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EXHIBIT 4.1
EXECUTION COPY
PRIVATE EQUITY LINE AGREEMENT
by and between
KINGSBRIDGE CAPITAL LIMITED
and
SONIC SOLUTIONS
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Dated as of May 4, 2000
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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 "Investment Amount"................................................ 2
Section 1.14 "Legend"........................................................... 2
Section 1.15 "Market Price"..................................................... 2
Section 1.16 "Material Adverse Effect".......................................... 2
Section 1.17 "Maximum Commitment Amount"........................................ 2
Section 1.18 "Maximum Put Amount"............................................... 2
Section 1.19 "NASD"............................................................. 3
Section 1.20 "Outstanding"...................................................... 3
Section 1.21 "Person"........................................................... 3
Section 1.22 "Principal Market"................................................. 3
Section 1.23 "Purchase Price"................................................... 3
Section 1.24 "Put".............................................................. 3
Section 1.25 "Put Date"......................................................... 3
Section 1.26 "Put Notice"....................................................... 3
Section 1.27 "Put Shares"....................................................... 3
Section 1.28 "Registrable Securities"........................................... 3
Section 1.29 "Registration Rights Agreement".................................... 4
Section 1.30 "Registration Statement"........................................... 4
Section 1.31 "Regulation D"..................................................... 4
Section 1.32 "SEC".............................................................. 4
Section 1.33 "Section 4(2)"..................................................... 4
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Section 1.34 "Securities Act"................................................... 4
Section 1.35 "SEC Documents".................................................... 4
Section 1.36 "Subscription Date"................................................ 4
Section 1.37 "Trading Cushion".................................................. 4
Section 1.38 "Trading Day"...................................................... 4
Section 1.39 Reserved........................................................... 4
Section 1.40 "Valuation Event".................................................. 4
Section 1.41 "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
Section 2.5 Termination of Investment Obligation............................... 7
Section 2.6 Blackout Shares.................................................... 7
Section 2.7 Liquidated Damages................................................. 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF INVESTOR.............................. 8
Section 3.1 Intent............................................................. 8
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.................................. 9
Section 3.8 Manner of Sale..................................................... 9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... 9
Section 4.1 Organization of the Company........................................ 9
Section 4.2 Authority.......................................................... 9
Section 4.3 Capitalization..................................................... 9
Section 4.4 Common Stock....................................................... 10
Section 4.5 SEC Documents...................................................... 10
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
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Section 4.9 No Conflicts....................................................... 11
Section 4.10 No Material Adverse Change......................................... 11
Section 4.11 No Undisclosed Liabilities......................................... 11
Section 4.12 No Undisclosed Events or Circumstances............................. 11
Section 4.13 No Integrated Offering............................................. 11
Section 4.14 Litigation and Other Proceedings................................... 12
Section 4.15 No Misleading or Untrue Communication.............................. 12
Section 4.16 Material Non-Public Information.................................... 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............................................ 13
Section 6.4 Exchange Act Registration.......................................... 13
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 Put Notices................................. 14
Section 6.10 Consolidation; Merger.............................................. 14
Section 6.11 Issuance of Put Shares and Blackout Shares......................... 14
Section 6.12 Legal Opinion on Subscription Date................................. 14
ARTICLE VII CONDITIONS TO DELIVERY OF PUT NOTICES AND CONDITIONS TO CLOSING........ 14
Section 7.1 Conditions Precedent to the Obligation of the Company to Issue
and Sell Common Stock.............................................. 14
Section 7.2 Conditions Precedent to the Right of the Company and the Selling
Shareholder to Deliver a Put Notice and the Obligation of the
Investor to Purchase the Put 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
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Section 9.1 Legends............................................................ 18
Section 9.2 No Other Legend or Stock Transfer Restrictions..................... 19
Section 9.3 Investor's Compliance.............................................. 20
ARTICLE X CHOICE OF LAW........................................................... 20
Section 10.1 Choice of Law...................................................... 20
ARTICLE XI ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; TERMINATION.................... 20
Section 11.1 Assignment......................................................... 20
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
Section 13.6 Title and Subtitles................................................ 26
Section 13.7 Reporting Entity for the Common Stock.............................. 26
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EXECUTION COPY
PRIVATE EQUITY LINE AGREEMENT
by and between
KINGSBRIDGE CAPITAL LIMITED
and
SONIC SOLUTIONS
dated as of May 4, 2000
This PRIVATE EQUITY LINE AGREEMENT is entered into as of the 4/th/ day of
May, 2000 (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 from the
Company, up to $20,000,000 of the Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Adjustment Period" See Section .2.4(b).
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Section 1.2 "Bid Price" shall mean the closing bid price (as reported by
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Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Capital Shares" shall mean the Common Stock and any shares
--------------
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.4 "Closing" shall mean one of the closings of a purchase and
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sale of the Common Stock pursuant to Section 2.1.
Section 1.5 "Closing Date" shall mean, with respect to a Closing, the
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third Trading Day following the Put Date related to such Closing, provided all
conditions to such Closing have been satisfied on or before such Trading Day.
Section 1.6 "Commitment Period" shall mean the period commencing on the
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earlier to occur of (i) the Effective Date or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have purchased Put
Shares pursuant to this Agreement for an aggregate Investment Amount of
$20,000,000, (y) the date
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this Agreement is terminated pursuant to Section 2.5(b), or (z) the date
occurring twenty-four (24) months from the date of commencement of the
Commitment Period.
Section 1.7 "Common Stock" shall mean the Company's common stock, no par
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value per share.
Section 1.8 "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 1.9 "Condition Satisfaction Date" See Section 7.2.
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Section 1.10 "Damages" shall mean any loss, claim, damage, liability,
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costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.11 "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 1.12 "Exchange Act" shall mean the Securities Exchange Act of
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1934, as amended and the regulations promulgated thereunder.
Section 1.13 "Investment Amount" shall mean the dollar amount specified
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in a Put Notice to be paid by the Investor to purchase Put Shares in
accordance with Section 2.2 hereof.
Section 1.14 "Legend" See Section 8.1.
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Section 1.15 "Market Price" on any given date shall mean the average of
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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; provided, however, that
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in the event that the volume of Common Stock traded on any such Trading Day is
less than five thousand (5000) shares at the actual lowest intra-day price, then
"lowest intra-day price" for such Trading Day shall mean the next lowest intra-
day price, regardless of the volume of Common Stock traded at such next lowest
intra-day price.
Section 1.16 "Material Adverse Effect" shall mean any effect on the
-----------------------
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
its obligations under any of (a) this Agreement and (b) the Registration Rights
Agreement.
Section 1.17 "Maximum Commitment Amount" shall mean $20,000,000.
-------------------------
Section 1.18 "Maximum Put Amount" shall mean with respect to each Put,
------------------
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 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. Notwithstanding the foregoing, (i) in the event that
the Market Price is less than three dollars ($3.00) in connection with any Put,
the Maximum Put Amount shall be $150,000 and (ii) in the event that the Market
Price is less than one dollar ($1.00) in connection with any Put, the Maximum
Put Amount shall be $50,000.
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Section 1.19 "NASD" shall mean the National Association of Securities
----
Dealers, Inc.
Section 1.20 "Outstanding" when used with reference to Common Shares or
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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
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directly or indirectly owned or held by or for the account of the Company.
Section 1.21 "Person" shall mean an individual, a corporation, a
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partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.22 "Principal Market" shall mean the Nasdaq National Market,
----------------
the Nasdaq Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
Section 1.23 "Purchase Price" shall mean (i) in the event that the Market
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Price is equal to or less than five dollars ($5.00), eighty-eight percent (88%)
of the Market Price of the Common Stock in respect of any Put Notice, or (ii) in
the event that the Market Price is greater than five dollars ($5.00) but less
than nine dollars ($9.00), ninety percent (90%) of the Market Price of the
Common Stock in respect of any Put Notice, or (iii) in the event that the Market
Price is equal to or greater than nine dollars ($9.00) but less than thirteen
dollars ($13.00), ninety-one percent (91%) of the Market Price of the Common
Stock in respect of any Put Notice, or (iv) in the event that the Market Price
is equal to or greater than thirteen dollars ($13.00), ninety-two percent (92%)
of the Market Price of the Common Stock in respect of any Put Notice.
Section 1.24 "Put" shall mean each occasion on which the Company elects
---
to tender Put Notice requiring the Investor to purchase a specified
discretionary amount of the Company's Common Stock, subject to the terms of this
Agreement.
Section 1.25 "Put Date" shall mean the Trading Day during the Commitment
--------
Period that a Put Notice is deemed delivered to the Investor pursuant to Section
2.2(b) hereof.
Section 1.26 "Put Notice" shall mean a written notice to the Investor
----------
setting forth the Investment Amount.
Section 1.27 "Put Shares" shall mean all shares of Common Stock issued or
----------
issuable pursuant to a Put that has occurred or may occur in accordance with the
terms and conditions of this Agreement.
Section 1.28 "Registrable Securities" shall mean the Put Shares until (i)
----------------------
the Registration Statement has been declared effective by the SEC and all Put
Shares have been disposed of pursuant to the Registration Statement, (ii) all
Put Shares have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) all Put Shares have been otherwise
transferred to holders who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend or
(iv) such time as, in the opinion of counsel to the Company, which counsel shall
be reasonably acceptable to the Investor, all Put Shares may be sold without any
time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.
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Section 1.29 "Registration Rights Agreement" shall mean the agreement
-----------------------------
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor as of
the Subscription Date.
Section 1.30 "Registration Statement" shall mean a registration statement
----------------------
on Form S-3 (if use of such form is then available to the Company pursuant to
the rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate and which form shall be available for the resale of the Registrable
Securities to be registered thereunder in accordance with the provisions of this
Agreement and the Registration Rights Agreement, and in accordance with the
intended method of distribution of such securities), for the registration of the
resale by the Investor of the Registrable Securities under the Securities Act.
Section 1.31 "Regulation D" shall have the meaning set forth in the
------------
recitals of this Agreement.
Section 1.32 "SEC" shall mean the Securities and Exchange Commission.
---
Section 1.33 "Section 4(2)" shall have the meaning set forth in the
------------
recitals of this Agreement.
Section 1.34 "Securities Act" shall have the definition ascribed to it in
--------------
the recitals of this Agreement.
Section 1.35 "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 1.36 "Subscription Date" shall mean the date on which this
-----------------
Agreement is executed and delivered by the parties hereto.
Section 1.37 "Trading Cushion" shall mean, at any time (subject to the
---------------
provisions of Section 2.4 hereof), (i) the mandatory fifteen (15) Trading Days
between Put Dates if at such time the immediately preceding Put was consummated
for an Investment Amount of $650,000 or less and (ii) the mandatory twenty (20)
Trading Days between Put Dates if at such time the immediately preceding Put was
consummated for an Investment Amount of more than $650,000.
Section 1.38 "Trading Day" shall mean any day during which the New York
-----------
Stock Exchange shall be open for business.
Section 1.39 Reserved
Section 1.40 "Valuation Event" shall mean an event in which the Company
---------------
at any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Stock or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital
Shares"), otherwise than as provided in the foregoing Subsections
(a) and (b) above, at a price per share less, or for other
consideration lower, than the Bid Price in effect immediately
prior to such issuance, or without consideration;
4
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(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 1.41 "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 Put Date, the two Trading
Days preceding and the two Trading Days following the Trading Day on which a Put
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
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occurs during any Valuation Period, a new Valuation Period shall begin on the
Trading Day immediately after the occurrence of such Valuation Event and end on
the fifth Trading Day thereafter.
ARTICLE II
Purchase and Sale of Common Stock
Section 2.1 Investments.
-----------
(a) Puts. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII
hereof), on any Put Date the Company may deliver a Put Notice.
The number of Put Shares that the Investor shall receive pursuant
to such Put shall be determined by dividing the Investment Amount
specified in the Put Notice by the Purchase Price on such Put
Date.
(b) Intentionally Omitted.
(c) Maximum Amount of Put Shares. Unless the Company obtains the
requisite approval of its shareholders in accordance with the
corporate laws of California and the applicable rules of the
Principal Market, no more than 19.9% of the Outstanding shares of
Common Stock may be issued and sold in the aggregate pursuant to
this Agreement.
Section 2.2 Mechanics.
---------
(a) Put Notice. At any time during the Commitment Period, the
Company may deliver a Put Notice to the Investor, subject to the
conditions set forth in Section 7.2;
5
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provided, however, the Investment Amount for each Put as
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designated by the Company in the applicable Put Notice shall not
be greater than the Maximum Put Amount.
(b) Date of Delivery of Put Notice. A Put 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 Put Notice may be deemed
delivered, on a day that is not a Trading Day.
Section 2.3 Closings. On each Closing Date for a Put, the Company shall
--------
deliver into escrow one or more certificates, at the Investor's option,
representing the Put Shares to be purchased by the Investor pursuant to Section
2.1 herein, registered in the name of the Investor or, at the Investor's option,
deposit such certificate(s) into such account or accounts previously designated
by the Investor and (ii) the Investor shall deliver to escrow the Investment
Amount specified in the Put Notice by wire transfer of immediately available
funds to an account or accounts designated by the Company on or before the
Closing Date. In addition, on or prior to the Closing Date, each of the Company
and the Investor shall deliver all documents, instruments and writings required
to be delivered or reasonably requested by either of them pursuant to this
Agreement in order to implement and effect the transactions contemplated herein.
Payment of funds to the Company and delivery of the certificates to the Investor
shall occur out of escrow in accordance with the escrow agreement referred to in
Section 7.2(p) following (x) the Company's deposit into escrow of the
certificates representing the Put Shares and (y) the Investor's deposit into
escrow of the Investment Amount; provided, however, that to the extent the
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Company has not paid the fees, expenses and disbursements of the Investor's
counsel in accordance with Section 13.1, the amount of such fees, expenses and
disbursements shall be paid in immediately available funds, at the direction of
the Investor, to Investor's counsel with no reduction in the number of Put
Shares issuable to the Investor on such Closing Date; provided, further, that so
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long as the Investor shall maintain professional liability, errors and omissions
liability and/or directors' and officers' liability insurance for its activities
related to the Put Shares or the Blackout Shares, one and three quarters of one
percent (1.75%) of such Investment Amount shall be either (i) retained by the
Investor in respect of premium payments for such insurance or (ii) paid in
immediately available funds, at the direction of the Investor in respect of such
premium payments, in either case, with no reduction in the number of Put Shares
to be issued and/or sold to the Investor on such Closing Date.
Section 2.4 Special Circumstances; Adjustment Period.
----------------------------------------
(a) Adjustment Period Notice. In the event that the Company
shall in good faith anticipate executing an agreement of
acquisition, merger or consolidation within ninety (90) days
after giving the Investor Adjustment Period Notice (as defined
below), the Company may, at its sole discretion, give the
Investor at least twenty-one (21) days' irrevocable advance
notice, in the form of Exhibit A hereto ("Adjustment Period
Notice"), that the Company shall initiate an Adjustment Period
(as defined below). The giving of such Adjustment Period Notice
shall not constitute the disclosure of non-public information to
the Investor under this Agreement.
(b) During the Adjustment Period:
1. The Maximum Put Amount shall be $1,000,000;
2. the Purchase Price shall be eighty-three percent (83%)
of the Market Price upon a Put Date;
6
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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 shall not deliver a Put Notice such that
the number of Put Shares to be purchased by the Investor
upon the applicable Closing, when aggregated with all other
shares of Common Stock then owned by the Investor
beneficially or deemed beneficially owned by the Investor,
would result in the Investor owning more than 4.9% of all of
such Common Stock as would be outstanding on such Closing
Date, as determined in accordance with Section 13(d) of the
Exchange Act and the regulations promulgated thereunder. For
purposes of this Section 2.4(b), in the event that the
amount of Common Stock outstanding as determined in
accordance with Section 13(d) of the Exchange Act and the
regulations promulgated thereunder is greater on a Closing
Date than on the date upon which the Put Notice associated
with such Closing Date is given, the amount of Common Stock
outstanding on such Closing Date shall govern for purposes
of determining whether the Investor, when aggregating all
purchases of Common Stock made pursuant to this Agreement,
would own more than 4.9% of the Common Stock following such
Closing Date.
Section 2.5 Termination of Investment Obligation. The obligation of the
------------------------------------
Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to any Put, when a Put 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
effective registration, then either party may, by five Business Days' prior
written notice to the other party, terminate this Agreement and all of the
rights and obligations of the parties hereunder.
Section 2.6 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 2.7 Liquidated Damages. The parties hereto acknowledge and agree
------------------
that the obligation to issue Blackout Securities under Section 2.6 above shall
constitute liquidated damages and
7
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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 Section bears a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred by the Investor 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 3.1 Intent. The Investor is entering into this Agreement for its
------
own account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 Sophisticated Investor. The Investor is a sophisticated
----------------------
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.
Section 3.3 Authority. This Agreement has been duly authorized and
---------
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4 Not an Affiliate. The Investor is not an officer, director
----------------
or "affiliate" (as that term is defined in Rule 405 promulgated under the
Securities Act) of the Company.
Section 3.5 Organization and Standing. Investor is duly organized,
-------------------------
validly existing, and in good standing under the laws of the British Virgin
Islands.
Section 3.6 Absence of Conflicts. The execution and delivery of this
--------------------
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (b) (a) violate any provision of any indenture,
instrument or agreement to which Investor is a party or is subject, or by which
Investor or any of its assets is bound, (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 3.7 Disclosure; Access to Information. Investor has received all
---------------------------------
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested
8
<PAGE>
by Investor. The Company is subject to the periodic reporting requirements of
the Exchange Act, and Investor has reviewed or received copies of any such
reports that have been requested by it.
Section 3.8 Manner of Sale. At no time was Investor presented with or
--------------
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investor that:
Section 4.1 Organization of the Company. The Company is a corporation
---------------------------
duly organized and existing in good standing under the laws of the State of
California and has all requisite corporate authority to own, 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 4.2 Authority. (i) The Company has the requisite corporate power
---------
and authority to enter into and perform its obligations under this Agreement and
the Registration Rights Agreement and to issue the Put Shares 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.
Section 4.3 Capitalization. The authorized capital stock of the Company
--------------
consists of 30,000,000 shares of Common Stock, of which 11,259,720 shares were
issued and outstanding as of December 31, 1999, and 10,000,000 shares of
Preferred Stock, of which 155,544 were issued and outstanding on December 31,
1999. 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,
1999; 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
90,100 shares of Common Stock in exchange for 90,100 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 4.4 Common Stock. The Company has registered its Common Stock
------------
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or
9
<PAGE>
quotation of its Common Stock, and such Common Stock is currently listed or
quoted on the Principal Market. As of the date hereof, the Principal Market is
the Nasdaq National Market.
Section 4.5 SEC Documents. The Company has delivered or made available to
-------------
the Investor true and complete copies of the SEC Documents (including, without
limitation, proxy information and solicitation materials). The Company has not
provided to the Investor any information that, according to applicable law, rule
or regulation, should have been disclosed publicly prior to the date hereof by
the Company, but which has not been so disclosed. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and rules and
regulations of the SEC promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such SEC Documents, and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 4.6 Valid Issuances. The Put Shares and any Blackout Shares may
---------------
and will be properly issued and/or sold pursuant to Rule 4(2), Regulation D
and/or another exemption from registration under the Securities Act and any
applicable state law. When issued and/or sold, the Put Shares and the Blackout
Shares shall be duly and validly issued, fully paid, and nonassessable, free and
clear of any and all liens, charges, claims or other encumbrances. Neither the
sales of the Put 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 Put Shares or any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other rights to subscribe to or acquire the Capital Shares or other
securities of the Company. The Put Shares and the Blackout Shares shall not
subject the Investor to personal liability by reason of the ownership thereof.
Section 4.7 No General Solicitation or Advertising in Regard to this
--------------------------------------------------------
Transaction. Neither the Company nor any of its affiliates nor any distributor
-----------
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Put Shares 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 4.8 Corporate Documents. The Company has furnished or made
-------------------
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof, and the Company's
By-Laws, as amended and in effect on the date hereof (the "By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of this
------------
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including, without limitation, the issuance and sale of the
Put Shares and any Blackout Shares do not and will not (i)
10
<PAGE>
result in a violation of the Company's Articles of Incorporation or By-Laws or
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture, instrument or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party, or (iii)
result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or by which any property or
asset of the Company is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect) nor is
the Company otherwise in violation of, conflict with or in default under any of
the foregoing; provided that, for purposes of the Company's representations and
warranties as to violations of foreign law, rule or regulation referenced in
clause (iii), such representations and warranties are made only to the best of
the Company's knowledge insofar as the execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby are or may be affected by the status of the
Investor under or pursuant to any such foreign law, rule or regulation. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock in accordance with the terms hereof
(other than any SEC, NASD or state securities filings that may be required to be
made by the Company subsequent to any Closing, any registration statement that
may be filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Nasdaq National Market
referenced in Section 5.1); provided that, for purposes of the representation
made in this sentence, the Company is assuming and relying upon the accuracy of
the relevant representations and agreements of the Investor herein.
Section 4.10 No Material Adverse Change. Since March 31, 1999, no Material
--------------------------
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities or
--------------------------
obligations which are material, individually or in the aggregate, and are not
disclosed in the SEC Documents or otherwise publicly announced, other than those
incurred in the ordinary course of the Company's businesses since March 31, 1999
and which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company.
Section 4.12 No Undisclosed Events or Circumstances. Since March 31, 1999,
--------------------------------------
no event or circumstance has occurred or exists with respect to the or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.13 No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 4.14 Litigation and Other Proceedings. Except as may be set forth
--------------------------------
in the SEC Documents, there are no lawsuits or proceedings pending or to the
best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such
11
<PAGE>
action, suit, proceeding or investigation, which might have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which might
result in a Material Adverse Effect.
Section 4.15 No Misleading or Untrue Communication. The Company, any Person
-------------------------------------
representing the Company, and, to the knowledge of the Company, any other Person
selling or offering to sell the Put Shares in connection with the transactions
contemplated by this Agreement, have not made, at any time, any oral
communication in connection with the offer or sale of the same which contained
any untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements, in the light of the circumstances
under which they were made, not misleading.
Section 4.16 Material Non-Public Information. The Company is not in
-------------------------------
possession of, nor has the Company or its agents disclosed to the Investor, any
material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock or
(ii) according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
ARTICLE V
Covenants of the Investor
Section 5.1 Compliance with Law. The Investor's trading activities with
-------------------
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the Principal Market on which the Company's Common
Stock is listed.
Section 5.2 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 Put Shares after it
receives a Put Notice with respect to such Put Shares so long as such sales or
arrangements do not involve more than the number of such Put Shares (determined
as of the date of such Put Notice).
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the Registration
-------------------
Rights Agreement to remain in full force and effect and the Company shall comply
in all respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
---------------------------
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue the Put
Shares; such amount of shares of Common Stock to be reserved shall be calculated
based upon the minimum Purchase Price therefor under the terms of this
Agreement. 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 6.3 Listing of Common Stock. The Company shall maintain the
-----------------------
listing of the Common Stock on a Principal Market, and as soon as practicable
(but in any event prior to the commencement of the Commitment Period) to list
the Put Shares 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 Put Shares, and shall take such other action as
is necessary or desirable in the opinion of the Investor to cause the Common
Stock to be listed on such other Principal Market as
12
<PAGE>
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 6.4 Exchange Act Registration. The Company shall (i) cause its
-------------------------
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under said Act, and will not take any action or file any document
(whether or not permitted by said Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and filing
obligations under said Act. The Company will take all action to continue the
listing and trading of its Common Stock on the Principal Market and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and the Principal Market.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
-------
sold by the Investor pursuant to Section 9.1 shall be free of legends, except as
set forth in Article IX.
Section 6.6 Corporate Existence. The Company will take all steps necessary
-------------------
to preserve and continue the corporate existence of the Company.
Section 6.7 Additional SEC Documents. The Company will deliver to the
------------------------
Investor, as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 Blackout Period. (a) The Company will immediately notify the
---------------
Investor upon the occurrence of any of the following events in respect of a
Registration Statement or related prospectus in respect of an offering of
Registrable Securities; (i) receipt of any request for additional information by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the Registration Statement, 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 Put Notice during the continuation
of any of the foregoing events.
Section 6.9 Expectations Regarding Put 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 Put Notices.
Such
13
<PAGE>
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 Put Notices. The failure by the Company to comply
with this provision can be cured by the Company's notifying the Investor at any
time as to its reasonable expectations with respect to the current calendar
quarter.
Section 6.10 Consolidation; Merger. The Company shall not, at any time
---------------------
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.
Section 6.11 Issuance of Put Shares and Blackout Shares. The sale and
------------------------------------------
issuance of the Put Shares shall be made in accordance with the provisions and
requirements of Regulation D and any applicable state law.
Section 6.12 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
Put Notices and Conditions to Closing
Section 7.1 Conditions Precedent to the Obligation of the Company to Issue
--------------------------------------------------------------
and Sell Common Stock. The obligation hereunder of the Company to issue and sell
---------------------
the Put Shares to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and
correct in all material respects as of the date of this Agreement and
as of the date of each such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Investor at or prior to such
Closing.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver a
-------------------------------------------------------------
Put Notice and the Obligation of the Investor to Purchase the Put Shares. The
------------------------------------------------------------------------
right of the Company to deliver a Put Notice and the obligation of the Investor
hereunder to acquire and pay for the Put Shares incident to a Closing is subject
to the satisfaction, on (i) the date of delivery of such Put 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 Put 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
14
<PAGE>
remain effective on each Condition Satisfaction Date and (i) neither
the Company nor the Investor shall have received notice that the SEC
has issued or intends to issue a stop order with respect to the
Registration Statement or that the SEC otherwise has suspended or
withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so
(unless the SEC's concerns have been addressed and the Investor is
reasonably satisfied that the SEC no longer is considering or intends
to take such action), and (ii) no other suspension of the use or
withdrawal of the effectiveness of the Registration Statement or
related prospectus shall exist.
(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and
correct in all material respects as of each Condition Satisfaction
Date as though made at each such time (except for representations and
warranties specifically made as of a particular date) with respect to
all periods, and as to all events and circumstances occurring or
existing to and including each Condition Satisfaction Date, except for
any conditions which have temporarily caused any representations or
warranties herein to be incorrect and which have been corrected with
no continuing impairment to the Company or the Investor.
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the
Registration Rights Agreement to be performed, satisfied or complied
with by the Company at or prior to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or 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 Put
Shares) shall not have been suspended by the SEC, the Principal Market
or the NASD and the Common Stock (including without limitation the Put
Shares) shall have been approved for listing or quotation on and shall
not have been delisted from the Principal Market. The issuance of
shares of Common Stock with respect to the applicable Closing, if any,
shall not violate the shareholder approval requirements of the
Principal Market.
(h) Legal Opinions. The Company shall have caused to be delivered
to the Investor, within five (5) Trading Days of the Effective Date of
the Registration Statement, an opinion of the Company's independent
counsel in the form of Exhibit B hereto, addressed to the Investor;
provided, however, that in the event that such an opinion cannot be
-------- -------
delivered by the Company's independent counsel to the Investor, the
Company shall promptly revise the Registration Statement and shall not
deliver a Put Notice. If a Put 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
15
<PAGE>
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
Put Shares then to be purchased by the Investor shall not exceed the
number of such shares that, when aggregated with all other shares of
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 Put 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.
(k) Intentionally omitted.
(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 Put 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.
16
<PAGE>
(q) Other. On each Condition Satisfaction Date, the Investor shall
have received 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 8.1 Due Diligence Review. The Company shall make available for
--------------------
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information.
----------------------------------------
(a) 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-
17
<PAGE>
public information (whether or not requested of the Company
specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus
included in the Registration Statement would cause such prospectus to
include a material misstatement or to omit a material fact required to
be stated therein in order to make the statements, therein, in light
of the circumstances in which they were made, not misleading. Nothing
contained in this Section 8.2 shall be construed to mean that such
persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may
not obtain non-public information in the course of conducting due
diligence in accordance with the terms of this Agreement and nothing
herein shall prevent any such persons or entities from notifying the
Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an
untrue statement of a material fact or omits a material fact required
to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE IX
Legends
Section 9.1 Legends. Unless otherwise provided below, each certificate
-------
representing Registrable Securities will bear the following legend (the
"Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE
SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT
FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF
THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS
OF THE COMPANY SET FORTH IN A PRIVATE EQUITY LINE AGREEMENT
BETWEEN SONIC SOLUTIONS AND KINGSBRIDGE CAPITAL LIMITED
DATED MAY 3/RD/, 2000. A COPY OF THE PORTION OF THE
AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE
OBTAINED FROM THE COMPANY'S EXECUTIVE OFFICES.
Prior to the execution and delivery hereof, the Company has issued to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit D hereto 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
18
<PAGE>
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 9.2 No Other Legend or Stock Transfer Restrictions. No legend
----------------------------------------------
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Common Stock and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article IX.
Section 9.3 Investor's Compliance. Nothing in this Article VIII shall
---------------------
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
ARTICLE X
Choice of Law
Section 10.1 Choice of Law. This Agreement shall be construed under the
-------------
laws of the State of California, without giving effect to provisions regarding
conflicts of law or choice of law.
ARTICLE XI
Assignment; Entire Agreement, Amendment; Termination
Section 11.1 Assignment. Neither this Agreement nor any rights of the
----------
Investor or the Company hereunder may be assigned by any 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
19
<PAGE>
any of the Common Stock purchased or acquired by the Investor hereunder with
respect to the Common Stock held by such person, and (b) the Investor's interest
in this Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any affiliate of the Investor) upon the prior
written consent of the Company, which consent shall not to be unreasonably
withheld.
Section 11.2 Termination. This Agreement shall terminate twenty-four (24)
-----------
months after the commencement of the Commitment Period; provided, however, that
-------- -------
the provisions of Articles VI, VII, VIII, X, XI, and XII shall survive the
termination of this Agreement.
Section 11.3 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
Section 12.1 Notices. All notices, demands, requests, consents, approvals,
-------
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company:
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):
Kyle Guse, Esq.
20
<PAGE>
Heller Ehrman White & McAuliffe
2500 Sand Hill Road, Suite 100
Menlo Park, California 94025-7063
Telephone: (650) 234-4200
Facsimile: (650) 234-4299
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.
Clifford Chance Rogers & Wells
200 Park Avenue
New York, NY 10166
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 12.1 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 12.2 Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless the
Investor, its partners, affiliates, officers, directors, employees,
and duly authorized agents, and each Person or entity, if any, who
controls the Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, together with the
Controlling Persons (as defined in the Registration Rights Agreement)
from and against any Damages, joint or several, and any action in
respect thereof to which the Investor, its partners, affiliates,
officers, directors, employees, and duly authorized agents, and any
such Controlling Person becomes subject to, resulting from, arising
out of or relating to 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 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
21
<PAGE>
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 12.3 Method of Asserting Indemnification Claims. All claims for
------------------------------------------
indemnification by any Indemnified Party (as defined below) under Section 12.2
will be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any
person claiming indemnification under any provision of Section 12.2
(an "Indemnified Party") might seek indemnity under Section 12.2 is
asserted against or sought to be collected from such Indemnified Party
by a person other than the Company, the Investor or any affiliate of
the Company or (a "Third Party Claim"), the Indemnified Party shall
deliver a written notification, enclosing a copy of all papers served,
if any, and specifying the nature of and basis for such Third Party
Claim and for the Indemnified Party's claim for indemnification that
is being asserted under any provision of Section 12.2 against any
person (the "Indemnifying Party"), together with the amount or, if not
then reasonably ascertainable, the estimated amount, determined in
good faith, of such Third Party Claim (a "Claim Notice") with
reasonable promptness to the Indemnifying Party. If the Indemnified
Party fails to provide the Claim Notice with reasonable promptness
after the Indemnified Party receives notice of such Third Party Claim,
the Indemnifying Party will not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent
that the Indemnifying Party's ability to defend has been irreparably
prejudiced by such failure of the Indemnified Party. The Indemnifying
Party will notify the Indemnified Party as soon as practicable within
the period ending thirty (30) calendar days following receipt by the
Indemnifying Party of either a Claim Notice or an Indemnity Notice (as
defined below) (the "Dispute Period") whether the Indemnifying Party
disputes its liability or the amount of its liability to the
Indemnified Party under Section 12.2 and whether the Indemnifying
Party desires, at its sole cost and expense, to defend the Indemnified
Party against such Third Party Claim.
(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
22
<PAGE>
the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnifying Party in contesting
any Third Party Claim that the Indemnifying Party elects to
contest. The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party Claim
controlled by the Indemnifying Party pursuant to this clause
(i), and except as provided in the preceding sentence, the
Indemnified Party will bear its own costs and expenses with
respect to such participation. Notwithstanding the foregoing,
the Indemnified Party may take over the control of the defense
or settlement of a Third Party Claim at any time if it
irrevocably waives its right to indemnity under Section 12.2
with respect to such Third Party Claim.
(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 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
23
<PAGE>
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 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
24
<PAGE>
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 13.1 Fees and Expenses. Each of the Company and the Investor
-----------------
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, expenses and
disbursements of the Investor's counsel up to an aggregate maximum of $10,000 in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the Registration Rights Agreement.
Section 13.2 Brokerage. Each of the parties hereto represents that it has
---------
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all liabilities to
any persons claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
Section 13.3 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.
Section 13.4 Entire Agreement. This Agreement, the Exhibits hereto and the
----------------
Registration Rights Agreement set forth the entire agreement and understanding
of the parties relating to the subject matter hereof and supersedes all prior
and contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The terms
and conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as if fully set forth
herein.
Section 13.5 Survival; Severability. The representations, warranties,
----------------------
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.6 Title and Subtitles. The titles and subtitles used in this
-------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.7 Reporting Entity for the Common Stock. The reporting entity
-------------------------------------
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity Line
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
KINGSBRIDGE CAPITAL LIMITED
By:________________________________________
Valentine O'Donoghue
Director
SONIC SOLUTIONS
By:________________________________________
Robert J. Doris
President and Chief Executive Officer
<PAGE>
EXHIBIT A
ADJUSTMENT PERIOD NOTICE
SONIC SOLUTIONS
Notice is hereby granted that the Board of Directors of Sonic Solutions
(the "Company") anticipates executing a merger or acquisition agreement within
ninety (90) days of the date hereof.
The following five-week period is hereby designated as an Adjustment Period
pursuant to Section 2.4 of the Private Equity Line Agreement, dated as of May
__, 2000, 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 ________,
200_.
____________________________________
Robert J. Doris
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT B
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
[FORM TO BE PROVIDED BY COUNSEL TO THE COMPANY]
<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 Put Notice, dated _____________ (the "Notice"), delivered pursuant to
Article II of the Private Equity Line Agreement, dated May __,2000, 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.
4. The undersigned has executed this Certificate this ____ day of
________, 200_.
____________________________________
Robert J. Doris
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT D
INSTRUCTIONS TO TRANSFER AGENT
SONIC SOLUTIONS
[DATE]
[Name, address and phone and fax number of Transfer Agent]
Dear Sirs:
Reference is made to the Private Equity Line Agreement (the "Agreement"),
dated as of May __, 2000 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 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;
<PAGE>
(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 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:
2
