<PAGE>
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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
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SONIC SOLUTIONS
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] 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:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] 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:
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(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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<PAGE>
SONIC SOLUTIONS
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 1, 1998
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 September
1, 1998 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 the adoption of the Company's 1998 Stock Option Plan and the
reservation of shares for issuance thereunder; 1,000,000 shares
initially with an annual increase in the number of shares available for
issuance under the plan on the last day of each fiscal year, provided
that the total number of shares issuable under the plan shall not exceed
2,000,000.
3. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on July 10, 1998 (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 24, 1998
IMPORTANT
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.
THANK YOU FOR ACTING PROMPTLY.
<PAGE>
SONIC SOLUTIONS
101 ROWLAND WAY, SUITE 110
NOVATO, CALIFORNIA 94945
(415) 893-8000
----------------
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 September 1, 1998 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 24, 1998 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 10, 1998 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting.
At the Record Date, 8,435,466 shares of the Company's common stock (the
"Common Stock") and 461,538 shares of Series C Preferred Stock (the "Series C
Preferred 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. Mere
attendance at the Annual Meeting will not serve to revoke a proxy.
VOTING AND SOLICITATION
Every shareholder is entitled to one vote for each share of Common Stock and
one vote for each share of Series C Preferred Stock held by such shareholder.
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 a shareholder gives
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 have the
same effect 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
--------------- --- ------------------------- --------
<C> <C> <S> <C>
Robert J. Doris.... 45 President, Chief Executive Officer and Director 1986
James A. Moorer.... 52 Senior Vice President of Audio Development and 1987
Director
Mary C. Sauer...... 45 Senior Vice President of Business Development, 1986
Secretary and Director
Michael C. Child... 43 Director 1993
Robert M. Greber... 59 Director 1993
Peter J. Marguglio. 50 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 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.
2
<PAGE>
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.
ROBERT M. GREBER. Mr. Greber has served as a director of the Company since
August 1993. Mr. Greber 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. Mr. Greber
also serves on the Board of Bay View Capital Corp.
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, 1998. No incumbent director participated in fewer than 75% of the total
number of meetings of the Board and all meetings of the committees, if any,
upon which such director 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, 1998.
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 an initial grant and
thereafter annual grants of options to purchase 5,000 shares of 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 10, 1998 (i) by each person who is
known by the Company to own beneficially more than five 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
SHARES OF SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED(1) OWNED(1)
---------------- ------------ ------------
<S> <C> <C>
Hambrecht & Quist Guaranty Finance, LLC(2)........ 631,904 7.5%
One Bush Street
San Francisco, CA 94104
Entities Affiliated with TA Associates(3)......... 1,005,627 11.9%
435 Tasso Street
Palo Alto, California 94301
Robert J. Doris(4)................................ 1,381,286 16.4%
James A. Moorer(5)................................ 349,308 4.1%
Mary C. Sauer(6).................................. 682,652 8.1%
Peter J. Marguglio(7)............................. 209,693 2.5%
Michael C. Child(8)............................... 1,618 *
Robert M. Greber(9)............................... 20,916 *
Christopher A. Kryzan(10)......................... 56,666 *
A. Clay Leighton(11).............................. 102,354 *
All directors and executive officers as a group (9
persons)......................................... 3,863,523 45.8%
</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 8,435,466 shares of Common Stock outstanding as of
July 10, 1998, 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) According to Schedule 13G filed by Hambrecht & Quist Guaranty Finance,
LLC.
(3) Includes 1,618 shares held by Mr. Child as described in footnote 8 below
and 1,004,009 shares held by the following entities affiliated with TA
Associates: Advent VI L.P. (502,004); Advent Atlantic and Pacific II L.P.
(229,896); Chestnut III Limited Partnership (89,934); Chestnut Capital
International III Limited Partnership (29,007); Advent New York L.P.
(62,754); Advent Industrial II L.P. (82,883); and TA Venture Investors
Limited Partnership (7,531).
(4) Includes 1,294,223 shares owned by Mr. Doris, and 87,063 shares issuable
upon exercise of options which will be exercisable within 60 days of July
10, 1998.
(5) Includes 327,591 shares owned by Mr. Moorer, 7,140 shares owned by Mr.
Moorer's wife individually and as trustee for their minor children, and
14,577 shares issuable upon exercise of options which will be exercisable
within 60 days of July 10, 1998.
4
<PAGE>
(6) Includes 629,328 shares owned by Ms. Sauer, 53,324 shares issuable upon
exercise of options which will be exercisable within 60 days of July 10,
1998.
(7) Includes 208,443 shares owned by Mr. Marguglio, and 1,250 shares issuable
upon exercise of options which will be exercisable within 60 days of July
10, 1998.
(8) 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.
(9) All shares issuable upon exercise of options which will be exercisable
within 60 days of July 10, 1998, and 9,000 of which were granted pursuant
to the Sonic Solutions Nonemployee Director Stock Option Plan.
(10) All shares issuable upon exercise of options which will be exercisable
within 60 days of July 10, 1998.
(11) Includes 5,500 shares owned by Mr. Leighton and 96,854 shares issuable
upon exercise of options which will be exercisable within 60 days of July
10, 1998.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for the fiscal years
ended March 31, 1998, 1997 and 1996 for 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 $100,000 or more. None of the named executive officers earned
any bonuses or compensation for these fiscal years other than as set forth in
the table or received any restricted stock awards, stock appreciation rights
or long-term incentive plan payouts.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
FISCAL YEAR ANNUAL COMPENSATION COMPENSATION
ENDED -------------------- ------------
NAME AND PRINCIPAL POSITION MARCH 31, SALARY ($) BONUS ($) OPTIONS (#)
--------------------------- ----------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Robert J. Doris............... 1998 $180,000 $ 0 175,000(1)
Chairman of the Board, 1997 $165,000 $ 0 --
President and Chief Executive 1996 $165,000 $ 0 --
Officer
Mary C. Sauer................. 1998 $146,250 $ 0 112,000(2)
Senior Vice President, 1997 $135,000 $ 0 --
Business Development, 1996 $135,000 $ 0 --
Secretary and Director
James A. Moorer............... 1998 $117,734 $ 0 25,000(3)
Senior Vice President 1997 $135,000 $ 0 --
Audio Development Director 1996 $135,000 $ 0 --
Christopher A. Kryzan(4)...... 1998 $161,550 $29,584 100,000(5)
Vice President, Marketing 1997 $150,580 $75,000 --
1996 $ 6,250 $ 0 80,000
A. Clay Leighton.............. 1998 $130,625 $20,000 155,000(6)
Vice President, Finance and 1997 $137,737 $15,000 20,000
Chief Financial Officer 1996 $107,000 $10,000 25,000
</TABLE>
- --------
(1) Of these options, 85,000 represent new options granted to replace the same
number of canceled options previously granted in fiscal year 1998 with
higher exercise prices. See the Report of the Board Regarding Executive
Compensation below regarding the repricing of options.
(2) Of these options, 40,000 represent new options granted to replace the same
number of canceled options previously granted in fiscal year 1998 with
higher exercise prices. See the Report of the Board Regarding Executive
Compensation below regarding the repricing of options.
(3) These options represent new options granted to replace the same number of
canceled options previously granted in fiscal year 1998 with higher
exercise prices. See the Report of the Board Regarding Executive
Compensation below regarding the repricing of options.
(4) Mr. Kryzan was hired as Vice President, Marketing in March 1996.
(5) Of these options, 20,000 represent new options granted to replace the same
number of canceled options previously granted in fiscal year 1998 with
higher exercise prices and 80,000 options represent new options granted to
replace canceled options shown as granted in fiscal year 1996 with higher
exercise prices. See the Report of the Board Regarding Executive
Compensation below regarding the repricing of options.
(6) Of these options, 30,000 represent new options granted to replace the same
number of canceled options previously granted in fiscal year 1998 with
higher exercise prices, 20,000 represent new options granted to replace
canceled options shown as granted in fiscal year 1997 with higher exercise
prices and 25,000 represent new options granted to replace canceled
options shown as granted in fiscal year 1996 with higher exercise prices.
See the Report of the Board Regarding Executive Compensation below
regarding the repricing of options.
6
<PAGE>
The following table sets forth certain information regarding grants of stock
options made during the fiscal year ended March 31, 1998 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 VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(7)
---------------------------------------------- -----------------
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES IN OR BASE
OPTIONS(1) FISCAL PRICE EXPIRATION
NAME GRANTED(#) YEAR(4) ($/SH)(5) DATE(6) 5% 10%
---- ---------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Doris......... 85,000(2) 4% 2.5625 9/2/07 $137,222 $346,322
90,000(2) 5% 2.5625 3/3/08 145,294 366,694
Mary C. Sauer........... 40,000(2) 2% 2.5625 9/2/07 64,575 162,975
72,000(2) 4% 2.5625 3/3/08 116,235 293,355
James A. Moorer......... 25,000(2) 1% 2.5625 9/2/07 40,359 101,859
Christopher A. Kryzan... 20,000(3) 1% 2.5625 4/15/07 28,188 69,700
80,000(3) 4% 2.5625 2/21/06 98,400 233,700
A. Clay Leighton........ 30,000(3) 2% 2.5625 7/22/07 42,281 104,550
30,000(3) 2% 2.5625 3/3/08 48,431 122,231
40,000(2) 2% 2.5625 3/3/08 64,575 162,975
20,000(3) 1% 2.5625 7/16/06 24,600 58,425
12,500(3) * 2.5625 11/21/05 15,375 36,516
12,500(3) * 2.5625 11/21/05 15,375 36,516
</TABLE>
- --------
*Less than 1%
(1) Excludes options granted in fiscal year 1998 and subsequently repriced
upon issuance of replacement options and includes options that were
originally granted in fiscal years 1996 or 1997 and were repriced upon
issuance of replacement options on March 3, 1998. See footnotes 1-3, 5 and
6 of the Summary Compensation Table and the Report of the Board Regarding
Executive Compensation regarding the repricing of options.
(2) These options, granted under the Company's Stock Option Plan, vest over a
period of one year at a rate of 8.3333 percent per month.
(3) 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 of
the original options and 2.0833 percent per month thereafter.
(4) Percentages are based upon option grants for the fiscal year which
includes all options repriced on March 3, 1998. See the Report of the
Board Regarding Executive Compensation regarding the repricing of options.
(5) 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.
(6) These options are subject to earlier expiration in the event of the
officer's termination of employment with the Company.
(7) 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.
7
<PAGE>
The following table sets forth information regarding the number and value of
options exercised during the fiscal year ended March 31, 1998 and of
unexercised options held by the named executive officers on March 31, 1998.
Value is considered to be the difference between exercise price and the
closing price of $3.063 per share of the Common Stock as quoted on the Nasdaq
National Market on March 30, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED ON AGGREGATE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
EXERCISE VALUE REALIZED OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
NAME (#) ($) EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
---- ----------- -------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Robert J. Doris......... 0 0 49,563/125,437 $24,806/62,781
Mary C. Sauer........... 0 0 23,324/88,676 $11,674/44,382
James A. Moorer......... 0 0 14,577/10,423 $ 7,296/5,217
Christopher A. Kryzan... 0 0 40,000/60,000 $20,020/30,030
A. Clay Leighton........ 3,000 $9,214 72,375/105,625 $73,642/52,865
</TABLE>
- --------
(1) Excludes options granted and subsequently cancelled upon issuance of
replacement options (see Summary Compensation Table, footnotes 1-3, 5 and
6).
(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, 1998 ($3.063).
The Company did not make any awards during the fiscal year ended March 31,
1998 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.
8
<PAGE>
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.
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.
Equity Ownership--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
9
<PAGE>
after termination of service with the Company. In March, 1998, following a
significant decline in the market price of the Company's Common Stock during
the preceeding months, the Board authorized the repricing of certain options
by the Chief Executive Officer. The options were repriced as of March 3, 1998,
with the effect of canceling the old options and granting new options with an
exercise price equal to the fair market value of the Common Stock on such
date. Other than the change in exercise price, the terms of each repriced
option, including the vesting schedule and expiration date, are the same as
that of the initial option. The Board authorized the repricing of the options
for the same reason it authorized the initial grants, including promoting the
retention of employees crucial to the success of the Company and motivating
them to perform their duties in ways that will contribute to the appreciation
of stockholder value. In the opinion of the Board, the regrant was a prudent
way to reduce the risk of attrition of key employees and thereby reduce the
risks to the Company's product development.
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.
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 1998, the company paid Mr.
Doris a base salary of $180,000, which reflected an increase of 9% over his
fiscal 1997 base salary. Mr. Doris did not receive a cash bonus in the fiscal
year ended March 31, 1998. 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 1998 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. In addition,
Mr. Doris was granted options covering 175,000 shares of Common Stock in
fiscal 1998, 85,000 of which were repriced on March 3, 1998.
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
-- Michael C. Child -- Peter J. Marguglio
-- Robert J. Doris -- James A. Moorer
-- Robert M. Greber -- Mary C. Sauer
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.
10
<PAGE>
10-YEAR OPTION REPRICINGS
The following table summarizes stock options granted to the executive
officers of the Company that have had options canceled and new options issued
with new exercise prices during the past ten (10) fiscal years.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET PRICE LENGTH OF ORIGINAL
UNDERLYING OF STOCK AT EXERCISE PRICE OPTION TERM
OPTIONS TIME OF AT TIME OF NEW REMAINING AT DATE
REPRICED OR REPRICING OR REPRICING OR EXERCISE OF REPRICING OR
NAME DATE AMENDED (#) AMENDMENT ($) AMENDMENT ($) PRICE($) AMENDMENT
---- ------ ----------- ------------- -------------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS
Robert J. Doris......... 3/3/98 85,000 2.5625 8.375 2.5625 9 yrs., 9 mos.
President and CEO
Mary C. Sauer........... 3/3/98 40,000 2.5625 8.375 2.5625 9 yrs., 9 mos.
Senior Vice President
James A. Moorer......... 3/3/98 25,000 2.5625 8.375 2.5625 9 yrs., 9 mos.
Senior Vice President
Christopher A. Kryzan... 3/3/98 20,000 2.5625 8.50 2.5625 9 yrs., 1 mo.
Vice President 3/3/98 80,000 2.5625 5.50 2.5625 8 yrs.
A. Clay Leighton........ 3/3/98 12,500 2.5625 6.00 2.5625 7 yrs., 8 mos.
Chief Financial Officer 3/3/98 12,500 2.5625 6.00 2.5625 7 yrs., 8 mos.
3/3/98 20,000 2.5625 5.75 2.5625 8 yrs., 4 mos.
3/3/98 30,000 2.5625 5.125 2.5625 9 yrs., 4 mos.
Kirk Paulsen............ 3/3/98 10,000 2.5625 6.50 2.5625 7 yrs., 9 mos.
Vice President 3/3/98 10,000 2.5625 6.50 2.5625 7 yrs., 9 mos.
3/3/98 10,000 2.5625 5.75 2.5625 8 yrs., 4 mos.
3/3/98 10,000 2.5625 6.75 2.5625 6 yrs., 5 mos.
3/3/98 10,000 2.5625 7.50 2.5625 9 yrs., 10 mos.
</TABLE>
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, 1998, 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>
[CUMULATIVE TOTAL SHAREHOLDER RETURN
PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
2/10/94 MAR-94 MAR-95 MAR-96 MAR-97 MAR-98
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sonic Solutions, Inc......... $100 $103.95 $114.47 $ 72.37 $ 65.79 $ 32.24
S&P 500 Index................ $100 $ 95.27 $110.10 $145.45 $174.29 $257.94
H&Q Technology............... $100 $ 98.40 $127.66 $173.74 $201.93 $300.74
</TABLE>
PROPOSAL TWO
APPROVAL OF THE COMPANY'S 1998 STOCK OPTION PLAN
BACKGROUND
The Company's Board of Directors adopted the Sonic Solutions 1998 Stock
Option Plan (the "Plan") in July 1998, subject to shareholder approval. The
Plan covers 1,000,000 shares of Common Stock, with an annual increase in the
number of shares available for issuance under the Plan on the last day of each
fiscal year; provided that the total number of shares issuable under the Plan
shall not exceed 2,000,000. The purpose of this proposal is to obtain
shareholder approval of the Plan and the shares issuable thereunder.
APPROVAL OF 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. As of March 31, 1998, the Company had no options outstanding under the
Plan. The Plan is the successor to the Company's 1989 Stock Option Plan (the
"1989 Plan") which will expire by its terms in 1999. As of March 31, 1998,
options for 1,660,178 shares of Common Stock were outstanding under the 1989
Plan, and 24,593 shares of Common Stock remained available for future option
grants. The Plan authorizes the granting of both options which are incentive
stock options ("ISOs"), within the meaning of the Internal Revenue Code (the
"Code"), and nonstatutory options to which Section 421 of the Code does not
apply ("NQOs", and together with ISOs, "Options"). The 1989 Plan expires in
1999 and without approval of the Plan, the Company would not be able to
provide future grants to employees following expiration of the 1989 Plan. The
Board of Directors believes that it would be in the best interests of the
Company to adopt the Plan.
12
<PAGE>
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.
A total 1,000,000 shares are reserved for issuance under the Plan, which is
subject to an annual increase (the "Renewal Feature") to be made on the last
day of each fiscal year equal to 2% of the total number of shares of the
Company's Common Stock outstanding on such date. Notwithstanding the Renewal
Feature, in no event shall the total number of shares issuable under the Plan
exceed 2,000,000.
The Plan provides for the grant of ISOs to employees (including employees
who are officers or directors) and for the grant of NQOs to employees,
nonemployee directors and consultants of the Company. The Plan is administered
by the Company's Chief Executive Officer, except that the Plan is administered
by the Board (or a committee of the Board) to the extent required to comply
with the requirements of Rule 16b-3 under the Securities Exchange Act of 1934
(in any case, the "Administrator") or rules governing ISOs. The Administrator
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 ten 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. In addition, under the Plan, the Company may not grant Options for more
than 500,000 shares to any one participant in any fiscal year. 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, an Option may not be exercised beyond the original term of the Option.
Options are not transferable or assignable except by the laws of descent and
distribution, or in the case of NQOs, to the extent determined by the
Administrator. Each Option is exercisable, during the lifetime of the
Optionee, only by the Optionee, except, in the case of NQOs, as otherwise
determined by the Administrator. 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 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, all Options shall be assumed or
substantially equivalent options shall be substituted by the successor
corporation; provided however, that if the successor corporation does not
assume or substitute new options, unless otherwise determined by the
Administrator, all outstanding Options will accelerate and become exerciable
for a period of thirty days before expiring.
The Plan expires in 2008, 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, except for increases by reason of the
Renewal Feature, 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.
13
<PAGE>
STOCK OPTION PLAN BENEFITS
As of March 31, 1998, the Company has issued no Options under the Plan. The
following table shows the number of Options issued under the 1989 Stock Option
Plan to the persons and the groups named below in the year ended March 31,
1998.
PLAN BENEFITS
<TABLE>
<CAPTION>
NUMBER OF
NAMED CORPORATE OFFICERS AND GROUPS OPTIONS ISSUED
----------------------------------- --------------
<S> <C>
Name and Position:
Robert J. Doris, President, CEO and Director................. 175,000
Mary C. Sauer, Sr. V.P. of Business Development, Secretary
and Director................................................ 112,000
James A. Moorer, Sr. V.P. of Audio Development and Director.. 25,000
Christopher A. Kryzan........................................ 100,000
A. Clay Leighton............................................. 155,000
Executive Group.............................................. 647,000
Non-Executive Director Group................................. 0
Non-Executive Employee Group................................. 1,278,150
</TABLE>
PROPOSAL; BOARD RECOMMENDATION
Shareholders are being asked to approve 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.
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
14
<PAGE>
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.
If an Optionee tenders Common Stock (other than statutory option stock) to
pay all or a part of the exercise price of an ISO, the Optionee will not have
a taxable gain or deductible loss on the surrendered shares. Instead, the
shares acquired upon exercise that are equal on 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 value of the additional shares are treated as newly acquired with
a zero basis.
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 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 value of the additional shares is taxable
as ordinary income (subject to the discussion above on restricted stock) and
the additional shares will be treated as newly acquired and will have a basis
equal to their fair market value on the exercise date.
15
<PAGE>
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 1999 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 1999 annual meeting of shareholders must be received by the
Secretary of the Company no later than March 31, 1999 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 24, 1998
16
<PAGE>
APPENDIX A
1998 STOCK OPTION PLAN
OF
SONIC SOLUTIONS
1. PURPOSES OF THE PLAN
The purposes of the 1998 Stock Option Plan (the "Plan") of Sonic Solutions,
a California corporation (the "Company"), are to:
(a) Encourage selected employees, directors and consultants to improve
operations and increase profits of the Company;
(b) Encourage selected employees, directors and consultants to accept or
continue employment or association with the Company or any Affiliate (as
defined below); and
(c) Increase the interest of selected employees, directors and
consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company (the "Common Stock").
Options granted under this Plan ("Options") may be "incentive stock options"
("ISOs") intended to satisfy the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or "nonqualified options"
("NQOs").
2.ELIGIBLE PERSONS
Every person who at the date of grant of an Option is an employee of the
Company or of any Affiliate of the Company is eligible to receive NQOs or ISOs
under this Plan. Every person who at the date of grant is a director of or
consultant to the Company or to any Affiliate of the Company is eligible to
receive NQOs under this Plan. The term "Affiliate" as used in the Plan means a
parent or subsidiary corporation as defined in the applicable provisions
(currently Sections 425(e) and (f), respectively) of the Code. The term
"employee" includes an officer or director who is an employee, of the Company.
The term "consultant" includes persons employed by, or otherwise affiliated
with, a consultant.
3.STOCK SUBJECT TO THIS PLAN
Subject to the provisions of Section 6.1(a) of the Plan, the initial maximum
aggregate number of shares of stock which may be issued on exercise of Options
granted pursuant to this Plan is 1,000,000 shares of Common Stock (the "Share
Limit"). The Share Limit shall automatically be increased on the last business
day of each fiscal year by an amount equal to 2% of the total number of shares
of Common Stock outstanding on such date; provided, however, that in no event
shall such automatic share increase cause the Share Limit to exceed 2,000,000
shares. The shares covered by the portion of any grant under the Plan which
expires unexercised shall become available again for grants under the Plan.
Shares issued pursuant to an Option which are repurchased by the Company in
accordance with the terms of the Plan shall become available again for grants
as NQOs under the Plan.
4.ADMINISTRATION
4.1 This Plan shall be administered by the Board of Directors of the Company
(the "Board"), or by a committee (the "Committee") of at least two (2) Board
members to which administration of the Plan is delegated or, with respect to
persons other than directors and "executive officers" as defined in the
Securities Exchange Act and the rules and regulations thereunder, by the Chief
Executive Officer of the Company (in each
A-1
<PAGE>
case, the "Administrator"), in accordance with the provisions of Rule 16b-3
promulgated by the Securities and Exchange Commission ("Rule 16b-3"), or by
any successor rule thereto.
4.2 Subject to the other provisions of this Plan, the Administrator shall
have the authority, in its discretion: (i) to grant Options; (ii) to determine
the fair market value of the Common Stock subject to Options; (iii) to
determine the exercise price of Options granted; (iv) to determine the persons
to whom, and the time or times at which, Options shall be granted, and the
number of shares subject to each Option; (v) to interpret this Plan; (vi) to
prescribe, amend and rescind rules, regulations and guidelines relating to
this Plan; (vii) to determine the terms and provisions of each Option granted
(which need not be identical), including, but not limited to, the time or
times at which Options shall be exercisable; (viii) with the consent of the
optionee, to modify or amend any Option; (ix) to defer (with the consent of
the optionee) or to accelerate the exercise date of any Option or to defer
(with the consent of the optionee) or to accelerate the expiration of any
right of repurchase which the Company may have with respect to shares issued
or issuable upon exercise of any Option; (x) to authorize any person to
execute on behalf of the Company any instrument evidencing the grant of an
Option; and (xi) to make all other determinations deemed necessary or
advisable for the administration of this Plan. The Administrator may delegate
nondiscretionary administrative duties to such employees of the Company as it
deems proper.
4.3 All questions of interpretation, implementation and application of this
Plan shall be determined by the Administrator. Such determinations shall be
final and binding on all persons, including the Company and all options.
5. GRANTING OF OPTIONS; OPTION AGREEMENT
5.1 No Options shall be granted under this Plan after ten (10) years from
the date of adoption of this Plan by the Board.
5.2 Each Option shall be evidenced by a written stock option agreement, in
form satisfactory to the Company, executed by the Company and the person to
whom such Option is granted; provided, however, that the failure by the
Company, the optionee or both to execute such an agreement shall not
invalidate the granting of an Option.
5.3 The agreement shall specify whether each Option it evidences is a NQO or
an ISO. However, notwithstanding such designations, if the aggregate fair
market value of the shares under Options designated as ISOs would become
exercisable for the first time by any optionee at a rate in excess of $100,000
in any calendar year (under all plans of the Company), then unless otherwise
provided in the stock option agreement or by the Administrator, the
exercisability of ISOs (or portions thereof) having the highest per share
exercise price shall be delayed until the earliest time at which their
exercisability would not cause the $100,000 limitation to be exceeded. For
purposes of this Section 5.3, Options shall be taken into account in the order
in which they were granted, and the fair market value of the shares shall be
determined as of the time the Option with respect to such shares is granted.
5.4 The Administrator may approve the grant of Options under the Plan to
persons who are expected to become employees, directors or consultants of the
Company, but are not employees, directors or consultant at the date of
approval. In such cases, the Option shall be deemed granted, without further
approval, on the date the grantee assumes the employment or consulting
relationship forming the basis for such grant, and, in addition, satisfies all
requirements of this Plan for Options granted on that date.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be designated as an NQO or an ISO.
Each Option shall be subject to the terms and conditions set forth in Section
6.1. NQOs shall also be subject to the terms and conditions set forth in
Section 6.2, but not those set forth in Section 6.3. ISOs shall also be
subject to the terms and conditions set forth in Section 6.3, but not those
set forth in Section 6.2.
A-2
<PAGE>
6.1 Terms and Conditions to Which All Options Are Subject. All Options
granted under this Plan shall be subject to the following terms and
conditions:
(a) Changes in Capital Structure. Subject to Section 6.1(b), if the
Common Stock of the Company is changed by reason of a stock split, reverse
stock split, stock dividend or recapitalization, or converted into or
exchanged for other securities as a result of a merger, consolidation or
reorganization, appropriate adjustments or substitutions shall be made in:
(i) the number and class of shares of Common Stock subject to this Plan and
each Option outstanding under this Plan; and (ii) the exercise price of
each outstanding Option; provided, however, that the Company shall not be
required to issue fractional shares as a result of any such adjustments.
Each such adjustment shall be at the discretion of and subject to approval
by the Administrator in its sole discretion.
(b) Corporate Transactions. In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify each optionee at
least 30 days prior to such proposed action. To the extent not previously
exercised, all Options will terminate immediately prior to the consummation
of such proposed action. In the event of a merger or consolidation
involving the Company in which the Company is not the surviving corporation
(other than with a subsidiary of the Company solely to effect a
reincorporation) or in which the shareholders of the Company prior to such
transaction own less than 50% of the shares entitled to vote of the
surviving entity, or in the event of a sale of all or substantially all of
the assets of the Company in which the shareholders of the Company receive
securities of the acquiring entity or an affiliate thereof, all Options
shall be assumed or equivalent options shall be substituted by the
successor corporation (or other entity) or a parent or subsidiary of such
successor corporation (or other entity); provided, however, that if such
successor does not agree to assume the Options or to substitute equivalent
options therefor, unless the Administrator shall determine otherwise, all
Options shall be fully exercisable for a period of thirty (30) days from
the date notice is given under this Section 6.1(b) and shall terminate upon
expiration of such 30-day period.
(c) Time of Option Exercise. Except as necessary to satisfy the
requirements of Section 422 of the Code and subject to Section 5, Options
granted under this Plan shall be exercisable: (a) immediately as of the
effective date of the stock option agreement granting the Option; or (b) at
such other times as are specified in the written stock option agreement
relating to such Option. No Option shall be exercisable, however, until a
written stock option agreement in form satisfactory to the Company is
executed by the Company and the optionee.
(d) Option Grant Date. Except in the case of advance approvals described
in Section 5.4, the date of grant of an Option under this Plan shall be the
date as of which the Administrator approves the grant.
(e) Nonassignability of Option Rights. No Option granted under this Plan
shall be assignable or otherwise transferable by the optionee except by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code, except, with respect to
NQOs, which may be assignable or otherwise transferable by the optionee as
the Administrator may determine in its sole discretion. During the life of
the optionee, an Option shall be exercisable only by the optionee, except,
with respect to NQOs, as the Administrator may determine in its sole
discretion.
(f) Payment. Except as provided below, payment in full, in cash, shall be
made for all stock purchased at the time written notice of exercise of an
Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. At the time an Option is granted
or exercised, the Administrator, in the exercise of its absolute
discretion, may authorize any one or more of the following additional
methods of payment: (i) acceptance of the optionee's full recourse
promissory note for all or part of the Option price, payable on such terms
and bearing such interest rate as determined by the Administrator (but in
no event less than the minimum interest rate specified under the Code at
which no additional interest on debt instruments of such type would be
imputed), which promissory note may be either secured or unsecured in such
manner as the Administrator shall approve (including, without limitation,
by a security
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interest in the shares of the Company); or (ii) delivery by the optionee of
Common Stock already owned by the optionee for all or part of the Option
price, provided the value (determined as set forth in Section 6.1(k) of
such Common Stock is equal on the date of exercise to the Option price, or
such portion thereof as the optionee is authorized to pay by delivery of
such stock; provided, however, that if an optionee has exercised any
portion of any option granted by the Company by delivery of Common Stock,
the optionee may not, within six (6) months following such exercise,
exercise any Option granted under this Plan by delivery of Common Stock.
(g) Termination of Employment or Service. Unless determined otherwise by
the Administrator in its absolute discretion, to the extent not already
expired or exercised, an Option shall terminate at the earlier of: (i) the
Expiration Date (as defined in Section 6.1(k); or (ii) three (3) months
after termination of employment with the Company or any Affiliate (with
respect to employees) or three (3) months after the last day served as a
director or consultant to the Company or any Affiliate (with respect to
consultants); provided, that an Option shall be exercisable after the date
of termination of employment or service as a consultant only to the extent
exercisable on the date of termination; and provided further, that if
termination of employment or service as a consultant is due to the
optionee's death or "disability" (as determined in accordance with Section
22(e)(3) of the Code), the optionee, or the optionee's personal
representative (or any other person who acquires the Option from the
optionee by will or the applicable laws of descent and distribution), may
at any time within twelve (12) months after the termination of employment
or service as a consultant (or such lesser period as is specified in the
option agreement but in no event after the Expiration Date of the Option),
exercise the rights to the extent they were exercisable on the date of the
termination. A transfer of an optionee from the Company to an Affiliate or
vice versa, or from one Affiliate to another, or a leave of absence due to
sickness, military service or other cause duly approved by the Company,
shall not be deemed a termination of employment or the consulting
relationship for purposes of this Plan.
(h) Repurchase of Stock. Unless otherwise provided for by the
Administrator in the option agreement, the Common Stock to be delivered
pursuant to the exercise of any Option granted to an employee or consultant
under this Plan may be subject to a right of repurchase in favor of the
Company, with respect to any employee or consultant whose employment or
consulting relationship with the Company is terminated, at the Option
exercise price per share, and such shares shall be held by the Company in
escrow to facilitate the Company's repurchase right. Unless otherwise
provided for by the Administrator in the option agreement, the Company's
repurchase right shall expire as to 25% of the total amount of the shares
subject to the Option on the first anniversary date of the Option grant or
such other date as may be set by the Administrator and shall expire as to
an additional 2.0833-1/3% of such shares at the end of each succeeding
calendar month. Determination of the number of shares subject to such right
of repurchase shall be made as of the date the employee's employment by or
consultant's consulting relationship with, the Company terminates, not as
of the date that any Option granted to such employee or consultant is
thereafter exercised. The Company's repurchase right may be waived by the
Board.
(i) Withholding and Employment Taxes. At the time of exercise of an
Option (or at such later time(s) as the Company may prescribe), the
optionee shall remit to the Company in cash all applicable federal and
state withholding and employment taxes. If and to the extent authorized by
the Committee, in its sole discretion, an optionee may make an election (i)
to deliver to the Company a promissory note of the participant on the terms
set forth in Section 6.1(f), (ii) to tender to the Company previously owned
shares of Common Stock, or (iii) to have shares of Common Stock to be
obtained upon exercise of the Option withheld by the Company on behalf of
the participant, to pay the amount of tax that the Committee, in its
discretion, determines to be required to be withheld by the Company. Any
shares tendered to or withheld by the Company shall be valued at fair
market value on such date. The value of the shares of Stock tendered or
withheld may not exceed the required federal, state, local and foreign
withholding tax obligations as computed by the Company.
(j) Other Provisions. Each Option granted under this Plan may contain
such other terms, provisions and conditions not inconsistent with this Plan
as may be determined by the Administrator, and each ISO granted
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under this Plan shall include such provisions and conditions as are
necessary to qualify the Option as an "incentive stock option" within the
meaning of Section 422 of the Code.
(k) Option Term. No Option shall be exercisable more than ten (10) years
after the date of grant, or such lesser period of time as is set forth in
the option agreement (the end of the exercise period stated in the option
agreement is referred to in this Plan as the "Expiration Date").
Notwithstanding the foregoing, no ISO granted to a Ten Percent Stockholder
(as defined in Section 6.3(a) shall be exercisable more than five (5) years
after the date of grant
(l) Limitation on Option Grants. The Company may not grant options under
the Plan for more than 500,000 shares to any one participant in any fiscal
year.
6.2 Terms and Conditions to Which Only NQOs Are Subject. The exercise price
of a NQO shall be determined by the Administrator and shall in no event be
less than 85% of the fair market value of the Common Stock subject to the
Option on the date of grant. For purposes of the Plan, the "Fair Market Value"
of the Common Stock means, as of any given date, the closing sales price of
the Common Stock reported on the Nasdaq National Market System or, if the
Common Stock is not traded on the Nasdaq National Market, the fair market
value of the Common Stock as determined by the Administrator in good faith.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options granted
under this Plan which are designated as ISOs shall be subject to the following
terms and conditions:
(a) Exercise Price. The exercise price of an ISO shall be determined in
accordance with the applicable provisions of the Code and shall in no event
be less than the Fair Market Value of the Common Stock subject to the
Option on the date of grant, except that the exercise price of an ISO
granted to any person who owns, directly or by attribution, shares
possessing more than 10% of the total combined voting power of all classes
of stock of the Company or of any Affiliate (a "Ten Percent Stockholder")
shall in no event be less than 110% of such Fair Market Value.
(b) Disqualifying Dispositions. If stock acquired upon exercise of an ISO
is disposed of in a "disqualifying disposition" within the meaning of
Section 422 of the Code, the holder of the stock immediately before the
disposition shall notify the Company in writing of the date and terms of
the disposition and comply with any other requirements imposed by the
Company in order to enable the Company to secure any related income tax
deduction to which it is entitled.
7. MANNER OF EXERCISE
7.1 An optionee wishing to exercise an Option shall give written notice to
the Company at its principal executive office, to the attention of the officer
of the Company designated by the Administrator, accompanied by payment of the
exercise price as provided in Section 6.1(f) and, if required, by payment of
any federal or state withholding or employment taxes required to be withheld
by virtue of exercise of the Option. The date the Company receives written
notice of an exercise hereunder accompanied by payment of the exercise price
and any required federal or state withholding or employment taxes will be
considered as the date such Option was exercised. There is no limit on the
number of times Options may be exercised in any calendar year, unless the
President of the Company or the Board prescribes such a limit.
7.2 Promptly after the date an Option is exercised, the Company shall,
without stock issue or transfer taxes to the optionee or other person entitled
to exercise the Option, deliver to the optionee or such other person a
certificate or certificates for the requisite number of shares of Common
Stock. An optionee or transferee of an optionee shall not have any privileges
as a shareholder with respect to any Common Stock covered by the Option until
the date of issuance of a stock certificate.
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8. EMPLOYMENT OR CONSULTING RELATIONSHIP
Nothing in this Plan or any Option granted thereunder shall interfere with
or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment or consulting at any time, nor confer upon
any optionee any right to continue in the employ of, or consult with, the
Company or any of its Affiliates.
9. FINANCIAL INFORMATION
The Company shall provide to each optionee during the period such optionee
holds an outstanding Option a copy of the financial statements of the Company
as prepared either by the Company or independent certified public accountants
of the Company. Such financial statements shall be delivered as soon as
practicable following the end of the Company's fiscal year during the period
Options are outstanding.
10. LEGAL REQUIREMENTS
The Company shall not be obligated to offer or sell any shares upon exercise
of any Option unless the shares are at that time effectively registered or
exempt from registration under the federal securities laws and the offer and
sale of the shares are otherwise in compliance with all applicable securities
laws and the regulations of any stock exchange on which the Company's
securities may then be listed. The Company shall have no obligation to
register the shares of Common Stock covered by this Plan under the federal
securities laws or take any other steps as may be necessary to enable the
shares of Common Stock covered by this Plan to be offered and sold under
federal or other securities laws. Upon exercising all or any portion of an
Option, an optionee may be required to furnish representations or undertaking
deemed appropriate by the Company to enable the offer and sale of the shares
or subsequent transfers of any interest in the shares to comply with
applicable securities laws. Certificates evidencing shares acquired upon
exercise of Options shall bear any legend required by, or useful for purposes
of compliance with, applicable securities laws, this Plan or the option
agreements.
11. AMENDMENTS TO PLAN
The Board may amend this Plan at any time. Without the consent of an
optionee, no amendment may adversely affect outstanding Options except to
conform this Plan and ISOs granted under this Plan to federal or other tax
laws relating to incentive stock options. No amendment shall require
shareholder approval unless:
(a) shareholder approval is required to preserve incentive stock option
treatment for federal income tax purposes;
(b) shareholder approval is required to meet the exemptions provided by
Rule 16b-3, or any successor rule thereto; or
(c) the Board otherwise concludes that shareholder approval is advisable.
12. STOCKHOLDER APPROVAL; TERM
This Plan shall become effective upon adoption by the Board of Directors;
provided, however, that no Option shall be exercisable unless and until
written consent of holders of a majority of the outstanding shares of capital
stock of the Company, or approval by holders of a majority of shares of
capital stock of the Company present, or represented, and entitled to vote at
a validly called shareholders' meeting (or such greater number as may be
required by law or applicable governmental regulations or orders) is obtained
within twelve (12) months after adoption by the Board. This Plan shall
terminate ten (10) years after adoption by the Board unless terminated earlier
by the Board. The Board may terminate this Plan at any time without
shareholder approval. No Options shall be granted after termination of this
Plan, but termination shall not affect rights and obligations under then
outstanding Options.
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SONIC SOLUTIONS
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 on the reverse side, 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 September 1,
1998, and at any adjournments or postponements thereof.
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 LISTED ON THE REVERSE SIDE. 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.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
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<TABLE>
<S> <C> <C>
The Board of Directors recommends a vote FOR Items 1 Please mark your [X]
and 2. votes as
indicated in this
example
ITEM 1 - ELECTION OF DIRECTORS WITHHELD
FOR FOR ALL
[ ] [ ] Please complete, date and
sign this proxy and mail
it promptly in the enclosed
envelope to assure
representation of your
shares.
Nominees:
Michael C. Child James A. Moorer
Robert J. Doris Peter J. Marguglio
Robert M. Greber Mary C. Sauer
WITHHELD FOR: (Write that nominee's name in the space provided below).
_____________________________________________________________________________________________________________________
ITEM 2 - ADOPTION OF 1998 STOCK OPTION PLAN
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Signature_________________________________________ Signature___________________________________________ Date________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
</TABLE>
FOLD AND DETACH HERE
