SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (the "Agreement") is made between Interactive
Magic, Inc., a Maryland corporation (the "Corporation"), and the undersigned
(the "Shareholder") as of the date specified below. Capitalized terms used but
not defined in this Agreement shall have the meanings set forth in the Merger
Agreement referred to below.
WHEREAS, the Corporation, Interactive Creations Acquisition Corp.
("Acquisition"), Interactive Creations Incorporated ("ICI") and certain
shareholders of ICI are parties to a Merger Agreement dated as of March 24, 1997
(the "Merger Agreement") pursuant to which the Shareholder will receive, upon
consummation of the Merger, shares of Class A Common Stock of the Corporation
(the "Shares").
WHEREAS, each of the Corporation and the Shareholder desires to enter into
this Agreement in order to (i) provide certain information about the Shareholder
upon which the Corporation will rely for purposes of establishing the
applicability of certain exemptions from the registration or qualification
requirements of applicable securities laws, (ii) document the Shareholder's
general ability to bear the risk of an investment in the Corporation and
suitability as an investor for purposes of such exemption and (iii) impose
certain restrictions on transfers of Shares as provided herein; and
WHEREAS, the execution and delivery of this Agreement by the Shareholder is
a condition precedent to the Corporation's and Acquisition's obligations
pursuant to the Merger Agreement, including without limitation Acquisition's
obligation to engage in the Merger.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, in partial consideration for the transactions contemplated by
and securities to be received by the Shareholder pursuant to the Merger
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
1.1. Shareholder's Representations and Warranties. The Shareholder hereby
makes the representations and warranties set forth below with the express
intention that they be relied upon by the Corporation in determining the
investment suitability of the Shareholder for purposes of the applicability of
an exemption from registration under applicable securities laws. If the
Shareholder is receiving the Shares in a fiduciary capacity, the representations
and warranties set forth herein are made on behalf of the person or persons for
whom the Shareholder is so receiving.
(a) The Shareholder is an individual (except as otherwise specified on
the signature page of this Agreement), a citizen of the United States, at
least 21 years of age (or represented for all purposes hereof by a
purchaser representative at least 21 years of age) and a bona fide resident
and domiciliary (not a temporary or a transient resident) of the state set
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forth adjacent to the Shareholder's name on the signature line hereto, and
has no intention of becoming a resident of any other state or jurisdiction.
(b) The Shareholder is the lawful owner of the number of shares of
Common Stock of ICI set forth adjacent to the Shareholder's name on the
signature line hereto, free and clear of all encumbrances of any variety
whatsoever. Except as specified adjacent to the Shareholder's name on the
signature line hereto, the Shareholder does not own any interest in any
other securities of ICI.
(c) The Shareholder has the legal right, power and authority to enter
into and deliver this Agreement, perform the Shareholder's obligations
hereunder and consummate the transactions contemplated hereby. This
Agreement constitutes the valid and legally binding obligation of the
Shareholder, enforceable against the Shareholder in accordance with its
respective terms.
(d) The Shareholder is fully aware that the Shares to be issued
pursuant to the Merger Agreement will not have been registered under the
Securities Act of 1933, as amended (the "Act"), or under any applicable
state securities law and that no federal or state agency has made any
finding or determination as to the fairness of an investment in the Shares,
nor any recommendation or endorsement of any such investment. The
Shareholder further understands that the Shares will be issued in reliance
on exemptions from the registration requirements of the Act and in reliance
on exemptions from the registration requirements of various state
securities laws, on the grounds, among others, that the proposed issuances
of Shares pursuant to the Merger Agreement will be limited generally to
investors who or which qualify as "accredited investors" under the
requirements of Rule 501(a) promulgated under the Act.
(e) Unless otherwise indicated adjacent to the Shareholder's signature
below, the Shareholder is an "accredited investor" as that term is defined
in Rule 501(a) promulgated under the Act, a copy of which is attached
hereto as Exhibit A. If the Shareholder is not at least 21 years of age,
the Shareholder is represented for all purposes hereof by a purchaser
representative who, unless otherwise indicated adjacent to his or her
signature below, is an "accredited investor." The Shareholder is acquiring
the Shares for the Shareholder's own account (or in such fiduciary capacity
as is indicated below) and not with a view to resale or distribution.
(f) Immediately prior to execution of this Agreement by the
Shareholder, the Shareholder was able to bear the economic risk of the
investment contemplated hereby, and either: (i) the Shareholder had such
knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of the proposed transaction; or (ii) the
Shareholder and the Shareholder's purchaser representative together had
such knowledge and experience in financial and business matters that they
were capable of evaluating the merits and risks of the proposed
transaction. The Shareholder acknowledges that if a purchaser
representative has been utilized by the Shareholder in evaluating the
proposed transaction as contemplated hereby, the Shareholder has been
advised by such purchaser representative as to the merits and risks of the
proposed transaction in general and the suitability of the proposed
transaction for the Shareholder in particular, and such purchaser
representative has co-executed this Agreement. Execution of this Agreement
by the Shareholder and his or her purchaser representative (if so executed)
constitutes both the
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irrevocable appointment of such purchaser representative by the Shareholder
to act as such for all purposes hereunder and the acceptance of such
appointment by such purchaser representative.
(g) The Shareholder (or the Shareholder's purchaser representative, if
applicable): (i) has been furnished, has carefully read, and has relied
solely (except as indicated in subparagraph (ii) below) on the information
contained in the Corporation's disclosure memorandum and related materials
dated March 25, 1997 (including all exhibits and all amendments or
supplements thereto, if any) (collectively, the "Disclosure Memorandum")
and has sought such accounting, legal and tax advice as the Shareholder has
considered necessary to make an informed decision concerning the proposed
transaction; and (ii) has been given the opportunity to ask questions of,
and receive answers from, the officers of the Corporation concerning the
terms and conditions of the proposed transaction and to obtain such
additional information that the Corporation possesses or can acquire
without unreasonable effort or expense that is necessary to verify the
accuracy of the information contained in the Disclosure Memorandum or
information that was otherwise provided, and the Shareholder has not been
furnished any other offering literature or prospectus.
(h) The Shareholder acknowledges and is aware that an investment in
the Shares involves substantial risks, and the Shareholder has taken full
cognizance of and understands such risks and has weighed these risks
against the potential return. The Shareholder is aware that the potential
risks involved in engaging in the proposed transaction include, without
limitation, (i) that the Corporation has a limited financial or operating
history; (ii) the speculative nature of ownership of the Corporation's
securities; (iii) the risks set forth under the caption "Risk Factors" in
the Disclosure Memorandum; (iv) that, except as provided in Section 7.8 of
the Merger Agreement (the "Registration Rights"), the Corporation is under
no obligation to register the Shares or make an exemption from registration
available, (v) that the Corporation has not represented that it will make
any other attempt so to register the Shares or to make such an exemption
available and (vi) that the Shareholder must bear the economic risk of
owning the Shares for an indefinite period of time because, among other
reasons, (a) the Shares have not been registered under the Act or under
applicable state securities laws; (b) there is not now and may never be a
public market for the Shares; (c) there are substantial restrictions on the
transferability of the Shares; (d) the Shareholder may not be able to avail
himself of the provisions of Rule 144 promulgated under the Act; and (e) it
may not be possible for the Shareholder to liquidate this investment.
(i) The Shareholder has adequate means of providing for the
Shareholder's current needs (and, if an individual, possible personal
contingencies) and has no need in the foreseeable future for liquidity of
the Shares.
(j) The Shareholder has received, completed and returned to the
Corporation the Shareholder Questionnaire provided herewith relating to the
Shareholder's general ability to bear the risks of an investment in the
Corporation and suitability as an investor in a private offering, and the
Shareholder hereby affirms the correctness of the answers to the
Shareholder Questionnaire and all other written or oral information
concerning the Shareholder provided to the Corporation by, or on behalf of,
the Shareholder.
(k) The Shareholder agrees to ratify, confirm, and be bound by the
Corporation's bylaws (a copy of which will be provided to the Shareholder
upon request),
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including those that pertain to the Corporation's indemnification of
officers and directors of the Corporation to the fullest extent permitted
by applicable law.
(l) The Shareholder agrees to indemnify and hold harmless the
Corporation and its affiliates from any liability, loss or expense
(including reasonable attorney's fees, judgments, fines and amounts paid in
settlement, payable as incurred) if the Shareholder, alone or with others,
breaches any of the representations, warranties or covenants contained in
this Agreement. Notwithstanding the foregoing, however, no representation,
warranty, acknowledgment or agreement made herein by the Shareholder shall
in any manner be deemed to constitute a waiver of any rights granted to
such Shareholder under federal or state securities laws.
(m) The Shareholder has no plan or intention to sell, exchange, gift,
or otherwise dispose of any of the Shares received in the Merger.
(n) If the Shareholder is represented by a purchaser representative,
such purchaser representative is exercising sole investment control for all
purposes hereof, including for purposes of all applicable securities laws.
1.2. Entity Representations. If this Agreement is executed by a
corporation, partnership, limited liability company, association, joint stock
company, trust or unincorporated organization, or other entity, such entity
hereby represents that it was not organized for the purpose of acquiring the
Shares. If the Shareholder is a partnership or a limited liability company, each
partner or member of such respective entity hereby represents, through execution
hereof by the Shareholder, that each representation by the Shareholder set forth
herein is correct both as to the respective entity and as if made by such
partner or member personally.
1.3. Agent Representations. If this Agreement is executed by a person
acting in a representative capacity for a corporation or trust, or as an agent
for any person or entity, such person represents that it has full authority to
execute this Agreement in such capacity and on behalf of such corporation,
trust, person or entity.
ARTICLE II
SHARE TRANSFER RESTRICTIONS
2.1. Pooling of Interests Accounting. The Shareholder agrees that from and
after the date of this Agreement, the Shareholder shall not take any action, or
knowingly fail to take any action, which action or failure is reasonably likely
to disqualify the transactions contemplated by the Merger Agreement from pooling
of interests accounting treatment by the Corporation, and that the Shareholder
shall take all reasonable actions necessary to cause the transactions
contemplated by the Merger Agreement to qualify as a pooling of interests if
such characterization shall be jeopardized by action taken by the Shareholder.
Notwithstanding any other provision of this Article II, and without limiting the
foregoing, the Shareholder agrees that the Shareholder shall not sell, transfer,
pledge, or otherwise dispose of the Shareholder's interests in or reduce the
Shareholder's risk relative to any of the Shares until the Corporation shall
have published financial results covering at least thirty (30) days of combined
operations of ICI, Acquisition and the Company after consummation of the
transactions contemplated by
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the Merger Agreement. The Shareholder acknowledges and agrees with the
Corporation that the Shareholder is not a party to any agreement or arrangement
with any third party regarding the transactions contemplated by the Merger
Agreement and the other Transaction Documents or the subject matter thereof
other than the Merger Agreement and any other applicable Transaction Document.
2.2. Compliance With Laws. In no event shall the Shareholder sell,
transfer, pledge, or otherwise dispose of any securities of the Corporation
except in compliance with all applicable laws, including without limitation the
Securities Act of 1933, as amended.
2.3. Transfers in Violation. Any sale, assignment, transfer, pledge,
hypothecation, mortgage or disposition of any Shares or other securities of the
Corporation issued in respect thereof, by gift or otherwise, in violation of any
provision of this Agreement shall be void and of no effect and shall not be
recognized by the Corporation as transferring any interest in any of such
shares. In the case of any such violation, the Corporation shall have the right
to issue an oral or written order to the Corporation's transfer agent (if any)
not to transfer the Shares.
2.4. Certificates Legended. Until the expiration of all applicable transfer
restrictions established by this Agreement, each certificate representing any
Shares subject to any such restriction shall bear the following legend
conspicuously:
TRANSFER OF THE SHARES EVIDENCED BY THIS CERTIFICATE IS
SUBJECT TO A SHAREHOLDER AGREEMENT, DATED AS OF [the date of
this agreement], BETWEEN THE CORPORATION AND THE ORIGINAL
HOLDER HEREOF. A COPY OF SAID AGREEMENT IS ON FILE IN THE
OFFICE OF THE CORPORATION, AND A COPY THEREOF WILL BE MAILED
TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT OF A
WRITTEN REQUEST THEREFOR.
ARTICLE III
CO-SALE RIGHTS
3.1 Notice to Shareholder. In the event Xx. X.X. Xxxxxxx proposes, at any
time prior to the initial public offering (if any) of securities of the
Corporation, to accept any offer from any person or entity to purchase ten
percent (10%) or more of the shares of Class A Common Stock (or other securities
issued or deemed to be issued by the Corporation in respect thereof) of the
Corporation then owned by Xx. Xxxxxxx (or an affiliate of and controlled by Xx.
Xxxxxxx (other than the Corporation or any parent or subsidiary of the
Corporation)), Xx. Xxxxxxx (or the Corporation, acting at Xx. Xxxxxxx'x
direction) shall provide to the Shareholder, at the Shareholder's address
specified on the signature page below or at such other address as the
Shareholder shall provide to the Corporation in writing specified to be for such
purpose, written notice of such proposal (a "Co-Sale Notice"), setting forth (a)
the number of securities proposed to be sold by Xx. Xxxxxxx (or such affiliate,
as the case may be), (b) the principal terms of the proposed sale, including the
price at which he intends to sell such securities, and (c) an offer to cause the
inclusion (as described below) of certain of the Shareholder's shares of Class A
Common Stock (or other securities issued or deemed to be issued by the
Corporation in respect thereof) received by the Shareholder pursuant to the
Merger Agreement (collectively,
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the Shareholder's "Co-Sale Securities"). The Co-Sale Notice shall not be
required to identify the proposed purchaser.
3.2 Right to Participate. In the event the Shareholder provides written
notice to Xx. Xxxxxxx (in care of the Corporation), within five (5) business
days after receipt of the corresponding Co-Sale Notice, of the Shareholder's
desire to participate in such proposed transaction, if consummated, Xx. Xxxxxxx
shall not consummate such transaction without causing the inclusion therein of
not less than (a) the integral number of the Shareholder's Co-Sale Securities
determined by multiplying the aggregate number of shares specified in the
Co-Sale notice by a fraction, the numerator of which shall be the number of
shares of Class A Common Stock (or other securities issued or deemed to be
issued by the Corporation in respect thereof) then owned by the Shareholder, and
the denominator of which shall be the aggregate number of shares of Class A
Common Stock (or such other securities) then owned by Xx. Xxxxxxx, the
Shareholder, and all other persons and entities who received shares of Class A
Common Stock pursuant to the Merger Agreement and desire to participate in the
proposed transaction on the basis of comparable rights set forth in their
respective Shareholder Agreements, or (b) such lesser integral number of the
Shareholder's Co-Sale Securities as the Shareholder shall request to be included
in such transaction.
3.3 Negotiation of Terms; Certain Limitations. Notwithstanding Section 3.2
above, Xx. Xxxxxxx shall not be required to include any of the Shareholder's
Co-Sale Securities in any such proposed transaction if the Shareholder fails or
refuses timely to: (a) cooperate reasonably in respect thereof, including by
providing appropriate share certificates duly endorsed for transfer, or (b)
agree to the final terms therefor negotiated by Xx. Xxxxxxx. The Shareholder
shall not be entitled to participate in the negotiation of any such proposed
transaction except with Xx. Xxxxxxx'x consent, nor shall Xx. Xxxxxxx be required
(by virtue of this Agreement) to consummate any such proposed transaction. The
Shareholder's participation rights described in this Article III shall not apply
with respect to any transfer of securities by Xx. Xxxxxxx to the Corporation
pursuant to repurchase rights, if any, held by the Corporation, or to any pledge
or bona fide gift or other charitable transaction by Xx. Xxxxxxx.
ARTICLE IV
INDEMNIFICATION
The Shareholder hereby acknowledges the registration rights provided by the
Corporation pursuant to Section(s) 7.8 of the Merger Agreement (the
"Registration Rights"). With respect to any registration in connection
therewith, each Shareholder will, if Registrable Securities held by such
Shareholder are included in the securities as to which registration,
qualification or compliance is being effected pursuant to the Merger Agreement,
indemnify the Corporation, each of the Corporation's directors and officers,
each underwriter, if any, of the Corporation's securities covered by such
registration statement, each person who controls the Corporation or any such
underwriter within the meaning of Section 15 of the Act, and each other such
shareholder, each of the other such shareholders' officers and directors and
each person controlling such other shareholders within the meaning of Section 15
of the Act, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to
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make the statements therein not misleading, and will reimburse the Corporation,
such shareholders, such directors, officers, persons, underwriters or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in conformity with information furnished in writing to the Corporation
by or on behalf of the Shareholder expressly for use in such registration
statement, prospectus, offering circular or other document. Notwithstanding the
foregoing, the liability of the Shareholder under this Article IV shall be
limited to an amount equal to the public offering price of the shares sold by
such Shareholder, unless such liability arises out of or is based on willful
misconduct by such Shareholder.
ARTICLE V
MISCELLANEOUS.
5.1. Entire Agreement. This Agreement, together with the other Transaction
Documents and the other documents referred to herein or therein which form a
part hereof or thereof, contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
5.2. Amendments. This Agreement may be waived, amended, supplemented or
modified only by a written agreement executed by each of the parties hereto.
5.3. Severability. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby.
5.4. Third Party Beneficiaries. Except as specifically set forth in this
Agreement to the contrary, each party hereto intends that this Agreement shall
not benefit or create any right or cause of action in or on behalf of any Person
other than the parties hereto.
5.5. Governing Law. The interpretation and construction of this Agreement,
and all matters relating hereto, shall be governed by the Laws of the State of
Maryland, without regard to the choice of law provisions thereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth below.
Date of Agreement: .
------------------------
INTERACTIVE MAGIC, INC.
By:
--------------------------------------
Name:
Title:
----------------------------------------
X. X. Xxxxxxx
(solely for purposes of Article III)
SHAREHOLDER
----------------------------------------
Signature
----------------------------------------
Name (printed)
PURCHASER REPRESENTATIVE (If applicable)
----------------------------------------
Signature
----------------------------------------
Name (printed)
Shareholder's Home Address:
----------------------------------------
----------------------------------------
----------------------------------------
Check One:
___ The Shareholder is an
Accredited Investor.
___ The Shareholder is not an
Accredited Investor.
Shares of ICI Common Stock owned: ----------------------------------------
Other ICI securities owned: ----------------------------------------
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EXHIBIT A TO SHAREHOLDER AGREEMENT
(a) Accredited investor. "Accredited investor" shall mean any person who
comes within any of the following categories, or who the issuer reasonably
believes comes within any of the following categories, at the time of the sale
of the securities to that person:
(1) Any bank as defined in section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in section 3(a)(5)(A) of the
Act whether acting in its individual or fiduciary capacity; any broker or dealer
registered pursuant to section 15 of the Securities Exchange Act of 1934; any
insurance company as defined in section 2(13) of the Act; any investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in section 2(a)(48) of the Act; Small Business Investment
Company licensed by the U.S. Small Business Administration under section 301(c)
or (d) of the Small Business Investment Act of 1958; any plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions for the benefit of its
employees, if such plan has total assets in excess of $5,000,000, employee
benefit plan within the meaning of the Employee Retirement Income Security Act
of 1974 if the investment decision is made by a plan fiduciary, as defined in
section 3(21) of such Act, which is either a bank, savings and loan association,
insurance company, or registered investment advisor, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors;
(2) Any private business development company as defined in section
202(a)(22) of the Investment Advisors Act of 1940;
(3) Any organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the issuer of
the securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer;
(5) Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in ss. 230.506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are accredited
investors.
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