<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SONIC SOLUTIONS
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
SONIC SOLUTIONS
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
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(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how
it was determined.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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<PAGE>
SONIC SOLUTIONS
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 3, 1996
TO THE SHAREHOLDERS OF SONIC SOLUTIONS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Sonic
Solutions, a California corporation (the "Company"), will be held on Tuesday,
September 3, 1996 at 3:00 p.m., California time, at the Company's principal
executive offices at 101 Rowland Way, Suite 110, Novato, California 94945 for
the following purposes:
1. To elect six directors to serve for the ensuing year and until their
successors are elected.
2. To approve an amendment to the Sonic Solutions Stock Option Plan
increasing the number of shares reserved for issuance thereunder by
750,000 shares.
3. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
Only shareholders of record at the close of business on July 12, 1996 (the
"Record Date") are entitled to notice of and to vote at the meeting and any
adjournments thereof.
All shareholders are cordially invited to attend the meeting in person. Any
shareholder attending the meeting may vote in person even if such shareholder
previously signed and returned a proxy.
BY ORDER OF THE BOARD OF DIRECTORS
Mary C. Sauer
Secretary
Novato, California
July 30, 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ASSURE REPRESENTATION OF YOUR SHARES.
<PAGE>
SONIC SOLUTIONS
----------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
The enclosed Proxy is solicited on behalf of the Board of Directors (the
"Board") of Sonic Solutions (the "Company") for use at the Company's Annual
Meeting of Shareholders (the "Annual Meeting") to be held Tuesday, September
3, 1996 at 3:00 p.m., California time, or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Shareholders. The Annual Meeting will be held at the
Company's principal executive offices which are located at 101 Rowland Way,
Suite 110, Novato, California 94945. The telephone number at that address is
(415) 893-8000.
These proxy solicitation materials were mailed on or about July 30, 1996 to
all shareholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on July 12, 1996 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting.
At the Record Date, 7,513,849 shares of the Company's common stock (the
"Common Stock") were outstanding and entitled to vote at the meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
Every shareholder voting for the election of directors may exercise
cumulative voting rights and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
the shareholder's shares are entitled, or distribute such shareholder's votes
on the same principle among as many candidates as the shareholder may select,
provided that votes cannot be cast for more than six candidates. However, no
shareholder shall be entitled to cumulate votes unless the shareholder, or any
other shareholder, has given notice at the Annual Meeting prior to the voting
of the intention to cumulate votes, and no votes may be cast in favor of a
candidate unless the candidate's name has been placed in nomination prior to
the voting. On all other matters each share is entitled to one vote on each
proposal or item that comes before the Annual Meeting.
The Company intends to include abstentions and broker non-votes as present
or represented for purposes of establishing a quorum for the transaction of
business. However, broker non-votes will not be counted for purposes of
determining whether a proposal has been approved, while abstentions are
counted as votes against a proposal.
Solicitation of proxies may be made by directors, officers and other
employees of the Company by personal interview, telephone or telegraph. No
additional compensation will be paid for any such services. Costs of
solicitation, including preparation, assembly, printing and mailing of this
proxy statement, the proxy and any other information furnished to the
shareholders, will be borne by the Company. The Company will, upon request,
reimburse the reasonable charges and expenses of brokerage houses or other
nominees or fiduciaries for forwarding proxy materials to, and obtaining
authority to execute proxies from, beneficial owners for whose account they
hold shares of Common Stock.
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
The Bylaws of the Company provide for a Board consisting of not fewer than
five nor more than seven directors. The size of the Board presently is set at
six directors, and six directors are to be elected at the Annual Meeting.
Unless otherwise instructed, the proxy holders will vote the proxies received
by them for the six nominees named below, all of whom are presently directors
of the Company. If any nominee is unable or declines to serve as a director at
the time of the Annual Meeting, the proxies will be voted for any nominee who
shall be designated by the present Board to fill the vacancy. It is not
expected that any nominee will be unable or will decline to serve as a
director. If additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will ensure the election of as many of
the nominees listed below as possible. In such event, the specific nominees
for whom such votes will be cumulated will be determined by the proxy holders.
The term of office of each person elected as a director will continue until
the next Annual Meeting of Shareholders or until his successor has been
elected and qualified.
The name of and certain other information regarding each nominee is set
forth in the table below.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE POSITION WITH THE COMPANY SINCE
- - --------------- --- ------------------------- --------
<S> <C> <C> <C>
Robert J. Doris......... 43 President, Chief Executive Officer and Director 1986
James A. Moorer......... 50 Senior Vice President 1987
of Audio Development and Director
Mary C. Sauer........... 43 Senior Vice President of Business 1986
Development, Secretary and Director
Michael C. Child........ 41 Director 1993
Robert M. Greber........ 57 Director 1993
Peter J. Marguglio...... 49 Director 1986
</TABLE>
Mr. Doris is married to Ms. Sauer. There are no other family relationships
between any director or executive officer of the Company.
ROBERT J. DORIS. Mr. Doris founded Sonic Solutions in 1986 and has served as
President, Chief Executive Officer and Director of the Company since that
time. Prior to 1986 he was President of The Droid Works, a subsidiary of
Lucasfilm Ltd., which produced computer-based video and digital audio systems
for the film and television post-production and music recording industries.
Prior to founding The Droid Works, Mr. Doris was a Vice President of Lucasfilm
and General Manager of the Lucasfilm Computer Division. Mr. Doris received
B.A., J.D. and M.B.A. degrees from Harvard University.
JAMES A. MOORER. Dr. Moorer joined Sonic Solutions in 1987 and has served as
a Vice President and Director of the Company since that time. Dr. Moorer
became Senior Vice President of Audio Development in February 1993. Dr. Moorer
was the principal developer of the NoNOISE and Sonic Systems. From 1986 to
1987, Dr. Moorer consulted for NeXT, Inc. on DSP software architecture for
audio processing. From 1985 to 1986, he was the Chief Technical Officer at The
Droid Works. From 1980 to 1985, he was the digital audio project leader at
Lucasfilm, Ltd. Dr. Moorer holds a Ph.D. in Computer Science from Stanford
University and S.B. degrees in Applied Mathematics and Electrical Engineering
from MIT. In 1991, he won the Audio Engineering Society Bronze Award for
lifetime achievement.
MARY C. SAUER. Ms. Sauer founded Sonic Solutions in 1986 and has served as a
Vice President and Director of the Company since that time. Ms. Sauer became
Senior Vice President of Marketing and Sales in
2
<PAGE>
February 1993. Prior to 1986, Ms. Sauer was Vice President of Marketing for
The Droid Works, and prior to joining The Droid Works, Ms. Sauer was Director
of Marketing for the Lucasfilm Computer Division. Ms. Sauer received an M.B.A.
in Finance and Marketing from the Wharton School of the University of
Pennsylvania and a B.F.A. from Washington University in St. Louis.
MICHAEL C. CHILD. Mr. Child has served as a Director of the Company since
August 1993. Mr. Child has been employed by TA Associates, a venture capital
firm, or its predecessor, since 1982, has been a partner of affiliated venture
funds since January 1986 and is currently a Managing Director of TA
Associates, Inc. Mr. Child also serves on the Board of Directors of Artisoft,
Inc. and Ultratech Stepper, Inc.
ROBERT M. GREBER. Mr. Greber has served as a director of the Company since
August 1993. Mr. Greber has served as president and Chief Operating Officer of
The Pacific Stock Exchange since July 1990 and in January, 1996 he was elected
Chairman and Chief Executive Officer. Prior to joining The Pacific Stock
Exchange, he was from 1985 to 1987 President and Chief Executive Officer of
Diagnostic Networks, Inc., a network of Magnetic Resonance Imaging Centers
which was merged into NMR America in 1987. Prior to DNI, Mr. Greber was
President and Chief Executive Officer of Lucasfilm Ltd. from 1981 to 1985
where, among other duties, he oversaw development of digital technologies for
video, film, audio, and special effects and video games applications. Before
joining Lucasfilm, Mr. Greber was associated with the firm of Merrill Lynch
where he was Vice President and Manager of the Los Angeles Institutional
Office. Mr. Greber holds a B.S. in Finance from Temple University.
PETER J. MARGUGLIO. Mr. Marguglio has served as a Director of the Company
since August 1986. Since January 1990, Mr. Marguglio has worked at Eatec
Corporation, a software company located in Berkeley, California where he is
now President. Prior to joining Eatec, Mr. Marguglio was President of Resource
Marketing, Inc., an equipment leasing firm he founded in 1981. Mr. Marguglio
holds a Mechanical Engineering degree from the University of Washington and an
M.B.A. degree from Stanford University.
BOARD MEETINGS AND COMMITTEES
The Board held a total of four meetings during the fiscal year ended March
31, 1996. All directors attended all Board meetings and all meetings of the
committees if any, upon which they served.
The audit committee of the Board currently consists of Mr. Child, Mr.
Marguglio and Mr. Greber. The principal functions of the audit committee are
to recommend engagement of the Company's independent auditors, to consult with
the Company's auditors concerning the scope of the audit and to review with
them the results of their examination, to review and approve any material
accounting policy changes affecting the Company's operating results and to
review the Company's financial control procedures and personnel. The audit
committee held four meetings during the fiscal year ended March 31, 1996.
The Board does not have a nominating committee or a compensation committee.
COMPENSATION OF DIRECTORS
The Company does not pay fees to its directors for attendance at meetings.
The Company does reimburse its directors for their out-of-pocket expenses
incurred in the performance of their duties as directors of the Company.
Directors of the Company who are not, and have not been during the preceding
twelve months, employees, and who do not directly or indirectly own more than
5% of the Company's Common Stock, are eligible to receive options to purchase
the Company's Common Stock in accordance with the Company's Nonemployee
Directors Stock Option Plan.
3
<PAGE>
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of July 12, 1996 (i) by each person who is
known by the Company to own beneficially more than 5 percent of the Common
Stock, (ii) by each of the Company's directors, (iii) by each of the Company's
executive officers named in the Summary Compensation Table under the caption
"Executive Compensation" below, and (iv) by all directors and executive
officers as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES SHARES
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED(1)
---- ------------ -------------
<S> <C> <C>
Robert J. Doris...................................... 1,294,223 17.2%
c/o Sonic Solutions
101 Rowland Way, Suite 110
Novato, California 94945
James A. Moorer(2)................................... 677,471 9.0%
c/o Sonic Solutions
101 Rowland Way, Suite 110
Novato, California 94945
Mary C. Sauer........................................ 629,328 8.4%
c/o Sonic Solutions
101 Rowland Way, Suite 110
Novato, California 94945
Entities Affiliated with TA Associates (3)........... 932,966 12.4%
435 Tasso Street
Palo Alto, California 94301
Peter J. Marguglio................................... 601,685 8.0%
Michael C. Child(4).................................. 1,618 *
Robert M. Greber(5).................................. 22,500 *
A. Clay Leighton(6).................................. 61,000 *
Kirk Paulsen(7)...................................... 43,564 *
All directors and executive officers as a group(8)... 4,362,737 58.1%
</TABLE>
- - --------
* Less than one percent.
(1) This table is based upon information supplied by directors, officers and
principal shareholders. Applicable percentage ownership for each
shareholder is based on 7,513,849 shares of Common Stock outstanding as of
June 30, 1996 together with applicable options for such shareholders.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities, subject to the community
property laws where applicable. Shares of Common Stock subject to options
are deemed outstanding for the purpose of computing the percentage
ownership of the person holding such options, but are not treated as
outstanding for computing the percentage ownership of any other person.
(2) Includes 7,140 shares owned by Mr. Moorer's wife individually and as
trustee for their minor children.
(3) Includes 1,618 shares held by Mr. Child as described in footnote 4 below
and 931,348 shares held by the following entities affiliated with TA
Associates: Advent VI L.P. (528,254); Advent Atlantic and Pacific II L.P.
(241,920); Advent New York L.P. (66,034); Advent Industrial II L.P.
(87,217); and TA Venture Investors Limited Partnership (7,923).
4
<PAGE>
(4) Excludes all but 1,618 shares described in footnote 3 above. Mr. Child, a
director of the Company, is a general partner of TA Venture Investors
Limited Partnership and a Managing Director of TA Associates, but
disclaims beneficial ownership of all other shares beneficially owned by
entities affiliated with TA Associates.
(5) All shares issuable upon exercise of options, 7,875 of which will be
exercisable within 60 days of July 12, 1996, and 12,000 of which were
granted pursuant to the Sonic Solutions Nonemployee Director Stock Option
Plan.
(6) All shares issuable upon exercise of options, 43,686 of which will be
exercisable within 60 days of July 12, 1996.
(7) All shares issuable upon exercise of options, 24,667 of which will be
exercisable within 60 days of July 12, 1996.
(8) Includes 227,064 shares issuable upon exercise of options, 76,228 of which
will be exercisable within 60 days of July 12, 1996.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for the fiscal years
ended March 31, 1996, 1995 and 1994 of the Chief Executive Officer and each of
the four other most highly compensated executive officers of the Company who
served as executive officers at fiscal year end and who received salary and
bonuses of $100,000 or more, as well as a former executive officer who would
have been one of the four most highly compensated executive officers but did
not serve at fiscal year end. None of the named executive officers earned any
bonuses or compensation for the fiscal years other than as set forth in the
table or received any restricted stock awards, stock appreciation rights or
long-term incentive plan payouts.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------- ------------
NAME AND FISCAL YEAR
PRINCIPAL POSITION ENDED MARCH 31, SALARY($) BONUS ($) OPTIONS (#)
------------------ --------------- --------- --------- ------------
<S> <C> <C> <C> <C>
Robert J. Doris............... 1996 $165,000 $ 0 --
President, Chief Executive 1995 $142,500 $ 0 --
Officer
and Director 1994 $135,000 $ 0 70,000(3)
Mary C. Sauer................. 1996 $135,000 $ 0 --
Senior Vice President, 1995 $127,500 $ 0 --
Business Development, 1994 $125,000 $40,000 70,000(3)
Secretary and Director
James A. Moorer............... 1996 $135,000 $ 0 --
Senior Vice President, 1995 $127,500 $ 0 --
Audio Development 1994 $125,000 $40,000 70,000(3)
and Director
Kirk Paulsen(1)............... 1996 $104,046 $ 0 20,000
Vice President, Sales 1995 $134,110 $ 0 10,000
1994 $124,110 $55,000 7,000
A. Clay Leighton.............. 1996 $107,000 $10,000 25,000
Vice President, Finance 1995 $ 95,083 $ 8,208 --
and Chief Financial Officer 1994 $ 85,203 $ 0 --
Former Executive Officer
Michael J. Costello(2)........ 1996 $108,034 $26,289 14,000
Former Vice President 1995 $112,073 $10,165 0
of Operations 1994 $105,550 $14,250 0
</TABLE>
- - --------
(1) Mr. Paulsen's salary includes $24,046, $57,443 and $58,381 in commissions
paid for sales of the Company's products for the fiscal years ended March
31, 1996, 1995 and 1994, respectively.
(2) Mr. Costello resigned as Vice President of Operations in March, 1996.
(3) Options to purchase shares of Common Stock from other shareholders. See
"Certain Relationships and Related Transactions."
6
<PAGE>
The following table sets forth certain information regarding grants of stock
options made during the fiscal year ended March 31, 1996 to the executive
officers named in the Summary Compensation Table. Since inception, the Company
has not granted any stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------- ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION
OPTIONS GRANTED EXERCISE FOR OPTION TERM(5)
OPTIONS TO EMPLOYEES PRICE EXPIRATION -------------------------
NAME GRANTED(#)(1) IN FISCAL YEAR ($/SH)(2) DATE(3) 5%($) 10%($)
---- ------------- ----------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Doris......... 0 0% $ -- -- -- --
Mary C. Sauer........... 0 0% $ -- -- -- --
James A. Moorer......... 0 0% $ -- -- -- --
Kirk Paulsen............ 20,000 4% $6.50 12/15/05 $ 81,900 $ 206,700
A. Clay Leighton........ 25,000 5% $6.00 11/21/05 $ 94,500 $ 238,500
Michael J. Costello(4).. 14,000 3% $6.50 -- (6) $ 57,330(6) $ 144,690(6)
</TABLE>
- - --------
(1) These options, granted under the Company's Stock Option Plan, vest over a
period of four years at a rate of 25% one year from the date of grant and
2.0833 percent per month thereafter.
(2) The exercise price is equal to the fair market value of the Company's
Common Stock on the date of grant, as determined by reference to the
closing price of the Company's Common Stock on the Nasdaq National Market.
(3) These options are subject to earlier expiration in the event of the
officer's termination of employment with the Company.
(4) Mr. Costello resigned as Vice President of Operations in March, 1996.
(5) Potential realizable value is based on an assumption that the fair market
value of the stock on the date of grant appreciates at the stated rate,
compounded annually, from the date of grant until the end of the option
term. These values are calculated based on requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price appreciation.
(6) These options expired 90 days after Mr. Costello left the Company.
7
<PAGE>
The table which follows provides information regarding the number and value
of options exercised during the fiscal year ended March 31, 1996 and of
unexercised options held by the named executive officers on March 31, 1996.
Value is considered to be the difference between exercise price and the
closing price of $6.875 per share of the Common Stock as quoted on the Nasdaq
National Market on March 31, 1996.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-
UNEXERCISED OPTIONS MONEY OPTIONS
SHARES AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE(2)
---- ----------- -------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Robert J. Doris......... 18,042 $202,973 0/0 $ 0/0
Mary C. Sauer........... 18,042 $202,973 0/0 $ 0/0
James A. Moorer......... 18,043 $202,984 0/0 $ 0/0
Kirk Paulsen............ 28,436 $277,785 16,104/27,460 $ 40,774/40,174
A. Clay Leighton........ 2,500 $ 13,304 35,750/25,250 $151,815/66,080
</TABLE>
- - --------
(1) Based on the difference between the aggregate exercise price of the
options and the closing price of the Company Common Stock on the date of
exercise.
(2) These values have not been, and may not be, realized, and are based on the
positive spread between the respective exercise prices of the outstanding
stock options and the closing price of the Company's Common Stock at March
31, 1996 ($6.875).
The Company did not make any awards during the fiscal year ended March 31,
1995 to any of the executive officers named in the Summary Compensation Table
under any long-term incentive plan providing compensation intended to serve as
incentive for performance to occur over a period longer than one fiscal year,
excluding the stock options set forth above.
REPORT OF THE BOARD REGARDING EXECUTIVE COMPENSATION
The Board does not have a Compensation Committee. Accordingly, it is the
responsibility of the entire Board to determine the most effective total
executive compensation strategy, based upon the business needs of the Company
and consistent with shareholders' interests, to administer the Company's
executive compensation plans, programs and policies, to monitor corporate
performance and its relationship to compensation of executive officers, and to
take other appropriate actions concerning matters of executive compensation.
COMPENSATION PHILOSOPHY
The Company was formed in 1986 as a private company and initially offered
Common Stock to the public in February 1994. Four key goals form the basis for
compensation decisions for all employees of the Company:
1. To attract and retain the most highly qualified management and
employee team;
2. To pay competitively compared to similar audio and video software and
hardware companies and to provide appropriate reward opportunities for
achieving high levels of performance compared to similar organizations in
the marketplace;
3. To emphasize sustained performance by aligning rewards with
shareholder interests; and
4. To motivate executives and employees to achieve the Company's annual
and long-term business goals and encourage behavior toward the fulfillment
of those objectives.
8
<PAGE>
Equity participation and a strong alignment to shareholders' interests are
key elements of the Company's executive compensation philosophy. As a result
of this philosophy, the Company's executive compensation program consists of
base salary, cash bonuses, incentive stock options and standard benefits.
Base Salary and Cash Bonuses. The Board recognizes the importance of
maintaining compensation practices and levels of compensation competitive with
those offered by audio and video software and hardware companies in comparable
stages of development. For external marketplace comparison purposes, a
significant group of companies operating in our industry are utilized for
determining competitive compensation levels.
Base salary represents the fixed component of the executive compensation
program. The Company's philosophy regarding base salaries is conservative,
maintaining base salaries at or somewhat below the competitive industry
approximate median. Determination of base salary levels is established on an
annual review of marketplace competitiveness with similar audio and video
software and hardware companies, and on individual performance. Periodic
increases in base salary relate to individual contributions evaluated against
established objectives, relative marketplace competitiveness levels, length of
service, and the industry's annual competitive pay practice movement.
Cash bonuses are based primarily on the Company's financial performance for
the year and also include an assessment of individual performance.
Stock Options. The Board strongly believes that it is important for key
employees who have significant responsibility for the management, growth, and
future success of the company to have significant equity ownership interest in
the Company and have the potential to gain financially from Company stock
price increases. The interests of shareholders, executives and employees
should thereby be closely aligned. The Board seeks to provide such ownership
interest to executives and key employees, giving them the right to purchase
shares of Common Stock of the Company in the future at a price equal to fair
market value at the date of grant. The Company generally grants such stock
options throughout the year.
Under the Company's Stock Option Plan, shares of the Company's Common Stock
may be purchased at the option price set by the Company. All grants must be
exercised according to the provisions of the Company's Stock Option Plan. All
outstanding options expire on the earlier of ten years after the date of grant
or 90 days after termination of service with the Company. Administration of
the Option Plan is by the Chief Executive Officer, except that to the extent
required to comply with the disinterested persons requirements of Rule 16b-3
or any successor rule of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Board or a Committee of the Board will administer the
Option Plan.
Other Benefits. The Company's philosophy is to provide adequate health-and
welfare-oriented benefits to executives and employees. The Company provides no
other executive benefits.
COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The Company's Chief Executive Officer, Mr. Doris, is also a founder of the
Company with a significant equity interest. The Board seeks to compensate Mr.
Doris primarily through base salary. In fiscal 1996, the company paid Mr.
Doris a base salary of $165,000, which reflected less than a sixteen percent
increase over his fiscal 1995 base salary. As discussed above, Mr. Doris did
not receive a cash bonus in the fiscal year ended March 31, 1996. In
establishing Mr. Doris' salary the Board considered the Company's past growth
in revenue and profitability, the Company's experience in achieving product
development goals, domestic and international sales and the Company's ability
to develop the current management team. The total cash compensation paid to
Mr. Doris in the fiscal year ended March 1996 is less than that paid to chief
executive officers of the competitive industry comparative group; however, the
Board believes that this compensation is appropriate in light of his equity
interest.
9
<PAGE>
SUMMARY
The Board believes that the compensation of executives by the Company is
appropriate and competitive with the compensation programs provided by other
audio and video software and hardware companies with which the Company
competes for executives and employees in light of the equity interests of the
Company's founders. The Board believes its compensation strategy, principles,
and practices result in a compensation program tied to shareholder returns and
linked to the achievement of annual and longer-term financial and operational
results of the Company on behalf of the Company's shareholders.
The Board of Directors
<TABLE>
<S> <C>
-- Michael C. Child -- Peter J. Marguglio
-- Robert J. Doris -- James A. Moorer
-- Robert M. Greber -- Mary C. Sauer
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board does not have a Compensation Committee. Accordingly, the entire
Board determines executive compensation. Robert J. Doris, James A. Moorer and
Mary C. Sauer are directors and are the founders and principal executive
officers of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1993, the Company sold 165,448 shares of its Series A and 744,516
shares of its Series B Preferred Stock to investment funds affiliated with TA
Associates and certain other investment funds for an aggregate of $5,500,000.
Michael C. Child, a director of the Company, is a general partner of the
general partner of these funds affiliated with TA Associates. Upon completion
of the Company's initial public offering in February 1994, the Company
redeemed the Series B Preferred Stock at a price of $4,500,000 and the Series
A Preferred Stock automatically converted into an aggregate of 1,158,136
shares of Common Stock.
In connection with the issuance of the Series A and Series B Preferred
Stock, the purchasers of the Preferred Stock granted an option to Robert J.
Doris, James A. Moorer and Mary C. Sauer, officers and directors of the
Company, to purchase an aggregate of 210,000 shares of Common Stock from the
purchasers at prices ranging from $7.12 per share for the first 70,000 shares,
$9.50 per share for the next 35,000 shares, $11.87 per share for the next
35,000 shares, $14.25 per share for the next 35,000 shares and $16.62 per
share for the last 35,000 shares. Mr. Doris, Mr. Moorer and Ms. Sauer each had
the right to purchase up to a maximum of 70,000 shares pursuant to these
options. Mr. Doris, Mr. Moorer and Ms. Sauer notified the purchasers in
January 1995 of the exercise of these options on a "net exercise" basis, and
the transaction was concluded in August 1995 with the purchase of an aggregate
of 54,127 shares of Common Stock.
Prior to August 1, 1993, the Company was treated as an S Corporation for tax
purposes. As such, corporate income was taxable to the shareholders, rather
than the Company for federal tax purposes. The Company declared and made
distributions annually to the shareholders in an amount which permitted them
to pay the taxes on the corporate income. During fiscal years ended 1992 and
1993, the Company made distributions of $351,608 and $314,939, respectively.
During the fiscal year ended March 31, 1993, distributions aggregated
$3,537,114 and included distributions of accumulated earnings upon which
income taxes had been paid by the shareholders.
The Company has adopted a policy that all transactions between the Company
and its officers, directors, principal shareholders and affiliates will be
approved by a majority of the Board, including a majority of the independent
and disinterested outside directors of the Board, and will be on terms no less
favorable to the Company than those that could be obtained from unaffiliated
third parties.
10
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or 5 with the
Securities and Exchange Commission and the National Association of Securities
Dealers. Such officers, directors and ten percent shareholders are also
required by Securities and Exchange Commission rules to furnish the Company
with copies of all Section 16(a) forms that they file.
Based solely on its review of copies of such reports received or written
representations from certain reporting persons, the Company believes that,
during the fiscal year ended March 31, 1996, there has been no failure by any
of its officers, directors or 10 percent shareholders to file on a timely
basis any reports required by Section 16(a).
11
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
COMPARISON OF 25 MONTH CUMULATIVE TOTAL RETURN*
AMONG SONIC SOLUTIONS, THE S&P 500 INDEX
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
----------------------------
2/10/94 3/94 3/95 3/96
-------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sonic Solutions............................. SNIC 100 104 114 72
S&P 500..................................... I500 100 93 108 142
H&Q TECHNOLOGY.............................. IHQT 100 95 122 168
</TABLE>
12
<PAGE>
PROPOSAL TWO
APPROVAL OF AMENDMENT TO THE SONIC SOLUTIONS STOCK OPTION PLAN
APPROVAL OF AMENDMENT TO THE COMPANY'S 1989 STOCK PLAN
BACKGROUND
The Company's Board of Directors adopted the Sonic Solutions Stock Option
Plan covering 840,000 shares of Common Stock (the "Plan") in February, 1989.
The Board of Directors amended the Plan to increase the authorized number of
shares from 840,000 to 1,340,000 in 1994. The purpose of this proposal is to
obtain shareholder approval of the amendment to the Plan increasing the
authorized number of shares covered by the Plan by 750,000 shares to
2,090,000.
APPROVAL OF THE AMENDMENT TO THE PLAN
The Plan is intended to strengthen the Company by providing added incentive
to directors, officers, employees and consultants of the Company for high
levels of performance and for unusual efforts to increase the earnings of the
Company through participation in the growth value of the Company's Common
Stock. The Plan authorizes the granting to such persons of both options which
are incentive stock options, within the meaning of the Internal Revenue Code
("ISOs"), and nonstatutory options to which Section 421 of the Code does not
apply ("NQOs", and together with ISOs, "Options"). As of June 30, 1996, the
Company had Options outstanding to purchase 1,019,274 shares under the Plan.
Without approval of the amendment to the Plan increasing the number of shares
covered by the Plan to 1,340,000, the Company would not have sufficient
additional options available for future grants to employees. The Board of
Directors believes that it would be in the best interests of the Company to
adopt the amendment to the Plan.
DESCRIPTION OF THE PLAN
The following is a general summary of the principal provisions of the Plan.
Any shareholder who desires to review the actual text of the Plan may obtain
copies by writing the Company's Secretary.
The Plan provides for the granting to employees (including employees who are
officers or directors) of ISOs and for the granting of NQOs to employees,
nonemployee directors and consultants of the Company. The Plan is administered
by the Company's Chief Executive Officer, except to the extent required to
comply with the requirements of Rule 16b-3 under the Securities Exchange Act
of 1934 (the "Administrator") which determines the terms of options granted
under the Plan, including the exercise price, the number of shares subject to
the Option and the schedule pursuant to which such shares shall become
exercisable. The exercise price of each ISO granted under the Plan must be at
least equal to 100% of the fair market value of the underlying shares on the
date of grant and the exercise price of each NQO must be at least equal to 85%
of such fair market value. The maximum term of each Option is 10 years. With
respect to any participant who owns stock possessing more than 10% of the
voting rights of the Company's outstanding capital stock, the exercise price
of any ISO must be at least 110% of the fair market value of the Common Stock
on the date of grant and the term may be no longer than five years. Under the
terms of the Plan, no employee may receive ISOs which first become exercisable
in any calendar year to purchase Common Stock with an aggregate fair market
value in excess of $100,000 at the time of grant. Options may be exercised for
three months after the recipient of an option ("Optionee") leaves the Company
and, if the Optionee's employment is terminated by reason of death or
disability, for one year after such termination, but in either case not beyond
the original term of the Option. Options are not transferable or assignable
except by the laws of descent and distribution. Each Option is exercisable,
during the lifetime of the Optionee, only by the Optionee.
At the time an Option is exercised, in whole or in part, or at any time
thereafter as requested by the Company, the Optionee is required to make
adequate provision for federal and state income tax withholding obligations of
the Company, if any, resulting from the exercise. The exercise price of
Options may be paid in
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<PAGE>
cash or, in accordance with the provisions of the Plan, by delivery of an
Optionee's full recourse promissory note or shares of Common Stock owned by
the Optionee. In the event of a merger of the Company with or into another
corporation or a sale of substantially all of the Company's assets, the Board
of Directors of the Company has the power with respect to outstanding Options
to make arrangements for the substitution of new Options for such outstanding
Options, for the assumption of such outstanding Options by the successor
corporation, and for the acceleration of the expiration date and the ability
to exercise such Options.
The Plan expires in 1999, unless terminated earlier by the Board of
Directors. The Board may at any time terminate or amend the Plan, provided
that without approval of stockholders there may be no increase in the total
number of shares covered by the Plan. In any case, no amendment may adversely
affect any then outstanding Option or unexercised portion thereof without the
Optionee's consent unless such amendment is required to enable the option to
qualify as an ISO.
The following table shows the number of options granted to the named
individuals and listed groups under the Plan in fiscal 1996.
PLAN BENEFITS
<TABLE>
<CAPTION>
NUMBER OF
NAME OPTIONS
---- ---------
<S> <C>
Robert J. Doris,................................................... 0
President, Chief Executive Officer and Director
Mary C. Sauer,..................................................... 0
Senior Vice President,
Marketing and Sales
James A. Moorer,................................................... 0
Senior Vice President,
Audio Development
Kirk Paulsen,...................................................... 20,000
Vice President, Sales
Michael J. Costello,............................................... 14,000
Former Vice President, Operations
A. Clay Leighton................................................... 25,000
Executive Group.................................................... 100,000
Non-Executive Director Group(1).................................... 0
Non-Executive Officer Employee Group(2)............................ 331,500
</TABLE>
- - --------
(1) Under the Plan, Nonemployee directors are not eligible to receive options.
(2) Includes 35,000 options which were granted and subsequently expired during
fiscal 1996.
FEDERAL INCOME TAX CONSEQUENCES
For a discussion of the federal income tax consequences of Options issued
pursuant to the Plan, see "Federal Income Tax Consequences" below.
PROPOSAL; BOARD RECOMMENDATION
Shareholders are being asked to approve the Amendment to the Plan. The
affirmative votes of a majority of the shares of Common Stock represented in
person or by proxy at the Annual Meeting is required for approval of the
Amendment to the Plan. The Board recommends a vote "FOR APPROVAL" of the
proposal.
14
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES IS BASED UPON
EXISTING STATUTES, REGULATIONS AND INTERPRETATIONS THEREOF. THE APPLICABLE
RULES ARE COMPLEX, AND INCOME TAX CONSEQUENCES MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH PLAN PARTICIPANT. THIS PROXY STATEMENT
DESCRIBES FEDERAL INCOME TAX CONSEQUENCES OF GENERAL APPLICABILITY, BUT DOES
NOT PURPORT TO DESCRIBE PARTICULAR CONSEQUENCES TO EACH INDIVIDUAL PLAN
PARTICIPANT OR FOREIGN, STATE OR LOCAL INCOME TAX CONSEQUENCES, WHICH MAY
DIFFER FROM THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
INCENTIVE STOCK OPTIONS
Award; Exercise. ISOs granted under the Plan are intended to constitute
"incentive stock options" within the meaning of Section 422 of the Code. ISOs
may be granted only to employees of the Company (including directors who are
also employees). An Optionee does not recognize taxable income upon either the
grant or exercise of an ISO. However, the excess of the fair market value of
the shares purchased upon exercise over the option exercise price (the "Option
Spread") is includible in the Optionee's "alternative minimum tax income"
("AMTI"), used to calculate the "alternative minimum tax". The Option Spread
is measured on the date of exercise and is generally includible in AMTI in the
year of exercise.
Sale of ISO Shares. If an Optionee holds the shares for at least two years
from the date the ISO was granted, and for at least one year from the date the
ISO was exercised, any gain from a sale of the shares should be taxable as
capital gain. Under these circumstances, the Company would not be entitled to
a tax deduction at the time the ISO is exercised or at the time the stock is
sold. If an Optionee disposes of stock acquired pursuant to an ISO before the
end of the required holding periods (a "Disqualifying Disposition"), the
amount by which the market value of the stock at the time the ISO was
exercised exceeds the exercise price (or, if less, the amount of gain realized
on the sale) would be taxable as ordinary income, and the Company should be
entitled to a corresponding tax deduction. Gain in a Disqualifying
Disposition, in excess of the amount required to be recognized as ordinary
income, if any, would be capital gain.
Exercise with Stock. If an Optionee pays for option shares with shares of
the Company acquired under an ISO or other qualified stock option ("statutory
stock option"), the tender of shares is a Disqualifying Disposition of the
statutory option stock if the applicable holding periods respecting those
shares have not been satisfied. If the holding periods with respect to the
statutory option stock are satisfied, or the shares were not acquired under an
ISO or other qualified stock option of the Company, then any appreciation in
value of the surrendered shares is not taxed upon surrender.
NONQUALIFIED STOCK OPTIONS
Award; Exercise. An Optionee is not taxable upon the award of a NQO. Federal
income tax consequences upon exercise will depend upon whether the shares
thereby acquired are subject to a "substantial risk of forfeiture." If the
shares are not subject to a substantial risk of forfeiture, or if they are so
restricted and the Optionee files a Section 83(b) Election with respect to the
shares, the Optionee will have ordinary income at the time of exercise
measured by the Option Spread on the exercise date. The Optionee's tax basis
in the shares will be their fair market value on the date of exercise, and the
holding period for purposes of determining whether capital gain or loss upon
sale is long- or short-term also will begin on that date. If the shares are
subject to a substantial risk of forfeiture and no Section 83(b) Election is
filed, the Optionee will not be taxable upon exercise, but instead will have
ordinary income, on the date the restrictions lapse, in an amount equal to the
difference between the amount paid for the shares under the Option and their
fair market value as of the date of lapse; in addition, the Optionee's holding
period will begin on the date of lapse.
Whether or not the shares are subject to a substantial risk of forfeiture,
the amount of ordinary income taxable to an Optionee who was an employee at
the time of grant constitutes "supplemental wages" subject to
15
<PAGE>
withholding of income and employment taxes by the Company, and the Company
receives a corresponding income tax deduction.
Sale of Option Shares. Upon sale, other than to the Company, of shares
acquired under a NQO, an Optionee generally will recognize capital gain or
loss to the extent of the difference between the sale price and the Optionee's
tax basis in the shares, which will be long-term gain or loss if the
employee's holding period in the shares is more than one year. If stock is
sold to the Company rather than to a third party, the sale may not produce
capital gain or loss. A sale of shares to the Company will constitute a
redemption of such shares, which could be taxable as a dividend unless the
redemption is "not necessarily equivalent to a dividend" within the meaning of
the Code.
Exercise with Stock. If an Optionee tenders Common Stock (other than
statutory option stock -- see above) to pay all or part of the exercise price
of a NQO, the Optionee will not have a taxable gain or deductible loss on the
surrendered shares. Instead, shares acquired upon exercise that are equal in
value to the fair market value of the shares surrendered in payment are
treated as if they had been substituted for the surrendered shares, taking as
their basis and holding period the basis and holding period that the Optionee
had in the surrendered shares. The additional shares are treated as newly
acquired with a zero basis.
If the surrendered shares are statutory option stock as described above
under "Incentive Stock Options", with respect to which the applicable holding
period requirements for favorable income tax treatment have not expired, then
the newly acquired shares substituted for the statutory option shares should
remain subject to the federal income tax rules governing the surrendered
shares, but the surrender should not constitute a "disqualifying disposition"
of the surrendered stock.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected KPMG Peat Marwick as independent public accountants
to audit the financial statements of the Company for the 1997 fiscal year.
KPMG Peat Marwick has acted as the Company's auditors since March 31, 1993.
Representatives of KPMG Peat Marwick are expected to be present at the Annual
Meeting and will have an opportunity to make a statement if they desire to do
so. The representatives of KPMG Peat Marwick also will be available to respond
to questions raised during the meeting.
SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be presented
at the Company's 1997 annual meeting of shareholders must be received by the
Secretary of the Company no later than March 30, 1997 in order to be included
in the proxy soliciting material relating to that meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual Meeting.
If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy to vote the shares they
represent as the Board may recommend.
THE BOARD OF DIRECTORS
Dated: July 30, 1996
16
<PAGE>
SONIC SOLUTIONS
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Robert J. Doris and A. Clay Leighton, or
either of them, each with full power of substitution, the lawful attorneys and
proxies of the undersigned to vote as designated below, and, in their
discretion, upon such other business as may properly be presented to the
meeting, all of the shares of SONIC SOLUTIONS which the undersigned shall be
entitled to vote at the Annual Meeting of Shareholders to be held on September
3, 1996, and at any adjournments or postponements thereof.
1. To elect as directors MICHAEL C. CHILD, ROBERT J. DORIS,
ROBERT M. GREBER, PETER J. MARGUGLIO, JAMES A. MOORER, AND MARY C. SAUER:
[_] FOR all nominees listed (except as indicated below)
[_] WITHHOLD AUTHORITY to vote (as to all nominees)
To withhold authority to vote for any individual nominee, write that
nominee's name on the line provided below:
_______________________________________________________
2. To approve an amendment to the Sonic Solutions Stock Option Plan
increasing the number of shares reserved for issuance thereunder by 750,000
shares.
[_] FOR [_] AGAINST [_] ABSTAIN
This proxy, when properly executed, will be voted in the manner directed by
the undersigned shareholder. WHEN NO CHOICE IS INDICATED, THIS PROXY WILL BE
VOTED FOR THE NOMINEES OR PROPOSALS LISTED ABOVE. The proxy holders in their
discretion may cumulate votes for the election of directors. This proxy may be
revoked at any time prior to the time it is voted by any means described in the
accompanying Proxy Statement.
_______________________________
(Signature)
_______________________________
(Signature)
Please date and sign exactly as name(s) appear(s)
hereon. If shares are held jointly, each holder
should sign. Please give full title and capacity
in which signing if not signing as an individual.
Dated: _______________, 1996
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE TO ASSURE REPRESENTATION OF YOUR SHARES.
