<PAGE>
As filed with the Securities and Exchange Commission on March 2, 2000
Registration No. 333-91655
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT No. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
SONIC SOLUTIONS
---------------------------------------------
(Exact Name of Registrant as Specified in
Its Charter)
California 93-0925818
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(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
101 Rowland Way, Suite 110
Novato, CA 94945
(415) 893-8000
(Address, including zip code, and telephone number,
including area code, of Registrant's Principal
Executive Offices)
Robert J. Doris
Sonic Solutions
101 Rowland Way, Suite 110
Novato, CA 94945
(415) 893-8000
(Name and Address, including zip code, and telephone
number, including area code, of Registrant's
Agent For Service)
With copies of all orders, notices and communications to:
August J. Moretti, Esq.
HELLER EHRMAN WHITE & MCAULIFFE
2500 Sand Hill Road, Suite 100, Menlo Park, California 94025-7063 (650) 234-4229
--------------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans,
please check the following box. [_]
--------------------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
--------------------------------
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier
registration statement for the same offering. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Amount to be Proposed Maximum Offering Proposed Maximum Amount of
Title of Securities to be Registered Registered Price per Share(2) Aggregate Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, no par value(1) 539,712 $ 2.96875 $ 1,602,270 $ 445.43
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL: $ 1,602,270 $ 445.43
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- ----------------------
</TABLE>
(1) In accordance with Rule 416 under the Securities Act of 1933, Common Stock
offered hereby shall also be deemed to cover additional securities to be
offered or issued to prevent dilution resulting from stock splits, stock
dividends or similar transactions.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933,
as amended, based on the average of the high and low prices of the Common
Stock on the Nasdaq National Market on November 19, 1999, as reported in
The Wall Street Journal.
-----------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
P R O S P E C T U S
539,712 SHARES
SONIC SOLUTIONS
COMMON STOCK
This prospectus may be used only in connection with the resale, from time
to time, of up to 539,712 shares of common stock, no par value, of Sonic
Solutions by Hambrecht & Quist Guaranty Finance LLC ("Hambrecht & Quist"). The
shares covered by this prospectus are to be sold by Hambrecht & Quist and
include the following:
(1) 169,712 shares upon conversion of our shares of Series C Preferred
Stock which Hambrecht & Quist acquired pursuant to a private
securities subscription agreement dated March 31, 1998,
(2) 250,000 shares upon conversion of our shares of Series C Preferred
Stock which Hambrecht & Quist acquired pursuant to a second private
securities subscription agreement dated October 15, 1999 and
(3) 120,000 shares upon exercise of warrants held by Hambrecht & Quist
that Hambrecht & Quist acquired pursuant to a warrant purchase
agreement dated October 15, 1999.
We will not receive any proceeds from the sale of shares by Hambrecht &
Quist.
Our common stock is traded on the Nasdaq National Market under the symbol
"SNIC". On March 1, 2000, the closing price for the common stock, as reported on
the Nasdaq National Market, was $10.000 per share.
Shares offered by this prospectus by Hambrecht & Quist may be offered for
sale from time to time at such prices and on such terms as may then be
obtainable, in negotiated transactions, or otherwise. See "Plan of
Distribution."
No dealer, salesman or any other person has been authorized to give any
information or to make any representations or projections of future performance
other than those contained in this prospectus. Any such other information,
projections or representations must not be relied upon as having been
authorized. The delivery of this prospectus or any sale under this prospectus at
any time does not imply that the information in this prospectus is correct as of
any time after the date of this prospectus. This prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any securities in any
jurisdiction where, and to any person to whom, it is unlawful to make such offer
or solicitation.
SECURITIES OFFERED THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
(See "RISK FACTORS" ON PAGE 4)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is March 2, 2000
1
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Section Page
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<S> <C>
I. The Company 3
II. Risk Factors 4
III. Where You Can Find More Information 8
IV. Documents Incorporated By Reference 8
V. Prospectus Supplements 9
VI. Forward Looking Statements 9
VII. Use of Proceeds 9
VIII. Selling Stockholder 9
IX. Plan of Distribution 11
X. Distribution of Capital Stock 12
XI. Legal Matters 13
XII. Experts 13
XIII. Other Events 13
</TABLE>
2
<PAGE>
THE COMPANY
We develop workstations used by professionals to edit and process audio and
video information. Our products are computer based, and usually include both
plug-in hardware and applications software installed on a personal computer. Our
customers use various kinds of peripheral devices -- for example, disk drives,
streaming tape drives, and audio and video tape recorders -- along with our
products. Although we do not manufacture or sell the personal computer of
peripheral devices used with our products, we typically talk about the complete
configuration of personal computer, Sonic hardware, Sonic software, and
peripherals as a Sonic workstation.
We currently market two workstation product lines: SonicStudio(TM) and DVD
Creator(TM). SonicStudio is a line of professional audio workstations that our
customers use to prepare audio for release on digital audio compact discs, for
release with video and film entertainment, and for broadcast on radio. DVD
Creator is a line of DVD-Video/Audio production workstations which supports the
preparation and assembly of video and audio assets for release on the new
DVD-Video disc format and the upcoming DVD-Audio disc format.
During the quarter ended September 30, 1999 we began shipments of two new
products: DVDit!(TM) authoring application which provides simplified DVD
authoring capabilities to consumer, "prosumer," and some professional users, and
DVD Fusion, which is a part of our DVD Creator product line provides video
producers and editors a comprehensive set of tools for encoding, authoring and
proofing DVD-Video titles derived from projects created on non-linear video
editing systems such as those provided by Avid Technology and Media 100.
Because DVDit! is aimed at a broader market than our traditional
professional products we are building a distribution capability for it. There
are three elements to this effort:
1. We are adding dealers and distributors for DVDit!, some of which
already carry some of our professional products, but many of which
do not. In the near term we are targeting dealers and distributors
specializing in digital video applications. In the longer term we
plan to target dealers and distributors who participate in the
broader personal computer marketplace.
2. We are entering into "bundling" arrangements with various other
companies in which copies of DVDit! are included or "bundled" with
shipments of those companies' products. These companies (we refer
to them as "OEM Partners") are motivated to include our software as
a value added offering for their customers. We are motivated to
enter into bundling arrangements because it generates revenue for
us as well as creates a large installed base of customers to whom
we can sell upgraded or enhanced versions of our products. To
facilitate such bundling arrangements we have designed different
limited-feature versions of DVDit!. Currently we are shipping two
such versions - DVDit!-LE ("Limited Edition") and DVDit!-SE
("Standard Edition") - and have announced the future availability
of another version - DVDit!-PE ("Professional Edition").
3. We have initiated a web-based retail store for our DVDit! products.
Our web store is intended both to meet retail demand for our DVDit!
products as well as to service upgrade orders for our products, in
particular, the upgrade orders which derive from our bundle
shipments by our OEM partners.
3
<PAGE>
Building distribution for DVDit! will be a time-consuming and expensive
process. Since this is a new kind of product for us, there is significant
risk that our efforts, or at least some of them will not be successful.
Our products generally include application software and specialized
hardware installed on a personal computer. Our products are designed to improve
the productivity and effectiveness of media professionals, enabling them to
process and manipulate more material in a given amount of time and to achieve
results which would have been impossible using traditional linear analog or
digital technology.
RISK FACTORS
Purchasing our stock involves a high degree of risk. In this section of the
prospectus we discuss specific risks associated with an investment in our
company.
You should read this section of the prospectus especially closely. You
should consider carefully whether an investment in our company is an appropriate
investment for you. We do not intend to issue any dividends in the foreseeable
future, so the only purpose of investment in our shares is to enjoy a potential
increase in the shares' value. If you cannot afford to lose the value of your
investment, in either the short or long term, purchasing our shares is not
appropriate for you.
We have had losses in four of the five past years and we may not be
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profitable in the future. We were unprofitable during four of the last five
- ------------------------
fiscal years. For example, in fiscal year 1998, we had a net loss of $5,876,000
and in fiscal year 1999, we had a net loss of $1,859,000. We were unprofitable
during each quarter of the 1997 and 1998 fiscal years, and during the first
three quarters of the 1999 fiscal year.
We were unprofitable in the first, second and third quarters of fiscal year 2000
and we may be unprofitable in the remaining quarters of the 2000 fiscal year.
For example, in the third quarter of fiscal year 2000 (ended December 31, 1999),
our net loss was $1,942,000. We may not be profitable at any time in the future.
Our lack of profitability could cause our share price to decline. The other
risks identified below could also cause the value of our shares to decline. We
cannot, however, estimate the likelihood that our shares will decline in value
or the amount by which they may decline.
Repayment of $1,000,000 debt to Hambrecht & Quist will seriously deplete
------------------------------------------------------------------------
our cash balances. As of September 30, 1999, we had $1,682,000 in cash and cash
- -----------------
equivalents and as of December 31, 1999, we had $2,018,000 in cash and cash
equivalents. As of November 15, 1999 and December 31, 1999, we had an
outstanding balance due on a bank credit line in the amount of $921,720 as well
as debt in the amount of $1,000,000 due Hambrecht and Quist in monthly
installments beginning in November of 1999. We owe this amount to Hambrecht &
Quist under a financing facility that was originally put in place in December,
1996. This facility was used to finance our operations and to lease equipment.
Repayment of these debts will seriously deplete our cash balances, and might
therefore cause us to cease or significantly curtail our operations.
During the last three years we had negative operating cash flows and expect
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this to continue. We will need additional financing in order to continue to
- ---------------------------------------------------------------------------
operate. During the last three fiscal years we had a negative operating
- -------
cash flow prior to financing activities of $34,000, $1,412,000 and $124,000 for
the fiscal years ended March 31, 1997, 1998 and 1999 respectively. This means
that without access to outside capital we would have had to cease or
significantly curtail operations. We believe that we may continue to run a
negative operating cash flow for the foreseeable future, and will continue to
need to obtain additional financing to continue to operate. If we are unable to
obtain such financing, then we will have to cease or significantly curtail
operations.
4
<PAGE>
Our stock purchase agreement with Kingsbridge Capital Limited may be
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unavailable or insufficient to meet our future cash needs. In May 1999, we
- ---------------------------------------------------------
entered into an agreement with Kingsbridge Capital Limited which allows us to
sell up to a total of 1,800,000 shares of stock to Kingsbridge from time to
time. As of the date of this prospectus, we had the right to sell up to 483,333
shares to Kingsbridge, which is 1,800,000 less 1,316,667 shares that we have
already sold under the new agreement. Our ability to sell stock to Kingsbridge,
however, is subject to a number of terms and conditions, including, for example,
continued listing of our stock on NASDAQ, continued effectiveness of a
registration statement, continued accuracy of representations and warranties
made to Kingsbridge and lack of material adverse changes to our business. The
risk to us is that, because of these and other conditions, at the time we need
cash in the future, the stock sale arrangement with Kingsbridge may be
unavailable or insufficient to meet our cash needs. If the stock purchase
agreement with Kingsbridge is unavailable or insufficient to meet our needs when
we need cash, we may have to cease or significantly curtail operations.
If new digital formats that we utilize are unsuccessful, it is unlikely
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that we will generate sufficient revenues to recover our development cost. Our
- -------------------------------------------------------------------------
business involves new digital audio and video formats, such as DVD-Video and
DVD-Audio. If these formats prove to be unsuccessful, we would have to prepare
for a new format, which would require us to incur substantial development costs
to develop professional tools that will be marketable only if the new format is
successful. If the new format is not successful, it is likely that we will not
generate sufficient revenues to recover our development costs.
We may have to incur significant product redesign costs if chip
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manufacturers discontinue or redesign their products. Our products are based on
- ----------------------------------------------------
integrated circuits or "chips" produced by other companies. If these chip
manufacturers discontinue or redesign the chips we use for our products, then we
will likely incur significant costs to redesign our own products to handle these
changes. We cannot estimate the amount of these costs or the likelihood that we
will have to redesign our products.
Our reliance on outsourcing and single suppliers for our manufacturing and
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components makes us vulnerable to supplier operational problems. Our outsourcing
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program commits responsibility for almost all of our manufacturing activities to
a single supplier. In addition, we often use components that are only available
from a single source. Reliance on a single supplier for manufacturing or for
certain manufacturing components makes us vulnerable to operating or financial
problems encountered by those suppliers.
If we fail to protect our products' intellectual property rights, such as
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trade secrets, we may not be able to market our products. To the extent that we
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use patents to protect our proprietary rights, we may not be able to obtain
needed patents or, if granted, the patents may be held invalid or otherwise
indefensible. In addition, we make extensive use of trade secrets that we may
not be able to protect. We may not be able to market our products if we cannot
protect our intellectual property rights.
Other companies' intellectual property rights may prevent our current or
------------------------------------------------------------------------
future product development and sales. We have never conducted a comprehensive
- ------------------------------------
patent search relating to the technology we use in our products. There may be
issued or pending patents owned by third parties that relate to our products. If
so, we could incur substantial costs defending against patent infringement
claims or we could even be blocked from selling our products.
Other companies may succeed in obtaining valid patents covering one or more
of the key techniques we utilize in our products. If so, we may be forced to
obtain required licenses or implement alternative non-infringing approaches.
5
<PAGE>
Our products are designed to adhere to industry standards, such as DVD-ROM,
DVD-Video, DVD-Audio and MPEG video. A number of companies and organizations
hold various patents that claim to cover various aspects of DVD and MPEG
technology. We have concluded license agreements with certain companies relative
to some of these technologies. For instance, we have entered into license
agreements with Dolby Licensing Corporation covering Dolby Digital Audio
Meridian Lossless Packing.
Regarding claims for patent infringement, some of the purchase and
license agreements we have with our customers allocate responsibility to our
customers for satisfying any such claims, while some of our customer purchase
and license agreements allocate such responsibility to us. Regardless of the
provisions of our customer purchase and license agreements, third parties could
pursue us claiming that our products infringe various patents. Patent
infringement litigation could be time consuming and costly. If the litigation
resulted in an unfavorable outcome for us, we could be subject to substantial
damage claims and a requirement that we obtain a royalty or license agreement to
continue using the technology in issue. Such royalty or license agreements might
not be available to us on acceptable terms, or at all, resulting in serious harm
or to our business. In this regard a group of companies have formed an
organization called MPEG-LA to enforce the rights of certain holders of certain
patents covering aspects of MPEG-2 video technology. We have been asked by
MPEG-LA to enter into a license agreement with them. We have not entered into
such an agreement with MPEG-LA, though we are continuing to evaluate the
situation.
Because a majority of our products operate only on Macintosh computers,
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the potential success of our products is tied to the success of this platform.
- -------------------------------------------------------------------------
All of our current products except DVDit! and many of our future products
operate on Macintosh computers manufactured by Apple Computer. If Macintosh
computers become in short supply, sales of our products will likely decline. If
there is a decrease in the use of the Macintosh as a preferred computing
platform in the professional and corporate audio and video markets, there will
likely be a decrease in demand for our products. If there are changes in the
operating system or architecture of the Macintosh, it is likely that we will
incur significant costs to adapt our products to the changes.
Some of our competitors possess greater technological and financial
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resources than we do. There is a substantial risk that competing companies will
- --------------------
produce better or more cost-effective products, or will be better equipped than
we are to promote them in the marketplace.
We have little ability to reduce expenses to compensate for reduced sales.
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We tend to close the greatest number of sales in the last month or last weeks of
a quarter and we generally do not know until quite late in a quarter whether our
sales expectations for the quarter will be met. Because most of our quarterly
operating expenses and our inventory purchasing is committed prior to quarter
end, we have little ability to reduce expenses to compensate for reduced sales.
Approximately 10% of our revenue derives from sales to a single company.
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During the last two fiscal years, 1998 and 1999, and the first three quarters of
fiscal year 2000, between 10% and 11%, of our revenue was derived from sales of
audio processing subsystems to Discreet Logic. A decrease in Discreet Logic's
business or its demand for our product would cause a significant decrease in our
revenue.
A significant portion of our revenue derives from sales made to foreign
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customers located primarily in Europe and Japan. Revenue derived from these
- -----------------------------------------------
customers accounted for approximately 47% of our revenues in fiscal year 1999.
These foreign customers expose us to the following risks:
6
<PAGE>
. currency movements in which the U.S. dollar becomes significantly
stronger with respect to foreign currencies, thereby reducing relative
demand for our products outside the United States;
. import and export restrictions and duties;
. foreign regulatory restrictions, for example, safety or radio
emissions regulations; and
. liquidity problems in various foreign markets.
The conversion of outstanding Preferred Stock and additional sales of stock
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to Kingsbridge will dilute the relative ownership of existing common
- --------------------------------------------------------------------
stockholders and could result in lower market price for our stock. The
- -----------------------------------------------------------------
conversion of the Series C Preferred Stock owned by Hambrecht & Quist and
additional sales of stock to Kingsbridge will have a dilutive impact on our
security holders. On February 15, 2000, we had 11,259,720 shares of common stock
outstanding. For example, we may issue up to an additional 539,712 shares of
common stock to Hambrecht & Quist and up to an additional 483,333 shares of
common stock to Kingsbridge, representing in total about 9% of our
outstanding common stock. As a result, our net income or loss per share could be
significantly affected in future periods causing a reduction in the market price
of our common stock.
7
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and other
documents with the Commission. You may read and copy any document we file at
the Commission's public reference room at Judiciary Plaza Building, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549. You should call 1-800-SEC-0330
for more information on the public reference room. The Commission also
maintains an internet site at http://www.sec.gov where information regarding
issuers, including Sonic Solutions, may be found. Such reports, proxy
statements and other information can also be inspected at the Commission's
regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048
and 500 West Madison, Chicago, Illinois 60661, and at the offices of the Nasdaq
Stock Market at 9513 Key West Avenue, Rockville, Maryland 20850-3389.
This prospectus is part of a registration statement that we filed with the
Commission, Registration No. 333-91655. The registration statement contains
more information than this prospectus regarding Sonic Solutions and its common
stock, including additional exhibits and schedules. You can get a copy of the
registration statement from the Commission at the address listed above or from
its internet site.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed pursuant to the 1934 Act, as amended, are
incorporated into this prospectus by reference:
(1) our Annual Report on Form 10-K for the fiscal year ended
March 31, 1999;
(2) our Quarterly Report on Form 10-Q for the fiscal quarters ended
June 30, 1999, September 30, 1999 and December 31, 1999; and
(3) the description of our Common Stock contained in the registration
statement filed under the 1934 Act registering such Common Stock under
Section 12 of the 1934 Act.
All documents we file pursuant to Section 13(a), 13(c), 14 or 15(d) of the
1934 Act after the date of this prospectus and prior to the termination of the
offering of the securities offered in this prospectus shall be deemed to be
incorporated by reference in this prospectus.
We will undertake to provide without charge to each person, including any
beneficial owner, to whom a copy of this prospectus has been delivered, upon the
written or oral request of such person, a copy of any or all of the documents
referred to above which have been or may be incorporated in this prospectus by
reference, other than exhibits to such documents which are not specifically
incorporated by reference into the information that this prospectus
incorporates. Requests for such copies should be directed to: 101 Rowland Way,
Suite 110, Novato, California 94945, Attention: Investor Relations, telephone:
(415) 893-8000.
8
<PAGE>
PROSPECTUS SUPPLEMENTS
Hambrecht & Quist may acquire from us shares of common stock covered by
this prospectus by way of conversion of the Series C Preferred Stock which
Hambrecht & Quist acquired pursuant to the March 31, 1998 and October 15, 1999
subscription agreements and upon exercise of a warrant issued to Hambrecht &
Quist on October 15, 1999. Hambrecht & Quist may elect to convert these shares
and exercise the warrant at different times. The amount of common shares to be
issued to Hambrecht & Quist upon conversion of Series C Preferred Stock will be
determined by the conversion rate applicable at the time of each conversion.
The current conversion rate for conversion of Shares of Series C Preferred Stock
is 1.625 shares of common stock for each share of Series C Preferred Stock
converted. We may, from time to time, supplement this prospectus to reflect the
amount of shares of common stock to be resold by Hambrecht & Quist.
FORWARD LOOKING STATEMENTS
Forward looking statements made in this prospectus or in the documents
incorporated by reference herein that are not statements of historical fact are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended.
A number of risks and uncertainties, including those discussed under the
caption "Risk Factors" above and the documents incorporated by reference herein
could affect such forward-looking statements and could cause actual results to
differ materially from the statements made.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares by
Hambrecht & Quist.
SELLING STOCKHOLDER*
The following table sets forth information regarding beneficial ownership
of our common stock by Hambrecht & Quist as of November 1, 1999 and information
regarding common stock to be sold by Hambrecht & Quist. Because Hambrecht &
Quist may sell some or all of the shares of common stock offered in this
prospectus, and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the shares of common stock
offered by this prospectus, we cannot provide an estimate of the actual amount
of shares of common stock that Hambrecht & Quist will hold after completion of a
distribution. See "Plan of Distribution".
9
<PAGE>
<TABLE>
<CAPTION>
Common Stock Common Stock
Beneficially Owned Beneficially Owned
Prior To Offering(1) Common After Offering
------------------------ Stock -------------------------
Number Percent(2) To Be Sold Number Percent(2)
---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Hambrecht & Quist Guaranty 581,140 5.2% 539,712 41,428 0.4%
Finance, LLC
One Bush Street
San Francisco, CA 94104
TOTALS 581,140 5.2% 539,712 41,428 0.4%
</TABLE>
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(1) Hambrecht & Quist currently is deemed to beneficially own
(a) the 420,818 shares of common stock issuable upon conversion of the
Series C Preferred Stock acquired by Hambrecht & Quist, at the current
conversion rate of 1.625-to-1;
(b) 160,100 shares of common stock issuable upon exercise of warrants held
by Hambrecht & Quist (see "Description of Capital Stock"); and
(c) 222 shares of common stock.
(2) Applicable percentage of ownership is based on 11,259,720 shares of Common
Stock outstanding as of February 15, 2000.
Hambrecht & Quist loaned $3,000,000 to Sonic Solutions under a business
loan agreement, entered into by the two parties on December 24, 1996. Sonic
Solutions borrowed this money for working capital purposes. Sonic Solutions also
issued warrants to Hambrecht & Quist to purchase 40,100 shares of common stock
in consideration for the loan. On March 31, 1998, Hambrecht & Quist cancelled
$1,500,000 the loan in exchange for 461,538 shares of Series C Preferred stock
of Sonic Solutions. Hambrecht & Quist also agreed to extend the repayment terms
of the $1,500,000 balance to October 1999 and Sonic Solutions agreed to extend
the expiration date of the warrant to December 24, 2003. On October 15, 1999,
Hambrecht & Quist cancelled an additional $500,000 of the indebtedness in
exchange for 153,846 shares of Series C Preferred stock of Sonic Solutions and
further agreed to extend the repayment terms of the $1,000,000 loan balance.
Sonic Solutions issued a warrant to Hambrecht & Quist to purchase 120,000 shares
of common stock as additional consideration for the extension.
The shares of common stock offered in this prospectus by Hambrecht & Quist
may be acquired, by way of conversion of the Series C Preferred Stock which
Hambrecht & Quist acquired pursuant to the 1998 and 1999 subscription agreements
between Sonic Solutions and Hambrecht & Quist. Under the subscription
agreements, Hambrecht & Quist represented to us that it was acquiring the shares
of Series C Preferred Stock from Sonic Solutions without any present intention
of effecting a distribution of those shares. However, in accordance with the
subscription agreements, we agreed to register the underlying shares of common
stock issuable upon conversion of the Series C Preferred Stock held by Hambrecht
& Quist, for resale by Hambrecht & Quist to permit such resales from time to
time in the market or in privately-negotiated transactions. On April 22, 1998,
Sonic Solutions registered 461,538 of the underlying shares of common stock
issuable upon conversion of the Series C Preferred Stock at a one-to-one
conversion rate.
10
<PAGE>
This prospectus covers
(1) shares of common stock issuable upon conversion of the Series C
Preferred Stock that Hambrecht & Quist acquired pursuant to the March 31, 1998
subscription agreement that are not covered by the April 22, 1998 prospectus
(the incremental shares of common stock are due to a change in the conversion
rate from 1-to-1 to 1.625-to-1);
(2) shares issuable upon conversion of the Series C Preferred Stock that
Hambrecht & Quist acquired pursuant to the October 15, 1999 subscription
agreement, convertible at a rate of 1.625-to-1; and
(3) shares issuable upon exercise of the warrant held by Hambrecht & Quist
to purchase 120,000 shares of common stock.
We will prepare and file such amendments and supplements to the
registration statement as may be necessary from time to time in accordance with
the rules and regulations of the Securities Act to keep it effective for a
period of approximately two years.
We have filed with the Commission a Registration Statement under the
Securities Act with respect to the securities offered by this prospectus. As
permitted by the rules and regulations of the Commission, this prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to our
company and the securities offered by this prospectus, please refer to the
Registration Statement and the exhibits thereto, which may be examined without
charge at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
which may be obtained from the Commission upon payment of the prescribed
fees.
- ---------------------
* This page may be modified from time to time to reflect the number of shares
of common stock acquired by Hambrecht & Quist by way of conversion of the
Series C Preferred Stock.
PLAN OF DISTRIBUTION
All or a portion of the shares of common stock offered by this prospectus
by Hambrecht & Quist may be delivered and/or sold in transactions from time to
time on the over-the- counter market, on the Nasdaq National Market, in
negotiated transactions, or a combination of such methods of sale. These sales
shall be made at market prices prevailing at the time, at prices related to such
prevailing prices or at negotiated prices. Hambrecht & Quist may effect such
transactions by selling to or through one or more broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from Hambrecht & Quist. Hambrecht & Quist and any
broker-dealers that participate in the distribution may under certain
circumstances be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by such broker-dealers and any
profits realized on the resale of shares of common stock offered by this
prospectus by them may be deemed to be underwriting discounts and commissions
under the Securities Act. Hambrecht & Quist may agree to indemnify such broker-
dealers against certain liabilities, including liabilities under the Securities
Act. In addition, Sonic Solutions has agreed to indemnify Hambrecht & Quist with
respect to the shares of common stock offered by this prospectus against certain
liabilities, including liabilities under the Securities Act, or, if such
indemnity is unavailable, to contribute toward amounts required to be paid in
respect of such liabilities.
11
<PAGE>
Any broker-dealer participating in such transactions as agent may receive
commissions from Hambrecht & Quist (and, if they act as agent for the purchaser
of shares, from such purchaser). Broker-dealers may agree with Hambrecht & Quist
to sell a specified number of shares at a stipulated price per share, and, to
the extent such a broker-dealer is unable to do so acting as agent for Hambrecht
& Quist, to purchase as principal any unsold shares at the price required to
fulfill the broker-dealer commitment to Hambrecht & Quist. Broker-dealers who
acquire shares as principal may resell such shares from time to time in
transactions (which may involve crosses and block transactions and which may
involve sales to and through other broker-dealers, including transactions of the
nature described above) in the over-the-counter market, in negotiated
transactions or otherwise at market prices prevailing at the time of sale or at
negotiated prices, and in connection with such resales may pay to or receive
from the purchasers of such shares commissions computed as described above. To
the extent required under the Securities Act, a supplemental prospectus will be
filed, disclosing (a) the name of any such broker-dealers; (b) the number of
shares of common stock involved; (c) the price at which such shares of common
stock are to be sold; (d) the commissions paid or discounts or concessions
allowed to such broker-dealers, where applicable; (e) that such broker-dealers
did not conduct any investigation to verify the information set out or
incorporated by reference in this prospectus, as supplemented; and (f) other
facts material to the transaction.
Under applicable rules and regulations under the 1934 Act, any person
engaged in the distribution of the resale of shares may not simultaneously
engage in market making activities with respect to the common stock of Sonic
Solutions for a period of two business days prior to the commencement of such
distribution. In addition and without limiting the foregoing, Hambrecht & Quist
will be subject to applicable provisions of the Exchange Act, and the rules and
regulations thereunder, including, without limitation, Regulation M, which
provisions may limit the timing of purchases and sales of shares of Sonic
Solutions' common stock by Hambrecht & Quist.
Hambrecht & Quist will pay all commissions and transfer taxes associated
with the sale of securities by them. The shares of common stock offered by this
prospectus are being registered pursuant to our contractual obligations and we
have paid the expenses of the preparation of this prospectus.
DESCRIPTION OF CAPITAL STOCK
As of the date of this prospectus, our authorized capital stock consists of
30,000,000 shares of common stock, no par value, and 10,000,000 shares of
preferred stock, no par value.
Common Stock
As of February 15, 2000, there were 11,259,720 shares of common stock
outstanding held of record by approximately 175 registered stockholders.
We believe however, that many beneficial holders of its common stock
have registered their shares in nominee or street name, and that there are
substantially more than 175 beneficial owners. The holders of shares of common
stock are entitled to one vote per share on all matters to be voted on by
stockholders, except that holders may cumulate their votes in the election of
directors. Subject to preferences that may be applicable to any outstanding
preferred stock, holders of common stock are entitled to receive ratably such
dividends as may be declared by the board of directors in its discretion from
funds legally available therefor. In the event of a liquidation, dissolution, or
winding up of our company, holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preference of any outstanding preferred stock. Holders of common stock have no
preemptive rights and have no rights to convert their common stock into any
other securities. The outstanding shares of common stock are fully paid and
nonassessable.
12
<PAGE>
Preferred Stock
The board of directors has the authority to issue up to 10,000,000 shares
of preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without any further vote or action by the shareholders. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control of Sonic Solutions or making removal of management more
difficult without further action by the shareholders and could adversely affect
the rights and powers, including voting rights, of the holders of common stock.
This could have the effect of decreasing the market price of the common stock.
As of October 15, 1999, 461,538 shares of preferred stock were designated as
Series C Preferred Stock, 425,384 of which were issued and outstanding, all of
which are convertible into shares of common stock. We have no present plans
to issue any additional shares of Preferred Stock.
Warrants
In connection with our receipt of a financing facility in December 1996,
we issued warrants to purchase 130,100 shares of common stock at an exercise
price of $7.00 per share and warrants to purchase 130,100 shares of common stock
at an exercise price of $10.00 per share. The warrants may be exercised at any
time on or before December 24, 2003. In December 1997, all of the $7 warrants
were exercised. In March 1998, in connection with renegotiation of the terms of
the financing facility, the exercise price of 90,000 of the $10 warrants was
reduced to $3.25. On October 15, 1999, in connection with a renegotiation of
financing terms with Hambrecht & Quist, we issued warrants to purchase 120,000
shares of common stock at an exercise price of $2.50. As of the date of this
prospectus, there remain outstanding warrants to purchase a total of 160,100
shares of our common stock.
LEGAL MATTERS
The legality of the issuance of the securities being offered hereby is
being passed upon for Sonic Solutions by Heller Ehrman White & McAuliffe, Menlo
Park, California.
EXPERTS
The financial statements and schedule of Sonic Solutions as of March 31,
1999 and March 31, 1998 and for each of the years in the three-year period ended
March 31, 1999, are incorporated by reference herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
OTHER EVENTS
In October, 1999, we renegotiated our financing arrangement with Hambercht
& Quist Guaranty Finance. The agreement we reached involved the restructuring of
$1,500,000 debt into 250,000 shares of Series C Convertible Preferred Stock and
$1,000,000 of debt. The interest rate on the restructured debt is 7.25% and the
debt and interest is payable in monthly installments beginning on November 1,
1999 and continuing through April 30, 2001. In connection with this agreement,
we issued warrants to purchase 120,000 shares of common stock at an exercise
price of $2.50. These warrants expire on April 30, 2006. We also changed the
conversion rate of our Series C Convertible Preferred Stock so that each share
of Series C Convertible Preferred Stock is convertible into 1.625 shares of
Common Stock. The incremental conversion feature and the warrants will be
recorded at their fair value which will result in a charge of approximately
$400,000 to earnings.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses Of Issuance And Distribution.
-------------------------------------------
The following table sets forth various expenses in connection with the sale
and distribution of the securities being registered. All of the amounts shown
are estimates except for the Securities and Exchange Commission Registration
Fee.
Securities and Exchange Commission Registration Fee $ 445.43
Accounting Fees $ 2,500.00
Legal Fees and Disbursements $ 10,000.00
Miscellaneous $ 2,500.00
TOTAL $ 15,445.43
ITEM 15. Indemnification Of Officers And Directors.
-----------------------------------------
Section 317 of the California Corporations Code permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law. Article
III of the Registrant's Amended and Restated Articles of Incorporation provides
for the indemnification of officers, directors and third parties acting on
behalf of the Registrant to the fullest extent permissible under California law.
The Registrant has entered into indemnification agreements with its directors
and executive officers to the maximum extent permitted under California law.
ITEM 16. Exhibits.
--------
EXHIBIT DESCRIPTION
--------- ------------------------------------------------------------
4.1* Private Securities Subscription Agreement between Registrant
and Hambrecht & Quist Guaranty Finance, LLC dated as of
March 31, 1998
4.2 Private Securities Subscription Agreement between Registrant
and Hambrecht & Quist Guaranty Finance, LLC dated as of
October 15, 1999
4.3 Common Stock Warrant Purchase Agreement between Registrant
and Hambrecht & Quist Guaranty Finance, LLC dated as of
October 15, 1999
4.4 Warrant to Purchase 120,000 Shares of Common Stock between
Registrant and Hambrecht & Quist Guaranty Finance, LLC dated
as of October 15, 1999
II-1
<PAGE>
5 Opinion of Heller Ehrman White & McAuliffe
10 Promissory Note between Registrant and Hambrecht & Quist
Guaranty Finance, LLC dated as of October 15, 1999
23.1 Consent of Heller Ehrman White & McAuliffe (included in
Exhibit 5)
23.2 Consent of KPMG LLP
24 Power of Attorney (See Page II-5)
*Incorporated by reference to Exhibit 4 of Form S-3 filed with the Commission on
April 22, 1998.
ITEM 17. Undertakings.
------------
A. The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
Provided, however, that paragraphs (i) and (ii) shall not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
B. That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offering therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such Director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Novato, State of California, on the 1st day of March,
2000.
Sonic Solutions
By /s/ Robert J. Doris
-------------------------
ROBERT J. DORIS,
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-3 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- -----
<S> <C> <C>
/s/ Robert J. Doris President and Director March 1, 2000
- ------------------------
ROBERT J. DORIS
Mary C. Sauer* Senior Vice President of
- ------------------------ Business Development and
MARY C. SAUER Director
Robert M. Greber* Director
- ------------------------
ROBERT M. GREBER
Peter J. Marguglio* Director
- ------------------------
PETER J. MARGUGLIO
A. Clay Leighton* Senior Vice President of
- ------------------------ Worldwide Operations and
A. CLAY LEIGHTON Finance and Chief
Financial Officer
(Principal Financial
Accounting Officer)
/s/ Robert J. Doris
- ------------------------
*ROBERT J. DORIS
(Attorney-in-fact)
</TABLE>
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert J. Doris or A. Clay Leighton, or
either of them, with the power of substitution, her or his attorney in fact, to
sign any amendments to this Registration Statement (including post-effective
amendments), and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Robert J. Doris President and Director November 16, 1999
- -----------------------------
ROBERT J. DORIS
/s/ Mary C. Sauer Senior Vice President of November 16, 1999
- ----------------------------- Business Development and Director
MARY C. SAUER
/s/ Robert M. Greber Director November 16, 1999
- -----------------------------
ROBERT M. GREBER
/s/ Peter J. Marguglio Director November 15, 1999
- -----------------------------
PETER J. MARGUGLIO
/s/ A. Clay Leighton Senior Vice President of Worldwide November 16, 1999
- ----------------------------- Operations and Finance and Chief
A. CLAY LEIGHTON Financial Officer (Principal Financial
Accounting Officer)
</TABLE>
II-5
<PAGE>
SONIC SOLUTIONS
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
----------- ----------------------------------------------------------------- ---------------
<S> <C> <C>
4.1* Private Securities Subscription Agreement between Registrant
and Hambrecht & Quist Guaranty Finance, LLC dated as of
March 31, 1998
4.2 Private Securities Subscription Agreement between Registrant
and Hambrecht & Quist Guaranty Finance, LLC dated as of October
15, 1999
4.3 Common Stock Warrant Purchase Agreement between Registrant and
Hambrecht & Quist Guaranty Finance, LLC dated as of October 15,
1999
4.4 Warrant to Purchase 120,000 Shares of Common Stock between
Registrant and Hambrecht & Quist Guaranty Finance, LLC dated as
of October 15, 1999
5 Opinion of Heller Ehrman White & McAuliffe
10 Promissory Note between Registrant and Hambrecht & Quist
Guaranty Finance, LLC dated as of October 15, 1999
23.1 Consent of Heller Ehrman White & McAuliffe (included in Exhibit 5)
23.2 Consent of KPMG LLP
24 Power of Attorney (See Page II-5)
</TABLE>
*Incorporated by reference to Exhibit 4 of Form S-3 filed with the Commission on
April 22, 1998.
<PAGE>
EXHIBIT 4.2
SONIC SOLUTIONS
PRIVATE SECURITIES SUBSCRIPTION AGREEMENT
THIS PRIVATE SECURITIES SUBSCRIPTION AGREEMENT (hereinafter the
"Agreement") is made as of October 15, 1999, by and between Sonic Solutions, a
California corporation ("Sonic Solutions" or the "Company"), and Hambrecht &
Quist Guaranty Finance, LLC, a California limited liability company (the
"Investor"), in connection with the sale by the Company to the Investor in a
private placement pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), of certain shares of Series C Preferred Stock
(the "Preferred Stock"), convertible into shares of common stock of the Company
(the "Common Stock").
THE PARTIES AGREE AS FOLLOWS:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(i) Sonic Solutions and the Investor are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission ("SEC") under the Securities Act; and
(ii) Subject to the terms and conditions hereof and in reliance upon the
representations and warranties contained herein, the Company will issue and sell
to the Investor at the Closing (as defined in Section 7 hereof), and the
Investor will purchase from the Company 153,846 shares of Preferred Stock (the
"Shares") convertible into Common Stock at the rate of 1.625 shares of Common
Stock for each share of Series C Preferred in accordance with the terms set
forth in the Certificate of Amendment to the Certificate of Determination and
the Certificate of Determination attached as Exhibit A to this Agreement, for an
aggregate purchase price of U.S. $500,000 (the "Purchase Price") payable at the
Closing by cancellation of the Company's indebtedness to the Investor in an
amount equal to the amount of the Purchase Price (the "Cancellation of
Indebtedness").
2. INVESTOR'S REPRESENTATIONS AND AGREEMENTS. The Investor represents,
warrants and agrees as follows:
(i) The Investor understands that the Preferred Stock and the warrant to
purchase 120,000 shares of Common Stock issued to the Investor on the date
hereof and the Common Stock issuable upon conversion and exercise thereof
(together the "Securities") have not been registered under the Securities Act or
any other applicable securities law, and, accordingly, none of the Securities
may be offered, sold, transferred, pledged, hypothecated or otherwise disposed
of unless registered pursuant to, or in a transaction exempt from registration
under, the Securities Act and any other applicable securities law;
(ii) The Investor is a "sophisticated investor" as described in Rule
506(b)(2)(ii) of Regulation D, and an "accredited investor" within the meaning
of Rule 501 of Regulation D. The Investor has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of an investment in the Securities. The Investor is aware that it may be
required to bear the economic risk of an investment in the Securities for an
indefinite period, and it is
<PAGE>
able to bear such risk for an indefinite period. The Investor acknowledges that
an investment in the Securities is speculative and involves a high degree of
risk;
(iii) The Investor is not subscribing for the Securities as a result of or
pursuant to any advertisement, article, notice, or other communication published
in any newspaper, magazine, or similar media or broadcast over television or
radio;
(iv) The Investor has received all information requested with respect to
an investment in the Securities, including but not limited to Sonic Solutions'
latest Form 10-K, the Registration Statement on Form S-1 with the Securities and
Exchange Commission on August 12, 1999, all Forms 10-Q and 8-K filed thereafter,
(but prior to the date hereof), and the Proxy Statement for its latest fiscal
year (collectively, the "Public Documents"). In addition, the Investor has had a
reasonable opportunity to ask questions of and receive answers from Sonic
Solutions concerning Sonic Solutions and the offering of the Preferred Stock;
(v) The Investor is acquiring the Securities for investment purposes and
not with a view to, or for offer or sale in connection with, any distribution
thereof, except pursuant to an effective registration statement under the
Securities Act covering the sale, assignment or transfer of the Securities or an
exemption from the registration requirements of the Securities Act and
applicable state securities laws;
(vi) The Investor is acquiring the Securities for its own account and has
full power to make the acknowledgments, representations and agreements as
described in this Section 2;
(vii) The Investor agrees to offer, sell or otherwise transfer any
Securities in conformity with the prospectus delivery requirements, if any, of
the Securities Act, and with the restrictions on transfer set forth on the
certificate(s) evidencing the Securities pursuant to Section 4(b);
(viii) The Investor acknowledges that Sonic Solutions and others will rely
upon the truth and accuracy of the foregoing acknowledgments, representations
and agreements and further agrees that if, prior to the Closing, any of such
acknowledgments, representations and agreements made by the Investor are no
longer accurate, the Investor will promptly notify Sonic Solutions;
(ix) This Agreement has been duly authorized, validly executed, and
delivered on behalf of the Investor and is a valid and binding agreement
enforceable in accordance with its terms, subject to general principles of
equity and to bankruptcy or other laws affecting the enforcement of creditors'
rights generally;
(x) There is no action, suit, notice of violation, proceeding or
investigation pending or, to the best knowledge of the Investor, threatened
against the Investor which would materially and adversely affect the Investor or
the performance of its obligations hereunder; and
(xi) So long as any Securities are outstanding, the Investor shall comply
at all times with the provisions of Section 9 of the Securities Exchange Act of
1934 (the "Exchange Act"), as amended, and the rules promulgated thereunder with
respect to transactions involving securities of the Company.
3. COMPANY'S REPRESENTATIONS AND AGREEMENTS. Except as set forth in the
Schedule of Exceptions attached as Exhibit 3 hereto, Sonic Solutions represents,
warrants and agrees as follows:
2
<PAGE>
(i) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. The Company has the
requisite corporate power to own its properties and to carry on its business as
now being conducted. The Company is qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where failure to so
qualify would have a Material Adverse Effect upon this financing, the Company's
performance of its obligations under this Agreement and the related agreements,
or upon the business, financial condition or results of operations of the
Company (a "Material Adverse Effect"). Sonic Solutions has only one subsidiary:
Sonic Solutions International, which is organized under the laws of the U.S.
Virgin Islands, as a foreign sales corporation. All of the outstanding capital
stock of Sonic Solutions International is owned by Sonic Solutions;
(ii) The authorized capital stock of the Company consists of 30,000,000
shares of Common Stock, of which 10,331,864 shares were issued and outstanding
as of the date hereof, and 10,000,000 shares of Preferred Stock, 461,538 of
which are designated as Series C Preferred and 271,538 of which are outstanding
on the date hereof. The Company has reserved: (A) 153,846 shares of Series C
Preferred Stock for issuance pursuant to the terms of this Agreement; (B)
691,249 shares of Common Stock for issuance upon conversion of the Series C
Preferred Stock; (C) 1,800,000 shares of Common Stock for issuance pursuant to
the Private Equity Line of Credit Agreement between Kingsbridge Capital Limited
and the Company dated as of May 20, 1998; (D) 3,256,045 shares of Common Stock
for issuance under the Company's 1998 and 1989 Employee Stock Option Plan and
(E) a total of 160,100 shares of Common Stock issuable to the Investor pursuant
to the exercise of Warrants. Except as disclosed in footnotes 7 and 8 to the
audited financial statements of the Company included in the annual report on
Form 10-K for the year ended March 31, 1999 and not more than 3,256,045 options
granted in the ordinary course of business and with purchase prices equal to
fair market value of such Common Stock on the date of grant; and except as
otherwise disclosed in the Public Documents, there are no outstanding rights of
first refusal, preemptive rights or other rights, warrants, options, conversion
privileges, subscriptions, or other rights or agreements, either directly or
indirectly, to purchase or otherwise acquire or issue any equity securities of
the Company;
(iii) The Company has sufficient trademarks, trade names, patent rights,
copyrights, licenses, approvals, and governmental authorizations to conduct its
business as described in the Public Documents. The expiration of any trademarks,
trade names, patent rights, copyrights, licenses, approvals, or governmental
authorizations would not have a Material Adverse Effect. The Company has no
knowledge of any material infringement by it of trademark, trade name rights,
patent rights, copyrights, licenses, trade secret or other similar rights of
others, and there is no claim being made against the Company regarding
trademark, trade name rights, patent rights, copyrights, licenses, trade secret
or other infringement which would reasonably be expected to have a Material
Adverse Effect;
(iv) The Company possesses all certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory authorities
necessary to conduct its business with such exceptions as would not have a
Material Adverse Effect;
(v) The Company is not subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which has a
Material Adverse Effect, nor is the Company party to any contract or agreement
which has a Material Adverse Effect;
(vi) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (a) transactions are executed in
accordance with management's general or specified authorizations, (b)
transactions are recorded as necessary to permit preparation of financial
3
<PAGE>
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (c) access to assets is permitted only in
accordance with management's general or specific authorization, and (d) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
discrepancies;
(vii) The Company has filed all material federal, state, local and foreign
income tax returns which have been required to be filed and have paid all
material taxes indicated by said returns and all assessments received by it to
the extent that such taxes have become due and are not being contested in good
faith. All tax liabilities have been adequately provided for in the Company's
financial statements;
(viii) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, all of which insurance is in full
force and effect;
(ix) The Company has the requisite corporate power and authority to enter
into this Agreement and all related agreements and to consummate the
transactions contemplated by this Agreement and all related agreements;
(x) The Company is and, at the Closing will be, eligible to register
securities for resale with the SEC under Form S-3;
(xi) This Agreement and all related agreements have been duly authorized,
validly executed and delivered by the Company, and are valid and binding
agreements, and are enforceable against the Company in accordance with their
terms, subject to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally;
(xii) There is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company which would materially and adversely affect the Company or
the performance of its obligations hereunder;
(xiii) Since the last day of the period covered in the Company's last
report on Form 10-K, filed with the SEC, there has been no material adverse
change and no material adverse development in the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiary. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law, nor does the Company or its subsidiary have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings;
(xiv) The execution and delivery of this Agreement and related agreements
and the consummation of the issuance of the Securities and the transactions
contemplated by this Agreement and related agreements do not and will not
conflict with, result in a breach by the Company of any of the terms or
provisions of, or constitute a default under the articles of incorporation (or
charter) or bylaws of the Company, or any material indenture, mortgage, deed of
trust or other material agreement or instrument to which Sonic Solutions is a
party or by which it or any of its properties or assets are bound, or any
existing applicable decree, judgment or order of any court, federal or state
regulatory body, administrative agency or other governmental body having
jurisdiction over the Company or any of its properties or assets;
(xv) No authorization, approval, consent, license, exemption from or
filing or registration with any federal, state or local governmental or
regulatory body of the United States is legally required
4
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for the issuance and sale of the Shares as contemplated by this Agreement,
except for the filing of the Certificate of Determination with the California
Secretary of State;
(xvi) The Securities will be issued in compliance with all applicable
federal and state securities laws;
(xvii) The Securities, when issued, sold, and delivered in accordance with
the terms hereof for the consideration expressed herein, will be duly
authorized, validly issued, fully paid and nonassessable, free and clear of any
liens, encumbrances, charges, or adverse claims of any nature whatsoever, and
will not subject the holders thereof to personal liability by reason of being
such holders;
(xviii) Sonic Solutions has not conducted any general solicitation or
general advertising (as defined in Regulation D) with respect to any of the
transactions or securities contemplated hereby;
(xix) Neither Sonic Solutions, nor any of its affiliates, nor any person
acting on its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security under
circumstances that would require registration of the Securities under the
Securities Act or cause this offering to be integrated with prior offerings by
the Company for purposes of the Securities Act or any applicable shareholder
approval provisions;
(xx) Sonic Solutions has filed all reports required to be filed by it
under all applicable securities laws for the three years preceding the date
hereof or such shorter period as Sonic Solutions was required by law to file
such material on a timely basis or received an extension and completed all
filings within the time period granted by such extension. As of their respective
dates, such documents complied in all material respects with the requirements of
all applicable securities laws. When filed, none of the documents contained any
untrue statement of material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which such statements were made.
The Company's financial statements included with the above referenced filings
comply in all material respects with applicable accounting requirements and the
rules and regulations of the SEC with respect thereto. Such financial statements
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved, except as may be
otherwise specifically indicated in such financial statements of the notes
thereto, and fairly present in all material respects the financial position of
the Company as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject to normal year-end adjustments in
the case of unaudited statements;
(xxi) No class of equity securities is senior to the Series C Preferred
Stock in right of payment, whether upon liquidation, dissolution, or otherwise;
(xxii) The Company has not in the two years prior to the date hereof
received written notice from any stock exchange or market on which the Common
Stock is or has been listed (or on which it is or has been quoted) to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market and to the knowledge of the Company no
such notice is threatened;
(xxiii) There are no preemptive rights of any shareholder of Sonic
Solutions with respect to the Common Stock; and
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(xxiv) Neither Sonic Solutions nor any of its subsidiaries (i) is in
default under or in violation of any indenture, loan, credit agreement or any
other agreement or instrument to which it is a party or by which it or any of
its properties is bound, (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is in violation of any statute, rule
or regulation of any governmental authority, except as could not have or result
in a Material Adverse Effect.
(xxv) All information relating to or concerning the Company or any of its
Subsidiaries set forth in this Agreement and provided to the Investor pursuant
to this Agreement and otherwise in connection with the transaction contemplated
hereby is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or exists with
respect to the Company or any of its subsidiary or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed
(assuming for this purposes that the Company's reports filed under the Exchange
Act are being incorporated into an effective registration statement filed by the
Company under the Securities Act).
4. RESTRICTED SECURITIES.
(i) Registration or Exemption Required. The Preferred Shares are being
----------------------------------
issued in a transaction exempt from the registration requirements of the Act in
reliance upon the provisions of Section 4(2) promulgated by the SEC under the
Securities Act. The shares of Preferred Stock and the underlying Common Stock
may not be resold except pursuant to an effective registration statement or an
exemption to the registration requirements of the Act and applicable state laws.
(ii) Legend. The Preferred Stock and the underlying shares of Common
------
Stock shall bear the following legend, until and unless (a) the SEC has declared
effective a registration statement registering such securities for resale
without restriction, (b) the holder of such securities provides Sonic Solutions
with an opinion of counsel reasonably acceptable to Sonic Solutions to the
effect that a public sale or a transfer of such security may be made without
registration under the Securities Act, or (c) such holder has provided Sonic
Solutions with reasonable assurances that such security can be sold free of any
volume limitations pursuant to Rule 144 under the Securities Act or a successor
thereto:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT" OR THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN
ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE RE-OFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF,
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN
OBLIGATIONS OF THE COMPANY SET FORTH IN A PRIVATE SECURITIES SUBSCRIPTION
AGREEMENT BETWEEN SONIC SOLUTIONS AND THE INVESTOR NAMED THEREIN DATED
OCTOBER 15, 1999, A COPY OF THE PORTION OF THE AFORESAID SUBSCRIPTION
AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S
EXECUTIVE OFFICES."
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Upon conversion of the Preferred Stock, Sonic Solutions shall issue a
Common Stock certificate without such legend to the holder of such shares if one
or more of the conditions described in this Section (b) are satisfied.
5. COVENANTS.
(i) Each party shall use its reasonable best efforts timely to satisfy
each of the conditions to Closing to be satisfied by it as provided in this
Agreement.
(ii) Sonic Solutions shall have authorized and reserved for the purpose
of issuance pursuant to the conversion of the Shares 250,000 shares of Common
Stock.
(iii) Within 15 days after the Closing, Sonic Solutions shall have
secured the listing of the underlying Common Stock upon the Nasdaq National
Market and shall maintain such listing until the later of such time as all
shares of the Common Stock issuable upon conversion of the Preferred Stock shall
be freely tradable or the Investor no longer holds any shares of Preferred Stock
or Common Stock received through conversion thereof.
(iv) The Company shall give prompt written notice to the Investor, and
the Investor shall give prompt written notice to the Company of (i) any breach
of any representation, warranty or other agreement related to the transaction
contemplated herein as well as any events or occurrences arising after the date
hereof which could reasonably be likely to cause any representation, warranty of
other agreement to be incorrect or breached or (ii) any notice or claim that the
consummation of the transaction contemplated herein violates or would violate
any other agreements, obligations, contracts, or responsibilities. Neither the
Company nor any Investor shall take any action that is intended to make any
representation or warranty of the Company or such Investor inaccurate in any
respect except as is consented to in writing by the other party.
(v) Sonic Solutions will issue one or more certificates representing
the Preferred Stock in the name of the Investor in such denominations to be
specified by the Investor prior to Closing. The Preferred Stock will bear the
restrictive legend specified in Section 4 of this Agreement. Sonic Solutions
further agrees that no instructions other than these instructions and stop
transfer instructions to give effect to Section 2(i) hereof will be given to the
transfer agent and also agrees that the Securities shall otherwise be
transferable on the books and records of Sonic Solutions as and to the extent
provided in this Agreement, subject to compliance with federal and state
securities laws. As soon as practicable after the date hereof, but prior to
Closing, Sonic Solutions agrees to furnish new instructions to the transfer
agent instructing them to issue the Common Stock without a legend so long as
such Common Stock is registered under the Securities Act. The Company shall
immediately notify the transfer agent of the effectiveness or suspension of a
registration statement registering the Common Stock for resale. Nothing in this
Section shall affect in any way the Investor's obligations and agreement to
comply with all applicable securities laws upon resale of the Shares.
(vi) The Company currently meets, and will take all necessary action to
continue to meet, the "registrant eligibility" requirements set forth in the
General Instructions I to Form S-3.
(vii) The Company shall have complied with and be effective under the
securities laws of the State of California and any other applicable states as
necessary to offer and sell the Preferred Stock to the Investor.
7
<PAGE>
6. CLOSING. Certificates evidencing the Preferred Stock shall be
delivered to the Investor and the Cancellation of Indebtedness shall be
delivered to Sonic Solutions at the offices of Heller Ehrman White & McAuliffe
at 2500 Sand Hill Road, Menlo Park, California 94025-7063 at 10 a.m. California
time on October 15, 1999 (the Closing") or at such other time to be mutually
agreed.
7. CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE. The obligation of
the Investor hereunder to purchase the Preferred Stock at the Closing is subject
to the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for Investor's sole benefit and
may be waived by the Investor at any time in its sole discretion.
(i) The Company shall have executed the Registration Rights Agreement
in substantially the form of Exhibit B hereto, and delivered the same to the
Investor;
(ii) The Certificate of Determination shall have been filed with the
Secretary of State of the State of California, and a copy thereof certified by
such Secretary of State shall have been delivered to the Investor;
(iii) The Common Stock shall be authorized for quotation on the Nasdaq
National Market and trading in the Common Stock shall not have been suspended by
the SEC or the Nasdaq Stock Market, Inc.;
(iv) The representations and warranties of the Company shall be true and
correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality, in which
case, such representations and warranties shall be true and correct without
further qualification) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Investor shall have received a
certificate, executed by the President of the Company, dated as of the Closing
Date, to the foregoing effect and to such other matters as may be reasonably
requested by the Investor;
(v) The Investor shall have received the opinion of the Company's
counsel dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Investor and in substantially the form of Exhibit C attached
hereto;
(vi) The Company shall have executed and delivered to the Investor the
stock certificates (in such denominations as the Investor shall request) for the
shares of Preferred Stock being purchased by the Investor at the Closing;
(vii) The Company shall have reserved out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the Series C
Preferred Shares, 250,000 shares of Common Stock;
(viii) The Company shall have delivered to the Investor a certificate
evidencing the incorporation and good standing of the Company in California
issued by the Secretary of State of such state as of a date within 15 days of
the Closing;
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(ix) The Company shall have delivered to the Investor a secretary's
certificate certifying as to (a) the resolutions, (b) the articles of
incorporation of the Company, and (c) bylaws of the Company, each as in effect
at the Closing;
(x) The Board of Directors of the Company shall have adopted
resolutions in a form reasonably acceptable to the Investor;
(xi) The Company shall have delivered to such Investor such other
documents relating to the transactions contemplated by this Agreement as such
Investor or its counsel may reasonably request.
8. CONDITIONS TO CLOSING OF SONIC SOLUTIONS. The obligation of Sonic
Solutions to sell and issue the Preferred Stock at the Closing is subject to the
fulfillment on or prior to the Closing Date of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion by providing the
Investor with prior written notice thereof:
(i) Delivery of the Purchase Price by way of delivery to the Company of
the Cancellation of Indebtedness in a form satisfactory to Sonic Solutions;
(ii) The Investor shall have executed the Registration Rights Agreement
in substantially the form of Exhibit B hereto and shall have delivered the same
to Sonic Solutions; and
(iii) The Certificate of Determination shall have been filed with the
Secretary of State of the State of California.
9. EXPENSES. Sonic Solutions shall bear its own expenses and legal
fees with respect to this Agreement and the transactions contemplated hereby,
and reimburse Investor for its out-of-pocket expenses, including legal fees,
with respect to this Agreement and the transactions contemplated thereby in an
amount not to exceed $5,000.
10. GOVERNING LAW; JURISDICTION AND VENUE. This Agreement shall be
governed by and construed in accordance with the laws of the State of California
without giving effect to the provisions governing conflict of laws.
11. NOTICE. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and
shall be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii) delivered by
reputable air courier service with charges prepaid, or (iv) transmitted by hand
delivery, telegram, telex or facsimile, addressed as set forth below or to such
other address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile at the address or number designated below (if delivered on a business
day during normal business hours (ending not earlier than 5:00 p.m. local time)
where such notice is to be received, or the first business day following such
delivery (if delivered other than on a business day during normal business hours
(ending not earlier than 5:00 p.m. local time) where such notice is to be
received, or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
if to Sonic Solutions:
9
<PAGE>
A. Clay Leighton
Chief Financial Officer
Sonic Solutions
101 Rowland Way
Novato, CA 94945
Fax No. (415) 893-8008
with a copy to:
August J. Moretti, Esq.
(shall not constitute notice)
Heller Ehrman White & McAuliffe
2500 Sand Hill Road, Suite 100
Menlo Park, CA 94025-7063
Fax No. (650) 234-4299
if to the Investor:
Andrew W. Kahn
Hambrecht & Quist Guaranty Finance, LLC
One Bush Street
San Francisco, CA 95104
Fax No. 415 439-3804
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 12 by giving at least 10 days prior
written notice of such changed address or facsimile number to the other party
hereto.
12. REMEDIES. In the event of a breach or threatened breach by any
party to this Agreement of its obligations under this Agreement, any party
injured or to be injured by such breach or threatened breach will be entitled to
specific performance of its rights under this Agreement or to injunctive relief,
in addition to being entitled to exercise all other rights provided in this
Agreement and granted by law. The parties agree that the provisions of this
Agreement shall be specifically enforceable, it being agreed by the parties that
the remedy at law, including monetary damages, for breach of any such provision
will be inadequate compensation for any loss and that any defense or objection
in any action for specific performance or injunctive relief that a remedy at law
would be adequate is waived.
13. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Registration
Rights Agreement contain the entire understanding of the parties with respect to
the matters covered herein and therein. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought.
14. HEADINGS. The Headings in this Agreement are for convenience of
reference only and shall not constitute a part of this Agreement, nor shall they
affect their meaning, construction or effect.
15. FURTHER ASSURANCES. Each party shall cooperate and take such action
as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
16. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement which may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties, shall be deemed to be an original instrument which shall be
enforceable against the parties actually executing
10
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such counterparts and all of which together shall constitute one and the same
instrument. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.
17. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provisions hereof be
enforced by, any other person.
18. SURVIVAL. The representations and warranties of the Company and the
Investor contained in Sections 3 and 2, respectively, the agreements and
covenants set forth in Sections 4, 5, and 6 and Sections 10 through 20, shall
survive the Closing. The Investor shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
19. PUBLICITY. The Company and one representative selected by the
Investor shall have the right to review before issuance any press releases or
any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the prior
review of any Investor, to make any press release or other public disclosure
with respect to such transactions as is required by applicable law and
regulations (although the representative selected by the Investor shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
20. NO STRICT CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
SONIC SOLUTIONS
By /s/ Robert J. Doris
-------------------------
Robert J. Doris
President
HAMBRECHT & QUIST GUARANTY FINANCE, LLC
By /s/ Andrew W. Kahn
-------------------------
Andrew W. Kahn
Manager
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EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF SERIES C PREFERRED STOCK
OF
SONIC SOLUTIONS
Robert J. Doris and A. Clay Leighton certify that:
1. They are the President and Chief Financial Officer, respectively, of
SONIC SOLUTIONS, a California corporation.
2. Pursuant to authority given by the Corporation's Articles of
Incorporation, the Board of Directors of the Corporation has adopted the
following resolutions:
"WHEREAS, the Articles of Incorporation of the Corporation provide for
a class of Preferred Stock, comprising Ten Million (10,000,000) shares
issuable from time to time in one or more series;
WHEREAS, the Board of Directors of this Corporation is authorized to
fix or alter the rights, preferences, privileges and restrictions of
shares of any unissued series of Preferred Stock, and the number of
shares constituting any such series and the designation thereof; and
WHEREAS, this Corporation previously designated 461,538 shares of the
undesignated authorized shares as Series C Preferred Stock 271,538, of
which are currently outstanding (not including the Series C Preferred
Stock to be issued to Hambrecht & Quist Guaranty Finance, LLC pursuant
to the Private Securities Subscription Agreement dated on or about
October 15, 1999); and
WHEREAS, this Corporation previously established the rights,
preferences, privileges, restrictions and other matters relating to
the Series C Preferred Stock pursuant to a Certificate of
Determination of Series C Preferred Stock filed with the California
Secretary of State on March 31, 1998 (the "Current Certificate of
Determination");
RESOLVED, that the Conversion Rate, as set forth and defined in
Section 4 of the Current Certificate of Determination, is hereby
changed from $3.25 per share of Common Stock to $2.00 per share of
Common Stock;
RESOLVED FURTHER, that for purposes of determining if there has been
an issuance of securities at a Reduced Purchase Price, as set forth
and defined in Section 6(h) of the Current Certificate of
Determination, only issuances of the types of securities described in
that Section 6(h) at an effective purchase price of less than $2.00
per share shall be considered."
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3. The authorized number of shares of Common Stock is 30,000,000,
10,331,864 of which are issued and outstanding, and the authorized number of
shares of Preferred Stock is 10,000,000, 461,538 shares of which are designated
as Series C Preferred Stock, 271,538 of which are issued and outstanding.
4. Approval of the holders of Common Stock is not required. Approval of
the Series C Preferred Stock by the required vote was obtained. The percentage
vote required was at least a majority of the outstanding shares of the Series C
Preferred Stock.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in the foregoing certificate are true and
correct of our knowledge.
EXECUTED at Novato, California on October 14, 1999.
/s/ Robert J. Doris
-------------------------------------------
Robert J. Doris, President
/s/ A. Clay Leighton
-------------------------------------------
A. Clay Leighton, Chief Financial Officer
2
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EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of October
15, 1999, is made and entered into between Sonic Solutions, a California
corporation (the "Company"), and Hambrecht & Quist Guaranty Finance, LLC, a
California limited liability company (the "Investor").
WHEREAS, the Company and Investor have entered into that certain Private
Securities Subscription Agreement, dated as of the date hereof (the
"Subscription Agreement"), pursuant to which the Company will issue to the
Investor shares of its Series C Preferred Stock (the "Preferred Stock")
convertible as described in the Certificate of Determination to Common Stock of
the Company, no par value (the "Common Stock"); and
WHEREAS, the Company and the Investor have entered into that certain Common
Stock Warrant Purchase Agreement, dated as of the date hereof (the "Warrant
Agreement") pursuant to which the Company will issue a warrant to the Investor
to purchase 120,000 shares of Common Stock (the "Warrant Shares").
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investor's agreement to enter into the Subscription Agreement and Warrant
Agreement, the Company has agreed to provide the Investor with certain
registration rights with respect to the Registrable Securities (as defined
below).
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein and in the Subscription
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. Capitalized terms defined in the Subscription
Agreement shall have the same meanings herein as are ascribed to them therein.
In addition, the following terms shall have the meanings ascribed below:
"Act" means the Securities Act of 1933, as amended
"Material Event" means the happening of any event during the period that
the Registration Statement (described in Section 2 hereof) is required to be
effective as a result of which, in the reasonable judgment of the Company, such
Registration Statement or the related prospectus contains or may contain an
untrue statement of material fact or omits or may omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
"Registrable Securities" means all Warrant Shares and all of the Common
Stock and any other securities issued or issuable upon conversion of the
Preferred Stock and any shares of capital stock issued or issuable with respect
to such Common Stock or securities as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise, regardless
of any limitation on conversion of the Preferred Stock (together, the
"Conversion Shares") until the earliest of (i) a
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Registration Statement under the Act covering the offering of such Conversion
Shares has been declared effective by the SEC and such Conversion Shares have
been disposed of pursuant to such effective Registration Statement, (ii) such
Conversion Shares are sold under circumstances in which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the Act
("Rule 144") are met, (iii) such Conversion Shares have been otherwise
transferred and the Company has delivered a new certificate or other evidence of
ownership for such securities not bearing a restrictive legend or (iv) such time
as such Conversion Shares may be sold without any time, volume or manner
limitation pursuant to Rule 144(k) (or any similar provision then in effect)
under the Act.
"Registration Statement" shall have the meaning set forth at Section
2.1(a).
"Rule 144" means Rule 144 promulgated under the Act.
"SEC" means the Securities and Exchange Commission.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. FORM S-3 REGISTRATION STATEMENTS.
(a) Filing of Form S-3 Registration Statements. Subject to the terms and
conditions of this Agreement, the Company shall file with the SEC no later than
thirty (30) days following the date of this Agreement a registration statement
on Form S-3 under the Act (the "Registration Statement") for the registration of
the resale by the Investor of the Registrable Securities, which Registration
Statement, to the extent allowable under the Securities Act and the Rules
promulgated thereunder (including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Preferred Stock (i) to
prevent dilution resulting from stock splits, stock dividends or other similar
transactions or (ii) by reason of changes in the Conversion Price of the
Preferred Stock in accordance with the terms thereof.
(b) Effectiveness of Registration Statements. The Registration Statement
shall be declared effective by the SEC by no later than sixty (60)days following
the date of this Agreement, and shall remain in effect until the termination of
this Agreement as provided in Section 5.1.
(c) Notwithstanding anything to the contrary set forth herein, if the
Company fails to timely file, obtain effectiveness or maintain effectiveness of
the Registration Statement to be filed pursuant to Section 2.1(a) in accordance
with the terms of this Agreement, the Investor shall have the following
additional registration rights. If at any time prior to the expiration of the
Registration Period (as hereinafter defined), the Company shall file with the
SEC a Registration Statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities
(other than (A) on Form S-4 or Form S-8 or their then equivalents relating to
equity securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock option
or other employee benefit plans, or (B) in connection with the agreement between
Kingsbridge Capital Limited and the Company), the Company shall send to the
Investor who is entitled to registration rights under this Section 2.1(c)
written notice of such determination and, if within fifteen (15) days after the
effective date of such notice, such Investor shall so request in writing, the
Company shall include in such Registration Statement all or any part of the
Registrable Securities such Investor's requests to be registered, except that
if, in connection with any underwritten public offering for
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<PAGE>
the account of the Company the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)' judgment, marketing or
other factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which such Investor has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable Securities shall be made
pro rata among the Investor seeking to include Registrable Securities in
proportion to the number of Registrable Securities sought to be included by such
Investor; provided, however, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities, the
holders of which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities; and provided, further, however, that, after giving
effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
right to include such securities to the Registration Statement other than
holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right of
registration of Registrable Securities under this Section 2.1(c) shall be
construed to limit any registration required under Section 2.1(a) hereof. If an
offering in connection with which the Investor is entitled to registration under
this Section 2.1(c) is an underwritten offering, then the Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
(d) Deferral. Notwithstanding the foregoing, if the Company shall furnish
to the Investor ten (10) days prior to the date by which a Registration
Statement (or if the Company shall furnish to the Investor subsequent to the
effectiveness of a Registration Statement) is required to be filed (or remain in
effect), a certificate signed by the President of the Company stating that the
Board of Directors of the Company has, by duly authorized resolution, determined
in good faith that a Material Event necessitates the deferral of the filing of
the Registration Statement or the temporary suspension of the effectiveness of
the Registration Statement because it would be seriously detrimental to the
Company and its shareholders for such Registration Statement to be filed (or
remain in effect), the Company shall have the right to defer such filing (or
suspend such effectiveness or use) for a period of not more than thirty (30)
days beyond the date by which such Registration Statement was otherwise required
to be filed (or required to remain in effect). The Investor acknowledges that it
would be seriously detrimental to the Company and its shareholders for such
Registration Statement to be filed (or remain in effect) and therefore essential
to defer such filing (or suspend such effectiveness or use) and agrees to
discontinue disposition of the Registrable Securities pursuant to any
Registration Statement until the Company delivers copies of supplemented or
amended prospectuses and the Registration Statement is declared effective. The
Company may not utilize this right to defer the filing of a Registration
Statement (or suspend its effectiveness or the use of the underlying prospectus)
more than once in any twelve (12) month period.
ARTICLE III
REGISTRATION PROCEDURES
SECTION 3.1 FILINGS; INFORMATION. Whenever the Company is required to
effect or cause the registration of Registrable Securities pursuant to Section
2.1, the Company will use its reasonable best efforts to effect the registration
of such Registrable Securities in accordance with the
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intended method of disposition thereof as quickly as practicable, and in
connection with any such request:
(a) The Company will as expeditiously as possible but in no event later
than the time period prescribed by Section 2.1(a), prepare and file with the SEC
a registration statement on Form S-3 (if use of such form is then available to
the Company pursuant to the rules of the SEC and, if not, on such other form
promulgated by the SEC for which the Company then qualifies and which counsel
for the Company shall deem appropriate and which form shall be available for the
sale of the Registrable Securities to be registered thereunder in accordance
with the provisions of this Agreement and in accordance with the intended method
of disposition of such Registrable Securities), and use reasonable best efforts
to cause such filed Registration Statement to become and remain effective
(pursuant to Rule 415 under the Act or otherwise), and the Company will as
expeditiously as possible prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
the time periods prescribed by Section 2.1(b) and comply with the provisions of
the Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by the Investor set forth in such Registration Statement.
(b) The Company will, prior to filing a Registration Statement or
prospectus or any amendment or supplement thereto (excluding amendments deemed
to result from the filing of documents incorporated by reference therein),
furnish to the Investor and one firm of counsel representing the Investor,
copies of such Registration Statement as proposed to be filed, together with
exhibits thereto, which documents will be subject to review and approval by such
parties, and thereafter furnish to the Investor and its counsel for their review
and comment such number of copies of such Registration Statement, each amendment
and supplement thereto (in each case including all exhibits thereto), the
prospectus included in such Registration Statement (including each preliminary
prospectus) and such other documents or information as the Investor or counsel
may reasonably request in order to facilitate the disposition of the Registrable
Securities.
(c) After the filing of the Registration Statement, the Company will
promptly notify the Investor of any stop order issued or threatened by the SEC
in connection therewith and take all reasonable actions required to prevent the
entry of such stop order or to remove it if entered.
(d) The Company will use reasonable best efforts to (i) register or qualify
such Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States as the Investor may reasonably (in light of
their intended plan of distribution) request, and (ii) cause such Registrable
Securities to be registered with or approved by such other governmental agencies
or authorities in the United States as may be necessary by virtue of the
business and operations of the Company and do any and all other acts and things
that may be reasonably necessary or advisable to enable the Investor to
consummate the disposition of the Registrable Securities; provided, that the
Company will not be required to (A) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (d), (B) subject itself to taxation in any such jurisdiction or (C)
consent or subject itself to general service of process in any such
jurisdiction.
(e) The Company will promptly notify the Investor in writing upon the
occurrence of any of the following events in respect of a Registration Statement
or related prospectus in respect of an offering of Registrable Securities: (i)
receipt of any request for additional information by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to the Registration
Statement or related prospectus; (ii) the issuance by
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the SEC or any other federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
which makes any statement made in the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
the Registration Statement and the related prospectus will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances in which they were made; (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus; and
(vi) the declaration of the effectiveness of a Registration Statement (which
notice of effectiveness shall be delivered to the Investor in writing within one
(1) business day of the Company being advised by the SEC of such effectiveness).
(f) The Company will enter into customary agreements and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities (the Investor may, at its option,
require that any or all of the representations, warranties and covenants of the
Company also be made to and for the benefit of the Investor). The Investor
understands that no sales of Shares may be underwritten and the Company is under
no obligation to enter into an underwriting agreement.
(g) The Company will otherwise comply with all applicable rules and
regulations of the SEC, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act, and will make
available to its security holders, as soon as reasonably practicable, an earning
statement covering a period of twelve (12) months, beginning within three (3)
months after the effective date of the Registration Statement, which earning
statement shall satisfy the provisions of Section 1(a) of the Act.
(h) The Company will use commercially reasonable efforts to secure
designation of all such Registrable Securities covered by such Registration
Statement as a NASDAQ "national market system security" within the meaning of
Rule 11Aa2-1 of the SEC.
(i) The Company will appoint a transfer agent and registrar for all such
Registrable Securities covered by such Registration Statement not later than the
effective date of such Registration Statement.
(j) The Company shall make available for inspection by (i) any Investor,
(ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investor, (iv) one firm of attorneys and
one firm of accountants or other agents retained by all other Investor, and (iv)
one firm of attorneys retained by all such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by the Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
each Inspector shall hold in confidence and shall not make any disclosure
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(except to an Investor who has executed a confidentiality agreement as provided
for herein) of any Record or other information which the Company determines in
good faith to be confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (b) the
release of such Records is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction, or (c) the information of
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company shall not be
required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector and the Investor shall have entered
into confidentiality agreements (in form and substance satisfactory to the
Company) with the Company with respect thereto, substantially in the form of
this Section 3.1(j). The Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
The Company may require the Investor to promptly furnish in writing to the
Company such information regarding the distribution of the Registrable
Securities as the Company may from time to time reasonably request and such
other information as may be legally required in connection with such
registration including, without limitation, all such information as may be
requested by the SEC or the National Association of Securities Dealers, Inc.
(the "NASD"). The Investor agrees to provide such information requested in
connection with such registration within ten (10) business days after receiving
such written request and the Company shall not be responsible for any delays in
obtaining or maintaining the effectiveness of the Registration Statement caused
by the Investor' failure to timely provide such information. The Investor agrees
that, upon receipt of any written notice from the Company of the happening of
any event of the kind described in Section 3.1(e) hereof, the Investor will
forthwith discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until the Investor'
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 3.1(e) hereof, and, if so directed by the Company, the Investor will
deliver to the Company all copies, other than permanent file copies then in the
Investor' possession, of the most recent prospectus covering such Registrable
Securities at the time of receipt of such notice. In the event the Company shall
give such notice, the Company shall extend the period during which such
Registration Statement shall be maintained effective (including the period
referred to in Section 3.1(a) hereof) by the number of days during the period
from and including the date of the giving of notice pursuant to Section 3.1(e)
hereof to the date when the Company shall make available to the Investor a
prospectus supplemented or amended to conform with the requirements of Section
3.1(e) hereof.
SECTION 3.2. REGISTRATION EXPENSES. In connection with each Registration
Statement, the Company shall pay the following registration expenses incurred in
connection with the registration thereunder (the "Registration Expenses"): (i)
all registration and filing fees, (ii) fees and expenses of compliance with
securities or blue sky laws, (iii) printing expenses, (iv) the Company's
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), (v) the fees
and expenses incurred in connection with the listing of the Registrable
Securities, (vi) fees and disbursements of counsel for the Company and customary
fees and expenses for independent certified public accountants retained by the
Company (including the expenses of any comfort letters or costs associated with
the delivery by independent certified public accountants of a comfort letter or
comfort letters requested pursuant to Section 3.1(h) hereof), and (vii) the fees
and
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expenses of any special experts retained by the Company in connection with such
registration. The Company shall have no obligation to pay any underwriting fees,
discounts or commissions attributable to the sale of Registrable Securities, or
the cost of Investor counsel or of any special audit required by the Investor,
such costs to be borne by the Investor.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless the Investor, its partners, affiliates, officers,
directors, employees and duly authorized agents, and each person or entity, if
any, who controls the Investor within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, together with the partners, affiliates,
officers, directors, employees and duly authorized agents of such Controlling
Person or entity (collectively, the "Controlling Persons"), from and against any
loss, claim, damage, liability, judgment, fine, penalty, reasonable attorneys'
fees, costs or expenses and costs and expenses of investigating and defending
any action, claim, suit, inquiry, proceeding, investigation or appeal taken from
the foregoing by or before any court or governmental, administrative or other
regulatory agency body, or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto (collectively, "Damages"),
joint or several, and any action in respect thereof to which the Investor, its
partners, affiliates, officers, directors, employees and duly authorized agents,
and any such Controlling person may become subject under the Act or otherwise,
insofar as such Damages (or proceedings in respect thereof) arise out of, or are
based upon, any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or prospectus relating to the
Registrable Securities or any preliminary prospectus, or arises out of, or are
based upon, any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are based solely upon information
furnished in writing to the Company by the Investor expressly for use therein,
and shall reimburse the Investor, its partners, affiliates, officers, directors,
employees and duly authorized agents, and each such Controlling person for any
legal and other expenses reasonably incurred by the Investor, its partners,
affiliates, officers, directors, employees and duly authorized agents, or any
such Controlling person in investigating or defending or preparing to defend
against any such Damages or proceedings; provided, however, that the Company
shall not be liable to the Investor to the extent that (i) the Investor failed
to send or deliver a copy of the final prospectus with or prior to the delivery
of written confirmation of the sale by the Investor to the person asserting the
claim from which such Damages arise, and (ii) the final prospectus was made
available to the Investor and would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission upon which the
claim is asserted and from which the Damages arise.
SECTION 4.2. INDEMNIFICATION BY THE INVESTORS. The Investor severally and
not jointly agree to indemnify and hold harmless the Company, its partners,
affiliates, officers, directors, employees and duly authorized agents and each
person or entity, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, together with the partners,
affiliates, officers, directors, employees and duly authorized agents of such
Controlling Person (collectively, the "Controlling Person"), to the same extent
as the foregoing indemnity from the Company to the Investor, but only with
reference to information related to the Investor or its plan of distribution,
furnished in writing by the Investor or on the Investor' behalf expressly for
use in any Registration Statement or prospectus relating to the Registrable
Securities, or any amendment or supplement thereto, or any preliminary
prospectus. In case any action or proceeding shall be brought against the
Company or its partners, affiliates, officers, directors, employees or duly
authorized agents or
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any such Controlling Person or its partners, affiliates, officers, directors,
employees or duly authorized agents, in respect of which indemnity may be sought
against the Investor, the Investor shall have the rights and duties given to the
Company, and the Company or its partners, affiliates, officers, directors,
employees or duly authorized agents, or such Controlling Person, or its
partners, affiliates, officers, directors, employees or duly authorized agents,
shall have the comparable rights and duties given to the Investor by Section
4.1. Notwithstanding the foregoing, the Investor shall be liable under this
Section 4.2 for only that amount of Damages as does not exceed the proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. The Company shall be entitled to receive indemnities on
customary terms from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same
extent as provided above, with respect to information so furnished in writing by
such persons specifically for inclusion in any prospectus or Registration
Statement.
SECTION 4.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt
by any person or entity in respect of which indemnity may be sought pursuant to
Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the person or entity from whom such indemnity may
be sought (an "Indemnifying Party"), promptly notify the Indemnifying Party in
writing of the claim or the commencement of such action. In the event an
Indemnified Party shall fail to give such notice as provided in this Section 4.3
and the Indemnifying Party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was materially prejudiced
by the failure to give such notice, the indemnification provided for in Section
4.1 or 4.2 shall be reduced to the extent of any actual prejudice resulting from
such failure to so notify the Indemnifying Party; provided, that the failure to
notify the Indemnifying Party shall not relieve the Indemnifying Party from any
liability which it may have to an Indemnified Party other than that liability
arising under Section 4.1 or 4.2. If any such claim or action shall be brought
against and Indemnified Party, and it shall notify the Indemnifying Party
thereof, the Indemnifying Party shall be entitled to participate therein, and,
to the extent that it wishes, jointly with any other similarly notified
Indemnifying Party, to assume the defense thereof. After notice from the
Indemnifying Party to the Indemnified Party of its election to assume the
defense of such claim or action, the Indemnifying Party shall not be liable to
the Indemnified Party for any legal or other expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation; provided, that the Indemnified Party shall
have the right to employ separate counsel to represent the Indemnified Party and
its Controlling Persons who may be subject to liability arising out of any claim
in respect of which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, but the fees and expenses of such counsel shall be for the
account of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel or
(ii) in the reasonable judgment of the Company and such Indemnified Party,
representation of both parties by the same counsel would be inappropriate due to
actual or potential conflicts of interest between them, it being understood,
however, that the Indemnifying Party shall not be liable for fees and expenses
that are not reasonable. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any claim or pending
or threatened proceeding in respect of which the Indemnified Party is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability arising out of such claim or
proceeding. Whether or not the defense of any claim or action is assumed by the
Indemnifying Party, such Indemnifying Party will not be subject to any liability
for any settlement made without its consent.
SECTION 4.4. CONTRIBUTION. If the indemnification provided for in this
Article IV is unavailable to the Indemnified Parties in respect of any Damages
referred to herein, then each
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Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Damages as between the Company on the one hand and the Investor on the
other, in such proportion as is appropriate to reflect the relative fault of the
Company and of the Investor in connection with such statements or omissions, as
well as other equitable considerations. The relative fault of the Company on the
one hand and of the Investor on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Investor agree that it would not be just and
equitable if contribution pursuant to this Section 4.4 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
Damages referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 4.4, the Investor shall in no event be required to contribute any amount
in excess of the amount by which the total price at which the Registrable
Securities of the Investor were sold to the public pursuant to the Registration
Statement exceeds the amount of any damages which the Investor has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. TERM. The registration rights provided to the holders of
Registrable Securities hereunder shall terminate at the earlier of such time as
(i) no Registrable Securities are issuable or outstanding or (ii) all
Registrable Securities may be resold without volume restriction under Rule
144(K) or a successor thereto; provided, however, that the provisions of Article
IV hereof shall survive any termination of this Agreement.
SECTION 5.2. RULE 144. The Company covenants that it will file all reports
required to be filed by it under the Act and the Exchange Act and that it will
take such further action as holders of Registrable Securities may reasonably
request, all to the extent required from time to time to enable the Investor to
sell Registrable Securities without registration under the Act within the
limitation of the exemptions provided by (a) Rule 144, as such Rule may be
amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the SEC. If at any time the Company is not required to file such
reports, it will, upon the request of any holder of Registrable Securities, make
publicly available other information so long as necessary to permit sales
pursuant to Rule 144. Upon the request of the Investor, the Company will deliver
to the Investor a written statement as to whether it has complied with such
requirements.
SECTION 5.3. AMENDMENT AND MODIFICATION. Any provision of this Agreement
may be waived, provided that such waiver is set forth in a writing executed by
the party against whom the enforcement of such waiver is sought. The provisions
of this Agreement, including the provisions of this sentence, may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless the Company has obtained the
written consent of the
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holders of a majority of the then outstanding Registrable Securities.
Notwithstanding the foregoing, the waiver of any provision hereof with respect
to a matter that relates exclusively to the rights of holders of Registrable
Securities whose securities are being sold pursuant to a Registration Statement
and does not directly or indirectly affect the rights of other holders of
Registrable Securities may be given by holders of at least a majority of the
Registrable Securities being sold by such holders; provided, that the provisions
of this sentence may not be amended, modified or supplemented except in
accordance with the provisions of the immediately preceding sentence. No course
of dealing between or among any Person having any interest in this Agreement
will be deemed effective to modify, amend or discharge any part of this
Agreement or any rights or obligations of any person under or by reason of this
Agreement.
SECTION 5.4. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The Investor may
assign its rights under this Agreement to any subsequent holder of Preferred
Stock or Conversion Shares, provided that the Company shall have the right to
require any holder of Registrable Securities to execute a counterpart of this
Agreement as a condition to such holder's claim to any rights hereunder. This
Agreement, together with the Subscription Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
SECTION 5.5. SEPARABILITY. In the event that any provision of this
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
SECTION 5.6. NOTICES. All notices, demands, requests, consents, approvals
or other communications required or permitted to be given hereunder or which are
given with respect to this Agreement shall be in writing and shall be personally
served or deposited in the mail, registered or certified, return receipt
requested, postage prepaid, or delivered by reputable air courier service with
charges prepaid, or transmitted by hand delivery, telegram, telex or facsimile,
addressed as set forth below, or to such other address as such party shall have
specified most recently by written notice: if to the Company, to: SONIC
SOLUTIONS, 101 Rowland Way, Novato, CA 94945; Attention: Mr. A. Clay Leighton,
Facsimile No. (415) 893-8008, with copies (which shall not constitute notice)
to: Heller Ehrman White & McAuliffe, 2500 Sand Hill Road, Menlo Park, CA
94025-7063 Attention: August J. Moretti, Esq., Facsimile No. (650) 234-4299; and
(ii) if to the investor, to: HAMBRECHT & QUIST GUARANTY FINANCE, LLC, One Bush
Street, San Francisco, CA 95104; Attention: Andrew W. Kahn, Facsimile No. (415)
439-3804. Notice shall be deemed given on the date of service or transmission if
personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given on the third business
day following the date mailed or on the second business day following delivery
of such notice by a reputable air courier service.
SECTION 5.7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to the provisions governing conflicts of laws thereof.
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SECTION 5.8. HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not constitute a part of this Agreement, nor shall
they affect their meaning, construction or effect.
SECTION 5.9. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement which
may be executed in multiple counterparts, each of which may be executed by less
than all of the parties, shall be deemed to be an original instrument which
shall be enforceable against the parties actually executing such counterparts
and all of which together shall constitute one and the same instrument. This
Agreement, once executed by a party, may be delivered to the other party hereto
by facsimile transmission of a copy of this Agreement bearing the signature of
the party so delivering this Agreement.
SECTION 5.10. FURTHER ASSURANCES. Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
SECTION 5.11. REMEDIES. In the event of a breach or a threatened breach by
any party to this Agreement of its obligations under this Agreement, any party
injured or to be injured by such breach will be entitled to specific performance
of its rights under this Agreement or to injunctive relief, in addition to being
entitled to exercise all rights provided in this Agreement and granted by law.
The parties agree that the provisions of this Agreement shall be specifically
enforceable, it being agreed by the parties that the remedy at law, including
monetary damages, for breach of any such provision will be inadequate
compensation for any loss and that any defense or objection in any action for
specific performance or injunctive relief that a remedy at law would be adequate
is waived.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
HAMBRECHT & QUIST GUARANTY SONIC SOLUTIONS
FINANCE, LLC
By: /s/ Andrew W. Kahn By: /s/ Robert J. Doris
-------------------------------- --------------------------------------
Andrew W. Kahn Robert J. Doris
Manager President and Chief Executive Officer
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EXHIBIT C - OPINION OF COMPANY'S COUNSEL
[Letterhead of Heller Ehrman White & McAuliffe]
October 15, 1999
To Hambrecht & Quist Guaranty Finance, LLC
One Bush Street
San Francisco, California 95104
Attn: Andrew W. Kahn, Esq.
We have acted as counsel to Sonic Solutions, a California corporation (the
"Company"), in connection with the Private Securities Subscription Agreement
(the "Agreement"), and the Registration Rights Agreement (the "Rights
Agreement") between the Company and you, each dated as of dated October 15,
1999, (collectively, the "Transactional Agreements"). This opinion is rendered
to you pursuant to Section 7(v) of the Agreement. Capitalized terms used without
definition in this opinion have the meanings given to them in the Agreement or,
if the Agreement does not define them, in the Amended and Restated Articles of
Incorporation of the Company.
I.
In connection with this opinion, we have assumed the authenticity of all
records, documents, and instruments submitted to us as originals, the
genuineness of all signatures, the legal capacity of natural persons and the
conformity to the originals of all records, documents, and instruments submitted
to us as copies. We have also assumed that there are no facts or circumstances
relating to you that might prevent you from enforcing any of the rights to which
our opinion relates (for example, lack of due incorporation, regulatory
prohibitions, or failure to qualify to do business in the State of California).
We have based our opinion upon our review of the following records, documents
and instruments:
(a) The Amended and Restated Articles of Incorporation of the Company
certified by the California Secretary of State as of October 15, 1999 and
certified to us by an officer of the Company as being complete and in full force
and effect as of the date of this opinion (the "Articles");
(b) The Certificate of Amendment to the Certificate of Determination of
Series C Preferred Stock, as amended, of the Company (Exhibit A of the
Agreement), certified by the California Secretary of State as of October 15 and
certified to us by an officer of the Company as being complete and in full force
and effect as of the date of this opinion (the "Certificate of Determination");
(c) The Bylaws of the Company certified to us by an officer of the Company
as being complete and in full force and effect as of the date of this opinion
(the "Bylaws");
(d) Records certified to us by an officer of the Company as constituting
all records of proceedings and actions of the Board of Directors and the
shareholders of the Company relating to the transactions contemplated by the
Transactional Agreements;
(e) The Agreement;
(f) The Rights Agreement;
25
<PAGE>
(g) A Certificate of Status-Domestic Corporation relating to the Company
issued by the Secretary of State of the State of California dated October 14,
1999;
(h) A letter from the Franchise Tax Board of the State of California dated
October 14, 1999 stating that the Company is in good standing with that agency;
(i) A Certificate of the Chief Financial Officer of the Company as to the
material agreements, material instruments, judgments, and decrees to which the
Company is a party or by which the Company's properties or assets are bound and
as to certain factual matters (the "Officer's Certificate");
(j) The agreements and instruments identified in the Officer's Certificate;
(k) A report of the Company's Transfer Agent, ChaseMellon Shareholder
Services dated October 14, 1999, as to the outstanding Common Stock of the
Company; and
(l) The stock certificates representing the shares being purchased by you
(the "Shares").
With your consent, we have based our opinion expressed in paragraph 1 below
as to the good standing of the Company under the laws of the State of California
solely upon the documents enumerated in (g) and (h) above. In addition, we have,
with your consent based our opinion expressed in paragraph 8 below regarding the
capitalization of the Company solely upon our review of the records identified
as items (a), (b), (d), (i) and (k) above, (ii) assumed for the purpose of our
opinion in paragraph 8 below that the certificates evidencing the Shares will be
delivered in California, and (iii) relied upon the Officer's Certificate with
respect to factual matters relevant to this opinion.
In connection with our opinion relating to the agreements and instruments
identified in the Officer's Certificate, we have not reviewed, and express no
opinion on, (i) financial covenants or similar provisions requiring financial
calculations or determinations to ascertain compliance, (ii) provisions relating
to the occurrence of a "material adverse event" or words of similar import, or
(iii) parol evidence bearing on interpretation or construction. Moreover, to the
extent that any of the Transactional Agreements or any of the agreements and
instruments identified in item (j) above is governed by the laws of any
jurisdiction other than the federal laws of the United States or the laws of the
State of California, our opinion relating to those agreements and instruments is
based solely upon the plain meaning of their language without regard to
interpretation or construction that might be indicated by the laws governing
those agreements or instruments.
Where our opinion relates to our "knowledge", such knowledge is based upon
our examination of the records, documents, instruments, and certificates
enumerated or described above and the actual knowledge of attorneys in this firm
who are currently involved in substantive legal representation of the Company.
With your consent, we have not examined any records of any court, administrative
tribunal or other similar entity in connection with our opinion expressed in
paragraph 7 below.
II.
We express no opinion as to: (i) the applicable choice of law rules that
may affect the interpretation or enforcement of the Agreement, and (ii) any
anti-fraud provisions of applicable federal or state securities laws, any tax,
anti-trust, land use, export, safety, environmental or hazardous materials laws,
rules or regulations.
26
<PAGE>
This opinion is limited to the federal laws of the United States of America
and the laws of the State of California. We disclaim any opinion as to the laws
of any other jurisdiction and we further disclaim any opinion as to any statute,
rule, regulation, ordinance, order or other promulgation of any regional or
local governmental body.
III.
Based upon the foregoing and our examination of such questions of law as we
have deemed necessary or appropriate for the purpose of this opinion, and
subject to the limitations and qualifications expressed below, it is our opinion
that:
1. The Company has been duly incorporated and is validly existing and in
good standing under the laws of the State of California.
2. The Company has all requisite corporate power and corporate authority to
enter into and perform the Transactional Agreements, to own its properties, and
to carry on its business as, to our knowledge, it is now conducted and proposed
to be conducted as contemplated by the Transactional Agreements.
3. Each of the Transactional Agreements has been duly authorized by all
necessary corporate action on the part of the Company, its directors, and
shareholders and has been duly executed and delivered on behalf of the Company.
4. Each of the Transactional Agreements is a valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
subject, as to enforcement, (i) to bankruptcy, insolvency, reorganization,
arrangement, moratorium, and other laws of general applicability relating to or
affecting creditors' rights, (ii) to general principles of equity, whether such
enforcement is considered in a proceeding in equity or at law, and (iii) to
limitations imposed by applicable law or public policy on the enforceability of
the indemnification provisions of the Rights Agreement.
5. No governmental consents, approvals, authorizations, registrations,
declarations, or filings are required for the execution and delivery of the
Transactional Agreements on behalf of the Company, including the issuance of the
Shares, except (i) the filing of the Certificate of Amendment to the Certificate
of Determination in the Office of the Secretary of State of the State of
California, which filing has been accomplished, and (ii) the qualification (or
taking such action as may be necessary to secure an exemption from
qualification, if available) for the offer and sale of the Shares (and the
Common Stock issuable upon conversion) under applicable blue sky laws.
6. Neither the execution and delivery of the Transactional Agreements on
behalf of the Company nor the performance of the Transactional Agreements by the
Company, including the issuance of the Shares (i) conflicts with any provision
of the Articles or Bylaws, (ii) violates any law applicable to the Company, or
(iii) results in a breach or violation of, or constitutes a default under, any
term of any agreements, instruments, judgments, or decrees identified in the
Officer's Certificate.
7. To our knowledge, there are no pending or threatened actions, suits,
proceedings, or governmental investigations against the Company.
8. The authorized capital stock of the Company consists of 30,000,000
shares of Common Stock and 10,000,000 shares of Preferred Stock. Of the
Preferred Stock, 165,448 shares are designated Series A Preferred Stock, 744,516
shares are designated Series B Preferred Stock, and 461,538 shares are
27
<PAGE>
designated Series C Preferred Stock. Immediately prior to the Closing, the stock
records of the Company indicate that no shares of Series A Preferred Stock, no
shares of Series B Preferred Stock, and 271,538 shares of Series C Preferred
Stock were issued and outstanding.
9. The Shares, when issued at the Closing in compliance with the Agreement,
will be duly authorized, validly issued, fully paid, and non-assessable and free
of preemptive rights set forth in the Articles, Bylaws, or of which we have
knowledge; provided, however, that the Shares may be subject to restrictions on
-------- -------
transfer under state and federal securities laws. Upon delivery by the Company
to you of certificates for the Shares being sold by the Company and payment
therefor as provided in the Agreement, you will own such Shares free and clear
of any adverse claims, assuming that you are a protected purchaser within the
meaning of Section 8303 of Article 8 of the California Uniform Commercial Code.
The company has reserved 250,000 shares of Common Stock for issuance upon
conversion of the Shares. When issued in compliance with the provisions of the
Articles and the Certificate of Determination, such shares of Common Stock will
be validly issued, fully paid, and nonassessable; provided, however, that the
-------- -------
Common Stock issuable upon conversion of the Shares may be subject to
restrictions on transfer under state and federal securities laws as set forth in
the Agreement. Upon delivery by the Company to you of certificates for the
Common Stock being issued by the Company and your tender of the certificate for
the Shares being converted as provided in the Certificate of Determination, you
will own such shares of Common Stock free and clear of any adverse claims,
assuming that you are a protected purchaser within the meaning of Section 8303
of Article 8 of the California Uniform Commercial Code.
10. Subject to the accuracy of your representations in Section 3 of the
Agreement and the statement in the Officer's Certificate that the Company has
not offered or sold Shares by means of advertising or public solicitation, the
offer, sale, and issuance of the Shares (and the Common Stock issuable upon
conversion thereof) in conformity with the terms of the Agreement constitute
transactions exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended, and from the qualification requirements of
the California Corporate Securities Law of 1968, as amended.
IV.
We further advise you that:
A. As noted, the enforceability of the Transactional Agreements is subject
to the effect of general principles of equity. These principles include, without
limitation, concepts of commercial reasonableness, materiality and good faith
and fair dealing. As applied to the Transactional Agreements, these principles
will require you to act reasonably, in good faith and in a manner that is not
arbitrary or capricious in the administration and enforcement of the
Transactional Agreements and will preclude you from invoking penalties for
defaults that bear no reasonable relation to the damage suffered or that would
otherwise work a forfeiture. In addition, the enforceability of the
Transactional Agreements is subject to the effect of Section 1670.5 of the
California Civil Code, which provides that a court may refuse to enforce, or may
limit the enforcement of, a contract or clause of a contract that the court
finds as a matter of law to have been unconscionable at the time it was made.
B. The effectiveness of indemnities, rights of contribution, exculpatory
provisions and waivers of the benefits of statutory provisions may be limited on
public policy grounds.
C. Section 1717 of the California Civil Code provides that, in any action
on a contract where the contract specifically provides that attorneys' fees and
costs incurred to enforce that contract
28
<PAGE>
shall be awarded either to one of the parties or to the prevailing party, then
the party who is determined to be the party prevailing in the action, whether
that party is the party specified in the contract or not, shall be entitled to
reasonable attorneys' fees in addition to other costs.
D. Any provisions of the Transactional Agreements requiring that waivers
must be in writing may not be binding or enforceable if a non-executory oral
agreement has been created modifying any such provision or an implied agreement
by trade practice or course of conduct has given rise to a waiver.
This opinion is rendered to you in connection with the Agreement and is
solely for your benefit. This opinion may not be relied upon by you for any
other purpose, or relied upon by any other person, firm, corporation, or other
entity for any purpose, without our prior written consent. We disclaim any
obligation to advise you of any developments in areas covered by this opinion
that occur after the date of this opinion.
Very truly yours,
/s/ Heller Ehrman White & McAuliffe
29
<PAGE>
EXHIBIT 4.3
COMMON STOCK WARRANT PURCHASE AGREEMENT
THIS COMMON STOCK WARRANT PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of the 15th day of October, 1999 by and among Sonic Solutions, a
California corporation (the "Company"), and Hambrecht & Quist Guaranty Finance
LLC, a California limited liability company ("H&QGF"). H&QGF shall be referred
to herein as the "Investor." As used in this Agreement, the term "Shares" shall
mean the shares of Common Stock issuable upon exercise of the Warrant, as
defined in Section 1.1 below, or upon exercise of the right to convert the
Warrant, as provided under Section 7 of the Warrant (the "Conversion Right").
The parties hereto agree as follows:
Article 1. Sale and Purchase of Warrant; Closing.
-------------------------------------
1.1 Sale and Purchase of Warrant. The Company agrees to sell to the
----------------------------
Investor and the Investor agrees to purchase from the Company for a purchase
price of $1,200.00, a warrant in the form attached hereto as Exhibit A to
purchase 120,000 shares of the Company's Common Stock (the "Common Stock") at an
initial per share exercise price of $2.50 at any time on or before April 30,
2006 ( the "Warrant").
1.2 Closing. The issuance of the Warrant shall take place on the even
-------
date hereof, or on such other date as the parties shall mutually agree (the
"Closing"). At the Closing, the Company shall cause to be delivered to the
Investor the Warrant issued in the name of such Investor and Investor shall pay
the Company $1,200 by check, wire transfer or such other means as shall be
reasonably designated by the Company.
Article 2. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby agrees and represents and warrants to the Investor as follows:
2.1 Corporate Status. The Company is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the State of California
and has all requisite legal and corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as now conducted
and as proposed to be conducted.
2.2 Capitalization. Immediately prior to the Closing, the authorized and
--------------
outstanding capitalization of the Company will consist of that which is
described on Schedule 1. Except as provided in Schedule 1, there are no
outstanding rights, options, warrants or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. The Company is
not a party or subject to any agreement, and, to the best of its knowledge,
there is no agreement or understanding between any other persons relating to the
voting of the Company's capital stock.
2.3 Authorization. All corporate action on the part of the Company, its
-------------
officers, directors and shareholders necessary for the authorization, execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, including the
<PAGE>
authorization, issuance and delivery of the Warrant, the reservation of the
Shares issuable upon the exercise thereof, and the grant of registration rights
to the Investor, has been taken or will be taken prior to Closing. The person
signing this Agreement has full power and authority to enter into this Agreement
on behalf of the Company. When executed and delivered, this Agreement will
constitute a valid and binding obligation of the Company.
2.4 Corporate Power. The Company has all requisite legal and
---------------
corporate power and authority to enter into this Agreement and all requisite
legal and corporate power and authority to issue and deliver the Warrant and the
Shares and to carry out and perform its obligations under the terms and
conditions of this Agreement.
2.5 Validity of Warrant. The Warrant to be issued and delivered
-------------------
pursuant to this Agreement shall constitute a valid and binding obligation of
the Company. The Shares have been duly and validly reserved, and when issued in
accordance with the Warrant shall be duly authorized, validly issued, fully paid
and free of any liens or encumbrances except for restrictions on transfer
provided for under applicable federal and state securities laws. During the
period within which the purchase rights represented by the Warrant may be
exercised, the Company shall at all times have authorized, and reserved for
issuance upon exercise of the Warrant or upon exercise of the Conversion Right,
a sufficient number of shares of Common Stock to provide for the issuance of the
Shares. The issuance of such Common Stock is not and will not be subject to any
preemptive rights or rights of first refusal except such as have been
effectively waived.
2.6 Compliance with Other Instruments. The Company is not in
---------------------------------
violation of, conflict with or default under (i) any provision of its amended
and restated certificate of incorporation or bylaws, or (ii) any contract,
instrument, judgment, order, writ or decree to which it or any of its
subsidiaries is a party or by which it or any of them is bound, or, to the best
of its knowledge, of any provision of any federal or state statute, rule or
regulation applicable to the Company or any of its subsidiaries, except in the
case of clause (ii) as would not have a material adverse effect on the assets,
condition, or properties of the Company and its subsidiaries taken as a whole,
financial or otherwise (a "MAE"). The execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated hereby,
including the authorization, issuance and delivery of the Warrant, the
reservation of the Shares usable upon exercise thereof and the grant of
registration rights to the Investor, will not, with or without the passage of
time and giving of notice, result in any such violation, conflict or default, or
an event that results in the creation of any material lien, charge or
encumbrance upon any assets of the Company or any of its subsidiaries or the
suspension, revocation, impairment or forfeiture of any material permit,
license, authorization, or approval applicable to the Company or any of its
subsidiaries.
Article 3. Representations and Warranties of the Investor. The Investor
----------------------------------------------
represents and warrants to the Company that:
3.1 Authorization. The person signing this Agreement has full power
-------------
and authority to enter into this Agreement on behalf of the Investor. When
executed and delivered, this Agreement will constitute the Investor's valid and
legally binding obligation.
3.2 Investment Representations.
--------------------------
2
<PAGE>
(a) The Investor understands that the Warrant and the Shares have not been
registered under the Securities Act of 1933, as amended (the "Act") and will be
issued pursuant to an exemption from registration contained in the Act based in
part upon the representations of the Investor contained herein.
(b) The Investor is acquiring the Warrant and the Shares solely for its own
account and not as a nominee for any other party and not with a view toward the
resale or distribution thereof.
(c) The Investor is a sophisticated investor experienced in venture capital
investing and able to fend for itself. The Investor is able to bear the economic
risk of the purchase of the Warrant and the Shares, including a complete loss of
the Investor's investment. The Investor has been afforded an opportunity to ask
such questions of the Company's officers, employees, agents, accountants and
representatives concerning the Company's business, operations, financial
condition, assets, liabilities and other relevant matters as it has deemed
necessary or desirable.
Article 4. Conditions of the Investor's Obligations at the Closing. The
-------------------------------------------------------
obligation of the Investor to purchase the Warrant is subject to the fulfillment
to its satisfaction, or its written waiver thereof, prior to or at the Closing,
of each of the following conditions:
4.1 Representations and Warranties. The representations and warranties
------------------------------
of the Company contained in Article 2 hereof shall be true and correct in all
material respects on and as of the Closing.
4.2 Corporate Action. All corporate action on the part of the Company,
----------------
its officers, directors and shareholders necessary for the authorization,
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby shall have been taken.
4.3 Opinion of Counsel. There shall have been delivered to the
------------------
Investor an opinion of the Company's counsel dated as of the date of the Closing
in substantially the form attached hereto as Exhibit B.
4.4 Delivery of Warrant. There shall have been delivered to the
-------------------
Investor the Warrant.
4.5 Governmental Consents. All permits, consents, approvals, orders
---------------------
and authorizations, if any, which the Company is required to obtain from, and
all registrations, qualifications, designations, declarations and filings which
the Company is required to make with, any Federal or state governmental
authority of the United States in connection with the execution, delivery or
performance of this Agreement, the consummation of the transactions contemplated
hereby or the issuance and delivery of the Warrant to the Investor pursuant to
this Agreement, except post-sale filings which may be required under the Blue
Sky laws of any applicable states (which the Company hereby agrees to make in
accordance with such laws), shall have been duly obtained or made and shall be
effective on and as of the Closing.
4.6 Registration Rights. The Company shall provide the Investor such
-------------------
evidence as the Investor may require that all corporate action on the part of
the Company, its officers, directors and shareholders necessary for the grant of
registration rights pursuant to Section 6 hereof has been taken prior to the
Closing.
3
<PAGE>
Article 5. Conditions of the Company's Obligations at the Closing. The
------------------------------------------------------
obligation of the Company to issue the Warrant to the Investor is subject to the
fulfillment to its satisfaction, or its written waiver thereof, prior to or at
the Closing, of the following conditions:
5.1 Representations and Warranties. The representations and warranties
------------------------------
of the Investor contained in Article 3 hereof shall be true and correct on and
as of the Closing.
5.2 Payment of Purchase Price. The Investor shall pay the Company an
-------------------------
aggregate of $1,200.00.
5.3 Governmental Consents. All permits, consents, approvals, orders
---------------------
and authorizations, if any, which the Company is required to obtain from, and
all registrations, qualifications, designations, declarations and filings which
the Company is required to make with, any Federal or state governmental
authority of the United States in connection with the execution, delivery or
performance of this Agreement, the consummation of the transactions contemplated
hereby or the issuance and delivery of the Warrant to the Investor pursuant to
this Agreement, except post-sale filings which may be required under the Blue
Sky laws of any applicable states (which the Company hereby agrees to make in
accordance with such laws), shall have been duly obtained or made and shall be
effective on and as of the Closing.
Article 6. Registration Rights. The Company shall grant Investor
-------------------
registration the same registration rights granted to H&QGF in that Registration
Rights Agreement dated as of October 15, 1999 (the "Registration Rights
Agreement"). The Shares shall be deemed "Registrable Securities" as that term is
defined in the Registration Rights Agreement.
Article 7. Transfers of Certain Rights
---------------------------
7.1 Transfers. The rights granted under Article 6 may be transferred
---------
to any person or entity acquiring Warrant or Shares; provided, however, that the
Company is given written notice by the transferor and the transferee at the time
of such transfer stating the name and address of the transferee and identifying
the securities with respect to which such rights are being assigned and
provided, further, that as a condition to such transfer, any such transferee
deliver to the Company a written instrument by which such transferee agrees to
be bound by the obligations imposed upon Investor under Article 6 and Article 9
to the same extent as if such transferees were an Investor hereunder.
7.2 Subsequent Transfers. A transferee to whom rights are transferred
--------------------
pursuant to this Article 7 may not again transfer such rights to any other
person or entity, other than as provided in Section 7.1 above.
Article 8. Financial Statements. So long as the Investor continues to hold
--------------------
any Warrant or any Shares, the Company shall deliver to the Investor, in the
form and substance reasonably satisfactory to H&QGF:
a) Immediately upon filing with the Commission, all financial
statements so filed if so requested by Investor; or
4
<PAGE>
b) In the event that the Company is not required to file periodic or
other reports with the Commission, as soon as practicable (i) after the end of
each fiscal year, and in any event within 90 days thereafter, the Company will
provide the Investor with annual audited consolidated financial statements
(consisting of a consolidated profit or loss statement of profit or loss for
such fiscal year, a consolidated balance sheet of the Company as of the end
close of the fiscal year, and a consolidated statement of cash flows for such
fiscal year, certified by independent public accountants of recognized national
standing selected by the Company) and (ii) as soon as practicable after the end
of each of the first three fiscal quarters and in any event within forty five
(45) days thereafter, the Company will provide the Investor with quarterly
unaudited consolidated financial statements (consisting of an unaudited
consolidated profit or loss statement for such fiscal quarter and an unaudited
consolidated balance sheet, and a consolidated statement of cash flows, as of
the end of such fiscal quarter). The right to receive financial statements under
this Section 8 may be transferred to any subsequent holder of the Warrant who
acquires not less than twenty-five (25%) of the Shares acquired pursuant to this
Agreement.
Article 9. Confidentiality. The Investor and any transferees thereto agree
---------------
that it will keep confidential and will not disclose or divulge any
confidential, proprietary or secret information which such Investor may obtain
from the Company, and which the Company has identified as being such, pursuant
to financial statements and other materials submitted by the Company as required
hereunder, unless such information is or becomes known to the Investor from a
source other than the Company or is or becomes publicly known, or unless the
Company gives its written consent to the Investor's release of such information.
Article 10. Miscellaneous.
-------------
10.1 Agreement Is Entire Contract. This Agreement, including the
----------------------------
Exhibits, Appendices and Schedule 1 hereto, constitutes the entire contract
between the parties hereto with respect to the subject matter hereof.
10.2 Expenses. Each party to this Agreement shall bear its own
--------
expenses incurred in connection with the negotiation, preparation, execution and
consummation of this Agreement, except that the Company shall pay the legal fees
and expenses in reimbursement of fees paid by Investor to its counsel in
connection with the preparation and negotiation of the Warrant in an amount not
to exceed $5,000 or the amount the Company pays its own counsel in connection
with this financing, whichever is greater.
10.3 Survival of Representations and Warranties. The representations,
------------------------------------------
warranties, covenants and agreements of the Company and the Investor contained
herein or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing.
10.4 Severability. If one or more provisions of this Agreement are
------------
held to be invalid, illegal or unenforceable under applicable law, portions of
such provisions, or such provisions in their entirety, to the extent necessary,
shall be severed from this Agreement, and the balance of this Agreement shall be
enforceable in accordance with its terms.
5
<PAGE>
10.5 Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.
10.6 Choice of Law. It is the intention of the parties that the
-------------
internal laws of the State of California, without regard to the body of law
controlling conflicts of law, shall govern the validity of this Agreement, the
construction of its terms and the interpretation of the rights and duties of the
parties.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
------------------
the day and year first above written.
SONIC SOLUTIONS HAMBRECHT & QUIST
GUARANTY FINANCE, LLC
By: By:
--------------------- --------------------
(Signature) (Signature)
Name: Name:
--------------------- --------------------
(Print) (Print)
Title: Title:
--------------------- -------------------
7
<PAGE>
EXHIBIT 4.4
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS FOR SUCH LAWS AS MAY THEN BE IN EFFECT, OR AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
Company: Sonic Solutions (the "Company"), and any corporation
that shall succeed to the obligations of the Company
under this Warrant.
Number of Shares: 120,000
Class of Stock: Common Stock
Initial Warrant Price: $2.50 per share
Expiration Date: April 30, 2006
Date of Grant: October 15, 1999
THIS CERTIFIES THAT, for value received, Hambrecht & Quist Guaranty
Finance, LLC, a California limited liability company, or nominees, is entitled
to purchase the above number (as adjusted pursuant to Section 5 hereof) of fully
paid and nonassessable shares of the above Class of Stock of the Company at the
Initial Warrant Price above (as adjusted pursuant to Section 5 hereof), subject
to the provisions and upon the terms and conditions set forth herein.
1. Definitions.
-----------
As used herein, the following terms, unless the context otherwise requires,
shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations thereunder, as shall be
in effect at the time.
(b) "Common Stock" shall mean shares of the presently authorized common
stock of the Company and any stock into which such common stock may hereafter by
exchanged.
(c) "Holder" shall mean any person who shall at the time be the holder
of this Warrant.
(d) "Shares" shall mean the shares of the Class of Stock that the Holder
is entitled to purchase upon exercise of this Warrant, as adjusted pursuant to
Section 5 hereof.
<PAGE>
(e) "Warrant Price" shall mean the Initial Warrant Price at which this
Warrant may be exercised, as adjusted pursuant to Section 5 hereof.
2. Term.
----
The purchase right represented by this Warrant is exercisable, in whole or
in part, on or before the Expiration Date.
3. Exercise of Warrant; Payment; Issuance of New Warrant
-----------------------------------------------------
3.1. Subject to Section 2 hereof, the purchase rights represented by
this Warrant may be exercised by the Holder, in whole or in part, by the
surrender of this Warrant (with the notice of exercise form attached hereto as
Appendix A duly executed) at the principal office of the Company and by the
payment to the Company, by check made payable to the Company drawn on a United
States bank and for United States dollars, or by wire transfer to an account of
the Company, of an amount equal to the then applicable Warrant Price per share
multiplied by the number of Shares then being purchased. In the event of any
exercise of the purchase right represented by this Section 3, certificates for
the Shares so purchased shall be delivered to the Holder within thirty (30) days
of receipt of such payment and, unless this Warrant has been fully exercised or
expired, a new Warrant (dated as of the date hereof) representing the portion of
the Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the Holder within such thirty (30) day period.
3.2 The Company may require that such certificate or certificates
contain on the face thereof a legend substantially as follows:
"The securities evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, or applicable state
securities laws and rules. No sale, offer to sell or transfer of the shares
represented by this certificate shall be made unless a registration
statement under such act, and applicable state securities laws with respect
to such shares is then in effect, or pursuant to an exemption from such
registration requirements for such laws is then in effect or an opinion of
counsel reasonably satisfactory to Company and its counsel that such
registration is not required."
4. Exercise Price. The Warrant Price at which this Warrant may be exercised
--------------
shall be the Initial Warrant Price, as adjusted from time to time pursuant to
Section 5 hereof.
5. Adjustment of Number and Kind of Shares and Adjustment of Warrant Price.
-----------------------------------------------------------------------
5.1 Certain Definitions. As used in this Section 5 the following terms
-------------------
shall have the following respective meanings:
(a) Options: rights, options or warrants to subscribe for, purchase
-------
or otherwise acquire shares of Common Stock or Convertible Securities.
(b) Convertible Securities: any evidence of indebtedness, shares of
----------------------
stock or other securities directly or indirectly convertible into or
exchangeable for Common Stock.
2
<PAGE>
5.2 Adjustments. The number and kind of securities purchasable upon the
-----------
exercise of this Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows:
(a) Reclassification, Reorganization, Consolidation or Merger. In the
---------------------------------------------------------
case of any reclassification of the Common Stock, or any reorganization,
consolidation or merger of the Company with or into another corporation (other
than a merger or reorganization with respect to which the Company is the
continuing corporation and which does not result in any reclassification of the
Common Stock), the Company, or such successor corporation, as the case may be,
shall execute a new warrant, providing that the Holder shall have the right to
exercise such new warrant and upon such exercise to receive, in lieu of each
share of the Class of Stock theretofore issuable upon exercise of this Warrant,
the number and kind of securities receivable upon such reclassification,
reorganization, consolidation or merger by a holder of shares of the same Class
of Stock of the Company for each such share of such Class of Stock. The
aggregate Warrant Price of the new warrant shall be the aggregate Warrant Price
in effect immediately prior to the reclassification, reorganization,
consolidation or merger and the Warrant Price per share shall be appropriately
increased or decreased. Such new warrant shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 5 including, without limitation, adjustments to the Warrant
Price and to the number of share issuable upon exercise of this Warrant. The
provisions of this subsection (a) shall similarly apply to successive
reclassification, reorganizations, consolidations or mergers.
(b) Split, Subdivision or Combination of Shares. If the Company at any
-------------------------------------------
time while this Warrant remains outstanding and unexpired shall split, subdivide
or combine the Class of Stock for which this Warrant is then exercisable, the
Warrant Price shall be proportionately decreased in the case of a split or
subdivision or proportionately increased in the case of a combination. Any
adjustment under this subsection (b) shall become effective when the split,
subdivision or combination becomes effective.
(c) Stock Dividends. If the Company at any time while this Warrant
---------------
remains outstanding and unexpired shall pay a dividend with respect to the Class
of Stock for which this Warrant is then exercisable, payable in shares of that
Class of Stock, Options, or Convertible Securities, the Warrant Price shall be
adjusted, from and after the date of determination of the shareholders entitled
to receive such dividend or distributions, to that price determined by
multiplying the Warrant Price in effect immediately prior to such date of
determination by a fraction (i) the numerator of which shall be the total number
of shares of that Class of Stock outstanding immediately prior to such dividend
or distribution, and (ii) the denominator of which shall be the total number of
shares of the same Class of Stock outstanding immediately after such dividend or
distribution (including shares of that Class of Stock issuable upon exercise,
conversion or exchange of any Option or Convertible Securities issued as such
dividend or distribution). If the Options or Convertible Securities issued as
such dividend or distribution by their terms provide, with the passage of time
or otherwise, for any decrease in the consideration payable to the Company, or
any increase by the number of shares issuable upon exercise, conversion or
exchange thereof (by change of rate or otherwise), the Warrant Price shall, upon
any such decrease or increase becoming effective, be reduced to reflect such
decrease or increase as if such decrease or increase became effective
immediately prior to the issuance of the Options or Convertible Securities as
the dividend or distribution. Any adjustment under this subsection (c) shall
become effective on the record date.
3
<PAGE>
(d) Other Securities. In the event the Company at any time or
----------------
from time to time after the issuance of this Warrant makes, or fixes a
record date for the determination of Holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the
Company other than shares of Common Stock, then, and in each such event,
provision shall be made so that the Holder shall receive, upon exercise
hereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Company which the Holder would
have received had this Warrant been exercised for such Common Stock on the
date of such event and had the Holder thereafter, during the period from
the date of such event to and including the date of exercise, retained such
securities receivable by such Holder as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 5 with respect to the rights of the Holder.
5.3 Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price pursuant to this Section 5, the number of Shares issuable upon
exercise of this warrant shall be adjusted to the product obtained by
multiplying the number of Shares issuable immediately prior to such adjustment
in the Warrant Price by a fraction (i) the numerator of which shall be the
Warrant Price immediately prior to such adjustment, and (ii) the denominator of
which shall be the Warrant Price immediately after such adjustment.
6. Notice of Adjustments. Whenever the Warrant Price shall be
---------------------
adjusted pursuant to Section 5 hereof, the Company shall issue a
certificate signed by its chief financial officer or chief executive
officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such
adjustment was calculated and the Warrant Price after giving effect to
such adjustment and shall cause a copy of such certificate to be
mailed (by first class mail, postage prepaid) to the Holder.
7. Right to Convert Warrant Into Stock.
-----------------------------------
7.1 Right to Convert. In addition to the rights granted under Section
----------------
3 of this Warrant, the Holder shall have the right to require the Company to
convert (the "Conversion Right") into shares of the Class of Stock for which the
Warrant is then exercisable, as provided in this Section 7. Upon exercise of the
Conversion Right, the Company shall deliver to the Holder (without payment by
the Holder of any Warrant Price) that number of shares of stock equal to the
quotient obtained by dividing (x) the value of this Warrant at the time of the
Conversion Right is exercised (determined by subtracting the aggregate Warrant
Price immediately prior to the exercise of the Conversion Right from the
aggregate Conversion Price (as hereinafter determined)) by (y) the Conversion
Price.
7.2 Method of Exercise. The Conversion Right may be exercised at any
------------------
time by the Holder by the surrender of this Warrant at the principal office of
the Company together with a written statement specifying that the Holder thereby
intends to exercise the Conversion Right. Certificates of the shares of stock
issuable upon exercise of the Conversion Right shall be delivered to the Holder
within thirty (30) days following the Company's receipt of this Warrant together
with the aforesaid written statement.
7.3 Automatic Conversion Prior to Expiration. To the extent this
----------------------------------------
Warrant is not previously exercised, and if the fair market of one share of the
Class of Stock issuable upon exercise of this Warrant is greater than the
Warrant Price per share, this Warrant shall be deemed automatically
4
<PAGE>
exercised in accordance with Section 7.1 hereof (even if not surrendered)
immediately before its expiration. To the extent this Warrant or any portion
thereof is deemed automatically exercised pursuant to this Section 7.3, the
Company agrees to notify Holder within a reasonable period of time of the number
of shares of the Class of Stock, if any, Holder is to receive by reason of such
automatic exercise. The Company shall issue to the Holder certificates for the
Shares issued upon such automatic conversion in accordance with Section 7.2
above, although the Company may condition receipt of the certificate upon
surrender of the Warrant to the Company.
7.4 Conversion Price. The Conversion Price is determined as, for the
----------------
three months prior to any conversion of the Warrant into Common Stock, the
highest Fair Market Value for the three months prior to any conversion of the
Warrant into Common Stock. The Fair Market Value is determined as of any day to
be:
(a) if the Common Stock is publicly traded or quoted on any exchange
or over-the-counter market on which the Common Stock is listed, whichever
is applicable, as published in the Western Edition of The Wall Street
---------------
Journal, the average closing sale price during the five consecutive trading
-------
days, ending on that day, provided that if no closing sale price is
reported for one or more of those five consecutive trading days, then the
average between the ask and bid prices of the Common Stock on such a day or
days will be substituted therefor.
(b) if the Common Stock is not traded in an over-the-counter market
or on an exchange, the highest fair market value of a single share of
Common Stock shall be as determined in good faith by the Company's Board of
Directors' provided; however, that if the Holder disputes in writing the
fair market value determined by the Board of Directors within thirty (30)
days of being informed of such fair market value, the fair market value
shall be determined by an independent appraiser, appointed in good faith by
the Company's Board of Directors.
8. Transferability and Non-negotiability of Warrants and Shares. This
------------------------------------------------------------
Warrant and the Shares issued upon exercise thereof may not be transferred or
assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if reasonably requested by the Company).
Subject to the provisions of this Section 8, title to the Warrant may be
transferred in the same manner as a negotiable instrument transferable by
endorsement and delivery.
9. Notices. The Company shall mail to the registered Holder of the Warrant,
-------
at its last known post office address appearing on the books of the Company, not
less than twenty (20) days prior to the date on which (a) a record will be taken
for the purpose of determining the Holders of Common Stock entitled to dividends
or subscription rights, or (b) a record will be taken (or in lieu thereof, the
transfer books will be closed) for the purpose of determining the Holders of
Common Stock entitled to notice of and to vote at a meeting of shareholders at
which any capital reorganization, reclassification of shares of Common Stock,
consolidation, merger, dissolution, liquidation, winding up or sales of
substantially all of the Company's assets shall be considered and acted upon.
10. Miscellaneous. No fractional shares of the Shares shall be issued in
-------------
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Warrant
Price then in effect. The terms and provisions of this
5
<PAGE>
Warrant shall inure to the benefit of, and be binding upon, the Company and the
Holders hereof and their respective successors and assigns. This Warrant shall
be governed by and construed under the laws of the State of California as
applied to contracts entered into between residents of the State of California
to wholly performed in the State of California. The representations, warranties
and agreements herein contained shall survive the exercise of the Warrant.
References to the "holder of" include the immediate Holder of shares purchased
on the exercise of this Warrant, and the word "Holder" shall include the plural
thereof. The titles of the section and the subscriptions of this Warrant are for
convenience only and are not to be considered in construing this Warrant. All
pronouns used in the Warrant shall be deemed to include masculine, feminine and
neuter forms.
All shares of Common Stock or other securities issued upon the exercise
of this Warrant shall be validly issued, fully paid and nonassessable, and the
Company will pay all taxes in respect of the issuance thereof (other than any
income or capital gain taxes payable by the Holder)
IN WITNESS WHEREOF, the Warrant has been duly executed by the undersigned, as of
the 15th day of October, 1999.
By:
------------------------------
(Signature)
Name:
------------------------------
(Printed)
Title:
-----------------------------
6
<PAGE>
APPENDIX A
NOTICE OF EXERCISE
The undersigned, the Holder of the foregoing Warrant, hereby irrevocably
elects, pursuant to Section 3 of the Warrant, to exercise purchase rights
represented by such Warrant for, and to purchase thereunder, ____ shares of the
Common Stock of Sonic Solutions (the "Company") to which such Warrant relates
and herewith makes payment of $________ therefor in cash, wire transfer or by
certified check and requests to be delivered to the undersigned, the address for
which is set forth below the signature of the undersigned.
Dated:
----------------------
Name of Holder:
----------------------------------
By:
-------------------------------
(Signature of Authorized Officer)
Title:
----------------------------
7
<PAGE>
APPENDIX B
NOTICE OF EXCHANGE
The undersigned, the Holder of the foregoing Warrant, hereby elects
pursuant to Section 7 of the Warrant, to exchange the purchase rights to
purchase ________ shares of the Common Stock of Sonic Solutions covered by such
Warrant and herewith makes payment in full therefor by surrender of such Common
Stock Warrant, and requests that certificates for such shares (and any other
securities or property deliverable upon such exchange including a revised
warrant) be issued in the name of the undersigned and delivered to its address
as set forth in the Warrant.
Dated:
----------------
Name of Holder:
-------------------------------
By:
----------------------------
(Signature of Authorized Officer)
Title:
-------------------------
8
<PAGE>
EXHIBIT 5
November 22, 1998
SONIC SOLUTIONS
101 Rowland Way, Suite 110
Novato, California 94945
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Sonic Solutions, a California corporation
(the "Company"), in connection with the Registration Statement on Form S-3 to be
filed with the Securities and Exchange Commission (the "Commission") on November
24, 1999 (the "Registration Statement") for the purpose of registering under the
Securities Act of 1933, as amended, an aggregate of 539,712 shares of its Common
Stock, no par value (the "Shares") which may be issued to the holders (the
"Holders") of shares of Series C Preferred Stock of the Company (the "Preferred
Stock"), upon conversion of such Preferred Stock by the Holders and upon
exercise of warrants for the purchase of 120,000 Shares (the "Warrants"). The
Shares are to be sold by the Holders under the Registration Statement.
I.
In connection with this opinion, we have assumed the authenticity of all
records, documents and instruments submitted to us as originals, the genuineness
of all signatures, the legal capacity of natural persons and the conformity to
the originals of all records, documents and instruments submitted to us as
copies. In rendering our opinion, we have examined the following records,
documents, instruments and certificates:
(a) The Amended and Restated Articles of Incorporation of the Company
(the "Articles of Incorporation") certified by the California Secretary of State
as of October 15, 1999, and certified to us by an officer of the Company as
being complete and in full force and effect as of the date of this opinion;
(b) The Certificate of Amendment to the Certificate of Determination of
Series C Preferred Stock, as amended, of the Company, certified by the
California Secretary of State as of October 15, 1999 and certified to us by an
officer of the Company as being complete and in full force and effect as of the
date of this opinion;
(c) The Bylaws of the Company certified to us by an officer of the
Company as being complete and in full force and effect as of the date of this
opinion;
(d) Certificate of an Officer of the Company: (i) attaching records
certified to us as constituting all records of proceedings and actions of the
Board of Directors of the Company and any committees of the Board of Directors
relating to the Shares; and (ii) certifying as to certain factual matters;
(e) The Registration Statement; and
(f) A written statement from ChaseMellon Shareholder Services, the
Company's transfer agent, as to the number of shares of the Company's Common
Stock that were outstanding on November 15, 1999.
This opinion is limited to the federal laws of the United States of
America and the laws of the State of California, and we disclaim any opinion as
to the laws of any other jurisdiction. We further disclaim any opinion as to any
statute, rule, regulation, ordinance, order or other promulgation of any
<PAGE>
other jurisdiction or any regional or local governmental body or as to any
related judicial or administrative decision.
II.
Based upon the foregoing and our examination of such questions of law as
we have deemed necessary or appropriate for the purpose of this opinion, and
assuming that: (i) the Registration Statement becomes and remains effective
during the period when the Shares are offered and sold; (ii) the full
consideration stated in the Private Securities Subscription Agreement dated as
of October 15, 1999 pursuant to which the Preferred Stock is to be issued is
paid and the Preferred Stock is converted into the Shares in accordance with the
Articles of Incorporation; (iii) the full consideration stated in the Warrant
Purchase Agreement dated as of October 15, 1999 pursuant to which the Warrant
was issued is paid and the Shares are issued upon exercise of the Warrant in
accordance with the terms of the Warrant; (iv) appropriate certificates
evidencing the Shares are executed and delivered by the Company; and (v) all
applicable securities laws are complied with, it is our opinion that the Shares
covered by the Registration Statement will be legally issued, fully paid and
nonassessable.
III.
This opinion is rendered to you in connection with the Registration
Statement and is solely for your benefit. This opinion may not be relied upon by
you for any other purpose, or relied upon by any other person, firm, corporation
or other entity for any purpose, without our prior consent. We disclaim any
obligation to advise you of any change of law that occurs, or any facts of which
we may become aware, after the date of this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Heller Ehrman White & McAuliffe
2
<PAGE>
EXHIBIT 10
PROMISSORY NOTE
================================================================================
Borrower: Lender:
- --------- -------
Sonic Solutions Hambrecht & Quist Guaranty Finance, LLC
101 Rowland Way, Suite 110 One Bush Street
Novato, CA 94945 San Francisco, CA 94104
================================================================================
Principal Amount: $ 1,000,000.00 Interest Rate: 7.25%
-------------- -----
Date of Note: October 15, 1999
----------------
REPLACEMENT: This Promissory Note replaces an earlier Promissory Note dated
March 31, 1998 for the Principal Amount of $1,500,000 by Borrower for Lender
(the "Prior Note"). The Prior Note replaced an earlier Promissory Note dated
December 24, 1996 for the Principal Amount of $3,000,000 by Borrower for the
benefit of Hambrecht & Quist Transition Capital, LLC (the "Original Note"). The
Prior Note is being surrendered on the Date of this Note. All interest on the
Prior Note from its issuance through its surrender shall be due and payable as
of this Date of Note.
PROMISE TO PAY: Sonic Solutions ("Borrower") promises to pay to Hambrecht &
Quist Guaranty Finance, LLC ("Lender"), or order, in lawful money of the United
States of America, the principal amount of One Million Dollars ($1,000,000.00),
or so much as may be outstanding, together with interest on the unpaid
outstanding principal balances from the Date of Note until such balance is paid
in full.
INTEREST RATE: The interest rate on this Note is seven and one quarter percent
(7.25%) per annum, or, if lower, the maximum rate of interest allowed by
applicable law.
PAYMENT OF ACCRUED INTEREST: On or before October 31, 1999, Borrower will pay
all interest accrued on this Note, in arrears through October 31,1999. Beginning
on the Date of Note and continuing through October 31, 1999, interest will be
computed on a 365/360 day basis; that is in each month 1/360 of the Seven and
One Quarter Percent (7.25%) annual interest rate, will be multiplied by (I) the
outstanding principal and (II) the actual number of days that the principal was
outstanding in such month.
AMORTIZING PAYMENTS OF PRINCIPAL AND INTEREST: Beginning on November 30, 1999
and continuing through April 30, 2001, Borrower will pay Fifty Eight Thousand
Seven Hundred Ninety Eight Dollars and Sixty Two Cents ($58,798.62) on the last
day of each month on account of interest and principal. Beginning November 1,
1999 and continuing until the loan is paid in full, interest will be computed on
a monthly basis; that is in each month 1/12 of the Seven and One Quarter Percent
(7.25%) annual interest rate, will be multiplied by the outstanding principal as
of the beginning of the month.
APPLICATION OF PAYMENTS: Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges. Borrower agrees that all loan fees
were earned
<PAGE>
fully as of the date paid and will not be subject to refund upon early payment
(whether voluntary or as a result of default), except as otherwise required by
law.
DEFAULT. Borrower will be in default if any Event of Default occurs under the
Business Loan Agreement.
LENDER'S RIGHTS. Upon the occurrence and during the continuance of an Event of
Default, Lender may declare the entire unpaid principal balance on this Note and
all accrued unpaid interest immediately due and payable, without notice, and
then Borrower will pay that amount. Upon Borrower's failure to pay all amounts
declared due pursuant to this section, including failure to pay upon final
maturity, Lender at its option, may also, if permitted under applicable law, do
one or both of the following: (a) increase the interest rate on this Note up to
eighteen percent (18%) per annum, or, if lower, up to the maximum interest
amount allowable by applicable law, and (b) add any unpaid accrued interest to
principal and such sum will bear interest therefrom until paid at the rate
provided in this Note. Borrower agrees to pay all reasonable out of pocket
expenses of Lender in connection with the collection and enforcement of this
Note. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collections services. Borrower also will pay any court
costs, in addition to all other sums provided by law. This Note has been
delivered to Lender and accepted by Lender in the State of California. If there
is a lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of any federal or California State court located in San Francisco,
the State of California. This Note shall be governed by and construed in
accordance with the laws of the State of California.
LOAN AGREEMENT. This Note is subject to and shall be governed by all the terms
and conditions of the Business Loan Agreement, dated December 24, 1996, between
the Borrower and Lender, as amended from time to time (the "Business Loan
Agreement").
OUT-OF-POCKET EXPENSES. Borrower shall pay to Lender all of Lender's reasonable
out-of-pocket expenses according to the provisions of Section 4.3 of the
Business Loan Agreement.
SERVICE CHARGE: Since it would be impractical or extremely difficult to fix
Lender's actual damages for collecting and accounting for a late payment, if any
payment to Lender required herein is not paid on or before its due date,
Borrower shall pay to Lender an amount equal to five percent of any such late
payment, provided, however, that if any late payment is received by Lender
within ten (10) business days of its due date, the amount Borrower shall pay on
account of such late payment shall be no more than Two Hundred Fifty Dollars
($250).
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note may, to the extent allowed by law, waive
any applicable statute of limitations, presentment, demand for payment, protest
and notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew, extend (repeatedly and
for any length of time) or modify this Note, or release any party or guarantor;
or impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone.
2
<PAGE>
COLLATERAL: This Note is secured by certain personal property collateral of the
Borrower as more thoroughly described in the Security Agreement (as defined in
the Business Loan Agreement).
3
<PAGE>
PRIOR TO SIGNING THIS NOTE BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
SONIC SOLUTIONS
By:
--------------------------------------
Name:
-------------------------------
Title:
------------------------------
4
<PAGE>
Exhibit 23.2
The Board of Directors
Sonic Solutions:
We consent to incorporation by reference in the registration statement
on Form S-3 of Sonic Solutions of our report dated April 26, 1999, except as to
note 11, which is as of May 29, 1999, relating to the balance sheets of Sonic
Solutions as of March 31, 1999 and 1998, and the related statements of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended March 31, 1999 and the related financial statement
schedule, which report appears in the March 31, 1999 annual report on Form 10-K
of Sonic Solutions, and to the reference to our firm under the heading "Experts"
in the registration statement.
/s/ KPMG LLP
San Francisco, California
March 1, 2000
