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As filed with the Securities and Exchange Commission on February 19, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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)
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with copies of all orders, notices and communications to:
August J. Moretti
HELLER EHRMAN WHITE & MCAULIFFE
2500 Sand Hill Road, Suite 100, Menlo Park, California 94025-7063 (650) 234-
4229
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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
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<TABLE>
<CAPTION>
Proposed
Maximum
Title of Each Class of Proposed Aggregate
Securities to be Amount to be Maximum Offering Offering Price Amount of
Registered Registered Price Per Share (2) Registration Fee
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<S> <C> <C> <C> <C>
common stock, no par
value (1)............. 1,800,000 $4.75 $8,550,000.00 $2,376.90
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Total: $8,550,000.00 $2,376.90
</TABLE>
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(1) In accordance with Rule 416 under the Securities Act of 1933, common stock
offered hereby shall also be deemed to cover additional securities to be
offered or issued to prevent dilution resulting from stock splits, stock
dividends or similar transactions.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933,
as amended, based on the average of the high and low prices of the common
stock on the Nasdaq National Market on February 17, 1999, as reported on
The Wall Street Journal.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
PROSPECTUS
1,800,000 SHARES
SONIC SOLUTIONS
COMMON STOCK
----------------
Up to 1,800,000 shares of common stock may be offered and sold, from time to
time, by the selling security holder identified in this prospectus. See
"Selling Security Holder". The selling security holder may acquire these shares
pursuant to the Stock Purchase Agreement which we executed with the selling
security holder on February 12, 1999. Under this agreement, we may sell shares
to the selling security holder for an aggregate total amount of up to
$12,000,000. The selling security holder will receive all of the proceeds from
the sale of the shares and will pay all underwriting discounts and selling
commissions, if any, applicable to the sale of the shares. We will pay the
expenses incurred in registering the shares, including legal and accounting
fees.
Our common stock trades on the Nasdaq National Market under the symbol
"SNIC". On February 17, 1999, the closing price for our common stock, as
reported on the Nasdaq National Market, was $4.75 per share.
Beginning on page 4, we have listed several "RISK FACTORS" which you should
consider. You should read the entire prospectus carefully before you make your
investment decision.
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The Securities and Exchange Commission and state regulatory authorities have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
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The date of this prospectus is February , 1999
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling security holder is offering to sell,
and seeking offers to buy, shares of Sonic Solutions' common stock only in
jurisdictions where offers and sales are permitted. The information contained
in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of the
shares.
In this prospectus, the "company," the "Registrant", "Sonic Solutions",
"Sonic", "we", "us" and "our" refer to Sonic Solutions.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and other
documents with the Securities and Exchange Commission (the "SEC"). You may read
and copy any document we file at the SEC's public reference room at Judiciary
Plaza Building, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You
should call 1-800-SEC-0330 for more information on the public reference room.
The SEC maintains an internet site at http://www.sec.gov where certain
information regarding issuers (including Sonic Solutions) may be found.
This prospectus is part of a registration statement that we filed with the
SEC (Registration No. ). The registration statement contains more
information than this prospectus regarding Sonic Solutions and its common
stock, including certain exhibits and schedules. You can get a copy of the
registration statement from the SEC at the address listed above or from its
internet site.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate" into this prospectus information we file
with the SEC in other documents. This means that we can disclose important
information to you by referring to other documents that contain that
information. The information may include documents filed after the date of this
prospectus which update and supersede the information you read in this
prospectus. We incorporate by reference the documents listed below, except to
the extent information in those documents is different from the information
contained in this prospectus, and all future documents filed with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until we terminate the offering of these shares.
<TABLE>
<CAPTION>
SEC Filing
(File No. ) Period/Filing Date
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<S> <C>
Annual Report on Form 10-K Year ended March 31, 1998
Quarterly Reports on Form 10-Q Quarter ended June 30, 1998
Quarter ended September 30, 1998
Registration Statement on Form 8-A Filed in 1994
describing the common stock
</TABLE>
You may request a copy of these documents, at no cost, by writing to:
Sonic Solutions
101 Rowland Way, Suite 110
Novato, California 94945
Attention: Investor Relations
Telephone: (415) 893-8000
2
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FORWARD-LOOKING INFORMATION
Statements made in this prospectus or in the documents incorporated by
reference herein that are not statements of historical fact are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). A number of risks and uncertainties,
including those discussed under the caption "Risk Factors" below and the
documents incorporated by reference herein could affect such forward-looking
statements and could cause actual results to differ materially from the
statements made.
ABOUT THE COMPANY
We design, develop, manufacture and market 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. Our Sonic MediaNet and Sonic LightSpeed product line is a 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. Our 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.
Our products generally include application software and specialized hardware
installed on a personal computer. Our 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.
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RISK FACTORS
The information about the company included or referred to below contains
forward looking statements that involve risks and uncertainties, including the
risks detailed below. The Shares of Common Stock offered to you involve a high
degree of risk and you should carefully consider the following factors.
Lack of Profitability. We have been unprofitable during each of the last
three fiscal years and the first three quarters of the current fiscal year. Our
future performance is subject to a number of risks as outlined below. The
company might not return to profitability.
SonicStudio and Strategy. In 1989, we introduced the Sonic SystemTM, now
called SonicStudioTM, a family of digital audio workstations for professional
audio users. Audio professionals use SonicStudio to prepare recorded sound for
release on CD, for inclusion in film and video sound tracks, and for broadcast
on radio and television. SonicStudio consists of extensive applications
software as well as specialized hardware installed in a personal computer.
Currently, SonicStudio is compatible with various models of Macintosh
personal computers. We have plans to introduce, in the later part of calendar
1999 or later, versions of SonicStudio compatible with other computer
platforms.
Because developing SonicStudio for other platforms involves uncertainties,
problems or delays may be encountered which would delay or prevent such
versions of the SonicStudio from reaching market. Such developments require
substantial costs. Our financial results would therefore be materially
adversely affected if such introduction were delayed for a significant period
of time.
Sonic MediaNet and Sonic LightSpeed Future Developments. We intend to
introduce a second generation networking product called Sonic LightSpeed in
calendar 1999. Sonic LightSpeed is intended to be a successor to Sonic MediaNet
which we previously sold. Sonic LightSpeed will utilize newer networking
technologies and exhibit increased performance levels. We are planning to base
Sonic LightSpeed on FibreChannel technology. FibreChannel is a 1 Gigabit per
second network which can deliver more than 40 Megabytes per second throughput.
This allows uncompressed, professional quality digital video and multiple
tracks of high-resolution audio to be transferred in real time.
In the last quarter of the 1998 fiscal year, we substantially altered our
approach to the new Sonic LightSpeed product line by:
. de-emphasizing the dependence of the new product line on Sonic-designed
plug-in FibreChannel hardware, and instead planning LightSpeed to
utilize third-party-developed plug-in hardware,
. making the software components of the new product line more broadly
compatible with a number of networking technologies in addition to
FibreChannel, including 10BaseT and 100BaseT Ethernet, and
. utilizing third-party-developed software applications or modules
wherever possible instead of software developed by us.
In September, 1998, we introduced and began shipments of preliminary
versions of Sonic LightSpeed. When fully released, Sonic LightSpeed will be a
FibreChannel networking solution for sharing video and audio files at high
speeds between Macintosh and Windows NT systems. Sonic LightSpeed formats Fibre
Channel volumes with its proprietary 64-bit Universal File System (UFS) in
order to:
. enable the use of multi-terabyte files and volumes while dynamically
managing block allocation,
. eliminate file fragmentation,
. make more efficient use of disk space, and
. provide transparent cross-platform file sharing among Macintosh and
Windows NT users.
We plan to release other versions of Sonic LightSpeed throughout calendar
year 1999. At this point we have not decided whether Sonic LightSpeed will be
offered as a separate product, or offered only bundled with other Sonic audio
and DVD products.
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As with any new high-technology product, we may not be successful in
developing Sonic LightSpeed. Even if successfully developed, Sonic LightSpeed
may not be attractive to customers when compared to other network product
offerings. Furthermore, transition between the Sonic MediaNet and Sonic
LightSpeed product lines may present a number of difficulties, including slow
sales 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 DVDMarkets. DVD is an optical disc format originally
developed by a consortium of 10 companies (including Hitachi, Sony, Time-
Warner, etc.) who wished to create a follow-on format to the Compact Disc. DVD
is intended to be a family of formats, providing for distribution of computer
data (DVD-ROM), as well as video (DVD-Video) and audio (DVD-Audio), in both
pre-recorded, and recordable (DVD-RAM, DVD-R) forms. We offer a line of DVD
production systems, including DVD Creator, a professional workgroup system
designed for the high productivity "Hollywood" market, and DesktopDVD, a
desktop system designed for corporate/multimedia producers.
The DVD market represents a significant opportunity for us. We intend to
further increase expenditures for DVD development and marketing during the 1999
and 2000 fiscal years. There are, however, a number of risks surrounding this
initiative, including the following:
. Development Risk--We have only limited experience developing MPEG video
processing hardware. Moreover, we are using a chip set that is being
supplied only by IBM. IBM has advised us that this particular chip set
will be discontinued in early calendar 1999, requiring us to migrate to
a new chip set developed by IBM, or to a chip set developed by another
chip supplier. Unanticipated development problems in the production of
the new chip set, the boards we will design to incorporate the new chip
set, or the accompanying software could seriously delay future releases
of our DVD products.
We are also delivering as part of our DVD products, Dolby Digital and MPEG-2
audio encoding and decoding capabilities by programming our USP audio signal
processing card, and by designing and programming other signal processing
cards.
Although we have significant experience in processing high quality digital
audio, we have only limited experience with Dolby Digital and MPEG-2 audio
encoding and decoding. Additionally, authoring for DVD-Video is complex. When
we introduced DVD Creator in 1996, we 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, we announced the addition of DVD Producer, a new DVD-
Video format authoring system developed by Sonic. While we commenced shipments
of DVD Producer in late 1997 and have continued shipping DVD Producer during
1998, continuing development of this product is necessary to make the package a
compelling alternative to Scenarist and to other DVD-Video format authoring
systems from the point of view of end user customers. In addition, because of
the complexity of development of tools of this kind, problems or "bugs" may
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 customer interest in DVD premastering
systems running on the Windows and Windows/NT platforms. We intend in calendar
year 1999 either (1) to "port" our DVD products to provide versions of them
running on the Windows or Windows/NT platform or (2) to develop new products
that run on the Windows or Windows/NT platform. However, the porting or
development process may not proceed in a speedy and trouble-free way.
. Market Risk; Consumer Market Format Adoption--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 in Europe in the spring of 1998. Many
industry observers expect the format to be attractive to consumers since
it has the following features:
-- high-quality digital video,
-- six-channel surround sound,
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<PAGE>
-- multiple language tracks, sub-titles, and interactive story
branching, and
-- "feature length" movies and videos may be delivered on a "Compact
Disc" sized disc.
Although there has been significant interest in the DVD format among
industry analysts and members of the press, and while early sales levels of
DVD-Video players and discs to consumers have been encouraging, the DVD-Video
format may not be accepted by consumers in the long term.
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. We anticipate that a number of
companies will provide MPEG-2 video encoding capabilities, audio
encoding capabilities and format authoring systems for the professional
user. We are aware of a number of companies working in some or all of
these areas. Some of these companies have released or announced
competitive products, including: CagEnt Technologies (now part of Spruce
Technologies), C-Cube Microsystems, Digital Vision, Dolby Laboratories,
FutureTel, Innovacom, Lucent, Matsushita (Panasonic), Minerva,
Mitsubishi, Optibase, Philips, Pioneer, Spruce Technologies, and Sony. A
number of these companies have financial or organizational resources
significantly greater than those available to us and/or greater
familiarity with certain technologies involved in DVD premastering
solutions. Although we believe that we can engineer a solution of
acceptable or superior quality at a competitive price point, competitive
products will undoubtedly be available in the market and may be better
received than our products.
As of September 30, 1997, our exclusive distributorship (outside Japan) of
the Scenarist DVD-Video authoring package lapsed according to the terms of
agreements between us and Daikin Industries of Japan ("Daikin"). On March 18,
1998, our non-exclusive distributorship of the Scenarist DVD-Video authoring
package lapsed according to the terms of agreements between us and Daikin.
Daikin indicated to us that they were uninterested in continuing their
relationship with us beyond the contract-specified dates. Daikin has taken a
number of steps to develop relationships with other distribution partners,
including Minerva, Digital Vision, Optibase, and Philips. We expect Daikin to
compete vigorously with us. For example, Daikin has announced the availability
of Scenarist on the Windows NT platform. We believe we can compete with Daikin
and its distribution partners. We also believe that customers will prefer DVD
Producer on the Macintosh platform over the Scenarist on the Windows NT
platform, or that we will be able to provide Windows or Windows/NT based DVD
products within a reasonable time frame. Our products, however, may not
ultimately be preferred over those of Daikin or other competitors.
In early April 1998, we introduced "DesktopDVD", our first system aimed at
the corporate DVD market, at the National Association of Broadcasters
convention ("NAB"). In June, 1998, we introduced and began shipments of the
DesktopDVD system. Sonic DesktopDVD is a DVD production system designed for
corporate applications. DesktopDVD is a single workstation which includes:
-- MPEG variable bit-rate and constant bit-rate video encoding and Dolby
Digital stereo audio encoding, and
-- DVD-Video format authoring.
The introduction and acceptance of DesktopDVD is subject to a number of
risks related to:
-- hardware and software development,
-- marketing, distribution and sales programs, and
-- customer support.
The introduction of the DesktopDVD system involves the release of new plug-
in processor cards
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and other hardware to support audio and video encoding and decoding. As with
any new high-technology product, despite testing by the company, there is a
risk that customers will find errors or "bugs" in the hardware or application
software after the systems have been installed in the field. These errors or
bugs could cause delays in future shipment of DesktopDVD systems or require
design modifications. Shipment delays or future design modifications could
adversely affect the company's competitive position and results of operations.
We may not have correctly identified the market opportunity for this type of
product. Moreover, we may not be able to establish the necessary distribution
channels to sell and support DesktopDVD and other systems for corporate
applications. If we have failed to correctly identify the market opportunity,
or if we fail to develop, market, sell or support the product, our results of
operations could be materially adversely affected.
. Format Risk; Delays--There were a number of delays in reaching agreement
on the final specifications for DVD-Video. For example, there were
disagreements within the DVD Consortium (now called the DVD Forum).
There were also disagreements among various companies, industry
associations and political entities concerning copyright protection
schemes and sharing of royalty revenues from patented technologies
involved in the DVD format. The final "Version 1.0" 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 and copy
protection of video data was announced in October, 1996.
Other aspects of the DVD format have continued to be controversial. For
example, 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, however, have indicated their intention to introduce products which
are intended to be alternatives to the official DVD-R and DVD-RAM standards.
The DVD-Audio standard is now circulating in draft form among members of the
DVD Forum and various trade associations representing the music recording
industry. A final "Version 1.0" standard is expected to be published in early
1999. Some companies, however, principally Sony Corporation and Philips, have
indicated that they intend to introduce an alternative next generation audio
format called "Super Audio CD."
Continued controversy surrounding the various DVD formats could delay or
halt the adoption of DVD by the consumer electronics and personal computer
industries, which could have a significant negative impact on our business.
As mentioned above, the DVD-Video format has already been released in the
consumer market. However, Divx, a joint venture company funded in part by
Circuit City Stores, has introduced a specialized format version of the DVD-
Video format. This specialized version requires a specialized player. The Divx
proposal has received support from certain important content holders. Some
industry observers have therefore expressed the opinion that consumer confusion
regarding Divx, or consumer hesitation while waiting for the rollout of Divx
players and Divx titles in the 1998 and 1999, will seriously retard the
adoption of the DVD-Video format. This could also have a significant negative
impact on our 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, we had problems transitioning
to a SonicStudio product line including a new DSP card, called the UltraSonic
Processor ("USP"). We experienced a number of difficulties in connection with
this product transition which are discussed more fully in our Form 10-K for the
fiscal year ended March 31, 1996 on file with the Securities and Exchange
Commission. We now have policies and procedures to address these difficulties.
We may, however, experience similar problems introducing new products in the
future.
Computer Platform Dependence. All of our current products and a significant
portion of our planned future products operate on Macintosh computers. Our
results of operations could be materially adversely affected if we or our
customers or dealers are unable to obtain sufficient quantities of Macintosh
computers. The Macintosh may not be a preferred computer in the professional
and
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corporate audio and DVD markets in the future. Any future changes to the
operating system or architecture of the Macintosh computer could require that
we adapt our products to those changes. Any inability to do so, or delays in
doing so, could render our current and future products obsolete. For example,
in early January 1999, Apple Computer announced new models of the Macintosh G3
which implement several changes in the way in which the computer's PCI bus is
handled. These changes have caused us to expend significant engineering
resources to adapt our plug-in hardware to these models of Macintosh. While we
believe that we will be able to adapt our hardware in a timely fashion there
can be no assurance that we will succeed in doing so. In the event we do not
succeed, our revenues and results of operations would be very negatively
impacted.
It is currently unclear what the future operating system environment of
Macintosh computers will be. It is also not clear whether Apple Computer will
discontinue support for the existing Mac OS family and insist on Macintosh
developers' migrating to the new operating system. We may not be able to
migrate our products onto such a new operating system or we may not be able to
do so in a timely fashion.
Sales and Distribution. We sell SonicStudioTM and DVD products primarily
through a network of dealers and distributors augmented with sales and
technical support provided by our headquarters and regional sales and support
staff. Generally, dealers and distributors are assigned a territory, sometimes
on an exclusive basis, for part or all of the SonicStudio and/or DVD product
lines. Sales leads are generated by our dealers, distributors, regional sales
managers, advertising and other direct marketing activities. We work with
dealers, distributors and customers to provide technical and sales support to
end users.
The complexities of the SonicStudio and DVD products and the length of the
typical sales cycle require that dealers and distributors possess a high level
of technical aptitude, as well as adequate financial resources. Only a limited
number of dealers and distributors have a desirable level of technical
expertise and financial resources. We have had difficulties identifying and
establishing relationships with such dealers and distributors.
In addition, international dealers and distributors encounter unique
problems including fluctuations in exchange rates, managing accounts
receivable, tariff regulations, foreign safety and radio frequency emissions
regulations, and, obtaining import/export licenses. As an added problem, some
of our dealers and distributors sell products that may compete directly or
indirectly with our products. These dealers and distributors may devote greater
resources to selling products from other companies.
Failure of our dealers or distributors to successfully market our products
could have a material adverse effect on our results of operations.
Research and Development. Our research and development strategy continues to
be to develop high quality digital media product solutions and related tools
for our target markets. The key to this strategy will continue to be the
quality and tenure of our research and development personnel and our
management. Our research and development program emphasizes development of
additional products or product enhancements to serve existing market segments
as well as extension of existing products to new markets and new applications.
The markets for our products are characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
Our future success will depend in part on our continued ability to enhance our
existing products and to introduce new products and features to meet changing
customer requirements and evolving industry standards.
Our research and development efforts are subject to a number of risks. For
example, our research and development efforts may not be successful or
completed in a timely manner. In addition, our future products and enhancements
may contain undetected or unresolved errors which could adversely impact market
acceptance. We may not successfully complete the development of these
enhancements and products and our products may not achieve market acceptance.
Any delay or failure to complete development of our products and any failure of
our products to achieve market acceptance would have a material adverse effect
on our results of operations.
Competition. Our competitors may be able to develop products comparable or
superior to ours.
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Competitors may adapt more quickly than us to rapidly evolving market
requirements and technologies. In addition, other companies possessing
competitive technologies may attempt to develop products that compete with
ours. We may not be able to continue to compete effectively in our markets,
competition may intensify and future competition may have a material adverse
effect on our results of operations.
Geographic Exposure; Pacific Rim Situation. A significant percentage of our
revenues are from outside the United States. In some quarters non-U.S. revenue
has constituted more than 50% of our total revenues. In the future, we expect
that demand for our products outside the United States will increase.
Accordingly, we are highly exposed to factors that might make it difficult to
realize revenues outside the United States. These factors include:
. 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.
For example, in the quarter ending December 31, 1997, we experienced
significant problems closing business in the Pacific Rim area, especially in
Korea. Since then, many Pacific Rim economies have continued to exhibit serious
problems including falling demand, credit and liquidity problems, and business
failures. To the extent that the Pacific Rim economies do not improve, it is
likely that our results of operations will be significantly adversely affected.
Proprietary Rights. Our future success will depend in large part on our
proprietary technology. We rely on a combination of trade secret, copyright
law, trademark law, contracts and technical measures to establish and protect
our proprietary rights in our products. Our products are generally sold
pursuant to purchase and license agreements which contain terms and conditions
restricting unauthorized disclosure of the proprietary software embodied in our
products. We have applied in the United States for patents covering certain of
our technology and may apply for additional patents in the future. In October,
1998, we were granted a United States patent covering an algorithm we developed
for controlling the process of generating variable bit rate MPEG-2 video
encoding. Variable bit rate encoding is used frequently in DVD-Video
applications.
There are risks, however, that patents applied for may not issue, and that
our patents may not be valid and enforceable. In addition, even if any such
patents are enforceable, we anticipate that any attempt to enforce our patents
will be time consuming and costly.
We rely to a great extent on trade secret protection for much of our
technology. We have obtained confidentiality agreements from most of our
employees, and regularly require confidentiality agreements to be executed by
companies with whom we engage in joint business activities. Third parties may,
however, independently develop the same or similar technology, obtain
unauthorized access to our proprietary technology and may misuse the technology
to which we have granted them access. Because we have substantial international
sales we may have special risk. The laws of foreign countries may not protect
our proprietary rights to the same extent as laws in the United States, or it
may be significantly more difficult for us to take appropriate and effective
legal action to protect our rights in foreign jurisdictions.
We believe that, due to the rapid proliferation of new technologies in the
audio, video and general software industries, intellectual property protection
of our proprietary technology will be less influential on our ability to
compete in our target markets. Rather, our ability to compete will be more
greatly influenced by the ability of our research and development staff to
design products that continue to address evolving customer requirements, our
ability to enter new markets and our ability to service customers.
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. Patents may be issued to
others which relate to fundamental technologies incorporated into our products.
Since patent applications in the United States are not publicly
9
<PAGE>
disclosed until the patent issues, applications may have been filed which, if
issued as patents, would relate to our products.
In addition, we have never conducted a comprehensive patent search relating
to all of the technology used in our products. Accordingly, there may be issued
patents that relate to our products. Infringement claims may therefore be
brought against us. We could incur substantial costs defending against 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 our ability to sell
products in the United States and abroad, and could result in substantial
damages. Such equitable relief could materially adversely effect our results of
operations. In the event of a claim of infringement, we and our customers may
be required to obtain one or more licenses from third parties. We and our
customers may not obtain necessary licenses from third parties at a reasonable
cost if at all. Failure to obtain any such required license would have a
material adverse effect on our results of operations.
From time to time we have received claims from various parties regarding
possible infringement of patents, trademarks or copyrights. At the moment we do
not believe that these claims are justified, or, if we believe they are
justified, we do not believe that these claims will be resolved on terms which
will have a significant negative impact on our Company's operating results.
However, you should be aware that we may be incorrect in our assessment of
these claims. In addition, there may be claims made against us in the future
which will have a significant negative impact on our operating results.
Manufacturing and Suppliers; Technology Partners. Our hardware products are
either manufactured under contract by various electronics manufacturing and
assembly houses in the San Francisco Bay Area or are purchased from
manufacturers as completed sub-assemblies. Final assembly, integration and
testing is usually performed at our Novato, California facility. Generally, our
dealers or third parties supply the Macintosh or other personal computer as
well as storage peripherals for use with SonicStudio and DVD Creator systems.
We are dependent on sole-source suppliers for certain key components used in
our products, including DSP, AES transceiver, and FDDI chipsets from Motorola,
SCSI controller chips from NCR, field programmable logic chips from Xilinx and
Altera, MPEG encoding/decoding chip sets from IBM and specialized static RAM
chips from IDT, among others. We purchase these sole-source components pursuant
to purchase orders placed from time to time, we do not carry significant
inventories of these components, and we do not have guaranteed supply
agreements. In the past we have experienced various shortages or difficulties
related to sole-source components. For example, in December 1994, we
experienced shortages in certain key components (IDT Static RAM and Motorola
AES Transceivers) for the USP card, the SSP-3 card, and their peripherals. We
experienced a supply limitation of DSP chips from Motorola, Inc., in the fall
of 1993, which we were 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 our results of operations. Also, because of
our reliance on these sole-source components, we may be subject to increases in
component costs which could have an adverse effect on our results of
operations.
In the past, we have scheduled the introduction of certain products based on
the scheduled availability of components from third parties and we have
experienced delays in the timely availability of these components. If such
delays occur in the future, the introduction of our proposed new products would
be delayed and could have a material adverse effect on our results of
operations.
Early in the 1997 fiscal year we began exploring various "outsourcing"
alternatives to further streamline our manufacturing operations. In the summer
of 1996, we began shifting various hardware products into an outsourcing
arrangement with Time/Avnet Electronics. Under this arrangement, Time/Avnet is
responsible for purchasing components, assembly into circuit cards, and testing
of hardware products. Time/Avnet must produce according to forecast schedules
we provide. During the quarter ended March 31, 1998, approximately 75% of all
products we shipped were procured through this outsourcing program. We
10
<PAGE>
intend to continue to shift our production into outsourcing until we
manufacture in house only new or prototype products (prior to commiting them to
outsourcing). We expect that this point will be reached in the 1999 calendar
year. We are pursuing this outsourcing approach because we believe that it
offers a number of benefits to Sonic in terms of working capital requirements
and operational flexibility.
An outsourcing approach also has risks. Chief among these is that our
production is significantly dependent on a single source. Financial,
operational or supply problems encountered by Time/Avnet, its subcontractors or
its suppliers could result in our inability to obtain timely delivery of
finished products. Any such difficulties would adversely effect our financial
results.
Virtually all of our currently shipping products are designed to run on
versions of the Macintosh personal computer which is a principal product of
Apple Computer, Inc. ("Apple"). Over the past several years Apple has
experienced a serious erosion of market share in the personal computer
marketplace. A number of industry observers have suggested that Apple cannot
long remain a viable supplier of desktop computers. While we intend to
introduce Windows and Windows/NT versions of many of our products in the 1999
fiscal year, we may not be successful or timely in these efforts. In the event
our products do not become available on alternate platforms to the Macintosh,
and in the event that Apple experiences further reversals in the marketplace,
our business could be seriously negatively affected.
Even if Apple continues as a viable supplier of personal computers there is
no assurance that Apple's product strategy will remain compatible with the
needs of our product line. Apple currently offers a range of computers, some
targeted at higher end professional and office users, as well as some targeted
at lower end home or personal use. In general, our products are designed to run
on the higher end Apple computers. If Apple were to pursue a strategy in which
it eliminated its higher end product line, our business would be very
negatively affected.
In the past, Apple has experienced operational and manufacturing problems,
particularly when it is discontinuing older products and beginning production
of newer products. If in the future Apple were to experience operational
problems in transitioning to new models such that the supply of computers
compatible with our products became scarce in retail distribution channels, our
business would be very negatively affected.
Concentration of Sales. A significant portion of our current revenue derives
from sales of audio processing subsystems to Discreet Logic ("Discreet").
Discreet uses these subsystems to provide audio capabilities in its line of
professional digital video editing and effects systems called "Fire" and
"Flame". During the 1998 fiscal year and the three fiscal quarters ending June
30, 1998, September 30, 1998, and December 31, 1998, approximately 10% of our
revenue was derived from sales to Discreet. We anticipate that we will continue
to supply audio subsystems to Discreet in the future. However, there can be no
assurance that Discreet's business will continue to prosper or to grow, or
that, even if its business continues to prosper or to grow, that Discreet will
not choose to use other kinds of subsystems to provide audio capabilities.
Year 2000 Issue. Any of our computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could potentially result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in other similar
normal business activities.
We are heavily dependent upon the proper functioning of our own computer or
data-dependent systems, for example, our systems in information, business,
finance, operations, manufacturing and customer service. We would be adversely
affected by any failure or malfunctioning on the part of these or other systems
in ways that are not currently known, discernible, quantifiable or otherwise
anticipated.
We have tried to ensure that our internal software and embedded technology
is already Year 2000 compliant. As such, this issue is not expected to have a
material effect on our operations. We believe that all current versions of our
product lines are Year 2000 compliant.
11
<PAGE>
To date, we have not incurred incremental material costs associated with our
efforts to become Year 2000 compliant. The majority of the costs have been
incurred as a result of normal development and upgrade procedures. Furthermore,
we believe that future costs associated with Year 2000 compliance efforts will
not be material.
We currently have only limited information on the Year 2000 compliance of
our key suppliers and customers. The operations of our key suppliers and
customers could be adversely affected in the event they do not successfully and
timely achieve Year 2000 compliance. Our business and results of operations
could be materially adversely effected if our key suppliers were to experience
Year 2000 issues that caused them to delay the procurement, manufacturing or
shipment of key components to us. In addition, our results of operations could
be materially adversely affected if any of our key customers encounter Year
2000 issues that cause them to delay or cancel substantial purchase orders or
delivery of our products.
We may not be able to develop a plan to address any unforeseen Year 2000
issues in a timely manner or to upgrade any or all of our major systems in
accordance with such plan. In addition, any such product development or
upgrades may not effectively address the Year 2000 issue. If required
development or upgrades are not completed timely or are not successful, we may
not be able to conduct our business or manufacture our products. This would
have a material impact on our operations. Furthermore, the systems of other
companies on which our systems rely may not be timely converted, and failure to
convert by another company, or a conversion that is incompatible with our
systems, would have material adverse effect on the company. We intend to, but
have not yet established a contingency plan detailing actions that will be
taken in the event that the assessment of the Year 2000 issue is not
successfully completed on a timely basis.
12
<PAGE>
USE OF PROCEEDS
The company will not receive any of the proceeds from the sale of the shares
by the selling security holder.
SELLING SECURITY HOLDER
The following table sets forth certain information regarding beneficial
ownership of the company's common stock by the selling security holder as of
February 19, 1999. Because the selling security holder 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 security holder after completion of such distribution. See "Plan of
Distribution".
The selling security holder has not had a material relationship with the
company within the past three years, except as a result of entering into a
Private Equity Line of Credit Agreement with the company dated December 31,
1997 and a Stock Purchase Agreement with the company dated February 12, 1999
(the "Stock Purchase Agreement").
<TABLE>
<CAPTION>
Common Stock Common Stock
Beneficially Owned Common Beneficially Owned
Prior to Offering Stock After Offering
-------------------- to be ---------------------
Number Percent sold Number Percent
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Kingsbridge Capital
Limited................ 13,849 * 1,800,000 -- --
Main Street,
Kilcullen,
County Kildare,
Republic of Ireland
Total:.............. 13,849 * 1,800,000 -- --
</TABLE>
- --------
* less than 1% of the company's common stock currently outstanding.
The shares offered hereby by the selling security holder may be acquired
pursuant to the Stock Purchase Agreement. Under the Stock Purchase Agreement,
the company may require the selling security holder to purchase up to
$12,000,000 of shares of common stock in tranches, with the company obligated
to pay a third party a 4% commission (the "commission") on the dollar amount of
each tranche. Under certain circumstances, the company may deliver to the
selling security holder notices (each, a "Purchase Notice") stating a dollar
amount ("Dollar Amount") of common stock which the company intends to sell to
the selling security holder within 3 trading days following delivery of the
Purchase Notice (each, a "Closing"). On a Closing, the selling security holder,
subject to the terms and conditions of the Stock Purchase Agreement, must
purchase such number of shares of common stock with a value equivalent to the
Dollar Amount of the Purchase Notice (with the company receiving the dollar
amount less the commission), at a price per share which is equal to 86% of the
market price of the company's common stock.
The selling security holder has represented to the company that it will
acquire the shares from the company without any present intention of effecting
a distribution of those shares. However, in accordance with the Stock Purchase
Agreement, the company agreed to register the shares for resale by the selling
security holder 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.
13
<PAGE>
PLAN OF DISTRIBUTION
All or a portion of the shares offered hereby by the selling security holder
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 security holder 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
security holder. The selling security holder 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 security holder 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
security holder 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 security holder (and, if they act as agent for the
purchaser of such shares, from such purchaser). Broker-dealers may agree with
the selling security holder 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 security holder, to purchase as
principal any unsold shares at the price required to fulfill the broker-dealer
commitment to the selling security holder. 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
security holder 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 security holder.
The selling security holder 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.
14
<PAGE>
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, 1998 and March 31, 1997 and for each of the three years in the period ended
March 31, 1998 have been incorporated by reference herein and in the related
registration statement in reliance upon the report of KPMG LLP, independent
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth various expenses in connection with the sale
and distribution of the securities being registered. All of the amounts shown
are estimates except for the Securities and Exchange Commission Registration
Fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........... $ 2,376.90
Accounting Fees............................................... $ 2,000.00
Legal Fees and Disbursements.................................. $10,000.00
Miscellaneous................................................. $ 623.10
----------
Total: $15,000.00
==========
</TABLE>
Item 15. Indemnification of Officers and Directors.
Section 317 of the California Corporations Code permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law. Article III of the
Registrant's Amended and Restated Articles of Incorporation provides for the
indemnification of officers, directors and third parties acting on behalf of
the Registrant to the fullest extent permissible under California law. The
Registrant has entered into indemnification agreements with its directors and
executive officers to the maximum extent permitted under California law.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
4.1 Stock Purchase Agreement between Registrant and Kingsbridge Capital
Limited dated as of February 12, 1999
4.2 Registration Rights Agreement between Registrant and Kingsbridge
Capital Limited dated as of February 12, 1999
5 Opinion of Heller Ehrman White & McAuliffe
23.1 Consent of Heller Ehrman White & McAuliffe
(included in Exhibit 5)
23.2 Consent of KPMG LLP
24 Power of Attorney (See Page II-3)
</TABLE>
Item 17. Undertakings.
A. The undersigned company hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
II-1
<PAGE>
(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.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offering therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Novato, State of California, on the 18th day of February, 1999.
Sonic Solutions
/s/ Robert J. Doris
By:__________________________________
Robert J. Doris, President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert J. Doris or A. Clay Leighton, or either
of them, with the power of substitution, her or his attorney in fact, to sign
any amendments to this Registration Statement (including post-effective
amendments), and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ Robert J. Doris President and Director February 18, 1999
-------------------------------
Robert J. Doris
/s/ Mary C. Sauer Senior Vice President of February 18, 1999
------------------------------- Business Development
and Director
Mary C. Sauer
/s/ Michael C. Child Director February 18, 1999
-------------------------------
Michael C. Child
/s/ Robert M. Greber Director February 18, 1999
-------------------------------
Robert M. Greber
/s/ Peter J. Marguglio Director February 18, 1999
-------------------------------
Peter J. Marguglio
/s/ A. Clay Leighton Senior Vice President of February 18, 1999
-------------------------------
A. Clay Leighton Worldwide Operations and
Finance and Chief Financial
Officer (Principal
Financial Accounting
Officer)
</TABLE>
II-3
<PAGE>
SONIC SOLUTIONS
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Pages
------- ----------- ------------
<C> <S> <C>
4.1 Stock Purchase Agreement between Registrant and
Kingsbridge Capital Limited dated as of February 12,
1999
4.2 Registration Rights Agreement between Registrant and
Kingsbridge Capital Limited dated as of February 12,
1999
5 Opinion of Heller Ehrman White & McAuliffe
23.1 Consent of Heller Ehrman White & McAuliffe (included in
Exhibit 5)
23.2 Consent of KPMG LLP
24 Power of Attorney (See Page II-3)
</TABLE>
<PAGE>
EXHIBIT 4.1
STOCK PURCHASE AGREEMENT
by and between
KINGSBRIDGE CAPITAL LIMITED
and
SONIC SOLUTIONS
________________________________________________________________
DATED AS OF FEBRUARY 12, 1999
________________________________________________________________
<PAGE>
<TABLE>
<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" 1
Section 1.6................................................................................................"Commitment Period" 1
Section 1.7....................................................................................................."Common Stock" 2
Section 1.8........................................................................................."Common Stock Equivalents" 2
Section 1.9......................................................................................"Condition Satisfaction Date" 2
Section 1.10........................................................................................................."Damages" 2
Section 1.11.................................................................................................."Effective Date" 2
Section 1.12...................................................................................................."Exchange Act" 2
Section 1.13....................................................................................................."Floor Price" 2
Section 1.14..............................................................................................."Investment Amount" 2
Section 1.15.........................................................................................................."Legend" 2
Section 1.16...................................................................................................."Market Price" 2
Section 1.17........................................................................................."Material Adverse Effect" 2
Section 1.18......................................................................................."Maximum Commitment Amount" 2
Section 1.19........................................................................................."Maximum Purchase Amount" 2
Section 1.20............................................................................................................"NASD" 2
Section 1.21....................................................................................................."Outstanding" 2
Section 1.22.........................................................................................................."Person" 3
Section 1.23................................................................................................"Principal Market" 3
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 1.24........................................................................................................"Purchase" 3
Section 1.25..................................................................................................."Purchase Date" 3
Section 1.26................................................................................................."Purchase Notice" 3
Section 1.27.................................................................................................."Purchase Price" 3
Section 1.28................................................................................................"Purchased Shares" 3
Section 1.29.........................................................................................."Registrable Securities" 3
Section 1.30..................................................................................."Registration Rights Agreement" 3
Section 1.31.........................................................................................."Registration Statement" 3
Section 1.32...................................................................................................."Regulation D" 3
Section 1.33............................................................................................................."SEC" 3
Section 1.34...................................................................................................."Section 4(2)" 4
Section 1.35.................................................................................................."Securities Act" 4
Section 1.36..................................................................................................."SEC Documents" 4
Section 1.37..............................................................................................."Subscription Date" 4
Section 1.38................................................................................................."Trading Cushion" 4
Section 1.39....................................................................................................."Trading Day" 4
Section 1.40........................................................................................................."Trinity" 4
Section 1.41................................................................................................."Valuation Event" 4
Section 1.42................................................................................................"Valuation Period" 5
ARTICLE II...................................................................................Purchase and Sale of Common Stock 5
Section 2.1........................................................................................................Investments 5
Section 2.2..........................................................................................................Mechanics 5
Section 2.3...........................................................................................................Closings 6
Section 2.4...........................................................................Special Circumstances; Adjustment Period 6
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Section 2.5...............................................................................Termination of Investment Obligation 7
Section 2.6....................................................................................................Blackout Shares 7
Section 2.7.................................................................................................Liquidated Damages 7
ARTICLE III.........................................................................Representations and Warranties of Investor 7
Section 3.1.............................................................................................................Intent 7
Section 3.2.............................................................................................Sophisticated Investor 8
Section 3.3..........................................................................................................Authority 8
Section 3.4...................................................................................................Not an Affiliate 8
Section 3.5..........................................................................................Organization and Standing 8
Section 3.6...............................................................................................Absence of Conflicts 8
Section 3.7..................................................................................Disclosure; Access to Information 8
Section 3.8.....................................................................................................Manner of Sale 8
ARTICLE IV.......................................................................Representations and Warranties of the Company 8
Section 4.1........................................................................................Organization of the Company 8
Section 4.2..........................................................................................................Authority 9
Section 4.3.....................................................................................................Capitalization 9
Section 4.4.......................................................................................................Common Stock 9
Section 4.5......................................................................................................SEC Documents 9
Section 4.6....................................................................................................Valid Issuances 10
Section 4.7...............................................No General Solicitation or Advertising in Regard to this Transaction 10
Section 4.8................................................................................................Corporate Documents 10
Section 4.9.......................................................................................................No Conflicts 10
Section 4.10........................................................................................No Material Adverse Change 11
Section 4.11........................................................................................No Undisclosed Liabilities 11
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Section 4.12............................................................................No Undisclosed Events or Circumstances 11
Section 4.13............................................................................................No Integrated Offering 11
Section 4.14..................................................................................Litigation and Other Proceedings 11
Section 4.15.............................................................................No Misleading or Untrue Communication 11
Section 4.16...................................................................................Material Non-Public Information 11
Section 4.17..............................................................................................Broker-Dealer Status 12
ARTICLE V............................................................................................Covenants of the Investor 12
Section 5.1................................................................................................Compliance with Law 12
Section 5.2..........................................................................................Limitation on Short Sales 12
ARTICLE VI............................................................................................Covenants of the Company 12
Section 6.1................................................................................................Registration Rights 12
Section 6.2........................................................................................Reservation of Common Stock 12
Section 6.3............................................................................................Listing of Common Stock 12
Section 6.4..........................................................................................Exchange Act Registration 12
Section 6.5............................................................................................................Legends 13
Section 6.6................................................................................................Corporate Existence 13
Section 6.7...........................................................................................Additional SEC Documents 13
Section 6.8....................................................................................................Blackout Period 13
Section 6.9............................................................................Expectations Regarding Purchase Notices 13
Section 6.10.............................................................................................Consolidation; Merger 13
Section 6.11..................................................................Issuance of Purchased Shares and Blackout Shares 14
Section 6.12................................................................................Legal Opinion on Subscription Date 14
ARTICLE VII......................................Conditions to Delivery of Optional Purchase Notices and Conditions to Closing 14
Section 7.1................................Conditions Precedent to the Obligation of the Company to Issue and Sell Common Stock 14
</TABLE>
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<TABLE>
<S> <C>
Section 7.2....................Conditions Precedent to the Right of the Company to Deliver a Purchase Notice and the Obligation
of the Investor to Purchase the Purchased Shares 14
ARTICLE VIII.....................................................Due Diligence Review; Non-Disclosure of Non-Public Information 17
Section 8.1................................................................................................Due Diligence Review 17
Section 8.2............................................................................Non-Disclosure of Non-Public Information 17
ARTICLE IX..............................................................................................................Legends 18
Section 9.1.............................................................................................................Legends 18
Section 9.2......................................................................No Other Legend or Stock Transfer Restrictions 19
Section 9.3...............................................................................................Investor's Compliance 19
ARTICLE X........................................................................................................Choice of Law 19
Section 10.1.....................................................................................................Choice of Law 19
ARTICLE XI................................................................Assignment; Entire Agreement, Amendment; Termination 19
Section 11.1........................................................................................................Assignment 19
Section 11.2.......................................................................................................Termination 20
Section 11.3...............................................................................Entire Agreement, Amendment; Waiver 20
ARTICLE XII...........................................................................................Notices; Indemnification 20
Section 12.1...........................................................................................................Notices 20
Section 12.2...................................................................................................Indemnification 21
Section 12.3........................................................................Method of Asserting Indemnification Claims 22
ARTICLE XIII.....................................................................................................Miscellaneous 25
Section 13.1.................................................................................................Fees and Expenses 25
Section 13.2.........................................................................................................Brokerage 25
Section 13.3......................................................................................................Counterparts 25
Section 13.4..................................................................................................Entire Agreement 25
Section 13.5............................................................................................Survival; Severability 25
</TABLE>
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<TABLE>
<S> <C>
Section 13.6...............................................................................................Title and Subtitles 25
Section 13.7.............................................................................Reporting Entity for the Common Stock 25
</TABLE>
6
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EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
KINGSBRIDGE CAPITAL LIMITED
AND
SONIC SOLUTIONS
DATED AS OF FEBRUARY 12, 1999
This STOCK PURCHASE AGREEMENT is entered into as of the 12th day of
February, 1999 (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
$12,000,000 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 I.1 "Adjustment Period" See Section .2.4(b).
------------------
Section I.2 "Bid Price" shall mean the closing bid price (as reported by
---------
Bloomberg L.P.) of the Common Stock on the Principal Market.
Section I.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 I.4 "Closing" shall mean one of the closings of a purchase and
-------
sale of the Common Stock pursuant to Section 2.1.
Section I.5 "Closing Date" shall mean, with respect to a Closing, the
------------
third Trading Day following the Purchase Date related to such Closing, provided
all conditions to such Closing have been satisfied on or before such Trading
Day.
Section I.6 "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
<PAGE>
date on which the Investor shall have purchased Purchased Shares pursuant to
this Agreement for an aggregate Investment Amount of $12,000,000, (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 I.7 "Common Stock" shall mean the Company's common stock, no par
------------
value per share.
Section I.8 "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 I.9 "Condition Satisfaction Date" See Section 7.2.
---------------------------
Section I.10 "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 I.11 "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 I.12 "Exchange Act" shall mean the Securities Exchange Act of
------------
1934, as amended and the regulations promulgated thereunder.
Section I.13 "Floor Price" shall mean three dollars ($3.00) per share.
-----------
Section I.14 "Investment Amount" shall mean the dollar amount specified
-----------------
in a Purchase Notice to be paid by the Investor to purchase Purchased Shares in
accordance with Section 2.2 hereof.
Section I.15 "Legend" See Section 8.1.
------
Section I.16 "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 I.17 "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 I.18 "Maximum Commitment Amount" shall mean $12,000,000.
-------------------------
Section I.19 "Maximum Purchase Amount" shall mean with respect to each
-----------------------
Purchase, subject to the provisions of Section 2.4 hereof, (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
2
<PAGE>
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 I.20 "NASD" shall mean the National Association of Securities
----
Dealers, Inc.
Section I.21 "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 I.22 "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 I.23 "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 I.24 "Purchase" shall mean each occasion the Company elects to
--------
tender Purchase Notice requiring the Investor to purchase a discretionary amount
of the Company's Common Stock, subject to the terms of this Agreement.
Section I.25 "Purchase Date" shall mean the Trading Day during the
-------------
Commitment Period that a Purchase Notice is deemed delivered to the Investor
pursuant to Section 2.2(b) hereof.
Section I.26 "Purchase Notice" shall mean a written notice to the
---------------
Investor setting forth the Investment Amount.
Section I.27 "Purchase Price" shall mean eighty-six percent (86%) (the
--------------
"Purchase Price Percentage") of the Market Price of the Common Stock in respect
of any Purchase Notice.
Section I.28 "Purchased Shares" shall mean all shares of Common Stock
----------------
issued or issuable pursuant to a Purchase that has occurred or may occur in
accordance with the terms and conditions of this Agreement.
Section I.29 "Registrable Securities" shall mean the Purchased Shares
----------------------
until (i) the Registration Statement has been declared effective by the SEC and
all Purchased Shares have been disposed of pursuant to the Registration
Statement, (ii) all Purchased 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
Purchased 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
3
<PAGE>
be reasonably acceptable to the Investor, all Purchased 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 I.30 "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 I.31 "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 I.32 "Regulation D" shall have the meaning set forth in the
------------
recitals of this Agreement.
Section I.33 "SEC" shall mean the Securities and Exchange Commission.
---
Section I.34 "Section 4(2)" shall have the meaning set forth in the
------------
recitals of this Agreement.
Section I.35 "Securities Act" shall have the definition ascribed to it in
--------------
the recitals of this Agreement.
Section I.36 "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 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 I.37 "Subscription Date" shall mean the date on which this
------------------
Agreement is executed and delivered by the parties hereto.
Section I.38 "Trading Cushion" shall mean, at any time (subject to the
---------------
provisions of Section 2.4 hereof), (i) the mandatory fifteen (15) Trading Days
between Purchase Dates if at such time the immediately preceding Purchase was
consummated for an Investment Amount of $650,000 or less and (ii) the mandatory
twenty (20) Trading Days between Purchase Dates if at such time the immediately
preceding Purchase was consummated for an Investment Amount of more than
$650,000.
Section I.39 "Trading Day" shall mean any day during which the New York
-----------
Stock Exchange shall be open for business.
Section I.40 "Trinity" See Section 4.17.
-------
Section I.41 "Valuation Event" shall mean an event in which the Company
---------------
at any time during a Valuation Period takes any of the following actions:
4
<PAGE>
(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 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 I.42 "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 Purchase Date, the two
Trading Days preceding and the two Trading Days following the Trading Day on
which a 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 II.1 Investments.
-----------
5
<PAGE>
(a) Purchases. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII hereof),
on any Purchase Date the Company may deliver a Purchase Notice. The
number of Purchased Shares that the Investor shall receive pursuant to
such Purchase shall be determined by dividing the Investment Amount
specified in the Purchase Notice by the Purchase Price on such
Purchase Date.
(b) Minimum Amount of Purchases. The Company shall, in accordance
with Section 2.2(a), issue and sell Purchased Shares to the Investor
totaling (in aggregate Investment Amounts) at least $1,000,000, but
not more than the Maximum Commitment Amount. If the Company for any
reason fails to issue and deliver Purchased Shares in respect of
Investment Amounts of at least $1,000,000 during the Commitment
Period, on the first Trading Day after the expiration of the
Commitment Period, the Company shall deliver to Investor cash equal to
the product of: ($1,000,000 minus the aggregate Investment Amounts of
the Purchased Shares delivered hereunder) multiplied by (0.14).
(c) Maximum Amount of Purchased 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 1,800,000 shares of Common Stock may be issued
and sold pursuant to Puts.
Section II.2 Mechanics.
---------
(a) Purchase Notice. At any time during the Commitment Period, the
Company may deliver a 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
Purchase Notice shall not be greater than the Maximum Purchase Amount.
(b) Date of Delivery of Purchase Notice. A 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 Purchase Notice may be deemed delivered, on a day that is not
a Trading Day.
Section II.3 Closings. On each Closing Date for a Purchase, the Company
--------
shall deliver into escrow one or more certificates, at the Investor's option,
representing the Purchased 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 Purchase Notice by wire transfer of
immediately available funds to an account designated by the
6
<PAGE>
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 Purchased Shares and
(y) the Investor's deposit into escrow of the Investment Amount; 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 Purchased Shares issuable to the Investor on such
Closing Date..
Section II.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 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 Purchase Amount shall be $1,000,000;
2. the Purchase Price shall be eighty-three percent (83%) of the
Market Price upon a 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 a Purchase Notice such that the
number of Purchased 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
7
<PAGE>
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 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 II.5 Termination of Investment Obligation. The obligation of the
------------------------------------
Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to any Purchase, when a Purchase Notice has been given,
but the applicable Closing Date has not yet occurred) in the event that (i) the
Registration Statement is not effective within ninety (90) days following the
date required therefor in the Registration Rights Agreement, (ii) 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 (iii)
the Company shall at any time fail to comply with the requirements of Section
6.3, 6.4, 6.5 or 6.6; provided, however, that, in the event that the
-------- -------
Registration Statement is not declared effective on or before the date required
therefor in the Registration Rights Agreement solely due to the SEC's
determination that the transactions contemplated hereby do not qualify for
registration pursuant to Form S-3, then either party may, by written notice to
the other party, terminate this Agreement and all of the rights and obligations
of the parties hereunder.
Section II.6 Blackout Shares. In the event that, (a) within five Trading
---------------
Days of any Closing Date, the Company gives notice ("Blackout Notice") to the
Investor of an impending blackout period ("Blackout Period") in accordance with
Section 1.1(f) of the Registration Rights Agreement, and (b) 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 (the
Blackout Shares") 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 II.7 Liquidated Damages. The parties hereto acknowledge and agree
------------------
that the sum payable under Section 2.1(b) and the obligation to issue Blackout
Securities under Section 2.6 above shall constitute liquidated damages and not
penalties. The
8
<PAGE>
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 deliver Purchase
Notices with aggregate Investment Amounts totalling at least $1,000,000 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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section III.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 III.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 III.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 III.4 Not an Affiliate. The Investor is not an officer, director
----------------
or "affiliate" (as that term is defined in Rule 405 promulgated under the
Securities Act) of the Company.
Section III.5 Organization and Standing. Investor is duly organized,
-------------------------
validly existing, and in good standing under the laws of the British Virgin
Islands.
Section III.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, (b) (a) violate any provision of any indenture,
instrument or agreement to which Investor is a
9
<PAGE>
party or is subject, or by which Investor or any of its assets is bound, (c)
conflict with or constitute a material default thereunder, (d) 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 (e) 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.
Section III.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 III.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 IV.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, lease and operate
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 IV.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 Purchased Shares and any
Blackout 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.
10
<PAGE>
Section IV.3 Capitalization. The authorized capital stock of the Company
--------------
consists of 30,000,000 shares of Common Stock, of which 9,366,326 shares were
issued and outstanding as of December 31, 1998, and 10,000,000 shares of
Preferred Stock, 336,538 of which were issued and outstanding on December 31,
1998. Except as disclosed in the audited financial statements of the Company
included in the annual report on Form 10-K for the fiscal year ended March 31,
1998; options to purchase not more than 1,000,000 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
40,100 shares of Common Stock in exchange for 40,100 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 IV.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 IV.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
11
<PAGE>
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 IV.6 Valid Issuances. The Purchase Shares and any Blackout Shares
---------------
may and will be properly issued pursuant to Rule 4(2), Regulation D and/or any
applicable state law. When issued, the Purchased Shares and the Blackout Shares
shall be duly and validly issued, fully paid, and nonassessable. Neither the
sales of the Purchased Shares and the Blackout 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 Purchased 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 Purchased Shares and the
Blackout Shares shall not subject the Investor to personal liability by reason
of the ownership thereof.
Section IV.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 Purchased Shares and the
Blackout 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 IV.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, and the Company's
By-Laws, as amended and in effect on the date hereof (the "By-Laws").
Section IV.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 the Purchase
Shares and any Blackout Shares 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
12
<PAGE>
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.
Section IV.10 No Material Adverse Change. Since March 31, 1998, no
--------------------------
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
Section IV.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 IV.12 No Undisclosed Events or Circumstances. Since March 31,
--------------------------------------
1998, 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 IV.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 IV.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
13
<PAGE>
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 IV.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 Purchased 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 IV.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 IV.17 Broker-Dealer Status. The Company has reviewed certain NASD
--------------------
applications and has contacted the NASD Regulation Membership Department
regarding its 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 V.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 V.2 Limitation on 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 Purchased Shares after
it receives a Purchase Notice with respect to such Purchased Shares so long as
such sales or arrangements do not involve more than the number of such Purchased
Shares (determined as of the date of such Purchase Notice).
ARTICLE VI
COVENANTS OF THE COMPANY
14
<PAGE>
Section VI.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 VI.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
Purchased 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. The number of shares so reserved from time to time, as
theretofore increased or reduced as hereinafter provided, may be reduced by the
numbers of shares actually delivered hereunder.
Section VI.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 Purchased Shares and any Blackout 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 Purchased 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.
Section VI.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 VI.5 Legends. The certificates evidencing the Common Stock to be
-------
sold by the Investor pursuant to Section 9.1 shall be free of legends, except as
set forth in Article IX.
Section VI.6 Corporate Existence. The Company will take all steps
-------------------
necessary to preserve and continue the corporate existence of the Company.
Section VI.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.
15
<PAGE>
Section VI.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, or 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 Purchase Notice during the
continuation of any of the foregoing events.
Section VI.9 Expectations Regarding 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 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 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 VI.10 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
16
<PAGE>
shares of stock and/or securities as the Investor is entitled to receive
pursuant to this Agreement.
Section VI.11 Issuance of Purchased Shares and Blackout Shares. The sale
------------------------------------------------
and issuance of the Purchased Shares shall be made in accordance with the
provisions and requirements of Regulation D and any applicable state law.
Section VI.12 Legal Opinion on Subscription Date. The Company's
----------------------------------
independent counsel shall deliver to the Investor on the Subscription Date an
opinion substantially in the form of Exhibit B, except for paragraph 6 thereof.
ARTICLE VII
CONDITIONS TO DELIVERY OF OPTIONAL
PURCHASE NOTICES AND CONDITIONS TO CLOSING
Section VII.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 Purchased 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.
Section VII.2 Conditions Precedent to the Right of the Company to Deliver
-----------------------------------------------------------
a Purchase Notice and the Obligation of the Investor to Purchase the Purchased
- ------------------------------------------------------------------------------
Shares. The right of the Company to deliver a Purchase Notice and the
- ------
obligation of the Investor hereunder to acquire and pay for the Purchased Shares
incident to a Closing is subject to the satisfaction, on (i) the date of
delivery of such Purchase Notice and (ii) the applicable Closing Date (each a
"Condition Satisfaction Date"), of each of the following conditions:
(a) Registration of the Registrable Securities 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 Purchase Date, but in no event later
than one hundred twenty (120) 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
17
<PAGE>
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 adopted 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 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
Purchased Shares) shall not have been suspended by the SEC, the
Principal Market or the NASD and the Common Stock (including without
limitation the Purchased 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
18
<PAGE>
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 a Purchase Notice. If a Purchase Notice shall have been
delivered in good faith without knowledge by the Company that an
opinion of independent counsel cannot 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 and the Registration Rights 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
Purchased Shares then to be purchased by the Investor shall not exceed
the number of such shares that, when aggregated with all other shares
of Registrable Securities then owned by the Investor beneficially or
deemed beneficially owned by the Investor, would result 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 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,
Blackout Shares, would own more than 9.9% of the Common Stock
following such Closing Date.
19
<PAGE>
(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 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 7.2.,
including, without limitation, a certificate in substantially the form
and substance of Exhibit C hereto, executed in either case by an
executive officer of 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 VIII.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
20
<PAGE>
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 VIII.2 Non-Disclosure of Non-Public Information.
----------------------------------------
(a) 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) 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 herein above 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
21
<PAGE>
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 IX.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 "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 STOCK PURCHASE AGREEMENT BETWEEN SONIC SOLUTIONS AND
KINGSBRIDGE CAPITAL LIMITED DATED FEBRUARY __, 1999. 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
22
<PAGE>
Common Stock upon the Company's appointment of any such substitute or
replacement transfer agent) instructions in substantially the form of Exhibit D
hereto with a copy to the Investor. 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
(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 IX.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
23
<PAGE>
Company's transfer agent with respect thereto other than as expressly set forth
in this Article IX.
Section IX.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 X.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 XI.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 XI.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.
Section XI.3 Entire Agreement, Amendment; Waiver. 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. Any
term or condition of this Agreement may be waived at any time by the party that
is entitled to the benefit thereof, but no such waiver shall be effective unless
set forth in a written instrument duly executed by or on behalf of the party
waiving such term or condition. No waiver by any party of any term or condition
of this Agreement, in any one or more instances, shall be deemed to be or
construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion.
ARTICLE XII
NOTICES; INDEMNIFICATION
24
<PAGE>
Section XII.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):
Keith M. Andruschak, 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 XII.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
26
<PAGE>
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 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 $140,000.
Section XII.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
27
<PAGE>
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.
(i) 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 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
28
<PAGE>
its right to indemnity under Section 12.2 with respect to such
Third Party Claim.
(ii) 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
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.
(iii) 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
29
<PAGE>
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 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
30
<PAGE>
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 (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.
ARTICLE XIII
MISCELLANEOUS
Section XIII.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 connection with the preparation,
negotiation, execution and delivery of this Agreement and the Registration
Rights Agreement in an aggregate amount not to exceed $5,000.
Section XIII.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
31
<PAGE>
behalf of the indemnifying party in connection with this Agreement or the
transactions contemplated hereby.
Section XIII.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 XIII.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 XIII.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 XIII.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 XIII.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.
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
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
33
<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 Stock Purchase Agreement, dated as of February
12, 1999, 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
34
<PAGE>
EXHIBIT B
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
[FORM TO BE PROVIDED BY COUNSEL TO THE COMPANY]
35
<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 Purchase Notice, dated _____________ (the "Notice"), delivered pursuant
to Article II of the Stock Purchase Agreement, dated February 12, 1999, 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
IV 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 VII of the Agreement.
The undersigned has executed this Certificate this ____ day of ________,
199_.
____________________________________
Robert J. Doris
Chairman and Chief Executive Officer
36
<PAGE>
EXHIBIT D
INSTRUCTIONS TO TRANSFER AGENT
SONIC SOLUTIONS
_______________, 1999
[Name, address and phone and fax number of Transfer Agent]
Dear Sirs:
Reference is made to the Stock Purchase Agreement (the "Agreement"), dated
as of February 12, 1999 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).
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
37
<PAGE>
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 (___)-___-____.
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
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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.
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:
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EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of February
12, 1999, 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 Stock
Purchase Agreement, dated as of the date hereof (the "Stock Purchase
Agreement"), pursuant to which the Company will issue and sell to the Investor
and the Investor will purchase, from time to time, up to $12,000,000 worth of
shares of Common Stock (as determined pursuant to the Stock Purchase Agreement);
WHEREAS, pursuant to the terms of, and in consideration for, the Investor's
agreement to enter into the Stock Purchase 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 Stock Purchase
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 such terms in the Stock
Purchase Agreement):
ARTICLE I
REGISTRATION RIGHTS
Section I.1. REGISTRATION STATEMENT.
(a) Filing of Registration Statement. Subject to the terms and
--------------------------------
conditions of this Agreement, the Company shall file with the SEC within thirty
(30) days following the Subscription Date a registration statement on Form S-3
under the Securities Act for the registration of the Registerable Securities for
resale by the Investor to the public (the "Registration Statement").
(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 one hundred twenty (120) days following
Subscription Date and to ensure 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; provided, however, that
-------- -------
if the Stock Purchase Agreement shall be terminated in accordance with Section
2.5 thereof, the
<PAGE>
Company shall have no further obligation to cause the Registration Statement to
become effective.
(c) Intentionally Omitted.
(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 pro rata 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 (28) 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 default or penalty in the event that
the Company's failure to obtain effectiveness of a Registration Statement by no
later than one hundred twenty (120) days after Subscription Date results solely
from the SEC's disapproval of the structure of the transactions contemplated by
the Stock Purchase 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 Company shall not be in default hereunder or under the Stock Purchase
Agreement and no liquidated damages or penalties shall accrue against or be
owing by the Company 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) (a "Blackout Notice"), 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
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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
twice in any twelve (12) month period. Following such deferral or suspension,
the Investor shall be entitled to Blackout Shares as set forth in Section 2.7 of
the Stock Purchase Agreement.
(g) Liquidated Damages. The parties hereto acknowledge and agree
------------------
that the sums payable under Section 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 II.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 (i) 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); (ii) use reasonable best
efforts to cause such filed Registration Statement to become and remain
effective (pursuant to Rule 415 under the Act or otherwise); (iii) 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 (iv) comply with the provisions of the Securities 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 Stock Purchase Agreement.
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<PAGE>
(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 Registration Statement
under the Securities Act for the offering on a continuous or delayed basis in
the future of all of the Registrable Securities (a "Shelf Registration"), the
Company shall (i) promptly incorporate in a prospectus supplement or post-
effective amendment such information as the managing 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 such representations and warranties 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 (5) Trading Days prior to filing the 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
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<PAGE>
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 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 additional information, 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
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<PAGE>
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.
(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
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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 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 II.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
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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 $5,000, 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 obtained at the discretion of the Company 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 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 III.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
Securities 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
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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 III.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 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 the Indemnifying Party 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.
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Section III.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 III.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 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 IV.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
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sky laws of any jurisdiction that would conflict or be inconsistent with any
provision of this Agreement or the Stock Purchase Agreement.
Section IV.2. TERM. The registration rights provided to the holders of
Registrable Securities hereunder shall terminate at such time as all Purchased
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 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 IV.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 IV.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 IV.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
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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 IV.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 Agreement as a
condition to such holder's claim to any rights hereunder; provided further that
such holder is an "accredited investor" as defined in Rule 501 of Regulation D
of the Securities Act. This Agreement, together with the Stock Purchase
Agreement and the Escrow 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 IV.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 IV.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
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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
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):
Keith M. Andruschak, Esq.
Rogers & Wells LLP
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 IV.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 IV.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.
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Section IV.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 IV.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 IV.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 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.
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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
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[LETTERHEAD OF HELLER EHRMAN WHITE & MCAULIFFE]
EXHIBIT 5
---------
February 19, 1999
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
February 19, 1999 (the "Registration Statement") for the purpose of
registering under the Securities Act of 1933, as amended, an aggregate of
1,800,000 shares of the Company's Common Stock, no par value (the "Shares").
The Shares are to be sold by the Holder under the Registration Statement.
I.
In connection with this opinion, we have assumed the authenticity of all
records, documents and instruments submitted to us as originals, the
genuineness of all signatures, the legal capacity of natural persons and the
conformity to the originals of all records, documents, and instruments
submitted to us as copies. In rendering our opinion, we have examined the
following records, documents, instruments and certificates:
(a) The Amended and Restated Articles of Incorporation of the Company
certified by the Secretary of State of the State of California as of September
11, 1997, and certified to us by an officer of the Company as being complete
and in full force and effect as of the date of this opinion;
(b) The Bylaws of the Company certified to us by an officer of the
Company as being complete and in full force and effect as of the date of this
opinion;
(c) 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;
<PAGE>
SONIC SOLUTIONS
February 19, 1999
Page 2
(d) The Registration Statement; and
(e) A written statement from ChaseMellon Shareholder Services, the
Company's transfer agent, as to the number of shares of the Company's Common
Stock that were outstanding on December 31, 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 Stock Purchase Agreement dated as of February 12,
1999 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
<PAGE>
Exhibit 23.2
The Board of Directors
Sonic Solutions:
We consent to incorporation by reference in the Form S-3 registration
statement of Sonic Solutions of our report dated April 24, 1998, relating to
the balance sheets of Sonic Solutions as of March 31, 1998, and 1997, and the
related statements of operations, shareholders' equity and cash flows for each
of the years in the three-year period ended March 31, 1998, and the related
financial statement schedule, which report appears in the March 31, 1998
annual report on Form 10-K of Sonic Solutions, and to the reference to our
firm under the heading "Experts" in the registration statement.
/s/ KPMG LLP
San Francisco, California
February 18, 1999
