<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[_] Confidential, for Use of the
[X] Preliminary Proxy Statement Commission Only (as Permitted
by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 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:
--------------------------------------------------------------------------
(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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------
[_] 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:
--------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
SONIC SOLUTIONS
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 7, 1999
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
7, 1999 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 four directors to serve for the ensuing year and until their
successors are elected.
2. To approve an amendment to the Company's Bylaws to provide for a Board
of not less than four nor more than seven directors.
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 12, 1999 (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 20, 1999
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 7, 1999 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 20, 1999 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, 1999 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting.
At the Record Date, 9,473,338 shares of the Company's common stock (the
"Common Stock") and 286,538 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 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 four 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 as votes cast on a
proposal, 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.
1
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
The Bylaws of the Company currently provide for a Board consisting of not
less than five nor more than seven directors although proposal 2 for the
Annual Meeting is to amend the Company's Bylaws to change this range to not
less than four nor more than seven directors. Effective on approval of such
amendment, the size of the Board will be set at four directors, and four
directors are being nominated for election at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the four 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. Michael Child who is currently a director, has advised
the Company that, for personal reasons, he does not wish to stand for re-
election as a director. The Company would like to thank Mr. Child for his
service as a director since 1993.
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...... 46 President and Chief Executive Officer 1986
Mary C. Sauer........ 46 Senior Vice President of Business 1986
Development, Secretary and Director
Robert M. Greber..... 60 Director 1993
Peter J. Marguglio... 52 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.
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.
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
2
<PAGE>
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, 1999. 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.
During the fiscal year ended March 31, 1999, the audit committee of the
Board consisted 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, 1999.
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 May 31, 1999 (i) by each person who is
known by Sonic Solutions to own beneficially more than five percent of the
Common Stock, (ii) by each of Sonic Solutions' directors, (iii) by each of
Sonic Solutions' 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>
Entities Affiliated with TA Associates(2)......... 570,627 6.0%
435 Tasso Street
Palo Alto, California 94301
Robert J. Doris(3)................................ 1,540,056 16.3%
Mary C. Sauer(4).................................. 774,661 8.2%
Peter J. Marguglio(5)............................. 214,797 2.3%
Michael C. Child(6)............................... 1,618 *
Robert M. Greber(7)............................... 28,563 *
Christopher A. Kryzan(8).......................... 89,999 1.0%
A. Clay Leighton(9)............................... 173,999 1.8%
All directors and executive officers as a group (9
persons)......................................... 3,439,287 36.3%
</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 9,473,338 shares of Common Stock outstanding as of
May 31, 1999, 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 1,618 shares held by Mr. Child as described in footnote 7 below
and 569,009 shares held by the following entities affiliated with TA
Associates: Advent VI L.P. (284,508); Advent Atlantic and Pacific II L.P.
(130,293); Chestnut III Limited Partnership (50,967); Chestnut Capital
International III Limited Partnership (16,440); Advent New York L.P.
(35,564); Advent Industrial II L.P. (46,972); and TA Venture Investors
Limited Partnership (4,265).
(3) Includes 1,294,223 shares owned by Mr. Doris, and 245,833 shares issuable
upon exercise of options which will be exercisable within 60 days of May
31, 1999.
(4) Includes 629,328 shares owned by Ms. Sauer, and 145,333 shares issuable
upon exercise of options which will be exercisable within 60 days of May
31, 1999.
(5) Includes 208,443 shares owned by Mr. Marguglio, and 6,354 shares issuable
upon exercise of options which will be exercisable within 60 days of May
31, 1999.
(6) Excludes all but 1,618 shares described in footnote 3 above. Mr. Child, a
director of Sonic Solutions, 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.
4
<PAGE>
(7) Consists of shares issuable upon exercise of options which will be
exercisable within 60 days of May 31, 1999, all of which were granted
pursuant to the Company's Nonemployee Director Stock Option Plan.
(8) Consists of shares issuable upon exercise of options which will be
exercisable within 60 days of May 31, 1999.
(9) Includes 5,500 shares owned by Mr. Leighton and 168,499 shares issuable
upon exercise of options which will be exercisable within 60 days of May
31, 1999.
Executive Compensation
The following table sets forth the total compensation for the fiscal years
ended March 31, 1999, 1998 and 1997 for the Chief Executive Officer and each
of the three other most highly compensated executive officers of Sonic
Solutions 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.............. 1999 $138,750 $ 0 85,000
President (Chief Executive
Officer) 1998 $180,000 $ 0 175,000(1)
and Director 1997 $165,000 $ 0 --
Mary C. Sauer................ 1999 $111,000 $ 0 40,000
Senior Vice President,
Business 1998 $146,250 $ 0 112,000(2)
Development, Secretary and
Director 1997 $135,000 $ 0 --
Christopher A. Kryzan(3)..... 1999 $175,000 $32,300 40,000
Senior Vice President, 1998 $161,550 $29,584 100,000(5)
Engineering and Marketing 1997 $150,580 $75,000 --
A. Clay Leighton(4).......... 1999 $112,920 $15,000 25,000
Senior Vice President
Worldwide Operations 1998 $130,625 $20,000 155,000(6)
Finance and Chief Financial
Officer 1997 $137,737 $15,000 20,000
</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 (7) 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 (7) below regarding the repricing of options.
(3) Mr. Kryzan was named Senior Vice President of Engineering and Marketing in
January 1999.
(4) Mr. Leighton was named Senior Vice President of Worldwide Operations and
Finance and Chief Financial Officer in January 1999.
(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 granted in fiscal year 1996 with higher exercise
prices. See (7) 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
5
<PAGE>
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 granted in fiscal year 1996 with higher exercise prices.
See (7) below regarding the repricing of options.
(7) In March, 1998, following a significant decline in the market price of
Sonic Solutions' Common Stock during the preceding 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 Sonic Solutions 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 Sonic Solutions' product development.
The following table sets forth certain information regarding grants of stock
options made during the fiscal year ended March 31, 1999 to the executive
officers named in the Summary Compensation Table. Since inception, Sonic
Solutions has not granted any stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------
Potential
Realizable Value
at Assumed
Annual Rates of
Number of Percent of Stock Price
Securities Total Options Exercise Appreciation for
Underlying Granted to or Base Option Term(3)
Options Employees in Price Expiration ----------------
Name Granted (#) Fiscal Year ($/Sh)(1) Date(2) 5% 10%
- ---- ----------- ------------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Doris......... 85,000(4) 13% 1.688 9/2/08 $91,921 $228,670
Mary C. Sauer........... 40,000(4) 6% 1.688 9/2/08 42,463 107,609
Christopher A. Kryzan... 40,000(5) 6% 1.688 9/2/08 42,463 107,609
A. Clay Leighton........ 25,000(4) 4% 1.688 9/2/08 26,539 67,256
</TABLE>
- --------
(1) The exercise price is equal to the fair market value of Sonic Solutions'
Common Stock on the date of grant, as determined by reference to the
closing price of Sonic Solutions' Common Stock on the Nasdaq National
Market.
(2) These options are subject to earlier expiration in the event of the
officer's termination of employment with Sonic Solutions.
(3) 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 Sonic Solutions'
estimate of future stock price appreciation.
(4) These options, granted under Sonic Solutions' Stock Option Plan, vest over
a period of one year at a rate of 8.3333 percent per month.
(5) These options, granted under Sonic Solutions' 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.
6
<PAGE>
The following table sets forth information regarding the number and value of
unexercised options held by the named executive officers on March 31, 1999.
Value is considered to be the difference between exercise price and the
closing price of $4.125 per share of the Common Stock as quoted on the Nasdaq
National Market on March 31, 1999. No options were exercised by the named
executive officers during the fiscal year ended March 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-The-
Underlying Unexercised Money Options
Options at Fiscal Year End at Fiscal Year End
Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---- -------------------------- ----------------------------
<S> <C> <C>
Robert J. Doris......... 213,900/46,100 $371,385/109,198
Mary C. Sauer........... 129,120/22,880 $219,240/53,240
Christopher A. Kryzan... 79,166/60,834 $132,442/121,288
A. Clay Leighton........ 132,900/70,100 $256,006/120,463
</TABLE>
- --------
(1) 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 Sonic Solutions' Common Stock at
March 31, 1999 ($4.125).
Sonic Solutions did not make any awards during the fiscal year ended March
31, 1999 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.
7
<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
8
<PAGE>
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.
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 1999, Mr. Doris was eligible to
receive a base salary of $225,000, which reflected an increase of 25% over his
fiscal 1998 base salary. Mr. Doris was eligible to participate in a salary
offset program where his base salary was reduced by $90,000 and he received an
option grant of 95,000 shares for such reduction. Mr. Doris did not receive a
cash bonus in the fiscal year ended March 31, 1999. 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 1999 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.
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>
<C> <S>
-- Robert J. Doris -- Robert M. Greber
-- Peter J. Marguglio -- 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 and Mary C. Sauer are
directors and are the founders and principal executive officers of the
Company.
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, 1999, 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).
9
<PAGE>
CUMULATIVE TOTAL SHAREHOLDER RETURN
PERFORMANCE GRAPH
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
2/10/94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sonic Solutions, Inc......... $100 $114.47 $ 72.37 $ 65.79 $ 32.24 $ 41.77
S&P 500 Index................ $100 $110.10 $145.45 $174.29 $257.94 $320.73
H&Q Technology............... $100 $127.66 $173.74 $201.93 $300.74 $427.59
</TABLE>
PROPOSAL TWO
APPROVAL OF AN AMENDMENT TO THE COMPANY'S BYLAWS TO PROVIDE FOR A BOARD OF
DIRECTORS OF NOT LESS THAN FOUR NOR MORE THAN SEVEN DIRECTORS
Background
The Company's Bylaws currently provide for a Board consisting of not fewer
than five nor more than seven directors, with the exact number of directors to
be fixed by the Board. The Company's Board of Directors has approved, subject
to shareholder approval, an amendment to the Company's Bylaws changing the
range of directors to not less than four to no more than seven (the "Amendment
of the Bylaws"). If approved, the number of directors has been initially fixed
by the Board at four, but may be increased within the range by the Board in
the future.
The size of the Board presently is set at five directors. Michael Child, a
director of the Company since 1993, has advised the Company that for personal
reasons, he does not wish to stand for re-election. In order to allow the
Company additional time to identify one or more individuals with qualities and
experience capable of significantly adding to the Board of Directors, the
Board desires to reduce the size of the Board to four directors, and has
approved the Amendment of the Bylaws lowering from five to four the minimum
number of directors in the authorized range. The Board would prefer to reduce
the minimum number of directors required by the Bylaws rather than propose a
fifth nominee for election at this time. The Board intends to continue to
search for highly qualified candidates to serve on the Board and, if such
candidates are found, to increase the size of the Board at that time. The
proposed new range for number of directors is consistent with California law,
which provides that when the number of directors is within a stated range, the
maximum number of directors may not be greater than two times the minimum
number of directors minus one.
10
<PAGE>
If the Board does not identify candidates which it believes will
significantly add to the Board of Directors, or if candidates identified by
the Board are unwilling or unable to serve on the Board, the size of the Board
is likely to remain at four directors. This will give to the four directors
proportionately greater influence than if the number of directors was five or
more. It could also lead to a deadlocked, evenly divided Board on certain
important matters, effectively preventing the Company from taking action in
the future which is beneficial to the Company's shareholders.
Proposal; Board Recommendation
Shareholders are being asked to approve the Amendment of the Bylaws. The
affirmative vote of not less than a majority of the outstanding shares of
Common Stock is required for approval of the amendment to the Bylaws; provided
that under California law, an amendment reducing the minimum number of
directors to a number less than five cannot be adopted if the votes cast
against its adoption at a meeting of the shareholders equals more than 16 2/3%
of the outstanding shares entitled to vote. The Board recommends a vote "FOR
APPROVAL" of the proposal.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected KPMG LLP as independent public accountants to audit
the financial statements of the Company for the 2000 fiscal year. KPMG LLP has
acted as the Company's auditors since March 31, 1993. Representatives of KPMG
LLP 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 LLP 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 2000 annual meeting of shareholders must be received by the
Secretary of the Company no later than March 31, 2000 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 20, 1999
11
<PAGE>
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 7,
1999, 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)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
<PAGE>
The Board of Directors recommends a vote FOR Item 1. Please mark your [X]
votes as
indicated in this
example
Proposal 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:
Robert J. Doris Peter J. Marguglio
Robert M. Greber Mary C. Sauer
WITHHELD FOR: (Write that nominee's name in the space provided below).
- --------------------------------------------------------------------------------
Proposal 2 -- TO APPROVE AN AMENDMENT TO THE COMPANY'S BYLAWS TO PROVIDE FOR A
BOARD OF NOT LESS THAN FOUR NOR MORE THAN SEVEN DIRECTORS
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.
FOLD AND DETACH HERE
