<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 12, 1997
SANCTUARY WOODS MULTIMEDIA CORPORATION
(Exact name of registrant as specified in Charter)
<TABLE>
<S> <C> <C>
DELAWARE 000-21510 75-2444109
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification
incorporation) Number)
</TABLE>
1825 SOUTH GRANT STREET
SAN MATEO, CALIFORNIA 94402
(Address of Principal Executive Offices)
(415) 286-6000
(Registrant's Telephone Number, Including Area Code)
<PAGE> 2
ITEM 2 ACQUISITION OR DISPOSITION ASSETS.
a. GENERAL.
Pursuant to an Agreement and Plan of Reorganization dated June 4, 1997
(the "Reorganization Agreement") by and among Sanctuary Woods Multimedia
Corporation, a Delaware corporation (the "Company" or "Sanctuary Woods"),
Teacher Acquisition Corporation, a wholly-owned subsidiary of Sanctuary Woods
and a Delaware corporation ("Sub"), and Theatrix Interactive, Incorporated, a
Delaware corporation ("Theatrix"), Sanctuary Woods acquired Theatrix by means of
a statutory merger (the "Merger") of Sub into Theatrix, with Theatrix remaining
as the surviving corporation in the Merger (the "Surviving Corporation"). The
Merger became effective August 12, 1997 immediately upon the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware (the
"Effective Time"). Following the Merger, Theatrix became a wholly-owned
subsidiary of Sanctuary Woods. Pursuant to Section 1.6 of the Reorganization
Agreement, at the Effective Time, 3,102,528 shares of Common Stock of Sanctuary
Woods (the "Sanctuary Woods Shares") were either (a) issued in exchange for all
of the issued and outstanding capital stock of Theatrix ("Theatrix Capital
Stock") or (b) reserved for issuance upon the exercise of (i) all unexpired and
unexercised stock options to acquire Common Stock of Theatrix outstanding under
the Theatrix 1995 Stock Option Plan (the "Theatrix Stock Options") and (ii) all
warrants to purchase Common Stock of Theatrix then outstanding (the "Theatrix
Warrants"), which options and warrants were assumed by Sanctuary Woods. Pursuant
to Section 1.7 of the Reorganization Agreement, at 15 months after the Effective
Time, up to 500,000 shares of Sanctuary Woods' Common Stock may be issued to
Theatrix securityholders upon the occurrence of certain specified conditions.
Pursuant to Section 5.14 of the Reorganization Agreement, at the Effective Time,
Sanctuary Woods issued a warrant to purchase 500,000 shares of Common Stock of
Sanctuary Woods to Kingdon Capital, the sole holder of Theatrix Series C
Preferred Stock. Additionally, pursuant to Section 10.2 of the Reorganization
Agreement, at the Effective Time, Sanctuary Woods issued a warrant to purchase
100,000 shares of Common Stock of Sanctuary Woods to Montgomery Securities.
b. MATERIAL FEATURES OF THE MERGER.
CONVERSION OF THEATRIX CAPITAL STOCK. Pursuant to the Reorganization
Agreement, at the Effective Time, an aggregate of 3,102,528 Sanctuary Woods
Shares were issued to the security holders of Theatrix as set forth below. Each
share of Common Stock of Theatrix ("Theatrix Common Stock") issued and
outstanding at the Effective Time, other than shares subject to validly
exercised dissenters' rights in accordance with the Delaware General Corporation
Law ("DGCL") or shares owned by Sub, Theatrix or Sanctuary Woods, were converted
into the right to receive that number of shares of Common Stock of Sanctuary
Woods ("Sanctuary Woods Common Stock") determined by dividing 142,080 by the sum
of (i) the number of shares of Theatrix Common Stock issued and outstanding
immediately prior to the Effective Time plus (ii) the number of shares of
Theatrix Common Stock issuable upon exercise of any Theatrix Stock Option or
Theatrix Warrant issued and outstanding immediately prior to the Effective Time
(the "Common Exchange Ratio"). Each share of Series A Preferred Stock of
Theatrix ("Theatrix Series A") issued and outstanding at the Effective Time,
other than shares subject to validly exercised dissenters' rights in accordance
with the DGCL, were converted into the right to receive that number of shares of
Sanctuary Woods Common Stock determined by dividing 614,979 by the number of
shares of Theatrix Series A issued and outstanding immediately prior to the
Effective Time (the "Series A Exchange Ratio"). Each share of Series B Preferred
Stock of Theatrix ("Theatrix Series B") issued and outstanding at the Effective
Time, other than shares subject to validly exercised dissenters' rights in
accordance with the DGCL, were converted into the right to receive that number
of shares of Sanctuary Woods Common Stock determined by dividing 882,640 by the
number of shares of Theatrix Series B issued and outstanding immediately prior
to the Effective Time (the "Series B Exchange Ratio"). Each share of Series C
Preferred Stock of Theatrix ("Theatrix Series C") issued and outstanding at the
Effective Time, other than shares subject to validly exercised dissenters'
<PAGE> 3
rights in accordance with the DGCL, were converted into the right to receive
that number of shares of Sanctuary Woods Common Stock determined by dividing
1,462,829 by the number of shares of Theatrix Series C issued and outstanding
immediately prior to the Effective Time (the "Series C Exchange Ratio"). In
addition, Kingdon Capital, the sole holder of Theatrix Series C, was issued a
warrant to purchase 500,000 shares of Sanctuary Woods Common Stock at an
exercise price of $3.00 per share in the form attached to the Reorganization
Agreement as Exhibit A. Each share of Theatrix Capital Stock owned by Sub,
Sanctuary Woods or Theatrix was canceled without any conversion thereof.
ASSUMPTION OF THEATRIX OPTIONS AND THEATRIX WARRANTS. All Theatrix
Stock Options and Theatrix Warrants were assumed by Sanctuary Woods and replaced
with like options or like warrants, as applicable, to purchase shares of
Sanctuary Woods Common Stock, except that (1) the number of shares subject to
such an assumed option or warrant is the product of the number of shares of
Theatrix Common Stock subject to such option or warrant multiplied by the Common
Exchange Ratio (rounded down to the nearest whole number of shares of Sanctuary
Woods Common Stock) and (2) the per share exercise price of such an assumed
option or warrant is the quotient obtained by dividing the exercise price of
such option or warrant by the Common Exchange Ratio (rounding the resulting
exercise price up the nearest whole cent). It is the intention of the parties
that each assumed option qualify as an "incentive stock option" ("ISO") within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), to the extent that such option constituted an ISO immediately prior to
the Effective Time. No assumed option will entitle the holder thereof to any
additional benefits within the meaning of Section 424(a)(2) of the Code that
were not available prior to such assumption.
FRACTIONAL SHARES. No fractional shares of Sanctuary Woods Common Stock
were issued; however, in lieu thereof, each holder of shares of Theatrix Capital
Stock who would otherwise be entitled to receive a fraction of a share of
Sanctuary Woods Common Stock shall receive from Sanctuary Woods an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) $2.40.
CONTINGENT SHARES. In addition to the shares of Sanctuary Woods Common
Stock to which holders of Theatrix Capital Stock are entitled as set forth
above, holders of Theatrix Capital Stock issued and outstanding at the Effective
Time shall be entitled to receive up to an aggregate of 500,000 shares of
Sanctuary Woods Common Stock (the "Contingent Shares") 15 months following the
Effective Time (the "Contingent Payment Period"). The exact number of Contingent
Shares available for distribution shall be determined by multiplying 500,000 by
a fraction, (x) the numerator of which shall be the amount that net revenues,
for the one-year period immediately following the Effective Time, attributable
to all revenues from the sale, distribution, licensing or use of Theatrix
products available and in development as of the date of the Reorganization
Agreement, less actual returns, price mark downs and other discounts customarily
taken with respect to such products for the period beginning ninety days (90)
after the Effective Time and ending ninety days after the end of the one-year
period following the Effective Time, exceeds $2,000,000, and (y) the denominator
of which shall be 2,000,000. In the event that, prior to the end of the
Contingent Payment Period, a merger or consolidation of Sanctuary Woods with or
into any other corporation or corporations shall have occurred in which the
stockholders of Sanctuary Woods immediately prior to such merger or
consolidation shall own less than fifty percent (50%) of the voting securities
of the surviving corporation immediately after such merger or consolidation, the
surviving corporation or the surviving corporation's parent shall issue all of
the Contingent Shares (or the maximum number of securities into which the
Contingent Shares were converted as a result of the merger or consolidation). A
more detailed description of the Contingent Shares and the distribution thereof,
if any, may be found in Section 1.7 of the Reorganization Agreement incorporated
herein by reference to Exhibit 10.26 to Registrant's report on Form 10-K filed
on June 30, 1997, File No. 000-21510.
<PAGE> 4
ESCROW FUND. At the Effective Time, the stockholders of Theatrix were
deemed to have received and deposited with an escrow agent an aggregate number
of shares of Sanctuary Woods Common Stock approximately equal to .10 multiplied
by the aggregate number of shares of Sanctuary Woods Common Stock issued in
respect of issued and outstanding shares of Theatrix Capital Stock (not
including the Contingent Shares or shares issuable on exercise of outstanding
Theatrix Options or Theatrix Warrants), such deposit to constitute an escrow
fund (the "Escrow Fund"). The Escrow Fund shall be available and in the absence
of fraud shall be the sole remedy to compensate Sanctuary Woods for certain
claims, losses, liabilities, damages, deficiencies, costs and expenses,
including reasonable attorneys' fees and expenses, and expenses of investigation
and defense, to the extent they are incurred directly or indirectly as a result
of any inaccuracy or breach by Theatrix of any representation or warranty, or
any failure by Theatrix to perform or comply with any covenant contained in the
Reorganization Agreement (collectively the "Escrow Claims"). Sanctuary Woods may
not receive any shares from the Escrow Fund unless and until the aggregate of
all Escrow Claims exceeds $50,000, and in such case Sanctuary Woods may recover
from the Escrow Fund the total amount of such Escrow Claims including the first
$50,000. The Escrow Fund shall terminate on the date that is one year following
the closing of the Merger and the shares of Sanctuary Woods Common Stock
remaining in the Escrow Fund at such time shall be distributed to the Theatrix
stockholders in proportion to their respective original contributions to the
Escrow Fund.
ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements and exhibits are filed as part of
this Report, where indicated.
(a) Financial statements of business acquired, prepared pursuant
to Rule 3-05 of Regulation S-X:
The financial statements are unavailable as of the date of
this filing. Such information will be filed on or before the
sixtieth day following the filing date of this Current Report
on Form 8-K.
(b) Pro forma financial information required pursuant to Article
11 of Regulation S-X:
The pro forma financial information is unavailable as of the
date of this filing. Such information will be filed on or
before the sixtieth day following the filing date of this
Current Report on Form 8-K.
(c) Exhibits in accordance with Item 601 of Regulation S-K:
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Exhibit No. Description
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2.1 Agreement and Plan of Reorganization, dated as of
June 4, 1997, by and among Sanctuary Woods Multimedia
Corporation, Theatrix Interactive, Incorporated and
Teacher Acquisition Corporation. (Incorporated herein
by reference to Exhibit 10.26 to Registrant's report
on Form 10-K filed on June 30, 1997, File No.
000-21510.)
2.2 First Amendment to the Agreement and Plan of
Reorganization, dated as of August 8, 1997, by and
between Sanctuary Woods Multimedia Corporation and
Theatrix Interactive, Incorporated.
99.1 Press release dated August 14, 1997.
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<TABLE>
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99.2 Form of Warrant to Purchase Common Stock issued by
Sanctuary Woods to Kingdon Capital. (Incorporated
herein by reference to Exhibit 10.26 to Registrant's
report on Form 10-K filed on June 30, 1997, File No.
000-21510.)
99.3 Form of Warrant to Purchase Common Stock issued by
Sanctuary Woods to Montgomery Securities.
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INDEX TO EXHIBITS
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
2.1 Agreement and Plan of Reorganization, dated as of
June 4, 1997, by and among Sanctuary Woods Multimedia
Corporation, Teacher Acquisition Corporation and
Theatrix Interactive, Incorporated. (Incorporated
herein by reference to Registrant's report on Form
10-K filed on June 30, 1997, File No. 000-21510.)
2.2 First Amendment to the Agreement and Plan of
Reorganization, dated as of August 8, 1997, by and
between Sanctuary Woods Multimedia Corporation and
Theatrix Interactive, Incorporated.
99.1 Press release dated August 14, 1997.
99.2 Form of Warrant to Purchase Common Stock issued by
Sanctuary Woods to Kingdon Capital. (Incorporated
herein by reference to Exhibit 10.26 to Registrant's
report on Form 10-K filed on June 30, 1997, File No.
000-21510.)
99.3 Form of Warrant to Purchase Common Stock issued by
Sanctuary Woods to Montgomery Securities.
</TABLE>
<PAGE> 7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SANCTUARY WOODS MULTIMEDIA CORPORATION
Dated: August 27, 1997 By: /s/ Marylyn Rosenblum
------------------------------------------
Marylyn Rosenblum
Chief Executive Officer
<PAGE> 1
EXHIBIT 2.2
FIRST AMENDMENT TO THE
AGREEMENT AND PLAN OF REORGANIZATION
THIS FIRST AMENDMENT TO THE AGREEMENT AND PLAN OF REORGANIZATION (the
"Amendment"), amending that certain Agreement and Plan of Reorganization (the
"Reorganization Agreement") dated June 4, 1997 by and among Sanctuary Woods
Multimedia Corporation, a Delaware corporation ("Parent"), Teacher Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent
("Merger Sub"), Theatrix Interactive, Incorporated, a Delaware Corporation (the
"Company"), Mark Kingdon as Securityholder Agent and First Trust of California,
National Association as Escrow Agent, is made by and among Parent and the
Company as of this 8th day of August, 1997.
RECITALS
WHEREAS, prior to the Closing, Parent and the Company wish to amend the
agreement and the closing condition regarding the composition of the Board of
Directors of the combined company (the "Board") as set forth under Sections 5.13
and 7.2(c), respectively, of the Reorganization Agreement so that the Board
shall be composed of four persons, three of whom shall have served on the Board
of Directors of Parent immediately prior to the Effective Time and one of whom
shall be Joyce Hakansson; and
WHEREAS, Section 9.3 of the Reorganization Agreement provides that the
Reorganization Agreement may be amended, prior to Closing, by execution of an
instrument in writing signed by Parent and the Company;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Definitions. Unless otherwise indicated herein, words and terms which
are defined in the Reorganization Agreement shall have the same meaning
where used herein.
2. Amendments to Reorganization Agreement. Section 5.13 of Article V of
the Reorganization Agreement and Section 7.2(c) of Article VII of the
Reorganization Agreement shall each be amended and restated in their
entirety so that each of such sections shall be and read as follows:
"Board of Directors of the Combined Company. The Board of Directors of
Parent will take all actions necessary to cause the Board of Directors
of Parent, immediately after the Effective Time, to consist of four
persons, three of whom shall have served on the Board of Directors of
Parent immediately prior to the Effective Time and one of whom shall be
Joyce Hakansson."
<PAGE> 2
3. Continued Validity of Reorganization Agreement. Except as amended
hereby, the Reorganization Agreement shall continue in full force and
effect as originally constituted and is ratified and affirmed by the
parties hereto.
4. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
<PAGE> 3
IN WITNESS WHEREOF, the undersigned parties have each caused this
Amendment to be executed as of the date first above written.
PARENT:
SANCTUARY WOODS MULTIMEDIA
CORPORATION
By: /s/ MARYLYN ROSENBLUM
----------------------------------------
Marylyn Rosenblum
President and Chief Executive
Officer
COMPANY:
THEATRIX INTERACTIVE, INCORPORATED
By: /s/ ROBERT T. WALL
----------------------------------------
Robert T. Wall
President and Chief Executive
Officer
SIGNATURE PAGE TO THE FIRST AMENDMENT TO THE
AGREEMENT AND PLAN OF REORGANIZATION
<PAGE> 1
EXHIBIT 99.1
Thursday August 14 5:00 PM EDT
Company Press Release
Source: Sanctuary Woods Multimedia Corp.
Sanctuary Woods and Theatrix Interactive Merge to Create a Strong Competitor In
the Educational Software Market
Theatrix Acquisition by Sanctuary Woods Complete
SAN MATEO, Calif., Aug. 14 /PRNewswire/ -- Sanctuary Woods Multimedia
Corporation (traded over-the-counter under the symbol SWMC) today announced that
the acquisition of Theatrix Interactive, Inc. has been completed. The new
combined company will be consolidating product offerings and key personnel into
one united company under a new name that is yet to be finalized.
Marylyn Rosenblum, previously Acting Executive Vice President of Education for
Sanctuary Woods was appointed Acting President and CEO. In addition, Joyce
Hakansson, formerly Director, Vice President and Creative Director of Theatrix,
assumes the same position at the newly formed company. The new Board of
Directors will be comprised of Ms. Rosenblum, Ms. Hakansson, Mr. Lawrence D.
Lenihan, Jr., Managing Member of the General Partner of the Pequot Private
Equity Fund, L.P. for Dawson-Samberg Capital Management, Inc., the largest
Sanctuary Woods' shareholder, and venture capitalist Mr. Erik Jansen, COO of
Digital Media Capital, LLC.
"Together, Sanctuary Woods and Theatrix boast over 50 awards and merits for our
software titles," said Marylyn Rosenblum. "With the Theatrix acquisition, the
company will continue to increase its focus on the educational software market,
an area that we think offers strong potential growth for the company. "Despite
challenging market conditions, we believe that our continued focus on our Head
Coach(TM), Franklin, Math Heads(TM) and Hollywood(TM) lines of educational
products position us for success," said Marylyn Rosenblum.
"The Theatrix products are very complementary to the existing Sanctuary Woods
education products and together they will improve the company's competitive
position in the educational software market," said Joyce Hakansson. "We're able
to provide a comprehensive product line of early learning through middle school
titles that meet the specific needs of each market segment," she added.
Under the terms of the agreement, Sanctuary Woods will issue 3,102,528 shares of
its Common Stock in consideration for all of the shares of Theatrix capital
stock. In addition, Sanctuary Woods has issued a warrant to Kingdon Capital to
purchase 500,000 shares of Common Stock of Sanctuary Woods. Up to an additional
500,000 shares of Common Stock of Sanctuary Woods are issuable one year after
the effective date of the merger if certain revenue goals are met with respect
to products acquired from Theatrix. 300,000 shares of Common Stock are set aside
for issuance to former Theatrix employees who become employees of Sanctuary
Woods pursuant to the Company's 1996 Stock Option Plan. The transaction was
structured to qualify as a tax-free reorganization.
<PAGE> 2
About Sanctuary Woods Founded in 1988, San Mateo-based Sanctuary Woods
Multimedia is the innovative developer of the Head Coach(TM) line of
sports-based educational software titles derived from unique licensing
agreements with NFL(TM) Properties, the National Football League Players
Incorporated and Major League Baseball Properties. Current titles include Major
League Math(TM), Major League Reading(TM), NFL(TM) Math and NFL(TM) Reading.
Major League Math Second Edition was recently awarded Newsweek Magazine's
"Editor's Choice" award. The company also manufacturers the popular Franklin
series which includes Franklin Learns Math, Franklin's Reading World and
Franklin's Activity Center. All are based on the popular Franklin storybook
character. Sanctuary Woods can be reached at 800-943-3664 or visit the company's
Web site located at http://www.ah-hah.com.
NOTE: Sanctuary Woods is a registered trademark, and Head Coach is a trademark
of Sanctuary Woods Multimedia. Hollywood, Math Heads, Theatrix, Theatrix
Interactive and the Theatrix logo are the trademarks of Theatrix Interactive.
Franklin is a trademark of Kids Can Press Ltd. Major League Math and Major
League Reading are trademarks of Major League Baseball Properties, Inc. NFL is a
trademark of National Football League Properties.
The statements in this press release may contain forward-looking statements that
involve risks and uncertainties that could cause actual results to differ from
predicted results. Such risks include among others: the need to integrate the
two organizations and the combined companies' development efforts and product
offerings; the highly competitive market; the ability of the Company to raise
sufficient working capital to meet the requirements of the combined companies;
the volatility of the Company's stock price; and the reliance on key personnel.
Further risks are described in the Company's Form 10K filed with the Securities
and Exchange Commission on June 30, 1997 and other risks detailed from time to
time in the Company's report filed with the Securities and Exchange Commission.
The Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
SOURCE: Sanctuary Woods Multimedia Corp.
<PAGE> 1
EXHIBIT 99.3
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.
Warrant to Purchase
100,000 Shares
of Common Stock
Dated August 12, 1997
WARRANT TO PURCHASE COMMON STOCK
of
SANCTUARY WOODS MULTIMEDIA CORPORATION
Void after September 18, 1999
This certifies that, for value received, Montgomery Securities or its
registered assigns ("Holder") is entitled, subject to the terms set forth below,
to purchase from SANCTUARY WOODS MULTIMEDIA CORPORATION (the "Company"), a
Delaware corporation, One Hundred Thousand (100,000) 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 September 18, 1999 (the "Term"), and shall be void thereafter.
2. Exercise Price. The Exercise Price at which this Warrant may be
exercised shall be US$3.00 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 one hundred thousand (100,000) shares at a time (or
if the maximum number of shares purchasable upon exercise of this Warrant is
less than 100,000, 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
<PAGE> 2
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) 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. Net Issue Exercise.
(a) Notwithstanding any provisions herein to the contrary, if
the Quoted Price (as defined in Section 4(b) hereof) of one share of the
Company's Common Stock is greater than the Exercise Price (at the date of
calculation as set forth below), in lieu of exercising this Warrant by payment
with cash, certified or cashier's check, the Holder may elect to make a
cash-free exercise of this Warrant and thereby to receive Shares equal to the
value (as determined below) of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Notice of Exercise and notice of such
election, in which event the Company shall issue to the Holder a number of
Shares of Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of Shares of Common Stock to be
issued to the Holder
Y = the gross number of Shares of Common Stock
purchasable under this Warrant or, if only a
portion of this Warrant is being exercised,
the gross number of Shares purchased under
this Warrant being canceled (at the date of
such calculation)
A = the Quoted Price (as defined under Section
4(b) hereof) of one share of the Company's
Common Stock (at the date of such
calculation)
B = Exercise Price (as adjusted to the date of
such calculation)
-2-
<PAGE> 3
(b) The "Quoted Price" of the Common Stock is the last
reported sales price of the Common Stock as reported by the Nasdaq National
Market ("NMS"), or the primary national securities exchange on which the Common
Stock is then quoted; provided, however, that if the Common Stock is neither
traded on the NMS nor on a national securities exchange, the price referred to
above shall be the price reflected on Nasdaq, or if the Common Stock is not then
traded on Nasdaq, the price reflected in the over-the-counter market as reported
by the National Quotation Bureau, Inc. or any organization performing a similar
function; and provided, further, that if the Common Stock is not publicly
traded, the Quoted Price of the Common Stock shall be the fair market value as
determined in good faith by the Board of Directors of the Company.
5. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional share 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.
6. 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.
7. 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.
8. 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 thereof,
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
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<PAGE> 4
or any applicable securities law of foreign jurisdictions, 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) Any legend required by applicable state law.
9. 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 the Common
Stock issuable upon the 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.
10. 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 and the Holder. No waivers
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<PAGE> 5
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.
11. Adjustments. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
(a) 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.
(b) 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 of such securities shall be proportionately increased and the number of
securities issuable upon exercise proportionately decreased in the case of a
combination. If 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.
(c) 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
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<PAGE> 6
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 the exercise of this Warrant, and without payment of
any additional consideration thereof, 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.
(d) 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.
(e) 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 of 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.
12. 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.
13. 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.
14. Governing Law. This Warrant shall be governed by the laws of the
State of California.
15. 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.
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<PAGE> 7
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, CA 94304
Attn: Alisande M. Rozynko
If to the Holder: Montgomery Securities
600 Montgomery Street
22nd Floor
San Francisco, CA 94111
Attn: John D. Hershey
16. 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 HEREOF, SANCTUARY WOODS MULTIMEDIA CORPORATION has caused this
Warrant to be executed by its officers thereunto duly authorized.
Dated: ____________________, 1997
SANCTUARY WOODS MULTIMEDIA
CORPORATION
By:__________________________________
Title:_______________________________
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<PAGE> 8
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, or any rules or
regulations promulgated thereunder.
Montgomery Securities
By:___________________________________
__________________________
[Date]
Title:________________________________
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