<PAGE>
As filed with the Securities and Exchange Commission on January 15, 1998
Registration No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SONIC SOLUTIONS
(Exact name of registrant as specified in its charter)
CALIFORNIA 93-0925818
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
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. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================================
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE (2) FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value (1) 1,522,000 $4.94 $7,518,680 $2,218
- ---------------------------------------------------------------------------------------------------------------------
TOTAL: $7,518,680 $2,218
=====================================================================================================================
</TABLE>
- ----------------------
(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 January 14, 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.
<PAGE>
PROSPECTUS
----------
1,522,000 SHARES
SONIC SOLUTIONS
COMMON STOCK
This Prospectus may be used only in connection with the resale, from time
to time, of up to 1,522,000 shares (the "Shares") of Common Stock, no par value,
(the "Common Stock") of Sonic Solutions (the "Company"), for the account of the
selling stockholders identified below (the "Selling Stockholders"). All of the
Shares covered hereby are to be sold by the Selling Stockholders, who may
originally receive the Shares pursuant to a Private Equity Line of Credit
Agreement executed as of December 31, 1997 (the "Investment Agreement"). The
Company will not receive any proceeds from the sale of shares by the Selling
Stockholders. 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 January 14, 1998, the closing price for the Common Stock,
as reported on the Nasdaq National Market, was $4.94 per share.
Shares offered by this Prospectus by the Selling Stockholders may be
offered for sale from time to time by the Selling Stockholders 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 Stockholders or by any broker-dealer who may participate in sales of
securities covered hereby. The Selling Stockholders 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
Stockholders 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 Stockholders, 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 Stockholders 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 January __, 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, and September
30, 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 Stockholders may purchase from the Company up to a total of
1,522,000 shares of Common Stock in tranches. The timing of purchases and the
amount of Common Stock sold to the Selling Stockholders will be determined by
the Company. Upon each purchase of shares, the Company will supplement this
Prospectus to reflect the amount of shares to be resold by the Selling
Stockholders.
2
<PAGE>
PROSPECTUS SUPPLEMENT
On _______________, 199_, the Selling Stockholders acquired __________
shares of Common Stock from the Company, and this Prospectus relates to the
resale of such shares. See "Selling Stockholders".
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 two 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
most models of Macintosh personal computers. The Company plans to introduce in
fiscal 1999 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 late fiscal 1998 or
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. This technology is important to customers in
the audio and video markets which Sonic serves, and is finding its way into
professional production environments. 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
4
<PAGE>
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
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
5
<PAGE>
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, 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. While the Company continues to
distribute the Scenarist authoring package on a non-exclusive basis, Daikin
has made clear its impression that, with the introduction of DVD Producer,
Sonic has become a competitor to Daikin. Accordingly, 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 involving
copyright protection schemes and sharing of royalty revenues from
6
<PAGE>
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 DVDForum and various trade
associations representing the music recording industry. While a finalized
standard is now expected in the spring 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 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.
SonicStudio Configurations. 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
audio market 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. In this
regard, Apple Computer has introduced new versions of the Macintosh based upon
the PowerPC microprocessor. The Company currently supports the PowerPC in
"emulation" mode and plans to support PowerPC in "native" mode, in the future.
The Company believes that it will be able to make its systems operate on the
PowerPC in "native" mode, but there can be no assurance that this development
will be completed
7
<PAGE>
successfully or in a timely manner. Further, Apple Computer has announced its
intention to introduce an advanced operating system for the Macintosh, based on
developments originated by NeXT Computer, recently acquired by Apple. 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.
Sonic MediaNet; Charges Related to Technology Transition. 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 MediatNet in 1998 based on the Fibre Channel standard. This
product, sometimes referred to "Sonic MediaNet II" and now tentatively called
"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 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 Lightspeed product line
as planned. 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 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 Lightspeed or that the Company
will be successful in marketing and selling Sonic MediaNet or 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 Lightspeed product 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.
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
8
<PAGE>
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 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
9
<PAGE>
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 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
10
<PAGE>
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 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 Stockholders.
11
<PAGE>
SELLING STOCKHOLDERS *
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock by the Selling Stockholders as of
January __, 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 Stockholders after completion of such distribution. See "Plan of
Distribution".
<TABLE>
<CAPTION>
Common Stock Common Stock
Beneficially Owned Common Beneficially
Prior to Stock Owned
Offering(1) to be sold After Offering
------------ ---------- ---------------
<S> <C> <C> <C> <C>
Number Percent Number Percent
------------ ---------- --------------- --------------
TOTAL:
</TABLE>
- ------------------------
(1) Applicable percentage of ownership is based on _________ shares of Common
Stock outstanding as of January __, 1998.
The Shares offered hereby by the Selling Stockholders have been acquired
pursuant to a Private Equity Line of Credit Agreement dated as of December 31,
1997 (the "Investment Agreement") among the Company and the Selling
Stockholders. Under the Investment Agreement, each Selling Stockholder
represented to the Company that it was acquiring the Shares from the Company
without any present intention of effecting a distribution of those shares.
However, in accordance with the Investment Agreement, the Company agreed to
register the Shares for resale by the Selling Stockholders 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 of Common Stock
acquired by the Selling Stockholder as set forth on the Prospectus Supplement.
12
<PAGE>
PLAN OF DISTRIBUTION
All or a portion of the Shares offered hereby by the Selling Stockholders
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
Stockholders 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
Stockholders. The Selling Stockholders 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 Stockholders 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 Stockholders
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 Stockholders (and, if they act as agent for the
purchaser of such Shares, from such purchaser). Broker-dealers may agree with
the Selling Stockholders 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 Stockholders, to purchase as principal any
unsold Shares at the price required to fulfill the broker-dealer commitment to
the Selling Stockholders. 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
Stockholders 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 Stockholders.
The Selling Stockholders 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 January 7, 1998, there were 7,680,065 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 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
certain financing entities, the Company issued to such financing entities
warrants to purchase 260,200 shares of Common Stock. The financing entities may
exercise 130,100 shares at an exercise price of $10.00 at any time on or before
December 24, 2003. In December 1997, 130,100 of these warrants were exercised on
a "net" basis, and the warrant holder received 40,266 shares of Common Stock.
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.
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.
14
<PAGE>
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.
Securities and Exchange Commission Registration Fee $ 2,218
Accounting Fees $ 5,000
Legal Fees and Disbursements $35,000
Miscellaneous $ 2,782
-------
TOTAL: $45,000
=======
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.
II-1
<PAGE>
<TABLE>
<CAPTION>
ITEM 16. EXHIBITS.
---------
EXHIBIT DESCRIPTION
- ------- ---------------------------------------------------------
<C> <S>
4.1 Private Equity Line of Credit Agreement between
Registrant and Kingsbridge Capital Limited dated as of
December 31, 1997
4.2 Registration Rights Agreement between Registrant and
Kingsbridge Capital Limited dated as of December 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-4)
</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;
(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.
II-2
<PAGE>
(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-3
<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 9th day of January, 1998.
SONIC SOLUTIONS
By: /s/ Robert J. Doris
---------------------------
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.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Robert J. Doris President and Director January 9, 1998
- -------------------------------------
Robert J. Doris
/s/ James A. Moorer Senior Vice President of Audio January 9, 1998
- ------------------------------------- Development and Director
James A. Moorer
/s/ Mary C. Sauer Senior Vice President of Business January 9, 1998
- ------------------------------------- Development and Director
Mary C. Sauer
/s/ Michael C. Child Director January 9, 1998
- -------------------------------------
Michael C. Child
/s/ Robert M. Greber Director January 9, 1998
- -------------------------------------
Robert M. Greber
/s/ Peter J. Marguglio Director January 9, 1998
- -------------------------------------
Peter J. Marguglio
/s/ A. Clay Leighton Vice President of Finance and January 9, 1998
- ------------------------------------- Chief Financial Officer
A. Clay Leighton (Principal Financial Accounting
Officer)
</TABLE>
II-4
<PAGE>
SONIC SOLUTIONS
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- --------------------------- ---------------------------------------------
4.1 Private Equity Line of Credit Agreement
between Registrant and Kingsbridge Capital
Limited dated as of December 31, 1997
4.2 Registration Rights Agreement between
Registrant and Kingsbridge Capital Limited
dated as of December 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-4)
<PAGE>
Exhibit 4.1
-----------
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BY AND BETWEEN
KINGSBRIDGE CAPITAL LIMITED
AND
SONIC SOLUTIONS
________________________________________________________________
DATED AS OF DECEMBER 31, 1997
________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I
CERTAIN DEFINITIONS.................................................................... 1
Section 1.1 "Adjustment Period.................................................. 1
Section 1.2 "Bid Price.......................................................... 1
Section 1.3 "Capital Shares".................................................... 1
Section 1.4 "Closing"........................................................... 1
Section 1.5 "Closing Date"...................................................... 2
Section 1.6 "Commitment Amount"................................................. 2
Section 1.7 "Commitment Period"................................................. 2
Section 1.8 "Common Stock"...................................................... 2
Section 1.9 "Common Stock Equivalents".......................................... 2
Section 1.10 "Condition Satisfaction Date"....................................... 2
Section 1.11 "Legend"............................................................ 2
Section 1.12 "Damages"........................................................... 2
Section 1.13 "Effective Date".................................................... 2
Section 1.14 "Exchange Act"...................................................... 2
Section 1.15 "Floor Price"....................................................... 2
Section 1.16 "Investment Amount"................................................. 2
Section 1.17 "Legend"............................................................ 2
Section 1.18 "Market Price"...................................................... 3
Section 1.19 "Material Adverse Effect"........................................... 3
Section 1.20 "Maximum Put Amount"................................................ 3
Section 1.21 "NASD".............................................................. 3
Section 1.22 "Optional Purchase Date"............................................ 3
Section 1.23 "Optional Purchase Notice".......................................... 3
Section 1.24 "Outstanding"....................................................... 3
Section 1.25 "Person"............................................................ 3
Section 1.26 "Principal Market".................................................. 3
Section 1.27 "Purchase Price".................................................... 3
Section 1.28 "Put"............................................................... 4
Section 1.29 "Put Shares"........................................................ 4
Section 1.30 "Registrable Securities"............................................ 4
Section 1.31 "Registration Rights Agreement"..................................... 4
Section 1.32 "Registration Statement"............................................ 4
Section 1.33 "Regulation D"...................................................... 4
Section 1.34 "SEC"............................................................... 4
Section 1.35 "Section 4(2)"...................................................... 4
Section 1.36 "Securities Act".................................................... 4
Section 1.37 "SEC Documents"..................................................... 4
Section 1.38 "Subscription Date.................................................. 5
Section 1.39 "Trading Cushion"................................................... 5
Section 1.40 "Trading Day"....................................................... 5
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 1.41 "Trinity"........................................................... 5
Section 1.42 "Valuation Event"................................................... 5
Section 1.43 "Valuation Period".................................................. 6
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK...................................................... 6
Section 2.1 Investments......................................................... 6
Section 2.2 Mechanics........................................................... 7
Section 2.3 Closings............................................................ 7
Section 2.4 Special Circumstances; Adjustment Period............................ 7
Section 2.5 Termination of Investment Obligation................................ 8
Section 2.6 Additional Shares................................................... 8
Section 2.7 Liquidated Damages.................................................. 9
Section 2.8 Standby Letter of Credit............................................ 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR............................................. 10
Section 3.1 Intent.............................................................. 10
Section 3.2 Sophisticated Investor.............................................. 10
Section 3.3 Authority........................................................... 10
Section 3.4 Not an Affiliate.................................................... 10
Section 3.5 Organization and Standing........................................... 10
Section 3.6 Absence of Conflicts................................................ 10
Section 3.7 Disclosure; Access to Information................................... 11
Section 3.8 Manner of Sale...................................................... 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................... 11
Section 4.1 Organization of the Company......................................... 11
Section 4.2 Authority........................................................... 11
Section 4.3 Capitalization...................................................... 11
Section 4.4 Common Stock........................................................ 12
Section 4.5 SEC Documents....................................................... 12
Section 4.6 Valid Issuances..................................................... 12
Section 4.7 No General Solicitation or Advertising in Regard to this Transaction 13
Section 4.8 Corporate Documents................................................. 13
Section 4.9 No Conflicts........................................................ 13
Section 4.10 No Material Adverse Change.......................................... 14
Section 4.11 No Undisclosed Liabilities.......................................... 14
Section 4.12 No Undisclosed Events or Circumstances.............................. 14
Section 4.13 No Integrated Offering.............................................. 14
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
Section 4.14 Litigation and Other Proceedings.................................... 14
Section 4.15 No Misleading or Untrue Communication............................... 14
Section 4.16 Material Non-Public Information..................................... 14
Section 4.17 Broker-Dealer Status................................................ 14
ARTICLE V
COVENANTS OF THE INVESTOR.............................................................. 15
Section 5.1 Compliance with Law................................................. 15
Section 5.2 No Short Sales...................................................... 15
ARTICLE VI
COVENANTS OF THE COMPANY............................................................... 15
Section 6.1 Registration Rights................................................. 15
Section 6.2 Reservation of Common Stock......................................... 15
Section 6.3 Listing of Common Stock............................................. 15
Section 6.4 Exchange Act Registration........................................... 16
Section 6.5 Legends............................................................. 16
Section 6.6 Corporate Existence................................................. 16
Section 6.7 Additional SEC Documents............................................ 16
Section 6.8 Blackout Period..................................................... 16
Section 6.9 Expectations Regarding Optional Purchase Notices.................... 17
Section 6.10 Disclosure of Material Information.................................. 17
Section 6.11 Consolidation; Merger............................................... 17
Section 6.12 Issuance of Put Shares.............................................. 17
ARTICLE VII
CONDITIONS TO DELIVERY OF OPTIONAL
PURCHASE NOTICES AND CONDITIONS TO CLOSING............................................. 17
Section 7.1 Conditions Precedent to the Obligation of the Company to Issue and
Sell Common Stock................................................... 17
Section 7.2 Conditions Precedent to the Right of the Company to
Deliver an Optional Purchase Notice and the Obligation of the
Investor to Purchase Put Shares..................................... 18
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION......................... 21
Section 8.1 Due Diligence Review................................................ 21
Section 8.2 Non-Disclosure of Non-Public Information............................ 21
ARTICLE IX
LEGENDS................................................................................ 22
Section 9.1 Legends............................................................. 22
</TABLE>
iii
<PAGE>
<TABLE>
<C> <S> <C>
Section 9.2 No Other Legend or Stock Transfer Restrictions...................... 24
Section 9.3 Investor's Compliance............................................... 24
ARTICLE X
CHOICE OF LAW.......................................................................... 24
Section 10.1 Choice of Law....................................................... 24
ARTICLE XI
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; TERMINATION................................... 24
Section 11.1 Assignment.......................................................... 24
Section 11.2 Termination......................................................... 24
Section 11.3 Entire Agreement, Amendment......................................... 25
ARTICLE XII
NOTICES; INDEMNIFICATION............................................................... 25
Section 12.1 Notices............................................................. 25
Section 12.2 Indemnification..................................................... 26
Section 12.3 Method of Asserting Indemnification Claims.......................... 27
ARTICLE XIII
MISCELLANEOUS.......................................................................... 31
Section 13.1 Fees and Expenses................................................... 31
Section 13.2 Brokerage........................................................... 31
Section 13.3 Counterparts........................................................ 31
Section 13.4 Entire Agreement.................................................... 31
Section 13.5 Survival; Severability.............................................. 31
Section 13.6 Title and Subtitles................................................. 31
Section 13.7 Reporting Entity for the Common Stock............................... 31
</TABLE>
iv
<PAGE>
EXHIBIT 4.1
-----------
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BY AND BETWEEN
KINGSBRIDGE CAPITAL LIMITED
AND
SONIC SOLUTIONS
DATED AS OF DECEMBER 31, 1997
This PRIVATE EQUITY LINE OF CREDIT AGREEMENT is entered into as of the 31st
day of December, 1997 (this "Agreement"), by and between Kingsbridge Capital
Limited (the "Investor"), an entity organized and existing under the laws of the
British Virgin Islands, and Sonic Solutions, a corporation organized and
existing under the laws of the State of California (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase, up to
$7,000,000 of the Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Adjustment Period" See Section 7.2(b).
-----------------
Section 1.2 "Bid Price" shall mean the closing bid price (as reported by
---------
Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Capital Shares" shall mean the Common Stock and any shares of
--------------
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.4 "Closing" shall mean one of the closings of a purchase and
-------
sale of the Common Stock pursuant to Section 2.1.
<PAGE>
Section 1.5 "Closing Date" shall mean, with respect to a Closing, the
------------
third Trading Day following the Optional Purchase Date related to such Closing,
provided all conditions to such Closing have been satisfied on or before such
Trading Day.
Section 1.6 "Commitment Amount" shall mean the $7,000,000 up to which the
-----------------
Investor has agreed to provide to the Company in order to purchase Put Shares
pursuant to the terms and conditions of this Agreement.
Section 1.7 "Commitment Period" shall mean the period commencing on the
-----------------
earlier to occur of (i) the Effective Date or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have purchased Put
Shares pursuant to this Agreement for an aggregate Purchase Price of $7,000,000,
(y) the date this Agreement is terminated pursuant to Section 2.5(b), or (z) the
date occurring twenty-four (24) months from the date of commencement of the
Commitment Period.
Section 1.8 "Common Stock" shall mean the Company's common stock, no par
------------
value per share.
Section 1.9 "Common Stock Equivalents" shall mean any securities that are
------------------------
convertible into or exchangeable for Common Stock or any warrants, options or
other rights to subscribe for or purchase Common Stock or any such convertible
or exchangeable securities.
Section 1.10 "Condition Satisfaction Date" See Section 7.2.
---------------------------
Section 1.11 "Legend" See Section 8.1.
------
Section 1.12 "Damages" shall mean any loss, claim, damage, liability,
-------
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.13 "Effective Date" shall mean the date on which the SEC first
--------------
declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.14 "Exchange Act" shall mean the Securities Exchange Act of
------------
1934, as amended and the regulations promulgated thereunder.
Section 1.15 "Floor Price" shall mean three dollars ($3.00) per share.
-----------
Section 1.16 "Investment Amount" shall mean the dollar amount (within the
-----------------
range specified in Section 2.2) to be invested by the Investor to purchase Put
Shares with respect to any Optional Purchase Date as notified by the Company to
the Investor in accordance with Section 2.2 hereof.
Section 1.17 "Legend" See Section 8.1.
------
2
<PAGE>
Section 1.18 "Market Price" on any given date shall mean the average of
------------
the lowest intra-day prices of the Common Stock over the Valuation Period.
"Lowest intra-day price" shall mean the lowest trade price of the Common Stock
(as reported by Bloomberg L.P.) during any Trading Day.
Section 1.19 "Material Adverse Effect" shall mean any effect on the
-----------------------
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
its obligations under any of (a) this Agreement and (b) the Registration Rights
Agreement.
Section 1.20 "Maximum Put Amount" shall mean (i) $500,000 if the average
------------------
daily volume of shares of Common Stock traded during the preceding ten (10)
Trading Days (the "Average Trading Volume") is 40,000 shares or less; (ii)
$750,000 if the Average Trading Volume greater than 40,000 shares and less than
60,000 shares; and (iii) $1,000,000 if the Average Trading Volume equal to or
greater than 60,000 shares.
Section 1.21 "NASD" shall mean the National Association of Securities
----
Dealers, Inc.
Section 1.22 "Optional Purchase Date" shall mean the Trading Day during
----------------------
the Commitment Period that an Optional Purchase Notice to sell Common Stock to
the Investor is deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.23 "Optional Purchase Notice" shall mean a written notice to the
------------------------
Investor setting forth the Investment Amount that the Company intends to sell to
the Investor.
Section 1.24 "Outstanding" when used with reference to Common Shares or
-----------
Capital Shares (collectively the "Shares"), shall mean, at any date as of which
the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
- -------- -------
directly or indirectly owned or held by or for the account of the Company.
Section 1.25 "Person" shall mean an individual, a corporation, a
------
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.26 "Principal Market" shall mean the Nasdaq National Market, the
----------------
Nasdaq Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
Section 1.27 "Purchase Price" shall mean eighty-six percent (86%) (the
--------------
"Purchase Price Percentage") of the Market Price upon an Optional Purchase Date
(or such other date on which the Purchase Price is calculated in accordance with
the terms and conditions of this Agreement), provided, however, that in no event
-------- -------
shall the Purchase Price be less than the Floor Price.
3
<PAGE>
Section 1.28 "Put" shall mean each occasion the Company elects to
---
exercise its right to tender an Optional Purchase Notice requiring the Investor
to purchase a discretionary amount of the Company's Common Stock, subject to the
terms of this Agreement.
Section 1.29 "Put Shares" shall mean all shares of Common Stock issued or
----------
issuable pursuant to a Put that has occurred or may occur in accordance with the
terms and conditions of this Agreement.
Section 1.30 "Registrable Securities" shall mean the Put Shares until (i)
----------------------
the Registration Statement has been declared effective by the SEC and all Put
Shares have been disposed of pursuant to the Registration Statement, (ii) all
Put Shares have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) all Put Shares have been otherwise
transferred to holders who may trade such shares without restriction under the
Securities Act, 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, in the opinion of counsel to the Company, which counsel shall
be reasonably acceptable to the Investor, all Put Shares may be sold without any
time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.
Section 1.31 "Registration Rights Agreement" shall mean the agreement
-----------------------------
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor as of
the Subscription Date.
Section 1.32 "Registration Statement" shall mean a registration
----------------------
statement on Form S-3 (if use of such form is then available to the Company
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 resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.33 "Regulation D" shall have the meaning set forth in the
------------
recitals of this Agreement.
Section 1.34 "SEC" shall mean the Securities and Exchange Commission.
---
Section 1.35 "Section 4(2)" shall have the meaning set forth in the
------------
recitals of this Agreement.
Section 1.36 "Securities Act" shall have the definition ascribed to it
--------------
in the recitals of this Agreement.
Section 1.37 "SEC Documents" shall mean the Company's latest Form 10-K
-------------
as of the time in question, all Forms 10-Q and 8-K filed thereafter, and the
Proxy Statement for its latest
4
<PAGE>
fiscal year as of the time in question until such time the Company no longer has
an obligation to maintain the effectiveness of a Registration Statement as set
forth in the Registration Rights Agreement.
Section 1.38 "Subscription Date" shall mean the date on which this
-----------------
Agreement is executed and delivered by the parties hereto.
Section 1.39 "Trading Cushion" shall mean, at any time, (i) the mandatory
---------------
fifteen (15) Trading Days between Optional Purchase Dates if at such time the
immediately preceding Put was exercised for $650,000 or less and (ii) the
mandatory twenty (20) Trading Days between Optional Purchase Dates if at such
time the immediately preceding Put was exercised for more than $650,000.
Section 1.40 "Trading Day" shall mean any day during which the New York
-----------
Stock Exchange shall be open for business.
Section 1.41 "Trinity" See Section 4.17.
-------
Section 1.42 "Valuation Event" shall mean an event in which the Company
---------------
at any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Stock or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital
Shares"), otherwise than as provided in the foregoing Subsections (a)
and (b) above, at a price per share less, or for other consideration
lower, than the Bid Price in effect immediately prior to such
issuance, or without consideration;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for
which Additional Capital Shares may at any time thereafter be
issuable pursuant to such warrants, options or other rights shall be
less than the Bid Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable for
Capital Shares and the consideration per share for which Additional
Capital Shares may at any time thereafter be issuable pursuant to the
terms of such convertible or exchangeable securities shall be less
than the Bid Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness
to the holders of its Capital Shares as a dividend in liquidation or
by way of return of capital or other than as a dividend payable out
of earnings or surplus legally
5
<PAGE>
available for dividends under applicable law or any distribution to
such holders made in respect of the sale of all or substantially all
of the Company's assets (other than under the circumstances provided
for in the foregoing subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing
Subsections (a) through (f) hereof, inclusive, which in the opinion
of the Company's Board of Directors, determined in good faith, would
have a materially adverse effect upon the rights of the Investor at
the time of a Put.
Section 1.43 "Valuation Period" shall mean the period of five Trading Days
----------------
during which the Purchase Price of the Common Stock is valued, which period
shall be with respect to the Purchase Price on any Optional Purchase Date, the
two Trading Days preceding and the two Trading Days following the Trading Day on
which an Optional Purchase Notice is deemed to be delivered, as well as the
Trading Day on which such notice is deemed to be delivered; provided, however,
-------- -------
that if a Valuation Event occurs during any Valuation Period, a new Valuation
Period shall begin on the Trading Day immediately after the occurrence of such
Valuation Event and end on the fifth Trading Day thereafter.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 Investments.
-----------
(a) Puts. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article III hereof), on any
Optional Purchase Date the Company may exercise a Put by the delivery
of an Optional Purchase Notice. The number of Put Shares that the
Investor shall receive pursuant to such Put shall be determined by
dividing the Investment Amount specified in the Optional Purchase
Notice by the Purchase Price on such Optional Purchase Date.
(b) Minimum Amount of Puts. The Company shall, in accordance with
Section 2.2(a), issue and sell Put Shares to the Investor totaling
(in aggregate Purchase Prices) at least $2,000,000. If the Company
for any reason fails to issue and deliver such Put Shares during the
Commitment Period, on the first Trading Day after the expiration of
the Commitment Period, the Company shall deliver to Investor a sum in
cash equal to: ($2,000,000 minus the aggregate Investment Amounts of
the Put Shares delivered hereunder) X (0.14).
(c) Maximum Amount of Put Shares. Unless the Company obtains the
requisite approval of its shareholders in accordance with the
corporate laws of California and the applicable rules of the
Principal Market, no more than 1,510,000 shares of Common Stock may
be issued and sold pursuant to Puts.
6
<PAGE>
Section 2.2 Mechanics.
---------
(a) Optional Purchase Notice. At any time during the Commitment
Period, the Company may deliver an Optional Purchase Notice to the
Investor, subject to the conditions set forth in Section 7.2;
provided, however, the Investment Amount for each Put as designated
-----------------
by the Company in the applicable Optional Purchase Notice shall be
neither less than $100,000 nor more than the Maximum Put Amount.
(b) Date of Delivery of Optional Purchase Notice. An Optional
Purchase Notice shall be deemed delivered on (i) the Trading Day it
is received by facsimile or otherwise by the Investor if such notice
is received prior to 12:00 noon New York time, or (ii) the
immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon New York time on a Trading Day or at any
time on a day which is not a Trading Day. No Optional Purchase Notice
may be deemed delivered, on a day that is not a Trading Day.
Section 2.3 Closings. On each Closing Date for a Put the Company shall
--------
deliver to the Investor one or more certificates, at the Investor's option,
representing the Put Shares to be purchased by the Investor pursuant to Section
2.1 herein, registered in the name of the Investor or, at the Investor's option,
deposit such certificate(s) into such account or accounts previously designated
by the Investor and (ii) the Investor shall deliver to escrow the Investment
Amount specified in the Optional Purchase Notice by wire transfer of immediately
available funds to an account designated by the Company on or before the Closing
Date. In addition, on or prior to the Closing Date, each of the Company and the
Investor shall deliver all documents, instruments and writings required to be
delivered or reasonably requested by either of them pursuant to this Agreement
in order to implement and effect the transactions contemplated herein. Payment
of funds to the Company and delivery of the certificates to the Investor shall
occur out of escrow in accordance with the escrow agreement referred to in
Section 7.2(p) following (x) the Company's deposit into escrow of the
certificates representing the Put Shares and (y) the Investor's deposit into
escrow of the Investment Amount or the Company's draw on the Standby Letter of
Credit (as defined in Section 2.8); provided, however, that to the extent the
-------- -------
Company has not paid the fees, expenses and disbursements of the Investor's
counsel in accordance with Section 13.1, the amount of such fees, expenses and
disbursements shall be paid in immediately available funds, at the direction of
the Investor, to Investor's counsel with no reduction in the number of Put
Shares issuable to the Investor on such Closing Date.
Section 2.4 Special Circumstances; Adjustment Period.
----------------------------------------
(a) Adjustment Period Notice. In the event that the Company shall in
good faith anticipate executing an agreement of acquisition, merger
or consolidation within ninety (90) days after giving the Investor
Adjustment Period Notice (as defined below), the Company may, at its
sole discretion, give the Investor at least twenty-one (21) days'
irrevocable advance notice, in the form of Exhibit A hereto
("Adjustment Period Notice"), that the Company shall initiate an
Adjustment
7
<PAGE>
Period (as defined below). The giving of such Adjustment Period
Notice shall not constitute the disclosure of non-public information
to the Investor under this Agreement.
(b) During the Adjustment Period:
1. The Maximum Put Amount shall be $1,000,000.
2. the Purchase Price shall be eighty-three percent (83%) of the
Market Price upon an Optional Purchase Date;
3. the duration of the Trading Cushion shall be shortened to ten
(10) Trading Days until the expiration of five consecutive weeks
(the "Adjustment Period");
4. the Company may not deliver an Optional Purchase Notice such
that the number of Put Shares to be purchased by the Investor
upon the applicable Closing, when aggregated with all other
shares of Common Stock then owned by the Investor beneficially or
deemed beneficially owned by the Investor, would result in the
Investor owning more than 4.9% of all of such Common Stock as
would be outstanding on such Closing Date, as determined in
accordance with Section 13(d) of the Exchange Act and the
regulations promulgated thereunder. For purposes of this Section
2.4(b), in the event that the amount of Common Stock outstanding
as determined in accordance with Section 13(d) of the Exchange
Act and the regulations promulgated thereunder is greater on a
Closing Date than on the date upon which the Optional Purchase
Notice associated with such Closing Date is given, the amount of
Common Stock outstanding on such Closing Date shall govern for
purposes of determining whether the Investor, when aggregating
all purchases of Common Stock made pursuant to this Agreement,
would own more than 4.9% of the Common Stock following such
Closing Date.
Section 2.5 Termination of Investment Obligation. The obligation of the
------------------------------------
Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to a Closing Date that has not yet occurred) in the
event that (i) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period, for any reason other than deferrals
or suspension in accordance with Section 1.1(f) of the Registration Rights
Agreement, as a result of corporate developments subsequent to the Subscription
Date that would require such Registration Statement to be amended to reflect
such event in order to maintain its compliance with the disclosure requirements
of the Securities Act or (ii) the Company shall at any time fail to comply with
the requirements of Section 6.3, 6.4, 6.5 or 6.6.
Section 2.6 Additional Shares. In the event that, within five Trading
-----------------
Days of any Closing Date, the Company gives notice to the Investor of an
impending "blackout period" in
8
<PAGE>
accordance with Section 1accordance with Section 1.1(f) of the
Registration Rights Agreement, and 1. the Bid Price on the Trading Day
immediately preceding such "blackout period" ("Old Bid Price") is greater than
the Bid Price on the first Trading Day following such "blackout period" that the
Investor may sell its Registrable Securities pursuant to an effective
Registration Statement ("New Bid Price"), then the Company shall issue to the
Investor a number of additional shares of Registrable Securities equal to the
difference between (X) the product of the number of Registrable Securities held
by Investor immediately prior to the "blackout period" multiplied by the Old Bid
Price, divided by the New Bid Price and (Y) the number of Registrable Securities
held by Investor immediately prior to the "blackout period."
Section 2.7 Liquidated Damages. The parties hereto acknowledge and agree
------------------
that the sum payable under Section 2.1(b) and the obligation to issue
Registrable Securities under Section 2.6 above shall constitute liquidated
damages and not penalties. The parties further acknowledge that (a) the amount
of loss or damages likely to be incurred is incapable or is difficult to
precisely estimate, (b) the amounts specified in such Sections bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred by the Investor in connection with the failure by the
Company to make Puts with aggregate Purchase Prices totalling at least
$2,000,000 or in connection with a "blackout" period under Section 1.1(f) of the
Registration Rights Agreement, and (c) the parties are sophisticated business
parties and have been represented by sophisticated and able legal and financial
counsel and negotiated this Agreement at arm's length.
Section 2.8 Standby Letter of Credit. On or before January 9, 1997, the
------------------------
Investor shall obtain from a reputable financial institution, reasonably
acceptable to the Company (it being agreed that a Merrill Lynch company will be
acceptable to the Company), a standby letter of credit, bank guarantee or
similar contingent financial instrument or arrangement, in favor of the Company
and in the amount of $1,000,000 (the "Standby Letter of Credit"). The Standby
------------------------
Letter of Credit will enable the Company to make a draw thereon in the event
that in connection with a Closing (i) the Company has duly exercised its Put
right pursuant to Section 2.1 above, (ii) there is mutual agreement by the
Company and the Investor that all of the conditions set forth in Section 7.2
hereof have been satisfied (subject to the immediately following sentence),
(iii) the Company has placed the Put Shares into escrow in accordance with
Section 2.3 and (iv) the Investor has not paid the Investment Amount into escrow
in accordance with Section 2.3 hereof. Any dispute relating to the satisfaction
of the conditions set forth in Section 7.2 hereof shall be resolved in
accordance with the terms of Section 12.3(c) hereof. The Standby Letter of
Credit may not be used for, and shall on the face of any and all documentation
representing the Standby Letter of Credit expressly prohibit any use thereof
for, any purpose other than for payment of the Investment Amount, including,
without limitation, as collateral for any present or future indebtedness or
other obligation of the Company. The Company shall pay the fees of the
financial institution issuing the Standby Letter of Credit up to $5,000 per
annum. The Standby Letter of Credit shall have an initial term ending on June
30, 1998, and shall be renewed twice, each such renewal for one additional
calendar quarter, to the extent not drawn upon if prior to each such renewal the
Company in good faith represents in writing to the Investor that it intends to
exercise its Put right and issue Put Shares to the Investor during such calendar
quarter; provided, however, that the Standby Letter of Credit shall not be
-------- -------
renewed if the Company has
9
<PAGE>
not exercised its Put right and has not issued Put Shares to the Investor in the
amount of $1,000,000 before June 30, 1998.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for its
------
own account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 Sophisticated Investor. The Investor is a sophisticated
----------------------
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.
Section 3.3 Authority. This Agreement has been duly authorized and validly
---------
executed and delivered by the Investor and is a valid and binding agreement of
the Investor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 3.4 Not an Affiliate. The Investor is not an officer, director or
----------------
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5 Organization and Standing. Investor is duly organized, validly
-------------------------
existing, and in good standing under the laws of the British Virgin Islands.
Section 3.6 Absence of Conflicts. The execution and delivery of this
--------------------
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (a) violate any provision of any indenture, instrument
or agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound, (b) conflict with or constitute a material default
thereunder, (c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party, or (d) require the
approval of any third-party (which has not been obtained) pursuant to any
material contract, agreement, instrument, relationship or legal obligation to
which Investor is subject or to which any of its assets, operations or
management may be subject.
10
<PAGE>
Section 3.7 Disclosure; Access to Information. Investor has received all
---------------------------------
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. The Company is
subject to the periodic reporting requirements of the Exchange Act, and Investor
has reviewed or received copies of any such reports that have been requested by
it.
Section 3.8 Manner of Sale. At no time was Investor presented with or
--------------
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
Section 4.1 Organization of the Company. The Company is a corporation duly
---------------------------
organized and existing in good standing under the laws of the State of
California and has all requisite corporate authority to own its properties and
to carry on its business as now being conducted. Except as set forth in the SEC
Documents, the Company does not have any subsidiaries. Except as set forth in
the SEC Documents, the Company does not own more than fifty percent (50%) of or
control any other business entity. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate power
---------
and authority to enter into and perform its obligations under this Agreement and
the Registration Rights Agreement and to issue the Put Shares; (ii) the
execution, issuance and delivery of this Agreement and the Registration Rights
Agreement and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate action and no further
consent or authorization of the Company or its Board of Directors or
stockholders is required; and (iii) this Agreement and the Registration Rights
Agreement have been duly executed and delivered by the Company and constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 4.3 Capitalization. The authorized capital stock of the Company
--------------
consists of 30,000,000 shares of Common Stock, of which 7,633,466 shares were
issued and outstanding as of October 30, 1997, and 10,000,000 shares of
preferred stock, none of which are issued and outstanding. 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 for the fiscal year ended March 31, 1997;
options to purchase not more than 500,000 shares of Common Stock granted in the
ordinary course of business and with purchase prices equal to the fair market
value of such Common Stock on the date of grant; and warrants to purchase
130,100 shares of Common Stock
11
<PAGE>
surrendered by Hambrecht & Quist in exchange for 40,266 shares of Common Stock,
there are no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company. All of the outstanding
shares of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and nonassessable.
Section 4.4 Common Stock. The Company has registered its Common Stock
------------
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of the date hereof, the Principal Market is the Nasdaq National
Market.
Section 4.5 SEC Documents. The Company has delivered or made available to
-------------
the Investor true and complete copies of the SEC Documents (including, without
limitation, proxy information and solicitation materials). The Company has not
provided to the Investor any information that, according to applicable law, rule
or regulation, should have been disclosed publicly prior to the date hereof by
the Company, but which has not been so disclosed. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and rules and
regulations of the SEC promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such SEC Documents, and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 4.6 Valid Issuances. The sale of the Put Shares may and will be
---------------
properly issued pursuant to Rule 4(2), Regulation D and/or any applicable state
law. When issued, the Put Shares shall be duly and validly issued, fully paid,
and nonassessable. Neither the sales of the Put Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement or the
Registration Rights Agreement will (i) result in the creation or imposition of
any liens, charges, claims or other encumbrances upon the Put Shares or any of
the assets of the Company, or (ii) entitle the holders of Outstanding Capital
Shares to preemptive or other rights to subscribe to or acquire the Capital
Shares or other securities of the Company. The Put Shares shall not subject the
Investor to personal liability by reason of the possession thereof.
12
<PAGE>
Section 4.7 No General Solicitation or Advertising in Regard to this
--------------------------------------------------------
Transaction. Neither the Company nor any of its affiliates nor any distributor
- -----------
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Put Shares, or (ii) made any
offers or sales of any security or solicited any offers to buy any security
under any circumstances that would require registration of the Common Stock
under the Securities Act.
Section 4.8 Corporate Documents. The Company has furnished or made
-------------------
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof (the "Certificate"),
and the Company's By-Laws, as amended and in effect on the date hereof (the "By-
Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of this
------------
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including, without limitation, the issuance of Common Stock
do not and will not (i) result in a violation of the Company's Articles of
Incorporation or By-Laws or (ii) conflict with, or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture, instrument or any "lock-up"
or similar provision of any underwriting or similar agreement to which the
Company is a party, or (iii) result in a violation of any federal, state, local
or foreign law, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations) applicable to the Company or by which
any property or asset of the Company is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect) nor is the Company otherwise in violation of, conflict with or
in default under any of the foregoing; provided that, for purposes of the
Company's representations and warranties as to violations of foreign law, rule
or regulation referenced in clause (iii), such representations and warranties
are made only to the best of the Company's knowledge insofar as the execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby are or may be affected by
the status of the Investor under or pursuant to any such foreign law, rule or
regulation. The business of the Company is not being conducted in violation of
any law, ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock in accordance with the terms hereof
(other than any SEC, NASD or state securities filings that may be required to be
made by the Company subsequent to any Closing, any registration statement that
may be filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Nasdaq National Market
referenced in Section 5.1); provided that, for purposes of the representation
made in this sentence, the Company is assuming and relying upon the accuracy of
the relevant representations and agreements of the Investor herein.
13
<PAGE>
Section 4.10 No Material Adverse Change. Since March 31, 1997, no Material
--------------------------
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities or
--------------------------
obligations which are material, individually or in the aggregate, and are not
disclosed in the SEC Documents or otherwise publicly announced, other than those
incurred in the ordinary course of the Company's businesses since March 31, 1997
and which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company.
Section 4.12 No Undisclosed Events or Circumstances. Since March 31, 1997,
--------------------------------------
no event or circumstance has occurred or exists with respect to the or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.13 No Integrated Offering. Neither the Company, 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, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 4.14 Litigation and Other Proceedings. Except as may be set forth
--------------------------------
in the SEC Documents, there are no lawsuits or proceedings pending or to the
best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which might have a Material Adverse Effect. Except as set
forth in the SEC Documents, no judgment, order, writ, injunction or decree or
award has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which might result in a Material
Adverse Effect.
Section 4.15 No Misleading or Untrue Communication. The Company, any
-------------------------------------
Person representing the Company, and, to the knowledge of the Company, any other
Person selling or offering to sell the Put Shares in connection with the
transactions contemplated by this Agreement, have not made, at any time, any
oral communication in connection with the offer or sale of the same which
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.16 Material Non-Public Information. The Company is not in
-------------------------------
possession of, nor has the Company or its agents disclosed to the Investor, any
material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock or
(ii) according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
Section 4.17 Broker-Dealer Status. The Company has reviewed certain NASD
--------------------
applications and has contacted the NASD Regulation Membership Department
regarding its
14
<PAGE>
placement agent, Trinity Capital Advisors, Inc. ("Trinity"), and represents and
warrants to the Investor that a principal of Trinity is a duly registered
representative of a broker or dealer that is duly registered under the Exchange
Act in accordance with the rules and regulation of the SEC.
ARTICLE V
COVENANTS OF THE INVESTOR
Section 5.1 Compliance with Law. The Investor's trading activities with
-------------------
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the Principal Market on which the Company's Common
Stock is listed.
Section 5.2 No Short Sales. The Investor and its affiliates shall not
--------------
engage in short sales of the Company's Common Stock; provided, however, that the
-------- -------
Investor may enter into any short sale or other hedging or similar arrangement
it deems appropriate with respect to Put Shares after it receives an Optional
Purchase Notice with respect to such Put Shares so long as such sales or
arrangements do not involve more than the number of such Put Shares (determined
as of the date of such Optional Purchase Notice).
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall cause the Registration
-------------------
Rights Agreement to remain in full force and effect and the Company shall comply
in all respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
---------------------------
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue the Put
Shares; such amount of shares of Common Stock to be reserved shall be calculated
based upon the minimum Purchase Price therefor under the terms of this
Agreement.
Section 6.3 Listing of Common Stock. The Company shall maintain the
-----------------------
listing of the Common Stock on a Principal Market, and as soon as practicable
(but in any event prior to the commencement of the Commitment Period) to list
the Put Shares. The Company further shall, if the Company applies to have the
Common Stock traded on any other Principal Market, include in such application
the Put Shares, and shall take such other action as is necessary or desirable in
the opinion of the Investor to cause the Common Stock to be listed on such other
Principal Market as promptly as possible. The Company shall take all action
necessary to continue the listing and trading of its Common Stock on the
Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the NASD and the
Principal Market.
15
<PAGE>
Section 6.4 Exchange Act Registration. The Company shall (i) cause its
-------------------------
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under said Act, and will not take any action or file any document
(whether or not permitted by said Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and filing
obligations under said Act. The Company will take all action to continue the
listing and trading of its Common Stock on the Principal Market and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and the Principal Market.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
-------
sold by the Investor pursuant to Section 8.1 shall be free of legends, except as
set forth in Article VIII.
Section 6.6 Corporate Existence. The Company will take all steps
-------------------
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Additional SEC Documents. The Company will deliver to the
------------------------
Investor, as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 Blackout Period. (a) The Company will immediately notify the
---------------
Investor 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
that makes any statement made in such registration statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the registration statement, related prospectus or documents so that,
in the case of the registration statement, it 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, and
that in the case of the related prospectus, it 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, in the light of the
circumstances under which they were made, not misleading; and (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. The
Company shall not deliver to the Investor any Optional Purchase Notice during
the continuation of any of the foregoing events.
16
<PAGE>
Section 6.9 Expectations Regarding Optional Purchase Notices. Within ten
------------------------------------------------
(10) days after the commencement of each calendar quarter occurring subsequent
to the commencement of the Commitment Period, the Company undertakes to notify
the Investor as to its reasonable expectations as to the dollar amount it
intends to raise during such calendar quarter, if any, through the issuance of
Optional Purchase Notices. Such notification shall constitute only the Company's
good faith estimate and shall in no way obligate the Company to raise such
amount, or any amount, or otherwise limit its ability to deliver Optional
Purchase Notices. The failure by the Company to comply with this provision can
be cured by the Company's notifying the Investor at any time as to its
reasonable expectations with respect to the current calendar quarter.
Section 6.10 Disclosure of Material Information. In the event that any or
----------------------------------
all of the information set forth on Schedule 8.2(a) hereto becomes material, the
Company shall make full and complete public disclosure in accordance with all
applicable law.
Section 6.11 Consolidation; Merger. The Company shall not, at any time
---------------------
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.
Section 6.12 Issuance of Put Shares. The sale and issuance of the Put
----------------------
Shares shall be made in accordance with the provisions and requirements of
Regulation D and any applicable state law.
ARTICLE VII
CONDITIONS TO DELIVERY OF OPTIONAL
PURCHASE NOTICES AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligation of the Company to Issue
--------------------------------------------------------------
and Sell Common Stock. The obligation hereunder of the Company to issue and sell
- ---------------------
the Put Shares to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and
correct in all material respects as of the date of this Agreement and
as of the date of each such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor at or prior to such Closing.
(c) The Market Price of Common Stock shall be equal to or greater than
the Floor Price.
17
<PAGE>
Section 7.2 Conditions Precedent to the Right of the Company to Deliver an
--------------------------------------------------------------
Optional Purchase Notice and the Obligation of the Investor to Purchase Put
- ---------------------------------------------------------------------------
Shares. The right of the Company to deliver an Optional Purchase Notice and the
- ------
obligation of the Investor hereunder to acquire and pay for the Put Shares
incident to a Closing is subject to the satisfaction, on (i) the date of
delivery of such Optional Purchase Notice and (ii) the applicable Closing Date
(each a "Condition Satisfaction Date"), of each of the following conditions:
(a) Registration of the Common Stock with the SEC. As set forth in the
Registration Rights Agreement, the Company shall have filed with the
SEC a Registration Statement with respect to the resale of the
Registrable Securities that shall have been declared effective by the
SEC prior to the first Optional Purchase Date, but in no event later
than ninety (90) days after Subscription Date.
(b) Effective Registration Statement. As set forth in the
Registration Rights Agreement, the Registration Statement shall have
previously become effective and shall remain effective on each
Condition Satisfaction Date and (i) neither the Company nor the
Investor shall have received notice that the SEC has issued or intends
to issue a stop order with respect to the Registration Statement or
that the SEC otherwise has suspended or withdrawn the effectiveness of
the Registration Statement, either temporarily or permanently, or
intends or has threatened to do so (unless the SEC's concerns have
been addressed and the Investor is reasonably satisfied that the SEC
no longer is considering or intends to take such action), and (ii) no
other suspension of the use or withdrawal of the effectiveness of the
Registration Statement or related prospectus shall exist.
(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and
correct in all material respects as of each Condition Satisfaction
Date as though made at each such time (except for representations and
warranties specifically made as of a particular date) with respect to
all periods, and as to all events and circumstances occurring or
existing to and including each Condition Satisfaction Date, except for
any conditions which have temporarily caused any representations or
warranties herein to be incorrect and which have been corrected with
no continuing impairment to the Company or the Investor.
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the
Registration Rights Agreement to be performed, satisfied or complied
with by the Company at or prior to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction that prohibits or directly and adversely
affects any of the transactions contemplated by this Agreement, and
18
<PAGE>
no proceeding shall have been commenced that may have the effect of
prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
(f) Adverse Changes. Since the date of filing of the Company's most
recent SEC Document, no event that had or is reasonably likely to have
a Material Adverse Effect has occurred.
(g) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock (including without limitation the Put
Shares) shall not have been suspended by the SEC, the Principal Market
or the NASD and the Common Stock (including without limitation the Put
Shares) shall have been approved for listing or quotation on and shall
not have been delisted from the Principal Market. The issuance of
shares of Common Stock with respect to the applicable Closing, if any,
shall not violate the shareholder approval requirements of the
Principal Market.
(h) Legal Opinions. The Company shall have caused to be delivered to
the Investor, within five (5) Trading Days of the effective date of
the Registration Statement, an opinion of the Company's independent
counsel in the form of Exhibit B hereto, addressed to the Investor;
provided, however, that in the event that such an opinion cannot be
delivered by the Company's independent counsel to the Investor, the
Company shall promptly revise the Registration Statement and shall not
deliver an Optional Purchase Notice. If an Optional Purchase Notice
shall have been delivered in good faith without knowledge by the
Company that an opinion of independent counsel can not be delivered as
required, at the option of the Investor, either the applicable Closing
Date shall automatically be postponed for a period of up to five (5)
Trading Days until such an opinion is delivered to the Investor, or
such Closing shall otherwise be canceled. In the event of such a
postponement, the Purchase Price of the Common Stock to be issued at
such Closing as determined pursuant of Section 2.2 shall be the lower
of the Purchase Price as calculated as of the originally scheduled
Closing Date and as of the actual Closing Date. The Company's
independent counsel shall also deliver to the Investor upon execution
of this Agreement an opinion in form and substance reasonably
satisfactory to the Investor addressing, among other things, corporate
matters and the exemption from registration under the Securities Act
of the issuance of the Registrable Securities by the Company to the
Investor under this Agreement.
(i) Due Diligence. No dispute between the Company and the Investor
shall exist pursuant to Section 8.2(c) as to the adequacy of the
disclosure contained in the Registration Statement.
(j) Ten Percent Limitation. On each Closing Date, the number of Put
Shares then to be purchased by the Investor shall not exceed the
number of such shares that, when aggregated with all other shares of
Common Stock then owned by the Investor beneficially or deemed
beneficially owned by the Investor, would result
19
<PAGE>
in the Investor owning no more than 9.9% of all of such Common Stock
as would be outstanding on such Closing Date, as determined in
accordance with Section 16 of the Exchange Act and the regulations
promulgated thereunder. For purposes of this Section 3.2(k), in the
event that the amount of Common Stock outstanding as determined in
accordance with Section 16 of the Exchange Act and the regulations
promulgated thereunder is greater on a Closing Date than on the date
upon which the Optional Purchase Notice associated with such Closing
Date is given, the amount of Common Stock outstanding on such Closing
Date shall govern for purposes of determining whether the Investor,
when aggregating all purchases of Common Stock made pursuant to this
Agreement and, if any, Shares, would own more than 9.9% of the Common
Stock following such Closing Date.
(k) Minimum Bid Price. The Bid Price equals or exceeds the Floor Price
from the Trading Day immediately preceding the date on which such
Notice is deemed delivered until the Trading Day immediately preceding
the Closing Date (as adjusted for stock splits, stock dividends,
reverse stock splits, and similar events).
(l) Minimum Average Trading Volume. The average trading volume for the
Common Stock over the previous fifteen (15) Trading Days equals or
exceeds 10,000 shares per Trading Day.
(m) No Knowledge. The Company shall have no knowledge of any event
more likely than not to have the effect of causing such Registration
Statement to be suspended or otherwise ineffective (which event is
more likely than not to occur within the fifteen Trading Days
following the Trading Day on which such Notice is deemed delivered).
(n) Trading Cushion. The Trading Cushion shall have elapsed since the
immediately preceding Optional Purchase Date.
(o) Shareholder Vote. The issuance of shares of Common Stock with
respect to the applicable Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market.
(p) Escrow Agreement. The parties hereto shall have entered into a
mutually acceptable escrow agreement for the Purchase Prices due
hereunder, providing for reasonable interest on any funds deposited
into the escrow account established under such agreement.
(q) Other. On each Condition Satisfaction Date, the Investor shall
have received and been reasonably satisfied with such other
certificates and documents as shall have been reasonably requested by
the Investor in order for the Investor to confirm the Company's
satisfaction of the conditions set forth in this Section 3.2.,
including, without limitation, a certificate in substantially the form
and substance of Exhibit C hereto, executed in either case by an
executive officer of
20
<PAGE>
the Company and to the effect that all the conditions to such Closing
shall have been satisfied as at the date of each such certificate.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 Due Diligence Review. The Company shall make available for
--------------------
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information.
----------------------------------------
(a) Except as set forth on Schedule 8.2(a) hereof, the Company
represents and warrants that the Company and its officers, directors,
employees and agents have not disclosed any non-public information to
the Investor or advisors to or representatives of the Investor. The
Company covenants and agrees that it shall refrain from disclosing,
and shall cause its officers, directors, employees and agents to
refrain from disclosing, (including, without limitation, in connection
with the giving of the Adjustment Period Notice pursuant to Section
2.4), unless prior to disclosure of such information the Company
identifies such information as being non-public information and
provides the Investor, such advisors and representatives with the
opportunity to accept or refuse to accept such non-public information
for review. The Company may, as a condition to disclosing any non-
public information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form
reasonably satisfactory to the Company and the Investor.
(b) The Company acknowledges and understands that Trinity has
previously disclosed to the Investor the information set forth on
Schedule 8.2(a) without identifying such information as being non-
public information and without providing the Investor with the
opportunity to accept or refuse to accept such non-public information.
The Company further acknowledges and understands that the Investor is
entering into this Agreement and the Registration Rights Agreement
21
<PAGE>
at the request of the Company and in good faith reliance on (i) the
Company's representation set forth in Section 4.16 that neither it nor
its agents have disclosed to the Investor any material non-public
information; (ii) the Company's covenant set forth in Section 6.10
that if all or any portion of the information set forth on Schedule
8.2(a) becomes material, the Company shall timely make full and
complete public disclosure of all or such portion of such information
that shall have become material in accordance with all applicable law;
and (iii) the Company's agreement to indemnify and hold harmless the
Investor for any and all liability relating in any way to the
disclosure by Trinity to the Investor of such information.
(c) Nothing herein shall require the Company to disclose non-public
information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate non-public
information to any investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts,
provided, however, that notwithstanding anything herein to the
contrary, the Company will, as hereinabove provided, immediately
notify the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance
(without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public
information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or
entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a
material misstatement or to omit a material fact required to be stated
therein in order to make the statements, therein, in light of the
circumstances in which they were made, not misleading. Nothing
contained in this Section 8.2 shall be construed to mean that such
persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may
not obtain non-public information in the course of conducting due
diligence in accordance with the terms of this Agreement and nothing
herein shall prevent any such persons or entities from notifying the
Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an
untrue statement of a material fact or omits a material fact required
to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE IX
LEGENDS
Section 9.1 Legends. Unless otherwise provided below, each certificate
-------
representing Registrable Securities will bear the following legend (the
"Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE
22
<PAGE>
"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 REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT 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 EQUITY LINE OF CREDIT AGREEMENT BETWEEN SONIC
SOLUTIONS AND KINGSBRIDGE CAPITAL LIMITED DATED DECEMBER 31,
1997. A COPY OF THE PORTION OF THE AFORESAID AGREEMENT
EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S
EXECUTIVE OFFICES.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit D hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor:
(a) at any time after the Effective Date, upon surrender of one or
more certificates evidencing Common Stock that bear the Legend, to the
extent accompanied by a notice requesting the issuance of new
certificates free of the Legend to replace those surrendered; provided
that (i) the Registration Statement shall then be effective; (ii) the
Investor confirms to the transfer agent that it has sold, pledged or
otherwise transferred or agreed to sell, pledge or otherwise transfer
such Common Stock in a bona fide transaction to a third party that is
not an affiliate of the Company; and (iii) the Investor confirms to
the transfer agent that the Investor has complied with the prospectus
delivery requirement; and
23
<PAGE>
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates
free of the Legend to replace those surrendered and containing
representations that (i) the Investor is permitted to dispose of such
Registrable Securities without limitation as to amount or manner of
sale pursuant to Rule 144(k) under the Securities Act or (ii) the
Investor has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Registrable Securities in a manner
other than pursuant to an effective registration statement, to a
transferee who will upon such transfer be entitled to freely tradeable
securities.
Any of the notices referred to above in this Section 9.1 may be sent by
facsimile to the Company's transfer agent.
Section 9.2 No Other Legend or Stock Transfer Restrictions. No legend
----------------------------------------------
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Common Stock and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article VIII.
Section 9.3 Investor's Compliance. Nothing in this Article VIII shall
---------------------
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
ARTICLE X
CHOICE OF LAW
Section 10.1 Choice of Law. This Agreement shall be construed under the
-------------
laws of the State of California, without giving effect to provisions regarding
conflicts of law or choice of law.
ARTICLE XI
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; TERMINATION
Section 11.1 Assignment. Neither this Agreement nor any rights of the
----------
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Common Stock purchased or acquired by the Investor hereunder with respect to
the Common Stock held by such person, and (b) the Investor's interest in this
Agreement may be assigned at any time, in whole or in part, to any other person
or entity (including any affiliate of the Investor) upon the prior written
consent of the Company, which consent shall not to be unreasonably withheld.
Section 11.2 Termination. This Agreement shall terminate twenty-four (24)
-----------
months after the commencement of the Commitment Period; provided, however, that
-------- -------
the provisions of Articles VI, VII, VIII, X, XI, and XII shall survive the
termination of this Agreement.
24
<PAGE>
Section 11.3 Entire Agreement, Amendment. This Agreement and the
---------------------------
Registration Rights Agreement constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth in
this Agreement or therein. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by both parties hereto.
ARTICLE XII
NOTICES; INDEMNIFICATION
Section 12.1 Notices. All notices, demands, requests, consents, approvals,
-------
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, 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, 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, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours 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 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:
Robert J. Doris
President and Chief Executive Officer
Sonic Solutions
101 Rowland Way, Suite 110
Novato, California 94945
Telephone: (415) 893-8000
Facsimile: (415) 893-8008
with a copy to (which communication shall not constitute notice):
August J. Moretti, Esq.
Heller Ehrman White & McAuliffe
525 University Avenue, Suite 1100
Palo Alto, California 94301-1908
Telephone: (650) 324-7000
Facsimile: (650) 324-0638
25
<PAGE>
If to the Investor:
Adam Gurney
Kingsbridge Capital Limited
c/o Kingsbridge Corporate Services Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
Telephone: 011-353-45-481-811
Facsimile: 011-353-45-482-003
with a copy to (which communication shall not constitute notice):
Sara Hanks, Esq.
Rogers & Wells
200 Park Avenue
New York, NY 10166
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 12.1 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 12.2 Indemnification.
---------------
(a) 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 Securities Act or
Section 20 of the Exchange Act, together with the Controlling Persons
(as defined in the Registration Rights Agreement) from and against any
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
becomes subject to, resulting from, arising out of or relating to (i)
any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of Company
contained in this Agreement or (ii) the disclosure by Trinity of the
information set forth on Schedule 8.2(a) hereof, in any event as such
Damages are incurred.
(b) The Investor agrees 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
Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, together with the Controlling Persons
(as defined in the Registration Rights Agreement) from and against any
Damages, joint or several, and any
26
<PAGE>
action in respect thereof to which the Company, its partners,
Affiliates, officers, directors, employees, and duly authorized
agents, and any such Controlling Person becomes subject to, resulting
from, arising out of or relating to any misrepresentation, breach of
warranty or nonfulfillment of or failure to perform any covenant or
agreement on the part of Investor contained in this Agreement in an
aggregate amount not to exceed $280,000.
Section 12.3 Method of Asserting Indemnification Claims. All claims for
------------------------------------------
indemnification by any Indemnified Party (as defined below) under Section 12.2
will be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any person
claiming indemnification under any provision of Section 12.2 (an
"Indemnified Party") might seek indemnity under Section 12.2 is
asserted against or sought to be collected from such Indemnified Party
by a person other than the Company, the Investor or any affiliate of
the Company or (a "Third Party Claim"), the Indemnified Party shall
deliver a written notification, enclosing a copy of all papers served,
if any, and specifying the nature of and basis for such Third Party
Claim and for the Indemnified Party's claim for indemnification that
is being asserted under any provision of Section 12.2 against any
person (the "Indemnifying Party"), together with the amount or, if not
then reasonably ascertainable, the estimated amount, determined in
good faith, of such Third Party Claim (a "Claim Notice") with
reasonable promptness to the Indemnifying Party. If the Indemnified
Party fails to provide the Claim Notice with reasonable promptness
after the Indemnified Party receives notice of such Third Party Claim,
the Indemnifying Party will not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent
that the Indemnifying Party's ability to defend has been irreparably
prejudiced by such failure of the Indemnified Party. The Indemnifying
Party will notify the Indemnified Party as soon as practicable within
the period ending thirty (30) calendar days following receipt by the
Indemnifying Party of either a Claim Notice or an Indemnity Notice (as
defined below) (the "Dispute Period") whether the Indemnifying Party
disputes its liability or the amount of its liability to the
Indemnified Party under Section 12.2 and whether the Indemnifying
Party desires, at its sole cost and expense, to defend the Indemnified
Party against such Third Party Claim.
1. If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to
defend the Indemnified Party with respect to the Third Party
Claim pursuant to this Section 12.3(a), then the Indemnifying
Party will have the right to defend, with counsel reasonably
satisfactory to the Indemnified Party, at the sole cost and
expense of the Indemnifying Party, such Third Party Claim by all
appropriate proceedings, which proceedings will be vigorously and
diligently prosecuted by the Indemnifying Party to a final
conclusion or will be settled at the discretion of the
Indemnifying
27
<PAGE>
Party (but only with the consent of the Indemnified Party in the
case of any settlement that provides for any relief other than
the payment of monetary damages or that provides for the payment
of monetary damages as to which the Indemnified Party will not be
indemnified in full pursuant to Section 12.2). The Indemnifying
Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided,
--------
however, that the Indemnified Party may, at the sole cost and
--------
expense of the Indemnified Party, at any time prior to the
Indemnifying Party's delivery of the notice referred to in the
first sentence of this clause (i), file any motion, answer or
other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate to
protect its interests; and provided further, that if requested by
the Indemnifying Party, the Indemnified Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnifying Party in contesting any Third
Party Claim that the Indemnifying Party elects to contest. The
Indemnified Party may participate in, but not control, any
defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this clause (i), and except as
provided in the preceding sentence, the Indemnified Party will
bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified
Party may take over the control of the defense or settlement of a
Third Party Claim at any time if it irrevocably waives its right
to indemnity under Section 12.2 with respect to such Third Party
Claim.
2. If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party
desires to defend the Third Party Claim pursuant to Section
12.3(a), or if the Indemnifying Party gives such notice but fails
to prosecute vigorously and diligently or settle the Third Party
Claim, or if the Indemnifying Party fails to give any notice
whatsoever within the Dispute Period, then the Indemnified Party
will have the right to defend, at the sole cost and expense of
the Indemnifying Party, the Third Party Claim by all appropriate
proceedings, which proceedings will be prosecuted by the
Indemnified Party in a reasonable manner and in good faith or
will be settled at the discretion of the Indemnified Party (with
the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full
control of such defense and proceedings, including any compromise
or settlement thereof; provided, however, that if requested by
the Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnified Party and its counsel in
contesting any Third Party Claim which the Indemnified Party is
contesting. Notwithstanding the foregoing provisions of this
clause (ii), if the Indemnifying Party has notified the
28
<PAGE>
Indemnified Party within the Dispute Period that the Indemnifying
Party disputes its liability or the amount of its liability
hereunder to the Indemnified Party with respect to such Third
Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause (iii) below,
the Indemnifying Party will not be required to bear the costs and
expenses of the Indemnified Party's defense pursuant to this
clause (ii) or of the Indemnifying Party's participation therein
at the Indemnified Party's request, and the Indemnified Party
will reimburse the Indemnifying Party in full for all reasonable
costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement
controlled by the Indemnified Party pursuant to this clause (ii),
and the Indemnifying Party will bear its own costs and expenses
with respect to such participation.
3. If the Indemnifying Party notifies the Indemnified Party that
it does not dispute its liability or the amount of its liability
to the Indemnified Party with respect to the Third Party Claim
under Section 12.2 or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes
its liability or the amount of its liability to the Indemnified
Party with respect to such Third Party Claim, the Loss in the
amount specified in the Claim Notice will be conclusively deemed
a liability of the Indemnifying Party under Section 12.2 and the
Indemnifying Party shall pay the amount of such Loss to the
Indemnified Party on demand. If the Indemnifying Party has
timely disputed its liability or the amount of its liability with
respect to such claim, the Indemnifying Party and the Indemnified
Party will proceed in good faith to negotiate a resolution of
such dispute, and if not resolved through negotiations within the
Resolution Period, such dispute shall be resolved by arbitration
in accordance with paragraph (c) of this Section 12.3.
(b) In the event any Indemnified Party should have a claim under
Section 12.2 against the Indemnifying Party that does not involve a
Third Party Claim, the Indemnified Party shall deliver a written
notification of a claim for indemnity under Section 12.2 specifying
the nature of and basis for such claim, together with the amount or,
if not then reasonably ascertainable, the estimated amount, determined
in good faith, of such claim (an "Indemnity Notice") with reasonable
promptness to the Indemnifying Party. The failure by any Indemnified
Party to give the Indemnity Notice shall not impair such party's
rights hereunder except to the extent that the Indemnifying Party
demonstrates that it has been irreparably prejudiced thereby. If the
Indemnifying Party notifies the Indemnified Party that it does not
dispute the claim or the amount of the claim described in such
Indemnity Notice or fails to notify the Indemnified Party within the
Dispute Period whether the
29
<PAGE>
Indemnifying Party disputes the claim or the amount of the claim
described in such Indemnity Notice, the Loss in the amount specified
in the Indemnity Notice will be conclusively deemed a liability of the
Indemnifying Party under Section 12.2 and the Indemnifying Party shall
pay the amount of such Loss to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of
its liability with respect to such claim, the Indemnifying Party and
the Indemnified Party will proceed in good faith to negotiate a
resolution of such dispute, and if not resolved through negotiations
within the Resolution Period, such dispute shall be resolved by
arbitration in accordance with paragraph (c) of this Section 12.3.
(c) Any dispute under this Agreement (including, without limitation,
in connection with this Section 12.3) or the Registration Rights
Agreement shall be submitted to arbitration and shall be finally and
conclusively determined by the decision of a single arbitrator who
shall be a retired San Francisco Superior Court Judge with experience
in civil litigation involving interpretation of stock purchase
agreements, provided, that if there is a dispute regarding draw-down
--------
on the Standby Letter of Credit, such dispute shall be determined by a
single arbitrator who shall be a retired state or federal judge with
experience in civil litigation involving interpretation of financial
instruments appointed by JAMS Endispute, Inc. (as the case may be, the
"Arbitrator"). The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. (S)(S) 1-16, 201-208 and judgment upon the
award rendered by the Arbitrator may be entered by any United States
federal or state court in and of the State of California, to the non-
exclusive jurisdiction of which each of the parties hereto irrevocably
submits. The parties agree to cooperate and use their reasonable best
efforts to cause the Arbitrator render a decision in any dispute
within thirty (30) days following the commencement of proceedings with
respect thereto and, to the extent practicable, the decision of the
Arbitrator shall be rendered no more than thirty (30) calendar days
following such commencement. The Arbitrator shall cause its written
decision to be delivered to the Indemnified Party and the Indemnifying
Party within three (3) business days following such decision. Any
decision made by the Arbitrator (either prior to or after the
expiration of such thirty (30) calendar-day period) shall be final,
binding and conclusive on the Indemnified Party and the Indemnifying
Party and shall be entitled to be enforced to the fullest extent
permitted by law and entered in any court of competent jurisdiction.
Each party to any arbitration shall bear its own expense in relation
thereto, including but not limited to such party's attorneys' fees, if
any, and the expenses and fees of the Arbitrator shall be divided
between the Indemnifying Party and the Indemnified Party in the same
proportion as the portion of the related claim determined by the
Arbitrator to be payable to the Indemnified Party bears to the portion
of such claim determined not to be so payable.
30
<PAGE>
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Fees and Expenses. Each of the Company and the Investor
-----------------
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, expenses and
disbursements of the Investor's counsel in an amount not to exceed $20,000.
Section 13.2 Brokerage. Each of the parties hereto represents that it has
---------
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all liabilities to
any persons claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
Section 13.3 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which may be executed by less than all of the parties and
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.
Section 13.4 Entire Agreement. This Agreement, the Exhibits hereto and the
----------------
Registration Rights Agreement set forth the entire agreement and understanding
of the parties relating to the subject matter hereof and supersedes all prior
and contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The terms
and conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as if fully set forth
herein.
Section 13.5 Survival; Severability. The representations, warranties,
----------------------
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.6 Title and Subtitles. The titles and subtitles used in this
-------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.7 Reporting Entity for the Common Stock. The reporting entity
-------------------------------------
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity Line
of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
KINGSBRIDGE CAPITAL LIMITED
/s/ Valentine O'Donoghue
By: ______________________________________
Valentine O'Donoghue
Director
SONIC SOLUTIONS
/s/ Robert J. Doris
By: ______________________________________
Robert J. Doris
Chairman and Chief Executive Officer
32
<PAGE>
EXHIBIT A
ADJUSTMENT PERIOD NOTICE
SONIC SOLUTIONS
Notice is hereby granted that the Board of Directors of Sonic
Solutions (the "Company") anticipates executing a merger or acquisition
agreement within ninety (90) days of the date hereof.
The following five-week period is hereby designated as an Adjustment
Period pursuant to Section 2.4 of the Private Equity Line of Credit Agreement,
dated December 31, 1997, by and between the Company and Kingsbridge Capital
Limited.
Beginning: ______________________
(no sooner that twenty-one (21) days from the date this notice is deemed to
be delivered)
Expiring: _______________________
The undersigned has executed this Certificate this ____ day of
________, 199_.
____________________________________
Robert J. Doris
Chairman and Chief Executive Officer
2
<PAGE>
Exhibit B
---------
Form of Opinion of the Company's Independent Counsel
[within 5 trading days following effective date of S-3]
Kingsbridge Capital Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
We have acted as counsel to Sonic Solutions, a California corporation (the
"Company"), in connection with the Private Equity Line of Credit Agreement
between the Company and you, dated as of December 31, 1997 (the "Line of Credit
Agreement"), pursuant to which the Company will issue to you from time to time
shares of Common Stock, no par value (the "Put Shares") and the Registration
Rights Agreement between you and the Company, dated December 31, 1997 (the
"Registration Rights Agreement," and together with the Line of Credit Agreement,
the "Agreements"). This opinion is rendered to you pursuant to Section 7.2(h)
of the Line of Credit Agreement. Capitalized terms used without definition in
this opinion have the meanings given to them in the Line of Credit Agreement.
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, your lack of due incorporation, regulatory
prohibitions pertaining to you, or your failure to qualify to do business in the
State of California if such qualification is required). 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,
as amended to date (the "Articles"), certified by the California
Secretary of State as of , 199 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;
<PAGE>
Page 2
(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 (the "Bylaws");
(c) 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 Agreement;
(d) The Agreements;
(e) A certificate related to the good standing of the Company issued by
the Secretary of State of the State of California dated
, 199 ;
------------ -
(f) A letter from the Franchise Tax Board of the State of California
dated , 199 stating that the Company is in good standing
-------- -
with that agency;
(g) A Certificate of the Chief Executive Officer of the Company as to
certain factual matters (the "Officer's Certificate");
(h) A Certificate from Chase Mellon Shareholder Services, the transfer
agent for the Company's stock, as to the outstanding stock of the
Company on 199 , dated , 199 ; and
----------- - ----------- -
(i) The SEC Documents.
With your consent, we have based our opinion expressed in paragraph 1 below as
to the good standing of the Company solely upon the documents enumerated in (e)
and (f) above.
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 on matters
related to the Agreements. 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 2 of Part III below. We have assumed for
purposes of our opinion to the effect that the Put Shares are fully paid and
nonassessable that the consideration for such Put Shares will be received by the
Company in accordance with the Line of Credit Agreement.
<PAGE>
Page 3
II.
We express no opinion as to 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 and has all requisite power
and authority to carry on its business and to own, lease and operate its
properties and assets as described in the SEC Documents. To our knowledge the
Company does not have any subsidiaries other than Sonic Solutions International,
Inc., a wholly-owned subsidiary.
2. To our knowledge, except as described in the SEC Documents, there are no
claims, actions, suits, proceedings or investigations that are pending against
the Company or its properties, or to our knowledge, any officer or director of
the Company in his or her capacity as such, nor to our knowledge has the Company
received any written threat of any such claims, actions, suits, proceedings or
investigations.
3. To our knowledge, except as described in the Company's representations and
warranties contained in Article IV of the Line of Credit Agreement, there are no
outstanding options, warrants, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any right to subscribe for or acquire, any shares of
Common Stock, or contracts, commitments, understanding, or arrangements by which
the Company is or may become bound to issue additional shares of Common Stock,
or securities or rights convertible or exchangeable into shares of Common Stock.
<PAGE>
Page 4
4. Subject to the accuracy of your representations in Article III of the Line
of Credit Agreement on the date hereof and on the date of issuance of any Put
Shares and the statement in the Officer's Certificate that the Company has not
offered or sold, and will not offer or sell, any Put Shares by means of
advertising or public solicitation, the issuance of the Put Shares in conformity
with the terms of the Line of Credit Agreement constitutes 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. The Put Shares when issued in compliance
with the Line of Credit Agreement, will be duly authorized, validly issued,
fully paid, and non-assessable and free of preemptive rights set forth in the
Articles, Bylaws and any agreement filed as an exhibit to the SEC Documents,
provided, however, that the Put Shares may be subject to restrictions on
transfer under state and federal securities laws.
5. The Company has the requisite corporate power and authority to enter into
and perform its obligations under the Agreements and to issue the Put Shares.
Each of the Agreements has been duly authorized, executed and delivered by the
Company and the consummation by it of the transactions contemplated thereby has
been duly authorized by all necessary corporate action and no further consent or
authorization of the Company's board of directors or shareholders is required.
Each of the Agreements has been duly executed and delivered on the part of the
Company and 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
contained in the Agreements.
6. The execution, delivery and performance of and compliance with the
respective terms of each of the Agreements, and issuance of the Put Shares in
accordance with the Line of Credit Agreement, will not violate any provision of
the Articles or Bylaws or any law applicable to the Company.
In connection with the registration of the Put Shares, we advised the Company
as to the requirements of the Securities Act and the applicable Rules and
Regulations and rendered other legal advice and assistance in the course of
preparation of the Registration Statement and Prospectus, including review and
discussion of the contents thereof. On the basis of the information that was
developed in the course of the performance of such services
<PAGE>
Page 5
considered in the light of our understanding of the Securities Act, including
the requirements of Form S-3, we have no reason to believe that (i) the
Registration Statement (other than the financial statements and related
statements and schedules, as to which we express no belief) as of its Effective
Date contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or (ii) the Prospectus (other than the
financial statements and related statements and schedules, as to which we
express no belief) as of the Effective Date of the Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The limitations inherent in the independent verification of
factual matters and the character of determinations involved in the registration
process are such, however, that except as set forth in this opinion letter we do
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus.
V.
We further advise you that:
A. As noted, the enforceability of the 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 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 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 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.
<PAGE>
Page 6
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.
This opinion is rendered to you in connection with the Agreements 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,
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
SONIC SOLUTIONS
The undersigned, Robert J. Doris, hereby certifies, with respect to
shares of common stock of the Sonic Solutions (the "Company") issuable in
connection with the Optional Purchase Notice, dated _____________ (the
"Notice"), delivered pursuant to Article II of the Private Equity Line of Credit
Agreement, dated December 31, 1997, by and between the Company and Kingsbridge
Capital Limited (the "Agreement"), as follows:
1. The undersigned is the duly elected Chairman and Chief Executive
Officer of the Company.
2. The representations and warranties of the Company set forth in
Article V of the Agreement are true and correct in all material respects as
though made on and as of the date hereof.
3. The Company has performed in all material respects all covenants
and agreements to be performed by the Company on or prior to the Closing Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in Article III of the Agreement.
The undersigned has executed this Certificate this ____ day of
________, 199_.
____________________________________
Robert J. Doris
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT D
INSTRUCTIONS TO TRANSFER AGENT
SONIC SOLUTIONS
_______________, 1998
[Name, address and phone and fax number of Transfer Agent]
Dear Sirs:
Reference is made to the Private Equity Line of Credit Agreement (the
"Agreement"), dated as of December 31, 1997 between Kingsbridge Capital Limited
(the "Investor") and Sonic Solutions (the "Company"). Pursuant to the
Agreement, subject to the terms and conditions set forth in the Agreement the
Investor has agreed to purchase from the Company and the Company has agreed to
sell to the Investor from time to time during the term of the Agreement shares
of Common Stock of the Company, no par value (the "Common Stock"). As a
condition to the effectiveness of the Agreement, the Company has agreed to issue
to you, as the transfer agent for the Common Stock (the "Transfer Agent"), these
instructions relating to the Common Stock to be issued to the Investor (or a
permitted assignee) pursuant to the Agreement. All terms used herein and not
otherwise defined shall have the meaning set forth in the Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Agreement, the Company is required to prepare and file with
the Commission, and maintain the effectiveness of, a registration statement or
registration statements registering the resale of the Common Stock to be
acquired by the Investor under the Agreement. The Company will advise the
Transfer Agent in writing of the effectiveness of any such registration
statement promptly upon its being declared effective. The Transfer Agent shall
be entitled to rely on such advice and shall assume that the effectiveness of
such registration statement remains in effect unless the Transfer Agent is
otherwise advised in writing by the Company and shall not be required to
independently confirm the continued effectiveness of such registration
statement. In the circumstances set forth in the following two paragraphs, the
Transfer Agent shall deliver to the Investor certificates representing Common
Stock not bearing the Legend without requiring further advice or instruction or
additional documentation from the Company or its counsel or the Investor or its
counsel or any other party (other than as described in such paragraphs).
<PAGE>
At any time after the effective date of the applicable registration
statement (provided that the Company has not informed the Transfer Agent in
writing that such registration statement is not effective) upon any surrender of
one or more certificates evidencing Common Stock which bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered, the Transfer Agent shall deliver to
the Investor the certificates representing the Common Stock not bearing the
Legend, in such names and denominations as the Investor shall request, provided
that:
(a) in connection with such event, the Investor (or its permitted assignee)
shall confirm in writing to the Transfer Agent that (i) the Investor
confirms to the transfer agent that it has sold, pledged or otherwise
transferred or agreed to sell, pledge or otherwise transfer such Common
Stock in a bona fide transaction to a designated transferee that is not an
affiliate of the Company; and (ii) the Investor confirms to the transfer
agent that the Investor has complied with the prospectus delivery
requirement;
(b) the Investor (or its permitted assignee) shall represent that it is
permitted to dispose thereof with limitation as to amount of manner of sale
pursuant to Rule 144(k) under the Securities Act; or
(c) the Investor, its permitted assignee, or either of their brokers
confirms to the transfer agent that (i) the Investor has held the shares of
Common Stock for at least one year, (ii) counting the shares surrendered as
being sold upon the date the unlegended Certificates would be delivered to
the Investor (or the Trading Day immediately following if such date is not
a Trading Day), the Investor will not have sold more than the greater of
(a) one percent (1%) of the total number of outstanding shares of Common
Stock or (b) the average weekly trading volume of the Common Stock for the
preceding four weeks during the three months ending upon such delivery date
(or the Trading Day immediately following if such date is not a Trading
Day), and (iii) the Investor has complied with the manner of sale and
notice requirements of Rule 144 under the Securities Act.
Any advice, notice or instructions to the Transfer Agent required or
permitted to be given hereunder may be transmitted via facsimile to the Transfer
Agent's facsimile number of (___)-___-____.
D-2
<PAGE>
2. MECHANICS OF DELIVERY OF CERTIFICATES
REPRESENTING COMMON STOCK
In connection with any Closing pursuant to which the Investor acquires
Common Stock under the Agreement, the Transfer Agent shall deliver certificates
representing Common Stock (with or without the Legend, as appropriate) as
promptly as practicable, but in no event later than three business days, after
such Closing.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees to indemnify
the Transfer Agent and its officers, employees and agents, against any losses,
claims, damages or liabilities, joint or several, to which it or they become
subject based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.
D-3
<PAGE>
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the Investor
is an express third party beneficiary of these Irrevocable Instructions and
shall be entitled to rely upon, and enforce, the provisions hereof.
SONIC SOLUTIONS
By:____________________________________
Robert J. Doris
Chairman and Chief Executive Officer
AGREED:
[NAME OF TRANSFER AGENT]
By:__________________________
Name:
Title:
D-4
<PAGE>
EXHIBIT 4.2
-----------
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December
31, 1997, is made and entered into between SONIC SOLUTIONS, a California
corporation (the "Company"), and KINGSBRIDGE CAPITAL LIMITED (the "Investor").
WHEREAS, the Company and the Investor have entered into that certain
Private Equity Line of Credit Agreement, dated as of the date hereof (the
"Investment Agreement"), pursuant to which the Company will issue, from time to
time, to the Investor up to $7,000,000 worth of shares of Common Stock, no par
value per share, of the Company (the "Common Stock");
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investor's agreement to enter into the Investment Agreement, the Company has
agreed to provide the Investor with certain registration rights with respect to
the Registrable Securities;
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein and in the Investment
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 (capitalized terms used herein and
not defined herein shall have the meaning ascribed to them in the Investment
Agreement):
ARTICLE I
REGISTRATION RIGHTS
Section 1.1 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
within forty-five (45) days following the Subscription Date a registration
statement on Form S-3 under the Securities Act (the "Registration Statement")
for the registration of the resale by the Investor of the Registrable
Securities.
(b) Effectiveness of the Registration Statement. The Company shall
use its reasonable best efforts to have the Registration Statement declared
effective by the SEC by no later than ninety (90) days after Subscription Date
and to insure that the Registration Statement remains in effect throughout the
term of this Agreement as set forth in Section 4.2, subject to the terms and
conditions of this Agreement.
(c) Failure to Obtain Effectiveness of Registration Statements. In
the event the Company fails for any reason to obtain the effectiveness of a
Registration Statement within the time period set forth in Section 1.1(b), the
Company shall pay to the Investor, within three Trading Days of the date by
which such Registration Statement was required to have been declared effective,
$10,000 in immediately available funds into an account designated by the
<PAGE>
Investor; provided, however, that such amount shall not be payable with respect
-------- -------
to the postponement of the effectiveness of a Registration Statement (or use of
the underlying prospectus) pursuant to Section 1.1(f). Such payment shall be
made by wire transfer of immediately available funds.
(d) Failure to Maintain Effectiveness of Registration Statements.
In the event the Company fails to maintain the effectiveness of a Registration
Statement (or the underlying prospectus) throughout the period set forth in
Section 4.2, other than temporary suspensions as set forth in Section 1.1(f),
and the Investor holds any Registrable Securities at any time during the period
of such ineffectiveness (an "Ineffective Period"), the Company shall pay to the
Investor in immediately available funds into an account designated by the
Investor an amount equal to one half of one percent (0.5%) of the aggregate
Purchase Price of all of the Registrable Securities then held by the Investor
for the each of the first four seven-calendar-day periods (or portion thereof)
of an Ineffective Period and one percent (1.0%) of such aggregate Purchase Price
for each subsequent seven-calendar-day periods (or portion thereof) of such
Ineffective Period. Such amounts shall not be payable with respect to
suspensions of the effectiveness of a Registration Statement (or use of the
underlying prospectus), in accordance with Section 1.1(f). Such payments shall
be made on the first Trading Day after the earliest to occur of (i) the
expiration of the Commitment Period, (ii) the expiration of an Ineffective
Period, (iii) the expiration of the first twenty-eight calendar days of an
Ineffective Period and (iv) the expiration of each additional twenty-eight
calendar-day period during an Ineffective Period.
(e) SEC Disapproval. Sections 1.1 (b) and (c) notwithstanding, the
date by which a Registration Statement is required to become effective shall be
extended for up to sixty (60) days without penalty in the event the failure to
obtain effectiveness of a Registration Statement by no later than ninety (90)
days after Subscription Date results solely from the SEC's disapproval of the
structure of the transactions contemplated by the Investment Agreement. In such
event, the parties agree to cooperate with one another in good faith to arrive
at a resolution acceptable to the SEC and the parties hereto and no penalty
shall be payable under this Agreement if the parties are unable to arrive at
such a resolution.
(f) Deferral and Suspension. Sections 1.1(b), (c) and (d)
notwithstanding, if the Company shall furnish to the Investor notice signed by
the Chairman and Chief Executive Officer of the Company stating that the Board
of Directors of the Company has, by duly authorized resolution, determined in
good faith that it would be seriously detrimental to the Company and its
shareholders for the Registration Statement to be filed (or remain in effect)
and it is therefore essential to defer the filing of such Registration Statement
(or temporarily suspend the effectiveness of such Registration Statement or use
of the related prospectus), the Company shall have the right to defer such
filing (or suspend such effectiveness) immediately for a period of not more than
thirty (30) days beyond such 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) and
agrees to cease any disposition of the Registrable Securities immediately upon
receipt of such notice. The Company may not utilize any of its rights under this
Section 1.1(f) to defer the filing of a Registration Statement (or suspend its
effectiveness) more than
2
<PAGE>
twice in any twelve (12) month period. Following such deferral or suspension,
the Investor shall be entitled to such additional number of shares of Common
Stock as set forth in Section 2.7 of the Investment Agreement.
(g) The parties hereto acknowledge and agree that the sums payable
under Sections 1(c) or 1(d) above shall constitute liquidated damages and not
penalties. The parties further acknowledge that (a) the amount of loss or
damages likely to be incurred is incapable or is difficult to precisely
estimate, (b) the amounts specified in such Sections bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred in connection with any failure by the Company to obtain or
maintain the effectiveness of a Registration Statement, (c) one of the reasons
for the Parties reaching an agreement as to such amounts was the uncertainty and
cost of litigation regarding the question of actual damages, and (d) the parties
are sophisticated business parties and have been represented by sophisticated
and able legal and financial counsel and negotiated this Agreement at arm's
length.
ARTICLE II
REGISTRATION PROCEDURES
Section 2.1 FILINGS; INFORMATION. The Company will effect the registration and
sale of such Registrable Securities in accordance with the intended methods of
disposition thereof. Without limiting the foregoing, the Company in each such
case will do the following as expeditiously as possible, but in no event later
than the deadline, if any, prescribed therefor in this Agreement:
(a) The Company shall prepare and file with the SEC a registration
statement on Form S-3 (if use of such form is then available to the Company
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
distribution of such Registrable Securities); use reasonable best efforts to
cause such filed Registration Statement to become and remain effective (pursuant
to Rule 415 under the Act or otherwise); 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 1.1(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 shall file all necessary amendments to the
Registration Statement in order to effectuate the purpose of this Agreement and
the Investment Agreement.
(c) If so requested by the managing underwriters, if any, or the
holders of a majority in aggregate principal amount of the Registrable
Securities being sold in connection with the filing of a Shelf Registration, the
Company shall (i) promptly incorporate in a prospectus supplement or post-
effective amendment such information as the managing
3
<PAGE>
underwriters, if any, and such holders agree should be included therein, and
(ii) make all required filings of such prospectus supplement or post-effective
amendment as soon as practicable after the Company has received notification of
the matters to be incorporated in such prospectus supplement or post-effective
amendment; provided, however, that the Company shall not be required to take any
action pursuant to this Section 2.1(c)(ii) that would, in the opinion of counsel
for the Company, violate applicable law.
(d) In connection with the filing of a Shelf Registration, the
Company shall enter into such agreements and take all such other reasonable
actions in connection therewith (including those reasonably requested by the
managing underwriters, if any, or the holders of a majority in aggregate
principal amount of the Registrable Securities being sold) in order to expedite
or facilitate the disposition of such Registrable Securities, and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration, (i) make such
representations and warranties to the holders of such Registrable Securities and
the underwriters, if any, with respect to the business of the Company (including
with respect to businesses or assets acquired or to be acquired by the Company),
and the Registration Statement, prospectus and documents, if any, incorporated
or deemed to be incorporated by reference therein, in each case, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings, and confirm the same if and when requested; (ii) if an
underwriting agreement is entered into, the same shall contain indemnification
provision and procedures no less favorable to the selling holders of such
Registrable Securities and the underwriters, if any, than those set forth herein
(or such other provisions and procedures acceptable to the holders of a majority
in aggregate principal amount of Registrable Securities covered by such
Registration Statement and the managing underwriters, if any); and (iii) deliver
such documents and certificates as may be reasonably requested by the holders of
a majority in aggregate principal amount of the Registrable Securities being
sold, their counsel and the managing underwriters, if any, to evidence the
continued validity of their representations and warranties made pursuant to
clause (i) above and to evidence compliance with any customary conditions
contained in the underwriting agreement or other agreement entered into by the
Company.
(e) Five Trading Days 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), the
Company shall deliver to the Investor and one firm of counsel representing the
Investor, in accordance with the notice provisions of Section 4.8, copies of
such Registration Statement as proposed to be filed, together with exhibits
thereto, which documents will be subject to review by such parties, and
thereafter deliver to the Investor and its counsel, in accordance with the
notice provisions of Section 4.8, 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.
(f) The Company shall deliver, in accordance with the notice
provisions of Section 4.8, to each seller of Registrable Securities covered by
such Registration Statement such number of conformed copies of such Registration
Statement and of each amendment and
4
<PAGE>
supplement thereto (in each case including all exhibits and documents
incorporated by reference), such number of copies of the prospectus contained in
such Registration Statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus file under Rule 424 promulgated
under the Securities Act relating to such seller's Registrable Securities, and
such other documents, as such seller may reasonably request to facilitate the
disposition of its Registrable Securities.
(g) After the filing of the Registration Statement, the Company
shall 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.
(h) The Company shall use its 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 its 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 qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (h), subject itself to taxation in any such jurisdiction,
or consent or subject itself to general service of process in any such
jurisdiction.
(i) The Company shall immediately notify the Investor 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
that 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 that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it 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, and
that in the case of the related prospectus, it 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, in the light of the
circumstances under which they were made, not misleading; and (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.
5
<PAGE>
(j) The Company shall 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 (whereupon 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).
(k) The Company shall make available to the Investor (and will
deliver to Investor's counsel), subject to restrictions imposed by the United
States federal government or any agency or instrumentality thereof, copies of
all correspondence between the SEC and the Company, its counsel or auditors and
will also make available for inspection by the Investor and any attorney,
accountant or other professional retained by the Investor (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers and employees to supply all
information reasonably requested by any Inspectors in connection with such
Registration Statement. Records that the Company determines, in good faith, to
be confidential and which it notifies the Inspectors are confidential shall not
be disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such Registration
Statement or (ii) the disclosure or release of such Records is requested or
required pursuant to oral questions, interrogatories, requests for information
or documents or a subpoena or other order from a court of competent jurisdiction
or other process; provided that prior to any disclosure or release pursuant to
clause (ii), the Inspectors shall provide the Company with prompt notice of any
such request or requirement so that the Company may seek an appropriate
protective order or waive such Inspectors' obligation not to disclose such
Records; and, provided further, that if failing the entry of a protective order
or the waiver by the Company permitting the disclosure or release of such
Records, the Inspectors, upon advice of counsel, are compelled to disclose such
Records, the Inspectors may disclose that portion of the Records which counsel
has advised the Inspectors that the Inspectors are compelled to disclose. The
Investor agrees that information obtained by it solely as a result of such
inspections (not including any information obtained from a third party who,
insofar as is known to the Investor after reasonable inquiry, is not prohibited
from providing such information by a contractual, legal or fiduciary obligation
to the Company) shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company or its
Affiliates unless and until such information is made generally available to the
public. The Investor further agrees that it will, upon learning that disclosure
of such Records is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company, at its expense, to undertake appropriate
action to prevent disclosure of the Records deemed confidential.
(l) The Company shall deliver, in accordance with the notice
provisions of Section 4.8, to the Investor a signed counterpart, addressed to
the Investor, of (1) an opinion or opinions of counsel to the Company, and (2)
to the extent required by law or reasonably necessary to effect a sale of
Registrable Securities in accordance with prevailing business practices at the
time of any sale of Registrable Securities pursuant to a Registration Statement,
a comfort letter or comfort letters from the Company's independent public
accountants, each in
6
<PAGE>
customary form and covering such matters of the type customarily covered by
opinions or comfort letters, as the case may be, as the Investor therefor
reasonably requests.
(m) The Company shall otherwise comply with all applicable rules
and regulations of the SEC, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act.
(n) The Company shall 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.
(o) The Company may require the Investor to promptly furnish in
writing to the Company such 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.
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's failure to timely provide such information.
Section 2.2 REGISTRATION EXPENSES. In connection with each Registration
Statement, the Company shall pay all registration expenses incurred in
connection with the registration thereunder (the "Registration Expenses"),
including, without limitation: (i) all registration, filing, securities exchange
listing and fees required by the National Association of Securities Dealers,
(ii) all registration, filing, qualification and other fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (iii) all word processing, duplicating, printing,
messenger and delivery 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)
reasonable 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 special audits or comfort letters or
costs associated with the delivery by independent certified public accountants
of such special audit(s) or comfort letter(s) requested pursuant to Section
2.1(l) hereof), (vii) the fees and expenses of any special experts retained by
the Company in connection with such registration, (viii) all reasonable fees and
expenses of one firm of counsel for the Investor retained as the Investor's
counsel with respect to such Registration Statement up to an amount of $5000,
unless a greater amount is required due the nature of the review performed by
Investor's counsel (an estimate of such greater fees and expenses of such firm
of counsel to be provided to the Company prior to the undertaking of such
counsel's review), (ix) premiums and other costs of policies of insurance
against liabilities arising out of any public offering of the Registrable
Securities being registered, and (x) any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, but excluding underwriting
fees, discounts, transfer taxes or commissions, if any, attributable to the sale
of Registrable Securities, which shall be payable by each holder of
7
<PAGE>
Registrable Securities pro rata on the basis of the number of Registrable
Securities of each such holder that are included in a registration under this
Agreement.
ARTICLE III
INDEMNIFICATION AND CONTRIBUTION
Section 3.1 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 Securities 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, costs and expenses (including, without
limitation, reasonable attorneys' fees and disbursements and costs and expenses
of investigating and defending any such claim) (collectively, "Damages"), joint
or several, and any action or proceeding 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 as incurred and, insofar as such Damages (or actions 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 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, as
incurred, in investigating or defending or preparing to defend against any such
Damages or actions or proceedings; provided, however, that the Company shall not
be liable to the Investor to the extent that any such Damages arise out of or
are based upon an untrue statement or omission made in any preliminary
prospectus if (i) the Investor failed to send or deliver a copy of the final
prospectus delivered by the Company to the Investor 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
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission.
Section 3.2 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt by
any person or entity in respect of which indemnity may be sought pursuant to
Section 3.1 (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 against whom such indemnity may be sought
(the "Indemnifying Party"), 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 3.2 and the
Indemnifying Party to whom notice was not given was unaware of the proceeding to
which such
8
<PAGE>
notice would have related and was materially prejudiced by the failure to give
such notice, the indemnification provided for in Section 3.1 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 it from any liability that it may have to an Indemnified Party
otherwise than under Section 3.1. 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 with counsel reasonably
satisfactory to the Indemnified Party. 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, in connection with any one such claim or
action or separate but substantially similar or related claims or actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel) at any time for all Indemnified
Parties, or 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, which
consent will not be unreasonably withheld.
Section 3.3 OTHER INDEMNIFICATION. Indemnification similar to that specified in
the preceding paragraphs of this Article 3 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any federal or state law or regulation of any governmental authority other than
the Securities Act. The provisions of this Article III shall be in addition to
any other rights to indemnification, contribution or other remedies which an
Indemnified Party may have pursuant to law, equity, contract or otherwise.
Section 3.4 CONTRIBUTION. If the indemnification provided for in this Article
III is unavailable to the Indemnified Parties in respect of any Damages referred
to herein, then the 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
9
<PAGE>
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.
The Company and the Investor agree that it would not be just and equitable if
contribution pursuant to this Section 3.4 were determined by pro rata allocation
or by any other method of allocation that 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 3.4, 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 (less underwriting discounts and commissions)
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 Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
ARTICLE IV
MISCELLANEOUS
Section 4.1 NO OUTSTANDING REGISTRATION RIGHTS. The Company represents and
warrants to the Investor that there is not in effect on the date hereof any
agreement by the Company pursuant to which any holders of securities of the
Company have a right to cause the Company to register or qualify such securities
under the Securities Act or any securities or blue sky laws of any jurisdiction
that would conflict or be inconsistent with any provision of this Agreement or
the Investment Agreement.
Section 4.2 TERM. The registration rights provided to the holders of
Registrable Securities hereunder shall terminate at such time as all Put Shares
(i) have been disposed of pursuant to the Registration Statement, (ii) have been
sold under circumstances under which all of the applicable conditions of Rule
144 (or any similar provision then in force) under the Securities Act ("Rule
144") are met, (iii) have been otherwise transferred to holders who may trade
such shares without restriction under the Securities Act, and the Company has
delivered a new certificate or other evidence of ownership for such securities
not bearing a restrictive legend, or (iv) may be sold without any time, volume
or manner limitations pursuant to Rule 144(k) (or any similar provision then in
effect) under the Securities Act in the opinion of counsel to the Company, which
counsel shall be reasonably acceptable to the Investor; provided, however, that
-------- -------
10
<PAGE>
such registration rights shall not terminate sooner than two years following the
Subscription Date. Notwithstanding the foregoing, paragraphs (c) and (d) of
Section 1.1, Article III, Section 4.8, and Section 4.9 shall survive the
termination of this Agreement.
Section 4.3 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 4.4 CERTIFICATE. The Company will, at its expense, forthwith upon the
request of any holder of Registrable Securities, deliver to such holder a
certificate, signed by the Company's principal financial officer, stating (a)
the Company's name, address and telephone number (including area code), (b) the
Company's Internal Revenue Service identification number, (c) the Company's
Commission file number, (d) the number of shares of each class of Stock
outstanding as shown by the most recent report or statement published by the
Company, and (e) whether the Company has filed the reports required to be filed
under the Exchange Act for a period of at least ninety (90) days prior to the
date of such certificate and in addition has filed the most recent annual report
required to be filed thereunder.
Section 4.5 AMENDMENT AND MODIFICATION. Any provision of this Agreement may be
waived, provided that such waiver is set forth in a writing executed by both
parties to this Agreement. 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 4.6 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 the Registrable
Securities, provided that the Company shall have the right to require any holder
of Registrable Securities to execute a counterpart of this
11
<PAGE>
Agreement as a condition to such holder's claim to any rights hereunder. This
Agreement, together with the Investment 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 4.7 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 4.8 NOTICES. 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 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, with
accurate confirmation generated by the transmitting facsimile machine, at the
address or number designated below (if delivered on a business day during normal
business hours 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 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, Inc.:
Robert J. Doris
President and Chief Executive Officer
Sonic Solutions
101 Rowland Way, Suite 110
Novato, California 94945
Telephone: (415) 893-8000
Facsimile: (415) 893-8008
with a copy to (which communication shall not constitute notice):
August J. Moretti, Esq.
Heller Ehrman White & McAuliffe
525 University Avenue, Suite 1100
Palo Alto, California 94301-1908
Telephone: (650) 324-7000
Facsimile: (650) 324-0368
12
<PAGE>
If to the Investor:
Adam Gurney
Kingsbridge Capital Limited
c/o Kingsbridge Corporate Services Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
Telephone: 011-353-45-481-811
Facsimile: 011-353-45-482-003
with a copy to (which communication shall not constitute notice):
Sara Hanks, Esq.
Rogers & Wells
200 Park Avenue
New York, NY 10166
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 4.8 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 4.9 GOVERNING LAW. This Agreement shall be construed under the laws of
the State of California, without giving effect to provisions regarding conflicts
of law or choice of law.
Section 4.10 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 4.11 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original instrument and all
of which together shall constitute one and the same instrument.
Section 4.12 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 4.13 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
13
<PAGE>
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.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
SONIC SOLUTIONS
/s/ Robert J. Doris
By: _______________________________________
Robert J. Doris
Chairman and Chief Executive Officer
KINGSBRIDGE CAPITAL LIMITED
/s/ Valentine O'Donoghue
By: _______________________________________
Valentine O'Donoghue
Director
15
<PAGE>
EXHIBIT 5
---------
[LETTERHEAD OF HELLER EHRMAN WHITE & MCAULIFFE APPEARS HERE]
January 15, 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 January
15, 1998 (the "Registration Statement") for the purpose of registering under the
Securities Act of 1933, as amended, an aggregate of 1,522,000 shares of its
Common Stock, no par value (the "Shares"), all of which are to be sold by
certain of the Company's shareholders.
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 Restated Certificate of Incorporation, as amended, of the
Company certified by the Secretary of State of the State of California as of
December 31, 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) A 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;
(d) The Registration Statement; and
<PAGE>
SONIC SOLUTIONS
January 14, 1998
Page 2
(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 January 7, 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 Equity Line of Credit Agreement dated as of
December 31, 1997 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>
[LOGO OF KPMG
PEAT MARWICK LLP
APPEARS HERE] Peat Marwick LLP
Three Embarcadero Center
San Francisco, CA 94111
The Board of Directors
Sonic Solutions:
We consent to incorporation by reference in the registration statement dated
January 15, 1998 on Form S-3 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
San Francisco, California
January 15, 1998
[KPMG LOGO] Member Firm of
KPMB International
