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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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2.3 Services Excluded. Without limitation, except as otherwise necessary
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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
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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
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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
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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
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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
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Employees available to provide all or some of the Services at a Sonic facility
in the United States or
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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
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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
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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
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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
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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
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requires under its policies and procedures for reimbursement of the expenses of
Sonic's own officers,
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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
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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
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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
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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
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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
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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
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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;
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(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
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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
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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
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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
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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
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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
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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:
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(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.
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(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
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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
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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
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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.
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6.4 Provision of Intellectual Property by Sonic. Sonic shall ensure that all
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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
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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
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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
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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
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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
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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.
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7.4 Headings. The headings in this Agreement are intended principally for
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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
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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
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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
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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
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(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.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
SONIC SOLUTIONS
By: /s/ Clay Leighton
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Name: A. Clay Leighton
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Title: Chief Financial Officer
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DAIKIN INDUSTRIES, LTD.
By: /s/ Kiyoshi Nakajima
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Name: Kiyoshi Nakajima
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Title: General Manager - Electronics Division
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Address:
Tokyo Opera City Building
Electronics Division
20-2, 3-chomp, Nishi-Shinjuju
Shinjuku-ku, Tokyo 163-14
Japan
Attn: General Manager, Electronics Division