-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RidDIlQMA9B57hn5BJchngicaQajr+PgeZIktACLE0HZHMcsnbTWnLLsmwn6Mmm6 vLdIr+dwv2/yvxpSQFpV7w== 0000929624-01-000375.txt : 20010315 0000929624-01-000375.hdr.sgml : 20010315 ACCESSION NUMBER: 0000929624-01-000375 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20010314 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONIC SOLUTIONS/CA/ CENTRAL INDEX KEY: 0000916235 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 930925818 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-23190 FILM NUMBER: 1567642 BUSINESS ADDRESS: STREET 1: 101 ROWLAND WAY STREET 2: STE 110 CITY: NOVATO STATE: CA ZIP: 94945 BUSINESS PHONE: 4158938000 MAIL ADDRESS: STREET 1: 101 ROWLAND WAY STREET 2: STE 110 CITY: NOVATO STATE: CA ZIP: 94945 8-K 1 0001.txt SONIC SOLUTIONS - FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 8-K CURRENT REPORT Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934 Date of Report: March 14, 2001 Date of earliest event reported: February 27, 2001 SONIC SOLUTIONS (Exact name of registrant as specified in its charter) California 72870 93-0925818 (State or other jurisdiction of (Commission File (I.R.S. Employer incorporation or organization) Number) Identification No.) 101 Rowland Way, Suite 110 Novato, CA 94945 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 893-8000 Exhibit Index on Page 4. 1 INFORMATION INCLUDED IN THIS REPORT Item 1, items 3 through 6, and items 8 through 9 Not Applicable. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On February 27, 2001, Sonic Solutions, a California corporation (the "Registrant") entered into an Asset Purchase Agreement with Daikin Industries, Ltd., a Japanese corporation (the "Seller") whereby on that date the Registrant acquired the Seller's DVD Software Development Business (the "Acquisition"). In return for the assets sold, the Seller received 395,000 shares of Common Stock and 700,000 shares of Preferred Stock of Registrant. To determine the consideration paid to the Seller for the Acquisition, the Registrant considered such factors as the value added to the Registrant's business, the potential long-term benefits to the Registrant, and the managerial and technical strengths that would ensue as a result of the Acquisition. As a consequence of the Acquisition, the Registrant acquired all the Seller's DVD related products and intellectual property rights. Additionally, the Registrant acquired tangible assets such as furniture, computers and other electronic assets, some of which will continue to be used specifically in the acquired DVD Software Development Business while others will be used in the Registrant's general DVD authoring tool business. In connection with the Asset Purchase Agreement, the Registrant and the Seller entered into a fourteen month Distribution Agreement whereby the Seller was appointed as the Registrant's exclusive distributor in Japan. During the term of the Distribution Agreement, the Seller committed to placing minimum purchase orders of 260,000,000 yen of the Registrant's DVD products. A finder was paid 100,000 shares of the Registrant's Common Stock in connection with the Acquisition. The finder and the Seller were granted registration rights covering the shares issued in connection with the Acquisition. A further description of the Acquisition is contained in the press release attached as Exhibit 99.1 to this Report. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) The financial statements will be filed within 60 days after the last date that this Report must be filed with the Securities and Exchange Commission. (b) The pro forma financial information will be filed within 60 days after the last date that this Report must be filed with the Securities and Exchange Commission. 2 (c) EXHIBITS: The following documents are filed as exhibits to this report: Exhibit Description ------- ------------------------------------------------------------- 2.1 Asset Purchase Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 3.1 Certificate of Determination of Series D Preferred Stock of Sonic Solutions 10.1 Shareholder Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 10.2 Registration Rights Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 10.3 Consulting Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 10.4 Distribution Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 99.1 Press Release dated February 28, 2001 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant, Sonic Solutions, has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Novato, State of California, on the 14th day of March, 2001. SONIC SOLUTIONS Signature Date --------- ---- /s/ Robert J. Doris March 14, 2001 - ------------------- Robert J. Doris President and Director (Principal Executive Officer) /s/ A. Clay Leighton March 14, 2001 - -------------------- A. Clay Leighton Senior Vice President of Worldwide Operations and Finance and Chief Financial Officer (Principal Financial Accounting Officer) 3 EXHIBIT INDEX Exhibit Description ------- ------------------------------------------------------------- 2.1 Asset Purchase Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 3.1 Certificate of Determination of Series D Preferred Stock of Sonic Solutions 10.1 Shareholder Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 10.2 Registration Rights Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 10.3 Consulting Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 10.4 Distribution Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 99.1 Press Release dated February 28, 2001 4 EX-2.1 2 0002.txt ASSET PURCHASE AGREEMENT EXHIBIT 2.1 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into as --------- of February 27, 2001 by and between Daikin Industries, Ltd., a corporation organized under the laws of Japan ("Seller"), and Sonic Solutions, a California corporation ("Buyer"). ----- Background A. Seller is involved in the business of developing and marketing the products related to professional DVD authoring as listed on Schedule A attached ---------- hereto (the "DVD Products"), including improvements and enhancements thereto and ------------ derivative works thereof (and such business of the Seller shall hereinafter be referred to as the "DVD Business"). ------------ B. Pursuant to the terms and conditions of this Agreement, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, certain of the assets owned or used in connection with the DVD Business. Agreement 1. DEFINITIONS. For the purposes of this Agreement, the definitions below shall be applicable. 1.1. "Act" shall be as defined in Section 3.13. --- ------------ 1.2. "Agreement" shall be as defined in the opening paragraph of this --------- Agreement. 1.3. "Assets" shall be as defined in Section 2.1(a). ------ -------------- 1.4. "Astrolavos Business Plan" shall mean the business plan attached as ------------------------ Exhibit 1.3. ----------- 1.5. "Buyer" shall be as defined in the opening paragraph of this ----- Agreement. 1.6. "Buyer Common Stock" shall be as defined in Section 2.3. ------------------ ----------- 1.7. "Buyer's Damages" shall be as defined in Section 6.1(a). --------------- -------------- 1.8. "Buyer SEC Reports" shall be as defined in Section 4.6. ----------------- ----------- 1.9. "Buyer Series D Preferred" shall be as defined in Section 2.3. ------------------------ ----------- 1.10. "Buyer Shares" shall be as defined in Section 2.3. ------------ ----------- 1.11. "Closing" shall be as defined in Section 2.8(a). ------- -------------- 1.12. "Closing Date" shall be as defined in Section 2.8(a). ------------ -------------- 1.13. "Computer Programs" shall be as defined in Section 3.15. ----------------- ------------ 1.14. "Consulting Agreement" shall be as defined in Section 2.4. -------------------- ----------- 1.15. "Contracts" shall be as defined in Section 2.1(b). --------- -------------- 1.16. "DVD Business" shall be as defined in Recital A to this Agreement. ------------ --------- 1.17. "DVD Products" shall be the products referred to in Recital A to ------------ --------- this Agreement. 1.18. "Damages" shall be as defined in Section 6.2(a). ------- -------------- 1.19. "Distribution Agreement" shall be as defined in Section 2.6. ---------------------- ----------- 1.20. "Employee Plan" shall mean all present plans, programs, agreements, ------------- arrangements and methods of contributions or compensation (including all amendments to and components of the same, such as a trust with respect to a plan) providing any remuneration or benefits, other than current cash compensation, to any current or former employee of the DVD Business or to any other person who provides services to the DVD Business, whether or not such plan or plans, programs, agreements, arrangements and methods of contribution or compensation are subject to ERISA, and whether or not such plan or plans, programs, agreements, arrangements and methods of contribution or compensation are qualified under the Internal Revenue Code. The term Employee Plan includes, but is not limited to, pension, retirement, profit sharing, percentage compensation, stock purchase, stock option, bonus and non- qualified deferred compensation plans. The term Employee Plan also includes, but is not limited to, disability, medical, dental, workers compensation, health insurance, life insurance or other death benefits, incentive, severance plans, vacation benefits and fringe benefits. The term Employee Plan also includes any employee plan that is a multi-employer plan as defined in Section 3(37) of ERISA. 1.21. "Established Damages" shall be as defined in Section 6.3. ------------------- ----------- 1.22. "Exchange Act" shall be as defined in Section 4.6. ------------ ----------- 1.23. "GAAP" shall mean U.S. Generally Accepted Accounting Principles ---- applied on a consistent basis. 1.24. "Hired Employees" shall be as defined in Section 5.1. --------------- ----------- 1.25. "Identified Employees" shall be as defined in Section 5.1. -------------------- ----------- 1.26. "Indemnitee" shall be as defined in Section 6.3. ---------- ----------- -2- 1.27. "Indemnitor" shall be as defined in Section 6.3. ---------- ----------- 1.28. "Intellectual Property Rights" shall mean all industrial and ---------------------------- intellectual property rights, both foreign and domestic, including, without limitation, software, patents, patent applications, patent rights, trademarks, trademark applications, trade names, trade dress, logos, designs, copyrights, know-how, processes, manufacturing procedures, recipes, formulae, drawings, schematics, patterns and licenses and permits susceptible of transfer under regulatory agency rules, trade secrets, and all documentation and media constituting, describing or relating to the foregoing, including without limitation the Intellectual Property Rights pertaining to the Astrolavos Business Plan. 1.29. "Key Employees" shall be as defined in Section 5.1. ------------- ----------- 1.30. "Liens" shall mean all liens, charges, easements, security ----- interests, mortgages, conditional sale contracts, equities, rights of way, covenants, restrictions, title defects, objections, claims or other encumbrances. 1.31. "Notice of Claim" shall be as defined in Section 6.3. --------------- ----------- 1.32. "Proprietary Information and Rights Agreement" shall be as defined -------------------------------------------- in Section 3.18. ------------ 1.33. "Purchase Price" shall mean collectively the Buyer Shares and the -------------- liabilities assumed under Section 2.2. ----------- 1.34. "Receivables" shall be as defined in Section 2.1(a)(iii); ----------- 1.35. "Registration Rights Agreement" shall be as defined in Section 2.5. ----------------------------- ----------- 1.36. "Resolution Period" shall be as defined in Section 6.4. ----------------- ----------- 1.37. "SEC" shall be as defined in Section 6.4. --- ----------- 1.38. "Seller" shall be as defined in the opening paragraph of this ------ Agreement. 1.39. "Seller's Damages" shall be as defined in Section 6.2. ---------------- ----------- 1.40. "Seller's Novato Office" shall be as defined in Section 8.2. ---------------------- ----------- 1.41. "Shareholder Agreement" shall be as defined in Section 2.7. --------------------- ----------- 1.42. "Technical Support Agreements" shall be as defined in Section 2.2. ---------------------------- ----------- -3- 1.43. "Third Party Claims" shall be as defined in Section 6.4. ------------------ ----------- 1.44. "Transactional Agreements" shall mean this Agreement, the Consulting ------------------------ Agreement, the Registration Rights Agreement, the Distribution Agreement and the Shareholder Agreement. 1.45. "Transfers" shall have the meaning set forth in Section 2.1(a). --------- -------------- 1.46. All references to currency herein are to lawful money of the United States of America, unless otherwise specified. 2. SALE AND PURCHASE OF ASSETS. 2.1. Sale of Assets and Assignment of Contracts. ------------------------------------------ (a) Sale of Assets. On the terms and subject to the conditions of -------------- this Agreement and for the consideration set forth herein, effective at the Closing, Seller shall sell, convey, assign, transfer and deliver all right, title and interest (collectively, "Transfers") to Buyer, and Buyer shall purchase --------- and acquire from Seller, all right, title and interest in the assets of Seller used by Seller in the conduct of the DVD Business as described below in this Section 2.1(a) (the assets to be purchased by Buyer, together with the Contracts, being referred to as the "Assets"): ------ (i) the inventory as determined and agreed to by the Buyer and Seller as of February 23, 2001, furniture, equipment and other tangible assets located in Novato, California owned or leased by Seller and used in the DVD Business as set forth on Schedule 2.1(a)(i); ------------------- (ii) the intangible assets and Intellectual Property Rights used in the DVD Business (whether owned, used, registered in the name of, or licensed by Seller or in which Seller otherwise has an interest) as set forth on Schedule -------- 2.1(a)(ii); ---------- (iii) the accounts receivable as listed on Schedule 2.1(a)(iii) -------------------- (the "Receivables") or cash in lieu of any Receivables ----------- collected by Daikin prior to the Closing; and (iv) the prepaid accounts and interests as determined and agreed to by the Buyer and Seller as of February 23, 2001 and identified on Schedule 2.1(a)(iv). ------------------- -4- (b) Contracts. Effective at the Closing, Seller shall Transfer and --------- delegate to Buyer, and Buyer shall assume, all rights to and, subject to Section 2.2, duties under those agreements of Seller ----------- relating to the DVD Business (including license agreements and agreements for the distribution of products) listed on Schedule -------- 2.1(b), including without limitation all rights to refunds, ------ deposits and all other payments thereunder (collectively, the "Contracts"). --------- 2.2. Assumption of Liabilities. In connection with the purchase and sale ------------------------- of the Assets and the grants of the other rights pursuant to this Agreement, Buyer shall assume only those obligations as arise after the Closing under the Contracts and only those other liabilities and obligations of Seller (including, without limitation, obligations to perform services after the Closing for which payment was made prior to the Closing and the obligations of the Seller under the Technical Support Agreement or Service Agreements set out in Schedule 2.2 (the ------------ "Technical Support Agreements") as are specifically set forth on ---------------------------- Schedule 2.2. Buyer also assumes those obligations specifically ------------ referred to in Section 6.2. No other liabilities or obligations of ----------- any nature, (including without limitation, and trade payables) whether known or unknown, whether fixed or contingent, accrued or unaccrued, shall be assumed by Buyer in connection with the purchase and sale of the Assets and the grant of the other rights hereunder, and such liabilities and obligations shall remain the responsibility of Seller. 2.3. Purchase Price. At the Closing and subject to the other terms and -------------- conditions of this Agreement, and in full consideration for the Assets, Buyer shall assume those liabilities of Seller pursuant to Section 2.2 and shall issue to Seller the following number and type ----------- of shares in the capital of Buyer: (a) Three Hundred Fifty Thousand (350,000) Shares of Buyer's Common Stock, no par value; plus (b) Forty-Five Thousand shares of Buyer's Common Stock; plus (c) Seven Hundred Thousand (700,000) shares of newly-created and issued Series D Preferred Stock of Buyer with the rights and restrictions as set out in Exhibit 2.8(d)(iv) ("Buyer Series D -------------- Preferred"). --------- The aggregate number of Buyer Common Stock referred to in Section 2.3(a) and 2.3(b) above shall hereinafter be referred to as the "Buyer Common Stock" and such Buyer Common Stock and the Buyer Series D Preferred issued under this Section 2.3 are hereinafter referred to ----------- as the "Buyer Shares". ------------ -5- 2.4. Consulting Agreement. As of the Closing Date, Buyer and Seller shall -------------------- enter into the Consulting Agreement substantially in the form attached as Exhibit 2.4 (the "Consulting Agreement"). ----------- -------------------- 2.5. Registration Rights Agreement. As of the Closing Date, Buyer and ----------------------------- Seller shall enter into a Registration Rights Agreement substantially in the form attached as Exhibit 2.5 (the "Registration Rights ----------- ------------------- Agreement"). --------- 2.6. Distribution Agreement. As of the Closing Date, Buyer and Seller ---------------------- shall enter into a Distribution Agreement substantially in the form attached as Exhibit 2.6 (the "Distribution Agreement"). ----------- ---------------------- 2.7. Shareholder Agreement: As of the Closing Date, Buyer and Seller shall --------------------- enter into a Shareholder Agreement substantially in the form attached as Exhibit 2.7 (the "Shareholder Agreement"). ----------- --------------------- 2.8. Closing. ------- (a) Closing Date. The closing of the transactions contemplated by ------------ this Agreement (the "Closing") shall take place at the offices ------- of Heller Ehrman, White & McAuliffe LLP, 333 Bush Street, SanFrancisco, California 94104 at 4:00 p.m. on February 27, 2001, or at such other place, date or time as Buyer and Seller may agree in writing. The date of the Closing shall constitute the "Closing Date." ------------ (b) Seller's Deliveries at Closing. At the Closing, Seller shall ------------------------------ deliver or cause to be delivered to Buyer: (i) A Bill of Sale substantially in the form of Exhibit ------- 2.8(b)(i), for the Assets. --------- (ii) An assignment of trademarks, assignment of copyrights and assignment of patents in form and substance acceptable to Buyer and Seller. (iii) All third-party consents listed on Schedule 2.8(b)(iii). -------------------- (iv) A copy of each of the Transactional Agreements duly executed by Seller. (v) Such other documents and instruments as shall be reasonably requested by the Buyer to effect the transactions contemplated hereby. -6- (c) Buyer's Deliveries at Closing. At the Closing, Buyer shall ----------------------------- deliver or cause to be delivered to Seller against delivery of the items specified in Section 2.8(b): -------------- (i) Stock certificates representing 700,000 shares of Buyer Series D Preferred and the number of Buyer Common Stock (as determined pursuant to Section 2.3) registered in the name of the Seller or in such names as directed by the Seller, provided that (A) such direction shall not require the Buyer to issue stock to (i) more than 5 persons; or (ii) any person who does not qualify as an "accredited investor" within the meaning of Regulation D of the rules and regulations promulgated under the Act; and (B) any beneficial owner to whom stock is to be issued pursuant to the Seller's direction will make investor representations similar to those set out in Section 3.9 through 3.12 hereunder. Any such direction of registration to be provided by the Seller to the Buyer shall be given at least three days before the Closing Date. (ii) A copy of each of the Transactional Agreements duly executed by Buyer. (iii) Such other documents and instruments as shall be reasonably requested by the Seller to effect the transactions contemplated hereby. (d) Conditions to Seller's Obligation to Close. Seller's obligation ------------------------------------------ to close the transactions contemplated hereunder shall be contingent upon the satisfaction or fulfillment of the following conditions which are for the sole benefit of the Seller and may be waived in whole or in part by the Seller: (i) The representations and warranties of Buyer contained in Section 4 shall be true and correct as of the Closing Date --------- and all covenants of the Buyer under this Agreement to be performed on or before the Closing Date have been duly performed by the Buyer. (ii) Buyer shall have caused to be delivered to Seller the consideration and the documents identified in Section ------- 2.8(c). ------ (iii) Buyer shall have filed with the Secretary of State of the State of California a Certificate of Determination related to the Buyer Series D Preferred in substantially the form of Exhibit 2.8(d)(iii) attached hereto. ------------------- -7- (iv) Neither the Buyer nor any of its subsidiaries shall have sustained since the date hereof any material loss or material interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or, to Buyer's knowledge, court or governmental action, order or decree or (2) since such date there has not been any material change in the capitalization or long-term debt of the Buyer or any of its subsidiaries; default under any debt obligation of the Buyer or any bankruptcy, liquidation, voluntary dissolution, filing under applicable laws relating to bankruptcy or insolvency or any similar proceeding commenced in respect of the Buyer (a "Liquidation Event"); any cease trade order or suspension ------------------ of trade in respect of the Common Stock of the Buyer. (v) Buyer shall have filed any necessary application or notice with the NASDAQ National Market to have the Buyer Common Stock and the Common Stock issuable upon conversion of the Buyer Series D Preferred approved for listing. (e) Conditions to Buyer's Obligation to Close. Buyer's obligation to ----------------------------------------- close the transactions contemplated hereunder shall be contingent upon the satisfaction or fulfillment of the following conditions which are for the sole benefit of the Buyer and may be waived in whole or in part by the Buyer: (i) The representations and warranties of Seller contained in Section 3 shall be true and correct as of the Closing --------- Date. (ii) Seller shall have caused to be delivered to Buyer the documents identified in Section 2.8(b). -------------- 2.9. Consent of Third Parties. Nothing in this Agreement shall be ------------------------ construed as an attempt or agreement to assign: (i) any Contract which is non-assignable without the consent of the party or parties thereto unless such consent shall have been obtained; or (ii) any Contract or claim as to which all of the remedies for the enforcement thereof enjoyed by Seller would not pass to Buyer as an incident of the assignments provided for by this Agreement. Buyer shall use its reasonable best efforts to assist Seller in obtaining consents required to consummate the transactions contemplated by this Agreement, including, without limitation, providing such financial statements and other financial information with respect to Buyer as may reasonably be requested. In the event that any consent required to transfer or assign any Asset is not obtained prior to the Closing and Buyer has waived the requirement that such consent be obtained as provided in Section 2.8(b)(iii), Seller will, subsequent to the ------------------- Closing, cooperate with Buyer in -8- attempting to obtain such consent. If such consent cannot be obtained, Seller will use its reasonable best efforts to provide Buyer with the rights and benefits of the affected Asset, and, if Seller provides such rights and benefits, Buyer shall assume the obligations and burdens thereunder. Notwithstanding the foregoing, nothing in this Section 2.9 or otherwise e under this Agreement shall ----------- impose or be construed to impose on the Seller any obligation to pay cash or other form of consideration in excess of $5,000 to any third party in order to obtain the consent required to Transfer any Asset to the Buyer. 3. REPRESENTATIONS AND WARRANTIES OF SELLER. Except as set forth in the disclosure schedules attached hereto as Schedule -------- 3 and incorporated herein by this reference, Seller hereby represents and - - warrants to Buyer that: 3.1. Organization and Authority. The Seller (i) is a corporation duly -------------------------- organized, validly existing under the laws of Japan; (ii) has all necessary corporate power to own and lease its properties, to carry on the DVD Business as now being conducted and to enter into and perform the Transactional Agreements to which it is a party; and (iii) is qualified to do business in all jurisdictions in which the failure to so qualify would have a material adverse effect on the DVD Business. 3.2. Authority Relating to the Transactional Agreements; No Violation of ------------------------------------------------------------------- Other Instruments. ----------------- (a) The execution and delivery of the Transactional Agreements and the performance of the Transactional Agreements by Seller have been duly authorized by all necessary corporate action on the part of Seller and, assuming execution of the Transactional Agreements by Buyer, the Transactional Agreements will constitute legal, valid and binding obligation of Seller, enforceable against Seller in accordance with their terms, subject as to enforcement: (i) to bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws of general applicability relating to or affecting creditors' rights; and (ii) to general principles of equity, whether such enforcement is considered in a proceeding in equity or at law. (b) Neither the execution of the Transactional Agreements nor the performance of the transactions contemplated thereby by Seller will: (i) conflict with or result in any breach or violation of the terms of any decree, judgment, order, law or regulation of any court or other governmental body now in effect applicable to Seller or any federal, state or local law, rule or regulation now in effect applicable to Seller (including without limitation any law for the protection of employees; (ii) conflict -9- with, or result in, with or without the passage of time or the giving of notice, any breach of any of the terms, conditions and provisions of, or constitute a default under, or result in the creation of any lien, charge, or encumbrance upon any of the Assets pursuant to, any indenture, mortgage, lease, agreement or other instrument to which Seller is a party or by which it or any of the Assets are bound; (iii) permit the acceleration of the maturity of any material indebtedness of Seller or of any other person secured by the Assets; or (iv) violate or conflict with any provision of Seller's Articles of Incorporation or Bylaws or constituent documents. (c) Except for those consents as set out in Schedule 2.8(b)(iii) and -------------------- except those consents to which Buyer has agreed it will waive, as set out in Schedule 3.2(c), no consent from any third party --------------- and no consent, approval or authorization of, or declaration, filing or registration with, any government or regulatory authority is required to be made or obtained by Seller in order to permit the execution, delivery or performance of the Transactional Agreements by Seller, or the consummation of the transactions contemplated by the Transactional Agreements. 3.3. Ownership and Delivery of Assets. Apart from the assets and rights of -------------------------------- the Seller used by the Seller primarily in business other than the DVD Business and the assets and rights used in connection with the activities and business of the Seller as contemplated under the Distribution Agreement and the Consulting Agreement, the Assets comprise all of the assets, rights, business and property necessary to conduct the DVD Business. Seller owns, leases or has the legal right to use all Assets and, with respect to contract rights under the Contract, the Seller is a party to and enjoys the rights to the benefits of all Contracts in the conduct of the DVD Business. Seller has good and marketable title to, or has valid and subsisting lease or license interests in, the Assets free and clear of all Liens. The furniture, equipment and other tangible Assets are in good working condition, normal wear and tear excepted. Seller has the right to Transfer the Assets to Buyer as contemplated by this Agreement. Upon delivery to Buyer of the Bill of Sale and other instruments of conveyance with respect to the Assets on the Closing Date and subject to any third party consent identified on Schedule 3.2(c) as --------------- applicable, Buyer will acquire good and marketable title to the Assets free and clear of all Liens. Except for Ace Daikin, Seller does not conduct any part of the DVD Business through any subsidiaries or through any other entity controlled by the Seller. This Section 3.3 does not relate to Intellectual Property Rights. ----------- 3.4. Compliance with Law. Seller is not in violation of any decree, ------------------- judgment, order, law or regulation of any court or other governmental body (including without limitation, applicable environmental protection legislation and regulations, equal -10- employment and civil rights regulations, legislation related to wages, hours and the payment of social security taxes and occupational health and safety legislation), which violation could reasonably be expected to have a material adverse effect on the Assets or DVD Business. 3.5. Contracts; Agreements, Etc. Seller is not in default in performance -------------------------- of, and is in compliance with, all material provisions of the Contracts. To the knowledge of Seller, other parties to the Contracts are not in default in performance of, and are in compliance with, all material provisions of the Contracts. Seller has no knowledge of any intent by any other party not to perform its obligations under any Contract. Except as referred to in Schedule 3.2(c), Seller has the --------------- right to assign all Contracts to Buyer pursuant to this Agreement and neither the assignment of such Contracts nor the consummation of the transactions contemplated by the Transactional Agreements permits, or to the best knowledge of Seller, would lead any party to such Contract, to terminate or alter such Contract. Apart from: (i) contracts or agreements which pertain primarily to the business of the Seller other than the DVD Business; and (ii) contracts or agreements in connection with the activities and business of the Seller as contemplated under the Distribution Agreement and the Consulting Agreement; (iii) real property leases and (iv) distribution agreements relating to the distribution of the DVD Products which cannot be assigned, Schedule 2.1(b) includes a true --------------- and complete list of all written contracts and agreements primarily related to the DVD Business. 3.6. Litigation. Except for any actions, suits, or proceedings initiated ---------- by the Seller in the ordinary course of business (of which the ones initiated by the Seller within the last twelve months from the date hereof are listed on Schedule 3.6), neither Seller nor, to Seller's ------------- knowledge, any officer, director, shareholder, employee or agent of Seller is a party to any pending or, to Seller's knowledge, threatened, action, suit, proceeding or investigation, at law or in equity or otherwise in, for or by any court or other governmental body related to the Assets, the DVD Business or the transactions contemplated by the Transactional Agreements which will have a material adverse effect on the Assets or the consummation of the transactions contemplated by the Transactional Agreements, nor, to the best of Seller's knowledge, does any basis exist for any such action, suit, proceeding or investigation. Seller is not subject to any decree, judgment or order of any court or other governmental body related to the DVD Business or Assets or transactions contemplated by the Transactional Agreements. 3.7. DVD Employees. Seller has provided Buyer with access to: (i) all ------------- Employee Plans and all contracts or agreements with the Identified Employees, and (ii) the names, current salary rates and bonuses paid during the last fiscal year for all the -11- Identified Employees. Seller has delivered to Buyer complete and correct copies of all such Employee Plans and contracts or agreements with Identified Employees. Seller has no union contracts or collective bargaining agreements with, or any other obligations to, employee organizations or groups relating to the DVD Business, nor is Seller currently engaged in any labor negotiations related to the DVD Business except in minor grievances not involving any employee organization or group, nor, to the knowledge of Seller, is Seller the subject of any union organization affecting the DVD Business. There is no pending or, to Seller's knowledge, threatened, labor dispute, strike or work stoppage affecting the DVD Business. 3.8. Brokers and Finders. The Seller shall pay or satisfy any commission, ------------------- fee or payment required to be made to any broker or finder retained by Seller in connection with the transactions contemplated by the Transactional Agreements. Seller will indemnify and hold Buyer harmless against all claims for brokers' or finders' fees made or asserted by any party claiming to have been employed by Seller or any shareholder, director, officer, employee or agent of Seller and all costs and expenses (including the reasonable fees of counsel) of investigating and defending such claims. 3.9. Investment. This Agreement is made with Seller in reliance upon its ---------- representation to Buyer, hereby confirmed by the execution of this Agreement by Seller, that the Buyer Shares to be received by Seller will be acquired for investment for Seller's own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that Seller has no present intention of selling, granting any participation in, or otherwise distributing any of the Buyer Shares. By executing this Agreement, Seller further represents that it has no contract, undertaking, agreement, or arrangement with any person to sell, transfer, or grant participation to such person or to any third person, with respect to any of the Buyer Shares. 3.10. Unregistered Securities. The Seller must bear the economic risk of ----------------------- investment for an indefinite period of time because the Buyer Shares have not been registered under the Securities Act of 1933, as amended (the "Act") and therefore cannot and will not be sold unless they are --- subsequently registered under the Act or an exemption from such registration is available, if applicable. Seller will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the securities purchased hereunder except in compliance with the Act, applicable blue sky laws, and the rules and regulations promulgated thereunder. -12- 3.11. Experience. Seller represents that: (i) it has such knowledge and ---------- experience in financial and business matters as to be capable of evaluating the merits and risks of its prospective investment in the Buyer Shares; (ii) it believes it has received all the information it has requested from Buyer and considers necessary or appropriate for deciding whether to obtain the Buyer Shares; (iii) it has had the opportunity to discuss Buyer's business, management, and financial affairs with Buyer's management, (iv) it has the ability to bear the economic risks of its prospective investment; and (v) it is able, without materially impairing its financial condition, to hold the Buyer Shares for an indefinite period of time and to suffer a complete loss on its investment. 3.12. Accredited Investor. Seller presently qualifies, and will as of the ------------------- Closing Date qualify, as an "accredited investor" within the meaning of Regulation D of the rules and regulations promulgated under the Act. 3.13. Legend. Seller acknowledges that the Buyer Shares shall bear the ------ following legend and any other legend deemed reasonably necessary by the Buyer: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY NOT BE TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR, IN THE OPINION OF COUNSEL FOR THE COMPANY, REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT OR UNLESS SOLD PURSUANT TO RULE 144 OF THE ACT. THESE SECURITIES AND THE RIGHTS OF THE HOLDER OF THESE SECURITIES ARE SUBJECT TO A SHAREHOLDER AGREEMENT BETWEEN THE COMPANY AND THE HOLDER DATED FEBRUARY 27, 2001." 3.14. Accuracy of Documents and Information. The copies of instruments, ------------------------------------- agreements and other documents set forth or referenced in Schedules or Exhibits to the Transactional Agreements furnished by the Seller to the Buyer and the copies of instruments, agreements and other documentation specifically required to be furnished by the Seller to the Buyer pursuant to the Transactional Agreements are and will conform to the original of such instruments, agreements and documents in all material respects. No representations or warranties made by Seller in the Transactional Agreements, nor any Schedule or Exhibit attached thereto nor any document or certificate required to be provided by the Seller directly to Buyer pursuant to Section 2.8(b) hereunder but specifically excluding the Astrolavos Business Plan, contains any untrue statement of a material fact, or omits to state a -13- material fact necessary to make the statements or facts contained herein not misleading. 3.15. Intellectual Property Rights. All software, patents, patent ---------------------------- applications, patent rights, trademarks, trademark applications, trade names, logos, licenses and permits in respect of the DVD Products, other than any of the Seller's used primarily in businesses other than the DVD Business and those used in connection with activities and businesses of the Seller as contemplated under the Distribution Agreement and the Consulting Agreement, are listed in Schedule 2.1(a)(ii). Schedule 3.15 sets forth a current customer list ------------------ ------------- (except for Japanese customers) of the Seller in relation to the DVD Business. All patents, trademarks, trade names, copyrights or other registered or registrable proprietary rights listed in Schedule -------- 2.1(a)(ii) are owned by Seller as sole and beneficial owner without --------- restriction (including but not limited to charges, mortgages or licenses) or are licensed to Seller under Contracts listed in Schedule 2.1(b); all such Contracts are valid and enforceable as of -------------- the date of this Agreement and as of the Closing Date. to the knowledge of the Seller, neither the computer programs used by the Seller in respect of the DVD Products ("Computer Programs") nor the ----------------- conduct of the DVD Business infringes any Intellectual Property Rights of any other person. Except as set forth in Schedule 3.15, No ------------- litigation is pending or, to the best of Seller's knowledge, has been threatened against Seller or any employee or agent of Seller relating to the Computer Programs or the DVD Business, for the infringement of any patents, trademarks, trade names or copyrights of any other party or for the misuse or misappropriation of any trade secret, know-how or other proprietary right owned by any other party; nor, to the best of Seller's knowledge, does any basis exist for any such litigation. To the knowledge of the Seller, there has been no infringement or unauthorized use by any other person of any Intellectual Property Rights relating to the Computer Programs or the DVD Business. 3.16. Internal Development of Computer Programs. Except as set forth in ----------------------------------------- Schedule 3.16, all Computer Programs were developed by Seller without ------------- the assistance of consultants, academic institutions or any other third parties not employed by Seller. 3.17. Licenses of Software/Source Code. Schedule 2.1(b) includes a list -------------------------------- -------------- of: (i) all Contracts (whether current or not) with third parties relating to the Computer Programs; (ii) all Contracts under which the Seller has obtained any rights to any Computer Program; (iii) all Contracts under which the Seller has granted any rights to any third party in respect to any Computer Program, other than standard customer sales and use Contracts; (iv) all Contracts relating to the licensing to the -14- Seller of third-party databases or similar rights; (v) all distribution, agency, or similar Contracts relating to sales of Computer Programs by third parties; and (vi) all current maintenance Contracts for Computer Programs, other than standard maintenance Contracts. Seller has delivered to Buyer complete and correct copies of all such written Contracts, including all amendments and supplements thereto. Seller has disclosed to Buyer all royalties payable in respect to the Computer Programs (including details of any amounts outstanding or accrued) as set out in Schedule 3.17(a). --------------- Seller has completed all its material obligations under Contracts relating to the Computer Programs to the extent that such obligations to perform have accrued; except as set forth in Schedule 3.17(b), no --------------- Contract under which the Seller has obtained any rights to the Computer Programs has been terminated, purported to be terminated, is the subject of dispute or, to the best of Seller's knowledge, is subject to termination due to the Seller's breach thereof. Seller has delivered to Buyer copies of each of Seller's standard form agreements relating to the licensing of the Computer Programs to end- users; except as set forth in Schedule 3.17(c), there have been no --------------- material variations of the provisions of such standard form agreements. 3.18. Protection of Intellectual Property. Each employee of Seller who has ----------------------------------- worked on the Computer Programs other than those residing in Japan has executed a proprietary information and inventions agreement in the form of Seller's Standard Proprietary Information Agreement attached hereto as Schedule 3.18 (the "Proprietary Information and ------------- --------------------------- Rights Agreement"). No individual employee of Seller who has worked ---------------- on any Computer Program has any individual rights to such Computer Programs. Schedule 2.1(b) sets forth all written Contracts under -------------- which Seller has disclosed any confidential proprietary rights relating to the DVD Business, including without limitation source codes. 3.19. Product Warranties and Returns. Seller has delivered to Buyer ------------------------------ copies of each of the standard form warranties or guarantees used in the DVD Business relating to the Computer Programs; except as set forth in Schedule 3.19, there have been no material variations of the ------------- material provisions of such product warranties. Except as otherwise noted in Schedule 3.19, neither Seller nor the DVD Business is ------------- subject to any pending or, to the knowledge of Seller, threatened product liability claim or action relating to the Computer Programs, and there is no basis for any claim or action in the future. -15- 4. REPRESENTATIONS AND WARRANTIES OF BUYER. Except as set forth in the disclosure schedules attached hereto as Schedule -------- 4 and incorporated herein by this reference, Buyer hereby represents and - - warrants to Seller that: 4.1. Organization and Authority. Buyer: (i) is a corporation duly -------------------------- organized, validly existing and in good standing under the laws of the State of California; (ii) has all necessary corporate power to own and lease its properties, to carry on its business as described in the Buyer SEC Report (the "Buyer's Business") and to enter into and perform the Transactional Agreements; and (iii) is qualified to do business in all jurisdictions in which the failure to so qualify would have a material adverse effect on the Buyer's Business. 4.2. Authority Relating to the Transactional Agreements; No Violation of ------------------------------------------------------------------- Other Instruments. ----------------- (a) The execution and delivery of the Transactional Agreements and the performance of the Transactional Agreements by Buyer has been duly authorized by all necessary corporate action on the part of Buyer and, assuming execution of the Transactional Agreements by Seller, the Transactional Agreements will constitute the legal, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their terms, subject as to enforcement: (i) to bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws of general applicability relating to or affecting creditors' rights; and (ii) to general principles of equity, whether such enforcement is considered in a proceeding in equity or at law. (b) Neither the execution of the Transactional Agreements nor the performance of the transactions contemplated thereby by Buyer will: (i) conflict with or result in any breach or violation of the terms of any decree, judgment, order, law or regulation now in effect applicable to Buyer or any federal, state or local law, rule or regulation now in effect applicable to Buyer, (ii) materially conflict with, or result in, with or without the passage of time or the giving of notice, any material breach of any of the terms, conditions and provisions of, or constitute a material default under, or result in the creation of any material lien, charge, or encumbrance upon any of its assets pursuant to, any indenture, mortgage, lease, agreement or other instrument to which Buyer is a party or by which it or any of the assets are bound; (iii) permit the acceleration of the maturity of any material indebtedness of Buyer or of any other person -16- secured by its assets or other property; or (iv) violate or conflict with any provision of the Articles of Incorporation or Bylaws of Buyer. (c) No consent from any third party and no consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority is required to be made or obtained by Buyer in order to permit the execution, delivery or performance of the Transactional Agreements by Buyer, or the consummation of the transactions contemplated by the Transactional Agreements, except such consents, approvals, authorizations, declarations, filings or registrations the failure of which to obtain or make could not reasonably be expected to have a material adverse effect on the transactions contemplated by this Agreement. 4.3. Validity of Buyer Shares. The Buyer Shares, when issued, sold and ------------------------ delivered in accordance with the terms and for the consideration expressed in this Agreement, will be duly and validly authorized and issued (including, without limitation, issued in compliance with applicable federal and state securities laws) and fully paid and non- assessable, provided, however, that such shares shall be subject to restrictions on transfer under state and/or federal securities laws. The Buyer Shares are not subject to any preemptive rights or rights of first refusal, except as otherwise specifically agreed to by the holders thereof. 4.4. Authorized and Issued Capital of Buyer. Schedule 4.4 sets forth all -------------------------------------- ------------ outstanding agreements of Buyer to allot or issue securities entered into by Buyer on or after December 31, 2000 and all allotments and issuances of securities of Buyer which have occurred since December 31, 2000. 4.5. Other Registration Rights. Except as described in Schedule 4.5, ------------------------- ------------ there are no contracts, agreements or understandings between Buyer and any person granting such person the right (other than rights which have been waived or satisfied) to require Buyer to file a registration statement under the Securities Act with respect to any securities of Buyer owned or to be owned by such person or to require Buyer to simultaneously register such securities or include such securities in the securities to be registered pursuant to the Registration Rights Agreement or with or in any securities being registered pursuant to any other registration statement filed by Buyer under the Act. 4.6. Buyer SEC Reports. Buyer has filed with the Securities and Exchange ----------------- Commission (the "SEC") all required forms, reports, registration --- statements and documents required to be filed by it with the SEC (collectively, all such forms, reports, registration statements and documents filed since January 1, 1999 are referred to herein as the "Buyer SEC Reports"). All of the Buyer SEC Reports ----------------- -17- complied as to form, when filed (or, if amended or superseded by filing prior to the date hereof, then on the date of such filing), in all material respects with the applicable provisions of the Act and the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Buyer SEC Reports (including all exhibits and ------------ schedules thereto and documents incorporated by reference therein) did not, at the time they were filed (or, if amended or superseded by filing prior to the date hereof, then on the date of such filing), contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 4.7. No Material Adverse Change. (i) Neither Buyer nor any of its -------------------------- subsidiaries has sustained, since December 31, 2000, any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree and (ii) since December 31, 2000, except as disclosed in the SEC Reports, there has not been any material change in the share capital or long-term debt of the Buyer or any of its subsidiaries or any material adverse change, or any development which is not public knowledge that in Buyer's reasonable judgment as of this date is reasonably likely to give rise to a material adverse change in or affecting the general affairs, management, financial position, shareholders' equity or results of operations of Buyer and its subsidiaries and (iii) there is not Liquidation Event in respect of the Buyer pending or threatened and to the knowledge of the Buyer, no basis for such Liquidation Event exists. 4.8. Compliance with Law. Buyer is not in violation of any decree, ------------------- judgment, order, law or regulation of any court or other governmental body (including without limitation, applicable environmental protection legislation and regulations, equal employment and civil rights regulations, legislation related to wages, hours and the payment of social security taxes and occupational health and safety legislation), which violation could reasonably be expected to have a material adverse effect on its assets or business. 4.9. Litigation. None of the Buyer, its subsidiaries or, to Buyer's ---------- knowledge, any officer, director, shareholder, employee or agent of Buyer and its subsidiaries are a party to any pending or, to Buyer's knowledge, threatened, action, suit, proceeding or investigation, at law or in equity or otherwise in, for or by any court or other governmental body which could reasonably be expected to have a material adverse impact on Buyer's or its subsidiaries assets or business or the transactions contemplated by the Transactional Agreements nor, to Buyer's knowledge, does any basis exist for any such action, suit, proceeding or investigation. Buyer is not subject to any decree, judgment or, order of any court or other governmental body -18- which could reasonably be expected to have a material adverse impact on Buyer's assets or business. 4.10. Brokers and Finders. Neither Buyer nor any shareholder, director, ------------------- officer, employee or agent of Buyer has retained any broker or finder in connection with the transactions contemplated by the Transactional Agreements. Buyer will indemnify and hold Seller harmless against all claims for brokers' or finders' fees made or asserted by any party claiming to have been employed by Buyer or any shareholder, director, officer, employee or agent of Buyer and all costs and expenses (including the reasonable fees of counsel) of investigating and defending such claims. 5. EMPLOYMENT. 5.1. Employees. Buyer shall have the right, but not the obligation, to --------- offer employment to any employee utilized in the operations of the DVD Business other than the employees of Seller identified in the Consulting Agreement at the salary levels and on other terms, conditions and contingencies to be determined in Buyer's sole discretion. Buyer agrees to offer employment to the employees identified on Schedule 5.1 (the "Key Employees") on the terms ------------ ------------- identified therein and such other terms, conditions and contingencies comparable to Buyer's other executives. Prior to the execution of this Agreement, Buyer shall notify Seller in writing of the names of all employees of Seller that Buyer will make a formal written offer to employ after the Closing and the terms of such offer (together with the Key Employees, the "Identified Employees"). Buyer agrees to -------------------- make such offer of employment to such persons prior to the Closing. Seller shall use its reasonable best efforts to encourage such Identified Employees to accept without delay employment offered by the Buyer. Effective on the Closing Date, Seller shall terminate the employment of all Identified Employees that accept employment with Buyer (the "Hired Employees"). --------------- 5.2. Non Solicitation. Seller shall not for a period of one year from the ---------------- Closing Date, directly or indirectly solicit the employment or consultancy of any Hired Employees or seek to enter into any other employment, consultancy or similar relationship with any Hired Employee. 5.3. Employee Plans. Buyer shall have no liability for Employee Plans, -------------- accrued wages of any kind or description whatsoever (including salaries and commissions), severance pay, vacation pay, sabbatical pay, sick leave or other benefits, of any type or nature on account of Seller's employment of or termination of any person employed by Seller in relation to the DVD Business (the "DVD Employees") or any ------------- other business of Seller which accrued on or before the Closing Date, -19- including without limitation the Hired Employees, all of which shall be the responsibility of Seller. 5.4. Indemnification. Seller shall indemnify Buyer and hold Buyer --------------- harmless against liability arising out of any claims for such pay or benefits or any other claims arising from Seller's employment of or termination of employment of such employees, including without limitation, claims alleging violation of state or federal laws, rules, regulation or orders protecting employees such as the WARN Act, Workers' Compensation laws and Title VII, as more fully set forth in the indemnification provisions in Section 6. --------- 6. INDEMNITY. 6.1. Indemnity of Buyer. Seller shall hold harmless Buyer from and ------------------ against any and all losses, costs, expenses, liabilities, obligations, claims, demands, causes of action, suits, settlements and judgments of every nature, suffered and incurred by the Buyer, including the costs and expenses associated therewith and reasonable attorneys' and witness fees incurred ("Buyer's Damages") which arise --------------- out of or are related to: (i) the breach by Seller of this Agreement, or any third-party allegation thereof; (ii) the non-performance, partial or total, of any covenant in this Agreement; (iii) products manufactured, serviced and/or sold by Seller prior to the Closing Date, except for any liability arising under the Technical Support Agreements; (iv) claims of any type or nature relating to the employment of employees of Seller by Seller, any termination of such employment, including without limitation any claim for payment under any Employee Plan, accrued wages of any kind or description whatsoever (including salaries and commissions), severance pay, vacation pay, sabbatical pay, sick leave or other benefits, and any other claim based upon a violation of state or federal laws protecting employees which accrued on or before the Closing Date; (v) the operations of the DVD Business by the Seller prior to the Closing Date; (vi) or any other liability or obligation of Seller pertaining or related to the Assets or the DVD Business. The indemnity provided by the Seller to the Buyer under this Section 6.1 shall not apply to any liabilities being assumed by the Buyer pursuant to Section 2.2. ----------- 6.2. Indemnity of Seller. Buyer shall indemnify and hold harmless Seller ------------------- from and against any and all losses, costs, expenses, liabilities, obligations, claims, demands, causes of action, suits, settlements and judgments of every nature, suffered and incurred by the Seller, including the costs and expenses associated therewith and reasonable attorneys' and witness fees incurred ("Seller's Damages" and when ---------------- used together with or in the alternative to Buyer's Damages, "Damages"), which arise out of or are related to: (i) the breach by ------- Buyer of any of -20- this Agreement; (ii) the non-performance, partial or total, of any covenant made by Buyer pursuant to this Agreement; (iii) products manufactured, serviced and/or sold by Buyer after the Closing Date; (iv) the operations of the DVD Business after the Closing Date; (vi) any Buyer's decisions or actions with respect to Hired Employees; or (vii) any other liability or obligation of Buyer that is specifically included in the liabilities being assumed by the Buyer pursuant to Section 2.2. ----------- 6.3. Notice. In the event that any party suffers Damages, the party ------ making a claim for indemnification ("Indemnitee") shall within sixty ---------- (60) days of discovering or incurring such Damage give the indemnifying party ("Indemnitor") written notice thereof ("Notice of ---------- --------- Claim"). The Notice of Claim shall state in reasonable detail the ----- nature of the claim, the specific provisions in this Agreement alleged to have been breached (if applicable), and the amount of the claim for indemnification. Such amount shall represent the Indemnitee's good faith estimate of the Damages. The Indemnitor shall have thirty (30) days from receipt of the Notice of Claim to accept or reject the claim for indemnification. The Indemnitee shall be deemed to have waived its right to indemnification for any Damages for which notice is not given in a timely manner as set forth herein if and to the extent that the Indemnitor can show that such failure to give timely notice has materially prejudiced the Indemnitor's ability to defend or otherwise respond to such claim. Any claim for Damages accepted by the Indemnitor or any claim determined as valid under the claim procedure set forth below, shall be deemed "Established Damages" for the ------------------- purposes of this Agreement. 6.4. Claims. If a Notice of Claim is given pursuant to Section 6.3 above, ------ ----------- and no rejection is received within the thirty (30) day period specified above, then the Indemnitor shall be deemed to have accepted such claim. If the Indemnitor rejects a claim within such thirty (30) day period, the parties shall, in good faith, attempt to negotiate a resolution of such claim within sixty (60) days thereafter (the "Resolution Period"). If the parties do not reach resolution during ----------------- the Resolution Period, then the Indemnitee may, within thirty (30) days after the end of the Resolution Period proceed to submit the controversy to mediation by providing notice to the Indemnitor. Such mediation shall be governed by the rules of the Center for Public Resources. Promptly thereafter, a mutually acceptable mediator shall be chosen by the parties, who shall share the cost of mediation services equally. If the dispute has not been resolved by mediation within 60 days after the date of written notice requesting mediation, then either party may initiate litigation and pursue all and any remedies at law or at equity that such party is entitled to. If the Indemnitor acknowledges in writing its obligation to indemnify the Indemnitee against any Damages that may result from claims of third parties ("Third Party Claims"), then the Indemnitor shall be entitled ------------------ to assume and control the defense of such Third Party Claim at its expense and through counsel of its choice if it -21- gives notice of its intention to do so to the Indemnitee within five days of the receipt of such notice from the Indemnitee; provided, however, that if there exists or is reasonably likely to exist a conflict of interest that would make it inappropriate in the judgment of the Indemnitee for the same counsel to represent both the Indemnitee and the Indemnitor, then the Indemnitee shall be entitled to retain its own counsel. In the event the Indemnitor exercises the right to undertake any such defense against any such Third Party Claim as provided above, the Indemnitee shall cooperate with the Indemnitor in such defense and make available to the Indemnitor, at the Indemnitor's expense, all witnesses, pertinent records, materials and information in the Indemnitee's possession or under the Indemnitee's control relating thereto as is reasonably required by the Indemnitor. Similarly, in the event the Indemnitee is, directly or indirectly, conducting the defense against any such Third Party Claim, the Indemnitor shall cooperate with the Indemnitee in such defense and make available to the Indemnitee, at the Indemnitee's expense, all such witnesses, records, materials and information in the Indemnitor's possession or under the Indemnitor's control relating thereto as is reasonably required by the Indemnitee. No such Third Party Claim may be settled by the Indemnitee without the written consent of the Indemnitor. 6.5. Exclusivity of Indemnification Remedy. From and after the Closing, the ------------------------------------- exclusive remedy of (i) Buyer for breaches by Seller and (ii) Seller for breaches by Buyer, of this Agreement, shall be pursuant to the indemnification provisions set forth in this Section 6. ---------- 6.6. Survival of Representations and Warranties. The representations and ------------------------------------------ warranties of the parties contained in this Agreement shall survive the Closing solely for purposes of this Section 6 until the second --------- anniversary of the Closing Date. If written notice of a claim has been given prior to the expiration of the applicable representations and warranties by a party to the other parties, then the relevant representations and warranties shall survive as to such claim, until such claim has been finally resolved. -22- 6.7. Limit on Indemnities. -------------------- (a) Notwithstanding anything to the contrary contained in this Section 6, --------- the liability of the Seller and Buyer pursuant to this Section 6 will --------- terminate two years after the Closing Date except in respect of any claim made by any indemnified Party pursuant to this Section 6 in --------- respect of which notice is given by the Buyer and Seller prior to such date. (b) No indemnifying party shall be required to make any indemnification payment pursuant to this Section 6 until such time as the total amount --------- of all Damages suffered or incurred by the indemnified party, or to the indemnified party shall have otherwise become subject, exceeds $50,000 in the aggregate. If the total amount of such Damages exceeds $50,000 in the aggregate, the indemnified party shall be entitled to be indemnified against and compensated and reimbursed for the entire amount of such Damages, and not merely the portion of such Damages exceeding $50,000. (c) The aggregate liability of the Seller to the Buyer, and the aggregate liability of the Buyer to the Seller, arising under this Section 6 --------- shall not in any event exceed $3,000,000. 7. NONCOMPETITION. Seller will not, for a period of two years following the Closing Date, develop or have developed, sell or have sold, or distribute or have distributed products which compete directly or indirectly with the DVD Products. Notwithstanding anything to the contrary contained in this Section 7, Buyer --------- hereby agrees that the foregoing covenant shall not be construed to have been breached or deemed breached as a result of or due to (i) the ownership by Seller of less than an aggregate of 5% of any class of capital stock of a person engaged, directly or indirectly, in a business that develops or sells products whose functionality is substantially directed to the functions of the DVD Products or less than 10% in value of any instrument of indebtedness of a person that develops or sells products whose functionality is substantially directed to the functions of the DVD Products, (ii) the retention and conduct by Seller of the businesses in which it is currently engaged other than the DVD Business, (iii) any action taken by Seller pursuant to the Transactional Agreement, or (iv) the interests of the Seller in the Ace Daikin. 8. MISCELLANEOUS. 8.1. Guarantee of Receivables. Buyer agrees to use reasonable efforts to ------------------------ collect the receivables listed on Schedule 2.1(a)(iii). If at any time ------------------- and from time to time after 30 days after the Closing Date and prior to 90 days after the Closing Date, Buyer in good faith determines that any of such receivables are not likely to be collected through reasonable collection efforts, then Buyer may provide written -23- notice of such uncollectibility to Seller. Such notice shall include an assignment of such receivables to Seller (in a form satisfactory to Seller) and Seller shall, within 30 days of such assignment, pay Buyer in immediately available U.S. funds, without set-off or counterclaim, an amount equal to the face value of such receivables as set out in Schedule -------- 2.1(a)(iii). ---------- 8.2. Covenant to remove Assets. Buyer covenants with Seller to use its best ------------------------- commercially reasonable efforts to remove all Assets currently located at Seller's office at 999 Grant Avenue, Novato, California, USA ("Seller's Novato Office") from the Seller's Novato Office on or before March 15, 2001 and Buyer agrees that after such date, Seller shall have the right to dispose of or in any other way deal with any Assets that may still be left in the Seller's Novato Office without any liability to Buyer and Buyer shall, forthwith upon request by Seller, reimburse Seller for its reasonable costs in disposing of or dealing with such remaining Assets. 8.3. Confidentiality; Press Releases. Neither party shall issue a press ------------------------------- release or otherwise publicize the transactions contemplated by this Agreement or otherwise disclose the nature or contents of this Agreement on or prior to the Closing Date except as otherwise required by applicable law, regulation, or stock exchange requirement. As soon as practical after the Closing, the parties shall mutually agree upon on appropriate press release announcing the transactions contemplated hereby. No information, documents or reports provided to or obtained by either party, either orally or in writing, in connection with the transactions contemplated by the Transactional Agreements shall be disclosed to any non-party except as required in carrying out the transactions contemplated hereby or as required by applicable law, regulation or stock exchange requirement. The parties shall be bound by the terms of the Confidentiality Agreement between Seller and Buyer dated November 30, 2000. 8.4. Assignment. This Agreement shall be binding upon and inure to the benefit ---------- of the successors and assigns of the parties. Buyer may assign, in whole or in part and to one or more third parties, any of its benefits or rights but the obligations of the Buyer under this Agreement shall not be assigned or assumed without the consent of the Seller. 8.5. Allocation of Purchase Price. Seller and Buyer shall on or before the ---------------------------- Closing Date mutually agree upon the allocation of the Purchase Price among the various items included in the Assets being transferred by Seller to Buyer. Buyer and Seller shall file all tax returns and reports in a manner consistent with such allocation. -24- 8.6. Expenses. Except as otherwise expressly provided herein, each party will -------- pay its own costs and expenses, including legal and accounting expenses, related to the transactions provided for herein, irrespective of when incurred. 8.7. Further Assurances. Seller will from time to time, at Buyer's request, ------------------ execute and deliver or cause to be executed and delivered such other instruments of conveyance, assignment and transfer and take such other actions as Buyer may reasonably request in order more effectively to convey, assign, Transfer to and vest in Buyer, the Assets and the rights to operate the DVD Business, including but not limited to such documents and actions reasonably necessary to effectuate the Transfer of the Intellectual Property Rights to Buyer as provided in the Transactional Agreements and such actions reasonably necessary to obtain any consents of third parties in accordance with Section 2.7, provided that the Buyer ----------- shall pay to the Seller all reasonable costs and expenses incurred by the Seller in complying with this provision. 8.8. Notices. Any notice or other communication required or permitted ------- hereunder shall be in writing and shall be deemed to have been duly given on the date of service if served personally, by recognized expedited delivery service, or by facsimile (with confirmation copies of any facsimile notice to be provided by at least one other method of delivery permitted hereunder), or five (5) days after the date of mailing if mailed, by first class mail, registered or certified, postage prepaid. Notices shall be addressed as follows: To Seller at: Daikin Industries, Ltd. Electronics Division Tokyo Opera City Building 20-2, 3-chome, Nishi-Shinjuku Shinjuku-ku, Tokyo 163-14 Japan Attn: General Manager Electronics Division with a copy (which shall not constitute notice) to: McCarthy Tetrault P.O. Box 10424 Pacific Centre, Suite 1300 777 Dunsmuir Street Vancouver, B.C. Canada V7Y 1K2 Attn: Tim McCafferty -25- Cooley Godward LLP 3000 El Camino Real Palo Alto, CA 94306 Attn: Thomas M. Shoesmith To Buyer at: Sonic Solutions 101 Rowland Way Novato, California 94945 Attn: Chief Financial Officer with a copy (which shall not constitute notice) to: Heller Ehrman White & McAuliffe LLP 2500 Sand Hill Road, Suite 100 Menlo Park, California 94025 Attn: Kyle Guse or to such other address as a party has designated by notice in writing to the other party in the manner provided by this Section. 8.9. Entire Agreement and Modification. This Agreement together with the other --------------------------------- Transactional Agreements constitute and contain the entire agreement of the parties and supersedes any and all prior negotiations, correspondence, understandings and agreements between the parties respecting the subject matter hereof, including but not limited to any Letter of Intent between the parties, which shall be superseded and replaced in its entirety by this Agreement. This Agreement may only be amended by written instrument signed by the parties. 8.10. Survival of Terms. All covenants contained in this Agreement and any ----------------- certificate or other instrument delivered by or on behalf of the parties pursuant to this Agreement which by their terms are to be performed after the signing of this Agreement shall survive the signing of this Agreement. 8.11. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of California applicable to contracts entered into and wholly to be performed in the State of California by California residents. The parties hereby waive trial by jury in connection with any action or suit under this Agreement or otherwise arising from the relationship between the parties hereto. 8.12. Severability. If any provision of this Agreement is held to be invalid, ------------ illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so -26- long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. 8.13. Headings. The headings appearing at the beginning of several sections -------- contained herein have been inserted for the convenience of the parties and shall not be used to determine the construction or interpretation of this Agreement. 8.14. Counterparts. This Agreement may be executed in counterparts, including ------------ by facsimile, each of which shall be deemed an original, but both of which when taken together shall constitute one and the same instrument. 8.15. Transfer Taxes. Seller shall bear all sales or use taxes and any transfer, -------------- transfer gain, gross receipts, customs duties, value added and other taxes and government charges upon the sale of the Assets and the DVD Business from the Seller to the Buyer pursuant to this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -27- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above set forth. Sonic Solutions a California corporation By: /s/ Clay Leighton ------------------------------------------ Name: A. Clay Leighton Title: Chief Financial Officer Daikin Industries, Ltd. a Japanese corporation By: /s/ Kiyoshi Nakajima ------------------------------------------ Name: Kiyoshi Nakajima ---------------------------------------- Title: General Manager - Electronics Division --------------------------------------- [SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT] EX-3 3 0003.txt CERTIFICATE OF DETERMINATION EXHIBIT 3.1 CERTIFICATE OF DETERMINATION OF SERIES D PREFERRED STOCK OF SONIC SOLUTIONS 1. The undersigned, Robert J. Doris and Mary C. Sauer, hereby certify that: 2. They are the duly elected and President and Secretary, respectively, of Sonic Solutions, a California corporation (the "Corporation"). 3. The Corporation hereby designates Eight Hundred Fifty Thousand (850,000) shares of Series D Preferred Stock (the "Series D Preferred Stock"). 4. None of the shares of Series D Preferred Stock have been issued, and none of the shares of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock (collectively, the "Series A, B and C Preferred") were issued and outstanding as of the date hereof. 5. Pursuant to authority given by the Corporation's Restated Articles of Incorporation (the "Restated Articles of Incorporation"), the Board of Directors of the Corporation (the "Board of Directors") has duly adopted the following recitals and resolutions: WHEREAS, the Restated Articles of Incorporation provide for a class of shares known as Preferred Shares (the "Preferred Shares"), issuable from time to time in one or more series; WHEREAS, the Board of Directors is authorized within the limitations and restrictions stated in the Restated Articles of Incorporation to determine or alter the rights, preferences, privileges and restrictions granted to or imposed on any wholly unissued series of Preferred Shares, to fix the number of shares constituting any such series, and to determine the designation thereof, or any of them; and WHEREAS, the Corporation has not issued any shares of Series D Preferred Stock and the Board of Directors desires to determine the rights, preferences, privileges and restrictions relating to the Series D Preferred Stock, and the number of shares constituting said Series and the designation of said Series. NOW, THEREFORE, BE IT RESOLVED: That the President and the Secretary of this Corporation are each authorized to execute, verify and file a certificate of determination of preferences with respect to the Series D Preferred Stock in accordance with the laws of the State of California. RESOLVED FURTHER: That the Board of Directors hereby determines the rights, preferences, privileges and restrictions relating to the Series D Preferred Stock shall be as set forth below: "Eight Hundred Fifty Thousand (850,000) of the authorized shares of the Preferred Stock, none of which have been issued or are outstanding, are hereby designated "Series D Preferred Stock" (the "Series D Preferred Stock"). The rights, preferences, privileges, restrictions and other matters relating to the Series D Preferred Stock are as follows: 1. Dividend Rights. The holders of Series D Preferred Stock shall be --------------- entitled to receive in any fiscal year when and as declared by the Board of Directors, out of any assets at the time legally available therefor, distributions in cash per share of Series D Preferred Stock (as adjusted for any stock dividends, combinations, splits, reclassifications or the like with respect to such shares) at the annual rate of $0.20 until such shares have been converted into Common Stock of the Corporation (the "Common Stock") or redeemed by the Corporation as provided in Section 5 hereunder. Such distributions shall be payable quarterly in arrears for each calendar quarter of each fiscal year. Distributions may be declared or paid upon shares of Common Stock in any fiscal year only if distributions shall have been paid or declared and set apart upon all shares of Series D Preferred Stock at such applicable annual rate for each quarter of such fiscal year including the quarter in which such distributions on Common Stock are declared. Dividends on Series D Preferred Stock may be paid, at the election of the Corporation, in cash or in shares of Series D Preferred Stock at a price equal to the then applicable "Conversion Rate" (as defined in Section 4 below). The right to such dividends on Series D Preferred Stock, if not declared and paid, shall accrue and be cumulative. 2. Voting Rights. Except as otherwise provided herein or by law, each ------------- holder of Series D Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Series D Preferred Stock could be converted and shall have voting rights and powers equal to the voting rights and powers of the Common Stock. 3. Liquidation, Dissolution or Winding Up. In the event of any -------------------------------------- liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, (a "Liquidation Event") the holders of the Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of the assets or surplus funds of the Corporation to the holders of Series A, B and C Preferred and of the Common Stock by reason of their ownership thereof, the amount of $5.00 per share (as adjusted for any stock dividends, combinations, splits, reclassifications or the like with respect to such shares) plus all accrued but unpaid dividends on such share for each share of Series D Preferred Stock then held by them (the "Liquidation Preference"). If, upon occurrence of such event the assets and funds thus distributed among the holders of the Series D Preferred Stock shall be insufficient to permit the holders of the Series D Preferred Stock the full Liquidation Preference, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series D Preferred Stock in proportion to the number of shares of Series D Preferred Stock held by each such holder. After payment has been made to the holders of the Series D Preferred Stock of the Liquidation Preference, the holders of the Common Stock shall be entitled to receive the remaining assets of the Corporation in proportion to the number of shares of Common Stock held by each such holder. For the purposes of this Section 3, (i) any acquisition of the Corporation by means of merger or other form of corporate reorganization in which outstanding shares of the Corporation are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring corporation 2 or its subsidiary (other than a mere reincorporation transaction) or (ii) a sale of all or substantially all of the assets of the Corporation, shall be treated as a Liquidation Event and shall entitle the holders of Series D Preferred Stock to receive upon such Liquidation Event, payment of the Liquidation Preference. 4. Conversion Rights. Subject to the redemption rights of the ----------------- Corporation as set forth in Section 5 below, each holder of Series D Preferred Stock may, at any time, upon surrender of the certificates therefor, convert each share of Series D Preferred Stock (and all accrued and unpaid dividends thereon) held by such holder into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Liquidation Preference for each share of Series D Preferred Stock by the Conversion Rate applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series D Preferred Stock (the "Conversion Rate") shall initially be $5.00 per share of Common Stock. Such initial Conversion Rate shall be adjusted as hereinafter provided. 5. Redemption Rights of the Corporation. ------------------------------------ (a) At any time after the issuance of Series D Preferred Stock, the Corporation may elect to redeem the whole or any part of the Series D Preferred Stock (the "Corporation Redemption"), for cash at a price per share equal to the Liquidation Preference, plus any accrued but unpaid dividends on such share (the "Redemption Price"); provided, however, that the closing price of the Corporation's Common Stock, as reported by Bloomberg, L.P., for each of the ten (10) consecutive trading days immediately preceding the date on which the Corporation delivers a notice of redemption (a "Notice of Redemption") is equal to or more than $5.00 per share. A Notice of Redemption shall be mailed by overnight courier not earlier than 30 days prior to the redemption date indicated in the Notice of Redemption (the "Redemption Date") to the holders of record of such Series D Preferred Stock, addressed to each such holder at the holder's address appearing on the records of the Corporation. The Notice of Redemption shall set forth the number of shares of Series D Preferred Stock which the Corporation intends to redeem, the Redemption Date, the Redemption Price and the place at which shareholders may obtain payment upon surrender of their certificates. (i) Mechanics of Corporation Redemption. If the Corporation elects to ----------------------------------- limit the number of Series D Preferred Stock which it will redeem under a Notice of Redemption, the Corporation shall allocate for redemption from each holder of Series D Preferred Stock a number of shares equal to such holder's pro-rata amount (based on the number of Series D Preferred Stock held by such holder on the Redemption Date relative to the total number of Series D Preferred Stock outstanding on such date). (ii) Payment of Redemption Price. The Corporation shall pay the applicable --------------------------- Redemption Price to the holder of the Series D Preferred Stock being redeemed in cash on the Redemption Date (if the shares have not been submitted for conversion). (b) Notwithstanding the fact that said shares have been called for redemption, the holders of such shares shall have the right to convert said shares in accordance with Section 4 3 above. This right to convert shall terminate at the close of business on the day prior to the Redemption Date. 6. Adjustment of Conversion Rate. The number of and kind of ----------------------------- securities to which the holder of Preferred Stock is entitled upon conversion shall be subject to adjustment from time to time as follows: (a) Subdivisions, Combinations and Other Issuances. If the Corporation ---------------------------------------------- shall at any time after the date hereof but prior to the expiration of the Preferred Stock subdivide its outstanding securities as to which rights under this Agreement exist, by split-up, spin-off, or otherwise, or combine its outstanding securities as to which rights under this Agreement exist, the number of shares of Common Stock as to which the Preferred Stock holder is entitled upon conversion as of the date of such subdivision, split-up, spin-off or combination shall forthwith be proportionately increased in the case of a subdivision, or proportionately decreased in the case of a combination. (b) Stock Dividend. If at any time after the date hereof the Corporation -------------- declares a dividend or other distribution on Common Stock payable in Common Stock or other securities or rights convertible into or exchangeable for Common Stock ("Common Stock Equivalents"), without payment of any consideration by holders of Common Stock for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon exercise or conversion thereof), then the number of shares of Common Stock to which the Preferred Stock holder is entitled upon conversion shall be increased as of the record date (or the date of such dividend distribution if no record date is set) for determining which holders of Common Stock shall be entitled to receive such dividends, in proportion to the increase in the number of outstanding shares (and shares of Common Stock issuable upon conversion of all Common Stock Equivalents) of Common Stock as a result of such dividend. (c) Other Distributions. If at any time after the date hereof the ------------------- Corporation distributes to holders of its Common Stock, other than as part of a dissolution or liquidation or the winding up of its affairs, cash, any securities (other than the Corporation's own Common Stock or Common Stock Equivalents), any evidence of indebtedness or any of its assets, then, in any such case, the Preferred Stock holder shall be entitled to receive, upon conversion of the Preferred Stock, with respect to each share of Common Stock issuable upon such conversion the amount of evidences of indebtedness, cash or other securities or assets (excluding cash and the Corporation's own Common Stock or Common Stock Equivalents) which such Preferred Stock Holder would have been entitled to receive as a result of the happening of such event with respect to each such share of Common Stock the Preferred Stock holder would have held had all the outstanding Preferred Shares still held by such holder been converted immediately prior to the record date or other date determining the shareholders entitled to participate in such distribution. (d) Merger, Consolidation, etc. If at any time after the date hereof -------------------------- there shall be a merger or consolidation of the Corporation with or into, or a transfer of all or substantially all of the assets of the Corporation to, another entity (a "Consolidation Event"), then each Preferred Stock holder shall be entitled to receive upon such transfer, merger or consolidation 4 becoming effective the number of shares or other securities or property of or cash or other consideration from the Corporation or of the successor corporation resulting from such merger or consolidation, to which such Preferred Stock holder would have been entitled to receive as a result of the happening of such event with respect to each such shares of Common Stock as the Preferred Stock holder would have held had all the outstanding Preferred Shares still held by such holder been converted immediately prior to such transfer, merger or consolidation becoming effective or to the applicable record date thereof, as the case may be. The Corporation shall not effect any Consolidation Event unless the resulting successor or acquiring entity (if not the Corporation) assumes by written instrument the obligation to deliver to the Preferred Stock holder such shares of stock and/or securities as the Preferred Stock holder is entitled to receive had the Preferred Stock been converted in accordance with the foregoing. (e) Reclassification, Etc. If at any time after the date hereof there --------------------- shall be a reclassification of any securities as to which purchase rights under this Certificate exist, into the same or a different number of securities of any other class or classes, then the Preferred Stock holder shall thereafter be entitled to receive upon conversion of the Preferred Stock the number of shares or other securities or property or cash or other consideration resulting from such reorganization or reclassification, which would have been received by the Preferred Stock holder for the shares of stock subject to this Certificate had the Preferred Stock at such time been converted. (f) Registration Statement. ---------------------- (i) If no Registration Statement (as defined below) has been declared effective by the Securities and Exchange Commission ("SEC") by the Registration Deadline (as defined in that certain Registration Rights Agreement between the Corporation and Daikin Industries, Ltd. ("Daikin") providing for the registration with the SEC of certain shares of Common Stock of the Corporation issued or issuable to Daikin (the "Registration Rights Agreement")), then a Price Protection Adjustment (as defined below) shall be made to the Conversion Rate in effect on that day, and a further Price Protection Adjustment shall be made on each subsequent monthly anniversary of that day until a Registration Statement has been declared effective by the SEC. (ii) As used in this Section 6(f), "Registration Statement" means a registration statement for the resale by Daikin to the public of the Registrable Securities, as defined in the Registration Rights Agreement. (iii) As used in this Section 6(f), "Price Protection Adjustment" shall mean a reduction in a then applicable Conversion Rate to an amount equal to 90% of such Conversion Rate. The Conversion Rate as so adjusted shall thereafter become the "Conversion Rate" for all purposes under this Certificate of Determination. (g) Adjustments: Additional Shares, Securities or Assets. In the event ---------------------------------------------------- that at any time, as a result of an adjustment made pursuant to this Section 6, the Preferred Stock holder shall become entitled to receive shares and/or other securities or assets other than Common Stock then, wherever appropriate, all references herein to shares of Common Stock shall 5 be deemed to refer to and include such shares and/or other securities or assets; and thereafter the number of such shares and/or other securities or assets shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the provisions of this Section 6. (h) Notice of Adjustments; Notices. Whenever the number of shares of ------------------------------ Common Stock due upon conversion shall be adjusted pursuant to this Section 6, the Corporation shall execute and deliver to the Preferred Stock holder a certificate setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the number of shares Common Stock due upon conversion after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first class mail, postage prepaid) to the Preferred Stock holder. 7. Mechanisms for Effecting Conversions. Subject to the ------------------------------------ Corporation's rights of redemption in Section 5, the Preferred Stock holder shall effect conversions by surrendering the certificate or certificates representing the shares of Series D Preferred Stock to be converted to the Corporation together with a written conversion notice (the "Conversion Notice") which shall specify the number of shares of Series D Preferred Stock, and the date on which such conversion is to be effected, which date may not be prior to the date the holder delivers such Conversion Notice by facsimile (the "Conversion Date"). If no Conversion Date is specified in a Conversion Notice, the Conversion Date shall be the first business day after the date that the Conversion Notice is transmitted to the Corporation by facsimile or the third business day after the Conversion Notice is mailed to the Corporation by first class US mail. If the holder is converting less than all shares of Series D Preferred Stock represented by the certificate(s) tendered by the holder with the Conversion Notice, or if a conversion hereunder cannot be effected in full for any reason, the Corporation shall convert up to the number of shares of Series D Preferred Stock which is specified in the Conversion Notice and may be so converted and shall promptly deliver to such holder a certificate for such number of shares as have not been converted. 8. Delivery of Stock Certificates. ------------------------------ (a) Subject to the terms and conditions of this Agreement, as soon as practicable after a request for conversion, the Corporation at its expense (including, without limitation, the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Series D Preferred Stock holder, or as the Preferred Stock holder may lawfully direct, a certificate or certificates for the number of fully paid and non-assessable shares of Common Stock to which the Preferred Stockholder shall be entitled on such conversion, together with any other stock or other securities or property (including cash, where applicable) to which the Preferred Stock holder is entitled upon such conversion in accordance with the provisions hereof. (b) In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Corporation's Transfer Agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the holder and in this Section 8, the Corporation shall use its best efforts to cause its Transfer Agent to electronically transmit the Common Stock issuable upon 6 conversion to the holder by crediting the account of holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and penalties described in the immediately preceding paragraph shall apply to the electronic transmittals described herein. (c) In lieu of any fractional shares to which the holder of the Series D Preferred Stock would otherwise be entitled, this Corporation shall pay cash equal to such fraction multiplied by the Fair Market Value of one share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series D Preferred Stock of each holder at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. 9. Reservation of Stock Issuable Upon Conversion. The Corporation --------------------------------------------- shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of the Series D Preferred Stock, such number of shares of Common Stock as shall be necessary to effect the conversion of the Series D Preferred Stock into Common Stock. 10. Replacement of Certificate. Upon receipt of evidence reasonably -------------------------- satisfactory to the Corporation of the loss, theft, destruction or mutilation of this Certificate and, in the case of any such loss, theft or destruction of the Certificate, upon delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Corporation or, in the case of any such mutilation, on surrender and cancellation of such Certificate, the Corporation at its expense will execute and deliver, in lieu thereof, a new Certificate of like tenor. 11. Vote to Change the Terms of Series D Preferred Stock; Preferred --------------------------------------------------------------- Rank. The approval of the Board of Directors and the affirmative vote at a - ---- meeting duly called by the Board of Directors for such purpose (or the written consent without a meeting) of the holders of not less than a majority of the then outstanding shares of the Series D Preferred Stock shall be required (a) to amend, alter, change or repeal any of the powers, designations, preferences and rights of the Series D Preferred Stock, (b) to authorize the issuance of additional shares of Series D Preferred Stock, and (c) for the Corporation to authorize or issue additional or other capital stock that is of senior or equal rank to the Series D Preferred Stock in respect of the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Corporation." 7 IN WITNESS WHEREOF, the undersigned each declares under penalty of perjury that the matters set out in the foregoing certificate are true of his or her own knowledge, and the undersigned have executed this certificate at Novato, California as of the 23rd day of February, 2001. /s/ Robert J. Doris ------------------------------------------- Robert J. Doris, President /s/ Mary C. Sauer ------------------------------------------- Mary C. Sauer, Secretary 8 EX-10.1 4 0004.txt SHAREHOLDER AGREEMENT EXHIBIT 10.1 SHAREHOLDER AGREEMENT --------------------- THIS SHAREHOLDER AGREEMENT (the "Agreement") is made and entered into as of February 27, 2001 by and between Sonic Solutions, a California corporation ("Sonic"), Daikin Industries, Ltd., a corporation organized under the laws of Japan ("Daikin"). A. Concurrently with the execution of this Agreement, Sonic and Daikin are consummating the transactions contemplated by that certain Asset Purchase Agreement, dated as of February 27, 2001 (the "Asset Purchase Agreement"), under which Daikin is selling to Sonic certain assets related to the "DVD Business" (as defined in the Asset Purchase Agreement) of Daikin and Sonic is issuing to Daikin shares of the common stock, no par value, and shares of the Series D Preferred Stock, no par value, of Sonic. B. As an inducement and condition to entering into, and consummating the transactions contemplated by, the Asset Purchase Agreement, Sonic and Daikin have agreed as set forth in this Agreement. ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS: 1. Certain Definitions. For purposes of this Agreement, these terms have these meanings: (a) "Affiliate" means a person which is an affiliate of Daikin as specified in Rule 1-02(b) of Regulation S-X under the Securities Act and which Beneficially Owns any Voting Securities. (b) "Beneficially Own" or "Beneficial Ownership" with respect to any securities means having "beneficial ownership" of such securities as determined under Rule 13d-3 under the Exchange Act. Without duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person include all securities Beneficially Owned by all Affiliates of that Person. (c) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (d) "Existing Shares" means all issued and outstanding shares of Sonic common stock owned of record or Beneficially Owned by Daikin as of the record date for determining the Persons entitled to receive notice of, and to vote at, a meeting of the shareholders of Daikin called for any purpose. (e) "Person" means any individual or entity. (f) "Securities Act" means the Securities Act of 1933, as amended. (g) "Voting Power" means the number of votes that the Voting Securities are entitled to cast in an election of directors of Sonic. (h) "Voting Securities" means the capital stock and any other securities issued by Sonic having the power to vote in the election of directors of Sonic, other than securities having such power only upon the happening of a contingency. 2. Representations and Warranties of Daikin. Daikin represents and warrants to Sonic that, as of the date of this Agreement: (a) Immediately following the consummation of the transactions contemplated by the Asset Purchase Agreement (the "Closing"), Daikin will Beneficially Own 1,095,000 Existing Shares. The Existing Shares constitute all the shares of Sonic common stock Beneficially Owned by Daikin. Daikin does not Beneficially Own any options or other rights to purchase any other shares of Sonic common stock. (b) All the Existing Shares are held by Daikin, free and clear of any voting trusts or other agreements with respect to the exercise of the Voting Power, except for those imposed by this Agreement. (c) The representations and warranties set forth in this Section 2 shall survive the Closing. 3. Restrictions on Transfer. Notwithstanding that the Existing Shares may be registered for resale with the Securities and Exchange Commission, Daikin agrees that it will not Transfer, in any calendar month, a number of Existing Shares, through NASDAQ or such other stock exchange as Sonic's common stock may be listed, which exceed 15% (fifteen percent) of the aggregate of the trading volume of the common stock as reported by NASDAQ for the complete calendar month preceding the day of any intended Transfer. 4. Disclosure. Daikin hereby agrees to permit Sonic to publish and disclose in the registration statement contemplated by the Asset Purchase Agreement, and in any other disclosure document such information as may be required under applicable law in connection with Daikin's identity and ownership of Sonic common stock and the arrangements and understandings under this Agreement. 5. Voting of Sonic Common Stock. Daikin hereby irrevocably and unconditionally agrees that, during the period commencing with the date hereof and continuing until the termination of this Agreement, Daikin shall, and shall cause its affiliates, at the written request of Sonic, as specifically expressed in a resolution of its board of directors to use: (a) use reasonable commercial efforts appear (in person or by proxy) at any meeting (whether annual or special and whether or not an adjourned or postponed meeting) of the holders of Sonic common stock, however called, or otherwise cause the Voting Securities Beneficially Owned by them to be counted as present thereat for purposes of establishing and maintaining a quorum. (b) to, vote or provide a written consent or proxy with respect to the Voting Securities Beneficially Owned by them in the manner directed by Sonic at any such meeting or 2 pursuant to such written consent in connection with any of the following matters which may be considered at such meeting: (i) fixing the number of and electing the Board of Directors of Sonic; (ii) appointing or ratifying the appointment of the independent auditors of Sonic and authorizing the Board of Directors of Sonic to negotiate and fix the consideration to be paid to the Auditors; (iii) approving of any share compensation plan (including stock option plans, stock purchase plans or other share-based compensation plans) of general application to the directors, officers or employees of Sonic and its subsidiaries (and for greater certainty, not with respect to the compensation or a share compensation plan with respect to any particular officer or director); (iv) approval of any third-party arrangement to provide debt or equity financing to Sonic. (c) not to deposit any Voting Securities Beneficially Owned by them in a voting trust or subject any Voting Securities Beneficially Owned by them to any arrangements or agreements with respect to the voting of such Voting Securities. 6. Equitable Remedies. Sonic and Daikin acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their terms or were otherwise breached. Accordingly, they agree that the non-breaching or potentially breaching party shall be entitled to an injunction, specific performance or other equitable relief, without the need to post bond, to prevent or cure any breaches of this Agreement and to enforce specifically the provisions hereof in any court having jurisdiction, this being in addition to any other remedy to which that party may be entitled at law or in equity. 7. Termination. This Agreement shall terminate at such time as Daikin Beneficially Owns less than 2% of the Voting Power. 8. Miscellaneous. (a) This Agreement may be amended, modified or supplemented only by written agreement of Sonic and Daikin. (b) Any failure of Daikin, on one hand, or Sonic, on the other hand, to comply with any provision of this Agreement may be waived by Sonic or Daikin, respectively, only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with that provision shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 3 (c) Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given on the date of service if served personally, by recognized expedited delivery service, or by facsimile (with confirmation copies of any facsimile notice to be provided by at least one other method of delivery permitted hereunder), or five (5) days after the date of mailing if mailed, by first class mail, registered or certified, postage prepaid. Notices shall be addressed as follows: (1) if to Daikin, to: Daikin Industries, Ltd. Tokyo Opera City Building 20-2, 3-Chome, Nishi-Shinjuku Shinjuku-ku, Tokyo 163-14 Japan Attn: General Manager, Electronics Division with a copy (which shall not constitute notice) to: McCarthy Tetrault P.O Box 10424 Pacific Centre, Suite 1300 777 Dunsmuir Street Vancouver, B.C. Canada V7Y 1K2 Attn: Tim McCafferty Cooley Godward LLP 3000 El Camino Real Palo Alto, CA 94306 Attn: Thomas M. Shoesmith (2) if to Sonic, to Sonic Solutions 101 Rowland Way Novato, California 94945 Attn: Chief Financial Officer with a copy (which shall not constitute notice) to: Heller Ehrman White & McAuliffe LLP 2500 Sand Hill Road, Suite 100 Menlo Park, California 94025 Attn: Kyle Guse or to such other address as a party has designated by notice in writing to the other party in the manner provided by this Section. 4 (d) Neither this Agreement nor any right, interest or obligation hereunder may be assigned by either of the parties hereto without the prior written consent of the other party. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns and with respect to any equity securities that replace or are issued in exchange for Sonic common stock. This Agreement is not intended to confer any rights or remedies hereunder upon any other Person except the parties hereto. (e) This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts entered into and wholly to be performed in the State of California by California residents. The parties hereby waive trial by jury in connection with any action or suit under this Agreement or otherwise arising from the relationship between the parties hereto. (f) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (g) If any provision of this Agreement is held to be invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. (h) The section headings contained in this Agreement are solely for the purpose of reference and shall not in any way affect the meaning or interpretation of this Agreement. The word "including" shall mean "including without limitation." (i) This Agreement, the Asset Purchase Agreement and the other "Transactional Agreements" referenced in the Asset Purchase Agreement embody the entire agreement and understanding of the parties hereto with respect to the subject matter of this Agreement. (j) From time to time, at either party's request and without further consideration, the other party hereto shall execute and deliver such additional documents and take such other actions as may be necessary or desirable to effectuate the provisions of this Agreement. (k) Each party to this Agreement has been represented by counsel during the preparation and negotiation of this Agreement, and therefore waives any rule of construction that would construe ambiguities against the party drafting this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 5 [THIS PAGE LEFT INTENTIONALLY BLANK] 6 IN WITNESS WHEREOF, the parties hereto have caused this Shareholder Agreement to be executed by their duly authorized officers as of the date first written above. SONIC SOLUTIONS By: /s/ Clay Leighton ------------------------------ Name: A. Clay Leighton Title: Senior Vice President DAIKIN INDUSTRIES, LTD. By: /s/ Kiyoshi Nakajima ------------------------------ Name: Kiyoshi Nakajima ---------------------------- Title: General Manager - Electronics Division --------------------------- [SIGNATURE PAGE TO SHARHOLDERS' AGREEMENT] 7 EX-10.2 5 0005.txt REGISTRATION RIGHTS AGREEMENT Exhibit 10.2 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of February 27, 2001, is made and entered into between (i) SONIC SOLUTIONS, a California corporation (the "Company"), and (ii) DAIKIN INDUSTRIES, LTD., a corporation organized under the laws of Japan (the "Investor"). WHEREAS, the Company and the Investor have entered into that certain Asset Purchase Agreement, dated as of February 27, 2001 (the "Asset Purchase Agreement"), pursuant to which the Company has issued and the Investor has received 395,000 shares of the Company's Common Stock, 700,000 shares of the Company's Series D Preferred Stock (the "Series D Preferred") and may issue additional shares of Series D Preferred to the Investor as dividends (together with the Common Stock issued or issuable upon conversion of the Series D Preferred, and any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such any of the above-described securities, the "Registrable Securities"); WHEREAS, pursuant to the terms of, and in consideration for, the Investor's agreement to enter into the Asset Purchase Agreement, the Company has agreed to provide the Investor with certain registration rights with respect to the Registrable Securities; NOW, THEREFORE, in consideration of the premises, the representations, warranties, covenants and agreements contained herein and in the Asset Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I REGISTRATION RIGHTS Section 1.1 REGISTRATION STATEMENT. (a) Filing of Registration Statement. Subject to the terms and -------------------------------- conditions of this Agreement, the Company shall file with the SEC a registration statement on Form S-3 or such other form acceptable to the SEC under the Securities Act of 1933, as amended (the "Securities Act") for the registration of the Registrable Securities for resale by the Investor to the public (the "Registration Statement") within fifteen (15) days following the date that the Company's independent auditors receive from the Investor all financial information related to the DVD business of the Investor acquired by the Company pursuant to the Asset Purchase Agreement which are acceptable to such auditors (the "Filing Deadline"). (b) Effectiveness of the Registration Statement. The Company shall ------------------------------------------- use its reasonable efforts to have the Registration Statement declared effective by the SEC as soon as practicable and to ensure that the Registration Statement remains in effect throughout the term of this Agreement as set forth in Section 4.2, subject to the terms and conditions of this Agreement. If the Registration Statement is not declared effective by the SEC within the first ninety (90) calendar days after the Filing Deadline (the "Registration Deadline"), an adjustment to the Conversion Rate, as that term is defined in the Certificate of Determination of Series D Preferred Stock of the Company, shall be made in accordance with Section 6(f) of that Certificate of Determination; provided, however, that if the Registration Deadline would otherwise occur while a Blackout Notice (as defined below) remains in effect, the Registration Deadline shall be extended by the number of days covered by such Blackout Notice. (c) Deferral and Suspension. If the Company shall furnish to the ----------------------- Investor notice signed by the Chairman and Chief Executive Officer of the Company stating that the Board of Directors of the Company has, by duly authorized resolution, determined in good faith that it would be seriously detrimental to the Company and its shareholders for the Registration Statement to be filed (or remain in effect) and it is therefore essential to defer the filing of such Registration Statement (or temporarily suspend the effectiveness of such Registration Statement or use of the related prospectus) (a "Blackout Notice"), the Company shall have the right to defer such filing (or suspend such effectiveness) immediately for a period of not more than thirty (30) days beyond such the date by which such Registration Statement was otherwise required to be filed (or required to remain in effect). The Investor acknowledges that it would be seriously detrimental to the Company and its shareholders for such Registration Statement to be filed (or remain in effect) and therefore essential to defer such filing (or suspend such effectiveness) and agrees to suspend any disposition of the Registrable Securities pursuant to any such Registration Statement immediately for a period of not more than thirty (30) days upon receipt of such notice. The Company may not utilize any of its rights under this Section 1.1(c) to defer the filing of a Registration Statement (or suspend its effectiveness) more than once in any eighteen (18) month period. ARTICLE II REGISTRATION PROCEDURES Section 2.1. FILINGS; INFORMATION. The Company will effect the registration and sale of such Registrable Securities in accordance with the intended methods of disposition thereof. Without limiting the foregoing, the Company in each such case will do the following as expeditiously as possible, but in no event later than the deadline, if any, prescribed therefor in this Agreement: (a) The Company shall (i) prepare and file with the SEC a Registration Statement on Form S-3 (if use of such form is then available to the Company pursuant to the rules of the SEC and, if not, on such other form promulgated by the SEC for which the Company then qualifies and which counsel for the Company shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered thereunder in accordance with the provisions of this Agreement and in accordance with the intended method of distribution of such Registrable Securities); (ii) use reasonable efforts to cause such filed Registration Statement to become and remain effective (pursuant to Rule 415 under the Act or otherwise); (iii) 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 1.1(b); (iv) comply with the provisions of the Securities Act with respect to the 2 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; (v) act in good faith and use reasonable efforts to take all actions that (A) will facilitate the Registration Statement to be filed and declared effective as expeditiously as possible or (B) are reasonably necessary to implement the intentions of the parties set forth in this Agreement. (b) The Company shall file all necessary amendments to the Registration Statement in order to effectuate the purpose of this Agreement. (c) If so requested by the managing underwriters, if any, or the holders of a majority in aggregate principal amount of the Registrable Securities being sold in connection with the filing of a Registration Statement under the Securities Act for the offering on a continuous or delayed basis in the future of all of the Registrable Securities (a "Shelf Registration"), the Company shall (i) promptly incorporate in a prospectus supplement or post- effective amendment such information as the managing underwriters, if any, and such holders agree should be included therein, and (ii) make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; provided, however, that the Company shall not be required to take any action pursuant to this Section 2.1(c)(ii) that would, in the opinion of counsel for the Company, violate applicable law. (d) In connection with the filing of a Shelf Registration, and in connection with any underwritten public offering of the Registrable Securities, the Company shall enter into such agreements and take all such other reasonable actions in connection therewith (including those reasonably requested by the managing underwriters, if any, or the holders of a majority in aggregate principal amount of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the holders of such Registrable Securities and the underwriters, if any, with respect to the business of the Company (including with respect to businesses or assets acquired or to be acquired by the Company), and the Registration Statement, prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm such representations and warranties if and when requested; (ii) if an underwriting agreement is entered into, the same shall contain indemnification provision and procedures no less favorable to the selling holders of such Registrable Securities and the underwriters, if any, than those set forth herein (or such other provisions and procedures acceptable to the holders of a majority in aggregate principal amount of Registrable Securities covered by such Registration Statement and the managing underwriters, if any); and (iii) deliver such documents and certificates as may be reasonably requested by the holders of a majority in aggregate principal amount of the Registrable Securities being sold, their counsel and the managing underwriters, if any, to evidence the continued validity of their representations and warranties made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement 3 entered into by the Company. The Company shall also use its reasonable efforts to furnish, on the date that the Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a letter, dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering addressed to the underwriters. (e) No less than five (5) Trading Days prior to filing the Registration Statement or prospectus, or any amendment or supplement thereto (excluding amendments deemed to result from the filing of documents incorporated by reference therein), the Company shall deliver to the Investor and one firm of counsel representing the Investor, in accordance with the notice provisions of Section 4.8, copies of such Registration Statement as proposed to be filed, together with exhibits thereto, which documents will be subject to review by such parties, and thereafter deliver to the Investor and its counsel, in accordance with the notice provisions of Section 4.8, such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits thereto), the prospectus included in such Registration Statement (including each preliminary prospectus) and such other documents or information as the Investor or counsel may reasonably request in order to facilitate the disposition of the Registrable Securities. (f) The Company shall deliver, in accordance with the notice provisions of Section 4.8, to each seller of Registrable Securities covered by such Registration Statement such number of conformed copies of such Registration Statement and of each amendment and supplement thereto (in each case including all exhibits and documents incorporated by reference), such number of copies of the prospectus contained in such Registration Statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 promulgated under the Securities Act relating to such seller's Registrable Securities, and such other documents, as such seller may reasonably request to facilitate the disposition of its Registrable Securities. (g) After the filing of the Registration Statement, the Company shall promptly notify the Investor of any stop order issued or threatened by the SEC in connection therewith and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (h) The Company shall use its reasonable efforts to (i) register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions in the United States as the Investor may reasonably (in light of its intended plan of distribution) request, and (ii) cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities in the United States as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable the Investor to consummate the disposition of the Registrable Securities; provided that the Company will not be required to qualify generally to do 4 business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (h), subject itself to taxation in any such jurisdiction, or consent or subject itself to general service of process in any such jurisdiction. (i) The Company shall immediately notify the Investor upon the occurrence of any of the following events in respect of a Registration Statement or related prospectus in respect of an offering of Registrable Securities: (i) receipt of any request for additional information by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for additional information, amendments or supplements to the Registration Statement or related prospectus; (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in the Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; and the Company will promptly make available to the Investor any such supplement or amendment to the related prospectus. (j) The Company shall enter into customary agreements and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities (whereupon the Investor may, at its option, require that any or all of the representations, warranties and covenants of the Company also be made to and for the benefit of the Investor). (k) The Company shall 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. (l) The Company may require the Investor to promptly furnish in writing to the Company such information as may be legally required in connection with such registration including, without limitation, all such information as may be requested by the SEC or the National Association of Securities Dealers. The Investor agrees to provide such information requested in connection with such registration within ten (10) business days after receiving such written request and the Company shall not be responsible for any delays in obtaining or maintaining the effectiveness of the Registration Statement caused by the Investor's failure to timely provide such information. 5 Section 2.2. REGISTRATION EXPENSES. In connection with each Registration Statement, the Company shall pay all registration expenses incurred in connection with the registration thereunder (the "Registration Expenses"), including, without limitation: (i) all registration, filing, securities exchange listing and fees required by the National Association of Securities Dealers, (ii) all registration, filing, qualification and other fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities), (iii) all word processing, duplicating, printing, messenger and delivery expenses, (iv) the Company's internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (v) the fees and expenses incurred in connection with the listing of the Registrable Securities, (vi) reasonable fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company, (vii) the fees and expenses of any special experts retained by the Company in connection with such registration, (viii) premiums and other costs of policies of insurance obtained at the discretion of the Company against liabilities arising out of any public offering of the Registrable Securities being registered, and (ix) any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding underwriting fees, discounts, transfer taxes or commissions, if any, attributable to the sale of Registrable Securities, which shall be payable by each holder of Registrable Securities pro rata on the basis of the number of Registrable Securities of each such holder that are included in a registration under this Agreement. ARTICLE III INDEMNIFICATION AND CONTRIBUTION Section 3.1. INDEMNIFICATION BY THE COMPANY. To the extent permitted by law, the Company agrees to indemnify and hold harmless the Investor, its partners, affiliates, officers, directors, employees and duly authorized agents, and each Person or entity, if any, who controls the Investor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, together with the partners, Affiliates, officers, directors, employees and duly authorized agents of such controlling Person or entity (collectively, the "Controlling Persons"), from and against any loss, claim, damage, liability, costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements and costs and expenses of investigating and defending any such claim) (collectively, "Damages"), joint or several, and any action or proceeding in respect thereof to which the Investor, its partners, affiliates, officers, directors, employees and duly authorized agents, and any such Controlling Person may become subject under the Securities Act or otherwise as incurred and, insofar as such Damages (or actions or proceedings in respect thereof) arise out of, or are based upon, (i) 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, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are based upon information furnished in writing to the Company by the Investor expressly for use therein, or (iii) any violation or alleged violation by the Company of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the 6 offering covered by such registration statement and shall reimburse the Investor, its partners, affiliates, officers, directors, employees and duly authorized agents, and each such Controlling Person for any legal and other expenses reasonably incurred by the Investor, its partners, affiliates, officers, directors, employees and duly authorized agents, or any such Controlling Person, as incurred, in investigating or defending or preparing to defend against any such Damages or actions or proceedings; provided, however, that the Company shall not be liable to the Investor to the extent that any such Damages arise out of or are based upon an untrue statement or omission made in any preliminary prospectus if (i) the Investor failed to send or deliver a copy of the final prospectus delivered by the Company to the Investor with or prior to the delivery of written confirmation of the sale by the Investor to the Person asserting the claim from which such Damages arise, and (ii) the final prospectus would have corrected such untrue statement or alleged untrue statement or such omission or alleged omission, and provided further, that the indemnity agreement contained in this Section 3.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld. Section 3.2. INDEMNIFICATION BY THE INVESTOR. To the extent permitted by law, the Investor agrees to indemnify and hold harmless the Company, its partners, affiliates, officers, directors, employees and duly authorized agents, and each Controlling Person, from and against any Damages, joint or several, and any action or proceeding in respect thereof to which the Company, its partners, affiliates, officers, directors, employees and duly authorized agents, and any such Controlling Person may become subject under the Securities Act or otherwise as incurred and, insofar as such Damages (or actions or proceedings in respect thereof) arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or prospectus relating to the Registrable Securities or any preliminary prospectus, or arises out of, or are based upon, any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse the Company, 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 Company, its partners, affiliates, officers, directors, employees and duly authorized agents, or any such Controlling Person, as incurred, in investigating or defending or preparing to defend against any such Damages or actions or proceedings; provided, however, that the indemnity agreement contained in this Section 3.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Investor, which consent shall not be unreasonably withheld; and provided further, that in no event shall any indemnity under this Section 3.2 exceed the net proceeds from the offering received by the Investor. Section 3.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt by any person or entity in respect of which indemnity may be sought pursuant to Section 3.1 or 3.2 (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 against whom such indemnity may be sought (the "Indemnifying Party"), notify the Indemnifying Party in writing of the claim or the commencement of such action; in the event an Indemnified Party shall fail to give such notice as provided in this Section 3.3 and the Indemnifying Party to whom notice was not given was unaware of the proceeding to which such 7 notice would have related and was materially prejudiced by the failure to give such notice, the indemnification provided for in Section 3.1 or 3.2 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 that it may have to an Indemnified Party otherwise than under Section 3.1 or 3.2. If any such claim or action shall be brought against an Indemnified Party, and it shall notify the Indemnifying Party thereof, the Indemnifying Party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified Indemnifying Party, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party. After notice from the Indemnifying Party to the Indemnified Party of its election to assume the defense of such claim or action, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided that the Indemnified Party shall have the right to employ separate counsel to represent the Indemnified Party and its Controlling Persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party, but the fees and expenses of such counsel shall be for the account of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of the Company and such Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest between them, it being understood, however, that the Indemnifying Party shall not, in connection with any one such claim or action or separate but substantially similar or related claims or actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all Indemnified Parties, or for fees and expenses that are not reasonable. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding. Whether or not the defense of any claim or action is assumed by the Indemnifying Party, such Indemnifying Party will not be subject to any liability for any settlement made without its consent, which consent will not be unreasonably withheld. Section 3.4. OTHER INDEMNIFICATION. Indemnification similar to that specified in the preceding paragraphs of this Article III (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any federal or state law or regulation of any governmental authority other than the Securities Act. The provisions of this Article III shall be in addition to any other rights to indemnification, contribution or other remedies which an Indemnified Party may have pursuant to law, equity, contract or otherwise. Section 3.5. CONTRIBUTION. If the indemnification provided for in this Article III is unavailable to the Indemnified Parties in respect of any Damages referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Damages as between the 8 Company on the one hand and the Investor on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of the Investor in connection with such statements or omissions, as well as other equitable considerations. The relative fault of the Company on the one hand and of the Investor on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Investor agree that it would not be just and equitable if contribution pursuant to this Section 3.5 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the Damages referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 3.5, the Investor shall in no event be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of the Investor were sold to the public (less underwriting discounts and commissions) exceeds the amount of any damages which the Investor has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. ARTICLE IV MISCELLANEOUS Section 4.1. NO OUTSTANDING REGISTRATION RIGHTS. The Company represents and warrants to the Investor that there is not in effect on the date hereof any agreement by the Company pursuant to which any holders of securities of the Company have a right to cause the Company to register or qualify such securities under the Securities Act or any securities or blue sky laws of any jurisdiction that would conflict or be inconsistent with any provision of this Agreement, except to the extent such agreements are disclosed in documents filed with the SEC by the Company under the Exchange Act. Section 4.2. TERM. The registration rights provided to the holders of Registrable Securities hereunder shall terminate at such time as all Registrable Securities (i) have been disposed of pursuant to the Registration Statement, (ii) have been sold under circumstances under which all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act ("Rule 144") are met, (iii) have been otherwise transferred to holders who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend, or (iv) may be sold without any time, volume or manner limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act in the opinion of counsel to the Company, which counsel shall be reasonably acceptable to the Investor; provided, however, that such registration rights shall not terminate sooner than two years following the 9 date hereof. Notwithstanding the foregoing, paragraph (c) of Section 1.1, Article III, Section 4.8, and Section 4.9 shall survive the termination of this Agreement. Section 4.3. RULE 144. The Company covenants that it will file all reports required to be filed by it under the Act and the Exchange Act and that it will take such further action as holders of Registrable Securities may reasonably request, all to the extent required from time to time to enable the Investor to sell Registrable Securities without registration under the Act within the limitation of the exemptions provided by (a) Rule 144, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. If at any time the Company is not required to file such reports, it will, upon the request of any holder of Registrable Securities, make publicly available other information so long as necessary to permit sales pursuant to Rule 144. Upon the request of the Investor, the Company will deliver to the Investor a written statement as to whether it has complied with such requirements. Section 4.4. CERTIFICATE. The Company will, at its expense, forthwith upon the request of any holder of Registrable Securities, deliver to such holder a certificate, signed by the Company's principal financial officer, stating (a) the Company's name, address and telephone number (including area code), (b) the Company's Internal Revenue Service identification number, (c) the Company's Commission file number, (d) the number of shares of each class of Stock outstanding as shown by the most recent report or statement published by the Company, and (e) whether the Company has filed the reports required to be filed under the Exchange Act for a period of at least ninety (90) days prior to the date of such certificate and in addition has filed the most recent annual report required to be filed thereunder. Section 4.5. AMENDMENT AND MODIFICATION. Any provision of this Agreement may be waived, provided that such waiver is set forth in a writing executed by both parties to this Agreement. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of the holders of a majority of the then outstanding Registrable Securities. Notwithstanding the foregoing, the waiver of any provision hereof with respect to a matter that relates exclusively to the rights of holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and does not directly or indirectly affect the rights of other holders of Registrable Securities may be given by holders of at least a majority of the Registrable Securities being sold by such holders; provided that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. No course of dealing between or among any Person having any interest in this Agreement will be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any person under or by reason of this Agreement. Section 4.6. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The Investor may assign its rights under this Agreement to any subsequent holder the Registrable Securities, provided that the Company shall have the right to require any holder of Registrable Securities to execute a counterpart of this Agreement as a condition to such holder's claim to any rights hereunder; 10 provided further that such holder is an "accredited investor" as defined in Rule 501 of Regulation D of the Securities Act. This Agreement, together with the Asset Purchase Agreement, sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them. Section 4.7. SEPARABILITY. If any provision of this Agreement is held to be invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. Section 4.8. NOTICES. Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given on the date of service if served personally, by recognized expedited delivery service, or by facsimile (with confirmation copies of any facsimile notice to be provided by at least one other method of delivery permitted hereunder), or five (5) days after the date of mailing if mailed, by first class mail, registered or certified, postage prepaid. Notices shall be addressed as follows: To Investor at: Daikin Industries, Ltd. Tokyo Opera City Building 20-2, 3-chome, Nishi-Shinjuku Shinjuku-ku, Tokyo 163-14 Japan Attn: General Manager Electronics Division with a copy (which shall not constitute notice) to: McCarthy Tetrault P.O Box 10424 Pacific Centre, Suite 1300 777 Dunsmuir Street Vancouver, B.C. Canada V7Y 1K2 Attn: Tim McCafferty Cooley Godward LLP 3000 El Camino Real Palo Alto, CA 94306 Attn: Thomas M. Shoesmith 11 To the Company at: Sonic Solutions 101 Rowland Way Novato, California 94945 Attn: Chief Financial Officer with a copy (which shall not constitute notice) to: Heller Ehrman White & McAuliffe LLP 2500 Sand Hill Road, Suite 100 Menlo Park, California 94025 Attn: Kyle Guse or to such other address as a party has designated by notice in writing to the other party in the manner provided by this Section. Section 4.9. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts entered into and wholly to be performed in the State of California by California residents. The parties hereby waive trial by jury in connection with any action or suit under this Agreement or otherwise arising from the relationship between the parties hereto. Section 4.10. HEADINGS. The headings in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement, nor shall they affect their meaning, construction or effect. Section 4.11. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original instrument and all of which together shall constitute one and the same instrument. Section 4.12. FURTHER ASSURANCES. Each party shall cooperate and take such action as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby. Section 4.13. REMEDIES. In the event of a breach or a threatened breach by any party to this Agreement of its obligations under this Agreement, any party injured or to be injured by such breach will be entitled to specific performance of its rights under this Agreement or to injunctive relief, in addition to being entitled to exercise all rights provided in this Agreement and granted by law. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that the remedy at law, including monetary damages, for breach 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. 12 IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above. SONIC SOLUTIONS By: /s/ Clay Leighton ------------------------------------------ A. Clay Leighton Senior Vice President DAIKIN INDUSTRIES, LTD. By: /s/ Kiyoshi Nakajima ------------------------------------------ Name: Kiyoshi Nakajima ---------------------------------------- Title: General Manager - Electronics Division --------------------------------------- 13 EX-10.3 6 0006.txt CONSULTING AGREEMENT EXHIBIT 10.3 SONIC SOLUTIONS CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (the "Agreement") is made and entered into as of February 27, 2001, by and between Sonic Solutions, a California corporation ("Sonic") and Daikin Industries, Ltd., a Japanese corporation ("Daikin"). WHEREAS, Sonic and Daikin have entered into that certain Asset Purchase Agreement dated February 27, 2001 (the "Asset Purchase Agreement"), pursuant to which Daikin has agreed to sell to Sonic, and Sonic has agreed to purchase from Daikin, certain of the assets owned or used in connection with Daikin's DVD related business; and WHEREAS, Sonic desires to obtain from Daikin, on the terms and conditions set forth herein, certain consulting services in connection with Sonic's operation of its own DVD business for a limited period of time; and WHEREAS, Daikin is willing to provide to Sonic, on the terms and conditions set forth herein, such services; NOW, THEREFORE, in consideration of the mutual covenants hereinafter recited, the sufficiency of which is hereby acknowledged, Sonic and Daikin agree as follows: ARTICLE 1 APPOINTMENT 1.1 Appointment. Sonic hereby appoints Daikin as consultant to provide the ----------- Services described herein, and Daikin hereby accepts such appointment, all in accordance with the terms and subject to the conditions contained herein. 1.2 Purposes of Engagement. The parties acknowledge that the purpose of the ---------------------- engagement of Daikin is to provide certain software consulting and development services related to the Products (as that term is defined in the Asset Purchase Agreement) acquired from Daikin so as to assist Sonic in acquiring the know-how and other expertise associated with those Products and the other assets and rights acquired by Sonic under the Asset Purchase Agreement and the integration of such Products and using such rights with those of Sonic. 1.3 Independent Contractor. In performing its services hereunder, Daikin is ---------------------- acting as an independent contractor and nothing in this Agreement should be interpreted or construed or this Agreement be deemed to constitute a partnership or joint venture between the parties or any of the directors, officers, employees or agents of Daikin be considered a partner, servant, employee or agent of Sonic. 1.4 Daikin Authority. Daikin shall have no right or authority, express or ---------------- implied, to bind, contract in the name of, commit or otherwise obligate Sonic in any manner whatsoever except to the extent expressly provided for herein or as Sonic may otherwise authorize, in writing. 1.5 Sonic Representative. Daikin shall at all times be entitled to rely and to --------------------- act on the instructions, directions and communications received from the Chief Executive Officer or such other officer or director of Sonic as Sonic may designate in writing from time to time (the Chief Executive Officer and such other person being referred to herein as the "Sonic Representative") as being fully authorized to bind and to act for and on behalf of and in the name of Sonic. 1.6 Daikin's Representative. Sonic shall at all times be entitled to rely and ----------------------- to act on the advice, recommendations or communications received from General Manager, Electronics Division of Daikin or such other officer or director of Daikin as Daikin may designate in writing from time to time (such person being referred to herein as the "Daikin Representative") as being fully authorized to bind and to act for and on behalf of and in the name of Daikin. 1.7 Non-Exclusive Services. Sonic acknowledges and agrees that during the term ---------------------- of this Agreement or any renewals hereof, Daikin may, either for its own account or in partnership or in conjunction with any other person, firm, syndicate or corporation in any manner whatsoever, carry on or be engaged in or concerned with or advise in the operation of any other business or enterprise, other than as prohibited under the non-competition provisions of the Asset Purchase Agreement. ARTICLE 2 SERVICES 2.1 Services. Daikin shall, subject to the provisions set out in this Section -------- 2.1 and the exclusions set out in Section 2.3, provide the Services set out on Exhibit "A" (the "Services") at the request and direction of Sonic. The parties acknowledge that the descriptions provided in Exhibit "A" are based on the present understanding of the anticipated needs and requirements of Sonic and the current expertise and staffing presently available to Daikin. However, the parties acknowledge and agree that even though they will be using commercially reasonable efforts, no assurance can or is given that the Services will be provided in the manner contemplated nor is any assurance given that any specified goals described in the attached Exhibit "A" will be achieved. The parties also acknowledge that Daikin's performance of the Services will be solely by and through the Employees (as defined below) and not by or through any other resources of Daikin. If Sonic directs or requests certain items described in Exhibit "A" to be performed as a priority, then the performance of other items described in such Exhibit "A" may be inhibited. The parties further acknowledge and agree that any material change to the Services to be provided as set out in Exhibit "A" will be subject to agreement of the parties and confirmed in writing. 2.2 Additional Services. In the event Sonic from time to time requests Daikin ------------------- to provide additional services that are of a nature not provided for in this Agreement, if Daikin agrees to provide such additional services, it shall be entitled to such additional fees and expenses as Sonic and Daikin may agree. -2- 2.3 Services Excluded. Without limitation, except as otherwise necessary ----------------- to perform the Services contemplated in Section 2.1 or as may be requested by Sonic pursuant to Section 2.2 hereof, the services to be provided by Daikin to Sonic shall not include the following: (1) responsibility with respect to any clerical, administrative or professional services required by Sonic, including legal, accounting or administrative services; or (2) carrying out any instruction or direction from Sonic that, in Daikin's opinion, would be illegal, unlawful or expose Daikin, Sonic or any of their respective directors, officers, agents, subcontractors or employees to an unacceptable level risk of personal injury, loss, damage or liability. 2.4 Daikin's Employees. Sonic acknowledges that the Services to be ------------------ provided by Daikin hereunder will be provided by a team of individuals currently employed by Daikin as listed on Exhibit B, and subject to the agreement of Sonic, such additional or replacement employees (the "Employees"). Daikin shall pay and grant to the Employees engaged in performing the Services on its behalf the salaries, wages, bonuses and other benefits required by law or agreed to by Daikin. 2.5 Standard of Care. Daikin shall be responsible for ensuring that all ---------------- Work Product and other Services provided under this Agreement are performed in a professional and workmanlike manner. 2.6 Employment Offers. Sonic is expressly permitted to extend offers of ----------------- employment at any time to any of the Employees. Daikin shall not oppose or otherwise impede such Employees from accepting employment with Sonic. 2.7 Services and Facilities. Except as provided in Section 2.8, Sonic ----------------------- acknowledges that the Services to be provided by the Employees will be provided from Daikin's existing or a comparable facility in Japan. Daikin confirms that it presently has and will allow the Employees the continued use throughout the term of this Agreement, without cost or charge to Sonic, of the equipment, software, computers, office facilities and tools necessary at that facility in order to allow the Employees to perform the technology transfer and sustaining engineering work forming part of the Services contemplated hereunder. To the extent any additional equipment, software, computers or other tools not presently available at Daikin's facility are reasonably necessary to allow the Employees to perform the new development work forming part of the Services contemplated hereunder, such additional equipment, software, computers or other tools shall be provided by Sonic, at Sonic's expense or if Sonic and Daikin agree, Daikin may purchase such equipment, software, computers or other tools, which will be the property of and owned by Sonic upon Daikin being reimbursed by Sonic for the expenses thereof (the "Sonic Equipment") and Sonic may at any time notify Daikin that it wishes to have any of such Sonic Equipment delivered to Sonic provided that Sonic shall be responsible for making all necessary arrangements and paying all necessary expenses for such delivery. At the request of Sonic, Daikin will act reasonably in facilitating such delivery arrangement provided Sonic will reimburse Daikin for any costs so incurred. 2.8 Travel by Employees. At the request of Sonic, Daikin shall make the ------------------- Employees available to provide all or some of the Services at a Sonic facility in the United States or -3- elsewhere (provided that Sonic acknowledges that Daikin cannot compel an Employee to do so without their consent and approval), provided Sonic: (1) has provided reasonable written notice to Daikin of the intended dates and duration during which the Employee will be working at the Sonic facility; (2) makes all arrangements for and pays for all such travel, transportation and accommodation, consistent with such arrangements as Daikin generally provides for its employees, as may be necessary to permit the Employees to travel to and work at Sonic's facility; and (3) makes all arrangements required in order to lawfully permit the Employee to travel to and work at such Sonic facility, including making all such arrangements reasonably satisfactory to Daikin and the Employee concerning working visas or satisfying other immigration concerns. 2.9 Sonic Obligations. In order to permit Daikin to provide the Services ----------------- contemplated hereunder, Sonic shall ensure that it has adequate and competent staff familiar with the Products and conversant in the Japanese language available to work with the Employees to achieve the purposes set out in Section 1.2. ARTICLE 3 COMPENSATION 3.1 Consulting Fee. As compensation for the services to be provided by -------------- Daikin pursuant to this Agreement, Sonic shall pay to Daikin, in respect of each quarterly calendar period during the term hereof, consulting fees at a rate of (Yen)20,400,000 per quarter, which fees will be deemed to accrue day to day, and shall be due and payable on August 31, 2001 and in the event the term is extended pursuant to Section 4.2, fees accruing after August 31, 2001 shall be due and payable on the last day of the month in which this Agreement will then terminate. 3.2 Adjustment of Consulting Fees. The parties acknowledge that the ----------------------------- consulting fees provided for in Section 3.1 are based on the assumption that the Employees will be available and providing Services continually during the quarterly calendar period on a full time basis. In the event the employment of an Employee is terminated, for whatever reason, or the Employee is otherwise unable or unwilling to provide the Services contemplated hereunder or, after August 31, 2001, Sonic has advised Daikin that it no longer requires the services of an Employee, (each a "Termination of Service Event"), the consulting fees payable under Section 3.1 shall be adjusted proportionately effective as of the date of such Termination of Service Event and Daikin shall be under no obligation nor incur any liability as a result of any reduction in the Services it may thereafter be able to provide hereunder. 3.3 Reimbursement of Expenses. Sonic shall promptly reimburse Daikin, on ------------------------- demand, for any expenses incurred by Daikin in the preceding month and in connection with any fees, charges or expenses incurred by Daikin for or on behalf of Sonic under this Agreement. 3.4 Receipts. Daikin shall provide to Sonic, in the same manner as Sonic -------- requires under its policies and procedures for reimbursement of the expenses of Sonic's own officers, -4- such vouchers, receipts and other information as may be reasonably requested by Sonic regarding any expenses in respect of which Daikin is requesting reimbursement hereunder. 3.5 Value Added Taxes. Sonic shall be responsible for the payment of any ----------------- value added, ad valorem, consumption or goods and services tax required by law in respect of the payments to be made to Daikin under this Agreement. Daikin confirms that as of the date hereof the payments hereunder are not subject to any such taxes in Japan. 3.6 Offset of Payments. All amounts due and payable under this Agreement ------------------ may be offset against any other amount owing under that certain Distribution Agreement entered into by the parties and dated February 27, 2001 (the "Distribution Agreement") or other amounts owing by Daikin to Sonic from time to time. 3.7 Unpaid Fees or Expenses. Any amount owing by Sonic hereunder (which ----------------------- shall include any costs incurred by Daikin in enforcing payment, including legal or other fees) and remaining unpaid shall bear interest at a rate of 12% per annum from the date on which such payment was due until payment. ARTICLE 4 TERM AND TERMINATION 4.1 Effective Date. This Agreement is effective as of February 27, 2001 -------------- and will remain in force until August 31, 2001 unless it is earlier terminated pursuant to Section 4.3 or extended pursuant to Section 4.2. 4.2 Extension. Provided Sonic is not in material default of its --------- obligations hereunder (it being acknowledged that a default in making any payment required hereunder will constitute a material default), Sonic may, on the written request of Sonic made not later than thirty (30) days before the expiration of the term, extend the engagement of Daikin under this Agreement on a monthly basis to a date no later than February 28, 2002, subject to the covenants, provisos and agreements as are herein contained. 4.3 Termination. This Agreement may be terminated prior to the expiry of ----------- the term, or any extension of the term: (1) after August 31, 2001, by Sonic giving Daikin written notice of termination at least thirty (30) days prior to the termination date set forth in such notice; (2) by either of Daikin or Sonic giving written notice to the other in the event the other is in material default in the performance or observance of any of its terms, covenants, conditions or obligations contained in this Agreement and fails to cure such default within thirty (30) days of written notice thereof or, if such default is not capable of being cured within such period, fails to commence in good faith, rectification of such default forthwith upon receiving written notice thereof, continues to diligently pursue and rectifies such default within thirty (30) days thereafter; -5- (3) upon there being no remaining Employees in the employ of Daikin and available to provide Services as contemplated herein; and (4) by mutual agreement of the parties, and upon such termination Daikin shall have no further obligation to provide any Services to Sonic hereunder. 4.4 Compensation of Daikin on Termination. Upon termination of this ------------------------------------- Agreement pursuant to Section 4.3 Daikin shall be entitled to immediately receive all sums due and payable under this Agreement to the date of such termination. 4.5 Liabilities and Obligations Surviving Termination. Notwithstanding the ------------------------------------------------- termination of this Agreement, the liabilities and obligations set out in Sections 5.1, and Articles 6 and 7 shall survive and continue in full force and effect. ARTICLE 5 WORK PRODUCT 5.1 Confidentiality. Daikin acknowledges that Confidential Information (as --------------- defined in Section 5.4 of this Agreement) is of great value to Sonic. Daikin shall maintain in confidence any Confidential Information that it receives or becomes apprised of as the direct or indirect result of this Agreement and shall refrain from using this Confidential Information or from disclosing same to any third person including any agent, affiliate, consultant, or subcontractor except as required to fulfill the purposes of this Agreement. This obligation shall not apply to the extent that Daikin can establish that the Confidential Information: (1) is or becomes generally known to the public through no fault of Daikin; (2) is known to Daikin before the date of its becoming aware of the Confidential Information through its performance of the Services, as evidenced by the written records of Daikin; (3) is disclosed, lawfully and not in breach of any contractual or other legal obligation, by a third person; (4) is required by law to be disclosed provided that notice of this requirement is delivered to Sonic so that it may contest this potential disclosure. Except as required to fulfill the purposes of this Agreement, Daikin shall not directly or indirectly cause or permit any Confidential Information to be copied or otherwise reproduced. Any such copy shall be marked as confidential and proprietary to Sonic. Nothing in this Agreement shall confer upon Daikin any right, title, interest or license in any Confidential Information except as expressly stated in this Agreement. Upon the expiration or termination of this Agreement, Daikin agrees to deliver to Sonic all documents, papers, drawings, tabulations, reports and similar documentation which are furnished by Sonic to Daikin or which were prepared by Daikin in performance of the Services. Upon the -6- expiration or termination of this Agreement, Daikin agrees to make no further use or utilization of any Confidential Information. 5.2 Work Product and Original Works of Authorship. All Work Product (as --------------------------------------------- defined in Section 5.4 of this Agreement) and all original works of authorship (including without limitation, computer code and the documentation and notes related thereto) made or conceived by Daikin in the course of performing the Services for Sonic during the term of this Agreement shall be considered works- made-for-hire and shall become and remain the sole and exclusive property of Sonic. To the extent that such Work Product and original works of authorship are not considered works-made-for-hire, Daikin hereby transfers and assigns to Sonic all right, title and interest in and to the same, whether or not patent or copyright applications are filed thereon. Daikin shall promptly notify Sonic in writing of all Work Product and original works of authorship so conceived or made by Daikin. Daikin agrees to execute such further documents and to perform such further acts, at Sonic's expense, as may be necessary to perfect the foregoing assignment and to protect Sonic's rights in the Work Product. In the event Daikin fails or refuses to execute such documents, Daikin hereby appoints Sonic as Daikin's attorney-in-fact (this appointment to be irrevocable and a power coupled with an interest) to act on Daikin's behalf and to execute such documents. 5.3 Moral Rights. Daikin also hereby irrevocably transfers and assigns to ------------ Sonic, and waives and agrees never to assert, any and all "Moral Rights" (as defined in Section 5.4) Daikin may have in or with respect to any Work Product, even after termination of Daikin's work on behalf of Sonic. 5.4 Definitions. As used in this Agreement: ----------- (1) "Confidential Information" means information of Sonic or any person or business entity directly or indirectly controlled by or controlling Sonic, or in which any of the aforesaid have at least a 50% interest, which information is or has been disclosed to Daikin or known to Daikin as a consequence of or through the performance of Services for Sonic, whether or not related to his duties for Sonic, including, but not limited to, information relating to Work Product, original works of authorship, disclosures, processes, systems, methods, formulas, trade secrets, procedures, concepts, algorithms, software, compositions, techniques, drawings, specifications, models, data, source code, object code, documentation, diagrams, flow charts, research procedures, copyrights, copyright applications, trademarks, trademark applications, devices, machinery, materials, cost of production, contract forms, prices, pricing policies, volume of sales, promotional methods, identity or information about customers or suppliers, marketing techniques or other information of a similar nature. Information shall be considered to be Confidential Information if identifies as such or would generally be considered confidential in the DVD trade generally, even though such information may have been disclosed to one or more third parties pursuant to any written distribution, joint research or other agreements entered into by Sonic under which such information is similarly to be considered Confidential Information. -7- (2) "Work Product" means all deliverables, inventions, innovations, improvements, or other works of authorship Daikin, through the Employees, may conceive or develop in the course of performing the Services for Sonic, or as a result of that work, whether or not they are eligible for patent, copyright, trademark, trade secret, or other legal protection and which relate to the Services. (3) "Moral Rights" means any rights to claim authorship of Work Product, to object to or prevent any modification of any Work Product, to withdraw from circulation or control the publication or distribution of any Work Product, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether or not such right is called or generally referred to as a "moral right." ARTICLE 6 WARRANTIES AND INDEMNITIES 6.1 Provision of Intellectual Property by Employees. Other than with ----------------------------------------------- respect to any information or other intellectual property provided by Sonic to Daikin, Daikin shall ensure that all Work Product provided by Daikin hereunder is not known to it to be a trade secret or other non-public proprietary technical or business information which would violate or infringe the legal rights of any third party. Daikin shall not use any third party Intellectual Property in connection with the Work Product unless it has first notified Sonic of its intention to do so, in writing, and has obtained the prior written consent of Sonic. 6.2 Indemnity by Daikin for Injury or Loss. Daikin shall indemnify Sonic -------------------------------------- and hold Sonic harmless from any and all claims, demands, causes of action, losses, damages, liabilities, costs and expenses, including attorneys' fees arising from the death or injury of any person or persons or from the damage or destruction of any physical property or properties (a "Claim") which is directly attributable to, resulted from or arose as a result of the breach by Daikin of this Agreement, provided that Daikin shall have no obligation to indemnify Sonic for any Claim which is attributable to, resulted from or arose as a result of an action, omission or service performed by Daikin or its employees at the request or direction of Sonic. 6.3 Daikin Indemnity for Infringement. Daikin shall defend, indemnify and --------------------------------- shall hold Sonic harmless, at its expense, from any proceeding brought against Sonic for any patent infringement (if intentional or grossly negligent) copyright or trade secret infringement or unfair competition violation, or any and all other claims arising out of the assignment of or use by Sonic of the Work Product, and any other information furnished by or created by Daikin in performing Services pursuant to this Agreement in breach of Section 6.1 hereof, provided, however, that Daikin shall have no duty to indemnify Sonic for claims relating to third-party intellectual property if Daikin has made Sonic aware of and obtained its consent to the use of such third party rights pursuant to Section 6.1 or if such claim is attributable to, resulted from, or arose as a result of any action or service performed by Daikin or its employees at the request or direction of Sonic. Daikin's agreement to defend and its obligation to indemnify Sonic under this Section 6.3 shall extend to all damages including indirect and punitive damages awarded in any such proceedings, as well as reasonable attorneys' fees, providing that Sonic will provide reasonable information and assistance to Daikin at Daikin's expense in defense of such claim. -8- 6.4 Provision of Intellectual Property by Sonic. Sonic shall ensure that all ------------------------------------------- information or other intellectual property provided to Daikin in connection with the Services is not know to it to be a trade secret or other non-public proprietary technical or business information which would violate or infringe the legal rights of any third party. Sonic shall not direct Daikin to use any third party intellectual property in connection with the Services to be provided hereunder without the prior written consent of the person which legally holds or enjoys the rights hereto. 6.5 Indemnity by Sonic for Injury or Loss. Sonic shall indemnify Daikin and ------------------------------------- hold Daikin harmless from any and all Claim which is directly attributable to, resulted from, or arose as a result of any breach by Sonic of this Agreement or any request or direction of Sonic hereunder. 6.6 Sonic Indemnity for Infringement. Sonic shall defend, indemnify and shall -------------------------------- hold Daikin harmless, at its expense, from any proceeding brought against Daikin for any patent infringement (if intentional or grossly negligent), copyright or trade secret infringement or unfair competition violation, or any and all other claims which is attributable to, resulted from or arise as a result of: (i) the Services to be provided by Daikin at the request or direction of Sonic pursuant to this Agreement, (ii) the use of any third party intellectual property in connection with the Work Product, where Sonic has provided consent pursuant to Section 6.1 to such use, or (iii) any information or other intellectual property provided by Sonic in breach of Section 6.4 hereof. Sonic's agreement to defend and its obligation to indemnify Daikin extends to all damages including indirect and punitive damages awarded in any such proceedings, as well as reasonable attorneys' fees, providing that Daikin will provide reasonable information and assistance to Sonic at Sonic's expense in defense of such claim. ARTICLE 7 GENERAL 7.1 Assignment. Neither party may assign its rights or obligations under this ---------- Agreement or any interest herein, nor delegate any obligation hereunder without the prior written consent of the other provided however that Sonic may assign its rights hereunder in connection with the merger or consolidation of Sonic with, or the sale of all or substantially all of its assets to, another entity. 7.2 Expenses. Except as otherwise expressly provided herein, each party will -------- pay its own costs and expenses, including legal and accounting expenses, related to the transactions provided for herein, irrespective of when incurred. 7.3 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of California applicable to contracts made between California residents and wholly to be performed in California. The parties hereby waive trial by jury in connection with any action or suit under this Agreement or otherwise arising from the relationship between the parties hereto. -9- 7.4 Headings. The headings in this Agreement are intended principally for -------- convenience and shall not, by themselves, determine the rights and obligations of the parties to this Agreement. 7.5 Notices. All notices, requests, demands, and other communications ------- required by, or made in connection with, this Agreement or the transactions contemplated by this Agreement, shall be in writing and shall be deemed to have been duly given on the date of delivery, if delivered in person, or five days after mailing if mailed by certified or registered mail, postage prepaid, return receipt requested, addressed as follows: If to Sonic: Sonic Solutions 101 Rowland Way Novato, California 94945 Attn: President with a copy (which shall not constitute notice) to: Heller Ehrman White & McAuliffe LLP 2500 Sand Hill Road, Suite 100 Menlo Park, California 94025 Attn: Kyle Guse If to Daikin: The address listed on the signature page hereto. Such addresses may be changed, from time to time, by means of a notice given in the manner provided in this Section 7.5. 7.6 Severability. If any provision of this Agreement is held to be ------------ unenforceable for any reason, such provision shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties to the maximum extent possible. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the full extent possible. 7.7 Waiver. The waiver of any term or condition contained in this ------ Agreement by any party to this Agreement shall not be construed as a waiver of a subsequent breach or failure of the same term or condition or a waiver of any other term or condition contained in this Agreement. 7.8 Entire Agreement. This Agreement and the Asset Purchase Agreement ---------------- (including the Exhibits and Schedules thereto) constitute and contain the entire agreement of the parties and supersede any and all prior negotiations, correspondence, understandings and agreements between the parties respecting the subject matter hereof which shall be superseded and replaced in its entirety by this Agreement. This Agreement may only be amended by written instrument signed by the parties. -10- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. SONIC SOLUTIONS By: /s/ Clay Leighton ------------------------------------------ Name: A. Clay Leighton ---------------------------------------- Title: Chief Financial Officer --------------------------------------- DAIKIN INDUSTRIES, LTD. By: /s/ Kiyoshi Nakajima ------------------------------------------ Name: Kiyoshi Nakajima ---------------------------------------- Title: General Manager - Electronics Division --------------------------------------- Address: Tokyo Opera City Building Electronics Division 20-2, 3-chomp, Nishi-Shinjuju Shinjuku-ku, Tokyo 163-14 Japan Attn: General Manager, Electronics Division EX-10.4 7 0007.txt DISTRIBUTION AGREEMENT Exhibit 10.4 [Sonic Solutions] Logo DISTRIBUTION AGREEMENT This Agreement, dated for reference the 27th day of February, 2001 (the "Effective Date"), is entered into by Sonic Solutions ("Sonic"), a California corporation with a place of business at 101 Rowland Way, Novato, California, 94945 and Daikin Industries, Ltd. ("Distributor"), a Japanese corporation with a place of business at Tokyo Opera City Building, 20-2, 3-chome, Nishi-Shinjuku, Shinjuku-ku, Tokyo, 163-14, Japan NOW THEREFORE this Agreement witnesses that in consideration of the mutual covenants herein contained, the parties hereby covenant and agree as follows: 1. DEFINITIONS Unless the context requires otherwise, in this Agreement, the following terms shall have the meanings set out below: (a) "affiliate" means, in respect of any person, any other person directly or indirectly controlling, directly or indirectly controlled by, or under the direct or indirect common control of such person; a person shall be deemed to control a corporation if the person is in a position to elect or cause another person or persons to elect a majority of the board of directors of the corporation; (b) "Confidential Information" means all technical, financial, legal, business opportunities, corporate, marketing, product, personnel, supplier, Marketing Partner, customer and other information, in whatever form or media, that is not generally known to the public, that is either marked or otherwise identified as confidential prior to its disclosure, or would generally be considered confidential in the DVD trade generally; (c) "Daikin Documentation" means the localized version of the Documentation created by Distributor; (d) "Documentation" means any user or technical manuals supplied to End Users with the Software; (e) "End Users" means any person who directly or indirectly accepts a sublicense for Software for its own internal use, and not for the purpose of resale or sublicensing; (f) "Front-line Support" means providing a point of contact for End Users and Marketing Partners, responding to operational and basic technical questions regarding the Software for End Users and Marketing Partners entitled to warranty or post-warranty support under section 9 of the Agreement, providing assistance in the installation of new versions of Software to End Users entitled to post-warranty support, performing basic diagnostics on problems reported by End Users or Marketing Partners entitled to warranty or post-warranty support and if unable to resolve any problem revealed by the diagnostics without access to the source code for the Software or additional technical expertise, providing the results of the diagnostics to Sonic to facilitate Sonic's resolution of the problem; (g) "Initial Term" shall have the meaning set out in paragraph 11.1; (h) "Integrated Software" means Software licensed by Sonic for the purposes of being used as part of an Integrated Product; (i) "Integrated Product" means a product in which the Software is embedded or otherwise incorporated, or a combination of the Software and other products sold as a single unit, which product or unit has a list price of more than twice the then current list price of the Software; (j) "Marketing Partners" means distributors, resellers and retailers; (k) "new versions" when used in the context of Software means new commercial releases to issue in accordance with paragraph 6.1; (l) "Required Purchase Orders" means those purchase orders that Distributor is required to issue in accordance with paragraph 6.1; (m) "Services" means consulting, training, installation and Front Line Support services for the Software; PAGE 2 (n) "Software" means the executable code for the DVD software products identified in Schedule "A" to this Agreement, as amended from time to time, including versions of this software localized for the Territory and any bug fixes, updates or new versions thereof supplied under this Agreement; (o) "Standalone Software" means the Software licensed as a standalone item; (p) "Territory" means the territory identified in Schedule "A"; and (q) "Time and Materials Basis" means payment calculated by multiplying Sonic's then prevailing hourly rate for the personnel performing a task by the number of hours spent performing the task, plus any expenses related to that performance. Such expenses include, but are not limited to, charges for parts and materials consumed or used in the performance of the task and travelling expenses. Travelling expenses shall include actual expenses and an hourly rate for travel time. The current hourly rates for Sonic's personnel are set out in Schedule "A". 2. GRANT OF RIGHTS 2.1 Exclusive Right to Distribute Software in Territory and Non-Exclusive Right to Distribute Specified Integrated Products Worldwide. Subject to the terms and conditions set out in this Agreement, Sonic grants Distributor the exclusive right to promote, market, and distribute the Software and Documentation either as a Standalone Software or as Integration Software to Marketing Partners and End Users in the Territory, to embed or otherwise incorporate Software in an Integrated Product and to promote, market and distribute the Software and Documentation as part of the Integrated Product to End Users and Marketing Partners in the Territory and to grant its Marketing Partners the non-exclusive right to do so. Sonic further grants to Distributor the non-exclusive right to embed or otherwise incorporate Software in an Integrated Product and to promote, market and distribute the Software and Documentation as part of an Integrated Product to End Users and Marketing Partners worldwide, and to grant Distributor's Marketing Partners the right to do so, provided that Sonic has authorized this scope of distribution for the specific Integrated Product. Sonic may permit Sonic distributors for other territories to distribute a specific Integrated Product in the Territory, provided that Distributor has authorized this distribution for the particular Integrated Product. Any distribution rights granted by Sonic for Integration Software outside of the Territory shall reflect this restriction on the ability to distribute, sell or license the Integrated Product within the Territory. 2.2 Good Faith Determination of Scope of License. If Distributor delivers notice to Sonic of an opportunity to distribute an Integrated Product outside the Territory, Sonic shall not unreasonably withhold or delay its approval of the opportunity and shall act in good faith in determining whether to allow Distributor to pursue same. If Sonic delivers notice to Distributor of an opportunity to distribute an Integrated Product inside the Territory, Distributor shall not unreasonably refuse or delay its approval of the opportunity and shall act in good faith in determining whether to allow Sonic to pursue same. 2.3 Distribution Conditions. Subject to paragraph 5.1, Distributor shall not alter the Software, its packaging or the Sonic license agreement included with the Software. Distributor acknowledges that the Software is distributed to End Users subject to the terms of the applicable End User license for the Software. 2.4 Copies of Software Licensed for Internal uses. Sonic hereby grants to Distributor and Marketing Partners the right to use the Software and Documentation, other than the Daikin Documentation, provided by Sonic under paragraph 4.1, for promotions, demonstrations, training, sales support and Front Line Support of the Software. 2.5 Limitations on Rights Granted. Distributor acknowledges and agrees that the Software and Documentation contain valuable Confidential Information that is proprietary to Sonic. 2.6 Distribution Managers. Each of Sonic and Distributor shall appoint a distribution manager who shall have the primary responsibility for the implementation of the Agreement and shall facilitate communication between the parties. Each distribution manager shall have the authority to make day to day decisions under the Agreement. Sonic's distribution manager shall be located at Sonic's corporate headquarters in Novato, California. The initial distribution managers shall be Dr. Panos Nasiopoulos for Sonic and Mr. Kiyoshi Nakajima for Distributor. 3. DISTRIBUTOR OBLIGATION 3.1 Distributor Obligations. Distributor shall, at its own cost, use commercially reasonable efforts to promote, market, distribute and provide Front Line Support for the Software. Without limiting the foregoing and subject to the terms and conditions of this Agreement, Distributor shall: PAGE 3 (a) Provide Sonic with forecasts of Software requirements itemized by type of software product on or before the first day of each calendar quarter; (b) Within 15 days following the end of each calendar month, provide Sonic with a sales report setting out an itemized list of the type of software licensed in the month, identifying the End User or Marketing Partner that ordered the Software and where the Distributor has access to information about an End User for an order placed by a Marketing Partner, identifying that End User, and such other information relating to Distributor's performance of its obligations hereunder, as Sonic requests, acting reasonably; (c) Provided that Distributor remains the exclusive distributor for the Territory, within a reasonable period of Sonic delivering the initial form or subsequent versions of the Documentation to Distributor, provide Sonic with a copy of the corresponding version of the Daikin Documentation; (d) Supply a sufficient number of trained and knowledgeable people to adequately support the End Users of the Software and the Marketing Partners; (e) Provide Front Line Support to End Users and Marketing Partners for Software in the Territory; (f) Pay the monies due to Sonic hereunder in accordance with the terms of this Agreement; (g) Deliver notice to Sonic of any complaints relating to the Software received by Distributor and require Marketing Partners to do the same; (h) Promptly report any changes in ownership, management or control of Distributor, including without limitation, the merger, consolidation or sale of all or substantially all of Distributor's assets; and (i) Maintain a link to the Sonic website and permit Sonic to maintain a link to Distributor's website in accordance with the web linking policy set out in Schedule "B". 3.2 Compliance with Law. Distributor shall: (a) obtain, at its own expense, all necessary permits, licenses and any other authorization necessary to market, import, or sell the Software and its Integrated Products in the Territory. Notwithstanding the foregoing, Sonic shall, upon request by Distributor, provide Distributor with any information about the Software it reasonably requires from Sonic to obtain these permits, licenses and authorizations; and (b) represent Sonic and the Software accurately and fairly and shall not engage in any misleading or unethical business practices. 3.3 Daikin Documentation. Distributor hereby grants to Sonic the non-exclusive, non-transferable and non-assignable right to reproduce the Daikin Documentation solely for the purposes of supplying Distributor Documentation along with the Software. If at any time Distributor ceases to be the exclusive distributor of Software in the Territory, Sonic may purchase all right, title and interest in and to the Daikin Documentation and to any associated intellectual property rights by paying to Daikin $25,000 U.S. This provision shall survive termination of the Agreement. 3.4 Services. Except as expressly set out in this Agreement, Distributor shall be responsible for the provision of Services directly to End Users. 4. SONIC'S OBLIGATIONS 4.1 Delivery of Software. Upon execution of this Agreement, Sonic shall deliver to Distributor twenty five executable copies of each type of Software and associated Documentation for the purposes set out in paragraph 2.4. Upon Distributor notifying Sonic of the identity of a Marketing Partner, Sonic shall make five copies of the Software available to that Marketing Partner for the purposes set out in paragraph 2.4 at 30% of the then current Japanese list price for the Software. Distributor agrees that it is a condition of the provision of these copies of the Software and Documentation that they not be for re-sale, loaning, leasing, renting, time sharing, transfer or other uses by third parties and further agrees that Sonic may make its delivery of the Software described herein to Marketing Partners subject to their agreeing to this condition. 4.2 Support. Sonic shall provide Distributor with ongoing sales and technical information and assistance regarding the Software. Sonic shall provide technical support for Software for End Users and Marketing Partners in accordance with section 9, below, and shall ensure that it dedicates sufficient resources to such support to enable Distributor to satisfy the requirements of End Users and Marketing Partners. Sonic shall make training courses on the Software available for at least two of Distributor's employees at no additional PAGE 4 cost to Distributor (other than the cost of travel and lodging) on the existing Software and on new versions of the Software prior to their becoming commercially available. 4.3 Complaints. Sonic shall promptly deliver notice to Distributor of any complaints it receives related to Distributor's activities under this Agreement. 4.4 Software Development Plans. At the commencement of each quarter, Sonic shall meet with Distributor and discuss its Software development plans. 4.5 Changes to Software Products and Specifications. Sonic may not discontinue any Software or the trade name of any Software without Distributor's prior written consent. If Distributor gives its consent to such a change, unless otherwise agreed in writing by Distributor, the change shall not become part of any commercially available product for at least 90 days from the date the Distributor consents to the change. The parties agree that following the Initial Term or in any distribution agreement entered into by the parties after April 30 of 2002, Sonic will be permitted to discontinue an item of Software or a trade name for the Software provided that Sonic gives Distributor at least 90 days written notice of Sonic's decision to do so and continues to provide support for the Software for at least one year after it is discontinued. 4.6 Changes in Control. Sonic shall promptly report to Distributor any changes in ownership, management or control of Sonic, including without limitation, the merger, consolidation or sale of all or substantially all of Sonic's assets. 4.7 Promotional Brochures. Sonic shall provide to Distributor, at no additional cost, with technical information about the Software and the electronic version of any marketing materials for the Software published by Sonic. To the extent possible Sonic shall provide such information in advance of the initial production or license of the Software or any new versions thereof. 5. ORDERING 5.1 Placing Orders. Distributor shall issue the Required Purchase Orders and may issue other purchase orders for Software from time to time. Purchase orders are not binding on Sonic until accepted by Sonic. Sonic shall accept each Required Purchase Order and shall use all reasonable commercial efforts to accept any other purchase order issued hereunder. Each purchase order shall be in writing, incorporate this Agreement by reference, set out the Software ordered and the number of copies thereof, indicate whether it is anticipated to be Standalone Software or Integration Software, and include the ship-to-address and the required delivery date (which date shall not be less than 14 calendar days from the date the purchase order is delivered to Sonic). Purchase orders shall be delivered to the address set out on the face page of this Agreement or to such other address as Sonic may from time to time notify Distributor. Sonic acknowledges that its delivery of packaged software products may be inappropriate for certain types of Integration Software distributions and agrees to work in good faith with Distributor to develop mutually acceptable processes for such distributions. 5.2 Delivery of Software. Unless otherwise specifically agreed by the parties, Software and Documentation shall be delivered to Distributor packaged and ready for shipment to End Users or Marketing Partners as the case may be. It shall be delivered to Distributor, FCA (Free Carrier) Novato, the ship- to address specified on the applicable purchase order (Incoterms 2000 apply). 5.3 Ability to Cancel Purchase Orders. Distributor may cancel a purchase order other than a Required Purchase Order, at no charge, at any time up to ten calendar days prior to the required delivery date. 5.4 Exchange of Standalone for Integrated Software. The parties acknowledge that it may be difficult to estimate the relative requirements for Standalone Software and Integration Software. Sonic agrees that at any time prior to Distributor shipping an item of Standalone Software or of Integration Software to an End User or Marketing Partner, Distributor may exchange any Standalone Software purchased hereunder for an item of Integration Software or exchange any Integration Software purchased hereunder for an item of Standalone Software. 6. FEES 6.1 Minimum Value of Purchase Orders to be Issued. Sonic shall supply the Software to Distributor at the current Japanese list prices set out in Schedule "A" less a 45% discount. Distributor shall issue to Sonic purchase orders for at least the minimum amounts set out below in accordance with the schedule set out PAGE 5 below. Distributor shall pay Sonic the amounts owing under these purchase orders by way of wire transfer, made at the time the purchase order is issued, to a bank account specified by Sonic: (a) On the Effective Date, (Yen) 70,000,000 for the four calendar months ending June 30, 2001; (b) On or before June 28, 2001, (Yen) 70,000,000 for the three months ending September 30, 2001; (c) On or before September 27, 2001, (Yen) 60,000,000 for the three months ending December 31, 2001; (d) On or before December 27, 2001, (Yen) 60,000,000 for the four months ending April 30, 2002. If the value of purchase orders issued for Software for a period set out in (a)-(d) above exceeds that required by that sub-paragraph, the minimum value of Software required to be ordered in the subsequent period shall be reduced by the amount of this excess. If Sonic reduces the U.S. list price set out in Schedule A (the "US List Price") for any item of Software by more than 15%, any of the payments set out above that have not yet been paid (the "Guaranteed Payments") , shall be reduced in accordance with the following formula. Each item of Software in Schedule C has a total monetary amount (the "Amount") associated with it based on the Distributor's current sales forecast for the Initial Term (summing the amounts for the first 12 months and the additional two months in Schedule C). The percentage reduction for a Guaranteed Payment would be: (a) the percentage reduction of the US List Price for the Reduced Software, times (b) the Amount for the Reduced Software; divided by (c) Two Hundred Sixty Million, Eighteen Thousand Five Hundred Yen ((Yen)260,018,500). The parties further agree that Sonic may not increase the price of any item of Software unless Distributor agrees to the increase. Failure to place and pay for purchase orders as set out in this section 6.1 shall entitle Sonic to either terminate this Agreement or to terminate Distributor's status as the exclusive distributor of Software for the Territory as provided in paragraph 2.1. 6.2 Right of Set Off. Distributor shall have the right to set off any monies owed by Sonic to Distributor, against those monies owed by Distributor to Sonic under this Agreement. 6.3 Taxes and Duties. Distributor shall be responsible for the payment of all taxes or duties, (except taxes on the income of Sonic) associated with the supply of Software or Services under this Agreement. 6.4 Time of Invoice. Except for the Required Purchase Orders, Sonic shall invoice Distributor for Software at the time of shipment for Standalone Software, at the time the licenses are authorized for Integrated Software, and at the time of completion of performance for any Services contracted for by Distributor. 6.5 Date Payment Due. Except for the payments due under Required Purchase Orders, Distributor shall pay all properly issued invoices that are received on or before the last business day of any month by the last business day of the following month. 6.6 Right to Audit Licenses for Integration Software. Distributor shall keep records while this Agreement remains in effect, and for a period of two years thereafter, identifying by version and serial number of the Integration Software, the End User or Marketing Partner to whom the license for the Software was granted, and the date of grant. Sonic may conduct, or engage a qualified auditor to conduct, an independent audit of these records and any related financial/accounting/business records of Distributor. Such audit shall occur, if at all, during the normal business hours of Distributor, and only after written notice has been delivered to Distributor at least three business days in advance of the audit. If an audit reveals an underpayment of license or support fees, then Sonic may submit an invoice to the Distributor in the amount of the underpayment together with supporting documentation for its claim, and Distributor shall pay such invoice within 30 days of receipt of same. If the underpayment exceeds, $5000, then Distributor shall also pay for the cost of the audit. 6.7 Establishment of End User License Fees. Distributor may, in its sole discretion, determine the fee for which it is prepared to license Software to End Users or its Marketing Partners. 6.8 Late Payment. Notwithstanding any other remedies available to Sonic, if Distributor fails to pay any amount due under this Agreement within 30 days of it becoming due and payable, Sonic may charge interest on the outstanding balance at a rate of 1.0% per month. 7. OWNERSHIP 7.1 No Transfer of Ownership Rights in Software. Distributor acknowledges and agrees that title to and ownership of Sonic Software and of any copyright, trade secret, trade-mark, or patent rights, or any other intellectual property rights related thereto, are and shall remain the exclusive property of Sonic, and that PAGE 6 nothing in this Agreement shall convey to Distributor or to any Marketing Partner, or End User any ownership right, interest or title in or to the Software or to any intellectual property rights related thereto. Distributor acknowledges and agrees that the source code for the Software is Confidential Information. 8. TRADE-MARKS 8.1 No Alteration of Trademarks. Distributor shall not in any way alter, deface, remove, cover up, or mutilate in any manner whatsoever, any trademark, serial or model number, symbol, brand or trade name which Sonic may attach or affix to, or make a part of any of the Software. 8.2 License for Trademarks. Distributor is authorized by Sonic to use the trademarks, trade names, logos and designations Sonic uses for the Software in connection with Distributor's advertisement, promotion and distribution of Software. Distributor's use of such trademarks, trade names, logos, and designations will be in accordance with Sonic's then current policies as communicated to Distributor from time to time, including but not limited to trademark usage and co-operative advertising policies. Distributor agrees not to use any Sonic trademark, trade name, logo or designation in connection with any non-Sonic product, other than Integrated Products. 9. SUPPORT 9.1 Warranty. Sonic shall provide a written limited warranty with each item of Software supplied hereunder. For the Initial Term the warranty shall provide that the Software shall operate in accordance with the functional specifications in the Documentation for a period of 90 days following its shipment to the End User. If a Marketing Partner licenses Integration Software from Sonic for the purpose of embedding it or otherwise incorporating it into another product, Sonic shall warrant that the copy of the Integration Software supplied to the Marketing Partner shall operate substantially in accordance with its specifications for a period of 90 days. Sonic shall use reasonable efforts to resolve any problem identified with the Software that is covered by warranty and that Distributor is unable to resolve, and will keep Distributor apprised of the status of the problem in accordance with any problem resolution process agreed upon by the parties. If Sonic is unable to provide a fix or workaround for the problem within one month of being notified of the problem, Sonic shall refund to Distributor the fees that Distributor has paid to Sonic for each affected End User or Marketing Partner. Sonic makes no other warranty, condition or representation in relation to the Software either express or implied, including without limitation any warranty, condition or representation of fitness for a particular purpose, merchantability, noninfringement or durability. 9.2 Post Warranty Support. Within 30 days of this Agreement being executed by the parties, the parties shall mutually agree upon a form of post warranty maintenance agreement that Distributor may enter into with End Users and Marketing Partners to provide new versions of the Software and post warranty operational and technical support for the Software. Upon entering into any such agreement, Distributor shall provide notice to Sonic of the identity and contact information of the End User or Marketing Partner as the case may be. For each such Marketing Partner or End User Distributor shall pay to Sonic the annual support fee set out in Schedule "A" less a discount of 45%. Distributor shall pay support fees due under this Agreement by the end of the month following the month in which Distributor receives payment for the applicable support period. In consideration of this payment, Sonic shall perform all technical support beyond Front Line Support in accordance with the terms of the maintenance agreement and to the extent not inconsistent with that agreement with any problem resolution process agreed to by the parties. Except to the extent inconsistent with the applicable maintenance agreement, Sonic shall ensure that Daikin receives new versions of the Software or the password it requires to download new versions of the Software from Sonic's website, within 30 days of the new version becoming commercially available. Without limiting the generality of the foregoing, provided that the fees described above have been paid to Sonic, Sonic shall use reasonable commercial efforts to resolve problems identified to Distributor by an End User or Marketing Partner that has entered into a post warranty maintenance agreement with Distributor, that are not resolvable by Front Line Support and that preclude the Software from substantially operating in accordance with the Documentation. 10. CONFIDENTIALITY 10.1 Limited Disclosure of Confidential Information. Each of the parties shall maintain in confidence any Confidential Information of the other party which it receives or becomes apprised of as the direct or indirect result of this Agreement and shall refrain from using this Confidential Information or from PAGE 7 disclosing same to any third person including any agent, affiliate, consultant, or subcontractor, other than as required to fulfil the purposes of this Agreement, without the other party's prior written authorization. This obligation shall not apply to the extent that the receiving party can establish that the Confidential Information: (a) is or becomes generally known to the public through no fault of the receiving party; (b) is known to the receiving party before the date of its disclosure by the other party, as evidenced by the written records of the receiving party; (c) is disclosed, lawfully and not in breach of any contractual or other legal obligation, by a third person; or (d) is required by law to be disclosed provided that notice of this requirement is delivered to the party seeking to prevent the disclosure of the Confidential Information so that it may contest this potential disclosure. 10.2 Limited Copying of Confidential Information. Except as required to fulfil the purposes of this Agreement, neither party shall directly or indirectly cause or permit any Confidential Information of the other party to be copied or otherwise reproduced. Any such copy shall be marked confidential and, when appropriate, marked as proprietary to the disclosing party. 10.3 No Transfer of Rights to Confidential Information. Nothing in this Agreement shall confer upon the receiving party any right, title, interest or license in any Confidential Information except as expressly stated in this Agreement. 10.4 Terms of Agreement. The terms of the Agreement are confidential, and neither party shall disclose them to any third party without the other party's consent, which shall not be unreasonably withheld or delayed. 10.5 Return of Confidential Information. The receiving party shall promptly purge all Confidential Information from its computer systems and return to the disclosing party, upon termination of this Agreement, all Confidential Information and any copies of Confidential Information (except Software being sublicensed to an End User under an outstanding purchase order) in written or other tangible form in the possession or control of Distributor, its agents, affiliates, consultants or subcontractors. 10.6 Compliance of Officers, Employees etc. Each of the parties shall take all reasonable steps to ensure compliance of its directors, officers, and employees with the confidentiality provisions of this Agreement, including without limitation upon request by the other party, causing any such person involved in the sale or servicing of the Software to enter into the other party's standard non-disclosure agreement. Each party shall protect the other party's Confidential Information to at least the same extent it protects its own confidential information, and shall take any step which the other party reasonably requests to ensure compliance with this section. 10.7 This section shall survive termination or expiration of this Agreement. 11. TERM AND TERMINATION 11.1 Term. This Agreement comes into effect on the Effective Date specified on the face page, and unless terminated as provided below, shall continue in effect until April 30, 2002 (the "Initial Term"). The Agreement shall automatically renew thereafter for successive one year terms (but for greater certainty, not including the Required Purchase Orders) unless terminated by either party by delivering notice to the other party of its decision to terminate the Agreement no less than 45 days prior to the effective date of termination. The parties agree to meet at least 90 days prior to the end of the term to negotiate in good faith the terms under which both would be prepared to enter into a distribution agreement for the then following fiscal year. 11.2 Termination for cause. Either party (the "Terminating Party") may terminate this Agreement by giving written notice to the other party, effective immediately upon receipt or on the date set forth in the notice, if any of the following occurs: (a) the other party files, or has filed against, it, a voluntary or involuntary petition of bankruptcy which is not thereafter dismissed within sixty days, or the other party is unable to pay any of its debts as they fall due for a period of sixty days, or a receiver, administrator, or the local equivalent thereof, is appointed of all or a substantial part of the other party's assets; or PAGE 8 (b) the other party breaches any term or condition of this Agreement, the Terminating Party gives the other party written notice requiring the breach to be cured within thirty days of receipt of the notice and the party in breach fails to cure the breach within that period. 11.3 Other Remedies. Any termination of this Agreement for cause shall be without prejudice to any other rights or remedies either party may be entitled to under this Agreement, or at law. Without limiting the foregoing, Distributor acknowledges and agrees that a breach of the trademark, and confidentiality sections of this Agreement, or of any license granted hereunder, would cause Sonic irreparable harm, and that Sonic shall be entitled to immediately seek relief by way of a temporary or permanent injunction in the event of such a breach. 11.4 Effect of Termination. Upon termination of this Agreement, Distributor shall, and shall require its Marketing Partners to, immediately cease to exercise the rights granted to it under this Agreement. Without limiting the foregoing, unless Sonic indicates otherwise in writing, Distributor shall, and shall ensure that each of its Marketing Partners: (a) immediately cease to use, promote, market, distribute, reproduce, or support the Software; (b) return to Sonic any Confidential Information in their possession or control; and (c) discontinue the use of all trademarks and or trade names of Sonic by removing at their own expense, all signage containing any of the same, and cease using any form of advertising materials and any other form of communication identifying Distributor as a distributor of the Sonic products and any type conduct that might suggest the same. Upon termination of this Agreement, Sonic shall honour all outstanding purchase orders and all binding quotes and proposals issued by Distributor prior to the effective date of termination (provided that Sonic authorizes the quote or proposal at the time it is issued), shall return any of Distributor's Confidential Information in its possession or control, shall discontinue all use of Distributor's trademarks or trade names and any form of advertising materials or other form of communication identifying Distributor as a distributor of Sonic products, and work in good faith with Distributor to provide ongoing maintenance services to End Users. 12. INDEMNITY 12.1 Sonic's Indemnity. Sonic shall indemnify, defend and hold harmless Distributor and its directors, employees, consultants and independent contractors against any third party claims and any costs, loss, damage, expenses, lawyer's fees (including disbursements), or liability (including amounts paid in settlement) that result from any such third party claims that arise from the grossly negligent or wrongful acts of Sonic, unfair competition conducted by Sonic with respect to the Software or from a claim that the Software infringes any patent, copyright, trade secret or other intellectual property right of a third party. Notwithstanding the foregoing, Sonic shall not have any liability for a third party claim that results from the integration of the Software into the Integration Product, or the modification, use or combination of the Software in a manner not contemplated by the Documentation or specified or otherwise agreed upon by Sonic. Daikin shall provide reasonable information and assistance to Sonic at Sonic's expense in defence in any such proceeding. 12.2 Distributor's Indemnity. Distributor shall indemnify, defend and hold harmless Sonic, its directors, employees, consultants and independent contractors against any third party claims, and any costs, loss, damage, expenses, lawyer's fees (including disbursements),or liability (including amounts paid in settlement) that results from any such third party claims where the claim arises from the grossly negligent or wrongful acts of Distributor. Sonic shall provide reasonable information and assistance to Distributor at Distributor's expense in defence in any such proceeding. 12.3 This section shall survive termination of this Agreement. 13. LIMITATIONS ON LIABILITY 13.1 WITH THE EXCEPTION OF THE INDEMNITIES SET OUT IN SECTION 12, NEITHER PARTY NOR THEIR RESPECTIVE AFFILIATES, DIRECTORS, OFFICERS OR EMPLOYEES SHALL BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY OR INDIRECT DAMAGES, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS, INCLUDING WITHOUT LIMITATION, LOSS OF BUSINESS REVENUE OR EARNINGS, LOST DATA, LOST PROFITS, OR A FAILURE TO REALIZE EXPECTED SAVINGS. PAGE 9 13.2 WITH THE EXCEPTION OF THE INDEMNITIES SET OUT IN SECTION 12, NEITHER PARTY'S LIABILITY TO THE OTHER PARTY IN CONNECTION WITH THIS AGREEMENT, NOR THE LIABILITY OF THEIR RESPECTIVE AFFILIATES, DIRECTORS, OFFICERS OR EMPLOYEES, SHALL EXCEED THE TOTAL AMOUNT OF FEES PAID BY DISTRIBUTOR TO SONIC UNDER THIS AGREEMENT DURING THE 12 MONTHS IMMEDIATELY PRECEDING THE EVENT GIVING RISE TO THE LIABILITY. 13.3 THE LIMITATIONS, EXCLUSIONS AND DISCLAIMERS SHALL APPLY WHETHER AN ACTION, CLAIM OR DEMAND ARISES FROM A BREACH OF WARRANTY OR CONDITION, BREACH OF CONTRACT, NEGLIGENCE, STRICT LIABILITY OR ANY OTHER KIND OF CIVIL LIABILITY CONNECTED WITH THIS AGREEMENT. 13.4 Some jurisdictions do not allow limitations or the exclusions of certain types of damages. In the event that the laws of any such jurisdiction are deemed applicable to this Agreement, the above limitations or exclusions may be limited or deemed inapplicable. 13.5 This section shall survive termination of this Agreement. 14. GENERAL 14.1 Notice. All notices, reports, request and demands made under this Agreement shall be in writing and shall be sufficiently given or delivered if delivered to the other party by hand, double registered (or any other form of mail that provides a return receipt), facsimile (with confirmation of receipt provided by the recipient and a copy sent by first class mail, postage prepaid) or electronic courier to the addresses specified on the face page of this Agreement, or to such other address, fax number or e-mail address as the parties designate by written notice from time to time. Notice shall be deemed to have been received at the time of delivery. 14.2 Force Majeure. If either of the parties becomes unable to carry out the whole or any part of its obligations under this Agreement for any reason beyond its reasonable control including acts of God, acts of governmental authorities, strikes, war, riots or any other cause of such nature ("Event of Force Majeure"), then the performance of the obligations of the affected party (the "Affected Party") shall be excused during the continuance of any inability so caused, but such inability shall, as far as possible, be remedied with all reasonable dispatch. Either party shall give immediate notice to the other party upon becoming aware of an Event of Force Majeure. If an Event of Force Majeure continues for a period exceeding three months or such other period as is mutually agreed to by the parties, the other party may terminate this Agreement by giving the Affected Party at least seven days written notice of its intention to do so. 14.3 Entire Agreement. This Agreement constitutes the entire agreement of the parties, and supersedes all prior agreements, proposals, discussions, correspondence, or communication relating to the subject matter hereof. This Agreement shall not be modified or amended except in writing signed by authorized representatives of both parties. No standard form or set of terms and conditions printed on, or contained in, any document submitted by either party to the other subsequent to the execution of this document shall be sufficient to effect a variation, unless such document is executed by both parties. 14.4 Severability. If any court finds any part of this Agreement to be invalid or unenforceable, that part shall be severed from this Agreement and its invalidity or unenforceability shall not in any way affect the remaining provisions of this Agreement, which shall continue in full force and effect. 14.5 Assignment. Neither party may assign this Agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld, however Sonic may assign its rights hereunder in connection with the merger or consolidation with, or the sale of all or substantially all of its assets to, another entity. 14.6 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the state of California, excluding rules of private international law that lead to the application of the laws of any other jurisdiction. The United Nations Convention on Contracts for the International Sale of Goods (1980) shall not apply. The courts of the state of California shall have non-exclusive jurisdiction to hear any matter arising in connection with this Agreement. 14.7 Nature of Relationship. This Agreement shall not create or be construed as creating a joint venture, co-ownership, partnership, or agency relationship between Sonic and Distributor. Neither party shall have authority to or shall hold itself out as having any authority to incur, assume or create, orally or in writing, PAGE 10 any liability, obligation or undertaking of any kind in the name of, or on behalf of, or in any way binding upon, the other. 14.8 Survival. Sections 1, 7, 9.1, 10, 11, 12, 13 and 14 shall survive the termination or expiration of this Agreement. 14.9 Headings. The headings are not intended to be full or precise descriptions of the test to which they refer and shall not be considered part of this Agreement. 14.10 Counterpart Clause. This Agreement may be executed in counterparts, or facsimile counterparts, each of which when executed by either of the parties shall be deemed to be an original and such counterparts shall together constitute one and the same Agreement. The parties executed this Agreement on the dates set out below. Each party represents and warrants that its respective signatory is duly authorized to execute this Agreement on its behalf. SONIC SOLUTIONS: DAIKIN INDUSTRIES, LTD.: By /s/ Clay Leighton By /s/ Kiyoshi Nakajima ------------------------------ ----------------------------------- Name A. Clay Leighton Name Kiyoshi Nakajima ---------------------------- --------------------------------- Title Chief Financial Officer Title General Manager --------------------------- -------------------------------- Date February 27, 2001 Date February 27, 2001 ---------------------------- --------------------------------- Attachments: Schedules --------- EX-99.1 8 0008.txt PRESS RELEASE EXHIBIT 99.1 news release [SONIC SOLUTIONS LOGO] FOR IMMEDIATE RELEASE FOR MORE INFORMATION, CONTACT: February 28, 2001 Paul Lefebvre, Sonic Solutions 415.893.8000 phone . 415.893.8008 fax NASDAQ:SNIC paul_lefebvre@sonic.com email - -------------------------------------------------------------------------------- DAIKIN'S DVD AUTHORING BUSINESS JOINS FORCES WITH SONIC SOLUTIONS COMBINATION CREATES PROFESSIONAL DVD POWERHOUSE Marin County (February 28, 2001) - Sonic Solutions (NASDAQ: SNIC) announced today that it has reached an agreement with Daikin Industries, Ltd., of Japan under which Sonic will combine Daikin's DVD authoring business with Sonic's professional DVD operations. Under the terms of the agreement, Daikin will maintain an equity interest in Sonic Solutions signifying the strategic importance of the union. Sonic will acquire the Daikin products, including all intellectual property rights, and carry on development, marketing and sales activities on a worldwide basis. Further, Daikin will continue to be the exclusive distributor and service provider of the Daikin-originated authoring products in Japan. "The addition of Daikin's technology will further strengthen our leadership position," said Bob Doris, President of Sonic Solutions. "Daikin introduced Scenarist, the first authoring application for professional DVD creation, in 1996 and that system is still a `gold standard' in the industry. Sonic has sold the largest number of professional DVD production systems of any company in the world. This deal truly combines the best with the best." "Sonic has been very successful in providing professional users with DVD production systems," said Mr. Kiyoshi Nakajima, General Manager of Daikin's Comtec Computer Division in Tokyo, Japan. "We're delighted to join forces with Sonic to continue to develop and enhance the strong tradition established by Scenarist, ReelDVD and other Daikin DVD products." "We are very pleased that Sonic and Daikin have combined forces to create a professional DVD powerhouse," said Leon Silverman, Executive Vice President of Laser Pacific Media Corporation, a leading digital media laboratory based in Hollywood. "Our Digital Media Services Group specializes in the most demanding and creative DVD projects, and we make heavy use of both the Sonic and Daikin applications to provide the best possible product to our clients. We have had a longstanding and fruitful relationship with Sonic, and combining these product lines under one roof assures us of continued success in serving the Hollywood community." Key Executives to Join Sonic As part of the combination, key members of Daikin U.S. Comtec Laboratories will join Sonic Solutions. Dr. Panos Nasiopoulos, most recently President of Daikin U.S. Comtec Labs, will join Sonic as an Executive Vice President reporting to Bob Doris, Sonic's President. Dr. Nasiopoulos is a pioneer in DVD and digital media and is recognized as a leading authority on digital video compression and multimedia technology. In addition to his role at Daikin, Dr. Nasiopoulos is currently Executive Director of the Master of Software Systems Program at the Daikin's DVD Authoring Business Joins Forces with Sonic Solutions page 2 - -------------------------------------------------------------------------------- University of British Columbia, where he is also an Adjunct Professor in the department of Electrical and Computer Engineering. Jim Taylor, who has been Chief Technology Officer at Daikin's U.S. Comtec Labs, will also join Sonic as Chief of DVD Technology, also reporting to Bob Doris, Sonic's President. Mr. Taylor is a very well known figure in the DVD community and was named by DVD Report as one of the world's 21 most influential DVD executives. His book, DVD Demystified, now in its second edition, has become required reading for all DVD professionals. Before joining Daikin last year, Mr. Taylor held a number of positions in the DVD and multimedia industries. Most recently, he was the DVD Evangelist for Microsoft Corporation where he steered Microsoft's strategy for incorporating support for DVD into the Windows (TM) operating system. About Daikin Industries, Ltd. Based in Japan, Daikin Industries, Ltd., provides digital media hardware and software solutions including 3D graphic workstations, 3D animation, non-linear video editing, virtual set and DVD authoring software for professional multimedia content developers. Daikin's Scenarist, the world's first DVD authoring and premastering software, was released to the worldwide market in 1996. Daikin also released ReelDVD for the prosumer market in 2000. Daikin DVD products are used in over 3,000 facilities worldwide, ranging from Hollywood post-production facilities to DVD replication houses. The company's diverse operations also include being a top-ranking manufacturer of commercial and industrial air conditioning systems, fluorochemicals, oil hydraulic and lubrication equipment, defense products, vacuums, and cryogenics. About Sonic Solutions (NASDAQ: SNIC) Based in Marin County, California, Sonic (http://www.sonic.com) is the leading manufacturer of solutions for DVD publishing. Sonic DVDit!(TM) (http://www.dvdit.com) is the first application for DVD authoring targeted at videographers and corporate video producers, and is bundled with major video editing, capture, encoding and media production systems. Sonic MyDVD(TM) (http://www.mydvd.sonic.com) is the first DVD authoring application for consumers, making it easy to capture "your life on DVD." Sonic DVD Creator(R) and Sonic DVD Fusion(R) are the most widely-used systems for professional DVD publishing, and are installed worldwide at major studios, post production facilities and in corporate marketing departments. SonicStudio(TM) HD is the leading digital workstation for preparing audio for release on CD and is the first for creating content for the new DVD-Audio format. Sonic is also a full voting member of the DVD Forum, the standards-setting body for the DVD format. (C) 2001 Sonic Solutions. Sonic, Sonic Solutions, the Sonic logo, DVD Creator, DVD Fusion, DVDit!, and SonicStudio HD are trademarks of Sonic Solutions. All other company or product names are trademarks of their respective owners. Specifications, pricing and delivery schedules are subject to change without notice. -----END PRIVACY-ENHANCED MESSAGE-----