<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
September 18, 1996
________________________________________________
Date of Report (Date of earliest event reported)
Sanctuary Woods Multimedia Corporation
______________________________________________________
(Exact name of Registrant as specified in its charter)
British Columbia, Canada
______________________________________________
(State or other jurisdiction of incorporation)
0-21510 75-2444-109
_____________________ ____________________________________
(Commission File No.) (IRS Employer Identification Number)
1825 South Grant Street
San Mateo, CA 94402
(415) 286-6000
________________________________________
(Address of Principal Executive Offices)
Not Applicable
_______________________________
(Former name or former address,
if changed since last report)
<PAGE>
Item 5. Other Events
Sanctuary Woods Multimedia Corporation (the "Company") received and
closed US$4.55 million in financing on September 18, 1996, and
received and closed an additional US$804,000 in financing on
September 26, 1996 (together, the "Financing"). The proceeds of the
Financing will be used for working capital, as well as to pay down
the existing line of credit and payables balances. The Financing,
arranged primarily with large institutional investors, consists of
8% debentures convertible into the Company's common stock at a
$0.55 per share conversion price, with a due date of July 31, 1999,
which automatically convert at maturity, if not previously
converted. In addition, for each $2.00 invested, investors in the
Financing have been granted three-year warrants to purchase one
share of the Company's common stock with a strike price of $0.6875
per share, yielding an aggregate total of 2,677,000 warrants for
the entire financing.
For additional information regarding the Financing, see the press
releases attached as Exhibits 99.1 and 99.2, as well as the form of
securities purchase agreement attached as Exhibit 10.24.
Item 7. Exhibits
99.1 Press Release dated September 19, 1996,
announcing closing of financing.
99.2 Press Release dated September 30, 1996,
announcing closing of financing.
10.24 Form of Securities Purchase
Agreement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
SANCTUARY WOODS MULTIMEDIA CORPORATION
By: /s/ JEREMY R. SALESIN
Jeremy R. Salesin
Vice President and Secretary
Dated: September 30, 1996
<PAGE>
EXHIBIT INDEX
Exhibit Description
Number
99.1 Press Release dated September 19, 1996, announcing closing
of financing.
99.2 Press Release dated September 30, 1996, announcing closing
of financing.
10.24 Form of Securities Purchase Agreement.
<PAGE>
For more information, contact
Charlotte Walker (415) 286-6025
[email protected]
FOR IMMEDIATE RELEASE
Sanctuary Woods Closes More Than $4.5 Million In Financing
SAN MATEO, Calif., September 19, 1996-Charlotte Walker, president
of Sanctuary Woods Multimedia Corporation (V:SWD), announced
today that the educational software company has received and
closed $4.55 million in financing.
According to Walker, the proceeds will be used to re-capitalize
the Company's balance sheet and provide working capital to fund
the fiscal 1997-1998 operating plan, as well as pay down the
existing line of credit and payables balances. "This financing
allows us to execute our product strategy and to support our
products in the school, consumer retail and on-line markets," she
said. The Company, which recently shipped NFL Math 2nd Edition
under its Head Coach brand, is expected to release NFL Reading
and Franklin's Activity Center in October, as well as open a
transaction-based web site, www.ah-hah.com.
The financing, arranged primarily with large institutional
investors, is an 8% debenture convertible into the Company's
common stock at a $0.55 per share conversion price, with a due
date of July 31, 1999, which automatically converts at maturity,
if not previously converted. In addition, for each $2.00
invested, investors have been granted three-year warrants to
purchase one share of the Company's common stock with a strike
price of $0.6875 each.
In a related announcement, the maturity date of Sanctuary Woods'
credit line with its lending bank was extended to April 1997. The
agreement also establishes a revolving line of credit up to the
defined borrowing base or $750,000, whichever is less.
Following significant losses in 1995, Sanctuary Woods replaced
most of its top management, sold its entertainment product
development studio to Disney Interactive in May of this year, and
posted net income in the quarter ended June 30, 1996. Today,
Sanctuary Woods focuses development on its line of educational
software which includes NFL Math and Major League Math in the
Head Coach series of products. The company is headquartered in
San Mateo, Calif.
###
Sanctuary Woods is a registered trademark and Head Coach is a
trademark of Sanctuary Woods Multimedia Corporation. NFL is a
trademark of the National Football League. Major League Math is a
trademark of Major League Baseball Properties, Inc.
<PAGE>
For more information, contact
Charlotte Walker (415) 286-6025
[email protected]
FOR IMMEDIATE RELEASE
Sanctuary Woods Closes Additional $804,000 In Financing
Total Proceeds in Excess of $5.3 Million
SAN MATEO, Calif., September 30, 1996-Charlotte Walker, president of
Sanctuary Woods Multimedia Corporation (V:SWD), announced today that
the educational software company has received and closed an additional
$804,000 in financing.
This round is expected to be the final closing of the financing
announced September 19, 1996, and brings the total proceeds of the
financing to US$5.354 million. The proceeds will be used for working
capital and to pay down the existing line of credit and payables
balances. The financing consists of 8% debentures convertible into
the Company's common stock at a $0.55 per share conversion price, with
a due date of July 31, 1999, which automatically convert at maturity,
if not previously converted. In addition, for each $2.00 invested,
investors have been granted three-year warrants to purchase one share
of the Company's common stock with a strike price of $0.6875 per
share, yielding an aggregate total of 2,677,000 warrants issued to the
purchasers in the financing.
Sanctuary Woods is the developer of educational software including
NFL Math, NFL Reading and Major League Math. The company is
headquartered in San Mateo, Calif.
###
Sanctuary Woods is a registered trademark of Sanctuary Woods
Multimedia Corporation. NFL is a trademark of the National Football
League. Major League Math is a trademark of Major League Baseball
Properties, Inc.
<PAGE>
SANCTUARY WOODS MULTIMEDIA CORPORATION
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is
made as of _______, 1996 by and among Sanctuary Woods Multimedia
Corporation, a British Columbia, Canada corporation (the
"Company"), and the individuals and entities listed on the
Schedule of Purchasers attached hereto as Exhibit A (the
"Purchasers").
WHEREAS, the Purchasers are willing to purchase debentures
and warrants, subject to the terms and conditions hereof;
NOW, THEREFORE, the Company and the Purchasers agree as
follows:
SECTION 1
Authorization and Sale of the Securities; AdvancesSECTION
Authorization and Sale of the Securities; Advances
1.1 Authorization of Securities Authorization of
Securities. The Company has authorized the issuance and sale of
(a) 8% Convertible Subordinated Debentures in the maximum
aggregate principal amount of $8,000,000, in substantially the
form attached hereto as Exhibit B (the "Debentures") convertible
into shares of the Company's Common Stock at the rate of one
share of the Company's Common Stock for each US$0.55 of principal
and accrued interest due and payable on the Due Date (as such
term is defined in Exhibit B); (b) warrants in the form of
Exhibit C (the "Warrants") to purchase up to an aggregate of
4,000,000 shares of the Company's Common Stock, which Warrants
shall be exercisable at a price of US$.6875 per share, and (c) up
to an aggregate of 14,545,454 shares of the Company's Common
Stock, issuable upon conversion of the Debentures and exercise of
the Warrants. The Debentures and the Warrants shall hereinafter
be collectively referred to as the "Securities" and the Common
Stock issuable upon conversion of the Debentures and exercise of
the Warrants shall hereinafter be collectively referred to as the
"Conversion Stock".
1.2 Sale of Securities Sale of Securities. Subject to the
terms and conditions hereof, the Company will issue and sell to
the Purchasers, and the Purchasers will purchase from the
Company, the Securities of the types and in the principal amounts
respectively specified opposite each such Purchaser's name on
Exhibit A hereto. The Company's agreements with each of the
Purchasers shall be separate agreements and the sale of the
Securities to each of the Purchasers shall be separate sales.
Purchasers of Securities in any Subsequent Closing (defined
below) shall be listed on a new Schedule A-1 hereto on the dates
of their respective purchases and shall from such dates be deemed
to be "Purchasers" for all purposes of this Agreement.
1.3 Purchase Prices Purchase Prices. For each $2.00
face value of Debentures purchased by a Purchaser, the Company
will deliver to such Purchaser a Warrant exercisable for one
share of Common Stock of the Company. The Company shall not
issue a warrant which is exercisable for a fraction of a share of
Common Stock and the aggregate number of shares issuable under
such Warrant shall be automatically rounded to the next lowest
whole integer without any deduction in the purchase price of the
securities purchased or any other compensation payable to the
Purchaser of such Warrant. The Debentures and their
corresponding warrants shall be sold together at a purchase price
equal to the aggregate face value of the Debentures.
1.4 Subordination Security Interest; Priority. The
obligations of the Company to the Purchasers pursuant to the
Debentures shall be subordinate to security interests granted by
the Company to holders of its senior debt, including without
limitation the security interest of the Company's bank, and the
Purchasers agree to execute subordination agreements in form and
substance satisfactory to such secured creditors, including
without limitation the Company's bank, as provided in Exhibit D.
1.5 Registration Rights. The Purchasers shall be entitled
to the registration rights set forth on Exhibit G, which is
incorporated herein by reference and made a part hereof as if
fully set forth herein.
SECTION 2
Closing Date; DeliverySECTION Closing Date; Delivery
2.1 Closing Date Closing Date. The closing of the
purchase and sale of the Securities to the Purchasers set forth
on Exhibit A shall be on or before November 1, 1996 (the "First
Closing").
2.2 Subsequent Purchase and Sales of Debentures and
Warrants Subsequent Purchase and Sales of Debentures and
Warrants. At any time on or before the 90th day following the
First Closing, the Company may sell up to the balance of the
Securities not sold at the First Closing to such persons and in
such amounts as may be approved by the Company (each a
"Subsequent Closing"). Subject to Section 5.5, the Company may
close on the purchase and sale of any amount of the authorized
Securities. All such sales shall be made on the terms and
conditions set forth in this Agreement. Any debentures and
warrants sold pursuant to this Section 2.2 shall be deemed to be
Debentures and Warrants sold pursuant to this Agreement, and any
purchaser of the Debentures and Warrants shall be deemed to be a
Purchaser for all purposes.
2.3 Delivery Delivery. Contemporaneously with any
Subsequent Closing, the Company will deliver to each Purchaser a
Debenture in the principal amount specified opposite such
Purchaser's name on Exhibit A or Exhibit A-1 (if applicable)
hereto together with a Warrant to purchase the number of shares
of the Company's Common Stock designated opposite such
Purchaser's name on the form attached as Exhibit C hereto at the
exercise price per share described in Section 1.1 above against
payment of the purchase price therefor by wire transfer per the
Company's instructions.
SECTION 3
Representations and Warranties of the CompanySECTION
Representations and Warranties of the Company
Except as set forth on Schedule 3 hereof, the Company hereby
represents and warrants to the Purchasers as follows:
3.1 Organization; Articles and Bylaws Organization;
Articles and Bylaws. The Company is a corporation duly organized
and existing under, and by virtue of, the laws of British
Columbia, Canada. The Company has the requisite corporate power
to own and operate its properties and assets, and to carry on its
business as presently conducted and as proposed to be conducted.
The Company is in good standing in British Columbia, Canada and
authorized to do business as a foreign corporation and in good
standing in the state of California, the only jurisdiction in the
United States in which such authorization is presently required
to carry on the Company's business.
3.2 Corporate Power Corporate Power. The Company has
all requisite legal and corporate power to execute and deliver
this Agreement, to issue and sell the Securities and Conversion
Stock hereunder and to carry out and perform its obligations
under the terms of this Agreement, the Debentures, the Warrants.
3.3 Capitalization Capitalization. As of August 6, 1996,
the Company was authorized to issue 100,000,000 shares of Common
Stock, of which 26,786,164 shares are issued and outstanding. As
of August 6, 1996 the Company had granted options to purchase an
aggregate of 2,072,166 shares of Common Stock and warrants to
purchase 1,960,000 shares of Common Stock. Furthermore, the
Company has reserved approximately 333,000 additional shares of
Common Stock for future issuance pursuant to the Company's Stock
Option Plan.
At its next annual meeting of shareholders, currently
scheduled for November 12, 1996, the Company intends to have
authorized at least a one for three (1:3) reverse split of the
shares of its Common Stock. As soon as reasonably practicable,
the Company also intends to have authorized the change of its
venue of incorporation from British Columbia, Canada to Delaware
and may thereafter seek removal of the trading of its shares of
common stock from the Vancouver Stock Exchange.
3.4 Authorization Authorization. All corporate action on
the part of the Company, its officers, directors and shareholders
necessary for the authorization, execution, delivery and
performance by the Company of this Agreement, the authorization,
sale, issuance and delivery of the Securities, the authorization,
sale, issuance and delivery of the Conversion Stock, and the
performance of the Company's obligations hereunder has been taken
and the sale, issuance and delivery of the Securities and the
Conversion Stock and the execution, delivery and performance of
this Agreement will not violate the Company's articles, bylaws or
any of its material agreements. This Agreement, the Securities,
when executed and delivered by the Company, shall constitute
valid and binding obligations of the Company
enforceable in accordance with their terms, subject to laws of
general application relating to bankruptcy, insolvency and the
relief of debtors (other than usury laws) and rules of law govern
ing specific performance, injunctive relief or other equitable
remedies. The Securities and the Conversion Stock, when issued
in compliance with the provisions of this Agreement, will be
validly issued, fully paid and nonassessable, and will be free of
any consensual liens or encumbrances created by the Company;
provided, however, that the Securities may be subject to
restrictions on transfer under state and/or federal securities
laws as set forth herein or as otherwise required at the time a
transfer is proposed.
3.5 Subsidiaries Subsidiaries. Except for Sanctuary
Woods Multimedia, Inc., a Nevada corporation, and Magic Quest,
Inc., a California corporation, both of which are wholly-owned
subsidiaries of the Company, which are duly incorporated and
validly existing corporations in good standing in the state of
California, the Company has no subsidiaries or affiliated
companies. The Company is not a participant in any joint
venture, partnership or similar arrangement.
3.6 Risk Disclosure Rush Disclosure. The Company has
provided each Purchaser a copy of or access to copies of the
Company's 1995 Annual Reports on Forms 10-K/A-1 and 10-K/A-2 and
Quarterly Report on Form 10-Q for the period ended March 31, 1996
and June 30, 1996, and Reports on form 8-K dated May 6, 1996, and
May 13, 1996, and Report on Form 10-C dated June 17, 1996. (the
"Public Disclosure Documents") and such were accurate and
complete as of the date of filing. There has been no material
change in the Company's financial condition since those documents
were filed, except as disclosed to the Purchasers in writing. In
addition, each Purchaser has been provided with a set of risk
factors as set forth as Exhibit E hereto, which is incorporated
herein by reference and made a part hereof as if fully set forth
herein. The disclosures set forth in this Agreement and in the
documents and information delivered to the Purchasers represent
the Company's reasonable best efforts, under the circumstances of
a financially distressed company, to disclose, fairly and
adequately, its business condition and prospects. Each Purchaser
has had a reasonable opportunity to ask questions of and receive
answers from the officers or directors of the Company concerning
the terms and conditions of the offering of the Securities
including the business and business prospects of the Company, and
to obtain additional information, to the extent possessed or
obtainable without unreasonable effort or expense, necessary to
verify the accuracy of the information provided to Purchasers.
The information and documents delivered to each Purchaser
described above contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act") and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). These forward-
looking statements involve risks and uncertainties which include,
without limitation, certain risks related to continued
competitive pressures in the marketplace, inventory levels in the
retail channel, the introduction of competitive products and
downward pricing pressures, intellectual property rights and
litigation, as well as the Company's continuing lack of capital
resources. In particular, and without limiting the generality of
the foregoing, all financial projections of the Company's future
prospects and financial results provided by the Company are
qualified in their entirety by the risk factors set forth in
Exhibit E. The Company will not update such financial
projections, and has informed the purchasers that such
projections may not be met.
3.7 Brokers or Finders Brokers or Finders. Except as set
forth herein, the Company has not incurred, directly or
indirectly, any liability for brokerage or finders' fees, agent's
commission or other similar charges in connection with this
Agreement or any of the transactions contemplated hereby.
3.8 Tax Matters. The Company has filed all necessary federal
and state property, income and franchise tax returns and has paid
all taxes shown as due thereon or otherwise owed by it to any
taxing authority except those contested in good faith and for which
appropriate amounts have been reserved in accordance with generally
accepted accounting principles.
3.9 Litigation, etc. There are no actions, suits,
proceedings or investigations pending against the Company, any of
its subsidiaries or its properties (or any written threats
thereof), or, to the Company's knowledge, against any of the
Company's or it subsidiaries' employees, before any court or
governmental agency (nor has the Company received any written
notice or written threat thereof), the outcome of which, if
determined adversely to the Company individually or in the
aggregate would have a material adverse effect upon the Company's
financial condition, except as disclosed in the Public Disclosure
Documents.
3.10 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any
governmental authority on the part of the Company is required in
connection with the valid execution and delivery of this Agreement
or the offer, sale or issuance of the Securities or Conversion
stock, or the consummation of any other transaction contemplated
hereby, except (a) the approval of the Vancouver Stock Exchange,
and (b) qualification (or taking such action as may be necessary to
secure an exemption from qualification, if available) of the offer
and sale of the Securities and Conversion stock under applicable
federal and state securities laws, which filings and
qualifications, if required, will be accomplished in a timely
manner.
3.11 Patents, Trademarks, and Trade Secrets. The Company owns
or has a valid right to use the patents, patent rights, licenses,
trade secrets, trademarks, trademark rights, trade names or trade
name rights, copyrights, inventions and intellectual property
rights being used to conduct its business as now operated and as
now proposed to be operated; and to the Company's knowledge, the
conduct of its business as now operated and as now proposed to be
operated does not and will not conflict with valid patents, patent
rights, licenses, trade secrets, trademarks, trademark rights,
trade names or trade name rights, copyrights, inventions and
intellectual property rights of others.
3.12 Permits. The Company has all franchises, permits,
licenses, and any similar authority necessary for the conduct of
its business as now being conducted by it, the lack of which would
materially and adversely affect the business, properties,
prospects, or financial condition of the Company and its
Subsidiaries considered as one enterprise. The Company is not in
default in any material respect under any of such franchises,
permits, licenses, or other similar authority except for such
defaults which would not have a material adverse effect on the
business of the Company and its Subsidiaries considered as one
enterprise.
SECTION 4
Representations and Warranties of the PurchasersSECTION
Representations and Warranties of the Purchasers
The Purchasers hereby severally represent and warrant to the
Company with respect to the purchase of the Securities (including
the Conversion Stock) as follows:
4.1 Investment Representations and Covenants of the
Purchasers Investment Representations and Covenants of the
Purchasers.
(a) This Agreement is made by the Company with
Purchaser in reliance upon Purchaser's representations and cove
nants made in this Section 4, which by its execution of this
Agreement the Purchaser hereby confirms.
(b) Purchaser understands that the Securities
(including the Conversion Stock) have not been registered under
the Securities Act of 1933, as amended (the "Securities Act") or
any state securities qualification requirements and are being
offered and sold pursuant to an exemption from registration or
qualification contained in the Securities Act based in part upon
the representations of such Purchaser contained herein.
(c) Purchaser knows of no public solicitation or adver
tisement of an offer in connection with the proposed issuance and
sale of the Securities.
(d) Purchaser is acquiring the Securities to be issued
and sold hereunder (including the Conversion Stock) for its own
account for investment and not as a nominee and not with a view
to the distribution thereof. Purchaser understands that it must
bear the economic risk of this investment indefinitely unless the
Securities (including the Conversion Stock) are registered
pursuant to the Securities Act, or an exemption from such regis
tration is available, and that, while the Company intends to
register such stock as provided according to the terms of Exhibit
G hereto, the Company may not be able to register the Securities
or such Conversion Stock. Purchaser further understands that
there is no assurance that any exemption from the Securities Act
will be available or, if available, that such exemption will
allow such Purchaser to dispose of or otherwise transfer any or
all of the Securities or such Conversion Stock under the
circumstances, in the amounts or at the times Purchaser might
propose.
(e) By reason of its business or financial experience,
or that of its professional advisor, Purchaser has the capacity
to protect its own interests in connection with the purchase of
the Securities hereunder and has the ability to bear the economic
risk (including the risk of total loss) of its investment.
(f) Purchaser further covenants that it will not make
any sale, transfer or other disposition of the Securities
(including the Conversion Stock) in violation of the Securities
Act, the Exchange Act, or the rules and regulations of the
Commission promulgated thereunder.
(g) Purchaser acknowledges that the Securities
(including the Conversion Stock) must be held indefinitely unless
subsequently registered under the Securities Act or an exemption
from such registration is available. It is aware of the
provisions of Rule 144 promulgated under the Securities Act which
permit limited resale of securities purchased in a private
placement subject to the satisfaction of certain conditions,
including, among other things, the existence of a public market
for the securities, the availability of certain current public
information about the Company, the resale occurring not less than
two years after a party has purchased and paid for the security
to be sold, the sale being through a "broker's transaction" or in
transactions directly with a "market maker" (as provided by Rule
144(f)) and the number of securities being sold during any three-
month period not exceeding specified limitations. It is further
aware that Rule 144(k) permits persons who have not been
affiliates (as defined in Rule 144(a)) of the Company for at
least three months and who have beneficially owned their
securities for at least three years after full payment for such
securities to sell such securities without regard to the current
public information, manner of sale and volume limitations
described above.
(h) Purchaser acknowledges that in the event all of
the requirements of Rule 144 are not met, registration under the
Securities Act or an exemption from registration will be required
for any disposition of the Securities and the Conversion Stock.
Each Purchaser understands that although Rule 144 is not
exclusive, the Commission has expressed its opinion that persons
proposing to sell restricted securities received in a private
offering other than in a registered offering or pursuant to
Rule 144 will have a substantial burden of proof in establishing
that an exemption from registration is available for such offers
or sales and that such persons and the brokers who participate in
the transactions do so at their own risk.
(i) Purchaser covenants that, in the absence of an
effective registration statement covering the Securities and the
Conversion Stock, it will sell, transfer, or otherwise dispose of
the Securities and any Conversion Stock only in a manner consis
tent with its representations and covenants set forth in this
Section 4.
(j) The residence of Purchaser (or, in the case of a
partnership or corporation, such entity's principal place of
business or principal office) is correctly set forth on Exhibit A
hereto.
(k) Purchaser acknowledges that it has received or has
had access to the Public Disclosure Documents and certain other
information concerning the Company's finances and business
condition. Purchaser acknowledges that the disclosures set forth
herein and therein represent the Company's reasonable best
efforts, under the circumstances of a financially distressed
corporation, to disclose, fairly and adequately, its business
condition and prospects. Each Purchaser has had a reasonable
opportunity to ask questions of and receive answers from the
officers or directors of the Company concerning the terms and
conditions of the offering of the Securities including the
business and business prospects of the Company, and to obtain
additional information necessary to verify the accuracy of the
information provided to Purchasers.
(l) Purchaser is an "Accredited Investor" as such term
is defined in Rule 501(a) promulgated by the Securities and
Exchange Commission pursuant to the Securities Act.
(m) Purchaser has accurately and completely completed
and signed a B.C. Questionnaire and Undertaking in the form
attached hereto as Exhibit F.
(n) Purchaser has read and understands the risk
factors set forth in Exhibit E.
4.2 Legends Legends. Purchaser understands and
acknowledges that the Securities (including the Conversion
Stock), will be imprinted with certain legends, including but not
limited to, the following:
(a) THIS SECURITY AND THE SECURITIES INTO WHICH IT IS
CONVERTIBLE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT
OR IN AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE COMPANY, AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS
AVAILABLE FOR SUCH OFFER, SALE, OR TRANSFER, PLEDGE OR
HYPOTHECATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A HOLD PERIOD EXPIRING AT MIDNIGHT ON ______________,1997
[ONE YEAR AFTER ISSUANCE] AND MAY NOT BE TRADED IN
BRITISH COLUMBIA, CANADA UNTIL THE EXPIRY OF THE HOLD
PERIOD EXCEPT AS PERMITTED BY THE BRITISH COLUMBIA
SECURITIES ACT AND REGULATIONS MADE UNDER SUCH ACT.
(b) Any legend required by applicable state law.
4.3 Authorization Authorization. Purchaser has the full
power and authority to execute, deliver and perform this
Agreement. This Agreement, when executed and delivered by
Purchaser, will constitute valid and legally binding obligations
of such Purchaser, enforceable in accordance with their terms,
subject to laws of general application relating to bankruptcy,
insolvency, and the relief of debtors and other laws of general
application affecting enforcement of creditors' rights generally,
rules of law governing specific performance, injunctive relief
and other equitable remedies, and limitations of public policy.
4.4 Advisors Advisors. Each Purchaser is not relying on
any statements or representations of the Company or any of its
agents with respect to the financial, tax or other legal
consequences of this investment and the transactions contemplated
by the Agreement except to the extent contained in the
representations made by the Company in Section 3 of this
Agreement or in other written disclosures made by the Company.
SECTION 5
Conditions to Closing of the
PurchasersSECTION Conditions to Closing of the Purchasers
Each Purchaser's obligation to purchase the Securities at
the relevant Closing is subject to the fulfillment or waiver on
or prior to the relevant Closing Date of the following
conditions:
5.1 Representations and Warranties Correct Representations
and Warranties Correct. The representations and warranties made
by the Company in Section 3 hereof shall be true and correct in
all material respects on the Closing Date with the same force and
effect as if they had been made on and as of said date. The
Company will provide an officer's certificate from its President
and Chief Executive Officer to this effect at the Closing.
5.2 Covenants Covenants. All covenants, agreements and
conditions contained in this Agreement to be performed by the
Company on or prior to the Closing Date shall have been performed
or complied with in all material respects.
5.3 Third Party Consents Third Party Consents. All
necessary third party consents on the part of the Company shall
have been obtained.
5.4 Minimum Closing Amounts Minimum Closing Amounts. At
the First Closing, the Purchasers shall purchase and the Company
shall issue and sell Debentures having an aggregate principal
amount of at least $2,000,000 with not less than $110,000
principal amount purchased by each Purchaser, except that the
Company may, in its sole discretion, accept Purchasers for lesser
amounts.
5.5 Blue Sky Blue Sky. The Company shall have obtained
all necessary Blue Sky law permits and qualifications, or secured
an exemption therefrom, required by any state in which the offer
and sale of the Debentures shall occur.
5.6 Consents Consents. All material notices to, and
declarations, filings and registrations with, and consents,
approvals and waivers from, governmental and regulatory agencies
(foreign and domestic) required to consummate the transactions
contemplated hereby and all consents, approvals and waivers from
third parties required to have been obtained prior to Closing,
shall have been obtained.
5.7 Delivery of Warrants and Debentures. The Company shall
deliver fully executed warrants and debentures for Purchaser
promptly after the Closing.
5.8 Opinion of Counsel. The Company shall deliver an
opinion of its outside counsel in a form reasonably satisfactory
to the Purchasers representing a majority of the amount sold.
SECTION 6
Conditions to Closing of CompanySECTION Conditions to Closing of
Company
The Company's obligation to sell and issue the Securities at each
Closing is subject to the fulfillment of the following
conditions:
6.1 Representations Representations. The
representations made by the Purchasers in Section 4 hereof shall
be true and correct in all material respects when made, and shall
be true and correct in all material respects on each Closing
Date.
6.2 Third Party Consents Third Party Consents. All
necessary third party consents on the part of the Company and the
Purchasers shall have been obtained.
6.3 Form W-8 or W-9 Form W-8 or W-9. Each Purchaser
shall have delivered to the Company a fully completed and
executed Form W-8 or W-9, as appropriate.
6.4 B.C. Questionnaire and Undertaking; Regulatory Forms.
Each Purchaser shall have delivered to the Company a fully
executed B.C. Questionnaire and Undertaking in the form attached
hereto as Exhibit F, and such other forms as may be required by
regulatory authorities.
SECTION 7
MiscellaneousSECTION Miscellaneous
7.1 Governing Law Governing Law. This Agreement shall be
governed in all respects by the internal substantive laws of the
State of California.
7.2 Successors and Assigns Successors and Assigns.
Except as otherwise provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors and
assigns of the parties hereto, provided, however, that the rights
of the Purchasers to purchase the Securities shall not be
assignable without the prior written consent of the Company.
7.3 Entire Agreement; Amendment
Entire Agreement; Amendment. This Agreement and the exhibits
hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and
thereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any
such amendment, waiver, discharge or termination is sought.
7.4 Notices, etc Notices, etc. All notices and other
communications required or permitted hereunder shall be in
writing and shall be mailed by registered or certified mail,
postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to a Purchaser, at such Purchaser's address set
forth on Exhibit A or Exhibit A-1 (if applicable), or at such
other address as such Purchaser shall have furnished to the
Company, or (b) if to the Company, as follows:
Sanctuary Woods Multimedia Corporation
1825 S. Grant Street
San Mateo, California 94402
Attn: President
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attn: Judith M. O'Brien
Or at such other addresses furnished to the Purchasers.
7.5 Delays or Omissions Delays or Omissions. No delay or
omission to exercise any right, power or remedy accruing to the
Purchasers upon any breach or default of the Company under this
Agreement shall impair any such right, power or remedy of the
Purchasers nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any
waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character by
any Purchaser of any breach or default under this Agreement, or
any waiver by any Purchaser of any provisions or conditions of
this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies,
either under this Agreement, or by law or otherwise afforded to
the Purchasers, shall be cumulative and not alternative.
7.6 Expenses Expenses. The Company and the Purchasers
shall each bear their own expenses and legal fees incurred on
their behalf with respect to this Agreement and the transactions
contemplated hereby.
7.7 Counterparts Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be an
original and all of which shall constitute one instrument.
7.8 Severability Severability. In the event that any
provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement
to any party.
IN WITNESS WHEREOF, the undersigned parties have hereunto
set their hands as of the date first set forth above.
"COMPANY" "PURCHASER"
SANCTUARY WOODS
MULTIMEDIA CORPORATION
a British Columbia, (Print or Type Name of
Canada corporation Purchaser)
By:
Charlotte Walker, President and (Signature)
Chief Executive Officer
(Print or Type Name and Title,
if different than Purchaser)
EXHIBIT A
SCHEDULE OF PURCHASERS
Principal
Amount of Number of Shares
Name and Address Debenture Subject to Warrant
EXHIBIT B
THIS SECURITY AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT
OR IN AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE FOR SUCH OFFER, SALE, OR
TRANSFER, PLEDGE OR HYPOTHECATION.
SANCTUARY WOODS MULTIMEDIA CORPORATION
CONVERTIBLE SUBORDINATED DEBENTURE
DUE JULY 31, 1999
FOR VALUE RECEIVED, SANCTUARY WOODS MULTIMEDIA CORPORATION, a
British Columbia, Canada corporation (the "Company"), hereby
absolutely and unconditionally promises to pay prior to or on
July 31, 1999 (the "Due Date") to _____________ (the "Purchaser"
or "holder"), the principal sum of $______________, plus interest
at the rate of 8% per annum, or the highest rate permitted by
applicable law, whichever is lower, on the principal hereof
outstanding from time to time, as hereinafter provided. Interest
shall be payable annually in arrears, and shall be paid only in
shares of the Company's Common Stock valued at a price equal to
the average closing price of the Company's stock for the ten
trading days prior to the date of payment. Interest will
continue to accrue until the obligations hereunder are paid or
converted in full (both before and after judgment). Interest
shall be calculated on the basis of a 360-day year consisting of
12 months of 30 days each.
This Debenture is issued pursuant to a Securities Purchase
Agreement dated as of _______________, 1996 (as amended and in
effect from time to time, the "Purchase Agreement") by and among
the Company, the Purchaser, and certain other purchasers named in
Exhibit A and Exhibit A-1 (if applicable) thereto. This
Debenture is subject to the terms of, and entitled to the
benefits of, the Purchase Agreement. Terms defined in the
Purchase Agreement and used without other definition herein shall
have the respective meanings herein ascribed to such terms
therein. To the extent necessary to give independent meaning to
this Debenture, the terms of the Purchase Agreement pertaining
hereto are hereby incorporated by reference with the same force
and effect as though fully set forth herein.
1. Conversion.
1.1 Automatic Conversion. This Debenture, and the accrued
interest hereon, will automatically convert into fully-paid and
nonassessable shares of Common Stock of the Company at the
conversion rate described in Section 1.1 of the Purchase
Agreement (the "Conversion Price"), subject to adjustment, if
any, of the Conversion Price and the securities or other property
issuable upon conversion as may be required by this Debenture,
immediately upon the first to occur of the following events: (1)
completion by the Company of any equity financing in an amount of
not less than two million dollars ($2,000,000) at a price of not
less than one dollar (US$1.00) per share, or (2) immediately upon
the Common Stock of the Company having closed trading at a price
of $1.375 or more per share for any period of 21 trading days in
any consecutive 40 trading days, or (3) if no such event has
occurred, then on July 30, 1999.
1.2 Voluntary Conversion. At the option of the holder, between
April 1, 1997 and July 31, 1999, this Debenture, including the
interest accrued thereon, shall be converted in full or in part
into fully-paid and nonassessable shares of Common Stock of the
Company at the Conversion Price, subject to adjustment, if any,
of the Conversion Price and the securities or other property
issuable upon conversion as may be required by this Debenture.
2. Issuance of Stock on Conversion. As soon as practicable
after conversion of this Debenture, the Company at its expense
will cause to be issued in the name of, and delivered to, the
holder of this Debenture, a certificate or certificates for the
number of fully paid and nonassessable shares of Common Stock of
the Company to which the holder shall be entitled on such
conversion, together with any other securities and property to
which the holder is entitled on such conversion under the terms
of this Debenture. Such conversion shall be deemed to have been
made at the close of business on the date that the Debenture
shall have been surrendered for conversion. No fractional shares
will be issued on conversion of this Debenture.
3. Stock Splits, etc.
3.1 Stock Splits, Combinations and Distributions. If the
Company shall at any time after the date of the Purchase
Agreement subdivide the outstanding shares of its capital stock,
the Conversion Price then in effect immediately before that
subdivision shall be proportionately decreased and, if the
Company shall at any time after the date of the Agreement combine
the outstanding shares of its capital stock, the Conversion Price
then in effect immediately before that combination shall be
proportionately increased. Any adjustment under this Section 3.1
shall become effective at the close of business on the date the
subdivision or combination becomes effective. A dividend on the
Common Stock of the Company payable in Common Stock shall be
considered a subdivision of Common Stock for purposes of this
Section 3.1 at the close of business on the record date for the
determination of holders of any security entitled to receive such
dividend.
3.2 Mergers and Reorganization. If the Company shall at any
time after the date of the Purchase Agreement merge with another
corporation or reorganize in such a manner so that the Company is
not the surviving corporation, the Conversion Price shall be
adjusted to proportionally reflect an equivalent price in the
capital stock of the surviving corporation. Any adjustment under
this Section 3.2 shall become effective at the close of business
on the date the merger or reorganization becomes effective.
3.3 Notice of Adjustments. The Company shall promptly, and in
any case not later than thirty (30) days after the date of any
adjustment or readjustment of the Conversion Price, as provided
in this Section 3, give written notice of such adjustment or
readjustment and the number of shares of the Stock or other
securities issuable and the Conversion Price payable upon
conversion of this Debenture, by first class mail, postage
prepaid, to the registered holder of this Debenture at the
holder's address as shown on the Company's books. The
certificate shall state such adjustment or readjustment and show
in reasonable detail the facts on which such adjustment or
readjustment is based.
3.4 No Change Necessary. The form of this Debenture need not be
changed because of any adjustment or readjustment in the
Conversion Price or in the number of shares of Stock issuable
upon its conversion. A Debenture issued after any adjustment or
readjustment on any partial conversion or upon replacement may
continue to express the same Conversion Price and the same number
of shares of Stock (appropriately reduced in the case of partial
conversion) as are stated on this Debenture as initially issued,
and that Conversion Price and that number of shares shall be
considered to have been so changed as of the close of business on
the date of the adjustment or readjustment.
4. Reservation of Stock. The Company covenants that it will at
all times reserve and keep available, solely for issuance upon
conversion of the principal amount of this Debenture, shares of
its Common Stock or other securities from time to time issuable
upon conversion of this Debenture. If at any time the number of
authorized but unissued shares of Common Stock or other
securities shall not be sufficient to effect the conversion of
the principal amount of this Debenture, the Company will take
such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of
Common Stock or other securities to such number of shares of
Common Stock or other securities as shall be sufficient for such
purpose.
5. No Impairment. The Company will not 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 Debenture and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion
rights of the holder of this Debenture against impairment.
6. Notices of Record Date. In the event of any taking by the
Company of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, the Company shall
mail to the holder of this Debenture, at least twenty (20) days
prior to the record date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose
of such dividend or distribution.
7. Prepayment. The Company may at any time, but not earlier
than thirty (30) days after notice to the holder of this
Debenture, prepay in immediately available funds without penalty
all or any portion of the principal of, and accrued interest on,
this Debenture, provided that such prepayment date shall be
deemed to be the Due Date of such prepaid portion of this
Debenture for purposes of the holder's conversion rights, and
provided further that a holder's conversion rights under
Section 1 hereof shall not be terminated until this Debenture is
paid as permitted herein.
8. Tax Matters.
8.1 Transfer of Debenture. Subject to the terms of this
Debenture and the Purchase Agreement, this Debenture may be trans
ferred only upon surrender of the original Debenture for registra
tion or transfer, duly endorsed, or accompanied by a duly
executed written instrument of transfer in form satisfactory to
the Company, together with any applicable form W-8 or W-9 and
required forms for other regulatory bodies for the transferee.
Thereupon, a new Debenture for like principal amount and interest
will be issued to, and registered in the name of, the transferee.
Interest and principal are payable only to the registered holder
of this Debenture as indicated on the books and records of the
Company.
8.2 Withholding Taxes. The Company may withhold from payments
to a holder such taxes as are required to be withheld under
United States and Canadian federal, state and provincial laws.
If any tax is withheld by the Company, the Company shall, upon
the holder's request, provide to such holder receipts or other
evidence of such withholding and payment to the appropriate tax
authorities. The Company agrees not to withhold any taxes or to
withhold at a reduced rate to the extent that a holder is
entitled to an exemption from or a reduction of withholding
provided that such holder has given all necessary statements and
documents to the Company as are required to qualify for a
reduction or exemption, including, without limitation, Internal
Revenue Service Forms W-8 or 1001, as appropriate.
9. Place of Payment. Any payments due a holder hereunder shall
be made by check or wire transfer to the name and address of such
holder as set forth on Exhibit A or Exhibit A-1 (if applicable)
to the Purchase Agreement or such other address as such holder
shall advise the Company in writing.
10. Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default:
10.1. The Company fails to pay any installment of the
principal or interest on the Note or any other amount payable by
the Borrower or any of its Affiliates to Lender under this
Debenture or the Securities Purchase Agreement when due.
10.2. The Company fails to perform or observe any other term,
covenant or agreement contained in this Debenture or the
Securities Purchase Agreement (not otherwise specifically
addressed in this Section), on its part to be performed or
observed and such failure shall continue for a period of thirty
(30) days after the date of written notice to the Borrower.
10.3. Any representations or warranties of the Company set
forth in this Debenture or the Securities Purchase Agreement
shall be incorrect in any material respect when made or as of the
Closing Date.
10.4. The Company dissolves, adopts or carries out a plan of
liquidation, sells substantially all of its assets (except in a
sale approved by the Company's shareholders where the purchasing
entity agrees to assume any remaining obligations under this
Debenture and the Securities Purchase Agreement), merges or
amalgamates with any other corporation (except in a merger
approved by the Company's shareholders where the surviving entity
agrees to assume any remaining obligations under this Debenture
and the Securities Purchase Agreement), or redeems or acquires
any of its outstanding stock (except from terminated employees).
10.5. Either (a) the Company files (or consents to the filing
of) any petition or complaint pursuant to federal or state
bankruptcy or insolvency laws seeking the appointment of a
receiver or trustee for it or any of its assets, seeking the
adjudication of the Company a bankrupt or insolvent, seeking an
"order for relief" under such statutes, or seeking a
reorganization of or a plan of arrangement for the Company or (b)
any such petition is filed against the Company's assets and is
not dismissed or stayed within sixty (60) days after the filing
thereof; or
10.6. The Company fails to pay when due any outstanding loan
for borrowed money, or any such loan of the Company is declared
to be due and payable prior to its stated maturity and is not
paid within thirty (30) days thereafter.
11. Remedies. Upon the occurrence of any Event of Default, the
Holder may, without notice to or demand upon the Company, which
are expressly waived by the Company, exercise any one or more of
the following rights, powers or remedies (collectively,
"Remedies") as Holder may determine:
11.1. Declare the unpaid principal of the Debenture and all
accrued interest and other amounts payable under this Agreement
and the Debenture to be immediately due and payable, in which
event all such amounts shall immediately be due and payable
without protest, presentment, notice of dishonor, demand or
further notice of any kind, all of which are expressly waived by
the Company.
11.2. Pursue any remedy set forth in the Securities Purchase
Agreement or available to the Holder at law or in equity.
11.3. All reasonable costs, expenses, charges and advances of
Holder in exercising any such Remedies shall be payable by the
Company to Holder on demand.
11.4. Each of the Remedies of Holder provided herein, or in
the Securities Purchase Agreement is cumulative and not exclusive
of, and shall not prejudice, any other remedy provided in such
documents or by any applicable laws. Each remedy may be
exercised from time to time as often as deemed necessary by
Holder, and in such order and manner as Holder may determine. No
failure or delay on the part of Holder in exercising any remedy
shall operate as a waiver of such remedy; nor shall any single or
partial exercise of any remedy preclude any other or further
exercise of such remedy or of any other remedy. No application
of payments, or any advances or other action by Holder will cure
or waive any Event of Default or prevent acceleration, or
continued acceleration, of amounts payable under this Debenture
or the Securities Purchase Agreement or prevent the exercise or
continued exercise of any remedies of Holder.
11.5. Any amount payable to Holder hereunder which is not
paid on the date when due shall, from and after such date, bear
interest at a rate of interest equal to the lesser of (i) two
percent (2%) over the rate of interest otherwise in effect or
(ii) the maximum rate of interest permitted by law (the "Default
Rate") until paid in full. Such interest shall be payable by the
Company to Holder immediately and without demand.
Date:
SANCTUARY WOODS
MULTIMEDIA CORPORATION
Charlotte Walker, President and
Chief Executive Officer
EXHIBIT C
Warrant
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Warrant to Purchase
__________ Shares
of Common Stock
WARRANT TO PURCHASE COMMON STOCK
of
SANCTUARY WOODS MULTIMEDIA CORPORATION
Void after , 1999
[Third anniversary of closing date]
This certifies that, for value received,
__________________________ or its registered assigns ("Holder")
is entitled, subject to the terms set forth below, to purchase
from SANCTUARY WOODS MULTIMEDIA CORPORATION (the "Company"), a
British Columbia, Canada corporation,
________________________________ (_____,000) shares of the Common
Stock of the Company, as constituted on the date hereof (the
"Warrant Issue Date"), upon surrender hereof, at the principal
office of the Company referred to below, with the subscription
form attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as
hereinafter provided, at the Exercise Price as set forth in
Section 2 below. The number, character and Exercise Price of
such shares of Common Stock are subject to adjustment as provided
below.
1. Term of Warrant. Subject to the terms and conditions
set forth herein, this Warrant shall be exercisable, in whole or
in part, during the term commencing on the Warrant Issue Date and
ending at 5:00 p.m., Pacific Standard Time, on , 1999
[third anniversary of closing date] (the "Term"), and shall be
void thereafter.
2. Exercise Price. The Exercise Price at which this
Warrant may be exercised shall be $0.6875 per share of Common
Stock, as adjusted from time to time pursuant to Section 10
hereof (the "Exercise Price").
3. Exercise of Warrant.
(a) This Warrant is exercisable by the Holder in whole
or in part, but not for less than ten thousand (10,000) shares at
a time (or if the maximum number of shares purchasable upon
exercise of this Warrant is less than 10,000, this Warrant shall
be exercisable for such lesser number of shares which may then
constitute the maximum number purchasable), at any time, or from
time to time, during the term hereof as described in Section 1
above, by the surrender of this Warrant and the Notice of
Exercise annexed hereto duly completed and executed on behalf of
the Holder, at the office of the Company (or such other office or
agency of the Company as it may designate by notice in writing to
the Holder at the address of the Holder appearing on the books of
the Company), upon payment (i) in cash or by check acceptable to
the Company, (ii) by cancellation by the Holder of indebtedness
of the Company to the Holder, or (iii) by a combination of (i)
and (ii), of the Exercise Price multiplied by the number of
shares being purchased.
(b) The Holder of this Warrant will be required to
immediately exercise this Warrant in full if (1) the closing
trading price of the Common Stock of the Company as reported on
the NASD Bulletin Board or on any national exchange or market on
which the Common Stock of the Company is then traded exceeds
$1.375 for a period of 21 trading days in any 40 consecutive
trading days or (2) immediately upon the completion by the
Company of any equity financing in an amount of not less than two
million dollars ($2,000,000) at a price of not less than one
dollar (US$1.00) per share.
(c) This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date
of its surrender for exercise as provided above, and the person
entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date.
As promptly as practicable on or after such date and in any event
within ten (10) days thereafter, the Company at its expense shall
issue and deliver to the person or persons entitled to receive
the same a certificate or certificates for the number of shares
issuable upon such exercise. In the event that this Warrant is
exercised in part, the Company at its expense will execute and
deliver a new Warrant of like tenor exercisable for the remaining
number of shares for which this Warrant may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the
exercise of this Warrant. In lieu of any fractional share to
which the Holder would otherwise be entitled, the Company shall
make a cash payment equal to the Exercise Price multiplied by
such fraction.
5. Replacement of Warrant. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of
loss, theft, or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and substance to the
Company or, in the case of mutilation, on surrender and
cancellation of this Warrant, the Company at its expense shall
execute and deliver, in lieu of this Warrant, a new warrant of
like tenor and amount.
6. Rights of Stockholders. Subject to Sections 8 and 10
of this Warrant, the Holder shall not be entitled to vote or
receive dividends or be deemed the holder of Common Stock or any
other securities of the Company that may at any time be issuable
on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such,
any of the rights of a stockholder of the Company or any right to
vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock,
change of par value, or change of stock to no par value,
consolidation, merger, conveyance, or otherwise) or to receive
notice of meetings, or to receive dividends or subscription
rights or otherwise until the Warrant shall have been exercised
and the shares of Common Stock purchasable upon the exercise
hereof (the "Warrant Shares") shall have been issued, as provided
herein.
7. Compliance with Securities Laws. This Warrant may not
be transferred or assigned in whole or in part without compliance
with all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of
investment representation letters and legal opinions reasonably
satisfactory to the Company, if such are requested by the
Company).
(a) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Common Stock to
be issued upon exercise hereof are being acquired solely for the
Holder's own account and not as a nominee for any other party,
and for investment, and that the Holder will not offer, sell, or
otherwise dispose of this Warrant or any shares of Common Stock
to be issued upon exercise hereof except under circumstances that
will not result in a violation of any federal securities laws,
including without limitation the Securities Act of 1933, as
amended (the "Act"), any state securities laws or any applicable
securities laws of foreign jurisdictions, including without
limitation, British Columbia, Canada, or any rules or regulations
promulgated thereunder. Upon exercise of this Warrant, the
Holder shall, if requested by the Company, confirm in writing, in
a form satisfactory to the Company, that the shares of Common
Stock so purchased are being acquired solely for the Holder's own
account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale.
(b) Without in any way limiting the representations
set forth in (a) above, the Holder further agrees not to make any
disposition of all or any portion of this Warrant or any Warrant
Shares unless and until the transferee has agreed in writing for
the benefit of the Company to be bound by this Section 7, and:
(i) the Holder shall have notified the Company of
the proposed disposition and shall have furnished the Company
with a detailed statement of the circumstances surrounding the
proposed disposition, and (ii) if reasonably requested by the
Company, the Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such securities
under the Act.
(c) This Warrant and all shares issuable hereunder
shall bear the following legends:
(i) "THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO SUCH SECURITIES, OR DELIVERY OF AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE WITH THE ACT."
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO A HOLD PERIOD EXPIRING AT MIDNIGHT ON , AND MAY NOT BE
TRADED IN BRITISH COLUMBIA, CANADA UNTIL THE EXPIRY OF THE HOLD PERIOD EXCEPT AS
PERMITTED BY THE BRITISH COLUMBIA SECURITIES ACT AND REGULATIONS MADE UNDER
SUCH ACT.
(iii) Any legend required by applicable state
law.
8. Reservation of Stock. The Company covenants that
during the Term this Warrant is exercisable, the Company will
reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common
Stock upon the exercise of this Warrant and, from time to time,
will take all steps necessary to provide sufficient reserves of
shares of Common Stock issuable upon exercise of the Warrant.
The Company further covenants that all shares that may be issued
upon the exercise of rights represented by this Warrant and
payment of the Exercise Price, all as set forth herein, will be
free from all taxes, liens, and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring
contemporaneously or otherwise specified herein). The Company
agrees that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the exercise of this
Warrant.
9. Amendments and Waivers. Any term of this Warrant may
be amended and the observance of any term of this Warrant may be
waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of
the Company, Holder and, if necessary, the Vancouver Stock
Exchange. No waivers of or exceptions to any term, condition or
provision of this Warrant, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of
any such term, condition or provision.
10. Adjustments. The Exercise Price and the number of
shares purchasable hereunder are subject to adjustment from time
to time as follows:
(a) Special Definitions. For the purposes of this
Section 10, the following definitions apply:
(1) "Options" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities (defined below).
(2) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common Stock) or
other securities convertible into or exchangeable for Common
Stock.
(3) "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued (or deemed to be issued
pursuant to Section 10(c) below) by the Company after the Warrant
Issue Date other than:
(i) shares issued upon
conversion of Convertible Securities
issued prior to the Warrant Issue Date;
(ii) shares of Common
Stock issued pursuant to stock options
or stock purchase plans or agreements
approved by the Board of Directors prior
to the Warrant Issue Date;
(iii) shares issued
to a bank or other commercial lender or
commercial finance entity in
consideration of the extension of credit
to the Company;
(iv) shares approved by a majority of the
Board of Directors connection with a
commercial transaction and deemed strategic
where the offering price in the opinion of
the Board was reasonable in light of the
other benefits to the Company; or
(v) shares of Common
Stock issued or issuable to officers,
directors or employees of, or
consultants to, the Company pursuant to
stock option or stock purchase plans or
agreements approved by majority of the
Board of Directors.
(b) No Adjustment of Exercise Price. Any provision
herein to the contrary notwithstanding, no adjustment in the
Exercise Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per
share (determined pursuant to Section 10(f) hereof) for such
Additional Shares of Common Stock issued or deemed to be issued
by the Company is less than the Exercise Price in effect on the
date of, and immediately prior to, such issue.
(c) Deemed Issue of Additional Shares of Common Stock.
In the event the Company, at any time or from time to time after
the Warrant Issue Date, shall issue any Options or Convertible
Securities, the maximum number of shares of Common Stock issuable
upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of
such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of
business on such record date.
(d) Adjustment Upon Issuance of Additional Shares. In
the event the Company, at any time after the Warrant Issue Date,
shall issue Additional Shares of Common Stock for a consideration
per share less than the Exercise Price in effect on the date of
and immediately prior to such issue, then the Exercise Price
shall be reduced, concurrently with such issue, to a price equal
to the lowest consideration per share at which such Additional
Shares are issued or deemed issued and the number of shares which
the Holder is entitled to purchase under this warrant shall be
increased to a number determined by multiplying the number of
shares which the Holder is entitled to purchase immediately prior
to the issuance of the Additional Shares by the quotient obtained
by dividing the Exercise Price in effect on the date of and
immediately prior to the issue of Additional Shares by such
lowest consideration per share at which such Additional Shares
were issued.
(e) Adjustment upon expiration of Options and
Convertible Securities. Upon the expiration of any such Options
or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Exercise
Price, and the number of shares subject to this Warrant, shall,
upon such expiration, be recomputed as if:
(1) in the case of Convertible
Securities or Options for Common Stock the only
Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued
upon the exercise of such Options or the
conversion or exchange of such Convertible
Securities and the consideration received therefor
was the consideration actually received by the
Company for the issue of all such Options, whether
or not exercised, plus the consideration actually
received by the Company upon such exercise, or for
the issue of all such Convertible Securities which
were actually converted or exchanged, plus the
additional consideration, if any, actually
received by the Company upon such conversion or
exchange, and
(2) in the case of Options for Convertible
Securities only the Convertible Securities, if
any, actually issued upon the exercise thereof
were issued at the time of issue of such Options,
and the consideration received by the Company for
the Additional Shares of Common Stock deemed to
have been issued was the consideration actually
received by the Company for the issue of all such
Options, whether or not exercised, plus the
consideration deemed to have been received by the
Company (determined pursuant to Section 10 (f)
upon the issue of the Convertible Securities with
respect to which such Options were actually
exercised;
(3) in the case of any Options which
expire by their terms not more than thirty (30)
days after the date of issue thereof, no
adjustments of the Exercise Price shall be made
until the expiration or exercise of all such
Options, whereupon such adjustment shall be made
in the same manner provided in this clause (e).
(f) Determination of Consideration. For purposes of
this Section 10, the consideration received by the Company for
the issue of any Additional Shares of Common Stock shall be
computed as follows:
(1) Cash and Property. Such consideration shall:
(i) insofar as it
consists of cash, be computed at the
aggregate amount of cash received by the
Company excluding amounts paid or
payable for accrued interest or accrued
dividends;
(ii) insofar as it
consists of property other than cash, be
computed at the fair value thereof at
the time of such issue, as determined in
good faith by the Board of Directors;
and
(iii) in the event
Additional Shares of Common Stock are
issued together with other shares or
securities or other assets of the
Company for consideration which covers
both, be the proportion of such
consideration so received, computed as
provided in clauses (i) and (ii) above,
as determined in good faith by the Board
of Directors.
(2) Options and Convertible
Securities. The consideration per share
received by the Company for Additional Shares
of Common Stock deemed to have been issued
pursuant to Section 10(c), relating to
Options and Convertible Securities, shall be
determined by dividing:
(i) the total amount, if
any, received or receivable by the
Company as consideration for the issue
of such Options or Convertible
Securities, plus the minimum aggregate
amount of additional consideration (as
set forth in the instruments relating
thereto, without regard to any provision
contained therein designed to protect
against dilution) payable to the Company
upon the exercise of such Options or the
conversion or exchange of such
Convertible Securities, or in the case
of Options for Convertible Securities,
the exercise of such Options for
Convertible Securities and the
conversion or exchange of such
Convertible Securities, by
(ii) the maximum number
of shares of Common Stock (as set forth
in the instrument relating thereto,
without regard to any provision
contained therein designed to protect
against dilution) issuable upon the
exercise of such Options or conversion
or exchange of such Convertible
Securities.
(g) Reclassification, etc. If the Company at any time
while this Warrant, or any portion thereof, remains outstanding
and unexpired shall, by reclassification of securities or
otherwise, change any of the securities as to which purchase
rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant
shall thereafter represent the right to acquire such number and
kind of securities as would have been issuable as the result of
such change with respect to the securities which were subject to
the purchase rights under this Warrant immediately prior to such
reclassification or other change and the Exercise Price therefor
shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 10.
(h) Split, Subdivision or Combination of Shares. If
the Company at any time while this Warrant, or any portion
hereof, remains outstanding and unexpired shall split, subdivide
or combine the securities as to which purchase rights under this
Warrant exist, into a different number of securities of the same
class, the Exercise Price for such securities shall be
proportionately decreased and the number of securities issuable
upon exercise proportionately increased in the case of a split or
subdivision or the Exercise Price for such securities shall be
proportionately increased and the number of securities issuable
upon exercise proportionately decreased in the case of a
combination. If at any time, while this Warrant, or any portion
thereof, is outstanding and unexpired there shall be (i) a merger
or consolidation of the Company with or into another corporation
in which the Company is not the surviving entity, or a reverse
triangular merger in which the Company is the surviving entity
but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities,
cash, or otherwise, or (ii) a sale or transfer of substantially
all of the Company's assets to any other person, then, as a part
of such merger, consolidation, sale or transfer, lawful provision
shall be made so that the Holder shall thereafter be entitled to
receive upon exercise of this Warrant, during the period
specified herein and upon payment of the Exercise Price then in
effect, the number of shares of stock or other securities or
property of the successor corporation resulting from such merger,
consolidation, sale or transfer which a holder of the shares
deliverable upon exercise of this Warrant would have been
entitled to receive in such consolidation, merger, sale or
transfer if this Warrant had been exercised immediately before
such merger, consolidation, sale or transfer, all subject to
further adjustment as provided in this Section 10; and, in any
such case, appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the provisions
herein set forth with respect to the rights and interests
thereafter of the Holder to the end that the provisions set forth
herein (including provisions with respect to changes in and other
adjustments of (i) the number of shares the Holder is entitled to
purchase, and (ii) the Exercise Price) shall thereafter be
applicable, as nearly as possible, in relation to any shares of
Common Stock or other securities or other property thereafter
deliverable upon the exercise of this Warrant.
(i) Adjustments for Dividends in Stock or Other
Securities or Property. If while this Warrant, or any portion
hereof, remains outstanding and unexpired the holders of the
securities as to which purchase rights under this Warrant exist
at the time shall have received, or, on or after the record date
fixed for the determination of eligible Stockholders, shall have
become entitled to receive, without payment therefor, other or
additional stock or other securities or property (other than
cash) of the Company by way of dividend, then and in each case,
this Warrant shall represent the right to acquire, in addition to
the number of shares of the security receivable upon exercise of
this Warrant, and without payment of any additional consideration
therefor, the amount of such other or additional stock or other
securities or property (other than cash) of the Company which
such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of
this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional stock
available by it as aforesaid during such period, giving effect to
all adjustments called for during such period by the provisions
of this Section 10.
(j) Certificate as to Adjustments. Upon the
occurrence of each adjustment or readjustment pursuant to this
Section 10, the Company at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms
hereof and furnish to each holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon the written request, at any time,
of any such holder, furnish or cause to be furnished to such
holder a like certificate setting forth: (i) such adjustments and
readjustments; (ii) the Exercise Price at the time in effect; and
(iii) the number of shares and the amount, if any, of other
property which at the time would be received upon the exercise of
the Warrant.
(k) No Impairment. The Company will not, by any
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 10 and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the
holders of this Warrant against impairment.
11. Successors and Assigns. The terms and provisions of
this Warrant shall inure to the benefit of and be binding upon
the Company and Holder and their respective permitted successors
and assigns.
12. Attorneys' Fees. If any action of law or equity is
necessary to enforce or interpret the terms of this Warrant, the
prevailing party shall be entitled to its reasonable attorneys'
fees, costs and disbursements in addition to any other relief to
which it may be entitled.
13. Governing Law. This Warrant shall be governed by the
laws of the State of California.
14. Notices. All notices required under this Warrant and
shall be deemed to have been given or made for all purposes (i)
upon personal delivery, (ii) upon confirmation receipt that the
communication was successfully sent to the applicable number if
sent by facsimile; (iii) one day after being sent, when sent by
professional overnight courier service, or (iv) five days after
posting when sent by registered or certified mail to either party
hereto at the address set forth below or at such other address as
either party may designate by notice pursuant to this Section 14.
If to the Company:
Sanctuary Woods Multimedia Corporation
1825 South Grant Street
San Mateo, CA 94402
Attn: President
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attn: Judith O'Brien
If to the Holder:
15. Captions. The Section and subsection headings of this
Warrant are inserted for convenience only and shall not
constitute a part of this Warrant in construing or interpreting
any provision hereof.
IN WITNESS WHEREOF, SANCTUARY WOODS MULTIMEDIA CORPORATION has
caused this Warrant to be executed by its officers thereunto duly
authorized.
Dated: _____, 1996
SANCTUARY WOODS MULTIMEDIA CORPORATION
By__________________________________________
NOTICE OF EXERCISE
To: SANCTUARY WOODS MULTIMEDIA CORPORATION
(1) The undersigned hereby elects to:
Purchase shares of
Common Stock of SANCTUARY WOODS MULTIMEDIA CORPORATION,
pursuant to the terms of the attached Warrant and tenders
herewith payment of the purchase price for such shares in
full;
(2) In exercising this Warrant, the undersigned hereby
confirms and acknowledges that the shares of Common Stock are
being acquired solely for the account of the undersigned and not
as a nominee for any other party, and for investment, and that
the undersigned will not offer, sell, or otherwise dispose of any
such shares of Common Stock except under circumstances that will
not result in a violation of any federal securities laws,
including without limitation the Securities Act of 1933, as
amended, any state securities laws or any applicable securities
laws of foreign jurisdictions, including without limitation,
British Columbia, Canada, or any rules or regulations promulgated
thereunder.
By:
[Date]
Title:
EXHIBIT D
SUBORDINATION AGREEMENT
(Payment Authorized)
TO: IMPERIAL BANK
The undersigned ("We") are interested in the financial
success of Sanctuary Woods Multimedia Corporation
("Borrower"), and agree that financial accommodation from
IMPERIAL BANK ("Bank" or "You") to Borrower is necessary, and
we accordingly request that you grant to or renew for
Borrower such financial accommodation as you may deem proper,
and for the purpose of inducing you to grant, renew or extend
such financial accommodation, we hereby severally agree as
follows:
All claims of each of the undersigned against Borrower now or
hereafter existing, whether matured or not (subject to the
maximum if specified below), are and shall be at all time
subordinate and subject to any and all claims on your part
against Borrower now or hereafter existing, whether matured
or not, so long as any such claim on your part against
Borrower shall remain unpaid, in whole or in part, and each
of the undersigned agrees not to sue upon, or to collect, or
to receive payment upon, by setoff or in any other manner,
any claim or claims on his/hers part against borrower now or
hereafter existing, nor to sell, assign, transfer, pledge,
or give a security interest in the same (except subject
expressly to this Agreement), nor to enforce or apply any
security now or hereafter existing, nor to join in any
petition in bankruptcy or any assignment for the benefit of
creditors or any creditors agreement, nor to take any lien or
security on any of Borrower's property, real or personal, nor
to incur any obligation to nor receive any loans, advances or
gifts from Borrower, so long as any such claim on your part
against Borrower shall exist or so long as you are committed
or otherwise obligated to make any loans to, or grant any
credit to, Borrower.
All claims on your part against Borrower now or hereafter
existing shall be first paid by Borrower before any payment
shall be made by Borrower to any of the undersigned.
Borrower may make regularly scheduled payment(s) on the
claims so long as no default exists on its obligations to
Bank. Said priority of payment shall apply during the
ordinary course of Borrower's business and in case of any
assignment by Borrower for the benefit of Borrower's
creditors, and in case of any bankruptcy proceedings
instituted by or against Borrower, and in case of the
appointment of any receiver for Borrower or any Borrower's
business or assets, and in case of any dissolution or other
winding up of the affairs of Borrower, or of Borrower's
business, and in all such cases respectively, the officers of
Borrower and any assignee, trustee in bankruptcy, receiver,
and other person or persons in charge, are hereby directed to
pay to you the full amount of your claims against Borrower
before making any payment to any of the undersigned, and so
far as may be necessary for that purpose, each of the
undersigned hereby transfers and assigns to you all of
his/her or its rights to any payment or distribution which
might otherwise be coming to him/her or it. You are hereby
irrevocably constituted and appointed the attorney-in-fact of
each of the undersigned to file any and all proofs of claim
and any other documents and to take all other action, either
in your name, or in the name of the undersigned, or any of
them, which in your opinion is necessary or desirable to
enable you to obtain all such payments.
Each of the undersigned agrees that if part or all of any
claim of the undersigned shall be evidenced by a promissory
note or other instrument, the undersigned shall cause to be
placed thereon a legend stating that the payment thereof is
subordinate to the payment of all claims on your part against
Borrower pursuant to the terms of this Subordination
Agreement, and each of the undersigned agrees to mark all
books of account in such a manner to indicate that payment
thereof is subordinated pursuant to the terms of this
Subordination Agreement.
Each of the undersigned further agrees that in case he, she
or it should take or receive any security interest in, or
lien by way of attachment, execution, or otherwise on any of
the property, real or personal, of Borrower, or should take
or join in any other measure or advantage contrary to this
Agreement, while any claim exists on your part against
Borrower, you shall be entitled to have the same vacated,
dissolved and set aside by such proceedings at law, or
otherwise, as you may deem proper, and this Agreement shall
be and constitute full and sufficient ground therefor and
shall entitle you to be and become a party to any proceedings
at law, or otherwise, initiated by you or by any other party
in or by which you may deem it proper to protect your
interest hereunder; and the party so violating this Agreement
shall be liable to you for all loss and damage sustained by
you by reason of such breach, including attorney's fees in
any such legal action. If the undersigned, or any of them,
shall receive any payment or property in violation of this
Agreement, such payment or property shall be received by such
undersigned in trust for you and forthwith will be delivered
and transferred to you.
No subordinations of obligations of Borrower to the
undersigned have previously been executed by the undersigned
for the benefit of anyone else, and any such subordinations
hereafter executed will be, and shall be expressed to be
subject and subordinate to the effect hereof. This Agreement
shall be continuing in effect, it shall not be canceled or
otherwise rendered ineffective by the payment or discharge at
any time of all of Borrower's obligations to you, and it
shall apply to any and all financial accommodations
subsequently granted, renewed or extended by you for
Borrower, unless the undersigned shall deliver to you a
written notice of revocation as to future transactions, at a
time when Borrower is no longer obligated to you in any way,
and while you are not committed or otherwise obligated to
make any loans to, or grant any credit to, Borrower.
Maximum
Dated
By
ACCEPTANCE OF SUBORDINATION AGREEMENT BY BORROWER
The undersigned, being the Borrower named in the foregoing
Subordination Agreement, hereby accepts and consents thereto
and agrees to be bound by all of the provisions thereof and
to recognize all priorities and other rights granted thereby
to IMPERIAL BANK, and to pay said Bank in accordance
therewith.
Dated
By
EXHIBIT E
Risk Factors
Going Concern Uncertainty. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash
flow to meet its obligations on a timely basis, to comply with
the terms and covenants of its bank line of credit, to obtain
additional financing or refinancing, and ultimately to attain
successful operations. To date the Company has not been able to
generate sufficient cash flow from operations to cover its
expenses, and the Company has been substantially dependent on
equity financing as a method of financing its operations. There
can be no assurance that such financing will be available to the
Company at all, or on terms that are favorable to the Company and
its shareholders. If the Company is unable to obtain such
financing, its business and operating results may be materially
adversely affected, and the Company may be required to cease
operations. Because of the possible material effects of this
going concern uncertainty, the independent auditors were unable
to express, and did not express, an opinion on the Company's 1995
consolidated financial statements.
Liquidity and Capital Resources. The Company owes nearly
$1,000,000 on its bank line of credit, and is presently not in
compliance with certain of the financial covenants of such line
of credit. No additional bank borrowings are currently
available. Management continues to explore a number of options,
including equity and debt financing, to improve its capital
resources. No assurance can be given that additional financing
will be available or that, if available, such financing will be
obtainable on terms favorable to the Company or its stockholders.
If the Company is unable to successfully obtain such funding,
management believes that the Company may be forced to cease
operations.
Nasdaq Listing. The Company's stock was delisted from the Nasdaq
Stock Market effective July 2, 1996. While the Company expects to
reapply for listing on the Nasdaq Stock Market once it meets the
initial inclusion requirements, there can be no assurance that the
Company will be able to meet the initial inclusion requirements, or
that its application for listing will be approved by the Nasdaq
Stock Market.
Continued Losses; Fluctuations in Operating Results; Seasonality.
The Company has not been profitable on an annual basis in the last
three years. The Company has experienced, and expects to continue
to experience, significant fluctuations in operating results due to
a variety of factors, including the size and rate of growth of the
consumer software market, market acceptance of the Company's
products and those of its competitors, development and promotional
expenses relating to the introduction of new products or new
versions of existing products, projected and actual changes in
computing platforms, the timing and success of product
introductions, product returns, changes in pricing policies by the
Company and its competitors, difficulty in securing retail shelf
space for the Company's products, the accuracy of retailers'
forecasts of consumer demand, the timing of orders from major
customers, order cancellations and delays in shipment. In response
to competitive pressures, the Company may take certain pricing or
marketing actions that could materially adversely affect the
Company's business, operating results and financial condition. The
Company may be required to pay fees in advance or to guarantee
royalties, which may be substantial, or to obtain licenses to
intellectual properties from third parties before such properties
have been introduced or achieved market acceptance. A significant
portion of the Company's operating expenses are relatively fixed,
and planned expenditures are based in part on sales forecasts. If
net sales do not meet the Company's expectations, the Company's
business, operating results and financial condition could be
materially adversely affected.
Possible Write-Offs from Product Returns, Price Protection; Bad
Debts; Collections. The Company recognizes revenue in accordance
with industry practice (net of an allowance for product returns and
price protection) from the sale of its products upon shipment to
its distributors and retailers. The Company had a reserve balance
for price protection and returns as of March 31, 1996, of
$3,806,051. Product returns or price protection concessions that
exceed the Company's reserves could materially adversely affect the
Company's business, operating results and financial condition and
could increase the magnitude of quarterly fluctuations in the
Company's operating and financial results. In addition, as also
discussed above, the Company has experienced in the past, and
continues to experience, significant delays in the collection of
its accounts receivable. Further, if the Company's assessment of
the creditworthiness of its customers receiving products on credit
proves incorrect, the Company could be required to significantly
increase the reserves previously established.
Impact of Reorganization of Operations. The Company may take
additional steps to reorganize or consolidate its operations.
These steps may include, among other things, the sale of certain
assets of the Company. In an effort to reduce its expense
structure, the Company reorganized its operations during the first
half of calendar 1996, reduced its work force by more than 66% and
revised its product development plans for 1996. These changes or
other future steps to reorganize and reduce expenses could result
in the delayed introduction of new products which could have a
material adverse effect on the Company's financial condition and
results of operations.
Dependence on Key Personnel; Retention of Employees. The Company's
success depends in large part on the continued service of its key
creative, technical, marketing, sales and management personnel and
its ability to continue to attract, motivate and retain highly
qualified employees. Because of the multifaceted nature of
interactive media, key personnel often require a unique combination
of creative and technical talents. Such personnel are in short
supply, and the competition for their services is intense. The
process of recruiting key creative, technical and management
personnel with the requisite combination of skills and other
attributes necessary to execute the Company's strategy is often
lengthy. The Company has entered into at-will employment
agreements with its management and other personnel, who may
generally terminate their employment at any time. The loss of the
services of key personnel or the Company's failure to attract
additional qualified employees could have a material adverse effect
on the Company's results of operations and research and development
efforts. In particular, the Company has recently reorganized its
operations and has undergone a reduction in force among its
employees. Such reduction in force, combined with the Company's
disappointing operating performance, the price of the Company's
stock, and the availability of substantial alternative employment
opportunities for talented employees of the Company, may result in
key employees and managers leaving the Company, which could
materially adversely impact the Company's ability to develop and
sell its products. The Company does not have key person insurance
covering any of its personnel.
Dependence on New Product Development; Product Delays. The success
of the Company depends on the continual and timely introduction of
successful new products. In general, consumer preferences for
software products are difficult to predict and are often short-
lived. The retail life of software programs has become shorter,
and may now last only 9 to 12 months (or even less for unsuccessful
products), while the Company typically requires 6 to 9 months or
longer for the development of a new educational CD-ROM title. The
short life span of a product combined with a lengthy development
cycle makes it especially difficult to predict whether a product
will be a success by the time it comes to market. There can be no
assurance that new products introduced by the Company will achieve
any significant market acceptance or that, if such acceptance
occurs, it will be sustained for any significant period. If the
Company does not correctly anticipate and respond to demand for its
products in a timely manner, the Company's business, operating
results and financial condition will be materially adversely
affected.
A significant delay in the introduction of, or the presence of a
defect in, one or more products could have a material adverse
affect on the Company's business, operating results and financial
condition, particularly in view of the seasonality of the Company's
business. Further, delays in a product introduction near the end
of a fiscal quarter may materially adversely affect operating
results for that quarter, as initial shipments of a product may
move from one quarter to the next and may represent a substantial
percentage of annual shipments of a product. The timing and
success of software development is unpredictable due to the
technological complexity of software products, inherent uncertainty
in anticipating technological developments, the need for
coordinated efforts of numerous creative and technical personnel
and difficulties in identifying and eliminating errors prior to
product release. In the past, the Company has experienced delays
in the introduction of certain new products. There can be no
assurance that new products will be introduced on schedule or at
all or that they will achieve market acceptance or generate
significant revenues.
Competition. The software industry is intensely competitive, and
market acceptance for any of the Company's products may be
adversely affected by the introduction by the Company's competitors
of similar products with greater consumer demand. The Company
competes against a large number of other companies of varying sizes
and resources. Most of the Company's competitors have
substantially greater financial, technical and marketing resources,
as well as greater name recognition and better access to consumers.
Existing competitors may continue to broaden their product lines
and potential competitors, including large computer or software
manufacturers, entertainment companies, diversified media
companies, and book publishers, may enter or increase their focus
on the CD-ROM school and home education markets, resulting in
increased competition for the Company. Retailers of the Company's
products typically have a limited amount of shelf space and
promotional resources, and there is intense competition among
consumer software producers for high quality and adequate levels of
shelf space and promotional support from retailers. To the extent
that the number of consumer software products and computer
platforms increases, this competition for shelf space may
intensify. Due to increased competition for limited shelf space,
retailers and distributors are increasingly in a better position to
negotiate favorable terms of sale, including price discounts and
product return policies. Retailers often require software
publishers to pay fees in exchange for preferred shelf space.
There can be no assurance that retailers will continue to purchase
the Company's products or provide the Company's products with
adequate levels of shelf space. Increased competition could result
in loss of shelf space for, and reduction in sell-through of, the
Company's products at retail stores and significant price
competition, any of which could materially adversely affect the
Company's business, operating results and financial condition. In
addition, other types of retail outlets and methods of product
distribution, such as on-line services, may become important in the
future, and it may be important for the Company to gain access to
these channels of distribution. There can be no assurance that the
Company will gain such access or that the Company's access will be
on terms favorable to the Company.
Changing Product Platforms and Formats. The Company's software
products are intended to be used on machines built by other
manufacturers. The operating systems of machines currently being
manufactured are characterized by several competing and
incompatible formats or "platforms," and new platforms will
probably be introduced in the future. The Company must continually
anticipate the emergence of, and adapt its products to, popular
platforms for consumer software. When the Company chooses a
platform for its products, it must commit a substantial development
time and investment in advance of shipments of products on that
platform. If the Company invests in a platform that does not
achieve significant market penetration, the Company's planned
revenues from those products will be adversely affected and it may
not recover its development investment. If the Company does not
choose to develop for a platform that achieves significant market
success, the Company's revenues may also be adversely affected.
The Company is currently developing products only for DOS and
Windows PC, and Macintosh computers. The Company has terminated
virtually all current development for other platforms such as the
Sony PlayStation and Sega Saturn. There can be no assurance that
the Company has chosen to support the platforms that ultimately
will be successful.
Changes in Technology and Industry Standards. The consumer
software industry is undergoing rapid changes, including evolving
industry standards, frequent new product introductions and changes
in consumer requirements and preferences. The introduction of new
technologies, including operating systems and media formats, can
render the Company's existing products obsolete or unmarketable.
Recent operating setbacks at Apple Computer may adversely affect
future sales of Macintosh computers. The development cycle for
products utilizing new operating systems, microprocessors or
formats may be significantly longer than the Company's current
development cycle for products on existing operating systems,
microprocessors and formats and may require the Company to invest
resources in products that may not become profitable. There can be
no assurance that the current demand for the Company's products
will continue or that the mix of the Company's future product
offerings will keep pace with technological changes or satisfy
evolving consumer preferences or that the Company will be
successful in developing and marketing products for any future
operating system or format.
Limited Protection of Intellectual Property and Proprietary Rights;
Risk of Litigation. The Company regards its software as
proprietary and relies primarily on a combination of trademark,
copyright and trade secret laws, and employee and third-party
nondisclosure agreements and other methods to protect its
proprietary rights. However, the Company does not have signed
license agreements with its end-users and does not include in its
products any mechanism to prevent or inhibit unauthorized copying.
Unauthorized parties may copy the Company's products or reverse
engineer or otherwise obtain and use information that the Company
regards as proprietary. If a significant amount of unauthorized
copying of the Company's products were to occur, the Company's
business, operating results and financial condition could be
materially adversely affected. Further, the laws of certain
countries in which the Company's products are or may be distributed
do not protect applicable intellectual property rights to the same
extent as the laws of the United States. In addition, the Company
holds no patents, and, although the Company has developed and
continues to develop certain proprietary software tools, the
copyrights to which are owned by the Company, most of the
technology used to develop the Company's products is not
proprietary. There can be no assurance that the Company's
competitors will not independently utilize existing technologies to
develop products that are substantially equivalent or superior to
the Company's. Also, as the number of software products in the
industry increases and the functionality of these products further
overlaps, software developers and publishers may increasingly
become subject to infringement claims. There can be no assurance
that third parties will not assert infringement claims against the
Company in the future with respect to current or future products.
As is common in the industry, from time to time the Company
receives notices from third parties claiming infringement of
intellectual property or other rights of such parties. The Company
investigates these claims and responds as it deems appropriate.
There has been substantial litigation regarding copyright,
trademark and other intellectual property rights involving computer
software companies in general. The Company may also face suits as
a result of employment matters, publicity rights, governmental or
regulatory investigations, or due to claims of breach of the
Company's obligations under various agreements to publish or
develop products, or for goods or services provided to the Company.
Adverse determinations in such claims or litigation could have a
material adverse effect on the Company's business, operating
results and financial condition. The Company may find it necessary
or desirable in the future to obtain licenses relating to one or
more of its products or relating to current or future technologies.
There can be no assurance that the Company will be able to obtain
these licenses or other rights on commercially reasonable terms or
at all.
Relationship with Vendors. Due to the substantial operating losses
in the fourth quarter of 1995, and the period through March 31,
1996, and the Company's current financial condition and lack of
capital resources, the Company has been unable to pay certain of
its vendors on a timely basis. This failure may result in loss of
the availability of the services of such vendors, which could
hamper the Company's ability to manufacture and ship products, and
may ultimately result in the Company being sued for collection of
such amounts as may be owed to such vendors, as has occurred to
some extent to date. If the Company is unable to produce its
products to fill orders, the Company's operating results and
financial condition could be materially adversely affected. In the
event that suits by vendors are filed against the Company, the
Company may find it necessary to seek protection under the
applicable bankruptcy statutes of Canada and/or the United States.
Market for Common Stock; Stock Price Volatility. The Common Stock
has been quoted on the Vancouver Stock Exchange since December
1991, and was quoted on the Nasdaq Stock Market from September 8,
1993 until July 2, 1996. Based upon historical trends in the
market for other software company stocks, the Company anticipates
that the trading price of its Common Stock may be subject to wide
fluctuations in response to quarterly variations in operating
results, changes in actual earnings or in earnings estimates by
analysts, announcements of technological developments by the
Company or its competitors, general market conditions or other
events largely outside the Company's control. In addition, the
stock market has experienced, from time to time, extreme price and
volume fluctuations which have particularly affected the market
prices of high technology stocks. These fluctuations have often
been disproportionate or unrelated to the operating performance of
these companies. These broad market fluctuations, general economic
conditions or other factors outside the Company's control, as well
as the Company's results of operations and financial condition, may
adversely affect the market price of the Company's stock.
Performance Shares and Related Compensation Expense. In 1991, the
Company issued to its founders an aggregate of 4,000,000
Performance Shares for nominal consideration. Approximately
1,200,000 of these Performance Shares have been transferred to
members of the Company's current management. Pursuant to certain
Vancouver Stock Exchange ("VSE") requirements, these Performance
Shares are currently held in an escrow account, subject to release
upon specified conditions. One Performance Share is scheduled to
be released from escrow for each (Canadian dollar) CDN$0.653 of
cumulative operating cash flow generated by the Company, as
specifically defined by VSE Policy 19. The Company will be
required to recognize as compensation expense an aggregate amount
equal to the difference between the amount per share originally
paid for the Performance Shares (CDN$.01) and the market price of
the Common Stock at the time such Performance Shares or pro rata
portion thereof are earned. Performance Shares are permitted to be
released from escrow on an annual basis. Any compensation expense
related to the release of the Performance Shares from escrow will
be a non-cash charge against income and will have no net impact on
total shareholders' equity (deficit). Such pro rata or full
expense recognition will occur prior to the pro rata or full
release from escrow of the Performance Shares. If and when such
expense recognition criteria are achieved, based upon the closing
price of the Company's Common Stock at June 14, 1996 of US$1.06,
(for example purposes only), the aggregate compensation expense
that would be recognized as a result would be approximately
$4,200,000. The Company may pursue an early release of all or a
large portion of the Performance Shares from escrow. Such an early
release would reduce a source of continuing uncertainty surrounding
the Company's financial statements, but could also result in a
similar expense in the quarter in which the release is made.
Shares Eligible for Future Sale; Possible Adverse Effect on Future
Market Price. Sale of substantial amounts of shares in the public
market or the prospect of such sales could adversely affect the
market price of the Company's Common Stock. Other than the
4,000,000 Performance Shares issued to the Company's founders and
management (which are currently held in an escrow account and are
subject to release upon satisfaction of specified conditions as
discussed above) substantially all of the Company's issued and
outstanding shares are freely tradable, subject to, in certain
circumstances, compliance with Rule 144 or Rule 701 or the
effectiveness of a resale registration statement. In addition, as
of June 14, 1996, the Company had outstanding options to purchase
an aggregate of 2,712,136 shares of Common Stock and warrants to
purchase 1,360,000 shares of Common Stock. Furthermore, the
Company has reserved approximately 18,500 additional shares of
Common Stock for future issuance pursuant to the Company's Stock
Option Plan.
No Dividends. The Company has not paid any cash dividends since
inception and does not anticipate paying cash dividends in the
foreseeable future. The Company's bank credit agreement
prohibits the payment of cash dividends without the prior written
consent of the lender.
EXHIBIT F
B.C. Questionnaire and Undertaking
SANCTUARY WOODS MULTIMEDIA CORPORATION
PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING
A. DESCRIPTION OF TRANSACTION
1. Name of issuer of the securities: Sanctuary Woods Multimedia
Corporation
2. Number and description of securities to be purchased: $
Principal Amount of Subordinated Convertible Debentures,
initially convertible into ______ Shares of Common Stock and
Warrants to Purchase _______ Shares of Common Stock (the
"Shares").
B. DETAILS OF PURCHASER
1. Name of purchaser:
2. Address:
3. If the purchaser is a corporation, state the jurisdiction of
incorporation:
No: Yes: ; if "Yes" then:
4. Names and address of persons having a greater than 10%
beneficial interest in the purchaser, if a corporation;
If B.3 is "Yes", then:
C. RELATIONSHIP TO LISTED COMPANY
1. State if purchaser will become a control person with
over 20% of the Company's issued share capital as a result
of the purchase in section A above.
No: Yes:
2. Does the purchaser own any securities of the issuer at
the date hereof, if so, give particulars. State the number
of securities of the listed company held by the purchaser
not including the purchase in section 1 above.
No: Yes: ; if "Yes", then:
common shares; warrants to acquire
common shares,
stock options to acquire common shares
D. PAYMENT DATE
1. State the date the purchaser will advance full payment:
On or before , 1996.
2. If the purchase funds are held in trust pending receipt
of final regulatory approval, identify the trustee and give
particulars of the condition(s) required for release of the
funds.
E. UNDERTAKING
TO: THE VANCOUVER STOCK EXCHANGE
The undersigned has subscribed for and agreed to purchase, as
principal, the Shares described in section A of this Private Placement
Questionnaire and Undertaking. (The purchase funds may be deposited
into an escrow account with advancement to the Company subject only to
satisfaction of certain minimum funding requirements and receipt of
all necessary regulatory approvals).
The undersigned undertakes not to sell or otherwise dispose of any of
the said Shares so purchased or any securities derived therefrom in
British Columbia for a period of twelve months from the Payment Day
(i.e. the Closing), without the prior consent of the Vancouver Stock
Exchange and any other regulatory body having jurisdiction. The
undersigned acknowledges that all certificates representing the said
Securities will bear a legend to the effect that the certificates are
subject to a hold period for a period of twelve months in British
Columbia.
The undersigned hereby certifies that the said Shares are not being
purchased as a result of any material information (except as may be
contained in the disclosures and due diligence materials provided by
the Company) about the Company's affairs that has not been publicly
disclosed. The undersigned acknowledges that it is aware that the
removal from the Securities of any resale restriction after twelve
months that is imposed solely as a requirement of the Vancouver Stock
Exchange will not entitle it to sell the Securities if such sale would
contravene any other applicable securities legislation or regulation.
F. ADDITIONAL UNDERTAKING - PORTFOLIO MANAGER
If the undersigned is a portfolio manager purchasing as agent for
accounts that are fully managed by it, the undersigned acknowledges
that since it is deemed to be purchasing securities as principal under
the Securities Act (British Columbia) (the "Act") it is bound by the
provisions of the Act as though it were the sole beneficial owner of
the said securities, and the undersigned undertakes to comply with all
provisions of the act relating to ownership of, and trading in,
securities including, without limitation, the filing of insider
reports and reports pursuant to Section 93 of the Act.
DATED this day of , 1996
(Name of Purchaser - please print)
(Authorized Signature)
(Official Capacity - please print)
(Please print name of individual whose signature
appears above, if
different from name of purchaser printed above)
EXHIBIT G
Registration Rights
(a) As soon as it is eligible to do so, the Company shall
prepare and file a registration statement (the "Registration
Statement") on form S-3 with the SEC under the Securities Act to
register the resale of the Conversion Stock and the Shares of
Common Stock issuable upon exercise of the Warrants (the
"Shares") and shall use its best efforts to secure the
effectiveness of such registration statement as soon as
reasonably practicable thereafter. Provided, however, that
notwithstanding the foregoing, in the event that a form S-3 is
not available to the Company, or in the event that the board of
directors of the Company concludes that filing a registration
statement or registering the resale of the shares would not be in
the best interests of the Company, then the Company shall have no
obligation to register the shares for a period of ninety (90)
days after the Closing Date. After the end of this ninety (90)
day period, the Company shall be required to file a Registration
Statement on form S-1 if such form is available to the Company,
as soon as reasonably practicable after written demand of
purchasers holding a majority of the Debentures and Warrants sold
in this placement. The Company shall have no obligation to
register the shares if a Registration Statement on form S-1 is
not available to the Company.
(b) The Company shall pay all Registration Expenses (as
defined below) in connection with any registration, qualification
or compliance hereunder, and each Purchaser shall pay all Selling
Expenses (as defined below) and other expenses that are not
Registration Expenses relating to the Shares resold by such
Purchaser. "Registration Expenses" shall mean all expenses,
except for Selling Expenses, incurred by the Company in complying
with the registration provisions herein described, including,
without limitation, all registration, qualification and filing
fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such
registration. "Selling Expenses" shall mean all selling
commissions, underwriting fees and stock transfer taxes
applicable to the Shares and all fees and disbursements of
counsel for any Purchaser.
(c) In the case of the registration effected by the Company
pursuant to these registration provisions, the Company will use
its best efforts to: (i) keep such registration effective until
the earlier of (A) the third anniversary of the Closing Date, (B)
such date as all of the Shares have been resold or (C) such time
as all of the Shares held by the Purchasers can be sold within a
given three-month period without compliance with the registration
requirements of the Securities Act pursuant to Rule 144
promulgated thereunder ("Rule 144"); (ii) prepare and file with
the SEC such amendments and supplements to the Registration
Statement and the prospectus used in connection with the
Registration Statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition
of all Shares covered by the Registration Statement; (iii)
furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the
prospectus, as a Purchaser from time to time may reasonably
request; (iv) cause the Shares to be listed on each securities
exchange and quoted on each quotation service on which similar
securities issued by the Company are then listed or quoted; (v)
provide a transfer agent and registrar for all Shares registered
pursuant to the Registration Statement and a CUSIP number for all
such Shares; (vi) otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC; and (vii) file
the documents required of the Company and otherwise use its best
efforts to maintain requisite blue sky clearance in (A) all
jurisdictions in which any of the Shares are originally sold and
(B) all other states specified in writing by a Purchaser,
provided, however, that, as to clause (B), the Company shall not
be required to qualify to do business or consent to service of
process in any state in which it is not now so qualified or has
not so consented.
(d) With a view to making available to the Purchasers the
benefits of Rule 144 and any other rule or regulation of the SEC
that may at any time permit a Purchaser to sell Shares to the
public without registration or pursuant to a registration
statement on Form S-3, the Company covenants and agrees to use
its best efforts to: (i) make and keep public information
available, as those terms are understood and defined in Rule 144,
until the earlier of (A) the third anniversary of the Closing
Date or (B) such date as all of the Shares shall have been
resold; (ii) file in a timely manner all documents that the
Company is required to file with the SEC under Sections 13, 14(a)
and 15(d) of the Exchange Act; and (iii) furnish to any Purchaser
upon request, as long as the Purchaser owns any Shares, (A) a
written statement by the Company that it has filed in a timely
manner all documents that it is required to file with the SEC
under Sections 13, 14(a) and 15(d) of the Exchange Act, (B) a
copy of the most recent annual or quarterly report of the
Company, and (C) such other information as may be reasonably
requested in order to avail any Purchaser of any rule or
regulation of the SEC that permits the selling of any such Shares
without registration or pursuant to such registration statement
on Form S-3.
(e) If any Purchaser shall propose to sell any Shares
pursuant to the Registration Statement, such Purchaser shall
notify the Company of its intent to do so at least three (3) full
business-days prior to such sale. Such notice shall be deemed to
constitute a representation that any written information
previously supplied by such Purchaser is accurate as of the date
of such notice. At any time within such three (3) business-day
period, the Company may notify the Purchaser that the Company
will refuse to permit the Purchaser to resell any Shares pursuant
to the Registration Statement for a period not to exceed ninety
(90) days; provided, however, that in order to exercise this
right, the Company must deliver a certificate in writing to the
Purchaser to the effect that a delay in such sale is necessary
because a sale pursuant to such Registration Statement in its
then-current form would not be in the best interests of the
Company and its shareholders. In such event, the Company shall
use its best efforts as soon as reasonably practicable to amend
the Registration Statement, if necessary, and to take all other
actions reasonably necessary to allow such sale, and shall notify
the Purchaser promptly after it has determined that such sale has
become permissible; provided, however, that no particular
Purchaser will be refused permission to sell at the same time
that another Purchaser is permitted to sell under the
Registration Statement. Each Purchaser hereby covenants and
agrees that it will not sell any Shares pursuant to the
Registration Statement during the periods the Registration
Statement is withdrawn or otherwise not effective.
(f) Indemnification
(1) To the extent permitted by law, the Company will
indemnify and hold harmless each Purchaser, the officers and
directors of each Purchaser, any underwriter (as defined in the
Securities Act) for such Purchaser and each person, if any, who
controls such Purchaser or underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), against any losses, claims, damages or
liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or
state law, insofar as such loses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii)
any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any
rule or regulation promulgated under the Securities Act, the
Exchange Act or any state securities law; and the Company will
reimburse each such Purchaser, officer or director, underwriter
or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action ; provided
however, that the indemnity agreement contained in this
subsection (f)(1) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of
or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use
in connection with such registration by any such Purchaser,
officer, director, underwriter or controlling person; provided
that such reimbursement shall be made on a quarterly basis within
ten (10) days of the end of each calendar quarter with respect to
expenses reasonably incurred during the preceding calendar month.
(2) To the extent permitted by law, each selling
Purchaser will indemnify and hold harmless the Company, each if
its directors, each of its officers who have signed the
registration statement, each person, if any who controls the
Company within the meaning of the Securities Act, any underwriter
and any other Purchaser selling securities in such registration
statement or any of its directors or officers or any person who
controls such Purchaser or Underwriter, against any losses,
claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, or
underwriter or controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon written information
furnished by such Purchaser expressly for use in connection with
such registration; and each such Purchaser will reimburse any
legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, underwriter or
controlling person, other Purchaser, officer, director, or
controlling person in connection with investigating or defending
any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this
subsection (f)(2) exceed the gross proceeds from the offering
received by such Purchaser and provided that such reimbursement
shall be made on a quarterly basis within ten (10) days of the
end of each calendar quarter with respect to expenses reasonably
incurred during the preceding calendar quarter.
(3) Promptly after receipt by an indemnified party
under this Section (f) of notice of the commencement of any
action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section (f), deliver to the
indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate
in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have
the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying
party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party
represented by such counsel in such proceeding; provided further
that under no circumstances shall the indemnifying party be
required to pay for more than one such counsel. The failure to
deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve a
party under this Section (f), but the omission so to deliver
written notice to the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise
than under this Section (f).
(4) The obligations of the Company and Purchasers
under this Section (f) shall survive the completion of any
offering of Shares in a registration statement.
(5) Contribution. If for any reason the foregoing
indemnity is unavailable to, or is insufficient to hold harmless,
an indemnified party, then the indemnifying party shall
contribute to the amount paid or payable by the indemnified party
as a result of any loss, claim, damage or liability in such
proportion as is appropriate to reflect the relative benefits
received by the indemnifying party on the one hand and the
indemnified party on the other from such offering of securities,
provided, however, that with respect to a Purchaser, such amount
to be contributed shall in no event exceed an amount equal to the
number of Shares of such Purchaser sold by such Purchaser
pursuant to the registration statement multiplied by the offering
price per share to the public for the Shares so registered. If,
however, the allocation provided in the immediately proceeding
sentence is not permitted by applicable law, or if the
indemnified party failed to give the notice required by Section
(f)(3) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the indemnifying party
and the indemnified party as well as any other relevant equitable
considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied
by the indemnifying party (which, in the case of the Purchaser,
shall be limited to the information, if any furnished by such
Purchaser or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid
or payable in respect of any loss, claim, damage or liability
shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with
investigating or defending any such loss, claim, damage, or
liability. Notwithstanding the foregoing, no selling Purchaser,
underwriter or controlling person thereof, if any, shall be
required to contribute any amount in excess of the amount by
which the total price at which the Shares sold or underwritten by
it and distributed to the public were offered to the public
exceeds the amount of any damages which such selling Purchaser,
underwriter or controlling person thereof has otherwise been
required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
The obligation of any underwriters to contribute pursuant to this
Section (f)(5) shall be several in proportion to their respective
underwriting commitments and not joint.
Schedule 3 to Securities Purchase Agreement
3.7 The Company may issue 50,000 warrants plus up to 7% warrants and
4% cash to certain finders if such finders present purchasers who
purchase in the transaction based upon the amount of such
purchases, if any.
3.8 1994 and 1995 Revenue Canada and B.C. Capital Tax Returns remain
to be completed. The Company's 1995 U.S. federal tax return has
not yet been filed, but no taxes are owed.
3.9 The Company has received a written threat of litigation from a
former employee related to the termination of that employee's
employment with the Company and claiming discrimination on the
basis of gender. This claim has been found to be without merit
at the state and EEOC levels.
