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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
May 13, 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, Suite 410
San Mateo, CA 94402
(415) 286-6000
____________________________________
(Address of Principal Executive Offices)
Not Applicable
______________________________________________
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
The purpose of this Current Report on Form 8-K is to disclose
that the Registrant, Sanctuary Woods Multimedia Corporation, a
corporation organized under the laws of British Columbia, Canada,
disposed of assets of the Registrant's Victoria Studio (British
Columbia, Canada) and certain of the Registrant's intellectual
property rights related to the operation of the Victoria Studio,
pursuant to the terms and conditions of an Asset Purchase
Agreement, dated as of May 3, 1996 (the "Agreement"), between the
Registrant (the "Seller") and Walt Disney Animation Canada Inc., a
corporation organized under the laws of the province of Ontario
(the "Buyer"). Such Agreement is attached hereto as Exhibit 2.1.
The cash purchase price for all of these assets was U.S.
$1,900,000, and the acquisition was completed as of May 13, 1996.
No material relationship exists between the Buyer, or
any of its affiliates or other related persons, and the Registrant
or any of its affiliates, directors, officers or any associate of
any such director or officer.
Item 7. Financial Statements or Exhibits
(a) Financial Statements of Business Acquired.
None.
(b) Pro Forma Financial Information.
None
(c) Exhibits.
2.1 Asset Purchase Agreement, dated as of May
3, 1996, between Sanctuary Woods Multimedia
Corporation, a corporation organized under the laws
of British Columbia, Canada, and Walt Disney
Animation Canada Inc., a corporation organized under
the laws of the province of Ontario. Omitted from
the filing are disclosure schedules related to
exceptions from the representations and warranties
in the Agreement, and listing the assets purchased,
and the specific technology license. These schedules
will be provided to the commission upon request.
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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: May 24, 1996
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EXHIBIT LIST
Exhibit
Number Description
2.1 Asset Purchase Agreement, dated
as of May 3, 1996, between
Sanctuary Woods Multimedia
Corporation, a corporation
organized under the laws of
British Columbia, Canada, and
Walt Disney Animation Canada
Inc., a corporation organized
under the laws of the province
of Ontario.
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of May 3, 1996 (this
"Agreement"), between Walt Disney Animation Canada Inc., a
corporation organized under the laws of the Province of Ontario
("Buyer") and Sanctuary Woods Multimedia Corporation, a
corporation organized under the laws of the Province of British
Columbia ("Seller").
RECITALS:
1. Seller operates an interactive multimedia production
studio in Victoria, B.C. (the "Victoria Studio"); and
2. Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller all of the assets referred to in Section
2.01 used in the business and operation of the Victoria Studio
(the "Business").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements
herein contained, and upon and subject to the terms and
conditions hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
"Acquired Assets" has the meaning set forth in Section 2.01.
"Affiliate" means a person that directly or indirectly
controls, is controlled by, or is under common control with, a
specified person.
"Assumed Liabilities" has the meaning set forth in Section
2.02.
"Business" has the meaning set forth in the Recitals.
"Claims" has the meaning set forth in Section 7.01(a).
"Closing" has the meaning set forth in Section 3.05.
"Closing Date" has the meaning set forth in Section 3.05.
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"Closing Date Payment" has the meaning set forth in Section
3.02(c).
"Documentation" means all documentation, specifications,
design notes and concepts, manuals and other material and
information describing or relating to the Engine or used in
association with the Engine.
"Employees" has the meaning set forth in Section 5.01(i).
"Encumbrance" means any claim, charge, lease, covenant,
encumbrance, security interest, lien, option or pledge imposed by
agreement, understanding, law, equity or otherwise.
"Engine" means the copyright (and other relevant
intellectual property rights) to that certain software
development "engine" and all tools and Intellectual Property
related thereto and all versions thereof in source code and
object code with annotations and documentation, known as Seller's
M4DS development environment and engine, including, but not
limited to, the proprietary tools listed on Schedule 2.01(c).
"Equipment" has the meaning set forth in Section 2.01(b).
"Good Faith Efforts" has the meaning set forth in Section
6.01.
"Governmental Authority" means any government or any agency,
court, department or other instrumentality of any government,
whether United States or Canadian, state, provincial or local.
"Indemnified Party" has the meaning set forth in Section
7.01(d)(i).
"Indemnifying Party" has the meaning set forth in Section
7.01(d)(i).
"Initial Deposit" has the meaning set forth in Section
3.02(a).
"Intellectual Property" shall mean all copyrights,
trademarks, patents, design rights, industrial designs,
inventions, trade secrets, secret processes, confidential or
proprietary information, know-how, formulae, concepts, ideas,
research or intellectual property of any nature whatsoever
(whether similar or dissimilar to any items referred to herein),
whether or not embodied in any physical medium of any nature
whatsoever.
"Landlord Consents" has the meaning set forth in Section
4.01(c).
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"Law" means any constitutional provision, statute or other
law, rule, regulation, or interpretation of any Governmental
Authority.
"Leases" has the meaning set forth in Section 2.01(a).
"Loss" means any action, cost, damage, expense, liability,
or loss of any kind or nature, whether foreseeable or
unforeseeable, including but not limited to, fees and expenses
incurred in the investigation and collection of claims and
amounts paid in settlement, that may be imposed on or otherwise
incurred or suffered by the specified person.
"Signing Payment" has the meaning set forth in Section
3.02(b).
"Software" has the meaning set forth in Section 5.01(f).
"Tax" means any United States, Canadian, state, province,
county, local income, sales and use, excise, franchise, real and
personal property, transfer, gross receipt, capital stock,
corporation capital tax, production, business and occupation,
disability, employment, payroll, severance or withholding tax or
charge imposed by any Governmental Authority, including, without
limitation, interest and penalties.
"Tax Return" means a report, return or other information
required to be supplied to a Governmental Authority with respect
to Taxes.
"Termination Date" means May 15, 1996, as such date may be
extended pursuant to Section 3.04 or otherwise by agreement
between the parties.
ARTICLE II
ACQUIRED ASSETS
2.01 Definition of Acquired Assets. The term "Acquired
Assets" shall mean all of the rights, properties and assets of
Seller of every type and character, tangible or intangible, known
or unknown, located on the premises of the Victoria Studio and
used in connection with the Business or relating thereto, whether
owned, leased, licensed, held or used by Seller or its
Affiliates. Acquired Assets shall not include accounts
receivable, products created by the Victoria Studio prior to the
Closing Date, product designs, works in progress or other items
or Intellectual Property related to Seller's on-going business.
Acquired Assets shall include all of the following assets:
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(a) Leases. All right, title and interest of Seller in, to
and under the leases identified on Schedule 2.01(a) (the
"Leases").
(b) Equipment. All right, title and interest of Seller to
the computer hardware, Software and Documentation therefor,
telephone equipment, furniture, materials, supplies, and other
equipment of Seller that is used in the Business, as identified
on Schedule 2.01(b) (the "Equipment").
(c) Engine. All right, title and interest of Seller to the
Engine, including, without limitation, all Intellectual Property
rights therein and all Documentation therefor, including, without
limitation, as identified on Schedule 2.01(c), subject to the
license back to Seller referred to in Section 4.02(d).
(d) Permits. All transferable permits, licenses or
franchises issued to Seller or any Affiliate thereof by any
Governmental Authority in connection with or relating to the
Business, as identified on Schedule 2.01(d).
2.02 Liabilities Not Assumed. Except for the liabilities
and obligations arising after the Closing Date under the Leases
or arising from the operations of the Business after the Closing
Date, (the "Assumed Liabilities"), Buyer shall not assume, shall
not take the Acquired Assets subject to, and shall not be liable
for any liabilities or obligations of any kind or nature of
Seller or of any other person or entity incurred through the
Closing Date, including, but not limited to any accrued or
contingent liabilities to the Employees related to their
employment by Seller.
ARTICLE III
PURCHASE AND SALE OF ASSETS
3.01 Agreement to Purchase and Sell Assets. Subject to the
terms and conditions hereof, at the Closing, Seller shall sell,
assign, convey, transfer and deliver to Buyer, and Buyer shall
acquire and purchase from Seller, all of Seller's right, title
and interest in and to the Acquired Assets.
3.02 Purchase Price. The total purchase price to be paid to
Seller by Buyer for the Acquired Assets shall be U.S. $1,900,000
payable as follows:
(a) Initial Deposit. Seller acknowledges receipt of U.S.
$100,000 from Buyer on April 19, 1996 (the "Initial Deposit").
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(b) Signing Payment. Seller shall receive a payment of
U.S. $50,000 from Buyer by wire transfer on May 6, 1996 (the
"Signing Payment").
(c) Closing Date Payment. The remaining U.S. $1,750,000
balance of the purchase price shall be paid by Buyer to Seller at
the Closing (the "Closing Date Payment").
3.03 Return of Initial Deposit and Signing Payment. If the
Closing does not occur on or prior to the Termination Date,
Seller shall promptly (but in no event later than 15 days after
the Termination Date) return the Initial Deposit and Signing
Payment to Buyer. Notwithstanding the foregoing, Seller shall be
entitled to retain the Initial Deposit and the Signing Payment if
the Closing does not occur on or prior to the Termination Date as
a result of Buyer's breach of its obligations set forth in this
Agreement, provided, that, Seller shall not be entitled to retain
the Initial Deposit or the Signing Payment if Seller has breached
its obligations set forth in this Agreement. If the Closing Date
is extended by mutual agreement of the parties, the Initial
Deposit and the Signing Payment shall continue to be considered
as a part of the total purchase price and, at the Closing, Buyer
shall only be obligated to make the Closing Date Payment.
3.04 Extension of Termination Date. Buyer may, at its
option, extend the Termination Date for up to four consecutive
weekly periods. If such extension is necessitated by the
Seller's breach of its obligations set forth in this Agreement or
by the failure of the parties to fully resolve any matters
revealed during Buyer's due diligence review, Buyer shall not be
obligated to make any payment to Seller in connection with any
such extension. If such extension is necessitated by Buyer's
breach of its obligations set forth in this Agreement, Buyer
shall pay Seller U.S. $50,000 for each week of such extension.
If the Closing does not occur by the Termination Date (as
extended pursuant to this Section 3.04), Seller shall be entitled
to retain any such extension option payments upon return of the
Initial Deposit and Signing Payment to Buyer, if required
pursuant to Section 3.03.
3.05 Time and Place of Closing. The closing under this
Agreement (the "Closing") shall take place at the offices of
McCarthy Tetrault, Pacific Centre, 1300-777 Dunsmuir Street,
Vancouver, B.C. V7Y 1K2, or such other place as the parties shall
mutually agree on the first business day following the day on
which the last to be fulfilled or waived of the conditions set
forth in Article IV shall be fulfilled or waived in accordance
herewith, or such other date as the parties hereto may agree upon
in writing, which date, as the same may be so changed, is
referred to herein as the "Closing Date".
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3.06 Documents to be Delivered to Buyer by Seller. Subject
to the fulfillment of the conditions set forth in Section 4.01
hereof (or waiver thereof by Buyer), at the Closing Seller shall
deliver to Buyer:
(a) the Landlord Consent and such other bills of sale,
transfer documents, assignments and other documents, in form and
substance reasonably satisfactory to Buyer's counsel, as Buyer
may request to effect the sale, assignment, conveyance and
transfer to Buyer of all right, title and interest in and to the
Acquired Assets; and
(b) the certificates, consents and other documents referred
to herein, in form and substance reasonably satisfactory to
Buyer's counsel, required to be delivered to Buyer by Seller.
3.07 Documents to be Delivered to Seller by Buyer. Subject
to the fulfillment of the conditions of Section 4.02 hereof (or
waiver thereof by Seller), at the Closing Buyer shall deliver to
Seller the following:
(a) The Closing Date Payment; and
(b) the certificates, consents and other documents referred
to herein, in form and substance reasonably satisfactory to
Seller's counsel, required to be delivered to Seller by Buyer.
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS AT CLOSING
4.01 Conditions to Obligations of Buyer. All the
obligations of Buyer under this Agreement to be performed at the
Closing are subject to the fulfillment, on or prior to the
Closing Date, of each of the following conditions, any of which
may be waived at the sole discretion of Buyer:
(a) Representations and Warranties of Seller. Each
representation and warranty of Seller contained in this Agreement
shall be deemed to be made again at and as of the Closing Date
and shall be true and accurate in all material respects as of the
Closing Date, except to the extent that any such representation
or warranty shall be incorrect because of changes occurring or
arising after the date hereof which do not materially adversely
affect the Acquired Assets.
(b) Officer's Certificate. Buyer shall have received a
certificate of an officer of Seller certifying that the
representations and warranties of Seller made herein are true and
correct as if made again at and as of the Closing Date, except to
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the extent that such representations and warranties shall be
incorrect because of events or changes permitted by Section
4.01(a) above.
(c) Landlord Consents. Buyer shall have received the
consents of the lessor (and the primary tenant where Seller is a
subtenant) of the premises constituting Victoria Studio, without
consideration therefor and without requiring any change in lease
conditions, in the form attached hereto as Exhibit A, authorizing
the assignment of the Leases to Buyer (the "Landlord Consents").
(d) Other Consents. Buyer shall have obtained, to the
extent necessary, consents or approvals of third parties or
Governmental Authorities, including Investment Canada and other
regulatory authorities and Buyer's board of directors.
(e) No Material Adverse Change. There shall not have been
any material adverse change in or affecting the Business or the
Acquired Assets or Assumed Liabilities subsequent to the date
hereof.
(f) Employment Agreements. Each individual listed on
Schedule 4.01(f) shall have executed and delivered an employment
agreement with Buyer in form and substance satisfactory to Buyer,
in its sole discretion (the "Employment Agreements").
(g) Due Diligence. Buyer shall not, in the course of its
on-going business, legal and financial investigation, have
discovered information that Buyer believes has or is likely to
have a material adverse effect on the Business, the Acquired
Assets or the Engine or that is inconsistent with information
disclosed to Buyer prior to the date hereof.
(h) Discharge of Liabilities. Seller shall have discharged
or made sufficient arrangements to discharge concurrently with
the Closing, all material liabilities and obligations to third
parties related to the Business or the Acquired Assets,
including, without limitation, all liabilities to or relating to
the Employees and the liabilities referenced in Schedules 5.01(c)
and (f). For purposes of this Section 4.01(h), "material" shall
mean liabilities of $1,000, individually or in the aggregate.
4.02 Conditions to Obligations of Seller. All obligations
of Seller under this Agreement to be performed at the Closing are
subject to the fulfillment, on or prior to the Closing Date, of
each of the following conditions, any of which may be waived at
the sole discretion of Seller:
(a) Representations and Warranties of Buyer. Each
representation and warranty of Buyer contained in this Agreement
shall be deemed to be made again at and as of the Closing Date
and shall be true and accurate in all material respects as of the
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Closing Date, except to the extent that any such representation
or warranty shall be incorrect as a result of actions which are
permitted hereby and which do not adversely affect Buyer's
ability to perform its obligations hereunder.
(b) Officer's Certificate. Seller shall have received a
certificate of an officer of Buyer certifying that the
representations and warranties of Buyer made herein are true and
correct as if made again at and as of the Closing Date except to
the extent that such representations and warranties shall be
incorrect because of events or changes permitted by Section 4.02
(a) above.
(c) Other Consents. Seller shall have obtained, to the
extent necessary, consents or approvals of third parties or
Governmental Authorities, including its secured lenders,
Employees, regulatory authorities and Seller's board of
directors.
(d) Engine License. Seller shall have received a non-
exclusive, perpetual, royalty-free, fully-paid up license, in the
form attached as Exhibit B, to use the Engine as it exists on
the date of this Agreement and solely for the development of
certain products that are currently under development by Seller,
as specified in Exhibit B.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 Of Seller. Seller represents and warrants to Buyer as
follows:
(a) Organization and Standing. Seller is a corporation
duly organized, validly existing and in good standing under the
laws of the Province of British Columbia, has full power to carry
on its business as and where such business is now being conducted
and to own and operate the properties and assets now owned or
operated by it (including the Acquired Assets) and is duly
qualified to do business where the conduct of its business or the
ownership of its properties requires such qualification, except
where the failure to so qualify would not have a material adverse
effect on Seller.
(b) Corporate Authority. Seller has full corporate power
and authority to execute and deliver this Agreement and perform
all of its obligations hereunder. The execution, delivery and
performance of this Agreement by Seller and the consummation of
the transactions contemplated hereby have been duly authorized by
all corporate action necessary on the part of Seller. The
execution, delivery and performance of this Agreement and the
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consummation of the transactions contemplated hereby do not (i)
violate or conflict with the articles of incorporation or
memorandum of Seller, (ii) subject to the consent of Seller's
secured lenders, conflict with or result (with the lapse of time
or giving of notice or both) in a breach, default, termination,
acceleration or forfeiture under any provision of any obligation,
note, agreement, instrument or other document to which Seller is
a party or by which Seller is otherwise bound, or to which the
Acquired Assets are subject, or (iii) violate any order,
judgment, law, statute, rule or regulation applicable to Seller
or the Acquired Assets, including, without limitation, applicable
laws regarding bankruptcy and fraudulent conveyances. This
Agreement is the legal, valid and binding obligation of Seller
enforceable in accordance with its terms.
(c) Litigation and Other Proceedings. Except as set forth
on Schedule 5.01(c), there are no actions, suits, proceedings or
investigations pending or, to the knowledge of Seller, threatened
against or affecting the Acquired Assets at law or in equity or
before any Governmental Authority. Seller is not subject to any
continuing order, writ, injunction or decree of any Governmental
Authority, applicable to it or to its business, assets (including
the Acquired Assets), operations or employees.
(d) Taxes. Except as set forth on Schedule 5.01(d), all
Tax Returns of Seller relating to the Business for all periods
prior to the date hereof required to be filed by Seller on or
before the date hereof have been properly and timely filed (or
extensions therefor have been obtained) and all payments
reflected as owing on such returns required to be paid. Seller's
GST registration number is R130426075.
(e) Equipment. Schedule 2.01(b) sets forth a complete list
of the Equipment as of the date hereof. All of the Equipment
listed on Schedule 5.01(e)(I) is in full working order on the
date hereof except for normal wear and tear. Substantially all
of the other Equipment is in full working order on the date
hereof except for normal wear and tear, provided, that, Seller
agrees to indemnify Buyer to the extent that repair costs for
such other Equipment which is not in full working order
(excepting normal wear and tear and without a change of
configuration) exceeds $10,000 in the aggregate, provided,
further, that the indemnity contained in this sentence shall
terminate on the date sixty days after the Closing Date. Except
as set forth on Schedule 5.01(e)(II), Seller has good and
marketable title to the Equipment, free and clear of any
Encumbrances and has sole and exclusive rights to the use
thereof. The Equipment is sufficient for the conduct of the
Business as conducted by Seller immediately prior to the Closing
Date. SELLER EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE EQUIPMENT.
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(f) Computer Programs and Software. Except as set forth on
Schedule 5.01(f), all computer programs and software currently
being used in the Business (the "Software") are owned by Seller
or held under valid license agreements. Seller has not licensed
anyone to use any of the Software and Seller does not know of any
infringing use of the Software or claim of infringing use. The
Software is sufficient for the conduct of the Business as
conducted by Seller immediately prior to the Closing Date.
SELLER EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE SOFTWARE.
(g) Real Estate. Schedule 2.01(a) sets forth the leasehold
interests in the premises that constitute the Victoria Studio
(the "Leases"). Accurate and complete copies of the Leases have
been delivered to Buyer prior to the date hereof. Subject to
receipt of the Landlord Consents and to payment of rent through
the Closing Date, the Leases are in full force and effect, Seller
is not in default or breach under any Lease and no event has
occurred which with the passage of time or the giving of notice
or both would cause a material breach of or default under any
Lease. To the best knowledge of Seller, there is no breach or
anticipated breach of or default under any Lease by any other
party to such Lease.
(h) Engine.
Except as set forth on Schedule 5.01(h),
(i) Seller does not have and has not registered or
filed any application for registration in any jurisdiction
for any trademarks, tradenames, service marks, copyrights or
patents related to or used in connection with the Engine.
(ii) Seller has the sole and exclusive ownership of,
and has sole and exclusive right to use, all components of
the Engine.
(iii) Seller does not use the Engine or any component
thereof by consent of any other person, and is not required
to and does not make any payments of any nature whatsoever
to others with respect thereto, and the Engine is fully
transferable to Buyer, free and clear of any Encumbrances.
(iv) All rights of any present or former director,
employee, agent, consultant, shareholder or independent
contractor of Seller or any Affiliate, with respect to the
Engine have been assigned irrevocably and in full to Seller.
No present or former director, employee, agent, consultant,
shareholder or independent contractor of Seller owns any
proprietary right, or other right or interest of any nature
that relates to the Engine. Seller has not received, and
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Seller has no knowledge of, any claim of infringement of any
person or entity relating to the Engine; and no proceeding
has been instituted, is pending or, to the best knowledge of
Seller, is threatened which challenges the rights of Seller
with respect thereto and, to Seller's knowledge, there is no
basis for any such proceeding.
(v) Seller has not given and is not bound by any
immunity-from-suit agreements or agreements of
indemnification for patent, trade name, trademark or
copyright infringement or misappropriation of trade secrets
with respect to the Engine or any component thereof. Seller
is not bound by any agreement concerning the use of any
proprietary or confidential information relating to the
Engine or any component thereof.
(vi) No license or other rights in or to the Engine or
any part thereof have been granted to or acquired by any
other person; and except for the copy or copies of the
source code and all tools related to the Engine delivered by
Seller to Buyer on Closing, and the copy or copies of the
source code and all tools related to the Engine retained by
Seller subject to the license agreement entered into
pursuant to Section 4.02(d), there are no other copies of
the Engine, the source code or the tools related to the
Engine in existence.
(vii) The source code of the Engine and all applicable
Documentation is a trade secret of Seller and there has been
no disclosure of such source code or Documentation except to
employees of Seller on a need-to-know basis for the purpose
of performing duties in the course of their employment; the
source code for the Engine contains a full and complete
listing for the Engine delivered to Buyer, and the source
code and Documentation for the Engine contains full notes
and comments so that a programmer not familiar with the
Engine can understand, use, modify and otherwise fully
exploit the Engine.
(viii) Except for the products identified on Exhibit B
of the license agreement (attached as Exhibit B hereto),
Seller has not developed any other software which is in
whole or in part derived from the Engine; and the Engine
embodies the most current software and technology of Seller
in relation to development tools and utilities.
(ix) The Engine does and will conform to and operate
in accordance with the applicable Documentation; there are
no known bugs, defects or other operating failures in the
Engine, other than possible de minimis bugs, defects or
other operating failures that, individually or in the
aggregate, do not have any adverse effect on the use or
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operation of the Engine or otherwise do not impair the
functionality of the Engine; the Engine does not and will
not as of the Closing Date contain (i) any virus, trojan
horse, worm or other software routine or component designed
(1) to permit unauthorized access, or (2) to disable, erase,
destroy, damage, alter or render meaningless, useless or
ineffective or otherwise harm the Engine or any software
developed using the Engine, or any other software, hardware
or data, or (ii) any back door, time bomb, drop dead device,
or other software routine or component designed (1) to
disable a computer program automatically with the passage of
time or under the positive control of a person, or (2) to
obstruct, interrupt or interfere with the use or enjoyment
of the Engine or any software developed using the Engine, or
any other software, hardware or data.
(x) No other software is required (other than
commercially available off-the-shelf tools, tools included
as part of the Engine or tools that can be written using any
such off-the-shelf tools) in order to use, modify, or make
improvements to, the Engine.
(xi) No significant portion of the Engine or
Documentation has fallen into the public domain.
(i) Employment Matters. Except as set forth on Schedule
5.01(i), Seller is not a party to any employee benefit plans or
collective bargaining, employment or severance arrangements of
any kind whatsoever, whether written or oral, with respect to the
Business. Seller is not experiencing nor does it know of any
current or contemplated union organization efforts or
negotiations, or requests for negotiations, representation or
collective bargaining contracts relating to the Business. Seller
operates in compliance with all Laws respecting employment and
employment practices, terms and conditions of employment, safety,
health, wages and hours, equal employment opportunity and
employment discrimination, except where the failure to comply
would not have a material adverse effect on the Business. Set
forth on Schedule 5.01(i) hereto are the names and current annual
salary rates of all persons employed by Seller in connection with
the Business (the "Employees").
(j) Compliance with Law. Seller has conducted the Business
in accordance with all applicable laws and has not and, to
Seller's best knowledge, the landlord under the Leases has not,
generated, used, transported, treated, stored, released or
disposed of, nor suffered or permitted anyone else to generate,
use, transport, treat, store, release or dispose of any hazardous
substance in violation of any applicable Law in connection with
the Business, except where the failure to comply would not have a
material adverse effect on the Business. Seller has not made any
payment to or conferred any benefit, directly or indirectly, on
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suppliers, customers, employees or agents of suppliers or
customers, or officials or employees of any Governmental
Authority which is or was unlawful.
(k) No Material Adverse Change. Since April 30, 1996,
Seller has not suffered any change, event or condition which, in
any case or in the aggregate, has had or could reasonably be
expected to have a material adverse effect on the Business or the
Acquired Assets.
(l) Permits and Licenses. Schedule 5.01(l) contains a true
and correct list of all material approvals, authorizations,
consents, licenses, orders and permits of all Governmental
Authorities required by the nature of the operations of the
Business to permit the operation thereof in the manner in which
it is currently conducted.
5.02 Of Buyer. Buyer represents and warrants to Seller as
follows:
(a) Organization and Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws
of the Province of Ontario, has full power to carry on its
business as and where such business is now being conducted and to
own and operate the properties and assets now owned or operated
by it and is duly qualified to do business where the conduct of
its business or the ownership of its properties requires such
qualification, except where the failure to so qualify would not
have a material adverse effect on Buyer.
(b) Corporate Authority. Buyer has full corporate power
and authority to execute and deliver this Agreement and to
perform all of its obligations hereunder; all corporate
authorization necessary on the part of Buyer to authorize the
execution, delivery and performance of this Agreement by Buyer
and the consummation of the transactions contemplated hereby have
been obtained; the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
hereby do not (i) violate or conflict with the articles of
incorporation or memorandum of Buyer, (ii) conflict with or
result (with lapse of time or giving of notice or both) in a
breach, default, termination, acceleration, or forfeiture under
any provision of any obligation, note, agreement, instrument or
other document to which Buyer is a party or by which Buyer is
otherwise bound, or (iii) violate any order, judgment, statute,
rule or regulation applicable to Buyer or to any of Buyer's
assets; no consent or approval by, or filing with, any
governmental authority, foreign or domestic, is required in
connection herewith, other than those which have been obtained or
made; and this Agreement is the legal, valid and binding
obligation of Buyer enforceable in accordance with its terms.
<PAGE>
ARTICLE VI
COVENANTS AND AGREEMENTS
6.01 Good Faith Efforts. Buyer and Seller each agree to use
their respective good faith efforts to complete the Closing by
the Termination Date. Buyer agrees to use its good faith efforts
to complete its due diligence review of the Acquired Assets seven
days prior to the Termination Date and Seller agrees to use its
good faith efforts to facilitate Buyer's due diligence
investigation by such date. In addition, Buyer and Seller each
agree to use their respective good faith efforts to resolve any
matters revealed during such due diligence investigation by such
date. The efforts of Buyer and Seller in this Section 6.01 are
referred to as the "Good Faith Efforts."
6.02 Employees. As of the Closing Date, Seller shall have
terminated all of the Employees and shall remain responsible for
all salary, accrued vacation and other liabilities owing to the
Employees as may be required by applicable Laws. Any notice,
severance or other obligations or liabilities imposed by any
Governmental Authority in connection with such terminations shall
be Seller's obligations. Seller shall take any and all action
requested by Buyer (at Buyer's expense, or, at Buyer's request,
assign the right to take any such action to Buyer) to enforce
Seller's rights and benefits under any agreement with an Employee
in existence prior to the Closing Date, including, without
limitation, with respect to any such Employee's assignment to
Seller of his or her inventions, improvements, new ideas,
artwork, characters and copyright rights and any such Employee's
obligation not to use, publish or disclose any proprietary or
confidential information or trade secret of Seller as well as the
ability to obtain injunctive relief in the event of any actual or
threatened breach of any of the foregoing.
6.03 Apportionments. Buyer and Seller agree to apportion
rents, utility charges, real estate taxes, telephone and other on-
going expenses and other payments based on the Closing Date and
the end of the applicable period for which any such charge is
applicable. Buyer agrees to pay Seller the amount of any
security deposits under the Leases.
6.04 Inspection and Access. Seller will at all times prior
to the Closing Date at all reasonable business hours open the
assets, books, accounting records, correspondence and files of
Seller for full and unrestricted examination by Buyer, its
officers, attorneys, accountants and agents, with the right to
make copies of such books, records and files and/or extracts
therefrom. Seller will furnish to Buyer such additional financial
and operating data and other available information regarding the
Business as Buyer may reasonably request. Those books, records
and files the possession of which is not being transferred to
<PAGE>
Buyer pursuant to this Agreement which relate to the Acquired
Assets shall be preserved and maintained by Seller for three
years after the Closing and those books, records and files
relating to the Acquired Assets the possession of which is being
transferred to Buyer hereunder shall be maintained and preserved
by Buyer for a period of three years after the Closing. Each
such party shall utilize its reasonable efforts to notify the
other prior to destroying any of said books, records, and files.
Each such party shall give to the other and its authorized
representatives, during normal business hours, such access to
such books and records retained by it as may be reasonably
requested by the other party.
6.05 Material Adverse Change. Seller will promptly notify
Buyer of any event of which Seller obtains knowledge which has
had or could reasonably be expected to have a material adverse
effect on the Business which if known as of the date hereof would
have been required to be disclosed to Buyer.
6.06 Taxes. Buyer shall be liable for all GST taxes payable
in connection with the purchase of the Acquired Assets pursuant
to this Agreement and shall file appropriate forms to exempt
Seller from liability from GST taxes to the extent permissible
under Law. Seller shall be liable for all other Taxes related to
the purchase and sale of the Acquired Assets, including, without
limitation, any sales and use taxes payable in connection with
the sales, conveyance, transfer and assignment hereunder of the
Acquired Assets. Seller or Buyer, as the case may be, will remit
to the appropriate tax authority all taxes due.
6.07 Conduct of Business. Pending the Closing, Seller
agrees that the Business will be operated in the ordinary and
usual course in substantially the same manner as currently
conducted.
6.08 Notification of Certain Matters. Seller shall give
prompt notice to Buyer, and Buyer shall give prompt notice to
Seller, of (i) the occurrence, or failure to occur, of any event
that would be likely to cause any of their respective
representations or warranties contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the
date hereof to the Closing Date, and (ii) any failure on their
respective parts to comply with or satisfy, in any material
respect, any covenant, condition or agreement to be complied with
or satisfied by any of them under this Agreement.
6.09 Additional Documents. Buyer and Seller shall execute
or cause to be executed such documents, in addition to those
delivered at the Closing, as may be necessary to confirm in Buyer
title to the Acquired Assets, to assign Leases, and to carry out
the purposes and intent of this Agreement.
<PAGE>
6.10 Allocation. Buyer and Seller shall mutually agree upon
a proposed allocation of the purchase price among the Acquired
Assets in accordance with their fair market value, provided,
that, the allocation to fixed assets shall not exceed the net
book value for such assets as set forth on Schedule 2.01(b).
Both parties agree that they will not take any position on their
respective income tax returns or any other document that is
inconsistent with such allocation, and the parties shall duly
prepare and timely file such reports and information as may be
required to report such allocation.
6.11 No Other Discussions. From the date hereof until the
Termination Date, Seller and its Affiliates, employees, agents or
representatives, either alone or together, (i) shall not initiate
or encourage the initiation by others of discussions or
negotiations with third parties or respond to (other than to
decline interest in) solicitations by third parties relating to
any merger, sale or other disposition of the Business, the
Acquired Assets, the Engine or a substantial portion thereof,
(ii) shall immediately notify Buyer if any third party attempts
to initiate any such solicitation, discussion or negotiation with
any of their affiliates, employees, agents or representatives,
and (iii) shall not enter into any agreement respect thereto with
any third party.
ARTICLE VII
GENERAL PROVISIONS
7.01 Indemnification.
(a) Seller Indemnification. Subject to Section 7.01(c) and
(d) below, Seller hereby agrees to indemnify and hold Buyer and
its Affiliates harmless from, against and in respect of any and
all liabilities, losses, costs, payments, damages, claims,
obligations, expenses (including, without limitation, reasonable
attorney's fees) (collectively, "Claims") resulting from or
arising out of or in connection with (i) any failure by Seller to
perform any of its agreements or obligations herein; (ii) any
breach of any representation or warranty set forth in this
Agreement; (iii) all liabilities which arise from the operation
of the Business by Seller through the Closing Date; or (iv) the
repair costs for the Equipment referenced in Section 5.01(e).
(b) Buyer Indemnification. Subject to Section 7.01(c) and
(d) below, Buyer hereby agrees to indemnify and hold Seller,
Stockholders and their Affiliates harmless from, against and
respect of any Claims resulting from or arising out of or in
connection with (i) any failure by Buyer to perform any of its
agreements or obligations herein; (ii) any breach of any
<PAGE>
representation or warranty set forth in this Agreement; (iii) all
liabilities which arise from the operation of the Business by
Buyer after the Closing Date; or (iv) all claims related to any
alleged infringement of Intellectual Property rights of any third
party to the extent arising out of any modifications or changes
to the Engine by or on behalf of Buyer after the Closing Date.
(c) Liquidated Damages. If, prior to the Closing, (i)
Buyer breaches its obligations to Seller under this Agreement and
Seller is entitled to terminate this Agreement pursuant to
Section 7.03(b) or (ii) the conditions to Buyer's obligations set
forth in Section 4.01 (other than Section 4.01(f)) have been
performed by Seller (or Seller is in position to satisfy such
conditions at the Closing) and Buyer decides not to complete the
acquisition of the Acquired Assets, Buyer shall pay U.S. $150,000
to Seller as liquidated damages for such breach provided, that,
Seller shall not be entitled to any liquidated damages payment
under this Section 7.01(c) if Seller has also breached its
obligations under this Agreement. Seller acknowledges and agrees
that the liquidated damages provided for in this Section,
together with the retention of the Initial Deposit and the
Signing Payment, shall be the sole remedy for any breaches by
Buyer under this Agreement that occur prior to the Closing.
(d) Indemnification Procedure.
(i) Notice. Any party seeking indemnification (an
"Indemnified Party") with respect to any Claim shall give
notice thereof to the party required to provide indemnity
hereunder (the "Indemnifying Party") within 15 business days
after receipt by the Indemnified Party of notice of any
demand, claim, or circumstances which could give rise to a
claim, or the commencement (or threatened commencement) of
any action, proceeding, or investigation, which could give
rise to a right to indemnification pursuant to this Section
7.01. Notwithstanding the foregoing, (x) no Indemnified
Party shall have any obligation to give any notice of any
asserted liability by a third party unless such assertion is
in writing, and (y) the rights of any Indemnified Party to
be indemnified in respect of any Claim resulting from the
asserted liability shall not be adversely affected by the
Indemnified Party's failure to give or delay in giving
notice unless (and then only to the extent that) the
Indemnifying Party is materially prejudiced thereby.
(ii) Defense. If any claim, demand or liability is
asserted by any third party against any Indemnified Party,
the Indemnifying Party shall, upon the written request of
the Indemnified Party, defend any action or proceeding
brought against the Indemnified Party in respect of matters
embraced by the indemnity. If, after a request to defend
any action or proceeding, the Indemnifying Party neglects or
<PAGE>
refuses to defend the Indemnified Party after reasonable
notice, the Indemnified Party shall use its best efforts to
defend the suit or reach a reasonable settlement thereof.
The Indemnified Party shall have the right to employ counsel
in any such lawsuit or action, but the fees and expenses of
such counsel shall be at the expense of such Indemnified
Party unless (x) the Indemnifying Party agrees in writing to
bear such fees and expenses, (y) the Indemnifying Party
shall have been provided an opinion of counsel to the
Indemnified Party to the effect that there may be a conflict
of interest between the Indemnifying Party and the
Indemnified Party in the conduct of the defense of such
action, or (z) the Indemnifying Party shall not in fact have
employed counsel to assume the defense of such action. The
parties shall cooperate in the defense of all third-party
claims which may give rise to Indemnifiable Claims
hereunder. In connection with the defense of any claim,
each party shall make available to the other party, any
books, records or other documents within its control that
are necessary or appropriate for such defense. The
Indemnifying Party shall not be liable in the event of any
settlement or compromise entered into by the Indemnified
Party without its prior written consent, which consent shall
not be unreasonably withheld.
7.02 Brokers and Expenses. Except as to any payment that
may be owed by Seller to Francois Robillard, Buyer and Seller
represent to each other that no broker or other person is
entitled to any fee or commission in connection with the
negotiation or consummation of the transactions herein
contemplated. Seller shall be solely responsible for any
payments to Francois Robillard under this Section.
7.03 Termination. This Agreement shall terminate if the
Closing shall not occur for any reason whatsoever by the
Termination Date or may be terminated by the mutual agreement of
the parties hereto or:
(a) by Buyer, if Seller materially breaches its obligations
under this Agreement or if any event occurs which would render
impossible the satisfaction of one or more conditions to the
obligations of Buyer to consummate the transactions contemplated
by this Agreement; or
(b) by Seller, if Buyer materially breaches its obligations
under this Agreement or if any event occurs which would render
impossible the satisfaction of one or more conditions to the
obligations of Seller to consummate the transactions contemplated
by this Agreement, provided, that, if Buyer elects to make the
extension option payments provided for in Section 3.04, Seller
may not terminate until the expiration of the extension option
period.
<PAGE>
In the event that the Agreement shall terminate or be
terminated pursuant to the foregoing, the parties hereto shall
have no further liabilities or obligations hereunder except for
(a) the provisions of Section 7.02, 7.08 and 7.14, and (b) any
breach of this Agreement which may have occurred prior to such
termination (subject to Section 7.01(c)) or as otherwise
expressly provided herein.
7.04 Notices. All notices, requests, consents, demands,
waivers and other communications required or permitted to be
given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally or mailed first-class,
postage prepaid, by registered or certified mail as follows:
(a) If to Buyer, to:
Walt Disney Animation Canada Inc.
c/o Disney Interactive, Inc.
500 South Buena Vista Street
Burbank, California 91521
Attention: Merritt David Farren
Vice President - Business and Legal Affairs
(b) If to Seller, to:
Sanctuary Woods Multimedia Corporation
1825 South Grant Street
San Mateo, California 94402
Attention: Jeremy Salesin
Vice President, Business Affairs
and General Counsel
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Judith O'Brien
7.05 Schedules and Exhibits; Entirety of Agreement. Each
schedule and exhibit delivered pursuant to the terms of this
Agreement shall be in writing and shall constitute a part of this
Agreement. This Agreement, together with such schedules and
exhibits, states the entire agreement of the parties with respect
to the subject matter hereof and supersedes all prior agreements,
drafts and understandings with respect thereto.
7.06 Amendment. This Agreement may be modified or amended
only by an instrument in writing, duly executed by the parties
hereto.
<PAGE>
7.07 Survival of Representations and Warranties. All
representations and warranties in this Agreement, or in any
document delivered pursuant hereto, shall survive the Closing
hereunder and shall be deemed to be material and relied upon,
notwithstanding any investigation by any of the parties hereto
for a period of three years from the date of Closing; provided,
however, that all such representations and warranties shall
survive for Claims which are asserted on or before the third
anniversary date of the Closing hereunder.
7.08 Confidentiality. For two years after the Closing Date,
except as to the Engine, which obligation shall survive without
limitation, all information delivered to Buyer or otherwise
disclosed in writing as confidential by any party (or its
representatives) before or after the date hereof, in connection
with the transactions contemplated by this Agreement, to any
other party (or its representatives) shall be kept confidential
by such other party and its representatives and shall not be used
by any such persons other than as contemplated by this Agreement,
except to the extent that such information (i) was otherwise
publicly available or known by the recipient when received, (ii)
it is or hereafter becomes lawfully obtainable from third parties
not related to the receiving party or its Affiliates, (iii) is
necessary to disclose to a Governmental Authority having
jurisdiction over either or both of the parties, (iv) is required
by law or the applicable rules of any stock exchange to be
disclosed or (v) to the extent such duty as to confidentiality is
waived in writing by the other party. The prior confidentiality
agreement between the parties dated March 7, 1996 is hereby
terminated with the execution of this Agreement.
7.09 Assignability. This Agreement shall not be assignable
by any of the parties hereto without the prior written consent of
the other parties, provided, that, Buyer shall be entitled to
assign this Agreement without Seller's consent to any Affiliate.
7.10 Waiver. No waiver by any party of any condition or of
any invalidity or breach of any term, covenant, representation or
warranty contained in this Agreement shall be deemed or construed
as a further or continuing waiver of such condition, term,
covenant, representation or warranty.
7.11 Counterparts. For the convenience of the parties any
number of counterparts hereof may be executed and each such
executed counterpart shall be deemed an original, but all such
counterparts together shall constitute one and the same
instrument.
7.12 Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or
future laws in effect during the term hereof, such provision
shall be modified rather than voided, if possible, in order to
<PAGE>
achieve as perfectly as possible the intent of the parties
hereto, and all other provisions of this Agreement shall remain
valid and enforceable to their full extent.
7.13 Headings. The headings in this Agreement are inserted
for convenience only and shall not constitute a part hereof.
7.14 Expenses. The parties hereto shall pay their own costs
and expenses, including all legal and accounting fees, relating
to this Agreement, the negotiations relating thereto, any
investigations or reviews made in connection therewith and the
transactions contemplated hereby.
7.15 Publicity. The parties hereto agree that no public
release or announcement concerning the transactions contemplated
hereby shall be issued by any party without the prior written
consent of the other parties, except as such release or
announcement may be required by law or applicable regulations.
7.16 Applicable Law. This Agreement and the legal relations
between the parties shall be governed by and construed in
accordance with the laws of the State of California applicable to
contracts made and performed in such State and without regard to
conflicts of law doctrines.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed as of the date first written above.
WALT DISNEY ANIMATION CANADA INC.
By: /s/ Stephen Fields
Name: Stephen Fields
Title: Senior Vice President,
Edutainment and Multimedia
SANCTUARY WOODS MULTIMEDIA CORPORATION
By: /s/ Charlotte Walker
Name: Charlotte Walker
Title: President and CEO
