<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SONIC SOLUTIONS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
93-0925818
CALIFORNIA (I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION OF IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
101 ROWLAND WAY, SUITE 110
NOVATO, CALIFORNIA 94945
(415) 893-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT J. DORIS
SONIC SOLUTIONS
101 ROWLAND WAY, SUITE 110
NOVATO, CALIFORNIA 94945
(415) 893-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES OF ALL ORDERS, NOTICES AND COMMUNICATIONS TO:
AUGUST J. MORETTI
HELLER EHRMAN WHITE & MCAULIFFE
525 UNIVERSITY AVENUE, SUITE 1100, PALO ALTO, CALIFORNIA 94301-1900 (650) 324-
7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, no par value(1)... 461,538 $3.875 $1,788,460 $528
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TOTAL: $1,788,460 $528
</TABLE>
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(1) In accordance with Rule 416 under the Securities Act of 1933, Common Stock
offered hereby shall also be deemed to cover additional securities to be
offered or issued to prevent dilution resulting from stock splits, stock
dividends or similar transactions.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933,
as amended, based on the average of the high and low prices of the Common
Stock on the Nasdaq National Market on April 17, 1998, as reported on The
Wall Street Journal.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
P R O S P E C T U S
461,538 SHARES
SONIC SOLUTIONS
COMMON STOCK
This Prospectus may be used only in connection with the resale, from time to
time, of up to 461,538 shares (the "Shares") of Common Stock, no par value,
(the "Common Stock") of Sonic Solutions (the "Company"), for the account of
the selling stockholder identified below (the "Selling Stockholder"). All of
the Shares covered hereby are to be sold by the Selling Stockholder, who may
originally receive the Shares by converting the shares of Series C Preferred
Stock of the Company (the "Series C Preferred Stock") which such Selling
Stockholder acquired pursuant to a Private Securities Subscription Agreement
executed between the Company and the Selling Stockholder as of March 31, 1998
(the "Subscription Agreement"). The Series C Preferred Stock is currently
convertible to shares of Common Stock on a share-to-share basis (the "Initial
Conversion Rate") subject to adjustment for stock splits, stock dividends or
other similar transactions. Subject to certain limitations, the Initial
Conversion Rate may be reduced if the Company sells or issues dilutive equity
securities at an effective purchase price of less than $3.00 per share. The
Company will not receive any proceeds from the sale of Shares by the Selling
Stockholder. The expenses incurred in registering the Shares, including legal
and accounting fees, will be paid by the Company.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "SNIC". On April 17, 1998, the closing price for the Common Stock, as
reported on the Nasdaq National Market, was $3.75 per share.
Shares offered by this Prospectus by the Selling Stockholder may be offered
for sale from time to time by the Selling Stockholder at such prices and on
such terms as may then be obtainable, in negotiated transactions, or
otherwise. See "Plan of Distribution". This Prospectus may be used by the
Selling Stockholder or by any broker-dealer who may participate in sales of
securities covered hereby. The Selling Stockholder and the brokers and dealers
through whom such sales are effected may be deemed to be underwriters under
the Securities Act of 1933, as amended (the "Securities Act"). The Selling
Stockholder will pay all commissions, transfer taxes, and certain other
expenses associated with the sales of securities by them. Pursuant to an
agreement with the Selling Stockholder, the Company has paid the expenses of
the preparation of this Prospectus and certain other expenses. The Company has
also agreed to indemnify the Selling Stockholder against certain liabilities,
including liabilities arising under the Securities Act.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act with respect
to the securities offered by this Prospectus. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits thereto, which may be examined without charge at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of which may be
obtained from the Commission upon payment of the prescribed fees.
SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
(SEE "RISK FACTORS" ON PAGE 4)
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.
----------------
THE DATE OF THIS PROSPECTUS IS APRIL , 1998
<PAGE>
No dealer, salesman, or any other person has been authorized to give any
information or to make any representations or projections of future
performance other than those contained in this Prospectus, and any such other
information, projections, or representations, if given or made, must not be
relied upon as having been so authorized. The delivery of this Prospectus or
any sale hereunder at any time does not imply that the information herein is
correct as of any time subsequent to its date. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction where, and to any person to
whom, it is unlawful to make such offer or solicitation.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and in accordance therewith
files reports, proxy statements and other information with the Commission.
Such Registration Statement, reports, proxy statements and other information
can be inspected and copied at public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at such address. Such reports, proxy
statements and other information can also be inspected at the Commission's
regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048
and 500 West Madison, Chicago, Illinois 60661, and at the offices of the
Nasdaq Stock Market at 9513 Key West Avenue, Rockville, Maryland 20850-3389.
DOCUMENTS INCORPORATED BY REFERENCE
There are hereby incorporated in this Prospectus by reference the following
documents filed pursuant to the 1934 Act: (i) the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1997; (ii) the Company's
Quarterly Report on Form 10-Q for the fiscal quarters ended June 30, 1997,
September 30, 1997 and December 31, 1997; and (iii) the description of the
Company's Common Stock contained in the registration statement filed under the
1934 Act registering such Common Stock under Section 12 of the 1934 Act.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the 1934 Act after the date of this Prospectus and prior to the
termination of the offering of the securities offered hereby shall be deemed
to be incorporated by reference in this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of such person, a copy of any or
all of the documents referred to above which have been or may be incorporated
in this Prospectus by reference, other than exhibits to such documents which
are not specifically incorporated by reference into the information that this
Prospectus incorporates. Requests for such copies should be directed to: 101
Rowland Way, Suite 110, Novato, California 94945, Attention: Investor
Relations, telephone: (415) 893-8000.
PROSPECTUS SUPPLEMENTS
The Selling Stockholder may acquire from the Company, by way of conversion
of the Series C Preferred Stock which such Selling Stockholder acquired
pursuant to the Subscription Agreement, the Shares covered hereby, in one or
more tranches. The timing of conversion of the Series C Preferred Stock will
be determined by the Selling Stockholder. The amount of Shares to be issued to
the Selling Stockholder upon conversion of Series C Preferred Stock will be
determined by the conversion rate applicable at the time of such conversion.
Upon each conversion of Series C Preferred Stock into shares of Common Stock,
the Company will supplement this Prospectus to reflect the amount of Shares to
be resold by the Selling Stockholder.
2
<PAGE>
PROSPECTUS SUPPLEMENT
On , 199 , the Selling Stockholder acquired, by way of
conversion of shares of Series C Preferred Stock which such Selling
Stockholder acquired pursuant to the Subscription Agreement, Shares
from the Company, and this Prospectus relates to the resale of such Shares.
See "Selling Stockholder" in the Prospectus which is hereby modified by this
Prospectus Supplement, as follows:
3
<PAGE>
THE COMPANY
Sonic Solutions ("Sonic" or the "Company") designs, develops, manufactures
and markets digital tools for professionals who manipulate media--sound,
images, moving pictures and text--in computer based settings. SonicStudio(TM)
is a line of digital audio random access editing and processing systems,
commonly known as Digital Audio Workstations ("DAWs"). SonicStudio systems are
used by a wide range of audio professionals to prepare recorded sound for
release on Digital Audio Compact Discs ("CDs"), for inclusion in film and
video sound tracks, and for broadcast on radio and television. The Company's
Sonic MediaNet product is an FDDI-compliant, high-speed local area network and
file management system that is optimized for management of data intensive file
transfers typically required in digital video, digital audio, computer
graphics and desktop publishing. The Company's DVD Creator product line ("DVD
Creator") is a complete workgroup solution for DVD premastering. It includes
MPEG-2 video encoding, audio preparation and encoding, and disc authoring,
layout and formatting. The Company's Sonic On-Air product line provides
broadcast production and delivery solutions for radio broadcast networks and
stations.
Sonic's products generally include application software and specialized
hardware installed on a personal computer. Sonic's products are designed to
improve the productivity and effectiveness of media professionals, enabling
them to process and manipulate more material in a given amount of time and to
achieve results which would have been impossible using traditional linear
analog or digital technology.
RISK FACTORS
The information about the Company included or incorporated by reference
herein contains forward looking statements that involve risks and
uncertainties, including the risks detailed below. The Shares of Common Stock
offered hereby involve a high degree of risk and prospective purchasers should
carefully consider the following factors.
Lack of Profitability. The Company has been unprofitable during each of the
last two fiscal years and the first three quarters of the current fiscal year.
The Company's future performance is subject to a number of risks as outlined
below. There can be no assurance that the Company will return to
profitability.
SonicStudio and Strategy. In 1989, the Company introduced the Sonic
System(TM), now called SonicStudio(TM), a family of digital audio workstations
for professional audio users. A wide range of audio professionals now use
SonicStudio to prepare recorded sound for release on CD, for inclusion in film
and video sound tracks, and for broadcast on radio and television. SonicStudio
consists of extensive applications software as well as specialized hardware
installed in a personal computer. Currently, SonicStudio is compatible with
various models of Macintosh personal computers. The Company plans to introduce
in fiscal 1999 or later versions of SonicStudio compatible with other computer
platforms. Because of the uncertain nature of such development, there can be
no assurance that problems or delays will not be encountered which will delay
or prevent such versions of the SonicStudio from reaching market. In light of
the substantial costs associated with such development, the financial results
of the Company would be materially adversely affected if such introduction
were delayed for a significant period of time.
Sonic MediaNet Future Developments. It is the Company's intention to
introduce a second generation Sonic MediaNet product line in fiscal 1999,
incorporating newer networking technologies and increased performance levels.
In April 1997, the Company announced its intention to base the second
generation Sonic MediaNet product line on FibreChannel technology.
FibreChannel is a 1 Gigabit per second network which, practically, can deliver
more than 40 Megabytes per second throughput, allowing uncompressed,
professional quality digital video and multiple tracks of high-resolution
audio to be transferred in real time. In the last quarter of the 1998 fiscal
year, the Company substantially altered its approach to the new MediaNet
product line, by deciding significantly to de-emphasize the dependence of the
second generation product line on Sonic-designed plug-in FibreChannel
hardware, and by making the software components of the new product line on
Sonic-
4
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designed plug-in FibreChannel hardware, and by making the software components
of the new product line more broadly compatible with a number of networking
technologies in addition to FibreChannel, including 10BaseT and 100BaseT
Ethernet. The Company intends to introduce the first components of the revised
second generation product line, now called "Sonic LightSpeed", in the early
part of the 1999 fiscal year. There can be no assurance that the Company will
be successful in developing such a product line, or that, if successfully
developed, such a second generation product line will be attractive to
customers when compared to other network product offerings. Further,
transition between the first generation and second generation product lines
may present a number of difficulties for the Company, including slow sell
through or returns of dealer stocks of the first generation product. Such
difficulties could have an adverse affect on results of operations for future
periods.
Risks Associated with DVD Creator. While the Company believes that DVD
Creator represents a significant opportunity and it is the Company's current
intention to further increase expenditures for DVD development and marketing
in the 1998 and 1999 fiscal years, there are a number of risks surrounding
this initiative. These risks include but are not limited to the following:
. DEVELOPMENT RISK--The Company is new to the development of MPEG video
processing hardware and is utilizing a newly developed chip set that is
single sourced from IBM. Unanticipated development problems in the
continued production of the IBM chip set, the boards designed by the
Company incorporating the chip set, or the accompanying software could
seriously delay future releases of DVD Creator. Newly developed
technology of this kind is often subject to rapid changes in ways that
may prove challenging to the Company. For example, the Company has been
advised by IBM that IBM will introduce a new chip set in early 1998 to
replace the currently shipping chip set. While the Company believes that
the new chip set will be largely compatible with its existing software
and designs, incorporation of the new chip set in the Company's video
processing hardware will require a revision of its currently shipping
circuit board set, and some modification of its system software. In
addition, the new chip set or board could encounter either design or
production problems which would require another version of the chip or
the board to be developed, a process which can consume several months.
While the Company believes that there may be alternatives available to
it from other OEM suppliers, there can be no assurance that such
alternatives would be available on commercially reasonable terms and in
the time frame needed. Sonic is also delivering as part of DVD Creator,
Dolby Digital and MPEG-2 audio encoding and decoding capabilities by
programming the Company's USP and other audio signal processing cards
and by designing co-processing hardware. While Sonic has significant
experience in signal processing of high quality digital audio, it has
only limited experience with Dolby Digital and MPEG-2 audio encoding and
decoding. Finally, authoring for DVD-Video is complex. Since the
introduction of DVD Creator in 1996, the Company incorporated into the
DVD Creator product line a format authoring system called Scenarist
developed by Daikin Industries of Japan. The format authoring step is
particularly complex and demanding for the DVD-Video format, and,
accordingly, format authoring software is quite complicated. In
September 1997, the Company announced the addition of DVD Producer, a
new DVD-Video format authoring system developed by Sonic. While the
Company has commenced shipments of DVD Producer, there is continuing
development associated with this product which is necessary to make the
package a compelling alternative to Scenarist from the point of view of
end user customers. In addition, because of the complexity of
development of tools of this kind, there can be no assurance that
problems or "bugs" do not exist in the software which will be discovered
only as customers attempt to replicate DVD-Video discs made with the
product. In addition, there appears to be interest in the market in DVD
premastering systems running on the Windows NT platform. While it is the
Company's current intention to "port" DVD Creator to provide versions of
DVD Creator running on the Windows NT platform during 1998, there can be
no assurance that the porting process will proceed in a speedy and
trouble-free way.
. MARKET RISK; CONSUMER MARKET--The DVD-Video format and players were
introduced in Japan and some parts of Asia in late 1996, in North
America in early 1997, and are expected to be introduced in quantity in
Europe in the spring of 1998. Many industry observers expect the format
to be attractive to
5
<PAGE>
consumers since it combines high-quality digital video, six-channel
surround sound, multiple language tracks, sub-titles, and interactive
story branching, among other features and permits "feature length"
movies and videos to be delivered on a "Compact Disc" sized disc.
Although there has been significant interest in the DVD format among
industry analysts and members of the press, there can be no assurance
that the DVD-Video format will be readily accepted by consumers. There
are a number of consumer entertainment formats that will compete with
DVD-Video in the future, including broadcast TV, cable TV, high
definition digital TV, VHS cassettes, direct broadcast satellite
systems, and Internet distribution, among others. It is possible that
the DVD format will fail to attain "critical mass" acceptance among
consumers.
. MARKET RISK; COMPETITION--The DVD-Video format has generated significant
interest in the professional marketplace. Sonic anticipates that a
number of companies will provide MPEG-2 video encoding capabilities,
audio encoding capabilities and authoring systems for the professional
user. Sonic is aware of a number of companies working in some or all of
these areas, some of which have released or announced competitive
products, including C-Cube Microsystems, Digital Vision, FutureTel,
Innovacom, Lucent, Minerva, 3DO, Philips, Matsushita, Toshiba, Pioneer,
Dolby Laboratories, Optibase, Cagent, and Sony, among others. A number
of these companies have financial or organizational resources
significantly greater than those available to the Company and/or greater
familiarity with certain technologies involved in DVD premastering
solutions. While the Company believes that it can engineer a solution of
acceptable or superior quality at a competitive price point, there can
be no assurance that competitive offerings will not be available in the
market, and will not be better received than Sonic's offering. As of
September 30, 1997, the Company's exclusive distributorship (outside
Japan) of the Scenarist DVD-Video authoring package lapsed according to
the terms of agreements between Daikin Industries of Japan and Sonic and
after that time the Company continued to distribute the Scenarist
authoring package on a non-exclusive basis. As of March 18, 1998, the
Company's non-exclusive distributorship of the Scenarist DVD-Video
authoring package lapsed according to the terms of agreements between
Daikin and Sonic. Daikin has taken a number of steps to develop
relationships with other distribution partners, including Minerva,
Digital Vision, Optibase, and Cagent, and has clearly signaled to the
marketplace Daikin's intention to compete vigorously with Sonic.
Specifically, Daikin has announced to the market the upcoming
availability of Scenarist on the Windows NT platform. While the Company
believes that it can compete effectively with Daikin and its
distribution partners, and that customers will prefer DVD Producer on
the Macintosh platform to Scenarist on the Windows NT platform, or that
the Company will be able to provide Windows NT versions of DVD Producer
and DVD Creator within a reasonable time frame, there can be no
assurance that the Company's products will be preferred over those of
competitors.
. MARKET RISK; CORPORATE MARKET--The Company has signaled its intention to
introduce in 1998 versions of its DVD-related products to service
corporate applications of the DVD format. In addition to the development
risks surrounding any new product introduction, the Company's DVD-
Corporate product introduction is dependent upon successful marketing,
distribution, sales and customer support strategies and programs. The
Company has only limited experience in selling to corporate customers
and the required strategies and programs are likely to be significantly
different from those the Company is familiar with in the professional
audio and video markets. There can be no assurance that the Company has
correctly identified the corporate opportunity or that the Company will
be able to establish the necessary distribution channels to sell and
support the DVD-Corporate products. The Company expects expenses to
increase to support research and development and sales and marketing
efforts related to the DVD-Corporate products in fiscal years 1998 and
1999. The Company's results of operations will be materially adversely
affected if these new products do not achieve market acceptance.
. FORMAT RISK; DELAYS--There were a number of delays in reaching agreement
on the final specification for DVD-Video, including disagreements within
the DVD Consortium (now called the DVD Forum) and among various
companies, industry associations and political organizations concerning
issues
6
<PAGE>
involving copyright protection schemes and sharing of royalty revenues
from patented technologies involved in the DVD format. The final
specification of the DVD-Video format was published by the DVD
Consortium in August, 1996, and an apparently final approach to the
problem of encryption of data was announced in October, 1996. Other
aspects of the DVD format have continued to be controversial. For
example, while the DVD Forum has promulgated standards for DVD-R
("DVD-Recordable"), and for DVD-RAM ("DVD-Read/Write/Erase"), certain
companies and groups of companies have indicated their intention to
introduce into the market products which are intended to be alternatives
to the official DVD-R and DVD-RAM standards. The DVD-Audio standard is
now circulating in draft form among members of the DVD Forum and various
trade associations representing the music recording industry. While a
finalized standard is now expected in the spring or summer of 1998, some
companies--principally Sony Corporation and Philips--have indicated that
they intend not to support the DVD-Audio format but instead intend to
introduce an alternative next generation audio format called "Super
Audio CD." Continued controversy surrounding the DVD format in general
has the potential to delay or halt the adoption of DVD by the consumer
electronics and personal computer industries, and this could have a
significant negative impact on the Company's business. Also, while the
DVD-Video format is now standardized, Divx, a joint venture company
funded in part by Circuit City Stores, has indicated its intention to
introduce a specialized format built on top of the DVD-Video format,
requiring a specialized player. Because of the support the Divx proposal
has received from certain important content holders, some industry
observers have expressed the opinion that consumer confusion regarding
Divx, or consumer hesitation while waiting for the rollout of Divx
players in the latter part of 1998 will seriously retard the adoption of
the DVD-Video format. This also could have a significant negative impact
on the Company's business.
UltraSonic Processor Product Transition; Transition Difficulties. During the
third and fourth quarters of the fiscal year ended March 31, 1995, and
throughout the fiscal year ended March 31, 1996, the Company experienced
problems in executing a transition to a SonicStudio product line including a
new DSP card, the UltraSonic Processor ("USP"). In November 1994 at the Audio
Engineering Society ("AES") fall convention in San Francisco, the Company
introduced major changes to its SonicStudio product line, including the
introduction of its new UltraSonic Processor ("USP") for higher end
SonicStudio configurations as well as a repositioning of SonicStudio systems
based on the older SSP-3 DSP card. The Company incorporates the USP card in
SonicStudio configurations priced at the mid-range and upper-end of the
SonicStudio product line. The USP, like the SSP-3 card, is a high performance
signal processing card that allows the input, output, storage, and retrieval
of digital audio. Compared to the SSP-3 card, the USP offers higher processing
speeds and the ability to handle more channels of digital audio input and
output per card, as well as the ability to play back from hard disk a larger
number of tracks of digital audio. The Company experienced a number of
difficulties in connection with the product transition which are discussed
more fully in the Company's Form 10-K for the fiscal year ended March 31, 1996
on file with the Securities and Exchange Commission. While the Company has put
in place policies and procedures to address these difficulties, there can be
no assurance that the Company will not experience similar problems in the
introduction of new products in the future.
Computer Platform Dependence. All of the Company's current products operate
on, and a significant portion of the Company's planned future products will
operate on, Macintosh computers. The Company's results of operations could be
materially adversely affected if the Company or its customers or dealers are
unable to obtain sufficient quantities of Macintosh computers. There can be no
assurance that the Macintosh will be a preferred computer in the professional
and corporate audio and DVD markets in the future. Any future changes to the
operating system or architecture of the Macintosh computer could require the
Company to adapt its products to those changes, and any inability to do so, or
delays in doing so, could render the Company's current and future products
obsolete. At the moment it is unclear what the future operating system
environment of Macintosh computers will be, and, if Apple Computer
discontinues support for the existing Mac OS family and insists on Macintosh
developers' migrating to the new operating system, there can be no assurance
that the Company will be able to migrate the Company's products onto such a
new operating system or will be able to do so in a timely fashion.
7
<PAGE>
Sonic MediaNet. Sonic MediaNet is a high performance, fully distributed
networking system designed specifically to handle digital audio, digital
video, high resolution graphics and other multimedia data types. Sonic
MediaNet allows users to share digital audio and other "multimedia" data types
efficiently among multiple workers in a facility. Sonic MediaNet combines FDDI
or CDDI (fiber-based or copper-based) technology with a special file system
running on SCSI disks attached directly to the network cards. This file
system, called the Digital Media File System (DMFS), addresses the needs of
multimedia applications. In addition to its use in digital audio applications,
Sonic MediaNet has uses in other areas of the computer industry whenever work
groups wish to collaborate on applications which require high, sustained rates
of data transfer, a high degree of compatibility with conventional computing
systems and some degree of guaranteed bandwidth. Sonic MediaNet addresses the
problems of data sharing typically encountered by users of time sensitive and
bandwidth intensive applications such as digital video, computer graphics and
desktop publishing. The Company commenced commercial shipments of Sonic
MediaNet in the first calendar quarter of 1994.
The Company has announced its intention to introduce to the market a new
version of Sonic MediaNet in 1998 based on the FibreChannel standard. This
product, sometimes referred to as "Sonic MediaNet II" and now called "Sonic
LightSpeed", is intended to offer increased performance levels and to attract
new customers to the use of Sonic MediaNet products, particularly customers in
the professional digital video arena. While the Company believes that it will
introduce Sonic LightSpeed in 1998, there can be no assurance that its
development efforts will be successful or that difficulties or problems will
not be encountered which delay or prevent introduction of the Sonic LightSpeed
product line as planned. As noted above, the Company substantially changed its
approach to Sonic LightSpeed in the fourth quarter of the 1998 fiscal year by
deciding to de-emphasize the use of proprietary FibreChannel hardware in Sonic
LightSpeed and by making the software components of Sonic LightSpeed more
broadly compatible with other networking technologies including 10baseT and
100baseT Ethernet and there can be no assurance that other significant changes
will not be made in the Sonic LightSpeed introduction plans. In addition, the
networking market is highly competitive, with purchase decisions influenced by
a variety of factors, including the cost of adoption, overall performance,
standards compliance and interoperability with other platforms and devices.
The networking market is a far more diverse market than the professional audio
and video markets the Company has historically addressed and requires a
different marketing, sales, distribution and customer support strategy. The
Company has limited experience selling, distributing or supporting products
such as Sonic MediaNet and Sonic LightSpeed, and there can be no assurance
that the Company will be able to establish the necessary distribution channels
to sell and support Sonic MediaNet or Sonic LightSpeed or that the Company
will be successful in marketing and selling Sonic MediaNet or Sonic LightSpeed
or any of its other new products in new market segments. The Company expects
expenses to increase to support research and development and sales and
marketing efforts related to the Sonic LightSpeed in 1998 and 1999. The
Company's results of operations will be materially adversely affected if these
new products do not achieve market acceptance.
SonicStudio Sales and Distribution. The Company sells its SonicStudio(TM)
products through a network of dealers and distributors augmented with sales
and technical support which is provided both to dealers/distributors and to
customers by the Company's headquarters and regional sales and support staff.
Generally, dealers and distributors are assigned a territory on an exclusive,
semi-exclusive or non-exclusive basis for part or all of the SonicStudio
product line. Sales leads are generated by the Company's dealers and
distributors, by the Company's regional sales managers, and by the Company's
advertising and other direct marketing activities. The Company works with
dealers, distributors and customers to provide technical and sales support as
required to facilitate the sales process.
The complexities of the SonicStudio and the length of the typical sales
cycle require the Company's dealers and distributors to possess a high level
of technical aptitude, as well as adequate financial resources. Only a limited
number of dealers and distributors possess the required technical expertise
and financial resources, and the Company has experienced difficulties in
identifying and establishing relationships with such dealers and distributors.
The Company's business and financial performance may be materially adversely
affected by any failure of the Company's distributors and sales force to
achieve sales levels consistent with the Company's
8
<PAGE>
expectations. This is particularly true with international dealers and
distributors which possess additional difficulties with fluctuations in
exchange rates, difficulties in managing accounts receivable, tariff
regulations, foreign safety and radio frequency emissions regulations and
difficulties in obtaining export licenses, among other factors. In addition,
certain of the Company's dealers and distributors sell products which may
compete directly or indirectly with the Company's products. There can be no
assurance that these dealers and distributors will not devote greater
resources to selling products from other companies. Failure of the Company's
dealers or distributors to successfully market the Company's products could
have a material adverse effect on the Company's results of operations.
Research and Development. The markets for the Company's products are
characterized by rapidly changing technology, evolving industry standards and
frequent new product introductions. The Company's future success will depend
in part on its continued ability to enhance its existing products and to
introduce new products and features to meet changing customer requirements and
evolving industry standards. The Company's research and development efforts
are subject to a number of risks, and there can be no assurance that the
Company's research and development efforts will be successful or completed in
a timely manner. In addition, future Company products and enhancements may
contain undetected or unresolved errors which could adversely impact market
acceptance. There can be no assurance that the Company will successfully
complete the development of these enhancements and products or that the
Company's products will achieve market acceptance. Any delay or failure to
complete development of the Company's products and any failure of the
Company's products to achieve market acceptance would have a material adverse
effect on the Company's results of operations.
Competition. Sonic's competitors may be able to develop products comparable
or superior to those offered by the Company, or to adapt more quickly than the
Company to rapidly evolving market requirements and technologies. In addition,
other companies possessing competitive technologies or which are active in the
Company's markets may attempt to develop products that compete with the
Company's products. There can be no assurance that Sonic will be able to
continue to compete effectively in its markets, that competition will not
intensify or that future competition will not have a material adverse effect
on the Company's results of operations.
Geographic Exposure; Pacific Rim Situation. The Company has traditionally,
and intends in the future, to realize a significant percentage of its revenues
in areas outside the United States. For instance, in some quarters non-U.S.
revenue has constituted as much as 52% of total Company revenues and it is
possible that in the future the Company will experience demand for its
products outside the United States exceeding these levels. The Company is,
accordingly, highly exposed to factors which might make it difficult to
realize revenues outside the United States including currency movements in
which the U.S. dollar becomes significantly stronger with respect to foreign
currencies, import and export restrictions and duties which inhibit non-U.S.
demand, and liquidity problems in various foreign markets. In particular, in
the quarter ending December 31, 1997, the Company experienced significant
problems closing business in the Pacific Rim area, especially in Korea. To the
extent that the Pacific Rim economies do not improve, it is likely that the
Company's results of operations will be significantly adversely affected.
Proprietary Rights. The Company's future success will depend in large part
on its proprietary technology. The Company relies on a combination of trade
secret, copyright law, trademark law, contracts and technical measures to
establish and protect its proprietary rights in its products. The Company's
products are generally sold pursuant to purchase and license agreements which
contain terms and conditions restricting unauthorized disclosure of the
proprietary software embodied in its products. The Company has applied in the
United States for patents covering certain of its technology and may apply for
additional patents in the future. There can be no assurance that the patents
applied for or any additional patents applied for by the Company will issue,
or that any patents that may be issued will be valid and enforceable. In
addition, even if any such patents were enforceable, the Company anticipates
that any attempt to enforce its patents will be time consuming and costly.
Although the Company relies to a great extent on trade secret protection for
much of its technology, and has obtained confidentiality agreements from most
of its employees, there can be no assurance that third parties
9
<PAGE>
will not independently develop the same or similar technology, obtain
unauthorized access to the Company's proprietary technology or misuse the
technology to which the Company has granted access.
The Company believes that, due to the rapid proliferation of new
technologies in the audio, video and general software industries, intellectual
property protection of the Company's proprietary technology will be less
influential on the Company's ability to compete in its target markets than the
ability of the Company's research and development staff to design products
that continue to address evolving customer requirements, and the ability of
the Company to enter new markets and to service its customers. In addition,
the Company has substantial international sales, and the laws of foreign
countries treat the protection of proprietary rights differently from, and may
not protect the Company's proprietary rights to the same extent as do, laws in
the United States.
The status of United States patent protection in the software industry is
not well defined and will evolve as the United States Patent and Trademark
Office grants additional patents. Patents have been granted recently on
fundamental technologies in the multimedia area and patents may be issued
which relate to fundamental technologies incorporated into the Company's
products. Since patent applications in the United States are not publicly
disclosed until the patent issues, applications may have been filed which, if
issued as patents, would relate to the Company's products. In addition, the
Company has never conducted a comprehensive patent search relating to all of
the technology used in its products. Accordingly, there may be issued patents
which relate to the Company's products. There can be no assurance that any
infringement claims will not be made or that they will not be successful. The
Company could incur substantial costs in defending itself and its customers
against any such claims, or in prosecuting infringement claims against third
parties. Furthermore, parties making such claims may be able to obtain
injunctive or other equitable relief which could effectively block the
Company's ability to sell its products in the United States and abroad, as
well as substantial damages. Such equitable relief could materially adversely
effect the Company's results of operations. In the event of a claim of
infringement, the Company and its customers may be required to obtain one or
more licenses from third parties. There can be no assurance that the Company
or its customers could obtain necessary licenses from third parties at a
reasonable cost or at all. Failure to obtain any such required license would
have a material adverse effect on the Company's results of operations.
In this regard, the Company has been advised by a patent holder that Sonic
MediaNet infringes patents covering basic token ring technology. The Company
believes that Sonic MediaNet does not infringe such patents, and that if its
does, a license will be available on terms which are reasonable from the
Company's point of view. However, there can be no assurance that such a
license agreement will be available on terms which will not have a material
adverse effect on the Company's results of operations.
The Company has also been advised that its use of the "MediaNet" trademark
infringes the rights of the owner of the trademark "MediaNet" registered for a
product line in an application unrelated to the Company's business. The
Company has negotiated a non-financial settlement regarding the usage of the
MediaNet name with the owner of the registered trademark and the Company
believes that the settlement was concluded on terms which are reasonable from
the Company's point of view.
Manufacturing and Suppliers; Technology Partners. Sonic's hardware products
are either manufactured under contract by various electronics manufacturing
and assembly houses in the San Francisco Bay Area or are purchased as
completed sub-assemblies from manufacturers. Final assembly, integration and
testing is performed at Sonic's Novato, California facility. Generally,
Sonic's dealers or third parties supply the Macintosh computer for use with
the SonicStudio and DVD Creator.
The Company is dependent on sole-source suppliers for certain key components
used in its products, including DSP, AES/EBU audio receiver/transmitter and
FDDI chips, all manufactured by Motorola, Inc., SCSI controller chips
manufactured by NCR Corp., field programmable logic arrays manufactured by
Xilinx, Inc. and Altera, MPEG encoding/decoding chip set manufactured by IBM,
CDDI modules manufactured by Cisco Systems, Inc., and specialized static RAM
manufactured by Integrated Device Technologies ("IDT"), among others. The
Company purchases these sole-source components pursuant to purchase orders
placed from time to
10
<PAGE>
time, does not carry significant inventories of these components and has no
guaranteed supply agreements. In December 1994, the Company experienced
shortages in certain key components (IDT Static RAM and Motorola AES
Transceivers) for the USP card, the SSP-3 card, and their peripherals. The USP
card, the SSP-3 card and their peripherals have several sole-sourced
components and the Company cannot guarantee that adequate supplies of these
components will be available in future quarters. The Company experienced a
supply limitation of DSP chips from Motorola, Inc., in the fall of 1993, which
the Company was able to remedy by purchasing DSP chips from other sources at
greater cost. Any extended future interruption or limitation in the supply of
any of the components currently obtained from a single source could have a
material adverse effect on the Company's results of operations. Also, because
of the Company's reliance on these sole-source components, the Company may be
subject to increases in component costs which could have an adverse effect on
the Company's results of operations. In the past, the Company has scheduled
introduction of certain products based on the scheduled availability of
components from third parties and has experienced delays in the timely
availability of these components. If such delays occur in the future, the
introduction of the Company's proposed new products would be delayed and could
have a material adverse effect on the Company's results of operations.
Early in the 1997 fiscal year the Company began exploring various
"outsourcing" alternatives for further streamlining its manufacturing
operations. In the summer of 1996, the Company began shifting various hardware
products into an outsourcing arrangement with Time Electronics. Under this
arrangement, Time is responsible for purchasing components, assembly into
circuit cards, and testing of hardware products. Time's responsibility is to
produce according to forecast schedules provided by Sonic. During the quarter
ended March 31, 1997, approximately 65% of all product shipped by Sonic during
the quarter were procured through this outsourcing program. It is the
Company's current intention to continue to shift its production into
outsourcing until only new or prototype products are manufactured directly by
the Company. Sonic expects that this point will be reached within the 1998
fiscal year.
While an outsourcing approach presents a number of advantages to Sonic,
there are various risks that are an inherent part of such a program. Chief
among these is that the Company's production is significantly dependent on a
single source. Financial, operational or supply problems encountered by Time
could result in Sonic's inability to obtain timely delivery of finished
product. Any such difficulties would adversely effect the Company's financial
results.
Virtually all of Sonic's currently shipping products are designed to run on
versions of the Macintosh personal computer which is a principal product of
Apple Computer, Inc. Apple Computer has lately experienced a serious erosion
of market share in the personal computer marketplace. A number of industry
observers have suggested that Apple Computer cannot long remain a viable
supplier of desktop computers. While the Company intends to introduce Windows
NT versions of many of its products in the 1999 fiscal year there can be no
assurance that these developments will be successful or timely. In the event
that Sonic's products do not become available on alternate platforms to the
Macintosh, and in the event that Apple Computer experiences further reversals
in the marketplace, the Company's business could be seriously negatively
affected.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the Shares
by the Selling Stockholder.
11
<PAGE>
SELLING STOCKHOLDER*
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock by the Selling Stockholder as of April
20, 1998. Because a Selling Stockholder may sell some or all of the Shares
offered hereby, and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the Shares, no estimate can
be given as to the actual amount of Shares that will be held by the Selling
Stockholder after completion of such distribution. See "Plan of Distribution".
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(1) AFTER OFFERING
------------------------COMMON STOCK -----------------------
NUMBER PERCENT(2) TO BE SOLD NUMBER PERCENT(2)
----------- ------------------------ --------- -----------
<S> <C> <C> <C> <C> <C>
Hambrecht & Quist Guar-
anty................... 631,904 7.1% 461,538 -- --
Finance, LLC
One Bush Street
San Francisco, CA 94104
TOTALS:................ 631,904 7.1% 461,538 -- --
</TABLE>
- --------
(1) The Selling Stockholder is deemed to beneficially own (i) the 461,538
Shares issuable upon conversion of the Series C Preferred Stock acquired
by such Selling Stockholder, in accordance with the initial conversion
rate applicable to such conversion and (ii) 130,100 shares of Common Stock
issuable upon exercise of warrants held by such Selling Stockholder (see
"Description of Capital Stock"). In addition, the Selling Stockholder
currently beneficially owns 40,266 shares of Common Stock.
(2) Applicable percentage of ownership is based on 8,247,339 shares of Common
Stock outstanding as of April 14, 1998.
The Shares offered hereby by the Selling Stockholder may be acquired, by way
of conversion of the Series C Preferred Stock which such Selling Stockholder
acquired pursuant to the a Private Securities Subscription Agreement between
the Company and the Selling Stockholder dated as of March 31, 1998 (the
"Subscription Agreement"). Under the Subscription Agreement, the Selling
Stockholder represented to the Company that it was acquiring the shares of
Series C Preferred Stock from the Company without any present intention of
effecting a distribution of those shares. However, in accordance with the
Subscription Agreement, the Company agreed to register the underlying shares
of Common Stock issuable upon conversion of the Series C Preferred Stock held
by the Selling Stockholder, for resale by the Selling Stockholder to permit
such resales from time to time in the market or in privately-negotiated
transactions. The Company will prepare and file such amendments and
supplements to the registration statement as may be necessary in accordance
with the rules and regulations of the Securities Act to keep it effective for
a period of approximately two years.
The Company has agreed to bear certain expenses (other than broker discounts
and commissions, if any) in connection with the registration statement.
- --------
* This page will be modified to reflect the number of Shares acquired by the
Selling Stockholder by way of conversion of the Series C Preferred Stock,
as set forth on the Prospectus Supplement.
12
<PAGE>
PLAN OF DISTRIBUTION
All or a portion of the Shares offered hereby by the Selling Stockholder may
be delivered and/or sold in transactions from time to time on the over-the-
counter market, on the Nasdaq National Market, in negotiated transactions, or
a combination of such methods of sale, at market prices prevailing at the
time, at prices related to such prevailing prices or at negotiated prices. The
Selling Stockholder may effect such transactions by selling to or through one
or more broker-dealers, and such broker-dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Selling Stockholder. The Selling Stockholder and any broker-dealers that
participate in the distribution may under certain circumstances be deemed to
be "underwriters" within the meaning of the Securities Act, and any
commissions received by such broker-dealers and any profits realized on the
resale of Shares by them may be deemed to be underwriting discounts and
commissions under the Securities Act. The Selling Stockholder may agree to
indemnify such broker-dealers against certain liabilities, including
liabilities under the Securities Act. In addition, the Company has agreed to
indemnify the Selling Stockholder with respect to the Shares offered hereby
against certain liabilities, including, without limitation, certain
liabilities under the Securities Act, or, if such indemnity is unavailable, to
contribute toward amounts required to be paid in respect of such liabilities.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Selling Stockholder (and, if they act as agent for the
purchaser of such Shares, from such purchaser). Broker-dealers may agree with
the Selling Stockholder to sell a specified number of Shares at a stipulated
price per share, and, to the extent such a broker-dealer is unable to do so
acting as agent for the Selling Stockholder, to purchase as principal any
unsold Shares at the price required to fulfill the broker-dealer commitment to
the Selling Stockholder. Broker-dealers who acquire Shares as principal may
thereafter resell such Shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions or otherwise
at market prices prevailing at the time of sale or at negotiated prices, and
in connection with such resales may pay to or receive from the purchasers of
such Shares commissions computed as described above. To the extent required
under the Securities Act, a supplemental prospectus will be filed, disclosing
(a) the name of any such broker-dealers; (b) the number of Shares involved;
(c) the price at which such Shares are to be sold; (d) the commissions paid or
discounts or concessions allowed to such broker-dealers, where applicable; (e)
that such broker-dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this Prospectus, as
supplemented; and (f) other facts material to the transaction.
Under applicable rules and regulations under the 1934 Act, any person
engaged in the distribution of the Resale of Shares may not simultaneously
engage in market making activities with respect to the Common Stock of the
Company for a period of two business days prior to the commencement of such
distribution. In addition and without limiting the foregoing, the Selling
Stockholder will be subject to applicable provisions of the Exchange Act, and
the rules and regulations thereunder, including, without limitation,
Regulation M, which provisions may limit the timing of purchases and sales of
shares of the Company's Common Stock by the Selling Stockholder.
The Selling Stockholder will pay all commissions, transfer taxes, and
certain other expenses associated with the sale of securities by them. The
Shares offered hereby are being registered pursuant to contractual obligations
of the Company, and the Company has paid the expenses of the preparation of
this Prospectus.
13
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 30,000,000 shares of Common Stock, no par value ("Common
Stock"), and 10,000,000 shares of Preferred Stock, no par value ("Preferred
Stock").
COMMON STOCK
As of April 14, 1998, there were 8,247,339 shares of Common Stock
outstanding held of record by approximately 110 registered stockholders. The
Company believes however, that many beneficial holders of its common stock
have registered their shares in nominee or street name, and that there are
substantially more than 110 beneficial owners. The holders of shares of Common
Stock are entitled to one vote per share on all matters to be voted on by
stockholders, except that holders may cumulate their votes in the election of
directors. Subject to preferences that may be applicable to any outstanding
Preferred Stock, holders of Common Stock are entitled to receive rateably such
dividends as may be declared by the Board of Directors in its discretion from
funds legally available therefor. In the event of a liquidation, dissolution,
or winding up of the Company, holders of Common Stock are entitled to share
rateably in all assets remaining after payment of liabilities and the
liquidation preference of any outstanding Preferred Stock. Holders of Common
Stock have no pre-emptive rights and have no rights to convert their Common
Stock into any other securities. The outstanding shares of Common Stock are
fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 10,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without any further vote or action by the shareholders. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company or making removal of management more
difficult without further action by the shareholders and could adversely
affect the rights and powers, including voting rights, of the holders of
Common Stock. This could have the effect of decreasing the market price of the
Common Stock. The Company has issued 461,538 shares of Series C Preferred
Stock to the Selling Stockholder pursuant to the Subscription Agreement. The
Company has no present plans to issue any additional shares of Preferred
Stock.
WARRANTS AND OPTIONS
In connection with the receipt by the Company of a financing facility from
the Selling Stockholder in December 1996, the Company issued to the Selling
Stockholder warrants to purchase 130,100 shares of Common Stock at an exercise
price of $7.00 per share (the "$7 Warrants") and warrants to purchase 130,100
shares of Common Stock at an exercise price of $10.00 per share (the "$10
Warrants"). The Selling Stockholder may exercise all of the warrants at any
time on or before December 24, 2003. In December 1997, the Selling Shareholder
exercised on a "net" basis all of the $7 Warrants and received 40,266 shares
of Common Stock. In March 1998, in connection with renegotiation of the terms
of the financing facility, the exercise price of 90,000 of the $10 Warrants
was reduced to $3.25.
Under the Company's September 1989 Stock Option Plan (the "Plan"), options
to purchase up to an aggregate of 2,090,000 shares of Common Stock may be
granted to key employees, directors and consultants. Grants of options to the
directors of the Company may not exceed 140,000 shares. The Plan provides for
issuing both incentive stock options, which must be granted at fair market
value at the date of grant, and nonqualified stock options, which must be
granted at not less than 85% of fair market value of the stock. All options to
date have been granted as incentive stock options. Options under the Plan
generally vest over four years from the date of grant. The options generally
expire ten years from the date of grant and are cancelled three months after
termination of employment. The Board of Directors and/or the President
administer the Plan.
14
<PAGE>
During 1995, the Company adopted the 1994 NonEmployee Directors Stock Option
Plan which provides for the grant of stock options to the Company's
nonemployee directors. Under this plan, stock options are granted annually at
the fair market value of the Company's common stock on the date of grant. The
number of options so granted annually is fixed by the plan. Such options
generally vest over four years from the grant date. The total number of shares
to be issued under this plan may not exceed 100,000 shares. There were 4,000
options outstanding at March 31, 1997.
LEGAL MATTERS
The legality of the issuance of the securities being offered hereby is being
passed upon for the Company by Heller Ehrman White & McAuliffe, Palo Alto,
California.
EXPERTS
The audited financial statements and schedules of the Company as of March
31, 1997 and March 31, 1996 and for each of the three years in the period
ended March 31, 1997 incorporated by reference herein and in the related
Registration Statement have been audited by KPMG Peat Marwick LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm
as experts in accounting and auditing.
15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth various expenses in connection with the sale
and distribution of the securities being registered. All of the amounts shown
are estimates except for the Securities and Exchange Commission Registration
Fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $528
Accounting Fees................................................... $2,000
Legal Fees and Disbursements...................................... $10,000
Miscellaneous..................................................... $472
-------
TOTAL:.......................................................... $13,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 317 of the California Corporations Code permits a corporation to
include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law. Article
III of the Registrant's Amended and Restated Articles of Incorporation
provides for the indemnification of officers, directors and third parties
acting on behalf of the Registrant to the fullest extent permissible under
California law. The Registrant has entered into indemnification agreements
with its directors and executive officers to the maximum extent permitted
under California law.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
4 Private Securities Subscription Agreement between Registrant and
Hambrecht & Quist Guaranty Finance, LLC dated as of March 31, 1997
5 Opinion of Heller Ehrman White & McAuliffe
23.1 Consent of Heller Ehrman White & McAuliffe (included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (See Page II-3)
</TABLE>
ITEM 17. UNDERTAKINGS.
A. The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement;
II-1
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
Provided, however, that paragraphs (i) and (ii) shall not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offering therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such
Director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Novato, State of California, on the 20th day of April, 1998.
Sonic Solutions
/s/ Robert J. Doris,
By __________________________________
ROBERT J. DORIS,
PRESIDENT
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert J. Doris or A. Clay Leighton, or either
of them, with the power of substitution, her or his attorney in fact, to sign
any amendments to this Registration Statement (including post-effective
amendments), and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Robert J. Doris President and April 20, 1998
- ------------------------------------- Director
ROBERT J. DORIS
/s/ James A. Moorer Senior Vice April 20, 1998
- ------------------------------------- President of Audio
JAMES A. MOORER Development and
Director
/s/ Mary C. Sauer Senior Vice April 20, 1998
- ------------------------------------- President of
MARY C. SAUER Business
Development and
Director
/s/ Michael C. Child Director April 20, 1998
- -------------------------------------
MICHAEL C. CHILD
/s/ Robert M. Greber Director April 20, 1998
- -------------------------------------
ROBERT M. GREBER
/s/ Peter J. Marguglio Director April 20, 1998
- -------------------------------------
PETER J. MARGUGLIO
/s/ A. Clay Leighton Vice President of April 20, 1998
- ------------------------------------- Finance and Chief
A. CLAY LEIGHTON Financial Officer
(Principal
Financial
Accounting Officer)
II-3
<PAGE>
SONIC SOLUTIONS
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
4 Private Securities Subscription Agreement between Registrant
and Hambrecht & Quist Guaranty Finance, LLC dated as of March
31, 1997
5 Opinion of Heller Ehrman White & McAuliffe
23.1 Consent of Heller Ehrman White & McAuliffe (included in Exhibit
5)
23.2 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (See Page II-3)
</TABLE>
- --------
<PAGE>
EXHIBIT 4
SONIC SOLUTIONS
PRIVATE SECURITIES SUBSCRIPTION AGREEMENT
-----------------------------------------
THIS PRIVATE SECURITIES SUBSCRIPTION AGREEMENT (hereinafter the
"Agreement") is made as of March 31, 1998, by and between Sonic Solutions, a
California corporation ("Sonic Solutions" or the "Company"), and Hambrecht &
Quist Guaranty Finance, LLC, a California limited liability company (the
"Investor"), in connection with the sale by the Company to the Investor in a
private placement pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), of certain shares of Series C Preferred Stock
(the "Preferred Stock"), convertible into shares of common stock of the Company
(the "Common Stock").
THE PARTIES AGREE AS FOLLOWS:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(i) Sonic Solutions and the Investor are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 under Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission ("SEC") under the Securities
Act; and
(ii) Subject to the terms and conditions hereof and in reliance upon
the representations and warranties contained herein, the Company will issue and
sell to the Investor at the Closing (as defined in Section 7 hereof), and the
Investor will purchase from the Company 461,538 shares of Preferred Stock (the
"Shares") convertible into Common Stock in accordance with the terms set forth
in the Certificate of Determination attached as Exhibit A to this Agreement, for
---------
an aggregate purchase price of U.S. $1,500,000 (the "Purchase Price") payable at
the Closing by cancellation of the Company's indebtedness to the Investor in an
amount equal to the amount of the Purchase Price (the "Cancellation of
Indebtedness").
2. INVESTOR'S REPRESENTATIONS AND AGREEMENTS. The Investor represents,
warrants and agrees as follows:
(i) The Investor understands that the Preferred Stock and the Common
Stock issuable upon conversion and exercise thereof (together the "Securities")
have not been registered under the Securities Act or any other applicable
securities law, and, accordingly, none of the Securities may be offered, sold,
transferred, pledged, hypothecated or otherwise disposed of unless registered
pursuant to, or in a transaction exempt from registration under, the Securities
Act and any other applicable securities law;
<PAGE>
(ii) The Investor is a "sophisticated investor" as described in Rule
506(b)(2)(ii) of Regulation D, and an "accredited investor" within the meaning
of Rule 501 of Regulation D. The Investor has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of an investment in the Securities. The Investor is aware that it may be
required to bear the economic risk of an investment in the Securities for an
indefinite period, and it is able to bear such risk for an indefinite period.
The Investor acknowledges that an investment in the Securities is speculative
and involves a high degree of risk;
(iii) The Investor is not subscribing for the Preferred Stock as a
result of or pursuant to any advertisement, article, notice, or other
communication published in any newspaper, magazine, or similar media or
broadcast over television or radio;
(iv) The Investor has received all information requested with
respect to an investment in the Securities, including but not limited to Sonic
Solutions' latest Form 10-K, all Forms 10-Q and 8-K filed thereafter, (but prior
to the date hereof), and the Proxy Statement for its latest fiscal year
(collectively, the "Public Documents"). In addition, the Investor has had a
reasonable opportunity to ask questions of and receive answers from Sonic
Solutions concerning Sonic Solutions and the offering of the Preferred Stock;
(v) The Investor is acquiring the Preferred Stock for investment
purposes and not with a view to, or for offer or sale in connection with, any
distribution thereof, except pursuant to an effective registration statement
under the Securities Act covering the sale, assignment or transfer of the
Securities or an exemption from the registration requirements of the Securities
Act and applicable state securities laws;
(vi) The Investor is acquiring the Preferred Stock for its own
account and has full power to make the acknowledgments, representations and
agreements as described in this Section 2;
(vii) The Investor agrees to offer, sell or otherwise transfer any
Securities in conformity with the prospectus delivery requirements, if any, of
the Securities Act, and with the restrictions on transfer set forth on the
certificate(s) evidencing the Securities pursuant to Section 4(b);
(viii) The Investor acknowledges that Sonic Solutions and others will
rely upon the truth and accuracy of the foregoing acknowledgments,
representations and agreements and further agrees that if, prior to the Closing,
any of such acknowledgments, representations and agreements made by the Investor
are no longer accurate, the Investor will promptly notify Sonic Solutions;
2
<PAGE>
(ix) This Agreement has been duly authorized, validly executed, and
delivered on behalf of the Investor and is a valid and binding agreement
enforceable in accordance with its terms, subject to general principles of
equity and to bankruptcy or other laws affecting the enforcement of creditors'
rights generally;
(x) There is no action, suit, notice of violation, proceeding or
investigation pending or, to the best knowledge of the Investor, threatened
against the Investor which would materially and adversely affect the Investor or
the performance of its obligations hereunder; and
(xi) So long as any shares of Preferred Stock are outstanding, the
Investor shall comply at all times with the provisions of Section 9 of the
Securities Exchange Act of 1934 (the "Exchange Act"), as amended, and the rules
promulgated thereunder with respect to transactions involving securities of the
Company.
3. COMPANY'S REPRESENTATIONS AND AGREEMENTS. Except as set forth in the
Schedule of Exceptions attached as Exhibit 3 hereto, Sonic Solutions represents,
---------
warrants and agrees as follows:
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California. The Company has
the requisite corporate power to own its properties and to carry on its business
as now being conducted. The Company is qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where failure to so
qualify would have a Material Adverse Effect upon this financing, the Company's
performance of its obligations under this Agreement and the related agreements,
or upon the business, financial condition or results of operations of the
Company (a "Material Adverse Effect"). Sonic Solutions has only one subsidiary:
Sonic Solutions International, which is organized under the laws of the U.S.
Virgin Islands, as a foreign sales corporation. All of the outstanding capital
stock of Sonic Solutions International is owned by Sonic Solutions;
(ii) The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock, of which 8,272,070 shares were issued and
outstanding as of March 18, 1998, and 10,000,000 shares of Preferred Stock, none
of which were issued and outstanding prior to the Closing. The Company has
reserved: (A) 461,538 shares of Preferred Stock for issuance pursuant to the
terms of this Agreement; (B) 461,538 shares of Common Stock for issuance upon
conversion of the Preferred Stock and 1,522,000 shares of Common Stock for
issuance pursuant to the Private Equity Line of Credit Agreement between
Kingsbridge Capital Limited and the Company dated as of December 31, 1997; and
(C) 2,090,000 shares of Common Stock for issuance under the Company's 1989
Employee Stock Option Plan. Except as disclosed in footnotes 7 and 8 to the
audited financial statements of the Company included in the annual report on
Form 10-K
3
<PAGE>
for the year ended March 31, 1997 and not more than 500,000 options granted in
the ordinary course of business and with purchase prices equal to fair market
value of such Common Stock on the date of grant; and warrants to purchase
130,100 shares of Common Stock surrendered by Hambrecht & Quist in exchange for
40,266 shares of Common Stock, there are no outstanding rights of first refusal,
preemptive rights or other rights, warrants, options, conversion privileges,
subscriptions, or other rights or agreements, either directly or indirectly, to
purchase or otherwise acquire or issue any equity securities of the Company.
(iii) The Company has sufficient trademarks, trade names, patent
rights, copyrights, licenses, approvals, and governmental authorizations to
conduct its business as described in the Public Documents. The expiration of any
trademarks, trade names, patent rights, copyrights, licenses, approvals, or
governmental authorizations would not have a Material Adverse Effect. The
Company has no knowledge of any material infringement by it of trademark, trade
name rights, patent rights, copyrights, licenses, trade secret or other similar
rights of others, and there is no claim being made against the Company regarding
trademark, trade name rights, patent rights, copyrights, licenses, trade secret
or other infringement which would reasonably be expected to have a Material
Adverse Effect;
(iv) The Company possesses all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct its business with such exceptions as would not
have a Material Adverse Effect;
(v) The Company is not subject to any charter, corporate or other
legal restriction, or any judgment, decree, order, rule or regulation which has
a Material Adverse Effect, nor is the Company party to any contract or agreement
which has a Material Adverse Effect;
(vi) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (a) transactions are executed in
accordance with management's general or specified authorizations, (b)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (c) access to assets is permitted only in
accordance with management's general or specific authorization, and (d) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
discrepancies;
(vii) The Company has filed all material federal, state, local and
foreign income tax returns which have been required to be filed and have paid
all material taxes indicated by said returns and all assessments received by it
to the extent that such taxes
4
<PAGE>
have become due and are not being contested in good faith. All tax liabilities
have been adequately provided for in the Company's financial statements;
(viii) The Company maintains insurance of the types and in the
amounts generally deemed adequate for its business, all of which insurance is in
full force and effect;
(ix) The Company has the requisite corporate power and authority to
enter into this Agreement and all related agreements and to consummate the
transactions contemplated by this Agreement and all related agreements;
(x) The Company is and, at the Closing will be, eligible to
register securities for resale with the SEC under Form S-3;
(xi) This Agreement and all related agreements have been duly
authorized, validly executed and delivered by the Company, and are valid and
binding agreements, and are enforceable against the Company in accordance with
their terms, subject to general principles of equity and to bankruptcy or other
laws affecting the enforcement of creditors' rights generally;
(xii) There is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company which would materially and adversely affect the Company or
the performance of its obligations hereunder;
(xiii) Since the last day of the period covered in the Company's last
report on Form 10-K, filed with the SEC, there has been no material adverse
change and no material adverse development in the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiary. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law, nor does the Company or its subsidiary have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings;
(xiv) The execution and delivery of this Agreement and related
agreements and the consummation of the issuance of the Securities and the
transactions contemplated by this Agreement and related agreements do not and
will not conflict with, result in a breach by the Company of any of the terms or
provisions of, or constitute a default under the articles of incorporation (or
charter) or bylaws of the Company, or any material indenture, mortgage, deed of
trust or other material agreement or instrument to which Sonic Solutions is a
party or by which it or any of its properties or assets are bound, or any
existing applicable decree, judgment or order of any court, federal or state
5
<PAGE>
regulatory body, administrative agency or other governmental body having
jurisdiction over the Company or any of its properties or assets;
(xv) No authorization, approval, consent, license, exemption from
or filing or registration with any federal, state or local governmental or
regulatory body of the United States is legally required for the issuance and
sale of the Shares as contemplated by this Agreement, except for the filing of
the Certificate of Determination with the California Secretary of State;
(xvi) The Securities will be issued in compliance with all
applicable federal and state securities laws;
(xvii) The Securities, when issued, sold, and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly authorized, validly issued, fully paid and nonassessable, free and clear of
any liens, encumbrances, charges, or adverse claims of any nature whatsoever,
and will not subject the holders thereof to personal liability by reason of
being such holders;
(xviii) Sonic Solutions has not conducted any general solicitation or
general advertising (as defined in Regulation D) with respect to any of the
transactions or securities contemplated hereby;
(xix) Neither Sonic Solutions, nor any of its affiliates, nor any
person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security
under circumstances that would require registration of the Securities under the
Securities Act or cause this offering to be integrated with prior offerings by
the Company for purposes of the Securities Act or any applicable shareholder
approval provisions;
(xx) Sonic Solutions has filed all reports required to be filed by
it under all applicable securities laws for the three years preceding the date
hereof or such shorter period as Sonic Solutions was required by law to file
such material on a timely basis or received an extension and completed all
filings within the time period granted by such extension. As of their respective
dates, such documents complied in all material respects with the requirements of
all applicable securities laws. When filed, none of the documents contained any
untrue statement of material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which such statements were made.
The Company's financial statements included with the above referenced filings
comply in all material respects with applicable accounting requirements and the
rules and regulations of the SEC with respect thereto. Such financial statements
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved, except as may be
otherwise specifically indicated in such financial
6
<PAGE>
statements of the notes thereto, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject to
normal year-end adjustments in the case of unaudited statements;
(xxi) No class of equity securities is senior to the Preferred
Stock in right of payment, whether upon liquidation, dissolution, or otherwise;
(xxii) The Company has not in the two years prior to the date hereof
received written notice from any stock exchange or market on which the Common
Stock is or has been listed (or on which it is or has been quoted) to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market and to the knowledge of the Company no
such notice is threatened;
(xxiii) There are no preemptive rights of any shareholder of Sonic
Solutions with respect to the Common Stock; and
(xxiv) Neither Sonic Solutions nor any of its subsidiaries (i) is in
default under or in violation of any indenture, loan, credit agreement or any
other agreement or instrument to which it is a party or by which it or any of
its properties is bound, (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is in violation of any statute, rule
or regulation of any governmental authority, except as could not have or result
in a Material Adverse Effect.
(xxv) All information relating to or concerning the Company or any
of its Subsidiaries set forth in this Agreement and provided to the Investor
pursuant to this Agreement and otherwise in connection with the transaction
contemplated hereby is true and correct in all material respects and the Company
has not omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances under which
they were made, not misleading. No event or circumstance has occurred or exists
with respect to the Company or any of its subsidiary or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed
(assuming for this purposes that the Company's reports filed under the Exchange
Act are being incorporated into an effective registration statement filed by the
Company under the Securities Act).
7
<PAGE>
4. RESTRICTED SECURITIES.
(a) Registration or Exemption Required. The Preferred Shares are
----------------------------------
being been issued in a transaction exempt from the registration requirements of
the Act in reliance upon the provisions of Section 4(2) promulgated by the sec
under the Securities Act. The shares of Preferred Stock and the underlying
Common Stock may not be resold except pursuant to an effective registration
statement or an exemption to the registration requirements of the Act and
applicable state laws.
(b) Legend. The Preferred Stock and the underlying shares of Common
------
Stock shall bear the following legend, until and unless (a) the SEC has declared
effective a registration statement registering such securities for resale
without restriction, (b) the holder of such securities provides Sonic Solutions
with an opinion of counsel reasonably acceptable to Sonic Solutions to the
effect that a public sale or a transfer of such security may be made without
registration under the Securities Act, or (c) such holder has provided Sonic
Solutions with reasonable assurances that such security can be sold free of any
volume limitations pursuant to Rule 144 under the Securities Act or a successor
thereto:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT" OR THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES
LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE RE-OFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO,
SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY
OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN A PRIVATE
SECURITIES SUBSCRIPTION AGREEMENT BETWEEN SONIC SOLUTIONS AND THE
INVESTOR NAMED THEREIN DATED MARCH 31, 1998, A COPY OF THE PORTION OF
THE AFORESAID SUBSCRIPTION AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY
BE OBTAINED FROM THE COMPANY'S EXECUTIVE OFFICES."
8
<PAGE>
Upon conversion of the Preferred Stock, Sonic Solutions shall issue a
Common Stock certificate without such legend to the holder of such shares if one
or more of the conditions described in this Section (b) are satisfied.
5. COVENANTS.
(i) Each party shall use its reasonable best efforts timely to
satisfy each of the conditions to Closing to be satisfied by it as provided in
this Agreement.
(ii) Sonic Solutions shall have authorized and reserved for the
purpose of issuance pursuant to the conversion of the Preferred Stock 461,538
shares of Common Stock.
(iii) Within 15 days after the Closing, Sonic Solutions shall have
secured the listing of the underlying Common Stock upon the Nasdaq National
Market and shall maintain such listing until the later of such time as all
shares of the Common Stock issuable upon conversion of the Preferred Stock shall
be freely tradable or the Investor no longer holds any shares of Preferred Stock
or Common Stock received through conversion thereof.
(iv) The Company shall give prompt written notice to the Investor,
and the Investor shall give prompt written notice to the Company of (i) any
breach of any representation, warranty or other agreement related to the
transaction contemplated herein as well as any events or occurrences arising
after the date hereof which could reasonably be likely to cause any
representation, warranty of other agreement to be incorrect or breached or (ii)
any notice or claim that the consummation of the transaction contemplated herein
violates or would violate any other agreements, obligations, contracts, or
responsibilities. Neither the Company nor any Investor shall take any action
that is intended to make any representation or warranty of the Company or such
Investor inaccurate in any respect except as is consented to in writing by the
other party.
(v) Sonic Solutions will issue one or more certificates
representing the Preferred Stock in the name of the Investor in such
denominations to be specified by the Investor prior to Closing. The Preferred
Stock will bear the restrictive legend specified in Section 4 of this Agreement.
Sonic Solutions further agrees that no instructions other than these
instructions and stop transfer instructions to give effect to Section 2(i)
hereof will be given to the transfer agent and also agrees that the Securities
shall otherwise be transferable on the books and records of Sonic Solutions as
and to the extent provided in this Agreement, subject to compliance with federal
and state securities laws. As soon as practicable after the date hereof, but
prior to Closing, Sonic Solutions agrees to furnish new instructions to the
transfer agent instructing them to issue the Common Stock without a legend so
long as such Common Stock is registered under the Securities Act.
9
<PAGE>
The Company shall immediately notify the transfer agent of the effectiveness or
suspension of a registration statement registering the Common Stock for resale.
Nothing in this Section shall affect in any way the Investor's obligations and
agreement to comply with all applicable securities laws upon resale of the
Shares.
(vi) The Company currently meets, and will take all necessary action
to continue to meet, the "registrant eligibility" requirements set forth in the
General Instructions I to Form S-3.
(vii) The Company shall have complied with and be effective under the
securities laws of the State of California and any other applicable states as
necessary to offer and sell the Preferred Stock to the Investor.
6. CLOSING. Certificates evidencing the Preferred Stock shall be
delivered to the Investor and the Cancellation of Indebtedness shall be
delivered to Sonic Solutions at the offices of Heller Ehrman White & McAuliffe
at 2500 Sand Hill Road, Menlo Park, California 94025-7063 at 10 a.m. California
time on March 31, 1998 (the Closing") or at such other time to be mutually
agreed.
7. CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE. The obligation of the
Investor hereunder to purchase the Preferred Stock at the Closing is subject to
the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for Investor's sole benefit and
may be waived by the Investor at any time in its sole discretion.
(i) The Company shall have executed the Registration Rights
Agreement in substantially the form of Exhibit B hereto, and delivered the same
---------
to the Investor;
(ii) The Certificate of Determination shall have been filed with the
Secretary of State of the State of California, and a copy thereof certified by
such Secretary of State shall have been delivered to the Investor;
(iii) The Common Stock shall be authorized for quotation on the
Nasdaq National Market and trading in the Common Stock shall not have been
suspended by the SEC or the Nasdaq Stock Market, Inc.;
(iv) The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality, in which
case, such representations and warranties shall be true and correct without
further qualification) as of the date when made and as of the Closing Date as
though made at that time (except for representations
10
<PAGE>
and warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. The Investor shall have received a certificate, executed by
the President of the Company, dated as of the Closing Date, to the
foregoing effect and to such other matters as may be reasonably requested
by the Investor;
(v) The Investor shall have received the opinion of the Company's
counsel dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to the Investor and in substantially the form of
Exhibit C attached hereto;
---------
(vi) The Company shall have executed and delivered to the Investor
the stock certificates (in such denominations as the Investor shall
request) for the shares of Preferred Stock being purchased by the Investor
at the Closing;
(vii) The Company shall have reserved out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion
of the Preferred Shares, 461,538 shares of Common Stock;
(viii) The Company shall have delivered to the Investor a certificate
evidencing the incorporation and good standing of the Company in California
issued by the Secretary of State of such state as of a date within 15 days
of the Closing;
(viii) The Company shall have delivered to the Investor a secretary's
certificate certifying as to (a) the resolutions, (b) the articles of
incorporation of the Company, and (c) bylaws of the Company, each as in
effect at the Closing;
(ix) The Board of Directors of the Company shall have adopted
resolutions in a form reasonably acceptable to the Investor;
(x) The Company shall have delivered to such Investor such other
documents relating to the transactions contemplated by this Agreement as
such Investor or its counsel may reasonably request.
8. CONDITIONS TO CLOSING OF SONIC SOLUTIONS. The obligation of Sonic
Solutions to sell and issue the Preferred Stock at the Closing is subject to the
fulfillment on or prior to the Closing Date of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion by providing the
Investor with prior written notice thereof:
11
<PAGE>
(i) Delivery of the Purchase Price by way of delivery to the
Company of the Cancellation of Indebtedness in a form satisfactory to Sonic
Solutions;
(ii) The Investor shall have executed the Registration Rights
Agreement in substantially the form of Exhibit B hereto and shall have delivered
---------
the same to Sonic Solutions; and
(iii) The Certificate of Determination shall have been filed with the
Secretary of State of the State of California.
9. EXPENSES. Sonic Solutions shall bear its own expenses and legal fees
with respect to this Agreement and the transactions contemplated hereby, and
reimburse Investor for its out-of-pocket expenses, including legal fees, with
respect to this Agreement and the transactions contemplated thereby in an amount
not to exceed $5,000.
10. GOVERNING LAW; JURISDICTION AND VENUE. This Agreement shall be
governed by and construed in accordance with the laws of the State of California
without giving effect to the provisions governing conflict of laws.
11. NOTICE. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and shall be
(i) personally served, (ii) deposited in the mail, registered or certified,
return receipt requested, postage prepaid, (iii) delivered by reputable air
courier service with charges prepaid, or (iv) transmitted by hand delivery,
telegram, telex or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written notice. Any
notice or other communication required or permitted to be given hereunder shall
be deemed effective (a) upon hand delivery or delivery by facsimile at the
address or number designated below (if delivered on a business day during normal
business hours (ending not earlier than 5:00 p.m. local time) where such notice
is to be received, or the first business day following such delivery (if
delivered other than on a business day during normal business hours (ending not
earlier than 5:00 p.m. local time) where such notice is to be received, or (b)
on the second business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual receipt of
such mailing, whichever shall first occur. The addresses for such communications
shall be:
if to Sonic Solutions:
---------------------
A. Clay Leighton
Chief Financial Officer
Sonic Solutions
101 Rowland Way
12
<PAGE>
Novato, CA 94945
Fax No. (415) 893-8008
with a copy to:
--------------
August J. Moretti, Esq.
(shall not constitute notice)
Heller Ehrman White & McAuliffe
2500 Sand Hill Road
Menlo Park, CA 94025-7063
Fax No. (650) 234-4299
if to the Investor:
-------------------
Andrew W. Kahn
Hambrecht & Quist Guaranty Finance, LLC
One Bush Street
San Francisco, CA 95104
Fax No. 415 439-3804
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 12 by giving at least 10 days prior
written notice of such changed address or facsimile number to the other party
hereto.
12. REMEDIES. In the event of a breach or threatened breach by any party
to this Agreement of its obligations under this Agreement, any party injured or
to be injured by such breach or thratened breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all other rights provided in this
Agreement and granted by law. The parties agree that the provisions of this
Agreement shall be specifically enforceable, it being agreed by the parties that
the remedy at law, including monetary damages, for breach of any such provision
will be inadequate compensation for any loss and that any defense or objection
in any action for specific performance or injunctive relief that a remedy at law
would be adequate is waived.
13. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Registration
Rights Agreement contain the entire understanding of the parties with respect to
the matters covered herein and therein. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought.
13
<PAGE>
14. HEADINGS. The Headings in this Agreement are for convenience of
reference only and shall not constitute a part of this Agreement, nor shall they
affect their meaning, construction or effect.
15. FURTHER ASSURANCES. Each party shall cooperate and take such action as
may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
16. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement which may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties, shall be deemed to be an original instrument which shall be
enforceable against the parties actually executing such counterparts and all of
which together shall constitute one and the same instrument. This Agreement,
once executed by a party, may be delivered to the other party hereto by
facsimile transmission of a copy of this Agreement bearing the signature of the
party so delivering this Agreement.
17. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provisions hereof be
enforced by, any other person.
18. SURVIVAL. The representations and warranties of the Company and the
Investor contained in Sections 3 and 2, respectively, the agreements and
covenants set forth in Sections 4, 5, and 6 and Sections 10 through 20, shall
survive the Closing. The Investor shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
19. PUBLICITY. The Company and one representative selected by the Investor
shall have the right to review before issuance any press releases or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior review
of any Investor, to make any press release or other public disclosure with
respect to such transactions as is required by applicable law and regulations
(although the representative selected by the Investor shall be consulted by the
Company in connection with any such press release or other public disclosure
prior to its release and shall be provided with a copy thereof).
14
<PAGE>
20. NO STRICT CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
HAMBRECHT & QUIST SONIC SOLUTIONS
GUARANTY FINANCE, LLC
By: /s/ Andrew W. Kahn By: /s/ Robert J. Doris
-------------------- ----------------------------------------
Andrew W. Kahn Robert J. Doris
Manager President and Chief Executive Officer
15
<PAGE>
EXHIBIT A - CERTIFICATE OF DETERMINATION
----------------------------------------
<PAGE>
CERTIFICATE OF DETERMINATION OF
SERIES C PREFERRED STOCK OF
SONIC SOLUTIONS
---------------
1. The undersigned, Robert J. Doris and Mary C. Sauer, hereby certify
that:
2. They are the duly elected and President and Secretary, respectively,
of Sonic Solutions, a California corporation (the "Corporation").
3. The Corporation hereby designates four hundred sixty-one thousand five
hundred thirty-eight (461,538) shares of Series C Preferred Stock (the "Series C
Preferred Stock").
4. None of the shares of Series C Preferred Stock have been issued, and
none of the shares of Series A Preferred Stock and Series B Preferred Stock
(collectively, the "Series A and Series B Preferred") were issued and
outstanding as of the date hereof.
5. Pursuant to authority given by the Corporation's Restated Articles of
Incorporation (the "Restated Articles of Incorporation"), the Board of Directors
of the Corporation (the "Board of Directors") has duly adopted the following
recitals and resolutions:
WHEREAS, the Restated Articles of Incorporation provide for a class of
shares known as Preferred Shares (the "Preferred Shares"), issuable from time to
time in one or more series;
WHEREAS, the Board of Directors is authorized within the limitations and
restrictions stated in the Restated Articles of Incorporation to determine or
alter the rights, preferences, privileges and restrictions granted to or imposed
on any wholly unissued series of Preferred Shares, to fix the number of shares
constituting any such series, and to determine the designation thereof, or any
of them; and
WHEREAS, the Corporation has not issued any shares of Series C Preferred
Stock and the Board of Directors desires to determine the rights, preferences,
privileges and restrictions relating to the Series C Preferred Stock, and the
number of shares constituting said Series and the designation of said Series.
NOW, THEREFORE, BE IT
RESOLVED: That the President and the Secretary of this Corporation are
each authorized to execute, verify and file a certificate of determination
of preferences with respect to the Series C Preferred Stock in accordance
with the laws of the
<PAGE>
State of California.
RESOLVED FURTHER: That the Board of Directors hereby determines the
rights, preferences, privileges and restrictions relating to the Series C
Preferred Stock shall be as set forth below:
"Four hundred sixty-one thousand five hundred thirty-eight (461,538) of the
authorized shares of the Preferred Stock, none of which have been issued or are
outstanding, are hereby designated "Series C Preferred Stock" (the "Series C
Preferred Stock").
The rights, preferences, privileges, restrictions and other matters
relating to the Series C Preferred Stock are as follows:
1. Dividend Rights. The holders of Series C Preferred Stock shall be
---------------
entitled to receive in any fiscal year when and as declared by the Board of
Directors, out of any assets at the time legally available therefor,
distributions in cash per share of Series C Preferred Stock (as adjusted for any
stock dividends, combinations, splits, reclassifications or the like with
respect to such shares) at the annual rate of (i) $0.13 for the fiscal year from
April 1, 1998 through March 31, 1999; (ii) $0.195 for the fiscal year from April
1, 1999 through March 31, 2000; (iii) $0.26 for the fiscal year from April 1,
2000 through March 31, 2001; (iv) $0.325 for the fiscal year from April 1, 2001
through March 31, 2002; (v) $0.39 for the fiscal year from April 1, 2002 through
March 31, 2003, and for each fiscal year thereafter until such shares have been
converted into Common Stock of the Corporation (the "Common Stock") or redeemed
by the Corporation as provided in Section 5 hereunder. Such distributions shall
be payable quarterly in arrears for each calendar quarter of each fiscal year at
the applicable rate for such fiscal year. Distributions may be declared or paid
upon shares of Common Stock in any fiscal year only if distributions shall have
been paid or declared and set apart upon all shares of Series C Preferred Stock
at such applicable annual rate for each quarter of such fiscal year including
the quarter in which such distributions on Common Stock are declared. The right
to such distributions on Series C Preferred Stock, if not declared and paid,
shall accrue and be cumulative.
2. Voting Rights. Except as otherwise provided herein or by law, each
-------------
holder of Series C Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such shares of Series C
Preferred Stock could be converted and shall have voting rights and powers equal
to the voting rights and powers of the Common Stock.
3. Liquidation, Dissolution or Winding Up. In the event of any
--------------------------------------
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, (a "Liquidation Event") the holders of the Series C Preferred Stock
shall be entitled to
2
<PAGE>
receive, prior and in preference to any distribution of the assets or surplus
funds of the Corporation to the holders of Series A and Series B Preferred and
of the Common Stock by reason of their ownership thereof, the amount of $3.25
per share (as adjusted for any stock dividends, combinations, splits,
reclassifications or the like with respect to such shares) plus all accrued but
unpaid dividends on such share for each share of Series C Preferred Stock then
held by them (the "Liquidation Preference"). If, upon occurrence of such event
the assets and funds thus distributed among the holders of the Series C
Preferred Stock shall be insufficient to permit the holders of the Series C
Preferred Stock the full Liquidation Preference, then the entire assets and
funds of the Corporation legally available for distribution shall be distributed
among the holders of the Series C Preferred Stock in proportion to the number of
shares of Series C Preferred Stock held by each such holder. After payment has
been made to the holders of the Series C Preferred Stock of the Liquidation
Preference, the holders of the Common Stock shall be entitled to receive the
remaining assets of the Corporation in proportion to the number of shares of
Common Stock held by each such holder. For the purposes of this Section 3, (i)
any acquisition of the Corporation by means of merger or other form of corporate
reorganization in which outstanding shares of the Corporation are exchanged for
securities or other consideration issued, or caused to be issued, by the
acquiring corporation or its subsidiary (other than a mere reincorporation
transaction) or (ii) a sale of all or substantially all of the assets of the
Corporation, shall be treated as a Liquidation Event and shall entitle the
holders of Series C Preferred Stock to receive upon such Liquidation Event,
payment of the Liquidation Preference.
4. Conversion Rights. Subject to the redemption rights of the Corporation
-----------------
as set forth in Section 5 below, each holder of Series C Preferred Stock may, at
any time, upon surrender of the certificates therefor, convert each share of
Series C Preferred Stock (and all accrued and unpaid dividends thereon) held by
such holder into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Liquidation Preference for each share of
Series C Preferred Stock by the Conversion Rate applicable to such share,
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion. The price at which shares of Common Stock shall be
deliverable upon conversion of shares of the Series C Preferred Stock (the
"Conversion Rate") shall initially be $3.25 per share of Common Stock. Such
initial Conversion Rate shall be adjusted as hereinafter provided.
5. Redemption Rights of the Corporation.
------------------------------------
(a) At any time after the issuance of Series C Preferred Stock, the
Corporation may elect to redeem the whole or any part of the Series C Preferred
Stock (the "Corporation Redemption"), for cash at a price per share equal to the
Liquidation Preference (the "Redemption Price"); provided, however, that the
closing price of the Corporation's Common Stock, as reported by Bloomberg, L.P.,
for each of the twenty
3
<PAGE>
consecutive trading days immediately preceding the date on which the Corporation
delivers a notice of redemption (a "Notice of Redemption") is equal to or more
than $5.00 per share. A Notice of Redemption shall be mailed by overnight
courier not earlier than ten nor later than 30 days prior to the redemption date
indicated in the Notice of Redemption (the "Redemption Date") to the holders of
record of such Series C Preferred Stock, addressed to each such holder at the
holder's address appearing on the records of the Corporation. The Notice of
Redemption shall set forth the number of shares of Series C Preferred Stock
which the Corporation intends to redeem, the Redemption Date, the Redemption
Price and the place at which shareholders may obtain payment upon surrender of
their certificates.
(i) Mechanics of Corporation Redemption. If the Corporation
------------------------------------
elects to limit the number of Series C Preferred Stock which it will redeem
under a Notice of Redemption, the Corporation shall allocate for redemption from
each holder of Series C Preferred Stock a number of shares equal to such
holder's pro-rata amount (based on the number of Series C Preferred Stock held
by such holder on the Redemption Date relative to the total number of Series C
Preferred Stock outstanding on such date). The Corporation may terminate a
Notice of Redemption at any time with respect to Series C Preferred Stock which
have not been submitted for conversion by delivering written notice of such
termination to each holder of Series C Preferred Stock by facsimile and
overnight courier at least one business day prior to the Redemption Date.
(ii) Payment of Redemption Price. The Corporation shall pay the
---------------------------
applicable Redemption Price to the holder of the Series C Preferred Stock being
redeemed in cash on the Redemption Date (if the shares have not been submitted
for conversion).
(b) Notwithstanding the fact that said shares have been called for
redemption, the holders of such shares shall have the right to convert said
shares in accordance with Section 4 above. This right to convert shall terminate
at the close of business on the day prior to the Redemption Date.
6. Adjustment of Conversion Rate. The number of and kind of securities
-----------------------------
to which the holder of Preferred Stock is entitled upon conversion shall be
subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the
----------------------------------------------
Corporation shall at any time after the date hereof but prior to the expiration
of the Preferred Stock subdivide its outstanding securities as to which rights
under this Agreement exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which rights under this Agreement exist, the number
of shares of Common Stock as to which the Preferred Stock holder is entitled
upon conversion as of the date of such subdivision,
4
<PAGE>
split-up, spin-off or combination shall forthwith be proportionately increased
in the case of a subdivision, or proportionately decreased in the case of a
combination.
(b) Stock Dividend. If at any time after the date hereof the
--------------
Corporation declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into or exchangeable for
Common Stock ("Common Stock Equivalents"), without payment of any consideration
by holders of Common Stock for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon exercise or conversion thereof), then the number of shares of
Common Stock to which the Preferred Stock holder is entitled upon conversion
shall be increased as of the record date (or the date of such dividend
distribution if no record date is set) for determining which holders of Common
Stock shall be entitled to receive such dividends, in proportion to the increase
in the number of outstanding shares (and shares of Common Stock issuable upon
conversion of all Common Stock Equivalents) of Common Stock as a result of such
dividend.
(c) Other Distributions. If at any time after the date hereof the
-------------------
Corporation distributes to holders of its Common Stock, other than as part of a
dissolution or liquidation or the winding up of its affairs, any securities
(other than the Corporation's own Common Stock or Common Stock Equivalents), any
evidence of indebtedness or any of its assets, then, in any such case, the
Preferred Stock holder shall be entitled to receive, upon conversion of the
Preferred Stock, with respect to each share of Common Stock issuable upon such
conversion the amount of evidences of indebtedness or other securities or assets
(excluding cash and the Corporation's own Common Stock or Common Stock
Equivalents) which such Preferred Stock Holder would have been entitled to
receive as a result of the happening of such event with respect to each such
share of Common Stock the Preferred Stock holder would have held had all the
outstanding Preferred Shares still held by such holder been converted
immediately prior to the record date or other date determining the shareholders
entitled to participate in such distribution.
(d) Merger, Consolidation, etc. If at any time after the date hereof
---------------------------
there shall be a merger or consolidation of the Corporation with or into, or a
transfer of all or substantially all of the assets of the Corporation to,
another entity (a "Consolidation Event"), then the Preferred Stock holder shall
be entitled to receive upon such transfer, merger or consolidation becoming
effective the number of shares or other securities or property of or cash or
other consideration from the Corporation or of the successor corporation
resulting from such merger or consolidation, to which such Preferred Stock
Holder would have been entitled to receive as a result of the happening of such
event with respect to each such shares of Common Stock as the Preferred Stock
holder would have held had all the outstanding Preferred Shares still held by
such holder been converted immediately prior to such transfer, merger or
consolidation becoming effective or to the
5
<PAGE>
applicable record date thereof, as the case may be. The Corporation shall not
effect any Consolidation Event unless the resulting successor or acquiring
entity (if not the Corporation) assumes by written instrument the obligation to
deliver to the Preferred Stock holder such shares of stock and/or securities as
the Preferred Stock holder is entitled to receive had the Preferred Stock been
converted in accordance with the foregoing.
(e) Reclassification, Etc. If at any time after the date hereof
----------------------
there shall be a reclassification of any securities as to which purchase rights
under this Certificate exist, into the same or a different number of securities
of any other class or classes, then the Preferred Stock holder shall thereafter
be entitled to receive upon conversion of the Preferred Stock the number of
shares or other securities or property or cash or other consideration resulting
from such reorganization or reclassification, which would have been received by
the Preferred Stock holder for the shares of stock subject to this Certificate
had the Preferred Stock at such time been converted.
(f) Adjustments: Additional Shares, Securities or Assets. In the
----------------------------------------------------
event that at any time, as a result of an adjustment made pursuant to this
Section 6, the Preferred Stock holder shall become entitled to receive shares
and/or other securities or assets other than Common Stock then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 6.
(g) Notice of Adjustments; Notices. Whenever the number of shares of
------------------------------
Common Stock due upon conversion shall be adjusted pursuant to this Section 6,
the Corporation shall execute and deliver to the Preferred Stock holder a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the number of shares Common Stock due upon conversion after
giving effect to such adjustment, and shall cause a copy of such certificate to
be mailed (by first class mail, postage prepaid) to the Preferred Stock holder.
(h) Conversion Rate Adjustment. In the event that the Corporation
--------------------------
issues or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any warrants
or other rights to subscribe for or to purchase or any options for the purchase
of its Common Stock or any such convertible securities (other than shares or
options issued or which may be issued to employees, directors or consultants
pursuant to the Corporation's stock option or stock purchase plans or shares
issued upon exercise of options, warrants or rights outstanding on March 31,
1998) at an effective purchase price of less than $3.00
6
<PAGE>
per share (a "Reduced Purchase Price"), then upon each such case of a sale or
issuance at a Reduced Purchase Price (a "Reduced Purchase Price Sale") the
Corporation shall give the record holders of the Series C Preferred Stock
written notice (a "Notice") of the sale amount of such sale or issuance (the
"Sale Amount") and the Reduced Purchase Price for such sale or issuance. Within
5 business days of the date the holder received the applicable Notice the
holders of Series C Preferred Stock shall be entitled, but not required, to
convert an aggregate number of shares of Series C Preferred Stock which on the
date of the Notice have an aggregate Liquidation Preference equal to the Sale
Amount (the "Number of Reduced Price Shares"), and each such holder shall be
entitled, but not required, to convert a fraction of the Number of Reduced Price
Shares, the numerator of such fraction which is the amount of Series C Preferred
Stock then held by such holder and the denominator of such fraction which is the
total amount of Series C Preferred Stock then outstanding. The Conversion Rate
for such conversion shall be equal to the Reduced Purchase Price. In the event
that a holder of Series C Preferred Stock fails to convert all or part of that
portion of the Series C Preferred Stock which such holder is entitled to convert
at the Reduced Purchase Price and within the time period alloted in this Section
6(h), then such holder shall be entitled to convert the remaining portion of
Series C Preferred Stock held (including that portion which the holder failed to
convert at the Reduced Purchase Price) at the original Conversion Rate set forth
in Section 4 above. Notwithstanding the prior sentence, any portion of Series C
Preferred Stock that a holder of Series C Preferred Stock fails to convert at
the Reduced Purchase Price within the time period alloted in this Section 6(h),
shall be eligible for conversion at a Conversion Rate equal to any new Reduced
Purchase Price upon any subsequent Reduced Purchase Price Sale pursuant to the
terms herein.
7. Mechanisms for Effecting Conversions. Subject to the Corporation's
------------------------------------
rights of redemption in Section 5, the Preferred Stock holder shall effect
conversions by surrendering the certificate or certificates representing the
shares of Series C Preferred Stock to be converted to the Corporation together
with a written conversion notice (the "Conversion Notice") which shall specify
the number of shares of Series C Preferred Stock, and the date on which such
conversion is to be effected, which date may not be prior to the date the holder
delivers such Conversion Notice by facsimile (the "Conversion Date"). If no
Conversion Date is specified in a Conversion Notice, the Conversion Date shall
be the first business day after the date that the Conversion Notice is
transmitted to the Corporation by facsimile or the third business day after the
Conversion Notice is mailed to the Corporation by first class US mail. If the
holder is converting less than all shares of Series C Preferred Stock
represented by the certificate(s) tendered by the holder with the Conversion
Notice, or if a conversion hereunder cannot be effected in full for any reason,
the Corporation shall convert up to the number of shares of Series C Preferred
Stock which is specified in the Conversion Notice and may be so converted and
shall promptly deliver to such holder a certificate for such number of shares as
have not been converted.
7
<PAGE>
8. Delivery of Stock Certificates.
------------------------------
(a) Subject to the terms and conditions of this Agreement, as soon as
practicable after a request for conversion, the Corporation at its expense
(including, without limitation, the payment by it of any applicable issue taxes)
will cause to be issued in the name of and delivered to the Series C Preferred
Stock Holder, or as the Preferred Stock holder may lawfully direct, a
certificate or certificates for the number of fully paid and non-assessable
shares of Common Stock to which the Preferred Stock holder shall be entitled on
such conversion, together with any other stock or other securities or property
(including cash, where applicable) to which the Preferred Stock holder is
entitled upon such conversion in accordance with the provisions hereof.
(b) In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Corporation's Transfer Agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the holder and in this
Section 8, the Corporation shall use its best efforts to cause its Transfer
Agent to electronically transmit the Common Stock issuable upon conversion to
the holder by crediting the account of holder's Prime Broker with DTC through
its Deposit Withdrawal Agent Commission ("DWAC") system. The time periods for
delivery and penalties described in the immediately preceding paragraph shall
apply to the electronic transmittals described herein.
(c) In lieu of any fractional shares to which the holder of the
Series C Preferred Stock would otherwise be entitled, this Corporation shall pay
cash equal to such fraction multiplied by the Fair Market Value of one share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series C Preferred
Stock of each holder at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
9. Reservation of Stock Issuable Upon Conversion. The Corporation shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Series C Preferred Stock, such number of shares of Common Stock as
shall be necessary to effect the conversion of the Series C Preferred Stock into
Common Stock.
10. Replacement of Certificate. Upon receipt of evidence reasonably
--------------------------
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Certificate and, in the case of any such loss, theft or destruction of the
Certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Corporation or, in the case of any such
mutilation, on surrender and
8
<PAGE>
cancellation of such Certificate, the Corporation at its expense will execute
and deliver, in lieu thereof, a new Certificate of like tenor.
11. Vote to Change the Terms of Series C Preferred Stock; Preferred Rank.
--------------------------------------------------------------------
The approval of the Board of Directors and the affirmative vote at a meeting
duly called by the Board of Directors for such purpose (or the written consent
without a meeting) of the holders of not less than a majority of the then
outstanding shares of the Series C Preferred Stock shall be required (a) to
amend, alter, change or repeal any of the powers, designations, preferences and
rights of the Series C Preferred Stock, (b) to authorize the issuance of
additional shares of Series C Preferred Stock, and (c) for the Corporation to
authorize or issue additional or other capital stock that is of senior or equal
rank to the Series C Preferred Stock in respect of the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Corporation."
IN WITNESS WHEREOF, the undersigned each declares under penalty of perjury
that the matters set out in the foregoing certificate are true of his or her own
knowledge, and the undersigned have executed this certificate at Novato,
California as of the 31st day of March, 1998.
/s/ Robert J. Doris
___________________________________________
Robert J. Doris, President
/s/ Mary C. Sauer
___________________________________________
Mary C. Sauer, Secretary
9
<PAGE>
EXHIBIT 3 - SCHEDULE OF EXCEPTIONS
----------------------------------
At a meeting of the Board of Directors of Sonic Solutions (the "Board") which
took place on March 3, 1998, the Board specifically authorized the repricing of
all director options to the current stock price and gave the President of Sonic
Solutions the authority to reprice any or all outstanding employee options to
the current stock price at his discretion. As of the closing of this Agreement,
an exact plan has not been implemented.
<PAGE>
EXHIBIT B - REGISTRATION RIGHTS AGREEMENT
-----------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of March
31, 1998, is made and entered into between Sonic Solutions, a California
corporation (the "Company"), and Hambrecht & Quist Guaranty Finance, LLC, a
California limited liability company (the "Investor").
WHEREAS, the Company and Investor have entered into that certain Private
Securities Subscription Agreement, dated as of the date hereof (the
"Subscription Agreement"), pursuant to which the Company will issue to the
Investor shares of its Series C Preferred Stock (the "Preferred Stock")
convertible as described in the Certificate of Determination to Common Stock of
the Company, no par value (the "Common Stock"); and
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investor's agreement to enter into the Subscription Agreement, the Company has
agreed to provide the Investor with certain registration rights with respect to
the Registrable Securities (as defined below).
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein and in the Subscription
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. Capitalized terms defined in the Subscription
Agreement shall have the same meanings herein as are ascribed to them therein.
In addition, the following terms shall have the meanings ascribed below:
"Act" means the Securities Act of 1933, as amended
"Material Event" means the happening of any event during the period that
the Registration Statement (described in Section 2 hereof) is required to be
effective as a result of which, in the reasonable judgment of the Company, such
Registration Statement or the related prospectus contains or may contain an
untrue statement of material fact or omits or may omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
<PAGE>
2
"Registrable Securities" means all of the Common Stock and any other
securities issued or issuable upon conversion of the Preferred Stock and any
shares of capital stock issued or issuable with respect to such Common Stock or
securities as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise, regardless of any limitation on
conversion of the Preferred Stock (together, the "Conversion Shares") until the
earliest of (i) a Registration Statement under the Act covering the offering of
such Conversion Shares has been declared effective by the SEC and such
Conversion Shares have been disposed of pursuant to such effective Registration
Statement, (ii) such Conversion Shares are sold under circumstances in which all
of the applicable conditions of Rule 144 (or any similar provision then in
force) under the Act ("Rule 144") are met, (iii) such Conversion Shares have
been otherwise transferred and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive legend
or (iv) such time as such Conversion Shares may be sold without any time, volume
or manner limitation pursuant to Rule 144(k) (or any similar provision then in
effect) under the Act.
"Registration Statement" shall have the meaning set forth at Section
2.1(a).
"Rule 144" means Rule 144 promulgated under the Act.
"SEC" means the Securities and Exchange Commission.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. FORM S-3 REGISTRATION STATEMENTS.
(a) Filing of Form S-3 Registration Statements. Subject to the terms
------------------------------------------
and conditions of this Agreement, the Company shall file with the SEC no later
than thirty (30) days following the date of this Agreement a registration
statement on Form S-3 under the Act (the "Registration Statement") for the
registration of the resale by the Investor of the Registrable Securities, which
Registration Statement, to the extent allowable under the Securities Act and the
Rules promulgated thereunder (including Rule 416), shall state that such
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Preferred
Stock (i) to prevent dilution resulting from stock splits, stock dividends or
other similar transactions or (ii) by reason of changes in the Conversion Price
of the Preferred Stock in accordance with the terms thereof.
<PAGE>
3
(b) Effectiveness of Registration Statements. The Registration
----------------------------------------
Statement shall be declared effective by the SEC by no later than sixty (60)
days following the date of this Agreement, and shall remain in effect until the
termination of this Agreement as provided in Section 5.1.
(c) Notwithstanding anything to the contrary set forth herein, if the
Company fails to timely file, obtain effectiveness or maintain effectiveness of
the Registration Statement to be filed pursuant to Section 2.1(a) in accordance
with the terms of this Agreement, the Investor shall have the following
additional registration rights. If at any time prior to the expiration of the
Registration Period (as hereinafter defined), the Company shall file with the
SEC a Registration Statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities
(other than (A) on Form S-4 or Form S-8 or their then equivalents relating to
equity securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock option
or other employee benefit plans, or (B) in connection with the agreement between
Kingsbridge Capital Limited and the Company dated as of December 31, 1997), the
Company shall send to the Investor who is entitled to registration rights under
this Section 2.1(c) written notice of such determination and, if within fifteen
(15) days after the effective date of such notice, such Investor shall so
request in writing, the Company shall include in such Registration Statement all
or any part of the Registrable Securities such Investor's requests to be
registered, except that if, in connection with any underwritten public offering
for the account of the Company the managing underwriter(s) thereof shall impose
a limitation on the number of shares of Common Stock which may be included in
the Registration Statement because, in such underwriter(s)' judgment, marketing
or other factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which such Investor has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable Securities shall be made
pro rata among the Investor seeking to include Registrable Securities in
proportion to the number of Registrable Securities sought to be included by such
Investor; provided, however, that the Company shall not exclude any Registrable
-------- -------
Securities unless the Company has first excluded all outstanding securities, the
holders of which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities; and provided, further, however, that, after giving
-------- ------- -------
effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
right to include such securities to the Registration Statement other than
holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right of
registration of Registrable Securities under this Section 2.1(c) shall be
construed to limit any registration required under Section 2.1(a) hereof. If an
offering in connection with which the Investor is entitled to registration
<PAGE>
4
under this Section 2.1(c) is an underwritten offering, then the Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
(d) Deferral. Notwithstanding the foregoing, if the Company shall
--------
furnish to the Investor ten (10) days prior to the date by which a Registration
Statement (or if the Company shall furnish to the Investor subsequent to the
effectiveness of a Registration Statement) is required to be filed (or remain in
effect), a certificate signed by the President of the Company stating that the
Board of Directors of the Company has, by duly authorized resolution, determined
in good faith that a Material Event necessitates the deferral of the filing of
the Registration Statement or the temporary suspension of the effectiveness of
the Registration Statement because it would be seriously detrimental to the
Company and its shareholders for such Registration Statement to be filed (or
remain in effect), the Company shall have the right to defer such filing (or
suspend such effectiveness or use) for a period of not more than thirty (30)
days beyond the date by which such Registration Statement was otherwise required
to be filed (or required to remain in effect). The Investor acknowledges that it
would be seriously detrimental to the Company and its shareholders for such
Registration Statement to be filed (or remain in effect) and therefore essential
to defer such filing (or suspend such effectiveness or use) and agrees to
discontinue disposition of the Registrable Securities pursuant to any
Registration Statement until the Company delivers copies of supplemented or
amended prospectuses and the Registration Statement is declared effective. The
Company may not utilize this right to defer the filing of a Registration
Statement (or suspend its effectiveness or the use of the underlying prospectus)
more than once in any twelve (12) month period.
ARTICLE III
REGISTRATION PROCEDURES
SECTION 3.1. FILINGS; INFORMATION. Whenever the Company is required to
effect or cause the registration of Registrable Securities pursuant to Section
2.1, the Company will use its reasonable best efforts to effect the registration
of such Registrable Securities in accordance with the intended method of
disposition thereof as quickly as practicable, and in connection with any such
request:
(a) The Company will as expeditiously as possible but in no event
later than the time period prescribed by Section 2.1(a), prepare and file with
the SEC a registration statement on Form S-3 (if use of such form is then
available to the Company
<PAGE>
5
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate and which form shall be available for the sale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement and in accordance with the intended method of
disposition of such Registrable Securities), and use reasonable best efforts to
cause such filed Registration Statement to become and remain effective (pursuant
to Rule 415 under the Act or otherwise), and the Company will as expeditiously
as possible prepare and file with the SEC such amendments and supplements to
such Registration Statement and the prospectus used in connection therewith as
may be necessary to keep such Registration Statement effective for the time
periods prescribed by Section 2.1(b) and comply with the provisions of the Act
with respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the Investor set forth in such Registration Statement.
(b) The Company will, prior to filing a Registration Statement or
prospectus or any amendment or supplement thereto (excluding amendments deemed
to result from the filing of documents incorporated by reference therein),
furnish to the Investor and one firm of counsel representing the Investor,
copies of such Registration Statement as proposed to be filed, together with
exhibits thereto, which documents will be subject to review and approval by such
parties, and thereafter furnish to the Investor and its counsel for their review
and comment such number of copies of such Registration Statement, each amendment
and supplement thereto (in each case including all exhibits thereto), the
prospectus included in such Registration Statement (including each preliminary
prospectus) and such other documents or information as the Investor or counsel
may reasonably request in order to facilitate the disposition of the Registrable
Securities.
(c) After the filing of the Registration Statement, the Company will
promptly notify the Investor of any stop order issued or threatened by the SEC
in connection therewith and take all reasonable actions required to prevent the
entry of such stop order or to remove it if entered.
(d) The Company will use reasonable best efforts to (i) register or
qualify such Registrable Securities under such other securities or blue sky laws
of such jurisdictions in the United States as the Investor may reasonably (in
light of their intended plan of distribution) request, and (ii) cause such
Registrable Securities to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary by
virtue of the business and operations of the Company and do any and all other
acts and things that may be reasonably necessary or advisable to enable the
Investor to consummate the disposition of the Registrable Securities; provided,
that the Company will not be required to (A) qualify generally to do business in
any jurisdiction
<PAGE>
6
where it would not otherwise be required to qualify but for this paragraph (d),
(B) subject itself to taxation in any such jurisdiction or (C) consent or
subject itself to general service of process in any such jurisdiction.
(e) The Company will promptly notify the Investor in writing upon the
occurrence of any of the following events in respect of a Registration Statement
or related prospectus in respect of an offering of Registrable Securities: (i)
receipt of any request for additional information by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to the Registration
Statement or related prospectus; (ii) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose; (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
which makes any statement made in the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
the Registration Statement and the related prospectus will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances in which they were made; (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus; and
(vi) the declaration of the effectiveness of a Registration Statement (which
notice of effectiveness shall be delivered to the Investor in writing within one
(1) business day of the Company being advised by the SEC of such effectiveness).
(f) The Company will enter into customary agreements and take such
other actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities (the Investor may, at its option,
require that any or all of the representations, warranties and covenants of the
Company also be made to and for the benefit of the Investor). The Investor
understands that no sales of Shares may be underwritten and the Company is under
no obligation to enter into an underwriting agreement
(g) The Company will otherwise comply with all applicable rules and
regulations of the SEC, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act, and will make
available to its security holders, as soon as reasonably practicable, an earning
statement covering a period of twelve (12) months, beginning within three (3)
months after the effective date of the
<PAGE>
7
Registration Statement, which earning statement shall satisfy the provisions of
Section 11(a) of the Act.
(h) The Company will use commercially reasonable efforts to secure
designation of all such Registrable Securities covered by such Registration
Statement as a NASDAQ "national market system security" within the meaning of
Rule 11Aa2-1 of the SEC.
(i) The Company will appoint a transfer agent and registrar for all
such Registrable Securities covered by such Registration Statement not later
than the effective date of such Registration Statement.
(j) The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investor, (iv) one firm of attorneys and
one firm of accountants or other agents retained by all other Investor, and (iv)
one firm of attorneys retained by all such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by the Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
-------- -------
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor who has executed a confidentiality agreement as provided
for herein) of any Record or other information which the Company determines in
good faith to be confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (b) the
release of such Records is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction, or (c) the information of
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company shall not
be required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector and the Investor shall have entered
into confidentiality agreements (in form and substance satisfactory to the
Company) with the Company with respect thereto, substantially in the form of
this Section 3.1(j). The Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall
<PAGE>
8
be deemed to limit the Investor's ability to sell Registrable Securities in a
manner which is otherwise consistent with applicable laws and regulations.
The Company may require the Investor to promptly furnish in writing to
the Company such information regarding the distribution of the Registrable
Securities as the Company may from time to time reasonably request and such
other information as may be legally required in connection with such
registration including, without limitation, all such information as may be
requested by the SEC or the National Association of Securities Dealers, Inc.
(the "NASD"). The Investor agrees to provide such information requested in
connection with such registration within ten (10) business days after receiving
such written request and the Company shall not be responsible for any delays in
obtaining or maintaining the effectiveness of the Registration Statement caused
by the Investor' failure to timely provide such information. The Investor agrees
that, upon receipt of any written notice from the Company of the happening of
any event of the kind described in Section 3.1(e) hereof, the Investor will
forthwith discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until the Investor'
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 3.1(e) hereof, and, if so directed by the Company, the Investor will
deliver to the Company all copies, other than permanent file copies then in the
Investor' possession, of the most recent prospectus covering such Registrable
Securities at the time of receipt of such notice. In the event the Company shall
give such notice, the Company shall extend the period during which such
Registration Statement shall be maintained effective (including the period
referred to in Section 3.1(a) hereof) by the number of days during the period
from and including the date of the giving of notice pursuant to Section 3.1(e)
hereof to the date when the Company shall make available to the Investor a
prospectus supplemented or amended to conform with the requirements of Section
3.1(e) hereof.
SECTION 3.2. REGISTRATION EXPENSES. In connection with each Registration
Statement, the Company shall pay the following registration expenses incurred in
connection with the registration thereunder (the "Registration Expenses"): (i)
all registration and filing fees, (ii) fees and expenses of compliance with
securities or blue sky laws, (iii) printing expenses, (iv) the Company's
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), (v) the fees
and expenses incurred in connection with the listing of the Registrable
Securities, (vi) fees and disbursements of counsel for the Company and customary
fees and expenses for independent certified public accountants retained by the
Company (including the expenses of any comfort letters or costs associated with
the delivery by independent certified public accountants of a comfort letter or
comfort letters requested pursuant to Section 3.1(h) hereof), and (vii) the fees
and expenses of any special experts retained by the Company in connection with
such registration. The Company shall have no obligation to pay any underwriting
fees,
<PAGE>
9
discounts or commissions attributable to the sale of Registrable Securities, or
the cost of Investor counsel or of any special audit required by the Investor,
such costs to be borne by the Investor.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless the Investor, its partners, affiliates, officers,
directors, employees and duly authorized agents, and each person or entity, if
any, who controls the Investor within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, together with the partners, affiliates,
officers, directors, employees and duly authorized agents of such Controlling
Person or entity (collectively, the "Controlling Persons"), from and against any
loss, claim, damage, liability, judgment, fine, penalty, reasonable attorneys'
fees, costs or expenses and costs and expenses of investigating and defending
any action, claim, suit, inquiry, proceeding, investigation or appeal taken from
the foregoing by or before any court or governmental, administrative or other
regulatory agency body, or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto (collectively, "Damages"),
joint or several, and any action in respect thereof to which the Investor, its
partners, affiliates, officers, directors, employees and duly authorized agents,
and any such Controlling person may become subject under the Act or otherwise,
insofar as such Damages (or proceedings in respect thereof) arise out of, or are
based upon, any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or prospectus relating to the
Registrable Securities or any preliminary prospectus, or arises out of, or are
based upon, any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are based solely upon information
furnished in writing to the Company by the Investor expressly for use therein,
and shall reimburse the Investor, its partners, affiliates, officers, directors,
employees and duly authorized agents, and each such Controlling person for any
legal and other expenses reasonably incurred by the Investor, its partners,
affiliates, officers, directors, employees and duly authorized agents, or any
such Controlling person in investigating or defending or preparing to defend
against any such Damages or proceedings; provided, however, that the Company
shall not be liable to the Investor to the extent that (i) the Investor failed
to send or deliver a copy of the final prospectus with or prior to the delivery
of written confirmation of the sale by the Investor to the person asserting the
claim from which such Damages arise, and (ii) the final prospectus was made
available to the Investor and would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission upon which the
claim is asserted and from which the Damages arise.
<PAGE>
10
SECTION 4.2. INDEMNIFICATION BY THE INVESTORS. The Investor severally
and not jointly agree to indemnify and hold harmless the Company, its partners,
affiliates, officers, directors, employees and duly authorized agents and each
person or entity, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, together with the partners,
affiliates, officers, directors, employees and duly authorized agents of such
Controlling Person (collectively, the "Controlling Person"), to the same extent
as the foregoing indemnity from the Company to the Investor, but only with
reference to information related to the Investor or its plan of distribution,
furnished in writing by the Investor or on the Investor' behalf expressly for
use in any Registration Statement or prospectus relating to the Registrable
Securities, or any amendment or supplement thereto, or any preliminary
prospectus. In case any action or proceeding shall be brought against the
Company or its partners, affiliates, officers, directors, employees or duly
authorized agents or any such Controlling Person or its partners, affiliates,
officers, directors, employees or duly authorized agents, in respect of which
indemnity may be sought against the Investor, the Investor shall have the rights
and duties given to the Company, and the Company or its partners, affiliates,
officers, directors, employees or duly authorized agents, or such Controlling
Person, or its partners, affiliates, officers, directors, employees or duly
authorized agents, shall have the comparable rights and duties given to the
Investor by Section 4.1. Notwithstanding the foregoing, the Investor shall be
liable under this Section 4.2 for only that amount of Damages as does not exceed
the proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. The Company shall be entitled to
receive indemnities on customary terms from underwriters, selling brokers,
dealer managers and similar securities industry professionals participating in
the distribution, to the same extent as provided above, with respect to
information so furnished in writing by such persons specifically for inclusion
in any prospectus or Registration Statement.
SECTION 4.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after
receipt by any person or entity in respect of which indemnity may be sought
pursuant to Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim
or the commencement of any action, the Indemnified Party shall, if a claim in
respect thereof is to be made against the person or entity from whom such
indemnity may be sought (an "Indemnifying Party"), promptly notify the
Indemnifying Party in writing of the claim or the commencement of such action.
In the event an Indemnified Party shall fail to give such notice as provided in
this Section 4.3 and the Indemnifying Party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, the indemnification
provided for in Section 4.1 or 4.2 shall be reduced to the extent of any actual
prejudice resulting from such failure to so notify the Indemnifying Party;
provided, that the failure to notify the Indemnifying Party shall not relieve
the Indemnifying Party from any liability which it may have to an Indemnified
Party other than that liability arising under
<PAGE>
11
Section 4.1 or 4.2. If any such claim or action shall be brought against an
Indemnified Party, and it shall notify the Indemnifying Party thereof, the
Indemnifying Party shall be entitled to participate therein, and, to the extent
that it wishes, jointly with any other similarly notified Indemnifying Party, to
assume the defense thereof. After notice from the Indemnifying Party to the
Indemnified Party of its election to assume the defense of such claim or action,
the Indemnifying Party shall not be liable to the Indemnified Party for any
legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation; provided, that the Indemnified Party shall have the right to
employ separate counsel to represent the Indemnified Party and its Controlling
Persons who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the Indemnified Party against the Indemnifying
Party, but the fees and expenses of such counsel shall be for the account of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) in the
reasonable judgment of the Company and such Indemnified Party, representation of
both parties by the same counsel would be inappropriate due to actual or
potential conflicts of interest between them, it being understood, however, that
the Indemnifying Party shall not be liable for fees and expenses that are not
reasonable. No Indemnifying Party shall, without the prior written consent of
the Indemnified Party, effect any settlement of any claim or pending or
threatened proceeding in respect of which the Indemnified Party is or could have
been a party and indemnity could have been sought hereunder by such Indemnified
Party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability arising out of such claim or proceeding.
Whether or not the defense of any claim or action is assumed by the Indemnifying
Party, such Indemnifying Party will not be subject to any liability for any
settlement made without its consent.
SECTION 4.4. CONTRIBUTION. If the indemnification provided for in this
Article IV is unavailable to the Indemnified Parties in respect of any Damages
referred to herein, then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Damages as between the Company on the one
hand and the Investor on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of the Investor in connection with
such statements or omissions, as well as other equitable considerations. The
relative fault of the Company on the one hand and of the Investor on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
<PAGE>
12
The Company and the Investor agree that it would not be just and equitable
if contribution pursuant to this Section 4.4 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the Damages
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 4.4, the Investor shall in no event be required to contribute any amount
in excess of the amount by which the total price at which the Registrable
Securities of the Investor were sold to the public pursuant to the Registration
Statement exceeds the amount of any damages which the Investor has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. TERM. The registration rights provided to the holders of
Registrable Securities hereunder shall terminate at the earlier of such time as
(i) no Registrable Securities are issuable or outstanding or (ii) all
Registrable Securities may be resold without volume restriction under Rule
144(K) or a successor thereto; provided, however, that the provisions of Article
IV hereof shall survive any termination of this Agreement.
SECTION 5.2. RULE 144. The Company covenants that it will file all
reports required to be filed by it under the Act and the Exchange Act and that
it will take such further action as holders of Registrable Securities may
reasonably request, all to the extent required from time to time to enable the
Investor to sell Registrable Securities without registration under the Act
within the limitation of the exemptions provided by (a) Rule 144, as such Rule
may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the SEC. If at any time the Company is not required to file
such reports, it will, upon the request of any holder of Registrable Securities,
make publicly available other information so long as necessary to permit sales
pursuant to Rule 144. Upon the request of the Investor, the Company will deliver
to the Investor a written statement as to whether it has complied with such
requirements.
SECTION 5.3. AMENDMENT AND MODIFICATION. Any provision of this Agreement
may be waived, provided that such waiver is set forth in a writing executed by
<PAGE>
13
the party against whom the enforcement of such waiver is sought. The provisions
of this Agreement, including the provisions of this sentence, may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless the Company has obtained the
written consent of the holders of a majority of the then outstanding Registrable
Securities. Notwithstanding the foregoing, the waiver of any provision hereof
with respect to a matter that relates exclusively to the rights of holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and does not directly or indirectly affect the rights of
other holders of Registrable Securities may be given by holders of at least a
majority of the Registrable Securities being sold by such holders; provided,
that the provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the immediately
preceding sentence. No course of dealing between or among any Person having any
interest in this Agreement will be deemed effective to modify, amend or
discharge any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.
SECTION 5.4. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The Investor
may assign its rights under this Agreement to any subsequent holder of Preferred
Stock or Conversion Shares, provided that the Company shall have the right to
require any holder of Registrable Securities to execute a counterpart of this
Agreement as a condition to such holder's claim to any rights hereunder. This
Agreement, together with the Subscription Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
SECTION 5.5. SEPARABILITY. In the event that any provision of this
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
SECTION 5.6. NOTICES. All notices, demands, requests, consents, approvals
or other communications required or permitted to be given hereunder or which are
given with respect to this Agreement shall be in writing and shall be personally
served or deposited in the mail, registered or certified, return receipt
requested, postage prepaid, or delivered by reputable air courier service with
charges prepaid, or transmitted by hand delivery, telegram, telex or facsimile,
addressed as set forth below, or to such other address as such party shall have
specified most recently by written notice: (i) if to the Company, to: SONIC
SOLUTIONS, 101 Rowland Way, Novato, CA 94945; Attention:
<PAGE>
14
Mr. A. Clay Leighton, Facsimile No. (415) 893-8008, with copies (which shall not
constitute notice) to: Heller Ehrman White & McAuliffe, 2500 Sand Hill Road,
Menlo Park, CA 94025-7063 Attention: August J. Moretti, Esq., Facsimile No.
(650) 234-4299; and (ii) if to the investor, to: HAMBRECHT & QUIST GUARANTY
FINANCE, LLC, One Bush Street, San Francisco, CA 95104; Attention: Andrew W.
Kahn, Facsimile No. (415) 439-3804. Notice shall be deemed given on the date of
service or transmission if personally served or transmitted by telegram, telex
or facsimile. Notice otherwise sent as provided herein shall be deemed given on
the third business day following the date mailed or on the second business day
following delivery of such notice by a reputable air courier service.
SECTION 5.7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to the provisions governing conflicts of laws thereof.
SECTION 5.8. HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not constitute a part of this Agreement, nor shall
they affect their meaning, construction or effect.
SECTION 5.9. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement which
may be executed in multiple counterparts, each of which may be executed by less
than all of the parties, shall be deemed to be an original instrument which
shall be enforceable against the parties actually executing such counterparts
and all of which together shall constitute one and the same instrument. This
Agreement, once executed by a party, may be delivered to the other party hereto
by facsimile transmission of a copy of this Agreement bearing the signature of
the party so delivering this Agreement.
SECTION 5.10. FURTHER ASSURANCES. Each party shall cooperate and take
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
SECTION 5.11. REMEDIES. In the event of a breach or a threatened breach
by any party to this Agreement of its obligations under this Agreement, any
party injured or to be injured by such breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all rights provided in this Agreement and
granted by law. The parties agree that the provisions of this Agreement shall
be specifically enforceable, it being agreed by the parties that the remedy at
law, including monetary damages, for breach of any such provision will be
inadequate compensation for any loss and that any defense or objection in any
action for specific performance or injunctive relief that a remedy at law would
be adequate is waived.
<PAGE>
15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
HAMBRECHT & QUIST SONIC SOLUTIONS
GUARANTY FINANCE, LLC
By: /s/ Andrew W. Kahn By: /s/ Robert J. Doris
---------------------------- --------------------------------
Andrew W. Kahn Robert J. Doris
Manager President and Chief Executive
Officer
<PAGE>
EXHIBIT C - OPINION OF COMPANY'S COUNSEL
----------------------------------------
<PAGE>
[Letterhead of Heller Ehrman White & McAuliffe]
March 31, 1998
To Hambrecht & Quist Guaranty Finance, LLC
Private Securities Subscription Agreement
dated as of March 31, 1998:
We have acted as counsel to Sonic Solutions, a California corporation (the
"Company"), in connection with the Private Securities Subscription Agreement for
the sale of Series C Preferred Stock convertible for a total of 461,538 shares
of Common Stock (the "Agreement"), and the Registration Rights Agreement (the
"Rights Agreement") between the Company and you, each dated as of March 31,
1998, (collectively, the "Transactional Agreements"). This opinion is rendered
to you pursuant to Section 7(v) of the Agreement. Capitalized terms used
without definition in this opinion have the meanings given to them in the
Agreement or, if the Agreement does not define them, in the Amended and Restated
Articles of Incorporation of the Company.
I.
In connection with this opinion, we have assumed the authenticity of all
records, documents, and instruments submitted to us as originals, the
genuineness of all signatures, the legal capacity of natural persons and the
conformity to the originals of all records, documents, and instruments submitted
to us as copies. We have also assumed that there are no facts or circumstances
relating to you that might prevent you from enforcing any of the rights to which
our opinion relates (for example, lack of due incorporation, regulatory
prohibitions, or failure to qualify to do business in the State of California).
We have based our opinion upon our review of the following records, documents
and instruments:
(a) The Amended and Restated Articles of Incorporation of the Company
certified by the California Secretary of State as of September
11, 1997 and certified to us by an officer of the Company as
being complete and in full force and effect as of the date of
this opinion (the "Articles");
(b) The Certificate of Determination of Series C Preferred Stock of
the Company (Exhibit A of the Agreement), certified by the
California Secretary of State as of March 31, 1998 and certified
to us by an officer of the Company as being complete and in full
force and effect as of the date of this opinion (the "Certificate
of Determination");
20
<PAGE>
[Letterhead of Heller Ehrman White & McAuliffe]
Hambrecht & Quist Guaranty Finance, LLC
March 31, 1998
Page 2
(c) The Bylaws of the Company certified to us by an officer of the
Company as being complete and in full force and effect as of the
date of this opinion (the "Bylaws");
(d) Records certified to us by an officer of the Company as
constituting all records of proceedings and actions of the Board
of Directors and the shareholders of the Company relating to the
transactions contemplated by the Transactional Agreements;
(e) The Agreement;
(f) The Rights Agreement;
(g) A Certificate of Status-Domestic Corporation relating to the
Company issued by the Secretary of State of the State of
California dated March 19, 1998;
(h) A letter from the Franchise Tax Board of the State of California
dated March 19, 1998 stating that the Company is in good standing
with that agency;
(i) A Certificate of the President of the Company as to the material
agreements, material instruments, judgments, and decrees to which
the Company is a party or by which the Company's properties or
assets are bound and as to certain factual matters (the
"Officer's Certificate");
(j) The agreements and instruments identified in the Officer's
Certificate;
(k) The stock records of the Company evidencing the outstanding
capital stock of the Company and certified to us by an officer of
the Company as being complete and correct; and
(l) The stock certificates representing the shares being purchased by
you (the "Shares").
With your consent, we have based our opinion expressed in paragraph 1 below as
to the good standing of the Company under the laws of the State of California
solely upon the documents enumerated in (g) and (h) above. In addition, we
have, with your consent based our opinion expressed in paragraph 8 below
regarding the capitalization of the Company solely upon our review of the
records identified as items (d) and (k) above, (ii) assumed for the purpose of
our opinion in paragraph 8 below that the certificates evidencing the Shares
will be delivered in California, and (iii) relied upon the Officer's Certificate
with respect to factual matters relevant to this opinion.
21
<PAGE>
[Letterhead of Heller Ehrman White & McAuliffe]
Hambrecht & Quist Guaranty Finance, LLC
March 31, 1998
Page 3
In connection with our opinion relating to the agreements and instruments
identified in the Officer's Certificate, we have not reviewed, and express no
opinion on, (i) financial covenants or similar provisions requiring financial
calculations or determinations to ascertain compliance, (ii) provisions relating
to the occurrence of a "material adverse event" or words of similar import, or
(iii) parol evidence bearing on interpretation or construction. Moreover, to
the extent that any of the Transactional Agreements or any of the agreements and
instruments identified in item (j) above is governed by the laws of any
jurisdiction other than the federal laws of the United States or the laws of the
State of California, our opinion relating to those agreements and instruments is
based solely upon the plain meaning of their language without regard to
interpretation or construction that might be indicated by the laws governing
those agreements or instruments.
Where our opinion relates to our "knowledge", such knowledge is based upon our
examination of the records, documents, instruments, and certificates enumerated
or described above and the actual knowledge of attorneys in this firm who are
currently involved in substantive legal representation of the Company. With
your consent, we have not examined any records of any court, administrative
tribunal or other similar entity in connection with our opinion expressed in
paragraph 7 below.
II.
We express no opinion as to: (i) the applicable choice of law rules that may
affect the interpretation or enforcement of the Agreement, and (ii) any anti-
fraud provisions of applicable federal or state securities laws, any tax, anti-
trust, land use, export, safety, environmental or hazardous materials laws,
rules or regulations.
This opinion is limited to the federal laws of the United States of America
and the laws of the State of California. We disclaim any opinion as to the laws
of any other jurisdiction and we further disclaim any opinion as to any statute,
rule, regulation, ordinance, order or other promulgation of any regional or
local governmental body.
III.
Based upon the foregoing and our examination of such questions of law as we
have deemed necessary or appropriate for the purpose of this opinion, and
subject to the limitations and qualifications expressed below, it is our opinion
that:
1. The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of California.
22
<PAGE>
[Letterhead of Heller Ehrman White & McAuliffe]
Hambrecht & Quist Guaranty Finance, LLC
March 31, 1998
Page 4
2. The Company has all requisite corporate power and corporate
authority to enter into and perform the Transactional Agreements,
to own its properties, and to carry on its business as, to our
knowledge, it is now conducted and proposed to be conducted as
contemplated by the Transactional Agreements.
3. Each of the Transactional Agreements has been duly authorized by
all necessary corporate action on the part of the Company, its
directors, and shareholders and has been duly executed and
delivered on behalf of the Company.
4. Each of the Transactional Agreements is a valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, subject, as to enforcement, (i) to
bankruptcy, insolvency, reorganization, arrangement, moratorium,
and other laws of general applicability relating to or affecting
creditors' rights, (ii) to general principles of equity, whether
such enforcement is considered in a proceeding in equity or at
law, and (iii) to limitations imposed by applicable law or public
policy on the enforceability of the indemnification provisions of
the Rights Agreement.
5. No governmental consents, approvals, authorizations,
registrations, declarations, or filings are required for the
execution and delivery of the Transactional Agreements on behalf
of the Company, including the issuance of the Shares, except (i)
the filing of the Certificate of Determination in the Office of
the Secretary of State of the State of California, which filing
has been accomplished, and (ii) the qualification (or taking such
action as may be necessary to secure an exemption from
qualification, if available) for the offer and sale of the Shares
(and the Common Stock issuable upon conversion) under applicable
blue sky laws.
6. Neither the execution and delivery of the Transactional
Agreements on behalf of the Company nor the performance of the
Transactional Agreements by the Company, including the issuance
of the Shares (i) conflicts with any provision of the Articles
or Bylaws, (ii) violates any law applicable to the Company, or
(iii) results in a breach or violation of, or constitutes a
default under, any term of any agreements, instruments,
judgments, or decrees identified in the Officer's Certificate.
7. To our knowledge, there are no pending or threatened actions,
suits, proceedings, or governmental investigations against the
Company.
23
<PAGE>
[Letterhead of Heller Ehrman White & McAuliffe]
Hambrecht & Quist Guaranty Finance, LLC
March 31, 1998
Page 5
8. The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock and 10,000,000 shares of
Preferred Stock. Of the Preferred Stock, 165,448 shares are
designated Series A Preferred Stock, 744,516 shares are
designated Series B Preferred Stock, and 461,538 shares are
designated Series C Preferred Stock. Immediately prior to the
Closing, the stock records of the Company indicate that no shares
of Series A Preferred Stock, no shares of Series B Preferred
Stock, and no shares of Series C Preferred Stock were issued and
outstanding.
9. The Shares, when issued at the Closing in compliance with the
Agreement, will be duly authorized, validly issued, fully paid,
and non-assessable and free of preemptive rights set forth in the
Articles, Bylaws, or of which we have knowledge; provided,
--------
however, that the Shares may be subject to restrictions on
-------
transfer under state and federal securities laws. Upon delivery
by the Company to you of certificates for the Shares being sold
by the Company and payment therefor as provided in the Agreement,
you will own such Shares free and clear of any adverse claims,
assuming that you are a protected purchaser within the meaning of
Section 8303 of Article 8 of the California Uniform Commercial
Code. The company has reserved 461,538 shares of Common Stock
for issuance upon conversion of the Shares when issued in
compliance with the provisions of the Articles and the
Certificate of Determination, such will be validly issued, fully
paid, and nonassessable; provided, however, that the Common Stock
-------- -------
issuable upon conversion of the Shares may be subject to
restrictions on transfer under state and federal securities laws
as set forth in the Agreement. Upon delivery by the Company to
you of certificates for the Common Stock being issued by the
Company and your tender of the certificate for the Shares being
converted as provided in the Certificate of Determination, you
will own such shares of Common Stock free and clear of any
adverse claims, assuming that you are a protected purchaser
within the meaning of Section 8303 of Article 8 of the California
Uniform Commercial Code.
24
<PAGE>
[Letterhead of Heller Ehrman White & McAuliffe]
Hambrecht & Quist Guaranty Finance, LLC
March 31, 1998
Page 6
10. Subject to the accuracy of your representations in Section 3 of
the Agreement and the statement in the Officer's Certificate that
the Company has not offered or sold Shares by means of
advertising or public solicitation, the offer, sale, and issuance
of the Shares (and the Common Stock issuable upon conversion
thereof) in conformity with the terms of the Agreement constitute
transactions exempt from the registration requirements of Section
5 of the Securities Act of 1933, as amended, and from the
qualification requirements of the California Corporate Securities
Law of 1968, as amended.
IV.
We further advise you that:
A. As noted, the enforceability of the Transactional Agreements is
subject to the effect of general principles of equity. These
principles include, without limitation, concepts of commercial
reasonableness, materiality and good faith and fair dealing. As
applied to the Transactional Agreements, these principles will
require you to act reasonably, in good faith and in a manner that
is not arbitrary or capricious in the administration and
enforcement of the Transactional Agreements and will preclude you
from invoking penalties for defaults that bear no reasonable
relation to the damage suffered or that would otherwise work a
forfeiture. In addition, the enforceability of the Transactional
Agreements is subject to the effect of Section 1670.5 of the
California Civil Code, which provides that a court may refuse to
enforce, or may limit the enforcement of, a contract or clause of
a contract that the court finds as a matter of law to have been
unconscionable at the time it was made.
B. The effectiveness of indemnities, rights of contribution,
exculpatory provisions and waivers of the benefits of statutory
provisions may be limited on public policy grounds.
C. Section 1717 of the California Civil Code provides that, in any
action on a contract where the contract specifically provides
that attorneys' fees and costs incurred to enforce that contract
shall be awarded either to one of the parties or to the
prevailing party, then the party who is determined to be the
party prevailing in the action, whether that party is the party
specified in the contract or not, shall be entitled to reasonable
attorneys' fees in addition to other costs.
D. Any provisions of the Transactional Agreements requiring that
waivers must be in writing may not be binding or enforceable if a
non-executory
25
<PAGE>
[Letterhead of Heller Ehrman White & McAuliffe]
Hambrecht & Quist Guaranty Finance, LLC
March 31, 1998
Page 7
oral agreement has been created modifying any such provision or
an implied agreement by trade practice or course of conduct has
given rise to a waiver.
This opinion is rendered to you in connection with the Agreement and is solely
for your benefit. This opinion may not be relied upon by you for any other
purpose, or relied upon by any other person, firm, corporation, or other entity
for any purpose, without our prior written consent. We disclaim any obligation
to advise you of any developments in areas covered by this opinion that occur
after the date of this opinion.
Very truly yours,
Heller Ehrman White & McAuliffe
26
<PAGE>
EXHIBIT 5
---------
April 20, 1998
14050-0001
SONIC SOLUTIONS
101 Rowland Way, Suite 110
Novato, California 94945
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Sonic Solutions, a California corporation (the
"Company"), in connection with the Registration Statement on Form S-3 to be
filed with the Securities and Exchange Commission (the "Commission") on April
__, 1998 (the "Registration Statement") for the purpose of registering under the
Securities Act of 1933, as amended, an aggregate of 461,538 shares of its Common
Stock, no par value (the "Shares") which may be issued to the holders (the
"Holders") of shares of Series C Preferred Stock of the Company (the "Preferred
Stock"), upon conversion of such Shares by the Holders. The Shares are to be
sold by the Holders under the Registration Statement.
I.
In connection with this opinion, we have assumed the authenticity of all
records, documents and instruments submitted to us as originals, the genuineness
of all signatures, the legal capacity of natural persons and the conformity to
the originals of all records, documents and instruments submitted to us as
copies. In rendering our opinion, we have examined the following records,
documents, instruments and certificates:
(a) The Amended and Restated Articles of Incorporation of the Company
certified by the Secretary of State of the State of California as of September
11, 1997, and certified to us by an officer of the Company as being complete and
in full force and effect as of the date of this opinion;
(b) The Bylaws of the Company certified to us by an officer of the Company
as being complete and in full force and effect as of the date of this opinion;
(c) Certificate of an Officer of the Company: (i) attaching records
certified to us as constituting all records of proceedings and actions of the
Board of Directors of the Company and any committees of the Board of Directors
relating to the Shares; and (ii) certifying as to certain factual matters;
<PAGE>
SONIC SOLUTIONS
April 20, 1998
Page 2
(d) The Registration Statement; and
(e) A written statement from ChaseMellon Shareholder Services, the
Company's transfer agent, as to the number of shares of the Company's Common
Stock that were outstanding on April 14, 1998.
This opinion is limited to the federal laws of the United States of America
and the laws of the State of California, and we disclaim any opinion as to the
laws of any other jurisdiction. We further disclaim any opinion as to any
statute, rule, regulation, ordinance, order or other promulgation of any other
jurisdiction or any regional or local governmental body or as to any related
judicial or administrative decision.
II.
Based upon the foregoing and our examination of such questions of law as we
have deemed necessary or appropriate for the purpose of this opinion, and
assuming that: (i) the Registration Statement becomes and remains effective
during the period when the Shares are offered and sold; (ii) the full
consideration stated in the Private Securities Subscription Agreement dated as
of March 31, 1998 pursuant to which the Shares are to be issued is paid for each
Share; (iii) appropriate certificates evidencing the Shares are executed and
delivered by the Company; and (iv) all applicable securities laws are complied
with, it is our opinion that the Shares covered by the Registration Statement
will be legally issued, fully paid and nonassessable.
III.
This opinion is rendered to you in connection with the Registration
Statement and is solely for your benefit. This opinion may not be relied upon
by you for any other purpose, or relied upon by any other person, firm,
corporation or other entity for any purpose, without our prior consent. We
disclaim any obligation to advise you of any change of law that occurs, or any
facts of which we may become aware, after the date of this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Heller Ehrman White & McAuliffe
------------------------------------
Heller Ehrman White & McAuliffe
<PAGE>
Exhibit 23.2
The Board of Directors
Sonic Solutions:
We consent to incorporation by reference in the Form S-3 registration
statement of Sonic Solutions of our report dated April 29, 1997, relating to
the balance sheets of Sonic Solutions as of March 31, 1997 and 1996, and the
related statements of operations, shareholders' equity and cash flows for each
of the years in the three-year period ended March 31, 1997 and all related
schedules, which report appears in the March 31, 1997 annual report on Form
10-K of Sonic Solutions.
/s/ KPMG Peat Marwick LLP
---------------------------------
KPMG Peat Marwick LLP
San Francisco, California
April 20, 1998
