Sonic Foundry, Inc., Sonic Foundry (Nova Scotia), Inc., International Image Services, Inc. and Magnetiscope Inc.

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - Registration andprospectus relief granted for trades made in connection with a cross-border acquisitionof non-reporting Canadian issuers by non-reporting U.S. issuer employingexchangeable share structure, subject to certain conditions including first traderestrictions on the common shares of U.S. issuer underlying exchangeable shares.

Applicable Ontario Statutes

Securities Act, R.S.O. 1990, c.S.5, as am. ss. 25, 53, and 74(1).

Applicable Ontario Rules

Rule 45-501 - Exempt Distributions, (1998), 21 OSCB 6548.

Rule 72-501 - Prospectus Exemption for First Trade over a Market Outside Ontario,(1998) 21 OSCB 3873.

WHEREAS the Canadian securities regulatory authority or regulator (the "DecisionMaker") in each of British Columbia and Ontario (the "Jurisdictions") has received anapplication from Sonic Foundry, Inc. ("Sonic Foundry"), Sonic Foundry (Nova Scotia), Inc.(the "Buyer"), International Image Services, Inc. ("International Image") and MagnetiscopeInc. ("Magnetiscope") (collectively, the "Applicants") for a decision pursuant to thesecurities legislation of the Jurisdictions (the "Legislation") that certain trades in securitiesmade in connection with or resulting from the acquisition (the "Acquisition") by SonicFoundry and the Buyer of all of the common shares of International Image andMagnetiscope are exempt from the registration and prospectus requirements of theLegislation (the "Registration and Prospectus Requirements");

AND WHEREAS pursuant to the mutual reliance review system for exemptive reliefapplications (the "System") the Ontario Securities Commission is the principal regulatorfor this application;

AND WHEREAS it has been represented by the Applicants to the Decision Makersthat:

1. Sonic Foundry is existing under the laws of the State of Maryland under articles ofincorporation, dated August 1, 1996. The executive offices of Sonic Foundry arelocated at 1617 Sherman Avenue, Madison, Wisconsin. Sonic Foundry is a leadingprovider of software products and services that enable its customers to create andedit digital, audio and video content.

2. The authorized share capital of Sonic Foundry consists of 100,000,000 shares ofcommon stock, U.S.$0.01 par value per share, 10 million shares of Series B 5%cumulative convertible preferred stock (the "Series B Preferred Stock"), U.S.$0.01par value per share, and 5 million shares of unclassified preferred stock, U.S.$0.01par value per share, of which at the close of business on May 31, 2000, there wereissued and outstanding 21,751,036 SOFO Common Shares and no shares ofSeries B preferred stock or other preferred stock. The SOFO Common Shares arefully participating voting shares and are quoted on the NASDAQ National Market.

3. Sonic Foundry is subject to the requirements of the United States Securities Act of1934, as amended. Sonic Foundry is not a reporting issuer under the Legislationor under any other securities legislation in Canada and has no present intention ofbecoming a reporting issuer under the Legislation following the completion of theAcquisition.

4. The Buyer is a corporation that will be incorporated under the laws of the NovaScotia prior to the closing of the Acquisition (the "Closing") as a "private issuer".

5. The authorized capital of the Buyer will consist of 10,000,000 common shareswithout par value and 10,000,000 non-voting exchangeable shares (the "Non-Voting Exchangeable Shares") without par value, of which 10 common shares willbe initially issued to Sonic Foundry.

6. Each of International Image and Magnetiscope is a private corporation existingunder the Business Corporations Act (Ontario) (the "OBCA") and is a "privateissuer" as such term is defined in the Legislation. The Sellers (as defined below)own all of the common shares of International Image either directly or indirectlythrough their holdings in Magnetiscope. After the closing of the Acquisition, it isanticipated that International Image and Magnetiscope will be amalgamatedpursuant to the OBCA.

7. International Image is one of North America's leading suppliers of technical servicesto the television program distribution market.

8. The Acquisition will be effected by a purchase by the Buyer from CharlesFerkranus, Michael Ferkranus, 1096159 Ontario Limited, 1402083 Ontario Limited,Dan McLellan ("McLellan"), Curtis Staples ("Staples" and collectively with theforegoing, referred to herein as the "Active Sellers" or the "Holders"), Bank ofMontreal Capital Corp., RoyNat Inc. and DGC Entertainment Ventures Corp.(collectively, the "Non-Active Sellers" and with the Active Sellers also referred to asthe "Sellers") of all of the issued and outstanding shares of Magnetiscope togetherwith all of the issued and outstanding shares of International Image not owned byMagnetiscope for US$24 million by:

(a) the assumption and/or retirement of certain indebtedness of InternationalImage and Magnetiscope in the approximate amount of US $3,500,000;

(b) the delivery to the Sellers of promissory notes of the Buyer in the aggregateamount of US$4 million, bearing interest at a rate of nine (9.00%) per centper annum, due and payable on January 3, 2001 (the "Buyer Notes");

(c) delivery to certain of the Active Sellers of 412,336 Non-Voting ExchangeableShares;

(d) delivery to McLellan and Staples of 72,765 options to acquire Non-VotingExchangeable Shares (the "Buyer Non-Voting Exchangeable ShareOptions");

(e) delivery to the Non-Active Sellers and B. Andrus Wilson ("Wilson") of114,900 SOFO Common Shares; and

(f) cash for the balance of the purchase price.

9. To effect the Acquisition, the Buyer will purchase: (I) all of the issued andoutstanding shares of International Image not owned by Magnetiscope, being1,909.09 common shares of International Image; and (II) all of the issued andoutstanding shares of Magnetiscope, being 4,395,946 common shares and2,000,000 Class A shares, pursuant to the terms of a share purchase agreementdated as of June 1, 2000 entered into between Sonic Foundry, the Buyer and theSellers (the "Share Purchase Agreement"). In substance, the Acquisition is anexchange of all of the outstanding shares of International Image owned by theSellers (directly or indirectly through Magnetiscope) for, among other things,common shares of Sonic Foundry, a U.S. public company. Instead of a straightshare purchase, however, an exchangeable share structure, together with options,will be used to provide the Active Sellers who are resident in Ontario and BritishColumbia with the opportunity to defer the bulk of the capital gains tax that wouldotherwise apply if they received SOFO Common Shares directly as considerationat the time of the Closing.

10. The Non-Voting Exchangeable Shares will provide the Active Sellers with securitiesof a Canadian issuer (i.e., the Buyer) having economic attributes that are, as nearlyas practicable, equivalent to those of SOFO Common Shares, including the rightto receive dividends equivalent to any dividends declared from time to time inrespect of the SOFO Common Shares. By virtue of the application of subsection85(1) of the Income Tax Act (Canada), it is anticipated that the Active Sellers otherthan McLellan and Staples will be entitled to receive the Non-Voting ExchangeableShares on a tax-deferred rollover basis.

11. The Buyer and each of McLellan and Staples will enter into an option agreement(the "Buyer Non-Voting Exchangeable Share Option Agreement") which will provideMcLellan and Staples with options to purchase Non-Voting Exchangeable Sharesuntil the earlier of five (5) years from Closing and ninety (90) days of the terminationof their employment with International Image or any other affiliate of Sonic Foundry.It is anticipated that McLellan and Staples will be entitled to receive the Buyer Non-Voting Exchangeable Options on a tax-deferred basis.

12. As part of the Closing, the Sellers will direct the Buyer to deliver 12,000 SOFOCommon Shares to Wilson in partial satisfaction of certain fees that are due andowing to Wilson by the Sellers in connection with the Acquisition. The quantum ofthe consideration delivered by Wilson for the SOFO Common Shares directed tohim was well in excess of CDN$150,000.

13. In order to be able to effect first trades of the SOFO Common Shares, SonicFoundry, Wilson and the Sellers will be entering into a stock registration rightsagreement (the "Stock Registration Rights Agreement") which will set out the rightsof the Sellers and Wilson to require Sonic Foundry to file and maintain a currentregistration statement under U.S. securities laws to permit them to resell the SOFOCommon Shares they acquire or will acquire pursuant to the Share PurchaseAgreement and the Share Exchange Agreement (as defined below) on theexchange of the Non-Voting Exchangeable Shares for SOFO Common Shares.

14. The Non-Voting Exchangeable Shares will be securities of the Buyer havingeconomic attributes which are, as nearly as practicable, equivalent to those ofSOFO Common Shares. The rights, privileges, restrictions and conditions attachingto the Non-Voting Exchangeable Shares (the "Exchangeable Share Provisions") willbe set out in the memorandum and articles of association of the Buyer. The Non-Voting Exchangeable Shares will rank prior to the Common Shares of the Buyerand the shares of any other class ranking junior to the Non-Voting ExchangeableShares with respect to the payment of dividends, and the distribution of assets inthe event of a liquidation, dissolution, or a winding-up of the Buyer. Each Holder willbe entitled to dividends from the Buyer payable on the Non-Voting ExchangeableShares at the same time as, and in an amount equivalent to, the dividends that arepaid by Sonic Foundry on the equivalent number of SOFO Common Shares foreach Non-Voting Exchangeable Share held by such Holder on each date SonicFoundry declares a dividend on the SOFO Common Shares.

15. Upon the liquidation, dissolution or winding-up of the Buyer, the Holders will beentitled to receive, for each Non-Voting Exchangeable Share, one SOFO CommonShare plus the declared and unpaid dividends (the "Dividend Amount") on eachNon-Voting Exchangeable Share (collectively, the "Liquidation Amount").Notwithstanding the foregoing, upon any proposed liquidation, dissolution orwinding-up of the Buyer, Sonic Foundry or an Affiliate will have an overriding callright (the "Liquidation Call Right") to purchase the Non-Voting ExchangeableShares from the Holders for the Liquidation Amount.

16. The Non-Voting Exchangeable Shares will be non-voting other than in certaincircumstances and will be retractable at the option of the Holders at any time,subject to compliance with applicable law. Upon retraction, the Holders will beentitled to receive from the Buyer for each retracted Non-Voting ExchangeableShare, one SOFO Common Share together with the Dividend Amount (collectively,the "Retraction Price"). Notwithstanding the foregoing, upon being notified by theBuyer of a proposed retraction by a Holder, Sonic Foundry or an Affiliate will havean overriding call right (the "Retraction/Redemption Call Right") to purchase fromthe Holder each retracted Non-Voting Exchangeable Share for the Retraction Price.

17. Subject to the exercise by Sonic Foundry or an Affiliate of theRetraction/Redemption Call Right, the Buyer shall redeem the outstanding Non-Voting Exchangeable Shares on the date that is five (5) years after Closing (the"Redemption Date"). Upon a redemption by the Buyer, the Holders will be entitledto receive from the Buyer for each Non-Voting Exchangeable Share redeemed, oneSOFO Common Share together with the Dividend Amount (collectively, the"Redemption Price"). Notwithstanding the foregoing, Sonic Foundry or an Affiliatewill have an overriding call right (the "Retraction/Redemption Call Right") topurchase the Non-Voting Exchangeable Shares from the Holders on theRedemption Date for the Redemption Price.

18. Non-Voting Exchangeable Shares will, at the option of the Buyer with the priorconsent of the Holder of any such Shares, be convertible into common shares of theBuyer. The Non-Voting Exchangeable Shares shall not be transferable other thanto the Buyer, Sonic Foundry or an affiliate of Sonic Foundry (an "Affiliate").

19. Pursuant to the terms of a share exchange agreement to be entered into amongSonic Foundry, the Buyer, McLellan, Staples and certain of the Sellers (the "ShareExchange Agreement"), upon the occurrence and during the continuation of anInsolvency Event (as defined in the Share Exchange Agreement) of the Buyer, eachHolder will have the right (the "Exchange Right") to require Sonic Foundry topurchase all of the Non-Voting Exchangeable Shares held by such Holder for theLiquidation Amount.

20. Pursuant to the terms of the Share Exchange Agreement, the Non-VotingExchangeable Shares will be automatically exchanged (the "Automatic ExchangeRight") by Sonic Foundry for SOFO Common Shares in the event of a voluntary orinvoluntary liquidation, dissolution or winding-up of Sonic Foundry for theLiquidation Amount. The overriding call rights of Sonic Foundry or an Affiliate toexchange the Non-Voting Exchangeable Shares in the event of a liquidation,dissolution or winding-up of the Buyer or on the redemption or retraction of the Non-Voting Exchangeable Shares are set forth in the Share Exchange Agreement.

21. At Closing, Sonic Foundry and the Buyer will enter into a support agreement (the"Support Agreement") pursuant to which Sonic Foundry will not declare and paydividends on the SOFO Common Shares unless the Buyer will declare or pay, asthe case may be, equivalent dividends on the Non-Voting Exchangeable Shares.Pursuant to the terms of the Support Agreement, Sonic Foundry will ensure that theBuyer will be in a financial position to honour the redemption and retraction rightsand dissolution entitlements that are attributes of the Non-Voting ExchangeableShares and that Buyer will perform its obligations thereunder.

22. In the event of a subdivision, consolidation or other change in the capital of SonicFoundry affecting the SOFO Common Shares, a distribution of SOFO CommonShares by way of stock dividends, options, rights or warrants, or any otherdistribution of securities, assets or indebtedness of SOFO or its affiliates to holdersof SOFO Common Shares, the economic equivalent change shall be made to, orbenefit conferred upon, the Holders of the Non-Voting Exchangeable Shares,including, with necessary modifications, upon McLellan and Staples.

23. The Support Agreement will also provide that in the event that a tender offer, shareexchange offer, issuer bid, take-over bid or similar transaction with respect to theSOFO Common Shares (collectively, an "Offer") is to be effected with the consentor approval of the board of directors of Sonic Foundry, Sonic Foundry willexpeditiously take all such actions and do all such things as they are necessary ordesirable to enable a Holder of Non-Voting Exchangeable Shares to participate insuch Offer on an economically equivalent basis with the Holders of SOFO CommonShares without discrimination. Sonic Foundry will use its best efforts to ensure thatthe Holders can participate in such Offer without being required to retract the Non-Voting Exchangeable Shares.

24. The Share Purchase Agreement provides that, other than DGC VenturesEntertainment Corp. and Wilson, each of the Sellers may not transfer or dispose ofSOFO Common Shares acquired by them until twelve (12) months followingClosing. Thereafter, in each succeeding three (3) months period, each such Sellerwill be permitted to transfer or dispose of an additional 20% of the SOFO CommonShares acquired by him. In addition, pursuant to the provisions of the StockRegistration Rights Agreement, Sonic Foundry will be required to file a shelfregistration statement (the "Shelf Registration") in the U.S., to be effective within150 days after the Closing, and such Shelf Registration will be maintained in effectfor a period of not less than two (2) years after the Closing. The Sellers and Wilsonwill be entitled to make a demand for registration of the SOFO Common Sharesacquired by them if the Shelf Registration does not remain in effect. Such SOFOCommon Shares may also be registered and sold as part of an underwritten offeringof securities of Sonic Foundry. The Stock Registration Rights Agreement will alsogive the Sellers and Wilson the right to include their SOFO Common Shares in anyregistration statement filed by Sonic Foundry under certain circumstances (andsubject to certain exceptions), including pursuant to an underwritten offering ofsecurities of Sonic Foundry.

25. The Share Purchase Agreement, Share Exchange Agreement, the ExchangeableShare Provisions, the Support Agreement and the Stock Registration RightsAgreement (collectively, the "Acquisition Documents") contemplate trades in (i)securities of International Image and Magnetiscope, (ii) Non-Voting ExchangeableShares, (iii) Non-Voting Exchangeable Options, (iv) SOFO Common Shares, and(v) various call and exchange rights to acquire Non-Voting Exchangeable Sharesand SOFO Common Shares, as the case may be. Many of these trades constitute"distributions" within the meaning of the Legislation and, accordingly, are subjectto the Registration and Prospectus Requirements. While many of the trades areexempt from the Registration and Prospectus Requirements, certain trades do notfall within prescribed registration or prospectus exemptions under the Legislation.

26. The trades and possible trades in securities to which the Acquisition will or maygive rise to are as follows (collectively, the "Trades"):

(a) the transfer by the Sellers of securities of International Image andMagnetiscope, as the case may be, to the Buyer;

(b) the issuance by the Buyer to the Holders of Non-Voting ExchangeableShares and Buyer Notes;

(c) the issuance by the Buyer to McLellan and Staples of the Buyer Non-VotingExchangeable Options and the issuance of Non-Voting ExchangeableShares to each of them upon the exercise of the Buyer Non-VotingExchangeable Options;

(d) the issuance by Sonic Foundry through the Buyer of SOFO Common Sharesto the Sellers and to Wilson;

(e) the creation in favour of Sonic Foundry or an Affiliate of theRetraction/Redemption Call Right and the Liquidation Call Right;

(f) the grant by Sonic Foundry to the Holders, pursuant to the Share ExchangeAgreement, of the Exchange Right and the Automatic Exchange Right andof ancillary rights pursuant to the Support Agreement and Stock RegistrationRights Agreement;

(g) the issuance of SOFO Common Shares to the Holders by Sonic Foundrythrough the Buyer upon the retraction of the Non-Voting ExchangeableShares by a Holder;

(h) the issuance and transfer of SOFO Common Shares by Sonic Foundrydirectly or through an Affiliate to the Holders upon Sonic Foundry or anAffiliate exercising the Retraction/Redemption Call Right;

(i) the issuance of SOFO Common Shares to the Holders by Sonic Foundrythrough the Buyer upon the redemption of Non-Voting Exchangeable Sharesby the Buyer on the Redemption Date;

(j) the issuance of SOFO Common Shares to the Holders by Sonic Foundrythrough the Buyer upon the liquidation, dissolution or winding-up of theBuyer;

(k) the issuance and transfer of SOFO Common Shares to the Holders by SonicFoundry directly or through an Affiliate upon Sonic Foundry or the Affiliateexercising the Liquidation Call Right;

(l) the issuance and transfer of SOFO Common Shares to the Holders by SonicFoundry directly or through an Affiliate upon the exercise of the ExchangeRight by such Holders;

(m) the issuance and transfer of SOFO Common Shares to the Holders by SonicFoundry directly or through an Affiliate in the event of the voluntary orinvoluntary liquidation, dissolution or winding-up of Sonic Foundry pursuantto the Automatic Exchange Right;

(n) the transfer of Non-Voting Exchangeable Shares to the Buyer by the Holdersupon the retraction of Non-Voting Exchangeable Shares by the Holders;

(o) the transfer of Non-Voting Exchangeable Shares to the Buyer by the Holdersupon the redemption of the Non-Voting Exchangeable Shares by the Buyeron the Redemption Date;

(p) the transfer of Non-Voting Exchangeable Shares to Sonic Foundry or anAffiliate by the Holders upon the exercise of the Retraction/Redemption CallRight by Sonic Foundry or an Affiliate;

(q) the transfer of Non-Voting Exchangeable Shares to the Buyer by the Holdersupon the liquidation, dissolution or winding-up of the Buyer;

(r) the transfer of Non-Voting Exchangeable Shares to Sonic Foundry or anAffiliate by the Holders upon the exercise of the Liquidation Call Right bySonic Foundry or an Affiliate;

(s) the transfer of Non-Voting Exchangeable Shares to Sonic Foundry or anAffiliate by the Holders upon the exercise of the Exchange Right;

(t) the transfer of Non-Voting Exchangeable Shares to Sonic Foundry or anAffiliate by the Holders pursuant to the Automatic Exchange Right;

(u) the issuance of common shares of the Buyer to Sonic Foundry or an Affiliateupon the conversion of Non-Voting Exchangeable Shares acquired by them;

(v) the transfer of Non-Voting Exchangeable Shares by Sonic Foundry or anAffiliate upon the exercise of their right to convert the Non-VotingExchangeable Shares into common shares of the Buyer; and

(w) the issuance of additional SOFO Common Shares to the Sellers and Wilsonpursuant to the Stock Registration Rights Agreement.

27. Following completion of the Acquisition, the Sellers will hold directly, or indirectlythrough their holdings of Non-Voting Exchangeable Shares, pending their exchangeinto SOFO Common Shares, less than 10 per cent of the total issued andoutstanding SOFO Common Shares in each of the Jurisdictions and will constituteless than 10 per cent of the total number of registered holders of SOFO CommonShares in each of the Jurisdictions. There is presently no market in Canada for theSOFO Common Shares and no such market is expected to develop.

AND WHEREAS pursuant to the System, this Decision Document evidences thedecision of each Decision Maker (collectively, the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that the test contained inthe Legislation that provides the Decision Maker with the Jurisdiction to make the Decisionhas been met;

THE DECISION of the Decision Makers pursuant to the Legislation is that theTrades are not subject to the Registration and Prospectus Requirements of the Legislationprovided that the first trade in any SOFO Common Shares acquired pursuant to theDecision shall be a distribution, unless such first trade is:

(a) executed through the facilities of a stock exchange outside of Canada or onthe NASDAQ National Market;

(b) made as part of an underwritten offering of securities of Sonic Foundry in theUnited States in accordance with applicable laws; or

(c) otherwise an exempt trade under applicable securities laws.

August 18^th, 2000.

"J. A. Geller"     "Stephen N. Adams"