<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:
[X] Definitive Proxy Statement [_] Confidential, for Use of the
[_] Preliminary Proxy Statement Commission Only (as permitted by
[_] Soliciting Material Pursuant to Rule 14a-6(e)(2))
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:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
SONIC SOLUTIONS
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 5, 2000
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
5, 2000 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 adopt the Company's 2000 Stock Option Plan and to approve (i) the
issuance of up to 3,000,000 shares initially available for issuance
thereunder, and (ii) annual increases in the number of shares issuable
under the plan in an amount up to 5% of the number of shares of Common
Stock outstanding on the last day of each fiscal year, 750,000 shares or
a lesser amount set by the Board of 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 20, 2000 (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 28, 2000
-------------------------------------------------------------------------------
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 5, 2000 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 28, 2000 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 20, 2000 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting.
At the Record Date, 12,395,426 shares of the Company's common stock (the
"Common Stock") and no shares of 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.
<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. 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. The
Company currently has one vacancy on the Board.
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............. 47 President and Chief Executive 1986
Officer
Mary C. Sauer............... 47 Senior Vice President of 1986
Business Development,
Secretary and Director
Robert M. Greber............ 61 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, until January 1996 when he was elected
Chairman and Chief Executive Officer. In December 1999, Mr. Greber retired
from The Pacific Stock Exchange. 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
2
<PAGE>
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, 2000. 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, 2000, the audit committee of the
Board consisted of 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, 2000.
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>
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, 2000 (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. Unless otherwise indicated, the address of
each person below is: c/o Sonic Solutions, 101 Rowland Way, Suite 110, Novato,
CA 94945.
<TABLE>
<CAPTION>
Number of Percentage
Shares of Shares
Beneficially Beneficially
Name and Address Owned(1) Owned(1)
---------------- ------------ ------------
<S> <C> <C>
Robert J. Doris(2)............................... 1,560,056 12.8%
Mary C. Sauer(3)................................. 779,661 6.4%
Peter J. Marguglio(4)............................ 216,880 1.8%
Robert M. Greber(5).............................. 584 *
Christopher A. Kryzan(6)......................... 143,333 1.2%
A. Clay Leighton(7).............................. 176,000 1.4%
All directors and executive officers as a group
(11 persons).................................... 3,083,795 25.4%
</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 12,159,567 shares of Common Stock outstanding as
of May 31, 2000, 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 1,229,223 shares owned by Mr. Doris, and 330,833 shares issuable
upon exercise of options which will be exercisable within 60 days of May
31, 2000.
(3) Includes 594,328 shares owned by Ms. Sauer, and 185,333 shares issuable
upon exercise of options which will be exercisable within 60 days of May
31, 2000.
(4) Includes 208,443 shares owned by Mr. Marguglio, and 8,437 shares issuable
upon exercise of options which will be exercisable within 60 days of May
31, 2000.
(5) Consists of shares issuable upon exercise of options which will be
exercisable within 60 days of May 31, 2000, all of which were granted
pursuant to the Company's Nonemployee Director Stock Option Plan.
(6) Consists of shares issuable upon exercise of options which will be
exercisable within 60 days of May 31, 2000.
(7) Includes 38,500 shares owned by Mr. Leighton and 137,500 shares issuable
upon exercise of options which will be exercisable within 60 days of May
31, 2000.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for the fiscal years
ended March 31, 2000, 1999 and 1998 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 $100,000 or more. None of the named executive officers
earned any bonuses or compensation for these fiscal years other than as set
forth in the table or received any restricted stock awards, stock appreciation
rights or long-term incentive plan payouts.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Fiscal Year -------------------- ------------
Name and Principal Ended
Position March 31, Salary ($) Bonus ($) Options (#)
------------------ ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Robert J. Doris......... 2000 $221,250 $ 0 85,000
President (Chief
Executive Officer) 1999 $138,750 $ 0 85,000
and Director 1998 $180,000 $ 0 175,000(1)(5)
Mary C. Sauer........... 2000 $112,675 $ 0 40,000
Senior Vice President,
Business 1999 $111,000 $ 0 40,000
Development, Secretary
and Director 1998 $146,250 $ 0 112,000(2)(5)
Christopher A. Kryzan... 2000 $185,500 $45,031 25,000
Senior Vice President, 1999 $175,000 $32,300 40,000
Engineering and
Marketing 1998 $161,550 $29,584 100,000(3)(5)
A. Clay Leighton........ 2000 $176,250 $15,000 65,000
Senior Vice President
Worldwide Operations 1999 $112,920 $15,000 25,000
Finance and Chief
Financial Officer 1998 $130,625 $20,000 155,000(4)(5)
</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 (5) 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 (5) below regarding the repricing of options.
(3) 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 (5) below regarding the repricing of options.
(4) 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 granted in fiscal year 1996 with higher exercise prices. See (5)
below regarding the repricing of options.
(5) 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.
5
<PAGE>
The following table sets forth certain information regarding grants of
stock options made during the fiscal year ended March 31, 2000 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>
Potential
Realizable Value
Individual Grants at Assumed Annual
----------------------------------------------- Rates of Stock
Number of Percent of 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) 11% $2.656 09/09/09 $141,979 $359,803
Mary C. Sauer........... 40,000(4) 5% $2.656 09/09/09 $ 66,814 $169,319
Christopher A. Kryzan... 25,000(4) 3% $2.750 08/20/09 $ 43,237 $109,570
A. Clay Leighton........ 40,000(4) 5% $2.656 09/09/09 $ 66,814 $169,319
25,000(4) 3% $2.750 08/20/09 $ 43,237 $109,570
</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.
6
<PAGE>
The following table sets forth information regarding the number and value
of options exercised during the fiscal year ended March 31, 2000 and of
unexercised options held by the named executive officers on March 31, 2000.
Value is considered to be the difference between exercise price and the
closing price of $9.250 per share of the Common Stock as quoted on the Nasdaq
National Market on March 31, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Aggregate Underlying Unexercised In-the-Money Options
Acquired on Value Options at Fiscal Year End at Fiscal Year End
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
---- ------------ ------------ -------------------------- ----------------------------
<S> <C> <C> <C> <C>
Robert J. Doris......... 0 0 316,666/28,334 $2,186,738/186,834
Mary C. Sauer........... 0 0 178,666/13,334 $1,227,316/ 87,924
Christopher A. Kryzan... 0 0 140,833/45,166 $ 955,352/178,378
A. Clay Leighton........ 40,000 354,220 169,250/58,750 $1,186,453/389,151
</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, 2000 ($9.250).
Sonic Solutions did not make any awards during the fiscal year ended March
31, 2000 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 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.
8
<PAGE>
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 2000, Mr. Doris was eligible to
receive a base salary of $225,000, which was consistent with fiscal 1999. Mr.
Doris did not receive a cash bonus in the fiscal year ended March 31, 2000. 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 2000 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
--Robert J. Doris
--Robert M. Greber
--Peter J. Marguglio
--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 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 representations from certain reporting persons, the Company
believes that, during the fiscal year ended March 31, 2000, each of the
following persons failed to file a Form 5 within the time period required by
the rules and regulations of the Securities and Exchange Commission: Robert J.
Doris, Mary C. Sauer, Peter J. Marguglio, Robert M. Greber, Christopher A.
Kryzan and A. Clay Leighton. A. Clay Leighton did not file a Form 4 reporting
the acquisition of 40,000 shares of Common Stock upon exercise of an option.
9
<PAGE>
CUMULATIVE TOTAL SHAREHOLDER RETURN
PERFORMANCE GRAPH
[GRAPHIC APPEARS HERE]
<TABLE>
<CAPTION>
FYE 03/95 FYE 03/96 FYE 03/97 FYE 03/98 FYE 03/99 FYE 03/00
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sonic Solutions........ $100.00 $ 63.22 $ 57.47 $ 28.16 $ 37.93 $ 85.06
S&P 500 Index.......... $100.00 $132.11 $158.30 $234.27 $277.52 $327.32
H&Q Technology......... $100.00 $136.10 $158.18 $235.58 $329.59 $675.87
</TABLE>
10
<PAGE>
PROPOSAL TWO
APPROVAL OF THE COMPANY'S 2000 STOCK OPTION PLAN
Background
The Company's Board of Directors adopted the Sonic Solutions 2000 Stock
Option Plan (the "Plan") in June 2000, subject to shareholder approval. The
Plan covers up to 3,000,000 shares of Common Stock, with an annual increase in
the number of shares available for issuance under the Plan in an amount equal
to the lesser of 5% of the number of outstanding shares of Common Stock on the
last day of each fiscal year, 750,000 shares or a lesser amount set by the
Board of Directors. The purpose of this proposal is to obtain shareholder
approval of the Plan and the shares issuable thereunder or a lesser amount set
by the Board of Directors.
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 to increase the earnings of the Company through
participation in the growth value of the Company's Common Stock. As of March
31, 2000, 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
expired by its terms in 1999 and to the Company's 1998 Stock Option Plan (the
"1998 Plan"). As of March 31, 2000, options for 1,742,119 shares of Common
Stock were outstanding under the 1989 Plan and no shares of Common Stock are
available for future option grants. As of March 31, 2000, options for 537,334
shares of Common Stock were outstanding under the 1998 Plan and 333,920 shares
of Common Stock remained available for future option grants. The Plan
authorizes the granting of both options which include 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"). As the 1989 Plan expired in 1999, and the
1998 Plan only has 333,920 shares of Common Stock available for future grants,
without approval of the Plan, the Company may not be able to provide future
grants to employees. The Board of Directors believes that it is in the best
interest of the Company to adopt the Plan.
Description of the Plan
The following is a general summary of the principal provisions of the Plan.
Any shareholder who desires to review the actual text of the Plan may obtain
copies by writing the Company's Secretary.
A total of 3,000,000 shares are initially reserved for issuance under the
Plan. The number of shares available for issuance is subject to an annual
increase (the "Renewal Feature") to be made on the last day of each fiscal
year of up to the lesser of (i) 5% of the total number of shares of the
Company's Common Stock outstanding on such date, (ii) 750,000 shares of Common
Stock, or (iii) an amount determined by the Board of Directors.
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, but 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. Notwithstanding the foregoing, 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
11
<PAGE>
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 90 days 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 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 exercisable for a period of thirty days before expiring.
The Plan expires in 2010, unless terminated earlier by the Board of
Directors. The Board may at any time terminate or amend the Plan, provided
that without approval of shareholders, 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.
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 would be taxable as
long-term capital gains. Under these circumstances, the Company would not be
entitled to a tax
12
<PAGE>
deduction at the time the ISO is exercised or at the time the stock is sold.
If an Optionee disposes of stock acquired pursuant to an ISO before the end of
the required holding periods (a "Disqualifying Disposition"), the amount by
which the market value of the stock at the time the ISO was exercised exceeds
the exercise price (or, if less, the amount of gain realized on the sale)
would be taxable as ordinary income, and the Company should be entitled to a
corresponding tax deduction. Gain in a Disqualifying Disposition in excess of
the amount required to be recognized as ordinary income, if any, would be
capital gain.
Exercise with Stock. If an Optionee pays for option shares with shares of
the Company acquired under an ISO or other qualified stock option ("statutory
option stock"), 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 taxable upon the 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 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 newly
acquired additional shares have 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 forteiture, or if they are
so restricted and the Optionee files a tax 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 tax 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 received a
corresponding income tax deduction.
Sale of Option Shares. Upon sale, other than to the Company, of shares
acquired under an 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 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
13
<PAGE>
in payment are treated as substitute 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.
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.
14
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected KPMG LLP as independent public accountants to audit
the financial statements of the Company for the 2001 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 2001 annual meeting of shareholders must be received by the
Secretary of the Company no later than March 31, 2001 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 28, 2000
15
<PAGE>
2000 STOCK OPTION PLAN
OF
SONIC SOLUTIONS
1. PURPOSES OF THE PLAN
--------------------
The purposes of the 2000 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 3,000,000 shares of Common Stock (the
"Share Limit"). The Share Limit shall automatically be increased on the last
day of each fiscal year by an amount up to the lesser of (i) 5% of the total
number of shares of Common Stock
<PAGE>
outstanding on such date, (ii) 750,000 shares of Common Stock, or (iii) an
amount determined by the Company's Board of Directors (the "Board"). 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, or by a committee (the
"Committee") of at least two 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
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
-------------------------------------
2
<PAGE>
5.1 No Options shall be granted under this Plan after ten 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. 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.
5.3 The agreement shall specify whether each Option it evidences is a NQO
or an ISO.
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.
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, including the number of shares to be added to the Plan pursuant
to Section 3; 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.
3
<PAGE>
(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 vested and exercisable for a period of 30 days before the
merger or consolidation and shall terminate upon such merger or consolidation.
(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.
(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, 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
4
<PAGE>
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 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 fair market value
(determined as set forth in Section 6.2 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, unless authorized by the
Adminstrator, within six 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 months after
termination of employment with the Company or any Affiliate (with respect to
employees) or three 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 if the optionee is
"permanently or totally disabled" (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
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
5
<PAGE>
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 the date of tender or withholding. 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 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 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 Shareholder (as defined in Section
6.3(a) shall be exercisable more than five 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
6
<PAGE>
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 Shareholder") 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,
7
<PAGE>
deliver to the optionee or such other person a certificate or certificates for
the requisite number of shares of Common Stock.
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:
8
<PAGE>
(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. SHAREHOLDER 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 months
after adoption by the Board. This Plan shall terminate ten 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.
Plan adopted by the Board of Directors on , 2000.
Plan approved by Shareholders on , 2000.
9
<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 5,
2000, 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
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<PAGE>
The Board of Directors recommends a vote FOR Items Please mark
1 and 2. your votes as [X]
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 THE ADOPTION OF THE COMPANY'S 2000 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.
FOLD AND DETACH HERE
