Document:

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                              PURCHASE AGREEMENT

                                By and Between

                          PRECISION AUTO CARE, INC.,

                                  as Seller,

                                      and

                     ZAYAC PROPERTY HOLDING COMPANY, LLLP,

                                   as Buyer

                           Dated as of June 29, 2000

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                              PURCHASE AGREEMENT
                              ------------------

     THIS PURCHASE AGREEMENT ("Agreement") is made as of June 29, 2000, by and
between ZAYAC PROPERTY HOLDING COMPANY, LLLP, a Colorado limited liability
limited partnership ("Buyer"), and PRECISION AUTO CARE, INC., a Virginia
corporation ("Seller").

                             W I T N E S S E T H:
                             - - - - - - - - - -

     WHEREAS, Seller operates a car wash business in the Denver metropolitan
area at nine locations wherein Seller either owns the fee title to the real
property or has a leasehold interest to occupy the real property;

     WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from
Seller the real property listed on Schedule 1.01 and specific tangible and
                                   -------------
intangible assets used in or held for use in connection with the operation of
the nine car washes listed on Schedule 1.01 attached hereto (the "Business").
                              -------------
Because Seller does not own the fee title to the real property at the corner of
Leetsdale and Holly location but, rather, a leasehold interest (the "Leetsdale
Lease"), Seller desires to assign to Buyer and Buyer desires to assume from
Seller the leasehold interest to the Leetsdale Lease; and

     WHEREAS, Seller and Buyer desire to enter into this Agreement to effect the
purchase and sale of such real property and assets free and clear of all liens
and encumbrances pursuant to the terms set forth herein.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, the parties hereto, intending to be
legally bound, agree as follows:

                                  ARTICLE I.

                 PURCHASE AND SALE OF REAL PROPERTY AND ASSETS

     Section 1.01.  Purchase and Sale of Real Property and Assets on the Closing
                    ------------------------------------------------------------
Date.  Subject to the terms and conditions hereof, on the Closing Date (as
----
defined in Section 2.01(a) hereof), Seller shall (i) transfer, sell, convey and
deliver to Buyer those certain tracts of real property together with all
interests of Seller in any vacated streets or alleys adjacent thereto, all
easements and other appurtenances and benefits thereto, all improvements thereon
and all attached fixtures, more particularly described on Schedule 1.01 attached
                                                          -------------
hereto (collectively, the "Real Property"), which Real Property shall be free
and clear of all liens, liabilities, claims, mortgages, obligations, taxes,
assessments or other encumbrances of any kind or nature, except for use
restrictions imposed by zoning regulations, easements conveyed to public
utilities and access easements which do not materially affect the value of the
Real Property ("Liens"), and (ii) assign, transfer, sell, convey and deliver to
Buyer all of Seller's right, title and interest in and to specific tangible and
intangible assets of Seller necessary for the normal course of business
operation of the Business, as they shall exist on the Closing Date (the
"Purchased Assets"), free and clear of all Liens, including but not limited to
the following:

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          (a)  the tangible and intangible personal property used by Seller
currently and customarily used in the course of the Business, including all
working inventory, tools, equipment, spare parts, vehicles, machinery, stock,
supplies, changer coinage and tokens, licenses of software currently used in the
operation of the Business, electronic copies of all documentation, checklists
and forms used in the operation of the business, and other items listed on
Schedule 1.01 (to be provided by Seller prior to the Closing Date) and attached
-------------
hereto;

          (b)  copies of all books, files, and records in Seller's possession
concerning the operation of the Business and all other files necessary to
conduct and operate the Business and copies of all title commitments and title
policies, surveys, engineering studies and reports, environmental studies and
reports and related documents in Seller's possession concerning the Real
Property;

          (c)  all rights and benefits of Seller in, to and under the Leetsdale
Lease; and

          (d)  all goodwill of the Seller related to the Business.

     The Real Property together with the Purchased Assets shall be collectively
referred to as the "Property".

     Section 1.02.  Purchase Price.  The Purchase Price shall consist of cash
                    --------------
paid by Buyer to Seller in the amount of $4,900,000.

     Section 1.03.  Manner of Payment.
                    -----------------

          (a)  Pursuant to the terms of the Earnest Money Escrow Agreement,
Buyer has deposited earnest money in the amount of $100,000 with the Title
Company (as defined in Section 6.01(c) hereof), to be held in trust in an
interest bearing account accruing to the benefit of Buyer and to be applied to
the Purchase Price on the Closing Date or returned to the Buyer in accordance
with this Agreement; and

          (b)  On the Closing Date, Buyer shall deliver to the Title Company, in
the form of a certified check, cashier's check or wire transfer, the sum of
$4,800,000 (the "Closing Payment"), subject to Section 1.06.

     Section 1.04.  Allocation of Purchase Price.  The Purchase Price shall be
                    ----------------------------
allocated, by Buyer, as set forth on Schedule 1.04, which shall be delivered to
                                     -------------
Seller by Buyer, no later than July 18, 2000, and subject to Seller's approval,
which approval shall not be unreasonably withheld, delayed or conditioned.  The
approved Schedule 1.04 shall be attached hereto in final form on the Closing
Date.  The parties hereby agree that the allocation of the Purchase Price shall
be controlling for tax purposes and shall be utilized in preparing Internal
Revenue Service ("IRS") Form 8594.

     Section 1.05.  No Assumption of Liabilities.  Buyer shall not assume or be
                    ----------------------------
liable for or obligated to pay any debts, liabilities or obligations of any kind
related to Seller, the Business or the

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Property arising prior to the Closing Date (collectively, "Seller's
Liabilities"), including, without limitation, any: (i) accounts payable or
liabilities or obligations of any kind to creditors or employees (including any
obligations under any employment agreements, profit sharing or other benefit
plans) of Seller; (ii) any other liabilities or obligations of Seller related to
transactions or occurrences prior to the Closing Date; or (iii) Liens or other
existing or contingent obligations related to the Real Property, Purchased
Assets or to the Business, the liability for which arose prior to the Closing
Date. Seller shall be liable for any state, transfer and other taxes (exclusive
of transfer taxes related to the deed for the Real Property) arising from the
consummation of the transactions contemplated herein.

     Section 1.06.  Escrow. At Closing, Seller shall deposit with the Title
                    ------
Company, to hold in escrow ("Escrow"), the amount of $25,000 ("Escrowed Funds").
Such Escrowed Funds shall be used to satisfy any matters with respect to which
Seller has indemnified Buyer pursuant to the terms of this Agreement.  If, and
in the event, after Closing, Buyer receives written notice of a claim sought
against Seller for any matters with respect to which Seller has indemnified
Buyer pursuant to the terms of this Agreement, Buyer shall promptly provide
Seller written notification of such a claim.  Seller shall have a period of ten
(10) days to assume, discharge, or undertake in good faith the assumption or
discharge, including the commencement of an appropriate action to dispute the
validity of such claim.  In the event Seller fails to so assume, discharge,
undertake or dispute the claim within the referenced time period, Buyer may
elect to satisfy the obligation with the Escrowed Funds.  In the event Buyer
elects to so satisfy such a claim, Buyer shall provided written notification to
the Title Company directing the Title Company to directly pay such claim.  This
Escrow has been created as an accommodation to Buyer, to facilitate the smooth
transition of the Purchased Assets, and is in no way meant to imply the
assumption of any liabilities by Buyer, the assumption of any obligation of
Seller to Buyer or by Buyer to satisfy trade payables arising out of the
operation of the Business prior to the Closing Date or the release of Seller's
obligations with respect to any and all of its debts and liabilities.  Sixty
(60) days from the Closing Date, Buyer shall direct, in writing, the Title
Company to release the remaining balance, if any, of the Escrowed Funds to the
Seller.

                                  ARTICLE II.

                                    CLOSING

     Section 2.01.  Closing. The payment to Seller of the Purchase Price, the
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delivery of documents set forth in Section 2.02, and the sale of the Property to
Buyer, as contemplated herein (the "Closing"), shall take place at 10:00 a.m. on
July 21, 2000 at the offices of Hall & Evans, L.L.C., 1200 17th Street, Suite
1700, Denver Colorado or such other place and date as may be agreed upon between
the parties (the "Closing Date").

     Section 2.02.  Deliveries on Closing Date.
                    --------------------------

               (a)  Seller's Obligations. On the Closing Date, Seller shall
                    --------------------
deliver to Buyer each of the following documents in form and substance
satisfactory to Buyer:

               (1) one or more special warranty deeds conveying to Buyer each of
          the properties comprising the Real Property, free and clear of any and
          all Liens, in proper

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          form for recording, duly executed, witnessed and acknowledged, so as
          to convey to Buyer the fee simple title to the Real Property;

               (2)  one or more bills of sale conveying to Buyer all of the
          Purchased Assets, free and clear of all liens and encumbrances;

               (3)  one or more trademark/technology licensing agreement for the
          use of the "Precision Wash" trademark and the wash technology software
          currently used by Seller in connection with the Business;

               (4)  DELETED

               (5)  a good standing certificate for Seller from the Secretary of
          State of the Commonwealth of Virginia and a certificate of
          qualification to do business for Seller from the Secretary of State of
          the State of Colorado;

               (6)  an opinion of Seller's counsel in the form of Exhibit A
          attached hereto;

               (7)  a certificate of the President of Seller that all of the
          representations and warranties of Seller contained herein are true and
          correct in all material respects as of the Closing Date (except to the
          extent that any such representation or warranty relates by its express
          terms solely to a prior date, in which event such representation or
          warranty was true and correct as of such date) and that Seller shall
          have, or have caused to be, performed all covenants, agreements and
          conditions contained herein to be performed and observed by Seller on
          or before the Closing Date;

               (8)  a certificate of the Secretary of Seller certifying
          resolutions duly adopted by Seller's Board of Directors and
          shareholders authorizing the execution, delivery and performance of
          this Agreement by Seller and certifying that such resolutions are
          remain in full force and effect;

               (9)  copies of all files and records described in Section 1.01(b)
          hereof;

               (10) a commitment for the issuance of the Title Policy (as
          defined in Section 6.01(c) hereof);

               (11) assignment and assumption agreement for the Leetsdale Lease;

               (12) obtain free and clear title to the property leased from the
          Dillon Leasing Company and the Young Electric Sign Company or provide
          Buyer with a Purchase Price adjustment for the value of the leased
          property; and

               (13) such other documents, assignments, deeds, bills of sale,
          instruments of conveyance, and certificates of officers as reasonably
          may be required by Buyer

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          or the Title Company to consummate this Agreement and the transactions
          contemplated herein.

          (b)  Buyer's Obligations.  On the Closing Date, Buyer shall deliver to
               -------------------
Seller each of the following documents in form and substance satisfactory to
Seller:

               (1)  a certificate executed by Buyer that all of the
          representations and warranties of Buyer contained herein are true and
          correct in all material respects as of the Closing Date (except to the
          extent that any such representation or warranty relates by its express
          terms solely to a prior date, in which event such representation or
          warranty was true and correct as of such date) and that Buyer shall
          have, or have caused to be, performed all covenants, agreements and
          conditions contained herein to be performed and observed by Buyer at
          or before the Closing Date; and

               (2)  such other documents as reasonably may be required by Seller
          to consummate this Agreement and the transactions contemplated herein.

          (c)  Payments.  On the Closing Date, Buyer shall pay to Seller the
               --------
payments provided for in 1.03 hereof.

     Section 2.03  Closing Costs.
                   -------------

          (a)  Seller shall pay:

               (1)  The costs of the owner's Title Policy, including the costs
          of any endorsements to the title insurance policy necessary to deliver
          extended coverage of title insurance;

               (2)  The costs, if any, of any survey and environmental reports,
          previously obtained by Seller and to be provided to Buyer prior to the
          Closing Date;

               (3)  The costs, if any, of curing title defects and recording any
          curative title documents, if Seller has elected to cure;

               (4)  The costs of satisfying any consensual liens made by Seller
          on the Property;

               (5)  The consulting fee payable to Matthew J. Sheedy (including
          any co-consulting fees payable by Matthew J. Sheedy to other
          consultants) incurred in connection with the sale of the Property and
          Business to Buyer, if and when this transaction closes, in accordance
          with a separate agreement between Matthew J. Sheedy and Seller;

               (6)  One-half of the Title Company's escrow agent's fees;

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               (7)  Seller's consultant and attorneys' fees relating to the sale
          of the Property; and

               (8)  The costs of any transfer fees, loan prepayment fees or
          penalties and document assignment expenses necessary to consummate the
          transaction contemplated hereby.

          (b)  Buyer shall pay:

               (1)  The costs of Buyer's due diligence investigations;

               (2)  The costs of any supplemental survey(s) or environmental
          site assessment(s) to be obtained by Buyer, if any;

               (3)  One-half of the Title Company's escrow agent's fees;

               (4)  The costs of the lender's Title Policy;

               (5)  Documentary fee relating to the deed(s);

               (6)  The costs of recording the deed(s);

               (7)  Transfer taxes on the deed(s), if any; and

               (8)  Buyer's attorneys' fees.

                                 ARTICLE III.

                                   COVENANTS

     Section 3.01.  Covenants of Seller.
                    -------------------

          (a)  Conduct of Business by Seller.  Between the date hereof and the
               -----------------------------
Closing Date, Seller agrees that it will (1) conduct the Business diligently, in
the ordinary course and in a prudent and businesslike manner, any extraordinary
transactions shall require Buyer's written consent; (2) use its best efforts to
preserve intact its present business organization, good will and advantageous
relationships with all persons having business dealings with Seller; (3) not
take any action that could reasonably be expected to adversely affect the
transaction contemplated herein, or the Business; and (4) use its best efforts
to preserve and maintain in force all of its licenses, permits, registration,
contracts and other similar rights.

          (b)  Access to Information.  Upon reasonable notice to Seller, Buyer
               ---------------------
shall have access, during normal business hours, to Seller's books, records, and
files related to the Business or the Property, and shall be furnished such
information related to the purchase as Buyer may reasonably request for purposes
incident to this Agreement; provided, however, that (1) such access

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shall not unreasonably interfere with Seller's business operations; and (2) in
the event the transactions contemplated by this Agreement are not consummated
for any reason, Buyer shall promptly return to Seller any and all documents,
theretofore furnished by Seller to Buyer. To the extent not previously provided
to Buyer, as soon as practical following execution of this Agreement, Seller
shall provide to Buyer or give Buyer access to the following documentation:

               (1)  Copies of all documents of title to titled property,
          including exceptions thereto, of any kind or description relating to
          the Real Property, Purchased Assets and Business;

               (2)  Copies of all Permits and contracts;

               (3)  Such other documents as are deemed reasonably necessary by
          Buyer to carry out its due diligence investigation prior to the
          Closing Date.

Until the Closing Date, Buyer and its principals will retain all such
information regarding the Business in confidence, will not disclose such
information to any third party other than to authorized agents, attorneys,
accountants, Buyer's banks and other necessary parties without the prior written
permission of Seller, and will use such information only for the purposes of
completing the transactions contemplated by this Agreement. In addition, any
information regarding the Seller and its subsidiaries beyond the scope of the
Business being conveyed by Seller to Buyer, shall not be divulged or
communicated by Buyer or any of its principals to any other person.

          (c)  Consents and Approvals.  Seller shall use its best efforts at its
               ----------------------
sole expense to acquire all consents and approvals identified as being required
on Schedule 4.03 attached hereto by reason of its execution, delivery and
   -------------
performance of this Agreement.

          (d)  Prohibited Transactions.  Between the date hereof and the Closing
               -----------------------
Date, Seller agrees that it will not, without the prior written consent of
Buyer, (1) sell, transfer, lease, mortgage, pledge or otherwise encumber or
dispose of any of the Real Property or any of the Purchased Assets except in the
ordinary course of its business or as specifically contemplated herein; (2) make
any change in its articles of incorporation or bylaws; (3) liquidate or
dissolve; (4) merge or consolidate with or into any other corporation, or (5)
modify, amend, cancel or terminate any  contracts relating to the Business.

          (e)  Tax Returns and Tax Clearances.  Seller will prepare or cause to
               ------------------------------
be prepared all income, franchise, sales and other tax returns or reports
required by law and promptly make all tax payments which are required through
the Closing Date.  Seller will cooperate with Buyer's counsel in the submission
of any required tax clearance requests to the various state taxing authorities
to which Seller is subject and will cooperate with such authorities to
facilitate the issuance of all such required tax clearances.

          (f)  Non-Solicitation.  So long as Buyer continues to use its best
               ----------------
efforts to conclude the transactions contemplated herein, neither Seller nor any
of its representatives or agents shall directly or indirectly solicit or engage
in discussions or negotiations with, or provide any non-

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public information to or otherwise cooperate with, any other person or entity
which seeks to acquire, or expresses an interest in acquiring, all or any
substantial part of the Business, nor will Seller directly or indirectly enter
into any agreement with or grant any option to any third person or entity in
connection with a transaction inconsistent with Buyer's acquisition of the
Business; provided, however, that nothing herein will limit Seller's right to
engage in any activity, including the disposition of any asset, in the ordinary
course of business consistent with past practice.

          (g)  Non-Competition.  Seller hereby covenants with Buyer for a period
               ---------------
of two (2) years from and after the Closing Date that Seller, shall not directly
or indirectly, own, manage, operate, join, control, engage or participate in the
ownership, management, conduct, operation or control of any corporation,
partnership or other business or enterprise ("entity") which operates a car wash
within a one mile radius of any of the nine car washes acquired as provided
herein.  Buyer and Seller agree that the remedy at law for a breach of the
foregoing will be inadequate and that Buyer shall be entitled to the injunctive
relief restraining Seller or such entity from any breach or anticipated breach
hereof, which relief shall be cumulative to other remedies and relief ordinarily
available under such circumstances and shall not be construed as an exclusive
remedy or relief.

          (h)  Employees.  Seller hereby covenants and agrees to make available
               ---------
the services of William R. Klum, for a period of up to thirty (30) days, and at
no cost to Buyer, for purposes of ensuring a smooth transition of the Business.
In addition, in the event Buyer desires to hire William R. Klum, or any other
employee of the Business, Seller hereby covenants and agrees to release William
R. Klum or any other employee of the Business from any employment or non-
competition agreement the Company may currently have with William R. Klum or any
other employee of the Business.  Furthermore, Seller agrees not to interfere
with any negotiations Buyer may have with any employees of the Business, prior
to the Closing Date, related to continued employment with Buyer; however, Buyer
agrees not to solicit Robert Knuesel for employment.

          (h)  Telephone Services.  -Seller hereby covenants and agrees, for a
               ------------------
period of sixty (60) days after the Closing Date, at no additional cost to
Buyer, to maintain all telephone lines currently used in connection with the
Business and to forward such lines to telephone numbers designated by Buyer.

          Section 3.02.  Mutual Covenants.  Each of Buyer and Seller will use
                         ----------------
its best efforts to (a) fulfill and satisfy or cause to be fulfilled and
satisfied all of the conditions required to be fulfilled and satisfied by Buyer
or Seller, respectively, at or prior to the Closing Date, (b) perform or cause
to be performed all of the matters required of Buyer at or prior to the Closing
Date, and (c) take such steps and do such acts as may be necessary to make all
of its representations and warranties contained in this Agreement true and
correct as of the Closing Date, with the same effect as if the same had been
made, and this Agreement had been dated, as of such closing date.

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                                  ARTICLE IV.

                   SELLER'S REPRESENTATIONS AND WARRANTIES'

     As a material inducement for Buyer to enter into and perform its
obligations under this Agreement, Seller represents and warrants to Buyer as
follows:

     Section 4.01.  Corporate Authority.  Seller is a corporation duly organized
                    -------------------
and validly existing and in good standing under the laws of the Commonwealth of
Virginia.  Seller is duly qualified to transact business as a foreign
corporation in the State of Colorado.  Seller has all requisite corporate power
and authority to own its properties and to conduct its businesses as currently
conducted, and to enter into and perform its obligations under this Agreement
and all agreements contemplated hereby.  The execution, delivery and performance
of this Agreement have been duly authorized by all necessary corporate action on
the part of Seller.  This Agreement has been duly executed and delivered by
Seller and constitutes the valid and binding obligation of Seller enforceable in
accordance with its terms.

     Section 4.02.  No Adverse Proceedings.  There are no court actions,
                    ----------------------
arbitrations or regulatory proceedings pending or, to the best of Seller's
knowledge, threatened in which the transfer of the Property or the operation of
the Business is sought to be restrained in any way or by which the Business
would be adversely affected thereby.

     Section 4.03.  No Restrictions Against Performance.  The execution and
                    -----------------------------------
delivery of this Agreement by Seller and the performance by Seller of the
transactions contemplated herein will not violate or conflict with, or
constitute a breach or default under, or result in the creation or imposition of
any Lien under, (a) the articles of incorporation or bylaws of Seller, (b) any
applicable statute, law, regulation or rule, or (c) any contract, instrument,
agreement, lease, mortgage, judgment, order, decree or other restriction to
which Seller is a party or by which Seller is bound, except that prior written
consent to the transaction contemplated herein, must be obtained from the
parties listed on the attached Schedule 4.03, Seller hereby agrees to use its
best efforts to obtain such consents.  No filing with or approval or
authorization of any Governmental Authority is required for Seller to enter into
and to perform its obligations under this Agreement.

     Section 4.04.  Title; No Liens.  Set forth on Schedule 1.01 attached hereto
                    ---------------                -------------
is a true and complete list of all tangible personal property necessary to
operate the Business.  Seller has good and marketable title to all the Property
and as of the Closing Date will own the Property to be transferred at such
closing free and clear of all Liens, rights of first refusal, restrictions or
other adverse legal or equitable interests of any kind or nature, except for use
restrictions imposed by zoning regulations and easements conveyed to public
utilities.  All of the Real Property together with the Purchased Assets are in
good operating condition and repair with respect to industry standards and are
in compliance in all respects with all applicable laws, regulations, orders and
ordinances.  None of the Property is subject to any pending or, to the best of
Seller's knowledge, threatened, adverse change, judicial or regulatory order,
ordinance or zoning restriction.

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     Section 4.05.  Environmental Matters. Seller has used no Hazardous Material
                    ---------------------
on the Real Property or in connection with the Purchased Assets in violation of
any Environmental Law nor has Seller knowingly permitted any other person to do
so and, further, Seller is not aware of the presence of any Hazardous Material
affecting the Real Property or the Purchased Assets in violation of any
Environmental Law. "Environmental Law" means any current legal requirement in
effect at the Closing Date pertaining to (a) the protection of health, safety,
and the indoor or outdoor environment, (b) the conservation, management,
protection or use of natural resources and wildlife, (c) the protection or use
of source water and groundwater, (d) the management, manufacture, possession,
presence, use, generation, transportation, treatment, storage, disposal,
release, threatened release, abatement, removal, remediation or handling of, or
exposure to, any Hazardous Material or (e) pollution (including any release to
air, land, surface water, and groundwater); and includes, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42
USC 9601 et seq., Solid Waste Disposal Act, as amended by the Resource
Conservation Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42
USC 6901 et seq., Federal Water Pollution Control Act, as amended by the Clean
Water Act of 1977, 33 USC 1251 et seq., Clean Air Act of 1966, as amended, 42
USC 7401 et seq., Toxic Substances Control Act of 1976, 15 USC 2601 et seq.,
Hazardous Materials Transportation Act, 49 USC App. 1801, Occupational Safety
and Health Act of 1970, as amended, 29 USC 651 et seq., Oil Pollution Act of
1990, 33 USC 2701 et seq., Emergency Planning and Community Right-to-Know Act of
1986, 42 USC App. 11001 et seq., National Environmental Policy Act of 1969, 42
USC 4321 et seq., Safe Drinking Water Act of 1974, as amended by 42 USC 300(f)
et seq., and any similar, implementing or successor law, any amendment, rule,
regulation, order or directive, issued thereunder. "Hazardous Material" means
any hazardous or toxic substance as defined in or regulated by any Environmental
Law in effect at the pertinent date or dates.

     Section 4.06.  Personal Property.  All tangible personal property
                    -----------------
comprising the Purchased Assets is usable or saleable in the ordinary course of
business, has been adequately maintained, is in good condition consistent with
industry standards, and is functionally adequate for its intended use.

     Section 4.07.  No Other Options.  No person or entity other than Buyer has
                    ----------------
any right or option to purchase Seller's interest in the Property or the
Business, except for William R. Klum to whom the business must be re-offered if
the Closing Date does not occur before July 31, 2000.  There is no other person
or entity that has any right, interest or option to the real property subject to
the Leetsdale Lease.

     Section 4.08.  Taxes.  All federal, state and other tax returns and reports
                    -----
required to be filed in connection with the Property or the Business have been
duly filed by Seller and all taxes and other assessments and levies (including
all interest and penalties) including, without limitation, income, franchise,
real estate, sales, gross receipts, use and telecommunications excise and
service taxes and employee withholding taxes, owed in connection with the
Property or the operation of the Business have been paid by Seller.  Seller has
not waived any statute of limitation with respect to any tax or other assessment
or levy applicable to Seller or the Property and all such taxes and other
assessments and levies which Seller is required by law to withhold or to collect
have been duly withheld and

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collected and have been paid over to the proper Governmental Authorities or
segregated and set aside for such payment and, if so segregated and set aside,
shall be so paid by Seller as required by law. Neither the IRS nor any other
taxing authority is now asserting or, to the best of Seller's knowledge, is
threatening to assert against Seller any deficiency or claim for additional
taxes or interest thereon or penalties in connection therewith.

     Section 4.09.  No Misstatements or Omissions.  None of the information or
                    -----------------------------
documents furnished or to be furnished by or on behalf of Seller to Buyer or to
any of Buyer's representatives pursuant to this Agreement, including all
Exhibits and Schedules hereto, is or will be false or misleading as to any
material fact or omits or will omit to state a material fact required to be
stated therein or necessary in order to make any of the statements made therein,
in light of the circumstances under which they were made, not misleading.

     Section 4.10.  Insurance.  Seller maintains policies of fire, casualty,
                    ---------
liability and other forms of insurance in such amounts and against such risks
and losses as are reasonable and adequate for the Property and the Business.
All of the Property is insured under such insurance policies in an amount not
less than the actual replacement value thereof against all risks usually insured
against by persons operating similar businesses.

     Section 4.11.  Contracts.  Attached hereto as Schedule 4.11 is a true and
                    ---------                      -------------
complete list (or summaries in the case of oral agreements) of all agreements
related to the Business or the Property (other than contracts described on other
schedules to this Agreement).  Each of such contracts has been entered into in
the ordinary course of business and is a valid and binding agreement of the
parties thereto enforceable against the parties thereto in accordance with its
terms.  Neither Seller nor, to the best of Seller's knowledge, any other party
to any such contract is in default under the terms of any such contract, nor has
any event occurred, which, with the passage of time or giving of notice, would
constitute such a default of Seller or any such other party.

     Section 4.12.  Undisclosed Liabilities.  There is no claim or liability of
                    -----------------------
any nature whatsoever, whether absolute, accrued, contingent or otherwise, which
could have an adverse effect upon the Property or the Business.

     Section 4.13.  Absence of Certain Changes.  Since December 31, 1999, there
                    --------------------------
has not been (a) any adverse change in the Business; (b) any damage, destruction
or loss to any of the Property, whether or not covered by insurance, which
adversely affected or impaired, or which does or may adversely affect or impair
the Property or the Business; or (c) any other transaction, event or condition
of any character which has or may have an adverse effect upon the Property or
the operation of the Business after the Closing Date.

     Section 4.14.  No Violation.  Seller has no knowledge of any facts or
                    ------------
circumstances which would indicate that it is in default or violation of any of
the terms, conditions or provisions of any loan or mortgage affecting the
Property or Business, contract, the Leetsdale Lease, or order, rule or
regulation of any Governmental Authority having jurisdiction over the Property
or the Business, except for a cash flow coverage ratio default under the
Seller's loan agreement with FFCA

                                     -11-
<PAGE>

Acquisition Corporation which will be cured by the application of the proceeds
of the sale of the Business on the Closing Date.

     Section 4.15.  Employees.  Buyer has no obligation to employ or hire any
                    ---------
person presently or formerly employed by Seller and Seller shall indemnify and
hold Buyer harmless from and against any and all claims whatsoever by any such
employee.

     Section 4.16.  Broker's Fees.  Neither Seller nor anyone acting on its
                    -------------
behalf has retained any broker, finder or agent or agreed to pay any brokerage
fee, finder's fee or commission with respect to the transactions contemplated by
this Agreement, except for the consulting fee payable to Matthew J. Sheedy, by
Seller.

     Section 4.17.  Prepayments.   Except for the "frequent wash program" and
                    -----------
"wash tokens," Seller has no customer prepayments for any undelivered and unused
goods or services as of the date of Closing or held on deposit by Seller for the
benefit of the Company's customers, whether by agreement or contract, oral or
written. In the event Seller has any customer prepayments for any undelivered
and unused goods or services as of the date of Closing, in excess of $250.00
related to the "frequent wash program" and "wash tokens," Seller hereby agrees
that Buyer may charge any amounts, in excess of $250.00, against the Escrow as
provided in Section 1.06; provided, however, that Buyer agrees that Seller shall
have no obligation to reimburse Buyer for customer prepayments in the form of
the "frequent wash program" and "wash tokens" beyond the expiration of the sixty
(60) day period after the Closing Date during which the Escrow will be
maintained. Buyer acknowledges that Buyer need not continue to honor the
"frequent wash program" or the "wash tokens" issued by Seller prior to the
Closing Date, and Seller is agreeing to reimburse Buyer for such expenses during
the sixty (60) day period after the Closing Date to facilitate the transition of
the Business.

     Section 4.18.  Permits.   Seller has not been issued any licenses, permits,
                    -------
authorizations, certificates, approvals, variances, waivers or consents, or
applications for any of the foregoing by the United States, state or local
governmental entity or municipality or subdivision thereof or any authority,
department, commission, board, agency, court or instrumentality thereof
(collectively, the "Governmental Authorities") which are necessary for the
operation of the Business or otherwise effect the Purchased Assets or the Real
Property, except for boiler permits and inspection certificates.

     Section 4.19.  Financial Data.   The financial data provided by Seller to
                    --------------
Buyer is true, complete and correct and has been prepared in accordance with
generally accepted accounting principles consistently followed throughout the
periods indicated.  The financial data fairly presents the financial condition
of the Business and assets and liabilities, whether accrued, absolute,
contingent or otherwise, as of the dates indicated and the results of operation
of Seller and for the Business, for the periods then ended.

                                     -12-
<PAGE>

                                  ARTICLE V.

                    BUYER'S REPRESENTATIONS AND WARRANTIES

     As a material inducement for Seller to enter into and perform its
obligations under this Agreement, Buyer represents and warrants to Seller as
follows:

     Section 5.01.  Authority.  This Agreement has been duly executed and
                    ---------
delivered by Buyer and constitutes the valid and binding obligation of Buyer
enforceable in accordance with its terms.

     Section 5.02.  No Adverse Proceedings.  There are no court actions,
                    ----------------------
arbitrations or regulatory proceedings pending or, to the best of Buyer's
knowledge, threatened in which Buyer's acquisition of the Property is or is
likely to be contested; in which the transfer of the Property is sought to be
restrained in any way; or which otherwise affects or could affect Buyer's
performance under this Agreement.

     Section 5.03.  No Restrictions Against Performance. The execution and
                    -----------------------------------
delivery of this Agreement by Buyer and the performance by Buyer of the
transactions contemplated herein will not violate or conflict with, or
constitute a breach or default under, or result in the creation or imposition of
any Lien under, (a) any applicable statute, law, regulation or rule, or (b) any
contract, instrument, agreement, lease, mortgage, judgment, order, decree or
other restriction to which Buyer is a party or by which Buyer is bound.

     Section 5.04.  Broker's Fees.  Neither Buyer nor anyone acting on Buyer's
                    -------------
behalf has retained any broker, finder or agent or agreed to pay any brokerage
fee, finder's fee or commission with respect to the transactions contemplated by
this Agreement.

                                  ARTICLE VI.

                        CONDITIONS PRECEDENT TO CLOSING

     Section 6.01.  Conditions to Obligations of Seller on the Closing Date.
                    -------------------------------------------------------
This Agreement and the obligations of Seller to consummate the transactions to
be consummated on the Closing Date shall be subject to the satisfaction of or
waiver by Seller in writing of the following conditions at or prior to the
Closing Date:

          (a)  Deliveries.  Buyer shall have delivered to Seller each of the
               ----------
documents specified in Section 2.02(b) hereof and the payments specified in
Section 2.02(c) hereof.

          (b)  Litigation. No action or proceeding shall have been instituted or
               ----------
threatened by third parties against Seller or Buyer to restrain or prohibit or
to obtain damages in respect of the transactions contemplated by this Agreement

     Section 6.02.  Conditions to Obligations of Buyer on the Closing Date.
                    ------------------------------------------------------
This Agreement and the obligations of Buyer to consummate the transactions to be
consummated on the Closing Date

                                     -13-
<PAGE>

shall be subject to the satisfaction of or waiver by Buyer in writing of the
following conditions at or prior to the Closing Date:

          (a)  Third Party Consents. Seller shall have obtained and delivered to
               --------------------
Buyer, at least five (5) days prior to the Closing Date, such consents and
approvals of third parties, listed on Schedule 4.03 attached hereto.
                                      -------------

          (b)  UCC Searches. Seller shall have obtained and delivered to Buyer,
               ------------
at least five (5) days prior to the Closing date, UCC (including fixture
filings) and state and federal tax and judgment lien searches against the
Seller, all dated within thirty (30) days of the Closing Date.

          (c)  No Adverse Change. Between December 31, 1999, and the Closing
               -----------------
Date, the Property shall have no adverse change and the operation of the
Business shall not have been stopped or threatened for any cause whatsoever, and
there shall not have been:

               (1)  any adverse change in the Property or the Business or
          prospects of the Business;

               (2)  any damage, destruction or loss, whether or not covered by
          insurance, which affects the Property or the operations of the
          Business; or

               (3)  any other event or condition of any character which
          adversely affects the Property or the Business.

          (d)  Due Diligence; Review of Title Commitment; Environmental Studies.
               ----------------------------------------------------------------
Favorable completion, by July 18, 2000, to Buyer's satisfaction, of Buyer's due
diligence investigation, regarding the title commitments delivered by the Title
Company (together with copies of all instruments which are exceptions noted
therein or conditions to be satisfied), surveys, environmental studies and tests
as Buyer may require relating to the Property.  Buyer shall have competed its
due diligence review with respect to financial issues prior to the execution of
this Agreement

          (e)  Title Insurance Policy.  Seller shall deliver to Buyer an ALTA
               ----------------------
Form B owner's and lender's policy of extended coverage title insurance (or
comparable owner's form) in the amount of the Purchase Price, insuring
marketable fee simple title in Buyer (the "Title Policy"), issued by Title
Services Inc. (the "Title Company").

          (f)  Deliveries.  Seller shall have delivered to Buyer each of the
               ----------
documents specified in Section 2.02(a) hereof.

          (g)  Litigation.  No action or proceeding shall have been instituted
               ----------
or threatened by third parties against Seller or Buyer to restrain or prohibit
or to obtain damages in respect of the transactions contemplated by this
Agreement.

                                     -14-
<PAGE>

          (h)  Leetsdale Lease.  The Leetsdale Lease shall be assigned to Buyer
               ---------------
and extended for an additional term of sixteen (16) years beyond its current
expiration date upon substantially the same terms and conditions currently set
forth in the Leetsdale Lease.

          (i)  Financing.  Buyer shall have obtained financing from Bank One, in
               ---------
an adequate amount to close the transaction contemplated herein, and upon such
terms and conditions that are acceptable to Buyer.

                                 ARTICLE VII.

                                  INDEMNITIES

     Section 7.01.  Indemnity by Seller.  For a period of two (2) years from the
                    -------------------
Closing Date, Seller shall indemnify and hold Buyer harmless from and against
any and all claims, losses, damages, penalties, fines and expenses of every kind
and nature (including attorneys' fees) incurred by Buyer, directly or
indirectly, arising out of or resulting from (1) any misrepresentation or breach
of any warranty, representation or agreement of Seller under this Agreement, or
(2) any and all of Seller's Liabilities (as defined in Section 1.05 hereof);
provided however, there shall be no such limitations period in the event Buyer
suffers damages as a result of the fraudulent acts of Seller and/or its
directors or as a result of tax liabilities, environmental issues, human
resource issues or title issues not covered by title insurance, for which the
applicable statute of limitations shall apply. In the event of a claim arising
on account of a misrepresentation or breach of any warranty, representation or
agreement of Seller under this Agreement, Seller shall cure any default, within
ten (10) days of receiving such notice of default from Buyer.

     Section 7.02.  Indemnity by Buyer.  For a period of two (2) years from the
                    ------------------
Closing Date, Buyer shall indemnify and hold Seller harmless from and against
any and all claims, losses, damages, penalties, fines and expenses of every kind
and nature (including attorneys' fees) incurred by Seller, directly or
indirectly, arising out of or resulting from any misrepresentation or breach of
any warranty, representation, or agreement of Buyer under this Agreement.

     Section 7.03.  Indemnity Conditions.  Each party shall promptly notify the
                    --------------------
other party in writing upon learning of any matter with respect to which the
other party is obligated to defend, indemnify or hold harmless under this
Agreement. The indemnifying party shall respond in writing within fifteen (15)
days of receipt of such notice stating whether or not it intends to defend or
contest such matter. If the indemnifying party elects to defend or contest such
matter, it shall pay all costs and expenses of every kind related thereto,
including any damages, losses, or amounts paid in settlement. Such defense or
contest shall be conducted by the indemnifying party's counsel, although the
other party shall have the right to participate in any proceedings at its own
cost and expense. If the indemnifying party declines to defend or contest such
matter, or fails or refuses to notify the other party of its intention to do so,
the other party shall have the right to defend or contest such matter by its
counsel, in which event the indemnifying party shall be bound by the results of
such proceedings, including settlement, and shall pay, or reimburse the other
party, at the other party's election, all costs and expenses of every kind
related thereto, including any damages, losses

                                     -15-
<PAGE>

and amounts paid in settlement. The party seeking indemnification shall fully
cooperate with the indemnifying party in the defense or settlement of any such
matter.

                                 ARTICLE VIII.

                                 MISCELLANEOUS

     Section 8.01.  Risk of Loss.  Seller shall bear all risk of loss of, or
                    ------------
damage to, the Property on and prior to the Closing Date.  Buyer shall bear all
risk of loss of or damage to the Property after the Closing Date.

     Section 8.02.  Cooperation.
                    -----------

               (a)  On the Closing Date and from time to time thereafter upon
request, each party shall execute and deliver to the other such additional
instruments as may be necessary to complete or carry out the transactions
contemplated herein or as may otherwise be reasonably required in connection
with the transactions provided for in this Agreement.

               (b)  In the event Buyer determines within three (3) years after
the Closing Date that an audit of the affairs or transactions that occurred
prior to the Closing Date related to the Property is necessary because of
positions taken by Buyer's independent accountants or by any governmental
agency, Seller agrees to permit and reasonably assist in such audit, which shall
be conducted at the sole expense of Buyer.

     Section 8.03.  Expenses.  Each party shall bear and pay all expenses
                    --------
incurred by such party in connection with the preparation, negotiation and
execution of this Agreement and the consummation of the transactions
contemplated hereby, including without limitation, the charges of its respective
consultants, engineers, counsel, advisors, brokers and finders.

     Section 8.04.  Termination.
                    -----------

               (a)  Anything herein to the contrary notwithstanding, this
Agreement may be terminated at any time before the date of the Closing Date as
follows:

                    (1)  By mutual written consent of Seller and Buyer.

                    (2)  By Buyer, by delivery of written notice of such
               termination to Seller, if Buyer in good faith determines that any
               condition set forth in Section 6.02 hereof is incapable of being
               met, after Buyer has given Seller written notice of its intent to
               terminate this Agreement and fifteen (15) calendar days in which
               to satisfy the relevant condition.

                    (3)  By either party hereto, by delivery of written notice
               of such termination to the other party, if, prior to the Closing
               Date, the other party defaults in any respect in the observance
               or in the due and timely performance of any of its

                                     -16-
<PAGE>

               covenants or agreements herein contained or if any representation
               or warranty of the other party is not, or on the Closing Date
               will not be, true and correct in all respects, and such default
               or untrue representation shall not have been cured within ten
               (10) days of the date of notice thereof served by the party
               claiming such default or untrue representation; or

                    (4)  By either party hereto, by delivery of written notice
               of such termination to the other party, if any action or
               proceeding shall have been instituted or threatened by third
               parties against Seller or Buyer to restrain or to prohibit or to
               obtain damages in respect of the transactions contemplated by
               this Agreement.

          (b)  Except for the confidentiality obligations contained in Section
3.01(b) hereof, which shall survive any termination of this Agreement, upon the
termination of this Agreement pursuant to this Section 8.05, the parties shall
be released and discharged from any further obligation hereunder; provided,
however, that the termination of this Agreement under this Section 8.05 shall
not relieve any party of any liability for breach of this Agreement prior to the
date of termination.

     Section 8.05.  Survival.  The representations and warranties in this
                    --------
Agreement and in any document delivered pursuant to this Agreement shall survive
the consummation of the transactions contemplated hereby for a period of two (2)
years following the Closing Date, and all inspections, examinations or audits
made by or on behalf of either party hereto, but only as expressly set forth
herein; provided however, there shall be no such limitations period in the event
Buyer suffers damages as a result of the fraudulent acts of Seller and/or its
directors or as a result of  tax liabilities, environmental issues, human
resource issues or title issues not covered by title insurance, for which the
applicable statute of limitations shall apply.

     Section 8.06.  Waiver.  Either party may waive or modify any term or
                    ------
condition of this Agreement, the performance of which by the other party would
have been to its benefit, but any such waiver shall be in writing and duly
delivered to the other party.  No failure or omission to act shall be deemed a
waiver of either party's right to insist upon full and complete performance of
this Agreement by the other party.

     Section 8.07.  Notices.  Any notice required or desired to be given
                    -------
hereunder shall be in writing and shall be considered effective when delivered,
if by personal delivery, upon receipt, if sent by FAX, which FAX has been
telephonically confirmed, before 5:00 p.m. local time of the recipient on a
business day, upon delivery, or if not, at 9:00 a.m., local time on the next
business day, or upon first attempted delivery after mailing by certified mail,
return receipt requested, postage prepaid, addressed as follows:

                                     -17-
<PAGE>

     To Seller:

          PRECISION AUTO CARE, INC.
          Attn: Charles L. Dunlap, President
          748 Miller Drive, S.E.
          Leesburg, Virginia 20175
          Phone: (703) 777-9095
          Fax: (703) 771-7108

     With Copy To:
     (which shall not constitute notice)
          Miles & Stockbridge P.C.
          Attn: Cynthia C. Allner
          10 Light Street
          Baltimore, Maryland 21202
          Phone: (410) 385-3683
          Fax: (410) 385-3700

     To Buyer:

          ZAYAC PROPERTY HOLDING COMPANY, LLP
          Attn: John R. Zayac
          950 South Cherry St., Suite 300
          Denver, Colorado 80246
          Phone: (303) 758-4000
          Fax: (303) 758-6300

     With Copy To:
     (which shall not constitute notice)

          Hall & Evans
          Attention: C. Chandler Lippit
          1200 17th Street, Suite 1700
          Denver, Colorado 80202
          Phone: (303) 628-3447
          Fax: (303) 628-3368

     Section 8.08.  Deleted

     Section 8.9.   Independent Contractors.  The parties to this Agreement are
                    -----------------------
independent contractors, and neither party nor any officer, employee, agent,
servant or independent contractor of either party or either party's parent,
subsidiary or affiliate shall at any time be deemed to be an employee or agent
of the other party for any purpose whatsoever.

                                     -18-
<PAGE>

     Section 8.10.  Performance Not Contrary to Law.  Nothing herein shall be
                    -------------------------------
construed to require the performance by either party of any act contrary to law;
and, in the event of conflict between any provision hereof and any law or
governmental regulation, the latter shall prevail; and in such event, the
affected portions of this Agreement shall be deemed amended to the extent
necessary to conform to the requirements of such law or governmental regulation.

     Section 8.11.  Headings.  The headings used herein are for convenience only
                    --------
and shall not limit or affect in any way the meaning or interpretation of this
Agreement.

     Section 8.12.  Governing Law.  This Agreement shall be governed by and
                    -------------
interpreted in accordance with the substantive laws of the State of Colorado
without regard to its provisions on conflict of laws.

     Section 8.13.  Schedules and Exhibits.  The schedules and exhibits are a
                    ----------------------
part of this Agreement and are incorporated herein by this reference.

     Section 8.14.  Attorneys' Fees.  In the event any proceeding is brought by
                    ----------------
one party against the other to enforce or for the breach of any of the
provisions of this Agreement, the prevailing party, as determined by the dispute
resolution authority, shall be entitled in such proceeding and in any appeal
therefrom to recover reasonable attorneys' fees, together with the costs of such
proceeding therein incurred.

     Section 8.15.  Entire Agreement.  This Agreement and the schedules,
                    ----------------
exhibits and documents delivered hereunder contain the entire agreement between
the parties with respect to the subject matter covered herein and therein, and
supersede all prior agreements (oral or written), negotiations and discussions
between the parties relating thereto.

     Section 8.16.  Execution in Counterparts.  This Agreement may be executed
                    -------------------------
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same agreement.

     Section 8.17.  Default.  Time is of the essence in this Agreement.  Failure
                    -------
by either party to perform any covenant or condition of this Agreement, other
than those having a specified time for performance, within thirty (30) days
after the giving of written notice of said default by the non-defaulting party
shall constitute a default.  In the event the default is of such a nature that
it cannot be completely remedied within a thirty (30) day period, the defaulting
party shall not be considered to be in default if the defaulting party begins
correcting the claimed default within the thirty (30) day period and thereafter
proceeds with reasonable diligence and in good faith to effect the remedy as
soon as practicable.

               (a)  Buyer Default - Liquidated Damages.  If Buyer is in default,
                    ----------------------------------
          Seller may elect to treat this Agreement as cancelled, in which case
          all payments and things of value received hereunder shall be returned
          and Seller may recover such damages as may be proper, or Seller may
          elect to treat this Contract as being in full force and effect and
          Seller shall have the right to specific performance or damages, or
          both.

                                     -19-
<PAGE>

             (b)    Seller Default - Specific Performance. If Seller is in
                    -------------------------------------
     default, Buyer may elect to treat this Agreement as cancelled, in which
     case all payments and things of value received hereunder shall be returned
     and Buyer may recover such damages as may be proper, or Buyer may elect to
     treat this Contract as being in full force and effect and Buyer shall have
     the right to specific performance or damages, or both.

     Section 8.18.  Third-Party Beneficiary.  This Agreement is solely for the
                    -----------------------
benefit of the parties and their respective successors and permitted assigns,
and no other person has any right, benefit, priority or interest under, or
because of the existence of, this Agreement.

     Section 8.19.  Assignments.  The rights and obligations of the parties
                    -----------
hereto shall not be assignable, without the parties prior written consent. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.

     Section 8.20.  Notice of Assignment.  Buyer shall give Seller ten (10) days
                    --------------------
prior written notice of any assignment or designation of its rights or
obligations hereunder to an entity controlled by John R. Zayac, provided that
Seller's consent shall be required prior to any assignment of this Agreement to
any other person.

     Section 8.21.  Approvals and Consents.  If any provision hereof requires
                    ----------------------
the approval or consent of any party to any act or omission, such approval or
consent is not to be unreasonably withheld or delayed except as set forth
herein.

     Section 8.22.  Construction.  Unless the context of this Agreement clearly
                    ------------
requires otherwise:  references to the plural include the singular and vice
versa; references to any person include such person's successors and assigns
but, if applicable, only if such successors and assigns are permitted by this
Agreement; references to one gender include all genders; "including" is not
limiting; "or" has the inclusive meaning represented by the phrase "and/or"; the
words "hereof," "herein," "hereby," "hereunder" and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement; article, section, subsection, Exhibit and Schedule references
are to this Agreement unless otherwise specified; and reference to any agreement
(including this Agreement), document or instrument means such agreement,
document or instrument as amended or modified and in effect from time to time in
accordance with the terms thereof and, if applicable, the terms hereof.

     Section 8.23.  Counterpart Facsimile Execution.  For purposes of executing
                    -------------------------------
this Agreement, a document signed and transmitted by facsimile machine or
telecopier is to be treated as an original document.  The signature of any party
thereon, for purposes hereof, is to be considered as an original signature, and
the document transmitted is to be considered to have the same binding effect as
an original signature on an original document.  At the request of any party, any
facsimile or telecopy document is to be re-executed in original form by the
parties who executed the facsimile or telecopy document.  No party may raise the
use of a facsimile machine or telecopier or the fact that any

                                     -20-
<PAGE>

signature was transmitted through the use of a facsimile or telecopier machine
as a defense to the enforcement of this Agreement or any amendment or other
document executed in compliance with this Section.

     Section 8.24.  Failure or Delay.  No failure on the part of any party to
                    ----------------
exercise, and no delay in exercising, any right, power or privilege hereunder
operates as a waiver thereof; nor does any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof, or the exercise of any other right, power or privilege.  No notice to
or demand on any party in any case entitles such party to any other or further
notice or demand in similar or other circumstances.

     Section 8.25.  Further Assurances.  The parties will execute and deliver
                    ------------------
such further instruments and do such further acts and things as may be required
to carry out the intent and purpose of this Agreement.

     Section 8.26.  Remedies Cumulative.  Each and every right granted hereunder
                    -------------------
and the remedies provided for under this Agreement are cumulative and are not
exclusive of any remedies or rights that may be available to any party at law,
in equity, or otherwise.

     Section 8.27.  Submission to Jurisdiction.  ANY LEGAL ACTION OR PROCEEDING
                    --------------------------
WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO MAY BE BROUGHT IN
THE COURTS OF THE STATE OF COLORADO OR ANY COURT OF THE UNITED STATES OF AMERICA
FOR THE DISTRICT OF COLORADO AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
EACH PARTY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, THE JURISDICTION OF SUCH COURTS. THE PARTIES IRREVOCABLY
WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS, WHICH ANY OF THEM MAY NOW OR HEREAFTER HAVE
TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS.

                  [Remainder of Page Intentionally Left Blank]

                                     -21-
<PAGE>

     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.

                                   SELLER:
                                   PRECISION AUTO CARE, INC.

                                   By_____________________________________
                                   CHARLES L. DUNLAP, President

                                   BUYER:
                                   ZAYAC PROPERTY HOLDING COMPANY, LLP

                                   By_____________________________________
                                   JOHN R. ZAYAC, its General Partner

                                     -22-
<PAGE>

                                   EXHIBIT A

                            Seller's Legal Opinion
                            ----------------------

1.   Opinion of Seller's general counsel.

2.  Opinion of Seller's Colorado counsel.

                                      -1-
<PAGE>

                                 SCHEDULE 1.01

               Real Property and Tangible and Intangible Assets
               ------------------------------------------------

See Attached.

                                      -2-
<PAGE>

                                 SCHEDULE 1.04

                         Allocation of Purchase Price
                         ----------------------------

See Attached (to be provided no later than July 18, 2000)

                                      -3-
<PAGE>

                                 SCHEDULE 4.03

                        Seller's Consents and Approvals
                        -------------------------------

3.   Consent of First Union National Bank.

4.   Consent of FFCA Acquisition Corporation.

5.   Consent of Landlord of Leetsdale Lease.

                                      -4-
<PAGE>

                                 SCHEDULE 4.11

                                   Contracts
                                   ---------

1.   Dillon Leasing Company

2.   Young Electric Sign Company

                                      -5-<PAGE>

                                                                     EXHIBIT 4.1

                                                                  EXECUTION COPY

                         PRIVATE EQUITY LINE AGREEMENT

                                by and between

                          KINGSBRIDGE CAPITAL LIMITED

                                      and

                                SONIC SOLUTIONS

       ----------------------------------------------------------------

                            Dated as of May 4, 2000

       ----------------------------------------------------------------
<PAGE>

<TABLE>
<S>                                                                                     <C>
ARTICLE I      CERTAIN DEFINITIONS.....................................................  1

     Section 1.1    "Adjustment Period"................................................  1

     Section 1.2    "Bid Price"........................................................  1

     Section 1.3    "Capital Shares"...................................................  1

     Section 1.4    "Closing"..........................................................  1

     Section 1.5    "Closing Date".....................................................  1

     Section 1.6    "Commitment Period"................................................  1

     Section 1.7    "Common Stock".....................................................  2

     Section 1.8    "Common Stock Equivalents".........................................  2

     Section 1.9    "Condition Satisfaction Date"......................................  2

     Section 1.10   "Damages"..........................................................  2

     Section 1.11   "Effective Date"...................................................  2

     Section 1.12   "Exchange Act".....................................................  2

     Section 1.13   "Investment Amount"................................................  2

     Section 1.14   "Legend"...........................................................  2

     Section 1.15   "Market Price".....................................................  2

     Section 1.16   "Material Adverse Effect"..........................................  2

     Section 1.17   "Maximum Commitment Amount"........................................  2

     Section 1.18   "Maximum Put Amount"...............................................  2

     Section 1.19   "NASD".............................................................  3

     Section 1.20   "Outstanding"......................................................  3

     Section 1.21   "Person"...........................................................  3

     Section 1.22   "Principal Market".................................................  3

     Section 1.23   "Purchase Price"...................................................  3

     Section 1.24   "Put"..............................................................  3

     Section 1.25   "Put Date".........................................................  3

     Section 1.26   "Put Notice".......................................................  3

     Section 1.27   "Put Shares".......................................................  3

     Section 1.28   "Registrable Securities"...........................................  3

     Section 1.29   "Registration Rights Agreement"....................................  4

     Section 1.30   "Registration Statement"...........................................  4

     Section 1.31   "Regulation D".....................................................  4

     Section 1.32   "SEC"..............................................................  4

     Section 1.33   "Section 4(2)".....................................................  4
</TABLE>
<PAGE>

<TABLE>
<S>                                                                                       <C>
     Section 1.34   "Securities Act"...................................................    4

     Section 1.35   "SEC Documents"....................................................    4

     Section 1.36   "Subscription Date"................................................    4

     Section 1.37   "Trading Cushion"..................................................    4

     Section 1.38   "Trading Day"......................................................    4

     Section 1.39   Reserved...........................................................    4

     Section 1.40   "Valuation Event"..................................................    4

     Section 1.41   "Valuation Period".................................................    5

ARTICLE II     PURCHASE AND SALE OF COMMON STOCK.......................................    5

     Section 2.1    Investments........................................................    5

     Section 2.2    Mechanics..........................................................    5

     Section 2.3    Closings...........................................................    6

     Section 2.4    Special Circumstances; Adjustment Period...........................    6

     Section 2.5    Termination of Investment Obligation...............................    7

     Section 2.6    Blackout Shares....................................................    7

     Section 2.7    Liquidated Damages.................................................    8

ARTICLE III    REPRESENTATIONS AND WARRANTIES OF INVESTOR..............................    8

     Section 3.1    Intent.............................................................    8

     Section 3.2    Sophisticated Investor.............................................    8

     Section 3.3    Authority..........................................................    8

     Section 3.4    Not an Affiliate...................................................    8

     Section 3.5    Organization and Standing..........................................    8

     Section 3.6    Absence of Conflicts...............................................    8

     Section 3.7    Disclosure; Access to Information..................................    9

     Section 3.8    Manner of Sale.....................................................    9

ARTICLE IV     REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................    9

     Section 4.1    Organization of the Company........................................    9

     Section 4.2    Authority..........................................................    9

     Section 4.3    Capitalization.....................................................    9

     Section 4.4    Common Stock.......................................................   10

     Section 4.5    SEC Documents......................................................   10

     Section 4.6    Valid Issuances....................................................   10

     Section 4.7    No General Solicitation or Advertising in Regard to this
                    Transaction........................................................   10

     Section 4.8    Corporate Documents................................................   10
</TABLE>

                                       2
<PAGE>

<TABLE>
<S>                                                                                       <C>
     Section 4.9    No Conflicts.......................................................    11

     Section 4.10   No Material Adverse Change.........................................    11

     Section 4.11   No Undisclosed Liabilities.........................................    11

     Section 4.12   No Undisclosed Events or Circumstances.............................    11

     Section 4.13   No Integrated Offering.............................................    11

     Section 4.14   Litigation and Other Proceedings...................................    12

     Section 4.15   No Misleading or Untrue Communication..............................    12

     Section 4.16   Material Non-Public Information....................................    12

ARTICLE V      COVENANTS OF THE INVESTOR...............................................    12

     Section 5.1    Compliance with Law................................................    12

     Section 5.2    Limitation on Short Sales..........................................    12

ARTICLE VI     COVENANTS OF THE COMPANY................................................    12

     Section 6.1    Registration Rights................................................    12

     Section 6.2    Reservation of Common Stock........................................    12

     Section 6.3    Listing of Common Stock............................................    13

     Section 6.4    Exchange Act Registration..........................................    13

     Section 6.5    Legends............................................................    13

     Section 6.6    Corporate Existence................................................    13

     Section 6.7    Additional SEC Documents...........................................    13

     Section 6.8    Blackout Period....................................................    13

     Section 6.9    Expectations Regarding Put Notices.................................    14

     Section 6.10   Consolidation; Merger..............................................    14

     Section 6.11   Issuance of Put Shares and Blackout Shares.........................    14

     Section 6.12   Legal Opinion on Subscription Date.................................    14

ARTICLE VII    CONDITIONS TO DELIVERY OF  PUT NOTICES AND CONDITIONS TO CLOSING........    14

     Section 7.1    Conditions Precedent to the Obligation of the Company to Issue
                    and Sell Common Stock..............................................    14

     Section 7.2    Conditions Precedent to the Right of the Company and the Selling
                    Shareholder to Deliver a Put Notice and the Obligation of the
                    Investor to Purchase the Put Shares................................    14

ARTICLE VIII   DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION..........    17

     Section 8.1    Due Diligence Review...............................................    17

     Section 8.2    Non-Disclosure of Non-Public Information...........................    17

ARTICLE IX     LEGENDS.................................................................    18
</TABLE>

                                       3
<PAGE>

<TABLE>
<S>                                                                                     <C>
     Section 9.1    Legends............................................................  18

     Section 9.2    No Other Legend or Stock Transfer Restrictions.....................  19

     Section 9.3    Investor's Compliance..............................................  20

ARTICLE X      CHOICE OF LAW...........................................................  20

     Section 10.1   Choice of Law......................................................  20

ARTICLE XI     ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; TERMINATION....................  20

     Section 11.1   Assignment.........................................................  20

     Section 11.2   Termination........................................................  20

     Section 11.3   Entire Agreement, Amendment; Waiver................................  20

ARTICLE XII    NOTICES; INDEMNIFICATION................................................  20

     Section 12.1   Notices............................................................  20

     Section 12.2   Indemnification....................................................  21

     Section 12.3   Method of Asserting Indemnification Claims.........................  22

ARTICLE XIII   MISCELLANEOUS...........................................................  25

     Section 13.1   Fees and Expenses..................................................  25

     Section 13.2   Brokerage..........................................................  25

     Section 13.3   Counterparts.......................................................  25

     Section 13.4   Entire Agreement...................................................  25

     Section 13.5   Survival; Severability.............................................  25

     Section 13.6   Title and Subtitles................................................  26

     Section 13.7   Reporting Entity for the Common Stock..............................  26
</TABLE>

                                       4
<PAGE>

                                                                  EXECUTION COPY

                         PRIVATE EQUITY LINE AGREEMENT

                                by and between

                          KINGSBRIDGE CAPITAL LIMITED

                                      and

                                SONIC SOLUTIONS

                            dated as of May 4, 2000

     This PRIVATE EQUITY LINE AGREEMENT is entered into as of the 4/th/ day of
May, 2000 (this "Agreement"), by and between Kingsbridge Capital Limited (the
"Investor"), an entity organized and existing under the laws of the British
Virgin Islands and Sonic Solutions, a corporation organized and existing under
the laws of the State of California (the "Company").

     WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase from the
Company, up to $20,000,000 of the Common Stock (as defined below); and

     WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder.

     NOW, THEREFORE, the parties hereto agree as follows:

                                   ARTICLE I
                              Certain Definitions

     Section 1.1    "Adjustment Period" See Section .2.4(b).
                     -----------------

     Section 1.2    "Bid Price" shall mean the closing bid price (as reported by
                     ---------
Bloomberg L.P.) of the Common Stock on the Principal Market.

     Section 1.3    "Capital Shares" shall mean the Common Stock and any shares
                     --------------
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.

     Section 1.4    "Closing" shall mean one of the closings of a purchase and
                     -------
sale of the Common Stock pursuant to Section 2.1.

     Section 1.5    "Closing Date" shall mean, with respect to a Closing, the
                     ------------
third Trading Day following the Put Date related to such Closing, provided all
conditions to such Closing have been satisfied on or before such Trading Day.

     Section 1.6    "Commitment Period" shall mean the period commencing on the
                     -----------------
earlier to occur of (i) the Effective Date or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have purchased Put
Shares pursuant to this Agreement for an aggregate Investment Amount of
$20,000,000, (y) the date
<PAGE>

this Agreement is terminated pursuant to Section 2.5(b), or (z) the date
occurring twenty-four (24) months from the date of commencement of the
Commitment Period.

     Section 1.7    "Common Stock" shall mean the Company's common stock, no par
                     ------------
value per share.

     Section 1.8    "Common Stock Equivalents" shall mean any securities that
                     ------------------------
are convertible into or exchangeable for Common Stock or any warrants, options
or other rights to subscribe for or purchase Common Stock or any such
convertible or exchangeable securities.

     Section 1.9    "Condition Satisfaction Date" See Section 7.2.
                     ---------------------------

     Section 1.10   "Damages" shall mean any loss, claim, damage, liability,
                     -------
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and costs and expenses of expert witnesses and investigation).

     Section 1.11   "Effective Date" shall mean the date on which the SEC first
                     --------------
declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).

     Section 1.12   "Exchange Act" shall mean the Securities Exchange Act of
                     ------------
1934, as amended and the regulations promulgated thereunder.

     Section 1.13   "Investment Amount" shall mean the dollar amount specified
                     -----------------
in a Put Notice to be paid by the Investor to purchase Put Shares in
accordance with Section 2.2 hereof.

     Section 1.14   "Legend" See Section 8.1.
                     ------

     Section 1.15   "Market Price" on any given date shall mean the average of
                     ------------
the lowest intra-day prices of the Common Stock over the Valuation Period.
"Lowest intra-day price" shall mean the lowest trade price of the Common Stock
(as reported by Bloomberg L.P.) during any Trading Day; provided, however, that
                                                        --------  -------
in the event that the volume of Common Stock traded on any such Trading Day is
less than five thousand (5000) shares at the actual lowest intra-day price, then
"lowest intra-day price" for such Trading Day shall mean the next lowest intra-
day price, regardless of the volume of Common Stock traded at such next lowest
intra-day price.

     Section 1.16   "Material Adverse Effect" shall mean any effect on the
                     -----------------------
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
its obligations under any of (a) this Agreement and (b) the Registration Rights
Agreement.

     Section 1.17   "Maximum Commitment Amount" shall mean $20,000,000.
                     -------------------------

     Section 1.18   "Maximum Put Amount" shall mean with respect to each Put,
                     ------------------
subject to the provisions of Section 2.4 hereof, (i) $500,000 if the average
daily volume of shares of Common Stock traded during the preceding ten (10)
Trading Days (the "Average Trading Volume") is 40,000 shares or less; (ii)
$750,000 if the Average Trading Volume greater than 40,000 shares and less than
60,000 shares; and (iii) $1,000,000 if the Average Trading Volume equal to or
greater than 60,000 shares. Notwithstanding the foregoing, (i) in the event that
the Market Price is less than three dollars ($3.00) in connection with any Put,
the Maximum Put Amount shall be $150,000 and (ii) in the event that the Market
Price is less than one dollar ($1.00) in connection with any Put, the Maximum
Put Amount shall be $50,000.

                                       2
<PAGE>

     Section 1.19   "NASD" shall mean the National Association of Securities
                     ----
Dealers, Inc.

     Section 1.20   "Outstanding" when used with reference to Common Shares or
                     -----------
Capital Shares (collectively the "Shares"), shall mean, at any date as of which
the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
--------  -------
directly or indirectly owned or held by or for the account of the Company.

     Section 1.21   "Person" shall mean an individual, a corporation, a
                     ------
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.

     Section 1.22   "Principal Market" shall mean the Nasdaq National Market,
                     ----------------
the Nasdaq Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.

     Section 1.23   "Purchase Price" shall mean (i) in the event that the Market
                     --------------
Price is equal to or less than five dollars ($5.00), eighty-eight percent (88%)
of the Market Price of the Common Stock in respect of any Put Notice, or (ii) in
the event that the Market Price is greater than five dollars ($5.00) but less
than nine dollars ($9.00), ninety percent (90%) of the Market Price of the
Common Stock in respect of any Put Notice, or (iii) in the event that the Market
Price is equal to or greater than nine dollars ($9.00) but less than thirteen
dollars ($13.00), ninety-one percent (91%) of the Market Price of the Common
Stock in respect of any Put Notice, or (iv) in the event that the Market Price
is equal to or greater than thirteen dollars ($13.00), ninety-two percent (92%)
of the Market Price of the Common Stock in respect of any Put Notice.

     Section 1.24   "Put" shall mean each occasion on which the Company elects
                     ---
to tender Put Notice requiring the Investor to purchase a specified
discretionary amount of the Company's Common Stock, subject to the terms of this
Agreement.

     Section 1.25   "Put Date" shall mean the Trading Day during the Commitment
                     --------
Period that a Put Notice is deemed delivered to the Investor pursuant to Section
2.2(b) hereof.

     Section 1.26   "Put Notice" shall mean a written notice to the Investor
                     ----------
setting forth the Investment Amount.

     Section 1.27   "Put Shares" shall mean all shares of Common Stock issued or
                     ----------
issuable pursuant to a Put that has occurred or may occur in accordance with the
terms and conditions of this Agreement.

     Section 1.28   "Registrable Securities" shall mean the Put Shares until (i)
                     ----------------------
the Registration Statement has been declared effective by the SEC and all Put
Shares have been disposed of pursuant to the Registration Statement, (ii) all
Put Shares have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) all Put Shares have been otherwise
transferred to holders who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend or
(iv) such time as, in the opinion of counsel to the Company, which counsel shall
be reasonably acceptable to the Investor, all Put Shares may be sold without any
time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.

                                       3
<PAGE>

     Section 1.29   "Registration Rights Agreement" shall mean the agreement
                     -----------------------------
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor as of
the Subscription Date.

     Section 1.30   "Registration Statement" shall mean a registration statement
                     ----------------------
on Form S-3 (if use of such form is then available to the Company pursuant to
the rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate and which form shall be available for the resale of the Registrable
Securities to be registered thereunder in accordance with the provisions of this
Agreement and the Registration Rights Agreement, and in accordance with the
intended method of distribution of such securities), for the registration of the
resale by the Investor of the Registrable Securities under the Securities Act.

     Section 1.31   "Regulation D" shall have the meaning set forth in the
                     ------------
recitals of this Agreement.

     Section 1.32   "SEC" shall mean the Securities and Exchange Commission.
                     ---

     Section 1.33   "Section 4(2)" shall have the meaning set forth in the
                     ------------
recitals of this Agreement.

     Section 1.34   "Securities Act" shall have the definition ascribed to it in
                     --------------
the recitals of this Agreement.

     Section 1.35   "SEC Documents" shall mean the Company's latest Form 10-K as
                     -------------
of the time in question, all Forms 10-Q and 8-K filed thereafter, and the Proxy
Statement for its latest fiscal year as of the time in question until such time
the Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.

     Section 1.36   "Subscription Date" shall mean the date on which this
                     -----------------
Agreement is executed and delivered by the parties hereto.

     Section 1.37   "Trading Cushion" shall mean, at any time (subject to the
                     ---------------
provisions of Section 2.4 hereof), (i) the mandatory fifteen (15) Trading Days
between Put Dates if at such time the immediately preceding Put was consummated
for an Investment Amount of $650,000 or less and (ii) the mandatory twenty (20)
Trading Days between Put Dates if at such time the immediately preceding Put was
consummated for an Investment Amount of more than $650,000.

     Section 1.38   "Trading Day" shall mean any day during which the New York
                     -----------
Stock Exchange shall be open for business.

     Section 1.39   Reserved

     Section 1.40   "Valuation Event" shall mean an event in which the Company
                     ---------------
at any time during a Valuation Period takes any of the following actions:

               (a)  subdivides or combines its Common Stock;

               (b)  pays a dividend in its Capital Stock or makes any other
               distribution of its Capital Shares;

               (c)  issues any additional Capital Shares ("Additional Capital
               Shares"), otherwise than as provided in the foregoing Subsections
               (a) and (b) above, at a price per share less, or for other
               consideration lower, than the Bid Price in effect immediately
               prior to such issuance, or without consideration;

                                       4
<PAGE>

               (d)  issues any warrants, options or other rights to subscribe
               for or purchase any Additional Capital Shares and the price per
               share for which Additional Capital Shares may at any time
               thereafter be issuable pursuant to such warrants, options or
               other rights shall be less than the Bid Price in effect
               immediately prior to such issuance;

               (e)  issues any securities convertible into or exchangeable for
               Capital Shares and the consideration per share for which
               Additional Capital Shares may at any time thereafter be issuable
               pursuant to the terms of such convertible or exchangeable
               securities shall be less than the Bid Price in effect immediately
               prior to such issuance;

               (f)  makes a distribution of its assets or evidences of
               indebtedness to the holders of its Capital Shares as a dividend
               in liquidation or by way of return of capital or other than as a
               dividend payable out of earnings or surplus legally available for
               dividends under applicable law or any distribution to such
               holders made in respect of the sale of all or substantially all
               of the Company's assets (other than under the circumstances
               provided for in the foregoing subsections (a) through (e); or

               (g)  takes any action affecting the number of Outstanding Capital
               Shares, other than an action described in any of the foregoing
               Subsections (a) through (f) hereof, inclusive, which in the
               opinion of the Company's Board of Directors, determined in good
               faith, would have a materially adverse effect upon the rights of
               the Investor at the time of a Put.

     Section 1.41   "Valuation Period" shall mean the period of five Trading
                     ----------------
Days during which the Purchase Price of the Common Stock is valued, which period
shall be with respect to the Purchase Price on any Put Date, the two Trading
Days preceding and the two Trading Days following the Trading Day on which a Put
Notice is deemed to be delivered, as well as the Trading Day on which such
notice is deemed to be delivered; provided, however, that if a Valuation Event
                                  --------  -------
occurs during any Valuation Period, a new Valuation Period shall begin on the
Trading Day immediately after the occurrence of such Valuation Event and end on
the fifth Trading Day thereafter.

                                  ARTICLE II
                       Purchase and Sale of Common Stock

     Section 2.1    Investments.
                    -----------

               (a)  Puts. Upon the terms and conditions set forth herein
               (including, without limitation, the provisions of Article VII
               hereof), on any Put Date the Company may deliver a Put Notice.
               The number of Put Shares that the Investor shall receive pursuant
               to such Put shall be determined by dividing the Investment Amount
               specified in the Put Notice by the Purchase Price on such Put
               Date.

               (b)  Intentionally Omitted.

               (c)  Maximum Amount of Put Shares. Unless the Company obtains the
               requisite approval of its shareholders in accordance with the
               corporate laws of California and the applicable rules of the
               Principal Market, no more than 19.9% of the Outstanding shares of
               Common Stock may be issued and sold in the aggregate pursuant to
               this Agreement.

     Section 2.2    Mechanics.
                    ---------

               (a)  Put Notice. At any time during the Commitment Period, the
               Company may deliver a Put Notice to the Investor, subject to the
               conditions set forth in Section 7.2;

                                       5
<PAGE>

               provided, however, the Investment Amount for each Put as
               -------- -------
               designated by the Company in the applicable Put Notice shall not
               be greater than the Maximum Put Amount.

               (b)  Date of Delivery of Put Notice. A Put Notice shall be deemed
               delivered on (i) the Trading Day it is received by facsimile or
               otherwise by the Investor if such notice is received prior to
               12:00 noon New York time, or (ii) the immediately succeeding
               Trading Day if it is received by facsimile or otherwise after
               12:00 noon New York time on a Trading Day or at any time on a day
               which is not a Trading Day. No Put Notice may be deemed
               delivered, on a day that is not a Trading Day.

     Section 2.3    Closings. On each Closing Date for a Put, the Company shall
                    --------
deliver into escrow one or more certificates, at the Investor's option,
representing the Put Shares to be purchased by the Investor pursuant to Section
2.1 herein, registered in the name of the Investor or, at the Investor's option,
deposit such certificate(s) into such account or accounts previously designated
by the Investor and (ii) the Investor shall deliver to escrow the Investment
Amount specified in the Put Notice by wire transfer of immediately available
funds to an account or accounts designated by the Company on or before the
Closing Date. In addition, on or prior to the Closing Date, each of the Company
and the Investor shall deliver all documents, instruments and writings required
to be delivered or reasonably requested by either of them pursuant to this
Agreement in order to implement and effect the transactions contemplated herein.
Payment of funds to the Company and delivery of the certificates to the Investor
shall occur out of escrow in accordance with the escrow agreement referred to in
Section 7.2(p) following (x) the Company's deposit into escrow of the
certificates representing the Put Shares and (y) the Investor's deposit into
escrow of the Investment Amount; provided, however, that to the extent the
                                 --------  -------
Company has not paid the fees, expenses and disbursements of the Investor's
counsel in accordance with Section 13.1, the amount of such fees, expenses and
disbursements shall be paid in immediately available funds, at the direction of
the Investor, to Investor's counsel with no reduction in the number of Put
Shares issuable to the Investor on such Closing Date; provided, further, that so
                                                      --------  -------
long as the Investor shall maintain professional liability, errors and omissions
liability and/or directors' and officers' liability insurance for its activities
related to the Put Shares or the Blackout Shares, one and three quarters of one
percent (1.75%) of such Investment Amount shall be either (i) retained by the
Investor in respect of premium payments for such insurance or (ii) paid in
immediately available funds, at the direction of the Investor in respect of such
premium payments, in either case, with no reduction in the number of Put Shares
to be issued and/or sold to the Investor on such Closing Date.

     Section 2.4    Special Circumstances; Adjustment Period.
                    ----------------------------------------

               (a)  Adjustment Period Notice. In the event that the Company
               shall in good faith anticipate executing an agreement of
               acquisition, merger or consolidation within ninety (90) days
               after giving the Investor Adjustment Period Notice (as defined
               below), the Company may, at its sole discretion, give the
               Investor at least twenty-one (21) days' irrevocable advance
               notice, in the form of Exhibit A hereto ("Adjustment Period
               Notice"), that the Company shall initiate an Adjustment Period
               (as defined below). The giving of such Adjustment Period Notice
               shall not constitute the disclosure of non-public information to
               the Investor under this Agreement.

               (b)  During the Adjustment Period:

                    1.   The Maximum Put Amount shall be $1,000,000;

                    2.   the Purchase Price shall be eighty-three percent (83%)
                    of the Market Price upon a Put Date;

                                       6
<PAGE>

                    3.   the duration of the Trading Cushion shall be shortened
                    to ten (10) Trading Days until the expiration of five
                    consecutive weeks (the "Adjustment Period");

                    4.   the Company shall not deliver a Put Notice such that
                    the number of Put Shares to be purchased by the Investor
                    upon the applicable Closing, when aggregated with all other
                    shares of Common Stock then owned by the Investor
                    beneficially or deemed beneficially owned by the Investor,
                    would result in the Investor owning more than 4.9% of all of
                    such Common Stock as would be outstanding on such Closing
                    Date, as determined in accordance with Section 13(d) of the
                    Exchange Act and the regulations promulgated thereunder. For
                    purposes of this Section 2.4(b), in the event that the
                    amount of Common Stock outstanding as determined in
                    accordance with Section 13(d) of the Exchange Act and the
                    regulations promulgated thereunder is greater on a Closing
                    Date than on the date upon which the Put Notice associated
                    with such Closing Date is given, the amount of Common Stock
                    outstanding on such Closing Date shall govern for purposes
                    of determining whether the Investor, when aggregating all
                    purchases of Common Stock made pursuant to this Agreement,
                    would own more than 4.9% of the Common Stock following such
                    Closing Date.

     Section 2.5    Termination of Investment Obligation. The obligation of the
                    ------------------------------------
Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to any Put, when a Put Notice has been given, but the
applicable Closing Date has not yet occurred) in the event that (i) the
Registration Statement is not effective within ninety (90) days following the
date required therefor in the Registration Rights Agreement, (ii) there shall
occur any stop order or suspension of the effectiveness of the Registration
Statement for an aggregate of thirty (30) Trading Days during the Commitment
Period, for any reason other than deferrals or suspension in accordance with
Section 1.1(f) of the Registration Rights Agreement, as a result of corporate
developments subsequent to the Subscription Date that would require such
Registration Statement to be amended to reflect such event in order to maintain
its compliance with the disclosure requirements of the Securities Act or (iii)
the Company shall at any time fail to comply with the requirements of Section
6.3, 6.4, 6.5 or 6.6; provided, however, that, in the event that the
                      --------  -------
Registration Statement is not declared effective on or before the date required
therefor in the Registration Rights Agreement solely due to the SEC's
determination that the transactions contemplated hereby do not qualify for
effective registration, then either party may, by five Business Days' prior
written notice to the other party, terminate this Agreement and all of the
rights and obligations of the parties hereunder.

     Section 2.6    Blackout Shares. In the event that, (a) within five Trading
                    ---------------
Days of any Closing Date, the Company gives notice ("Blackout Notice") to the
Investor of an impending blackout period ("Blackout Period") in accordance with
Section 1.1(f) of the Registration Rights Agreement, and (b) the Bid Price on
the Trading Day immediately preceding such Blackout Period ("Old Bid Price") is
greater than the Bid Price on the first Trading Day following such Blackout
Period" that the Investor may sell its Registrable Securities pursuant to an
effective Registration Statement ("New Bid Price"), then the Company shall issue
to the Investor a number of additional shares of Registrable Securities (the
Blackout Shares") equal to the difference between (X) the product of the number
of Registrable Securities held by Investor immediately prior to the Blackout
Period" multiplied by the Old Bid Price, divided by the New Bid Price and (Y)
the number of Registrable Securities held by Investor immediately prior to the
Blackout Period."

     Section 2.7    Liquidated Damages. The parties hereto acknowledge and agree
                    ------------------
that the obligation to issue Blackout Securities under Section 2.6 above shall
constitute liquidated damages and

                                       7
<PAGE>

not penalties. The parties further acknowledge that (a) the amount of loss or
damages likely to be incurred is incapable or is difficult to precisely
estimate, (b) the amounts specified in such Section bears a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred by the Investor in connection with a Blackout Period under
Section 1.1(f) of the Registration Rights Agreement, and (c) the parties are
sophisticated business parties and have been represented by sophisticated and
able legal and financial counsel and negotiated this Agreement at arm's length.

                                  ARTICLE III
                  Representations and Warranties of Investor

The Investor represents and warrants to the Company that:

     Section 3.1    Intent. The Investor is entering into this Agreement for its
                    ------
own account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.

     Section 3.2    Sophisticated Investor. The Investor is a sophisticated
                    ----------------------
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.

     Section 3.3    Authority. This Agreement has been duly authorized and
                    ---------
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.

     Section 3.4    Not an Affiliate. The Investor is not an officer, director
                    ----------------
or "affiliate" (as that term is defined in Rule 405 promulgated under the
Securities Act) of the Company.

     Section 3.5    Organization and Standing. Investor is duly organized,
                    -------------------------
validly existing, and in good standing under the laws of the British Virgin
Islands.

     Section 3.6    Absence of Conflicts. The execution and delivery of this
                    --------------------
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (b) (a) violate any provision of any indenture,
instrument or agreement to which Investor is a party or is subject, or by which
Investor or any of its assets is bound, (c) conflict with or constitute a
material default thereunder, (d) result in the creation or imposition of any
lien pursuant to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by Investor to any third party,
or (e) require the approval of any third-party (which has not been obtained)
pursuant to any material contract, agreement, instrument, relationship or legal
obligation to which Investor is subject or to which any of its assets,
operations or management may be subject.

     Section 3.7    Disclosure; Access to Information. Investor has received all
                    ---------------------------------
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested

                                       8
<PAGE>

by Investor. The Company is subject to the periodic reporting requirements of
the Exchange Act, and Investor has reviewed or received copies of any such
reports that have been requested by it.

     Section 3.8    Manner of Sale. At no time was Investor presented with or
                    --------------
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.

                                  ARTICLE IV
                 Representations and Warranties of the Company

The Company represents and warrants to the Investor that:

     Section 4.1    Organization of the Company. The Company is a corporation
                    ---------------------------
duly organized and existing in good standing under the laws of the State of
California and has all requisite corporate authority to own, lease and operate
its properties and to carry on its business as now being conducted. Except as
set forth in the SEC Documents, the Company does not have any subsidiaries.
Except as set forth in the SEC Documents, the Company does not own more than
fifty percent (50%) of or control any other business entity. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.

     Section 4.2    Authority. (i) The Company has the requisite corporate power
                    ---------
and authority to enter into and perform its obligations under this Agreement and
the Registration Rights Agreement and to issue the Put Shares and any Blackout
Shares; (ii) the execution, issuance and delivery of this Agreement and the
Registration Rights Agreement and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
and no further consent or authorization of the Company or its Board of Directors
or stockholders is required; and (iii) this Agreement and the Registration
Rights Agreement have been duly executed and delivered by the Company and
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.

     Section 4.3    Capitalization.  The authorized capital stock of the Company
                    --------------
consists of 30,000,000 shares of Common Stock, of which 11,259,720 shares were
issued and outstanding as of December 31, 1999, and 10,000,000 shares of
Preferred Stock, of which 155,544 were issued and outstanding on December 31,
1999.  Except as disclosed in the audited financial statements of the Company
included in the annual report on Form 10-K for the fiscal year ended March 31,
1999; options to purchase not more than 1,000,000 shares of Common Stock granted
in the ordinary course of business and with purchase prices equal to the fair
market value of such Common Stock on the date of grant; and warrants to purchase
90,100 shares of Common Stock in exchange for 90,100 shares of Common Stock,
there are no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company.  All of the
outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and nonassessable.

     Section 4.4    Common Stock. The Company has registered its Common Stock
                    ------------
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or

                                       9
<PAGE>

quotation of its Common Stock, and such Common Stock is currently listed or
quoted on the Principal Market. As of the date hereof, the Principal Market is
the Nasdaq National Market.

     Section 4.5  SEC Documents. The Company has delivered or made available to
                  -------------
the Investor true and complete copies of the SEC Documents (including, without
limitation, proxy information and solicitation materials). The Company has not
provided to the Investor any information that, according to applicable law, rule
or regulation, should have been disclosed publicly prior to the date hereof by
the Company, but which has not been so disclosed.  As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and rules and
regulations of the SEC promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such SEC Documents, and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

     Section 4.6  Valid Issuances. The Put Shares and any Blackout Shares may
                  ---------------
and will be properly issued and/or sold pursuant to Rule 4(2), Regulation D
and/or another exemption from registration under the Securities Act and any
applicable state law.  When issued and/or sold, the Put Shares and the Blackout
Shares shall be duly and validly issued, fully paid, and nonassessable, free and
clear of any and all liens, charges, claims or other encumbrances.  Neither the
sales of the Put Shares and the Blackout Shares pursuant to, nor the Company's
performance of its obligations under, this Agreement or the Registration Rights
Agreement will (i) result in the creation or imposition of any liens, charges,
claims or other encumbrances upon the Put Shares or any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other rights to subscribe to or acquire the Capital  Shares or other
securities of the Company. The Put Shares and the Blackout Shares shall not
subject the Investor to personal liability by reason of the ownership thereof.

     Section 4.7  No General Solicitation or Advertising in Regard to this
                  --------------------------------------------------------
Transaction. Neither the Company nor any of its affiliates nor any distributor
-----------
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Put Shares and the Blackout
Shares, or (ii) made any offers or sales of any security or solicited any offers
to buy any security under any circumstances that would require registration of
the Common Stock under the Securities Act.

     Section 4.8  Corporate Documents. The Company has furnished or made
                  -------------------
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof, and the Company's
By-Laws, as amended and in effect on the date hereof (the "By-Laws").

     Section 4.9  No Conflicts. The execution, delivery and performance of this
                  ------------
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including, without limitation, the issuance and sale of the
Put Shares and any Blackout Shares do not and will not (i)

                                      10
<PAGE>

result in a violation of the Company's Articles of Incorporation or By-Laws or
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture, instrument or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party, or (iii)
result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or by which any property or
asset of the Company is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect) nor is
the Company otherwise in violation of, conflict with or in default under any of
the foregoing; provided that, for purposes of the Company's representations and
warranties as to violations of foreign law, rule or regulation referenced in
clause (iii), such representations and warranties are made only to the best of
the Company's knowledge insofar as the execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby are or may be affected by the status of the
Investor under or pursuant to any such foreign law, rule or regulation. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock in accordance with the terms hereof
(other than any SEC, NASD or state securities filings that may be required to be
made by the Company subsequent to any Closing, any registration statement that
may be filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Nasdaq National Market
referenced in Section 5.1); provided that, for purposes of the representation
made in this sentence, the Company is assuming and relying upon the accuracy of
the relevant representations and agreements of the Investor herein.

     Section 4.10 No Material Adverse Change. Since March 31, 1999, no Material
                  --------------------------
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents.

     Section 4.11 No Undisclosed Liabilities. The Company has no liabilities or
                  --------------------------
obligations which are material, individually or in the aggregate, and are not
disclosed in the SEC Documents or otherwise publicly announced, other than those
incurred in the ordinary course of the Company's businesses since March 31, 1999
and which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company.

     Section 4.12 No Undisclosed Events or Circumstances. Since March 31, 1999,
                  --------------------------------------
no event or circumstance has occurred or exists with respect to the or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.

     Section 4.13 No Integrated Offering. Neither the Company, nor any of its
                  ----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.

     Section 4.14 Litigation and Other Proceedings. Except as may be set forth
                  --------------------------------
in the SEC Documents, there are no lawsuits or proceedings pending or to the
best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such

                                      11
<PAGE>

action, suit, proceeding or investigation, which might have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which might
result in a Material Adverse Effect.

     Section 4.15 No Misleading or Untrue Communication. The Company, any Person
                  -------------------------------------
representing the Company, and, to the knowledge of the Company, any other Person
selling or offering to sell the Put Shares in connection with the transactions
contemplated by this Agreement, have not made, at any time, any oral
communication in connection with the offer or sale of the same which contained
any untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements, in the light of the circumstances
under which they were made, not misleading.

     Section 4.16 Material Non-Public Information. The Company is not in
                  -------------------------------
possession of, nor has the Company or its agents disclosed to the Investor, any
material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock or
(ii) according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.

                                   ARTICLE V
                           Covenants of the Investor

     Section 5.1  Compliance with Law. The Investor's trading activities with
                  -------------------
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the Principal Market on which the Company's Common
Stock is listed.

     Section 5.2  Limitation on Short Sales. The Investor and its affiliates
                  -------------------------
shall not engage in short sales of the Company's Common Stock; provided,
                                                               --------
however, that the Investor may enter into any short sale or other hedging or
-------
similar arrangement it deems appropriate with respect to Put Shares after it
receives a Put Notice with respect to such Put Shares so long as such sales or
arrangements do not involve more than the number of such Put Shares (determined
as of the date of such Put Notice).

                                  ARTICLE VI
                           Covenants of the Company

     Section 6.1  Registration Rights. The Company shall cause the Registration
                  -------------------
Rights Agreement to remain in full force and effect and the Company shall comply
in all respects with the terms thereof.

     Section 6.2  Reservation of Common Stock. As of the date hereof, the
                  ---------------------------
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue the Put
Shares; such amount of shares of Common Stock to be reserved shall be calculated
based upon the minimum Purchase Price therefor under the terms of this
Agreement. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the numbers of
shares actually delivered hereunder.

     Section 6.3  Listing of Common Stock. The Company shall maintain the
                  -----------------------
listing of the Common Stock on a Principal Market, and as soon as practicable
(but in any event prior to the commencement of the Commitment Period) to list
the Put Shares and any Blackout Shares. The Company further shall, if the
Company applies to have the Common Stock traded on any other Principal Market,
include in such application the Put Shares, and shall take such other action as
is necessary or desirable in the opinion of the Investor to cause the Common
Stock to be listed on such other Principal Market as

                                      12
<PAGE>

promptly as possible. The Company shall take all action necessary to continue
the listing and trading of its Common Stock on the Principal Market (including,
without limitation, maintaining sufficient net tangible assets) and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and the Principal Market.

     Section 6.4  Exchange Act Registration. The Company shall (i) cause its
                  -------------------------
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under said Act, and will not take any action or file any document
(whether or not permitted by said Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and filing
obligations under said Act.  The Company will take all action to continue the
listing and trading of its Common Stock on the Principal Market and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and the Principal Market.

     Section 6.5  Legends. The certificates evidencing the Common Stock to be
                  -------
sold by the Investor pursuant to Section 9.1 shall be free of legends, except as
set forth in Article IX.

     Section 6.6  Corporate Existence. The Company will take all steps necessary
                  -------------------
to preserve and continue the corporate existence of the Company.

     Section 6.7  Additional SEC Documents. The Company will deliver to the
                  ------------------------
Investor, as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC.

     Section 6.8  Blackout Period. (a) The Company will immediately notify the
                  ---------------
Investor upon the occurrence of any of the following events in respect of a
Registration Statement or related prospectus in respect of an offering of
Registrable Securities; (i) receipt of any request for additional information by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the Registration Statement, or for amendments or supplements
to the Registration Statement or related prospectus; (ii) the issuance by the
SEC or any other federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the registration
statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Put Notice during the continuation
of any of the foregoing events.

     Section 6.9  Expectations Regarding Put Notices. Within ten (10) days after
                  ----------------------------------
the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company undertakes to notify the
Investor as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Put Notices.
Such

                                      13
<PAGE>

notification shall constitute only the Company's good faith estimate and shall
in no way obligate the Company to raise such amount, or any amount, or otherwise
limit its ability to deliver Put Notices. The failure by the Company to comply
with this provision can be cured by the Company's notifying the Investor at any
time as to its reasonable expectations with respect to the current calendar
quarter.

     Section 6.10 Consolidation; Merger.  The Company shall not, at any time
                  ---------------------
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.

     Section 6.11 Issuance of Put Shares and Blackout Shares. The sale and
                  ------------------------------------------
issuance of the Put Shares shall be made in accordance with the provisions and
requirements of Regulation D and any applicable state law.

     Section 6.12 Legal Opinion on Subscription Date. The Company's independent
                  ----------------------------------
counsel shall deliver to the Investor on the Subscription Date an opinion
substantially in the form of Exhibit B, except for paragraph 6 thereof.

                                  ARTICLE VII
                           Conditions to Delivery of
                     Put Notices and Conditions to Closing

     Section 7.1  Conditions Precedent to the Obligation of the Company to Issue
                  --------------------------------------------------------------
and Sell Common Stock. The obligation hereunder of the Company to issue and sell
---------------------
the Put Shares to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.

          (a)     Accuracy of the Investor's Representation and Warranties. The
          representations and warranties of the Investor shall be true and
          correct in all material respects as of the date of this Agreement and
          as of the date of each such Closing as though made at each such time.

          (b)     Performance by the Investor. The Investor shall have
          performed, satisfied and complied in all respects with all covenants,
          agreements and conditions required by this Agreement to be performed,
          satisfied or complied with by the Investor at or prior to such
          Closing.

     Section 7.2  Conditions Precedent to the Right of the Company to Deliver a
                  -------------------------------------------------------------
Put Notice and the Obligation of the Investor to Purchase the Put Shares. The
------------------------------------------------------------------------
right of the Company to deliver a Put Notice and the obligation of the Investor
hereunder to acquire and pay for the Put Shares incident to a Closing is subject
to the satisfaction, on (i) the date of delivery of such Put Notice and (ii) the
applicable Closing Date (each a "Condition Satisfaction Date"), of each of the
following conditions:

          (a)     Registration of the Registrable Securities with the SEC. As
          set forth in the Registration Rights Agreement, the Company shall have
          filed with the SEC a Registration Statement with respect to the resale
          of the Registrable Securities that shall have been declared effective
          by the SEC prior to the first Put Date, but in no event later than one
          hundred twenty (120) days after Subscription Date.

          (b)     Effective Registration Statement. As set forth in the
          Registration Rights Agreement, the Registration Statement shall have
          previously become effective and shall

                                      14
<PAGE>

          remain effective on each Condition Satisfaction Date and (i) neither
          the Company nor the Investor shall have received notice that the SEC
          has issued or intends to issue a stop order with respect to the
          Registration Statement or that the SEC otherwise has suspended or
          withdrawn the effectiveness of the Registration Statement, either
          temporarily or permanently, or intends or has threatened to do so
          (unless the SEC's concerns have been addressed and the Investor is
          reasonably satisfied that the SEC no longer is considering or intends
          to take such action), and (ii) no other suspension of the use or
          withdrawal of the effectiveness of the Registration Statement or
          related prospectus shall exist.

          (c)     Accuracy of the Company's Representations and Warranties. The
          representations and warranties of the Company shall be true and
          correct in all material respects as of each Condition Satisfaction
          Date as though made at each such time (except for representations and
          warranties specifically made as of a particular date) with respect to
          all periods, and as to all events and circumstances occurring or
          existing to and including each Condition Satisfaction Date, except for
          any conditions which have temporarily caused any representations or
          warranties herein to be incorrect and which have been corrected with
          no continuing impairment to the Company or the Investor.

          (d)     Performance by the Company.  The Company shall have performed,
          satisfied and complied in all material respects with all covenants,
          agreements and conditions required by this Agreement and the
          Registration Rights Agreement to be performed, satisfied or complied
          with by the Company at or prior to each Condition Satisfaction Date.

          (e)     No Injunction. No statute, rule, regulation, executive order,
          decree, ruling or injunction shall have been enacted, entered,
          promulgated or adopted by any court or governmental authority of
          competent jurisdiction that prohibits or directly and adversely
          affects any of the transactions contemplated by this Agreement, and no
          proceeding shall have been commenced that may have the effect of
          prohibiting or adversely affecting any of the transactions
          contemplated by this Agreement.

          (f)     Adverse Changes. Since the date of filing of the Company's
          most recent SEC Document, no event that had or is reasonably likely to
          have a Material Adverse Effect has occurred.

          (g)     No Suspension of Trading In or delisting of Common Stock. The
          trading of the Common Stock (including without limitation the Put
          Shares) shall not have been suspended by the SEC, the Principal Market
          or the NASD and the Common Stock (including without limitation the Put
          Shares) shall have been approved for listing or quotation on and shall
          not have been delisted from the Principal Market. The issuance of
          shares of Common Stock with respect to the applicable Closing, if any,
          shall not violate the shareholder approval requirements of the
          Principal Market.

          (h)     Legal Opinions. The Company shall have caused to be delivered
          to the Investor, within five (5) Trading Days of the Effective Date of
          the Registration Statement, an opinion of the Company's independent
          counsel in the form of Exhibit B hereto, addressed to the Investor;
          provided, however, that in the event that such an opinion cannot be
          --------  -------
          delivered by the Company's independent counsel to the Investor, the
          Company shall promptly revise the Registration Statement and shall not
          deliver a Put Notice.  If a Put Notice shall have been delivered in
          good faith without knowledge by the Company that an opinion of
          independent counsel cannot be delivered as required, at the option of
          the Investor, either the applicable Closing Date shall automatically
          be postponed for a period

                                      15
<PAGE>

          of up to five (5) Trading Days until such an opinion is delivered to
          the Investor, or such Closing shall otherwise be canceled. In the
          event of such a postponement, the Purchase Price of the Common Stock
          to be issued at such Closing as determined pursuant of Section 2.2
          shall be the lower of the Purchase Price as calculated as of the
          originally scheduled Closing Date and as of the actual Closing Date.
          The Company's independent counsel shall also deliver to the Investor
          upon execution of this Agreement an opinion in form and substance
          reasonably satisfactory to the Investor addressing, among other
          things, corporate matters and the exemption from registration under
          the Securities Act of the issuance of the Registrable Securities by
          the Company to the Investor under this Agreement and the Registration
          Rights Agreement.

          (i)     Due Diligence. No dispute between the Company and the Investor
          shall exist pursuant to Section 8.2(c) as to the adequacy of the
          disclosure contained in the Registration Statement.

          (j)     Ten Percent Limitation. On each Closing Date, the number of
          Put Shares then to be purchased by the Investor shall not exceed the
          number of such shares that, when aggregated with all other shares of
          Registrable Securities then owned by the Investor beneficially or
          deemed beneficially owned by the Investor, would result in the
          Investor owning no more than 9.9% of all of such Common Stock as would
          be outstanding on such Closing Date, as determined in accordance with
          Section 16 of the Exchange Act and the regulations promulgated
          thereunder. For purposes of this Section 3.2(k), in the event that the
          amount of Common Stock outstanding as determined in accordance with
          Section 16 of the Exchange Act and the regulations promulgated
          thereunder is greater on a Closing Date than on the date upon which
          the Put Notice associated with such Closing Date is given, the amount
          of Common Stock outstanding on such Closing Date shall govern for
          purposes of determining whether the Investor, when aggregating all
          purchases of Common Stock made pursuant to this Agreement and, if any,
          Blackout Shares, would own more than 9.9% of the Common Stock
          following such Closing Date.

          (k)     Intentionally omitted.

          (l)     Minimum Average Trading Volume. The average trading volume for
          the Common Stock over the previous fifteen (15) Trading Days equals or
          exceeds 10,000 shares per Trading Day.

          (m)     No Knowledge. The Company shall have no knowledge of any event
          more likely than not to have the effect of causing such Registration
          Statement to be suspended or otherwise ineffective (which event is
          more likely than not to occur within the fifteen Trading Days
          following the Trading Day on which such Notice is deemed delivered) .

          (n)     Trading Cushion. The Trading Cushion shall have elapsed since
          the immediately preceding Put Date.

          (o)     Shareholder Vote.  The issuance of shares of Common Stock with
          respect to the applicable Closing, if any, shall not violate the
          shareholder approval requirements of the Principal Market.

          (p)     Escrow Agreement. The parties hereto shall have entered into a
          mutually acceptable escrow agreement for the Purchase Prices due
          hereunder, providing for reasonable interest on any funds deposited
          into the escrow account established under such agreement.

                                      16
<PAGE>

          (q)     Other. On each Condition Satisfaction Date, the Investor shall
          have received such other certificates and documents as shall have been
          reasonably requested by the Investor in order for the Investor to
          confirm the Company's satisfaction of the conditions set forth in this
          Section 7.2., including, without limitation, a certificate in
          substantially the form and substance of Exhibit C hereto, executed in
          either case by an executive officer of the Company and to the effect
          that all the conditions to such Closing shall have been satisfied as
          at the date of each such certificate.

                                 ARTICLE VIII
        Due Diligence Review; Non-Disclosure of Non-Public Information

     Section 8.1  Due Diligence Review. The Company shall make available for
                  --------------------
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.

     Section 8.2  Non-Disclosure of Non-Public Information.
                  ----------------------------------------

          (a)     The Company represents and warrants that the Company and its
          officers, directors, employees and agents have not disclosed any non-
          public information to the Investor or advisors to or representatives
          of the Investor. The Company covenants and agrees that it shall
          refrain from disclosing, and shall cause its officers, directors,
          employees and agents to refrain from disclosing, (including, without
          limitation, in connection with the giving of the Adjustment Period
          Notice pursuant to Section 2.4), unless prior to disclosure of such
          information the Company identifies such information as being non-
          public information and provides the Investor, such advisors and
          representatives with the opportunity to accept or refuse to accept
          such non-public information for review. The Company may, as a
          condition to disclosing any non-public information hereunder, require
          the Investor's advisors and representatives to enter into a
          confidentiality agreement in form reasonably satisfactory to the
          Company and the Investor.

          (b)     Nothing herein shall require the Company to disclose non-
          public information to the Investor or its advisors or representatives,
          and the Company represents that it does not disseminate non-public
          information to any investors who purchase stock in the Company in a
          public offering, to money managers or to securities analysts,
          provided, however, that notwithstanding anything herein to the
          contrary, the Company will, as herein above provided, immediately
          notify the advisors and representatives of the Investor and, if any,
          underwriters, of any event or the existence of any circumstance
          (without any obligation to disclose the specific event or
          circumstance) of which it becomes aware, constituting non-

                                      17
<PAGE>

          public information (whether or not requested of the Company
          specifically or generally during the course of due diligence by such
          persons or entities), which, if not disclosed in the prospectus
          included in the Registration Statement would cause such prospectus to
          include a material misstatement or to omit a material fact required to
          be stated therein in order to make the statements, therein, in light
          of the circumstances in which they were made, not misleading. Nothing
          contained in this Section 8.2 shall be construed to mean that such
          persons or entities other than the Investor (without the written
          consent of the Investor prior to disclosure of such information) may
          not obtain non-public information in the course of conducting due
          diligence in accordance with the terms of this Agreement and nothing
          herein shall prevent any such persons or entities from notifying the
          Company of their opinion that based on such due diligence by such
          persons or entities, that the Registration Statement contains an
          untrue statement of a material fact or omits a material fact required
          to be stated in the Registration Statement or necessary to make the
          statements contained therein, in light of the circumstances in which
          they were made, not misleading.

                                  ARTICLE IX
                                    Legends

     Section 9.1  Legends.  Unless otherwise provided below, each certificate
                  -------
representing Registrable Securities will bear the following legend (the
"Legend"):

          THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
          REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
          AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE
          SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
          EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
          SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS
          SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
          REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
          ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT
          PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
          SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT
          FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF
          THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS
          OF THE COMPANY SET FORTH IN A PRIVATE EQUITY LINE AGREEMENT
          BETWEEN SONIC SOLUTIONS AND KINGSBRIDGE CAPITAL LIMITED
          DATED MAY 3/RD/, 2000. A COPY OF THE PORTION OF THE
          AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE
          OBTAINED FROM THE COMPANY'S EXECUTIVE OFFICES.

     Prior to the execution and delivery hereof, the Company has issued to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit D hereto with a copy to the Investor.  Such instructions shall be
irrevocable by the Company from and after the date hereof or from and after the
issuance thereof to any such substitute or replacement transfer agent, as the
case may be, except as otherwise expressly provided in the Registration

                                      18
<PAGE>

Rights Agreement. It is the intent and purpose of such instructions, as provided
therein, to require the transfer agent for the Common Stock from time to time
upon transfer of Registrable Securities by the Investor to issue certificates
evidencing such Registrable Securities free of the Legend during the following
periods and under the following circumstances and without consultation by the
transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the transfer agent by or from
the Company or its counsel or the Investor:

          (a)     at any time after the Effective Date, upon surrender of one or
          more certificates evidencing Common Stock that bear the Legend, to the
          extent accompanied by a notice requesting the issuance of new
          certificates free of the Legend to replace those surrendered; provided
          that (i) the Registration Statement shall then be effective; (ii) the
          Investor confirms to the transfer agent that it has sold, pledged or
          otherwise transferred or agreed to sell, pledge or otherwise transfer
          such Common Stock in a bona fide transaction to a third party that is
          not an affiliate of the Company; and (iii) the Investor confirms to
          the transfer agent that the Investor has complied with the prospectus
          delivery requirement; and

          (b)     at any time upon any surrender of one or more certificates
          evidencing Registrable Securities that bear the Legend, to the extent
          accompanied by a notice requesting the issuance of new certificates
          free of the Legend to replace those surrendered and containing
          representations that (i) the Investor is permitted to dispose of such
          Registrable Securities without limitation as to amount or manner of
          sale pursuant to Rule 144(k) under the Securities Act or (ii) the
          Investor has sold, pledged or otherwise transferred or agreed to sell,
          pledge or otherwise transfer such Registrable Securities in a manner
          other than pursuant to an effective registration statement, to a
          transferee who will upon such transfer be entitled to freely tradeable
          securities.

     Any of the notices referred to above in this Section 9.1 may be sent by
facsimile to the Company's transfer agent.

     Section 9.2  No Other Legend or Stock Transfer Restrictions. No legend
                  ----------------------------------------------
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Common Stock and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article IX.

     Section 9.3  Investor's Compliance. Nothing in this Article VIII shall
                  ---------------------
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.

                                   ARTICLE X
                                 Choice of Law

     Section 10.1 Choice of Law. This Agreement shall be construed under the
                  -------------
laws of the State of California, without giving effect to provisions regarding
conflicts of law or choice of law.

                                  ARTICLE XI
             Assignment; Entire Agreement, Amendment; Termination

     Section 11.1 Assignment. Neither this Agreement nor any rights of the
                  ----------
Investor or the Company hereunder may be assigned by any party to any other
Person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of

                                      19
<PAGE>

any of the Common Stock purchased or acquired by the Investor hereunder with
respect to the Common Stock held by such person, and (b) the Investor's interest
in this Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any affiliate of the Investor) upon the prior
written consent of the Company, which consent shall not to be unreasonably
withheld.

     Section 11.2 Termination. This Agreement shall terminate twenty-four (24)
                  -----------
months after the commencement of the Commitment Period; provided, however, that
                                                        --------  -------
the provisions of Articles VI, VII, VIII, X, XI, and XII shall survive the
termination of this Agreement.

     Section 11.3 Entire Agreement, Amendment; Waiver. This Agreement and the
                  -----------------------------------
Registration Rights Agreement constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth in
this Agreement or therein. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by both parties hereto. Any
term or condition of this Agreement may be waived at any time by the party that
is entitled to the benefit thereof, but no such waiver shall be effective unless
set forth in a written instrument duly executed by or on behalf of the party
waiving such term or condition.  No waiver by any party of any term or condition
of this Agreement, in any one or more instances, shall be deemed to be or
construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion.

                                  ARTICLE XII
                           Notices; Indemnification

     Section 12.1 Notices. All notices, demands, requests, consents, approvals,
                  -------
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice.  Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.  The addresses for
such communications shall be:

     If to the Company:

          Robert J. Doris
          President and Chief Executive Officer
          Sonic Solutions
          101 Rowland Way, Suite 110
          Novato, California 94945
          Telephone: (415) 893-8000
          Facsimile: (415) 893-8008

     with a copy to (which communication shall not constitute notice):

          Kyle Guse, Esq.

                                      20
<PAGE>

          Heller Ehrman White & McAuliffe
          2500 Sand Hill Road, Suite 100
          Menlo Park, California 94025-7063
          Telephone: (650) 234-4200
          Facsimile: (650) 234-4299

     If to the Investor:

          Adam Gurney
          Kingsbridge Capital Limited
          c/o Kingsbridge Corporate Services Limited
          Main Street
          Kilcullen, County Kildare
          Republic of Ireland
          Telephone: 011-353-45-481-811
          Facsimile: 011-353-45-482-003

     with a copy to (which communication shall not constitute notice):

          Keith M. Andruschak, Esq.
          Clifford Chance Rogers & Wells
          200 Park Avenue
          New York, NY 10166
          Telephone: (212) 878-8000
          Facsimile: (212) 878-8375

     Either party hereto may from time to time change its address or facsimile
number for notices under this Section 12.1 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the other
party hereto.

     Section 12.2 Indemnification.
                  ---------------

          (a)     The Company agrees to indemnify and hold harmless the
          Investor, its partners, affiliates, officers, directors, employees,
          and duly authorized agents, and each Person or entity, if any, who
          controls the Investor within the meaning of Section 15 of the
          Securities Act or Section 20 of the Exchange Act, together with the
          Controlling Persons (as defined in the Registration Rights Agreement)
          from and against any Damages, joint or several, and any action in
          respect thereof to which the Investor, its partners, affiliates,
          officers, directors, employees, and duly authorized agents, and any
          such Controlling Person becomes subject to, resulting from, arising
          out of or relating to any misrepresentation, breach of warranty or
          nonfulfillment of or failure to perform any covenant or agreement on
          the part of Company contained in this Agreement as such Damages are
          incurred.

          (b)     The Investor agrees to indemnify and hold harmless the
          Company, its partners, affiliates, officers, directors, employees, and
          duly authorized agents, and each Person or entity, if any, who
          controls the Investor within the meaning of Section 15 of the
          Securities Act or Section 20 of the Exchange Act, together with the
          Controlling Persons (as defined in the Registration Rights Agreement)
          from and against any Damages, joint or several, and any action in
          respect thereof to which the Company, its partners, affiliates,
          officers, directors, employees, and duly authorized agents, and any
          such Controlling Person becomes subject to, resulting from, arising
          out of or relating to any

                                      21
<PAGE>

          misrepresentation, breach of warranty or nonfulfillment of or failure
          to perform any covenant or agreement on the part of Investor contained
          in this Agreement in an aggregate amount not to exceed $140,000.

     Section 12.3 Method of Asserting Indemnification Claims. All claims for
                  ------------------------------------------
indemnification by any Indemnified Party (as defined below) under Section 12.2
will be asserted and resolved as follows:

          (a)     In the event any claim or demand in respect of which any
          person claiming indemnification under any provision of Section 12.2
          (an "Indemnified Party") might seek indemnity under Section 12.2 is
          asserted against or sought to be collected from such Indemnified Party
          by a person other than the Company, the Investor or any affiliate of
          the Company or (a "Third Party Claim"), the Indemnified Party shall
          deliver a written notification, enclosing a copy of all papers served,
          if any, and specifying the nature of and basis for such Third Party
          Claim and for the Indemnified Party's claim for indemnification that
          is being asserted under any provision of Section 12.2 against any
          person (the "Indemnifying Party"), together with the amount or, if not
          then reasonably ascertainable, the estimated amount, determined in
          good faith, of such Third Party Claim (a "Claim Notice") with
          reasonable promptness to the Indemnifying Party. If the Indemnified
          Party fails to provide the Claim Notice with reasonable promptness
          after the Indemnified Party receives notice of such Third Party Claim,
          the Indemnifying Party will not be obligated to indemnify the
          Indemnified Party with respect to such Third Party Claim to the extent
          that the Indemnifying Party's ability to defend has been irreparably
          prejudiced by such failure of the Indemnified Party. The Indemnifying
          Party will notify the Indemnified Party as soon as practicable within
          the period ending thirty (30) calendar days following receipt by the
          Indemnifying Party of either a Claim Notice or an Indemnity Notice (as
          defined below) (the "Dispute Period") whether the Indemnifying Party
          disputes its liability or the amount of its liability to the
          Indemnified Party under Section 12.2 and whether the Indemnifying
          Party desires, at its sole cost and expense, to defend the Indemnified
          Party against such Third Party Claim.

                  (i)    If the Indemnifying Party notifies the Indemnified
                  Party within the Dispute Period that the Indemnifying Party
                  desires to defend the Indemnified Party with respect to the
                  Third Party Claim pursuant to this Section 12.3(a), then the
                  Indemnifying Party will have the right to defend, with counsel
                  reasonably satisfactory to the Indemnified Party, at the sole
                  cost and expense of the Indemnifying Party, such Third Party
                  Claim by all appropriate proceedings, which proceedings will
                  be vigorously and diligently prosecuted by the Indemnifying
                  Party to a final conclusion or will be settled at the
                  discretion of the Indemnifying Party (but only with the
                  consent of the Indemnified Party in the case of any settlement
                  that provides for any relief other than the payment of
                  monetary damages or that provides for the payment of monetary
                  damages as to which the Indemnified Party will not be
                  indemnified in full pursuant to Section 12.2). The
                  Indemnifying Party will have full control of such defense and
                  proceedings, including any compromise or settlement thereof;
                  provided, however, that the Indemnified Party may, at the sole
                  --------  -------
                  cost and expense of the Indemnified Party, at any time prior
                  to the Indemnifying Party's delivery of the notice referred to
                  in the first sentence of this clause (i), file any motion,
                  answer or other pleadings or take any other action that the
                  Indemnified Party reasonably believes to be necessary or
                  appropriate to protect its interests; and provided further,
                  that if requested by the Indemnifying Party, the Indemnified
                  Party will, at

                                      22
<PAGE>

                  the sole cost and expense of the Indemnifying Party, provide
                  reasonable cooperation to the Indemnifying Party in contesting
                  any Third Party Claim that the Indemnifying Party elects to
                  contest. The Indemnified Party may participate in, but not
                  control, any defense or settlement of any Third Party Claim
                  controlled by the Indemnifying Party pursuant to this clause
                  (i), and except as provided in the preceding sentence, the
                  Indemnified Party will bear its own costs and expenses with
                  respect to such participation. Notwithstanding the foregoing,
                  the Indemnified Party may take over the control of the defense
                  or settlement of a Third Party Claim at any time if it
                  irrevocably waives its right to indemnity under Section 12.2
                  with respect to such Third Party Claim.

                  (ii)   If the Indemnifying Party fails to notify the
                  Indemnified Party within the Dispute Period that the
                  Indemnifying Party desires to defend the Third Party Claim
                  pursuant to Section 12.3(a), or if the Indemnifying Party
                  gives such notice but fails to prosecute vigorously and
                  diligently or settle the Third Party Claim, or if the
                  Indemnifying Party fails to give any notice whatsoever within
                  the Dispute Period, then the Indemnified Party will have the
                  right to defend, at the sole cost and expense of the
                  Indemnifying Party, the Third Party Claim by all appropriate
                  proceedings, which proceedings will be prosecuted by the
                  Indemnified Party in a reasonable manner and in good faith or
                  will be settled at the discretion of the Indemnified Party
                  (with the consent of the Indemnifying Party, which consent
                  will not be unreasonably withheld). The Indemnified Party will
                  have full control of such defense and proceedings, including
                  any compromise or settlement thereof; provided, however, that
                  if requested by the Indemnified Party, the Indemnifying Party
                  will, at the sole cost and expense of the Indemnifying Party,
                  provide reasonable cooperation to the Indemnified Party and
                  its counsel in contesting any Third Party Claim which the
                  Indemnified Party is contesting. Notwithstanding the foregoing
                  provisions of this clause (ii), if the Indemnifying Party has
                  notified the Indemnified Party within the Dispute Period that
                  the Indemnifying Party disputes its liability or the amount of
                  its liability hereunder to the Indemnified Party with respect
                  to such Third Party Claim and if such dispute is resolved in
                  favor of the Indemnifying Party in the manner provided in
                  clause (iii) below, the Indemnifying Party will not be
                  required to bear the costs and expenses of the Indemnified
                  Party's defense pursuant to this clause (ii) or of the
                  Indemnifying Party's participation therein at the Indemnified
                  Party's request, and the Indemnified Party will reimburse the
                  Indemnifying Party in full for all reasonable costs and
                  expenses incurred by the Indemnifying Party in connection with
                  such litigation. The Indemnifying Party may participate in,
                  but not control, any defense or settlement controlled by the
                  Indemnified Party pursuant to this clause (ii), and the
                  Indemnifying Party will bear its own costs and expenses with
                  respect to such participation.

                  (iii)  If the Indemnifying Party notifies the Indemnified
                  Party that it does not dispute its liability or the amount of
                  its liability to the Indemnified Party with respect to the
                  Third Party Claim under Section 12.2 or fails to notify the
                  Indemnified Party within the Dispute Period whether the
                  Indemnifying Party disputes its liability or the amount of its
                  liability to the Indemnified Party with respect to such Third
                  Party Claim, the Loss in the amount specified in the Claim
                  Notice will be conclusively deemed a liability of the
                  Indemnifying Party under Section 12.2 and the Indemnifying
                  Party shall pay the amount of such Loss to the

                                      23
<PAGE>

                  Indemnified Party on demand. If the Indemnifying Party has
                  timely disputed its liability or the amount of its liability
                  with respect to such claim, the Indemnifying Party and the
                  Indemnified Party will proceed in good faith to negotiate a
                  resolution of such dispute, and if not resolved through
                  negotiations within the Resolution Period, such dispute shall
                  be resolved by arbitration in accordance with paragraph (c) of
                  this Section 12.3.

          (b)     In the event any Indemnified Party should have a claim under
          Section 12.2 against the Indemnifying Party that does not involve a
          Third Party Claim, the Indemnified Party shall deliver a written
          notification of a claim for indemnity under Section 12.2 specifying
          the nature of and basis for such claim, together with the amount or,
          if not then reasonably ascertainable, the estimated amount, determined
          in good faith, of such claim (an "Indemnity Notice") with reasonable
          promptness to the Indemnifying Party. The failure by any Indemnified
          Party to give the Indemnity Notice shall not impair such party's
          rights hereunder except to the extent that the Indemnifying Party
          demonstrates that it has been irreparably prejudiced thereby. If the
          Indemnifying Party notifies the Indemnified Party that it does not
          dispute the claim or the amount of the claim described in such
          Indemnity Notice or fails to notify the Indemnified Party within the
          Dispute Period whether the Indemnifying Party disputes the claim or
          the amount of the claim described in such Indemnity Notice, the Loss
          in the amount specified in the Indemnity Notice will be conclusively
          deemed a liability of the Indemnifying Party under Section 12.2 and
          the Indemnifying Party shall pay the amount of such Loss to the
          Indemnified Party on demand. If the Indemnifying Party has timely
          disputed its liability or the amount of its liability with respect to
          such claim, the Indemnifying Party and the Indemnified Party will
          proceed in good faith to negotiate a resolution of such dispute, and
          if not resolved through negotiations within the Resolution Period,
          such dispute shall be resolved by arbitration in accordance with
          paragraph (c) of this Section 12.3.

          (c)     Any dispute under this Agreement (including, without
          limitation, in connection with this Section 12.3) or the Registration
          Rights Agreement shall be submitted to arbitration and shall be
          finally and conclusively determined by the decision of a single
          arbitrator who shall be a retired San Francisco Superior Court Judge
          with experience in civil litigation involving interpretation of stock
          purchase agreements (the "Arbitrator"). The arbitration shall be
          governed by the United States Arbitration Act, 9 U.S.C. (S)(S) 1-16,
          201-208 and judgment upon the award rendered by the Arbitrator may be
          entered by any United States federal or state court in and of the
          State of California, to the non-exclusive jurisdiction of which each
          of the parties hereto irrevocably submits. The parties agree to
          cooperate and use their reasonable best efforts to cause the
          Arbitrator render a decision in any dispute within thirty (30) days
          following the commencement of proceedings with respect thereto and, to
          the extent practicable, the decision of the Arbitrator shall be
          rendered no more than thirty (30) calendar days following such
          commencement. The Arbitrator shall cause its written decision to be
          delivered to the Indemnified Party and the Indemnifying Party within
          three (3) business days following such decision. Any decision made by
          the Arbitrator (either prior to or after the expiration of such thirty
          (30) calendar-day period) shall be final, binding and conclusive on
          the Indemnified Party and the Indemnifying Party and shall be entitled
          to be enforced to the fullest extent permitted by law and entered in
          any court of competent jurisdiction. Each party to any arbitration
          shall bear its own expense in relation thereto, including but not
          limited to such party's attorneys' fees, if any, and the expenses and
          fees of the Arbitrator shall be divided between the Indemnifying Party
          and the Indemnified Party in the same proportion as the

                                      24
<PAGE>

          portion of the related claim determined by the Arbitrator to be
          payable to the Indemnified Party bears to the portion of such claim
          determined not to be so payable.

                                 ARTICLE XIII
                                 Miscellaneous

     Section 13.1  Fees and Expenses. Each of the Company and the Investor
                   -----------------
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, expenses and
disbursements of the Investor's counsel up to an aggregate maximum of $10,000 in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the Registration Rights Agreement.

     Section 13.2  Brokerage. Each of the parties hereto represents that it has
                   ---------
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party.  The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all liabilities to
any persons claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.

     Section 13.3  Counterparts. This Agreement may be executed in multiple
                   ------------
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.

     Section 13.4  Entire Agreement. This Agreement, the Exhibits hereto and the
                   ----------------
Registration Rights Agreement set forth the entire agreement and understanding
of the parties relating to the subject matter hereof and supersedes all prior
and contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof.  The terms
and conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as if fully set forth
herein.

     Section 13.5  Survival; Severability. The representations, warranties,
                   ----------------------
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.

     Section 13.6  Title and Subtitles. The titles and subtitles used in this
                   -------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

     Section 13.7  Reporting Entity for the Common Stock. The reporting entity
                   -------------------------------------
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.

                                      25
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Private Equity Line
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.

                                   KINGSBRIDGE CAPITAL LIMITED

                                   By:________________________________________
                                        Valentine O'Donoghue
                                        Director

                                   SONIC SOLUTIONS

                                   By:________________________________________
                                        Robert J. Doris
                                        President and Chief Executive Officer
<PAGE>

                                   EXHIBIT A

                           ADJUSTMENT PERIOD NOTICE
                                SONIC SOLUTIONS

     Notice is hereby granted that the Board of Directors of Sonic Solutions
(the "Company") anticipates executing a merger or acquisition agreement within
ninety (90) days of the date hereof.

     The following five-week period is hereby designated as an Adjustment Period
pursuant to Section 2.4 of the Private Equity Line Agreement, dated as of May
__, 2000, by and between the Company and Kingsbridge Capital Limited.

     Beginning: ______________________

     (no sooner that twenty-one (21) days from the date this notice is deemed to
be delivered)

     Expiring:_______________________

     The undersigned has executed this Certificate this ____ day of ________,
200_.

                                   ____________________________________
                                   Robert J. Doris
                                   Chairman and Chief Executive Officer
<PAGE>

                                   EXHIBIT B

             FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL

                [FORM TO BE PROVIDED BY COUNSEL TO THE COMPANY]
<PAGE>

                                   EXHIBIT C

                            COMPLIANCE CERTIFICATE
                                SONIC SOLUTIONS

     The undersigned, Robert J. Doris, hereby certifies, with respect to shares
of common stock of the Sonic Solutions (the "Company") issuable in connection
with the Put Notice, dated _____________ (the "Notice"), delivered pursuant to
Article II of the Private Equity Line Agreement, dated May __,2000, by and
between the Company and Kingsbridge Capital Limited (the "Agreement"), as
follows:

     1.   The undersigned is the duly elected Chairman and Chief Executive
Officer of the Company.

     2.   The representations and warranties of the Company set forth in Article
IV of the Agreement are true and correct in all material respects as though made
on and as of the date hereof.

     3.   The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Closing Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in Article VII of the Agreement.

     4.   The undersigned has executed this Certificate this ____ day of
________, 200_.

                                    ____________________________________
                                    Robert J. Doris
                                    Chairman and Chief Executive Officer
<PAGE>

                                   EXHIBIT D

                        INSTRUCTIONS TO TRANSFER AGENT
                                SONIC SOLUTIONS

                                              [DATE]

[Name, address and phone and fax number of Transfer Agent]

Dear Sirs:

     Reference is made to the Private Equity Line Agreement (the "Agreement"),
dated as of May __, 2000 between Kingsbridge Capital Limited (the "Investor")
and Sonic Solutions (the "Company").  Pursuant to the Agreement, subject to the
terms and conditions set forth in the Agreement the Investor has agreed to
purchase from the Company and the Company has agreed to sell to the Investor
from time to time during the term of the Agreement shares of Common Stock of the
Company, no par value (the "Common Stock").  As a condition to the effectiveness
of the Agreement, the Company has agreed to issue to you, as the transfer agent
for the Common Stock (the "Transfer Agent"), these instructions relating to the
Common Stock to be issued to the Investor (or a permitted assignee) pursuant to
the Agreement. All terms used herein and not otherwise defined shall have the
meaning set forth in the Agreement.

     1.   ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND

     Pursuant to the Agreement, the Company is required to prepare and file with
the Commission, and maintain the effectiveness of, a registration statement or
registration statements registering the resale of the Common Stock to be
acquired by the Investor under the Agreement. The Company will advise the
Transfer Agent in writing of the effectiveness of any such registration
statement promptly upon its being declared effective. The Transfer Agent shall
be entitled to rely on such advice and shall assume that the effectiveness of
such registration statement remains in effect unless the Transfer Agent is
otherwise advised in writing by the Company and shall not be required to
independently confirm the continued effectiveness of such registration
statement. In the circumstances set forth in the following two paragraphs, the
Transfer Agent shall deliver to the Investor certificates representing Common
Stock not bearing the Legend without requiring further advice or instruction or
additional documentation from the Company or its counsel or the Investor or its
counsel or any other party (other than as described in such paragraphs).

     At any time after the effective date of the applicable registration
statement (provided that the Company has not informed the Transfer Agent in
writing that such registration statement is not effective) upon any surrender of
one or more certificates evidencing Common Stock which bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered, the Transfer Agent shall deliver to
the Investor the certificates representing the Common Stock not bearing the
Legend, in such names and denominations as the Investor shall request, provided
that:

     (a)  in connection with such event, the Investor (or its permitted
     assignee) shall confirm in writing to the Transfer Agent that (i) the
     Investor confirms to the transfer agent that it has sold, pledged or
     otherwise transferred or agreed to sell, pledge or otherwise transfer such
     Common Stock in a bona fide transaction to a designated transferee that is
     not an affiliate of the Company; and (ii) the Investor confirms to the
     transfer agent that the Investor has complied with the prospectus delivery
     requirement;
<PAGE>

     (b)  the Investor (or its permitted assignee) shall represent that it is
     permitted to dispose thereof with limitation as to amount of manner of sale
     pursuant to Rule 144(k) under the Securities Act; or

     (c)  the Investor, its permitted assignee, or either of their brokers
     confirms to the transfer agent that (i) the Investor has held the shares of
     Common Stock for at least one year, (ii) counting the shares surrendered as
     being sold upon the date the unlegended Certificates would be delivered to
     the Investor (or the Trading Day immediately following if such date is not
     a Trading Day), the Investor will not have sold more than the greater of
     (a) one percent (1%) of the total number of outstanding shares of Common
     Stock or (b) the average weekly trading volume of the Common Stock for the
     preceding four weeks during the three months ending upon such delivery date
     (or the Trading Day immediately following if such date is not a Trading
     Day), and (iii) the Investor has complied with the manner of sale and
     notice requirements of Rule 144 under the Securities Act.

     Any advice, notice or instructions to the Transfer Agent required or
permitted to be given hereunder may be transmitted via facsimile to the Transfer
Agent's facsimile number of (___)-___-____.

     2.   MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON STOCK

     In connection with any Closing pursuant to which the Investor acquires
Common Stock under the Agreement, the Transfer Agent shall deliver certificates
representing Common Stock (with or without the Legend, as appropriate) as
promptly as practicable, but in no event later than three business days, after
such Closing.

     3.   FEES OF TRANSFER AGENT; INDEMNIFICATION

     The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees to indemnify
the Transfer Agent and its officers, employees and agents, against any losses,
claims, damages or liabilities, joint or several, to which it or they become
subject based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.

     4.   THIRD PARTY BENEFICIARY

     The Company and the Transfer Agent acknowledge and agree that the Investor
is an express third party beneficiary of these Irrevocable Instructions and
shall be entitled to rely upon, and enforce, the provisions hereof.

                                    SONIC SOLUTIONS

                                    By:____________________________________
                                       Robert J. Doris
                                       Chairman and Chief Executive Officer

AGREED:

[NAME OF TRANSFER AGENT]

By:__________________________
   Name:
   Title:

                                       2

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