to sell to the
Subscriber such lesser number of Units as the Company may, in its sole
discretion, deem necessary or desirable. The purchase price is payable by
certified or bank check made payable to United States Trust Company of New York,
as Escrow Agent for iMall, Inc., or by wire transfer of funds, contemporaneously
with the execution and delivery of this Subscription Agreement. Certificates
representing the Shares and Warrants will be delivered by the Company within ten
(10) days following the consummation of this offering as set forth in Article
III hereof. The Subscriber understands however, that this purchase of Units is
contingent upon the Company making sales of a minimum of 50 Units prior to the
Termination Date as defined in Article III hereof.
1.2 The Subscriber recognizes that the purchase of Units involves a high
degree of risk in that (i) an investment in the Company is highly speculative
and only investors who can afford the loss of their entire investment should
consider investing in the Company and the Units; (ii) he may not be able to
liquidate his investment; (iii) transferability of the securities
<PAGE>
Page 46 of 74 Pages
comprising the Units is extremely limited; and (iv) in the event of a
disposition, an investor could suffer the loss of his entire investment, as well
as other risk factors as more fully set forth herein and in the Private
Placement Memorandum dated November 7, 1997 (including all exhibits and other
attachments thereto, the "Memorandum").
1.3 The Subscriber represents and warrants that he is an "accredited
investor" as such term in defined in Rule 501 of Regulation D promulgated under
the United States Securities Act of 1933, as amended (the "Act"), as indicated
by his responses to the Investor Questionnaire, and that he is able to bear the
economic risk of an investment in the Units. The Subscriber further represents
and warrants that the information furnished in the Investor Questionnaire is
accurate and complete in all material respects.
1.4 The Subscriber acknowledges that he has prior investment experience,
including investment in non-listed and non-registered securities, or he has
employed the services of an investment advisor, attorney or accountant to read
all of the documents furnished or made available by the Company both to him and
to all other prospective investors in the Units and to evaluate the merits and
risks of such an investment on his behalf, and that he recognizes the highly
speculative nature of this investment.
1.5 The Subscriber acknowledges receipt and careful review of the
Memorandum and all other documents furnished in connection with this transaction
(collectively, the "Offering Documents") and hereby represents that he has been
furnished by the Company during the course of this transaction with all
information regarding the Company which he has requested or desires to know; and
that such information and documents have, in his opinion, afforded the
Subscriber with all of the same information that would be provided him in a
registration statement filed under the Act; that he has been afforded the
opportunity to ask questions of and receive answers from duly authorized
officers or other representatives of the Company concerning the terms and
conditions of the offering, and any additional information which he had
requested.
1.6 The Subscriber acknowledges that this offering of Units may involve tax
consequences and that the contents of the Offering Documents do not contain tax
advice or information. The Subscriber acknowledges that he must retain his own
professional advisors to evaluate the tax and other consequences of an
investment in the Units.
1.7 The Subscriber acknowledges that this offering of Units has not been
reviewed by the United States Securities and Exchange Commission ("SEC") because
of the Company's representations that this is intended to be a nonpublic
offering pursuant to Sections 4(2) or 3(b) of the Act. The Subscriber represents
that the Shares and Warrants comprising his Units are being purchased for his
own account, for investment and not for distribution or resale to others. The
Subscriber agrees that he will not sell or otherwise transfer such securities
unless they are registered under the Act or unless an exemption from such
registration is available.
<PAGE>
Page 47 of 74 Pages
1.8 The Subscriber understands that the Shares and Warrants comprising the
Units have not been registered under Act by reason of a claimed exemption under
the provisions of the Act which depends, in part, upon his investment intention.
In this connection, the Subscriber understands that it is the position of the
SEC that the statutory basis for such exemption would not be present if his
representation merely meant that his present intention was to hold such
securities for a short period, such as the capital gains period of tax statutes,
for a deferred sale, for a market rise, assuming that a market develops, or for
any other fixed period. The Subscriber realizes that, in the view of the SEC, a
purchase now with an intent to resell would represent a purchase with an intent
inconsistent with his representation to the Company, and the SEC might regard
such a sale or disposition as a deferred sale to which such exemptions are not
available.
1.9 The Subscriber understands that there is no public market for the
Shares and Warrants comprising the Units and that only a limited public market
exists for the Common Stock issuable upon conversion of the Shares, upon
conversion of any Convertible Preferred Stock issued as dividends in respect of
the Shares and upon exercise of the Warrants (the "Reserved Shares"). Rule 144
(the "Rule") promulgated under the Act requires, among other conditions, a one
year holding period prior to the resale (in limited amounts) of securities
acquired in a non-public offering without having to satisfy the registration
requirements under the Act. The Subscriber understands that the Company makes no
representation or warranty regarding its fulfillment in the future of any
reporting requirements under the Securities Exchange Act of 1934, as amended, or
its dissemination to the public of any current financial or other information
concerning the Company, as is required by the Rule as one of the conditions of
its availability. The Subscriber understands and hereby acknowledges that the
Company is under no obligation to register the securities comprising the Units
under the Act, with the exception of certain registration rights relating to the
Warrants and the Reserved Shares set forth in Article IV herein. The Subscriber
consents that the Company may, if it desires, permit the transfer of the
securities comprising the Units or issuable upon conversion or exercise thereof
out of his name only when his request for transfer is accompanied by an opinion
of counsel reasonably satisfactory to the Company that neither the sale nor the
proposed transfer results in a violation of the Act or any applicable state
"blue sky" laws (collectively "Securities Laws") and subject to the provisions
of Section 1.10 hereof. The Subscriber agrees to hold the Company and its
directors, officers and controlling persons and their respective heirs,
representatives, successors and assigns harmless and to indemnify them against
all liabilities, costs and expenses incurred by them as a result of any
misrepresentation made by him contained herein or in the Investor Questionnaire
or any sale or distribution by the undersigned Subscriber in violation of any
Securities Laws.
1.10 Notwithstanding any registration statement covering the resale of the
Warrants and the Reserved Shares, the Subscriber agrees not to sell, transfer,
assign, hypothecate or otherwise dispose of the Shares, the Warrants or the
Reserved Shares for a period of one year from the final Closing; provided,
however, that nothing contained in this Section 1.10 shall prevent holders of
the Shares from exercising their right of conversion pursuant to Section 6(A) of
the
<PAGE>
Page 48 of 74 Pages
Designation. The Placement Agent may consent to the release of the foregoing
transfer restrictions at any time after seven months from the final Closing for
all, but not less than all, of the Subscribers.
1.11 The Subscriber consents to the placement of a legend on any
certificate or other document evidencing the Shares and Warrants comprising his
Units and the Reserved Shares stating that they have not been registered under
the Act and setting forth or referring to the restrictions on transferability
and sale thereof.
1.12 The Subscriber understands that the Company will review this
Subscription Agreement and the Investor Questionnaire and otherwise review the
financial standing of the Subscriber; and it is agreed that the Company reserves
the unrestricted right to reject or limit any subscription.
1.13 The Subscriber hereby represents that the address of Subscriber
furnished by him at the end of this Subscription Agreement is the undersigned's
principal residence if he is an individual or its principal business address if
it is a corporation or other entity.
1.14 The Subscriber acknowledges that if he is a Registered Representative
\of an NASD member firm, he must give such firm the notice required by the
NASD's Rules of Fair Practice, receipt of which must be acknowledged by such
firm on the signature page hereof.
1.15 The Subscriber hereby represents that, except as set forth in the
Offering Documents, no representations or warranties have been made to the
Subscriber by the Company or any agent, employee or affiliate of the Company and
in entering into this transaction, the Subscriber is not relying on any
information, other than that contained in the Offering Documents and the results
of independent investigation by the Subscriber.
1.16 The Subscriber acknowledges that at such time, if ever, as any of the
Securities are registered, sales of such Securities will be subject to state
securities laws, including those of states which may require any securities sold
therein to be sold through a registered broker-dealer or in reliance upon an
exemption from registration.
1.17 The Subscriber acknowledges that the maximum number of Units to be
sold pursuant to the Memorandum may be increased, at the discretion of the
Company and the Placement Agent, by up to twenty (20) additional Units.
II. REPRESENTATIONS BY THE COMPANY
The Company represents and warrants to the Subscriber that prior to the
consummation of this offering and at the Closing Date:
<PAGE>
Page 49 of 74 Pages
(a) The Company is a corporation duly organized, existing and in good
standing under the laws of the State of Nevada and has the corporate power to
conduct the business which it conducts and proposes to conduct and is qualified
to do business in California and Utah.
(b) The execution, delivery and performance of this Subscription Agreement
by the Company will have been duly approved by the Board of Directors of the
Company and all other actions required to authorize and effect the offer and
sale of the Units and the securities contained therein will have been duly taken
and approved.
(c) The Shares and Warrants comprising the Units have been duly and validly
authorized and when issued and paid for in accordance with the terms hereof,
will be duly and validly issued and fully paid and non assessable.
(d) The Company will at all times have authorized and reserved a sufficient
number of Reserved Shares to provide for conversion of the Shares and exercise
of the Warrants.
(e) The Company has obtained, or is in the process of obtaining, all
licenses, permits and other governmental authorizations necessary to the conduct
of its business; such licenses, permits and other governmental authorizations
obtained are in full force and effect; and the Company is in all material
respects complying therewith.
(f) The Company knows of no pending or threatened legal or governmental
proceedings to which the Company is a party which could materially adversely
affect the business, property, financial condition or operations of the Company.
(g) The Company is not in violation of or default under, nor will the
execution and delivery of this Subscription Agreement, the issuance of the
Shares or the Warrants, and the incurrence of the obligations herein and therein
set forth and the consummation of the transactions herein or therein
contemplated, result in a violation of, or constitute a default under, the
Company's articles of incorporation or by-laws, any material obligations,
agreement, covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to which the
Company is a party or by which it or any of its properties may be bound or any
material order, rule, regulation, writ, injunction, or decree of any government,
governmental instrumentality or court, domestic or foreign.
(h) The financial information contained in the Memorandum presents fairly
the financial condition of the Company as of the dates and for the periods
indicated.
<PAGE>
Page 50 of 74 Pages
III. TERMS OF SUBSCRIPTION
3.1 The subscription period will begin as of November 7, 1997 and will
terminate at 11:59 PM Eastern time on January 6, 1998, unless extended by the
Company and the Placement Agent (as defined in Section 3.2 hereof) for up to an
additional 60 days (the "Termination Date"). Of the Units, 50 will be offered on
a "best efforts-all or none" basis and the remaining 100 Units will be offered
on a "best efforts" basis as more particularly set forth in the Memorandum. The
minimum subscription per subscriber shall be one Unit ($100,000), provided,
however, that smaller investments may be accepted at the discretion of the
Placement Agent and the Company.
3.2 Placement of the Units will be made by Commonwealth Associates (the
"Placement Agent"), which will receive (i) a placement fee in the amount of 7%
of the purchase price of the Units placed; (ii) a structuring fee in the amount
of 3% of the purchase price of the Units placed; (iii) an expense allowance of
$200,000; (iv) warrants to purchase up to 10,500,000 shares of Common Stock of
the Company exercisable at $.40 per share for assisting the Company in the
placement; (v) an advisory fee of $5,000 per month for 12 months; and (vi) other
compensation as summarized in the Memorandum.
3.3 Pending the sale of the Units, all funds paid hereunder shall be
deposited by the Company in escrow with United States Trust Company of New York.
If the Company shall not have obtained subscriptions (including this
subscription) for purchases of 50 Units for an aggregate purchase price of
$5,000,000 on or before the Termination Date, then this subscription shall be
void and all funds paid hereunder by the Subscriber, with interest, shall be
promptly returned to the Subscriber, subject to paragraph 3.5 hereof. If 50
Units are sold at or prior to the Termination Date, then all subscription
proceeds shall be paid over to the Company within ten days thereafter. In such
event, placements of additional Units may continue until the Termination Date,
with subsequent releases of funds to be at the mutual consent of the Company and
the Placement Agent.
3.4 The Subscriber hereby authorizes and directs the Company to deliver
certificates representing the securities to be issued to such Subscriber
pursuant to this Subscription Agreement either (a) to the residential or
business address indicated in the Confidential Purchaser Questionnaire or (b)
directly to the Subscriber's account maintained with the Placement Agent, if
any. (If the Subscriber does not desire the securities to be delivered to such
account, the Subscriber should delete Subsection (b) of this Section 3.4.)
3.5 The Subscriber hereby authorizes and directs the Company to return any
funds, plus interest, for unaccepted subscriptions to the same account from
which the funds were drawn, including any customer account maintained with the
Placement Agent.
3.6 If the Subscriber is not a United States person, such Subscriber hereby
represents that it has satisfied itself as to the full observance of the laws of
its jurisdiction in
<PAGE>
Page 51 of 74 Pages
connection with any invitation to subscribe for the Securities or any use of
this Agreement, including (i) the legal requirements within its jurisdiction for
the purchase of the Securities, (ii) any foreign exchange restrictions
applicable to such purchase, (iii) any governmental or other consents that may
need to be obtained, and (iv) the income tax and other tax consequences, if any,
that may be relevant to the purchase, holding, redemption, sale or transfer of
the Securities. Such Subscriber's subscription and payment for, and his or her
continued beneficial ownership of the Securities, will not violate any
applicable securities or other laws of the Subscriber's jurisdiction.
IV. REGISTRATION RIGHTS
4.1 The Company hereby agrees with the holders of the Reserved Shares or
their transferees (collectively, the "Holders") to use its best efforts to
ensure that the Warrants and the Reserved Shares (collectively, the "Registrable
Securities") shall be registered for resale under the Act, subject to the
lock-up provisions of Section 1.10 hereof, within seven months after the initial
Closing.
The obligation of the Company under this Section 4.1 shall be limited to
one registration statement and shall not apply to any Registrable Securities
which at the time are eligible for resale pursuant to Rule 144 without regard to
the volume limitations of such rule. The Company shall pay the expenses
described in Section 4.3 for the registration statement filed pursuant to this
Section 4.1, except for underwriting discounts and commissions and legal fees of
the Holders, which shall be borne by the Holders.
The foregoing notwithstanding, the Company may defer any such \registration
pursuant to this Section 4.1 for a period of not more than ninety (90) days if
the Company's Board of Directors determines in good faith that it would be in
the best interest of shareholders to do so.
4.2 Registration Procedures. If and whenever the Company is required by the
provisions of Section 4.1 to effect the registration of Registrable Securities
under the Act, the Company will, until such time as the Registrable Securities
may be sold under Rule 144 without volume limitation:
(a) prepare and file with the SEC a registration statement with
respect to such securities, and use its best efforts to cause such registration
statement to become and remain effective;
(b) prepare and file with the SEC such amendments to such registration
statement and supplements to the prospectus contained therein as may be
necessary to keep such registration statement effective;
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Page 52 of 74 Pages
(c) furnish to the security holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably request
in order to facilitate the public offering of such securities;
(d) use its best efforts to register or qualify the securities covered
by such registration statement under such state securities or blue sky laws of
such jurisdictions as such participating holders may reasonably request in
writing within twenty (20) days following the original filing of such
registration statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified;
(e) notify the security holders participating in such registration,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any prospectus
forming a part of such registration statement has been filed;
(f) notify such holders promptly of any request by the SEC for the
amending or supplementing of such registration statement or prospectus or for
additional information;
(g) prepare and file with the SEC, promptly upon the request of any
such holders, any amendments or supplements to such registration statement or
prospectus which, in the opinion of counsel for such holders (and concurred in
by counsel for the Company), is required under the Act or the rules and
regulations thereunder in connection with the distribution of Common Stock by
such holder;
(h) prepare and promptly file with the SEC and promptly notify such
holders of the filing of such amendment or supplement to such registration
statement or prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such securities is
required to be delivered under the Act, any event shall have occurred as the
result of which any such prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading; and
(i) advise such holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued.
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4.3 Expenses.
(a) With respect to the registration required pursuant to Section 4.1
hereof, all fees, costs and expenses of and incidental to such registration,
inclusion and public offering (as specified in paragraph (b) below) in
connection therewith shall be borne by the Company, provided, however, that any
securityholders participating in such registration shall bear their pro rata
share of the underwriting discount and commissions and transfer taxes.
(b) The fees, costs and expenses of registration to be borne by the
Company as provided in paragraph (a) above shall include, without limitation,
all registration, filing, and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered and qualified (except as provided in 4.3(a) above). Fees and
disbursements of counsel and accountants for the selling securityholders and any
other expenses incurred by the selling securityholders not expressly included
above shall be borne by the selling securityholders.
4.4 Indemnification.
(a) The Company will indemnify and hold harmless each holder of
Registrable Securities which are included in a registration statement pursuant
to the provisions of Section 4.1 hereof, its directors and officers, and any
underwriter (as defined in the Act) for such holder and each person, if any, who
controls such holder or such underwriter within the meaning of the Act, from and
against, and will reimburse such holder and each such underwriter and
controlling person with respect to, any and all loss, damage, liability, cost
and expense to which such holder or any such underwriter or controlling person
may become subject under the Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, damage, liability, cost or expenses
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with information furnished
by such holder, such underwriter or such controlling person in writing
specifically for use in the preparation thereof.
(b) Each holder of Registrable Securities included in a registration
pursuant to the provisions of Section 4.1 hereof will indemnify and hold
harmless the Company, its directors and officers, any controlling person and any
underwriter from and against, and will reimburse the Company, its directors and
officers, any controlling person and any underwriter with respect to, any and
all loss, damage, liability, cost or expense to which the Company or any
<PAGE>
Page 54 of 74 Pages
controlling person and/or any underwriter may become subject under the Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses are
caused by any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
strict conformity with written information furnished by or on behalf of such
holder specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section 4.4 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party of the commencement thereof;
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than
hereunder. In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party,
provided, however, if counsel for the indemnifying party concludes that a single
counsel cannot under applicable legal and ethical considerations, represent both
the indemnifying party and the indemnified party, the indemnified party or
parties have the right to select separate counsel to participate in the defense
of such action on behalf of such indemnified party or parties. After notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party pursuant to the provisions of said paragraph (a) or (b) for
any legal or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed counsel in
accordance with the provisions of the preceding sentence, (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after the notice of the
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party.
V. MISCELLANEOUS
5.1 Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail, return
receipt requested, addressed to the Company, at its registered office, 4400
Coldwater Canyon Blvd., Suite 200, Studio City, California 91604, Attention:
Chief Executive Officer and to the Subscriber at his address indicated
<PAGE>
Page 55 of 74 Pages
on the last page of this Subscription Agreement. Notices shall be deemed to have
been given on the date of mailing, except notices of change of address, which
shall be deemed to have been given when received.
5.2 This Subscription Agreement shall not be changed, modified or amended
except by a writing signed by the parties to be charged, and this Subscription
Agreement may not be discharged except by performance in accordance with its
terms or by a writing signed by the party to be charged.
5.3 This Subscription Agreement shall be binding upon and inure to the
benefit of the parties hereto and to their respective heirs, legal
representatives, successors and assigns. This Subscription Agreement sets forth
the entire agreement and understanding between the parties as to the subject
matter thereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
5.4 Notwithstanding the place where this Subscription Agreement may be
executed by any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof shall be construed in accordance with and governed
by the laws of the State of New York. The parties hereby agree that any dispute
which may arise between them arising out of or in connection with this
Subscription Agreement shall be adjudicated before a court located in New York
City and they hereby submit to the exclusive jurisdiction of the courts of the
State of New York located in New York, New York and of the federal courts in the
Southern District of New York with respect to any action or legal proceeding
commenced by any party, and irrevocably waive any objection they now or
hereafter may have respecting the venue of any such action or proceeding brought
in such a court or respecting the fact that such court is an inconvenient forum,
relating to or arising out of this Subscription Agreement or any acts or
omissions relating to the sale of the securities hereunder, and consent to the
service of process in any such action or legal proceeding by means of registered
or certified mail, return receipt requested, in care of the address set forth
below or such other address as the undersigned shall furnish in writing to the
other.
5.5 This Subscription Agreement may be executed in counterparts. Upon the
execution and delivery of this Subscription Agreement by the Subscriber, this
Subscription Agreement shall become a binding obligation of the Subscriber with
respect to the purchase of Units as herein provided; subject, however, to the
right hereby reserved to the Company to enter into the same agreements with
other subscribers and to add and/or to delete other persons as subscribers.
5.6 The holding of any provision of this Subscription Agreement to be
invalid or unenforceable by a court of competent jurisdiction shall not affect
any other provision of this Subscription Agreement, which shall remain in full
force and effect.
<PAGE>
Page 56 of 74 Pages
5.7 It is agreed that a waiver by either party of a breach of any provision
of this Subscription Agreement shall not operate, or be construed, as a waiver
of any subsequent breach by that same party.
5.8 The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this
Subscription Agreement.
5.9 The Company agrees not to disclose the names, addresses or any other
information about the Subscribers, except as required by law, provided, that the
Company may use information relating to the Subscriber in any registration
statement under the Act with respect to the Warrants or the Reserved Shares.
VI. BLUE SKY LEGENDS
California
The sale of securities which are the subject of this agreement has not been
qualified with the Commissioner of Corporations of the State of California and
the issuance of such securities or the payment or receipt of any part of the
consideration for such securities prior to such qualification is unlawful,
unless the sale of securities is exempt from qualification by Section 25100,
25102 or 25105 of the California Corporations Code. The rights of all parties to
this agreement are expressly conditioned upon such qualification being obtained,
unless the sale is so exempt.
Connecticut The undersigned acknowledges that the Securities have not been
registered under the Connecticut Uniform Securities Act, as amended (the "Act")
and are subject to restrictions on transferability and sale of securities as set
forth herein. The undersigned hereby agrees that such Securities will not be
transferred or sold without registration under the Act or exemption therefrom.
Maine
These securities are being sold pursuant to an exemption from registration
with the bank superintendent of the State of Maine under Section 10502(2)(r) of
Title 32 of the Maine revised statutes. These securities may be deemed
restricted securities and as such the holder may not be able to resell the
securities unless pursuant to registration under state or federal securities
laws or unless an exemption under such laws exists.
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Page 57 of 74 Pages
Missouri
The undersigned acknowledges that the Securities have not been registered
under the Missouri Uniform Securities Act, as amended (the "Act") and are
subject to restrictions on transferability and sale of securities as set forth
herein. The undersigned hereby acknowledges that such Securities may be disposed
of only through a licensed broker-dealer. It is a felony to sell securities in
violation of the Missouri Securities Act.
Pennsylvania
The undersigned hereby acknowledges that the Issuer is relying upon the
exemption from registration of securities set forth in Section 203(d) of the
Pennsylvania Securities Act of 1972, as amended (the "Pennsylvania Act") in
connection with the sale of the Securities to the undersigned.
In accordance with the requirements of Section 203(d) of the Pennsylvania
Act, the undersigned hereby agrees not to sell his Securities within twelve (12)
months from the date of purchase except pursuant to Section 204.01 of the Blue
Sky Regulations of the Pennsylvania Securities Act of 1972. Additionally, the
undersigned is aware of the right of withdrawal under Section 207(m) of the Act
described in the cover pages of the Memorandum.
Texas
The undersigned hereby acknowledges that the Securities cannot be sold
unless they are subsequently registered under the Securities Act of 1933, as
amended, and the Texas Securities Act, or an exemption from registration is
available. The undersigned further acknowledges that because the Securities are
not readily transferable, he must bear the economic risk of his investment for
an indefinite period of time.
<PAGE>
Page 58 of 74 Pages
IN WITNESS WHEREOF, the parties have executed this Subscription Agreement
as of the day and year first written above.
______________________________ ___________________________________
Signature of Subscriber Signature of Co-Subscriber
______________________________ ___________________________________
Name of Subscriber Name of Co-Subscriber
[please print]
______________________________ ___________________________________
Address of Subscriber Address of Co-Subscriber
______________________________ ___________________________________
Social Security or Taxpayer Social Security or Taxpayer Identification
Identification Number of Subscriber Number of Co-Subscriber
______________________________
Subscriber's Account Number
at Commonwealth Associates
______________________________
Number of Units Subscribed For
*If Subscriber is a Registered Representative
with an NASD member firm, have the following
acknowledgement signed by the appropriate party:
The undersigned NASD member firm
acknowledges receipt of the notice
required by Rule 3050 of the NASD Subscription Accepted:
Conduct Rules.
iMALL, INC.
______________________________
Name of NASD Member Firm By: ______________________________
By ______________________________ Date: ____________________
Authorized Officer
Page 59 of 74 Pages
Exhibit 5
WARRANT TO PURCHASE COMMON STOCK
OF
iMALL, INC.
This is to Certify That, FOR VALUE RECEIVED, Commonwealth
Associates, or assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from iMall, Inc., a Nevada corporation ("Company"),
Five Million (5,000,000) fully paid, validly issued and nonassessable shares of
Common Stock of the Company ("Common Stock") at a price of $.40 per share at any
time or from time to time during the period from December 19, 1997 until
December 5, 2002. The number of shares of Common Stock to be received upon the
exercise of this Warrant and the price to be paid for each share of Common Stock
may be adjusted from time to time as hereinafter set forth. The shares of Common
Stock deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price of
a share of Common Stock in effect at any time and as adjusted from time to time
is hereinafter sometimes referred to as the "Exercise Price". This Warrant,
together with warrants of like tenor, constituting in the aggregate warrants
(the "Warrants") to purchase 5,000,000 shares of Common Stock, was originally
issued pursuant to an agency agreement between the Company and Commonwealth
Associates ("Commonwealth"), in connection with a private offering of the
Company's securities through Commonwealth (the "Private Placement").
(a) EXERCISE OF WARRANT; CANCELLATION OF WARRANT.
(1) This Warrant may be exercised in whole or in part at any time or
from time to time on or after December 15, 1997 and until December 5, 2002 (the
"Exercise Period"), subject to the provisions of Section (j)(2) hereof;
provided, however, that (i) if either such day is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day, and (ii) in the event of
any merger, consolidation or sale of substantially all the assets of the Company
as an entirety, resulting in any distribution to the Company's stockholders,
prior to December 5, 2002, the Holder shall have the right to exercise this
Warrant commencing at such time through December 5, 2002 into the kind and
amount of shares of stock and other securities and property (including cash)
receivable by a holder of the number of shares of Common Stock into which this
Warrant might have been exercisable immediately prior thereto. This Warrant may
be exercised by presentation and surrender hereof to the Company at its
principal office, or at the office of its stock transfer agent, if any, with the
Purchase Form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of Warrant Shares specified in such form. As soon
as practicable after each such
<PAGE>
Page 60 of 74 Pages
exercise of the warrants, but not later than seven (7) days from the date of
such exercise, the Company shall issue and deliver to the Holder a certificate
or certificate for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt
by the Company of this Warrant at its office, or by the stock transfer agent of
the Company at its office, in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Common
Stock shall not then be physically delivered to the Holder.
(2) At any time during the Exercise Period, the Holder may, at its
option, exchange this Warrant, in whole or in part (a "Warrant Exchange"), into
the number of Warrant Shares determined in accordance with this Section (a)(2),
by surrendering this Warrant at the principal office of the Company or at the
office of its stock transfer agent, accompanied by a notice stating such
Holder's intent to effect such exchange, the number of Warrant Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) days following the Exchange Date. In connection with any
Warrant Exchange, this Warrant shall represent the right to subscribe for and
acquire the number of Warrant Shares (rounded to the next highest integer) equal
to (i) the number of Warrant Shares specified by the Holder in its Notice of
Exchange (the "Total Number") less (ii) the number of Warrant Shares equal to
the quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price by (B) the current market value of a share of Common
Stock. Current market value shall have the meaning set forth Section (c) below,
except that for purposes hereof, the date of exercise, as used in such Section
(c), shall mean the Exchange Date.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
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Page 61 of 74 Pages
(1) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market, the current market value shall be
the last reported sale price of the Common Stock on such exchange or
market on the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average closing bid
and asked prices for such day on such exchange or market; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, but is traded on the Nasdaq SmallCap Market, the
current market value shall be the average of the closing bid and asked
prices for such day on such market and if the Common Stock is not so
traded, the current market value shall be the mean of the last reported
bid and asked prices reported by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of this Warrant;
or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than book value thereof
as at the end of the most recent fiscal year of the Company ending prior
to the date of the exercise of the Warrant, determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Upon surrender of this Warrant to the Company at
its principal office or at the office of its stock transfer agent, if any, with
the Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
<PAGE>
Page 62 of 74 Pages
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. Subject to the provisions of Section k
hereof, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of the Warrants shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock
into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for such dividend
or distribution or of the effective date of such subdivision, combination
or reclassification shall be adjusted so that it shall equal the price
determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock
outstanding after giving effect to such action, and the numerator of which
shall be the number of shares of Common Stock outstanding immediately
prior to such action. Such adjustment shall be made successively whenever
any event listed above shall occur.
(2) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock) at a price (the "Subscription Price") (or
having a conversion price per share) less than the current market price of
the Common Stock (as defined in Subsection (8) below) on the record date
mentioned below, or less than the Exercise Price on such record date the
Exercise Price shall be adjusted so that the same shall equal the lower of
(i) the price determined by multiplying the Exercise Price in effect
immediately prior to the date of such issuance by a fraction, the
numerator of which shall be the sum of the number of shares of Common
Stock outstanding on the record date mentioned below and the number of
additional shares of Common Stock which the aggregate offering price of
the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would purchase
at such current market price per share of the Common Stock, and the
denominator of which shall be the sum of the number of shares of Common
Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible) or (ii) in the event
the Subscription Price is equal to or higher than the current market price
but is less than the Exercise Price, the price
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determined by multiplying the Exercise Price in effect immediately prior
to the date of issuance by a fraction, the numerator of which shall be the
sum of the number of shares outstanding on the record date mentioned below
and the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered
(or the aggregate conversion price of the convertible securities so
offered) would purchase at the Exercise Price in effect immediately prior
to the date of such issuance, and the denominator of which shall be the
sum of the number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common Stock
offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the
extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the expiration of
such rights or warrants the Exercise Price shall be readjusted to the
Exercise Price which would then be in effect had the adjustments made upon
the issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(3) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (1) above) or subscription rights or warrants (excluding those
referred to in Subsection (2) above), then in each such case the Exercise
Price in effect thereafter shall be determined by multiplying the Exercise
Price in effect immediately prior thereto by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding
multiplied by the current market price per share of Common Stock (as
defined in Subsection (8) below), less the fair market value (as
determined by the Company's Board of Directors) of said assets or
evidences of indebtedness so distributed or of such rights or warrants,
and the denominator of which shall be the total number of shares of Common
Stock outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made successively whenever such a
record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
distribution.
(4) In case the Company shall issue shares of its Common Stock
[excluding shares issued (i) in any of the transactions described in
Subsection (1) above, (ii) upon exercise of options granted to the
Company's employees under a plan or plans adopted by the Company's Board
of Directors and approved by its
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shareholders, if such shares would otherwise be included in this
Subsection (4), (but only to the extent that the aggregate number of
shares excluded hereby and issued after the date hereof, shall not exceed
5% of the Company's Common Stock outstanding at the time of any issuance),
(iii) upon exercise of options and warrants outstanding at December 15,
1997, and this Warrant (iv) to shareholders of any corporation which
merges into the Company in proportion to their stock holdings of such
corporation immediately prior to such merger, upon such merger, or (v)
issued in a bona fide public offering pursuant to a firm commitment
underwriting, but only if no adjustment is required pursuant to any other
specific subsection of this Section (f) (without regard to Subsection (9)
below) with respect to the transaction giving rise to such rights] for a
consideration per share (the "Offering Price") less than the current
market price per share [as defined in Subsection (8) below] on the date
the Company fixes the offering price of such additional shares or less
than the Exercise Price, the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the lower of (i) the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock which the
aggregate consideration received [determined as provided in Subsection (7)
below] for the issuance of such additional shares would purchase at such
current market price per share of Common Stock, and the denominator of
which shall be the number of shares of Common Stock outstanding
immediately after the issuance of such additional shares or (ii) in the
event the Offering Price is equal to or higher than the current market
price per share but less than the Exercise Price, the price determined by
multiplying the Exercise Price in effect immediately prior to the date of
issuance by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of
such additional shares and the number of shares of Common Stock which the
aggregate consideration received [determined as provided in subsection (7)
below] for the issuance of such additional shares would purchase at the
Exercise Price in effect immediately prior to the date of such issuance,
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made.
(5) In case the Company shall issue any securities convertible into
or exchangeable for its Common Stock [excluding securities issued in
transactions described in Subsections (2) and (3) above] for a
consideration per share of Common Stock (the "Conversion Price") initially
deliverable upon conversion or exchange of such securities [determined as
provided in Subsection (7) below] less than the current market price per
share [as defined in Subsection (8) below] in effect immediately prior to
the issuance of such securities, or less than the Exercise Price, the
Exercise
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Price shall be adjusted immediately thereafter so that it shall equal the
lower of (i) the price determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of which
shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such securities and the number of
shares of Common Stock which the aggregate consideration received
[determined as provided in Subsection (7) below] for such securities would
purchase at such current market price per share of Common Stock, and the
denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to such issuance and the maximum
number of shares of Common Stock of the Company deliverable upon
conversion of or in exchange for such securities at the initial conversion
or exchange price or rate or (ii) in the event the Conversion Price is
equal to or higher than the current market price per share but less than
the Exercise Price, the price determined by multiplying the Exercise Price
in effect immediately prior to the date of issuance by a fraction, the
numerator of which shall be the sum of the number of shares outstanding
immediately prior to the issuance of such securities and the number of
shares of Common Stock which the aggregate consideration received
[determined as provided in subsection (7) below] for such securities would
purchase at the Exercise Price in effect immediately prior to the date of
such issuance, and the denominator of which shall be the sum of the number
of shares of Common Stock outstanding immediately prior to the issuance of
such securities and the maximum number of shares of Common Stock of the
Company deliverable upon conversion of or in exchange for such securities
at the initial conversion or exchange price or rate. Such adjustment shall
be made successively whenever such an issuance is made.
(6) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsections (1), (2), (3), (4) and (5)
above, the number of Shares purchasable upon exercise of this Warrant
shall simultaneously be adjusted by multiplying the number of 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.
(7) For purposes of any computation respecting consideration
received pursuant to Subsections (4) and (5) above, the following shall
apply:
(A) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection therewith;
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(B) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market
value thereof as determined in good faith by the Board of Directors
of the Company (irrespective of the accounting treatment thereof),
whose determination shall be conclusive; and
(C) in the case of the issuance of securities convertible into
or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any, to be
received by the Company upon the conversion or exchange thereof [the
consideration in each case to be determined in the same manner as
provided in clauses (A) and (B) of this Subsection (7)].
(8) For the purpose of any computation under Subsections (2), (3),
(4) and (5) above, the current market price per share of Common Stock at
any date shall be determined in the manner set forth in Section (c) hereof
except that the current market price per share shall be deemed to be the
higher of (i) the average of the prices for 30 consecutive business days
before such date or (ii) the price on the business day immediately
preceding such date.
(9) 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 (9) 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).
(10) 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
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Page 67 of 74 Pages
cause a certified copy thereof to be mailed to its transfer agent, if any.
In the event the Company does not provide the Holder with such notice and
information within 10 days of a request by the Holder, then
notwithstanding the provisions of this Section (f), the Exercise Price
shall be immediately adjusted to equal the lowest Offering Price,
Subscription Price or Conversion Price, as applicable, since the date of
this Warrant, and the number of shares issuable upon exercise of this
Warrant shall be adjusted accordingly. 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.
(11) 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 Subsections (1) to (9), inclusive above.
(12) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Warrant,
Warrants theretofore or thereafter issued may continue to express the same
price and number and kind of shares as are stated in the similar Warrants
initially issuable pursuant to this Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted
as required by the provisions of the foregoing Section, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the
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Page 68 of 74 Pages
Company, reclassification of the capital stock of the Company, consolidation or
merger of the Company with or into another corporation, sale, lease or transfer
of all or substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(1) Commencing December 5, 1998 until December 5, 2004 (the
"Registration Rights Period"), the Company shall advise the Holder of this
Warrant or of the Warrant Shares or any then holder of Warrants or Warrant
Shares (such
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Page 69 of 74 Pages
persons being collectively referred to herein as "holders") by written
notice at least four weeks prior to the filing of any registration
statement under the Securities Act of 1933, as amended (the "Act")
covering securities of the Company and upon the request of any such
holder, include in any such registration statement such information as may
be required to permit a public offering of the Warrants or the Warrant
Shares. The Company shall supply prospectuses and other documents as the
Holder may request in order to facilitate the public sale or other
disposition of the Warrants or Warrant Shares, qualify the Warrants and
the Warrant Shares for sale in such states as any such holder designates
and do any and all other acts and things which may be necessary or
desirable to enable such Holders to consummate the public sale or other
disposition of the Warrants or Warrant Shares, and furnish indemnification
in the manner as set forth in Subsection (3)(C) of this Section (j). Such
holders shall furnish information and indemnification as set forth in
Subsection (3)(C) of this Section (j), except that the maximum amount
which may be recovered from the Holder shall be limited to the amount of
proceeds received by the Holder from the sale of the Warrants or Warrant
Shares.
(2) If Commonwealth or any "majority owner" (the "Requesting
Holder") shall give notice to the Company at any time during the
Registration Rights Period to the effect that such holder contemplates (i)
the transfer of all or any part of his or its Warrants and/or Warrant
Shares, or (ii) the exercise and/or conversion of all or any part of his
or its Warrants and the transfer of all or any part of the Warrants and/or
Warrant Shares under such circumstances that a public offering (within the
meaning of the Act) of Warrants and/or Warrant Shares will be involved,
and desires to register under the Act, the Warrants and/or the Warrant
Shares, then the Company shall, within four weeks after receipt of such
notice, file a registration statement on Form S-1 or such other form as
the holder requests, pursuant to the Act, to the end that the Warrants
and/or Warrant Shares may be sold under the Act as promptly as practicable
thereafter and the Company will use its best efforts to cause such
registration to become effective and continue to be effective (current)
(including the taking of such steps as are necessary to obtain the removal
of any stop order) until the holder has advised that all of the Warrants
and/or Warrant Shares have been sold; provided that such holder shall
furnish the Company with appropriate information (relating to the
intentions of such holders) in connection therewith as the Company shall
reasonably request in writing. The Requesting Holder may, at its option,
request the registration of the Warrants and/or Warrant Shares in a
registration statement made by the Company as contemplated by Subsection
(1) of this Section (j) or in connection with a request made pursuant to
Subsection (2) of this Section (j) prior to the acquisition of the Warrant
Shares upon exercise of the Warrants and even though the Requesting Holder
has not given notice of exercise of the Warrants. If the Company
determines to include securities to be sold by it in any registration
statement originally requested pursuant to this Subsection (2) of this
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Page 70 of 74 Pages
Section (j), such registration shall instead be deemed to have been a
registration under Subsection (1) of this Section (j) and not under
Subsection (2) of this Subsection (j). The Requesting Holder may
thereafter at its option, exercise the Warrants at any time or from time
to time subsequent to the effectiveness under the Act of the registration
statement in which the Warrant Shares were included.
(3) The following provision of this Section (j) shall also be
applicable:
(A) Within ten days after receiving any such notice pursuant
to Subsection (2) of this Section (j), the Company shall give notice
to the other holders of Warrants and Warrant Shares, advising that
the Company is proceeding with such registration statement and
offering to include therein Warrants and/or Warrant Shares of such
other holders, provided that they shall furnish the Company with
such appropriate information (relating to the intentions of such
holders) in connection therewith as the Company shall reasonably
request in writing. Following the effective date of such
registration, the Company shall upon the request of any owner of
Warrants and/or Warrant Shares forthwith supply such a number of
prospectuses meeting the requirements of the Act, as shall be
requested by such owner to permit such holder to make a public
offering of all Warrants and/or Warrant Shares from time to time
offered or sold to such holder, provided that such holder shall from
time to time furnish the Company with such appropriate information
(relating to the intentions of such holder) in connection therewith
as the Company shall request in writing. The Company shall also use
its best efforts to qualify the Warrant Shares for sale in such
states as the Requesting Holder shall designate.
(B) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under Subsection (1) of
this Section (j) notwithstanding that Warrants and/or Warrant Shares
subject to this Warrant may be included in any such registration.
The Company shall also comply with one request for registration made
by the majority holder pursuant to Subsection (2) of this Section
(j) at its own expense and without charge to any holder of any
Warrants and/or Warrant Shares; and the Company shall comply with
one additional request made by the majority holder pursuant to
Subsection (2) of this Section (j) (and not deemed to be pursuant to
Subsection (1) of this Section (j)) at the sole expense of such
majority holder. Any holder whose Warrants and/ or Warrant Shares
are included in any such registration statement pursuant to this
Section (j) shall, however, bear the fees of his own counsel and any
registration fees, transfer taxes or underwriting discounts or
commissions applicable to the Warrant Shares sold by him pursuant
thereto.
<PAGE>
Page 71 of 74 Pages
(C) The Company shall indemnify and hold harmless each such
holder and each underwriter, within the meaning of the Act, who may
purchase from or sell for any such holder any Warrants and/or
Warrant Shares from and against any and all losses, claims, damages
and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement
under the Act or any prospectus included therein required to be
filed or furnished by reason of this Section (j) or caused by any
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or
alleged untrue statement or omission or alleged omission based upon
information furnished or required to be furnished in writing to the
Company by such holder or underwriter expressly for use therein,
which indemnification shall include each person, if any, who
controls any such underwriter within the meaning of such Act
provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration
statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with
written information furnished by such Holder or any other Holder,
specifically for use in the preparation thereof.
(D) Neither the giving of any notice by any such majority
holder nor the making of any request for prospectuses shall impose
upon such majority holder or owner making such request any
obligation to sell any Warrants and/or Warrant Shares, or exercise
any Warrants.
The Company's agreements with respect to Warrants or Warrant Shares in
this Section (j) shall continue in effect regardless of the exercise and
surrender of this Warrant.
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Page 72 of 74 Pages
(k) CONVERSION OF WARRANTS. The holder may, at its option, elect to
convert the Warrants into warrants identical to those issued to the investors in
the Private Placement (the "Private Placement Warrants"). In such event, the
exercise price, anti-dilution provisions and other terms of the Warrant
Agreement governing the Private Placement Warrants shall govern the Warrants;
provided, however, that Section (j) hereof shall survive conversion and the
Warrants shall not be subject to redemption by the Company.
iMALL, INC.
By: ___________________________________________
Richard Rosenblatt, Chief Executive Officer
Dated: December 19, 1997
Attest:
__________________________
Craig Lewis, Secretary
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Page 73 of 74 Pages
PURCHASE FORM
Dated_____________
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _____ shares of Common Stock and hereby
makes payment of ______ in payment of the actual exercise price thereof.
----------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name_________________________________________
(Please typewrite or print in block letters)
Address______________________________________
Signature____________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED,____________________________ hereby sells,
assigns and transfers unto
Name_________________________________________
(Please typewrite or print in block letters)
Address______________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint _____________ Attorney, to transfer the same on the books
of the Company with full power of substitution in the premises.
Date ______________________
Signature _________________
Page 74 of 74 Pages
EXHIBIT 6
AGREEMENT
JOINT FILING OF SCHEDULE 13D
The undersigned hereby agree to jointly prepare and file with regulatory
authorities a Schedule 13D and any future amendments thereto reporting each of
the undersigned's ownership of securities of iMALL, Inc. and hereby affirm that
such Schedule 13D is being filed on behalf of each of the undersigned.
Dated: December 30, 1997 Commonwealth Associates, a New York limited
New York, New York partnership
By: Commonwealth Management Co., Inc., its
general partner
By: /s/ Joseph Wynne
---------------------------------------
Joseph Wynne
Chief Financial Officer
Dated: December 30, 1997
New York, New York /s/ Michael S. Falk
-------------------------------------------
Michael S. Falk
Dated: December 30, 1997 Commonwealth Management Co., Inc., a New
Atlanta, Georgia York corporation
By: /s/ Joseph Wynne
---------------------------------------
Joseph Wynne
Chief Financial Officer
