<PAGE>
 
PORTIONS OF THIS DOCUMENT INDICATED BY. ** HAVE BEEN OMITTED PURSUANT TO A 
REQUEST FOR CONFIDENTIAL TREATMENT SUBMITTED BY THE REGISTRANT

                          SOFTWARE LICENSE AGREEMENT

This Software License Agreement (the "Agreement") is made effective this 29th 
day of September, 1998 (the "Effective Date") between Sonic Foundry, Inc., a 
Maryland corporation ("SONIC FOUNDRY"), and HEWLETT-PACKARD COMPANY, a Delaware 
corporation ("HP").

1.   DEFINITIONS
     -----------

     1.1. "Program(s)" means those software programs of SONIC FOUNDRY to be
          developed and delivered to HP as set forth in Section 2 and Exhibit A,
          together with Error Corrections and any Enhancements that are accepted
          by HP according to the procedures in this Agreement.

     1.2. "Documentation" means that documentation set forth in Exhibit A
          together with equivalent documentation delivered to HP for all
          Enhancements accepted by HP.
  
     1.3. "Enhancement" means that any enhancement, modification, update, new 
          version or new release of a Program, other than Error Corrections.

     1.4. "Error Corrections" means all bug fixes or error correction for the 
          Programs.

     1.5. "Object Code" means any machine executable code derived in whole or in
          part from the Program.

     1.6. "HP Products" means any HP product and their successors and 
          replacements.

     1.7. "HP CPSS Technology class of products" means CD and or DVD Writeable
          and or ReWriteable Drives and or CD and or DVD Writeable and or Re-
          Writeable Software Recording Solutions whether bundled with one
          another or stand alone.


2.   DEVELOPMENT AND DELIVERY
     ------------------------

     2.1. SONIC FOUNDRY agrees to develop and deliver to HP the software
          programs and documentation set forth in Exhibit A, in accordance with
          the deliverables and milestones set forth in Exhibit A and in
          accordance with the Test Requirements set forth in Exhibit A.

     2.2. SONIC FOUNDRY shall deliver all Error Corrections to HP as soon as it
          delivers such Error Corrections to any other customer or in accordance
          with the procedures set forth in the Support section below, whichever
          is earlier.


3.   COMPATIBILITY
     -------------

     3.1. SONIC FOUNDRY agrees to ensure that Programs are fully compatible with
          those HP products identified in Exhibit A, and their successors or
          replacements.

     3.2. SONIC FOUNDRY agrees to ensure that the current version of the Program
          being distributed by HP is fully compatible with the latest version
          of the operating systems set forth in Exhibit A within the time frames
          described in Exhibit A.



HP and SONIC FOUNDRY Confidential        Page 1               Initials________
<PAGE>
 
4.   EVOLUTION AND NEW PROGRAMS
     --------------------------

     4.1.  SONIC FOUNDRY agrees to release all enhancements or modifications
           (except for those SONIC FOUNDRY creates for a specific, custom end
           user) to the Program(s) or to any SONIC FOUNDRY's software program
           which corresponds to the Program, as an Enhancement. The commercial
           release date for the Enhancement shall be no later than any other
           commercial release of such functionality.

     4.2.  At least ten (10) days prior to the release of an Enhancement, SONIC
           FOUNDRY agrees to notify HP and, upon beta release, deliver to HP a
           complete copy of it to HP. If HP requests a copy for acceptance
           testing then SONIC FOUNDRY shall deliver a copy of the final version
           to HP, at least seven (7) days prior to commercial release, for
           acceptance testing in accordance with paragraph 5 below together with
           a copy of documentation equivalent to that set forth in Exhibit A.

5.   ACCEPTANCE
     ----------

     5.1.  HP shall have thirty (30) days from the date of receipt of a complete
           copy of the Initial Program or an Enhancement to either accept,
           return for rework, or reject it. A "complete copy" as used in this
           Agreement shall include a copy of the program in object code,
           documentation (or equivalent) for the program in at least manuscript
           form, and any documentation regarding the program which HP reasonably
           requests to accomplish its evaluation. HP shall be entitled to test
           and evaluate any program by whatever means it deems appropriate
           consistent with SONIC FOUNDRY's rights in the program, and SONIC
           FOUNDRY hereby grants to HP any licenses necessary for HP to perform
           its evaluation. If HP returns a program for rework, SONIC FOUNDRY
           agrees to take reasonable steps to correct the listed defects and
           resubmit the program for re-evaluation under the same acceptance
           procedure. In the event HP rejects a Program, it shall give SONIC
           FOUNDRY written notice of rejection stating the reasons for its
           unacceptability. SONIC FOUNDRY has full authority to commercially
           release any and all Enhancements to the Program at its own discretion
           and without approval from HP.

     5.2.  In the event HP accepts an Enhancement then it shall be added to this
           Agreement. At its discretion, HP shall have the right to refuse to
           add any Enhancement to this Agreement even if it satisfies the
           technical requirements in this Agreement. In the event HP rejects an
           enhanced or modified Program, HP shall be entitled to continue to
           distribute the previous versions of that Program.

6.   RIGHTS GRANTED
     --------------

     6.1.  Object Code. SONIC FOUNDRY hereby grants to HP and HP's subsidiaries
           a non-transferable, worldwide license to use, reproduce and have
           reproduced, and distribute through all channels of distribution the
           Programs in Object Code with the right to sublicense such rights, but
           (save for Error Corrections) only as bundled with the HP Products.

     6.2.  **


HP and SONIC FOUNDRY Confidential    Page 2







<PAGE>
 
     6.4  Documentation, SONIC FOUNDRY hereby grants to HP and HP's subsidiaries
          a non-exclusive, non-transferable, worldwide, fully paid up license to
          use, reproduce, have reproduced, create derivative works and
          distribute through all channels of distribution the Documentation,
          with the right to sublicense such rights but solely in conjunction
          with the HP Products.

     6.5  No title or ownership in the Program(s) is transferred to HP. Nothing
          in this Agreement shall be construed to preclude HP from independently
          developing, acquiring or marketing computer software packages which
          may perform the same or similar functions as those software packages
          provided by SONIC FOUNDRY. Similarly, this Agreement shall not
          preclude SONIC FOUNDRY from entering into a similar agreement with
          third parties for distribution of the Programs

     6.6  No trademark licenses are granted under this Agreement. However, HP
          agrees that it will submit marketing material using Sonic Foundry's
          trademarks to Sonic Foundry for approval. Such approval will not be
          unreasonably withheld. If Sonic Foundry does not respond within (2)
          business days of submission by HP, such non-response will be deemed as
          an approval.

7.   MANUFACTURING AND MARKETING

     7.1  HP will perform all manufacture, reproduction and assembly of the 
          Programs and Documentation.

     7.2  SONIC FOUNDRY agrees to supply HP, without additional charge, a Gold 
          master of the Program(s) and an electronic copy of the Documentation.

8.   PRODUCT MAINTENANCE AND SUPPORT

     8.1  SONIC FOUNDRY agrees to provide the support set forth in Exhibit C.

     8.2  The maintenance and support obligations of SONIC FOUNDRY provided for
          in this Section shall run for the period of this Agreement and, for
          Error Corrections, shall continue for a period of one year after
          termination of this Agreement.

9.   PAYMENT

     9.1  HP agrees, except as set forth below, to pay SONIC FOUNDRY a royalty
          for each Program used internally or licensed to third parties by HP.
          No royalty shall be due for any item subsequently returned for a
          refund or other adjustment. No royalty shall be due for any program
          used by or distributed by HP for reasonable promotional, training or
          support purposes. The royalty for all Program(s) throughout the term
          of this Agreement is set forth in Exhibit B. Notwithstanding the
          foregoing, it is agreed by SONIC FOUNDRY that for HP Products which
          are external drive products, that a single royalty shall be due for
          any copy shipped with such HP Product or any upgrade copy but that end
          user will be authorized to make multiple copies of the software to
          support the end user customers use of the HP Product to the extent
          authorized by HP's end-user Agreement.

                                    Page 3
<PAGE>
 
     9.2. Royalties shall be payable monthly following shipment. Payments due
          SONIC FOUNDRY shall be made within thirty days following the HP month
          of shipment. Payment shall reflect royalties for all copies of
          Programs licensed during the previous month any recoverable fees
          already paid by HP and any credit for returns or other adjustments.

     9.3. Upon removal of the HP Product from HP's Corporate Price list, HP
          reserves the right to bill back returned product for up to 90 days.

     9.4. SONIC FOUNDRY may, at its sole option and expense, engage an
          independent auditor mutually acceptable to HP for the purpose of
          verifying royalty payments. HP will maintain appropriate records
          which will be made reasonably available to the auditor. SONIC FOUNDRY
          may only exercise this right on an annual basis.

     9.5. HP shall be solely responsible for all taxes relating to distribution
          of the Program, including use, sales, withholding and property taxes.
          SONIC FOUNDRY shall be responsible for all taxes on royalties and
          license fees paid to SONIC FOUNDRY under this Agreement, including
          use, sales, income, withholding and property taxes.

10.  CONFIDENTIAL INFORMATION
     ------------------------

     10.1. Neither party desires the confidential information of the other and
           each agrees to resolve issues arising under this Agreement with
           nonconfidential information whenever possible.

     10.2. If during the term of this Agreement either party requires access to
           information which the other party considers confidential or
           proprietary, each party must first agree in writing to disclose and
           receive the information in confidence. If then disclosed, the
           information shall be labeled [HP or SONIC FOUNDRY] Confidential
           Information and shall be used by only those employees of the
           receiving party who have a need to know such information for purposes
           related to this Agreement. The information shall be safeguarded for
           two years following receipt against disclosure to third parties by
           employing the same degree of care as the receiving party uses for its
           own similar information, but no less than a reasonable degree of
           care. No such obligations of confidence shall extend to information
           which: was in the receiving party's possession before receipt from
           the disclosing party; is or becomes a matter of public knowledge
           through no fault of the receiving party; is rightfully received by
           the receiving party from a third party without a duty of
           confidentiality; is disclosed by the disclosing party to a third
           party without a duty of confidentiality on the third party; is
           independently developed by the receiving party; is disclosed under
           operation of law; or is disclosed by the receiving party with the
           prior written approval of the disclosing party.

     10.3. All shipment volumes, forecasts and other HP shipment information are
           confidential and will be treated as confidential information.

11.  WARRANTY AND INDEMNIFICATION
     ----------------------------

     11.1. SONIC FOUNDRY warrants it has full power and authority to grant HP
           the rights granted herein, the Program(s), Documentation, trademarks,
           copyrights and trade names referred to in this Agreement do not
           violate or infringe any third party intellectual property rights, and
           that the Programs referred to herein will operate in accordance with
           their specifications and Documentation.

     11.2. SONIC FOUNDRY agrees to indemnify and hold HP harmless of and from
           any and all loss, cost, claim, liability, suit, judgment or expense,
           including reasonable attorneys' fees, arising out of any breach of
           the above described warranties.

                                    Page 4
<PAGE>
 
     11.3. SONIC FOUNDRY will defend any claims, suit, or proceeding brought
           against HP or its customers insofar as it is based on a claim that
           (i) any Program or Documentation, or any part thereof, furnished by
           SONIC FOUNDRY under this Agreement constitutes an infringement of any
           patent, copyright, trademark, trade name, unauthorized trade secret
           use, or any other intellectual property right, or (ii) the
           performance or non-performance of the Programs; if notified promptly
           in writing of such claim, and given authority, information and
           assistance (at SONIC FOUNDRY's expense) to handle the claim the
           defense of any suit or proceeding, and SONIC FOUNDRY agrees to pay
           all damages and costs awarded therein against HP and its customers.
           In case any Program or documentation or any part thereof is in such
           suit held to constitute an infringement and its use is enjoined,
           SONIC FOUNDRY shall, at its own expense and at its option, either
           procure for HP and its customers the right to continue use or, if
           applicable, replace the same with a noninfringing Program and
           documentation of equivalent function and performance, or modify them
           so they become noninfringing without detracting from function or
           performance. This Section states SONIC FOUNDRY's entire liability to
           HP for infringement of third party intellectual property rights.

     11.4. EXCEPT AS EXPRESSLY PROVIDED HEREIN, SONIC FOUNDRY MAKES NO OTHER
           WARRANTIES, EITHER EXPRESS OR IMPLIED, REGARDING THE PROGRAMS, AND
           SONIC FOUNDRY SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANT
           ABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.

12.  TERM AND TERMINATION

     12.1. This Agreement shall expire upon the removal by Hewlett Packard of
           the last Hewlett Packard product on the Corporate Price List, however
           in no event later than May 31, 2000.

     12.2. The non-breaching party may terminate this Agreement by notice if the
           other party breaches any provision of this Agreement and if such
           breach is not cured within thirty (30) days of notice from the non-
           breaching party advising of such breach.

     12.3. All obligations concerning confidentiality, support, warranties,
           indemnities, limitations of liability and all end user licenses shall
           survive termination of this Agreement. Further, HP may continue to 
           distribute its then current inventory of Programs.

13.  LIMITATION OF LIABILITY

     13.1  EXCEPT TO THE EXTENT OF THE INDEMNIFICATION PROVISIONS ABOVE, IN NO
           EVENT SHALL EITHER PARTY BE LIABLE FOR CONSEQUENTIAL OR SPECIAL
           DAMAGES (INCLUDING LOSS OF PROFITS) WHETHER BASED ON CONTRACT, TORT,
           OR ANY OTHER LEGAL THEORY.

14.  MISCELLANEOUS PROVISIONS

     14.1. HP agrees not to export or re-export the Programs or any copy or
           adaptation in violation of the U.S. Export Administration regulations
           or other applicable regulation.

     14.2. SONIC FOUNDRY and HP are strictly independent contractors and shall
           so represent themselves to third parties. Neither party has the right
           to bind the other in any manner whatsoever and nothing in this
           Agreement shall be interpreted to make either party the agent or
           legal representative of the other or to make the parties joint
           venturers.

                                    Page 5
<PAGE>
 
   14.3.   HP shall have the authority to market or not market the Programs as
           it deems appropriate. Nothing in this Agreement shall be construed or
           interpreted as placing a "best efforts" standard upon HP with respect
           to the marketing of any of the Programs.
          
   14.4.   All notices required under this Agreement shall be in writing and
           shall be considered given upon personal delivery, forty-eight (48)
           hours after sending by air courier, or seventy-two (72) hours after
           deposit in the United States Mail, certified mail return receipt
           requested or equivalent, addressed to the appropriate Account
           Manager.
          
   14.5.   This Agreement is made under and shall be construed in accordance
           with the laws of the State of California, excluding its conflicts of
           laws provisions. The parties hereby waive any constitutional,
           statutory, or common law right of trial by jury.
          
   14.6.   SONIC FOUNDRY agrees not to publicize or disclose to any third party 
           without the consent of HP the terms of this Agreement.
          
   14.7.   The headings of Sections of this Agreement are for reference only and
           are not to be construed in any way as terms.
          
   14.8.   SONIC FOUNDRY may not assign or transfer any of the rights or
           responsibilities set forth herein without the express written consent
           of HP and any purported attempt to do so shall be deemed void. If
           SONIC FOUNDRY is acquired by another entity, HP agrees not to
           unreasonably withhold consent to the assignment of this Agreement
           subject to agreement as assurances satisfactory to HP of adequate,
           technical support for HP Programs including the agreement of key
           SONIC FOUNDRY personnel to fulfill the obligations of support.
          
   14.9.   A party's failure to exercise any of its rights hereunder shall not 
           constitute or be deemed a waiver or forfeiture of any such rights.
          
   14.10.  This document represents the entire agreement between the parties as
           to the matters set forth and integrates all prior discussions or
           understandings between them.
          
   14.11.  The invalidity or unenforceability of any term of this Agreement
           shall not in any way affect the remaining terms which shall remain in
           full force and effect and the parties will negotiate in good faith a
           substitute provision which most nearly effects the parties intent in
           entering into this Agreement.

Agreed:

SONIC FOUNDRY                           HEWLETT-PACKARD COMPANY

By: /s/ Rimas P. Buinevicius            By: /s/ Jerry Shea
----------------------------            --------------------------

Typed Name: Rimas P. Buinevicius        Typed Name: Jerry Shea
Title: Chairman & CEO                   Title: General Manager CPSS

                                    Page 6
<PAGE>
 
                                   EXHIBIT A
--------------------------------------------------------------------------------
LICENSED SOFTWARE
--------------------------------------------------------------------------------

For this agreement, SONIC FOUNDRY'S ACID Music (version 1.0) will comply with 
the specifications below.

[_]  Localization
     The program will be localized in English, French, Italian, German, Spanish,
     Swedish, Dutch, Brazilian Portuguese and UK English for tutorials.

     All manuals will be localized in the same languages in electronic PDF 
     (Acrobat) format.

     All aspects of the product must be localized (except file names) including
     software, auto loading demo song, installation, manuals, on-line help,
     support materials, etc. All localized versions of the software must be
     released simultaneously with the English version and UK English for demo
     song.

[_]  Product System Requirements
     Compatible and certified with Microsoft Windows 95, Windows 98, and 
     Windows NT 4.0 including Windows logo Certification. If a new version of an
     Operating System (such as NT 5.0) is released during the term of the
     Agreement, SONIC FOUNDRY will provide a compatible product within 90 days
     of the commercial release during the term of the Agreement.

     Year 2000 Compliance Warranty.
     Subject to the limitation of liability contained in this Agreement, SONIC
     FOUNDRY Warrants to HP that the Software Products licensed under this
     Agreement, when used in accordance with the Documentation, are capable of
     correctly processing, providing, and receiving date data within and between
     the twentieth and twenty-first centuries, provided that all other products
     used by the End User in connection or combination with the Software
     Products including without limitation, hardware, software and firmware,
     properly exchange date data with the Software Products. This warranty shall
     not apply to any problems arising as a result of modification of the
     Software Products by anyone other than SONIC FOUNDRY. This year 2000
     Compliance warranty will remain in effect through December 31, 2000,
     Notwithstanding any other warranty period specified in this Agreement.

[_]  Specific Program Description
     .   The product will be branded as SONIC FOUNDRY ACID Music (version 1.0).
     .   See Attached Functional Specification.
     SONIC FOUNDRY shall provide the application(s) by the following dates:

         **

     The product shall be delivered to HP on CD (see attached Functional
     Specification) that may be taken directly to the duplicators. The manual
     shall be provided on-line in electronic format on the CD.


                                    Page 7

<PAGE>
 
     Regions and Languages are as follows:

     Americas: English, French, Italian, Spanish and Brazilian Portugese.
     Northern Europe: English, German, Swedish and Dutch.
     Southern Europe: Same disc as Americas.
     Asia Pacific: Same disc as Americas.

[ ]  HP Products

     **

                                    Page 8


<PAGE>
 
                                   EXHIBIT B

-------------------------------------------------------------------------------
PAYMENT SCHEDULE
-------------------------------------------------------------------------------

                                      **
<PAGE>
 
                                   EXHIBIT C
-------------------------------------------------------------------------------
          CUSTOMER SUPPORT
-------------------------------------------------------------------------------

Timely & Knowledgeable Maintenance and Support Service
------------------------------------------------------

                                      **


In addition to the support locations and support offerings, SONIC FOUNDRY must
ensure that the level of support meets or exceeds the expectations of HP's
customers and is provided in a timely manner that will not adversely impact HP's
support centers. Currently, SONIC FOUNDRY is providing a level of support for
it's customers that meets the expectations of HP's customers. SONIC FOUNDRY must
continue this level of support to ensure there are minimal negative impacts to
HP customer support centers or HP's customers. If HP receives complaints from
customers about the timeliness of SONIC FOUNDRY support or the quality of that
support, HP will identify these issues to SONIC FOUNDRY and SONIC FOUNDRY will
take corrective actions to resolve these issues. Once the issues have been
identified, SONIC FOUNDRY shall provide a corrective action plan within 30 days.

Technical and Emotional Escalations
-----------------------------------

SONIC FOUNDRY shall identify a point of contact in each region for technical and
emotional escalations. HP will also identify a point of contact in each region
for escalations. These identified individuals will be responsible for
communicating and resolving customer escalations, both emotional and technical.
Once a customer escalation has been resolved, the responsible individual will
provide feedback to the other company that will ensure that the escalation has
been resolved.

An integral part of the detailed process will be the development of processes
for handling customer issues that are a result of bugs or problems in either the
hardware or software. When these situations arise each company is committed to
providing error correction information when possible, a work around when
necessary, and schedules for implementation of corrective action. It is
anticipated that an issues database will be maintained that will provide this
information to each company on the status of current "bugs" or technical issues
that affect our customers.

Train-the-Trainer
-----------------

In order to provide the level of support for our customers that they expect,
both HP and SONIC FOUNDRY will have to provide training for each other on their
respective products. The standard call process requires that HP support
technicians support the HP hardware and that SONIC FOUNDRY support technicians
support the ACID Music software. HP has support technicians worldwide that must
receive the same level of training and SONIC FOUNDRY has a similar training
issue. In order to accomplish worldwide training each company will provide
training to the other's trainers. This will allow HP to customize the training
on ACID Music to meet HP's worldwide technical requirements. SONIC FOUNDRY will
provide HP with training support that will include product samples, technical
information and on-line access to our internal technical support staff,
Physical, in-

                                    Page 10
<PAGE>
 
person training will also be provided as necessary. HP will provide SONIC 
FOUNDRY with an ISV Training Kit that will clearly identify the specific items 
that SONIC FOUNDRY must provide to HP trainers. SONIC FOUNDRY will be provided 
with similar technical material to support their training needs. Upon execution 
of this agreement both HP and SONIC FOUNDRY will identify the individual that is
responsible for training development so that the training development can begin 
immediately.

Additional Requirements to Meet the Needs of Customer Support
-------------------------------------------------------------

Bugs and Fixes: SONIC FOUNDRY is responsible for submitting a list of known 
issues and fixes or work around for the gold master software at the time the 
gold master software is submitted. HP is responsible for submitting a list of 
known issues and fixes or work around for the hardware at the time the hardware 
is submitted. All issues contained in the gold master software or hardware must 
be below weight five or have a waiver from Hewlett-Packard Company and/or SONIC 
FOUNDRY. SONIC FOUNDRY gives HP the right distribute these fixes or work around 
to its customers and partners in any way Hewlett-Packard deems fit.

White Papers: All white papers relating to the software vendor's product will be
submitted to Hewlett-Packard Company with the gold master of the software. All 
white papers relating to HP's product will be submitted to SONIC FOUNDRY with 
the final release of the hardware.

                                    Page 11
<PAGE>
 
                                   EXHIBIT D
-------------------------------------------------------------------------------
ACCOUNT MANAGERS
-------------------------------------------------------------------------------

[ ]  Sonic Foundry

Name:
Title:
Address:  **

Phone:
Fax:

[ ]  Hewlett Packard

Name:
Title:
Address:  **

Phone:
Fax:

                                    Page 12
<PAGE>
 
      [LOGO OF HEWLETT-PACKARD]                 [LOGO OF SONIC FOUNDRY]



                                  ACID Music


                      for Windows 95/98 and NTWS 4.0/5.0



                     Functional Requirements Specification





                        Hewlett Packard, Sonic Foundry


                              September 28, 1998
<PAGE>
 
Purpose

To provide a music creation application which allows Windows 95/98 and NT users 
to burn their musical "masterpieces" directly to CD-R/RW. The initial
opportunity is to ship with HP drives**

Product Description

This music creation application, currently called ACID Music, will be a 
loop-based music tool which helps users create songs, rhythms, jingles, wraps, 
hymns, ditties, descants, chants or other audio compilations. The product will 
allow the user at lease 24 tracks of loops per song. The users may save their 
creations in .WAV, or .ASF output as well as burn their songs directly to CD in 
Red Book audio format in the track-at-once format using Sonic Foundry's 
technology.

Content that is provided with the ACID Music application may be used for 
personal or commercial use in an unrestricted manner (according to Sonic 
Foundry's End User License Agreement). Other content may be purchased from Sonic
Foundry, such as "Loops for Acid" but may be subject to different end user 
agreements. 

Content will be organized by genre, style or type of music.

A special start up ACD file will be loaded the first time the program is ran 
with loops as a tutorial.

Product Name and Branding/Versioning

ACID Music-Audio Creation in Digital
As ACID Music will be a modified for HP to include the CD burn capabilities, a 
version unique version number will be designated in the Help About box.

The copyright will reference "Sonic Foundry," as the copyright holder and will 
reference 1998 as the copyright date.

Languages

The product and manuals will be provided in English, French, Italian, German, 
Spanish, Swedish, Dutch, Brazilian Portuguese, (UK English for tutorials). Due 
to the nature of this product, it is not expected that file names will be 
translated.

HP will recommend to Sonic Foundry its translation house (SDL) for localization.

Operating Environments

The product will operate under Windows 95 (All Service Releases), Windows 98, 
and Windows NT Workstation 4.0 (Service Releases 3 or higher). If version 5.0 of
NT Workstation is released during the term of the Agreement, a compatible (not 
necessarily logo'd) product or patch will be released to HP customers free of 
charge within 90 days of the release of the operating system.

                                       2
<PAGE>
 
Installation

The product will not be integrated into HP's Installation set but rather will be
a stand alone disc that is provided ** Installation will be a multi-language
install by region.

Logo Requirements

The product must meet the Microsoft "Designed for Windows 95/98/NT" logo 
requirements. Because Logo requirements are changing soon and will include the 
additional requriment for NT 5.0 it is important that logo certification be done
as soon as feasible. Details of logo requirements can be obtained at
http:www.microsoft.com/windows/thirdparty/winlogo/.

Device Support

This product will support the HP 7200i, 7200e, 8100, 8200, 7300 and 7400 drives.

Delivery of Product

Sonic foundry shall provide the application(s) by the following dates:

                                      **

The product shall be delivered to HP on CD (2 CDs) that may be taken directly to
the duplicators. The manual shall be provided on-line in electronic format on 
the CD. Regions and Languages are as follows:

Americas: English, French, Italian, Spanish, and Portuguese.
Northern Europe: English, German, Swedish and Dutch.
Southern Europe: Same disc as Americas.
Asia Pacific: Same disc as Americas.

Electronic Upgrade Capability

Electronic upgrade capability may be provided by Sonic Foundry at their
discretion.

http://www.sonicfoundry.com.
----------------------------

                                       3

<PAGE>
 
Customer Support

Auto loading demo song at startup for usability.

Exclusivity

(covered in contract)

Other 

File(s) in the box for loop packs, effects and plug-ins, how to use in business 
environment.

                                       4