8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 23, 2007

SONIC SOLUTIONS

(Exact name of registrant as specified in its charter)

California	23190	93-0925818
(State or other jurisdiction of organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

101 Rowland Way, Suite 110 Novato, CA	94945
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (415) 893-8000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS

Item 5.02(e)

On January 23, 2007, the Board of Directors (the “Board”) of Sonic Solutions (the “Company”) approved Executive Employment Agreements for the Company’s three executive officers, David C. Habiger, A. Clay Leighton, and Mark Ely, effective immediately.

The Executive Employment Agreement between the Company and Mr. Habiger, the Company’s President and Chief Executive Officer (the “Habiger Agreement”), provides for a base salary of $350,000, which is the same as his base salary prior to the effective date of the Habiger Agreement, and the right to participate in any long term or annual incentive plans maintained by the Company for its executives. The Habiger Agreement provides that (i) if Mr. Habiger’s employment is terminated without Cause or if Mr. Habiger terminates his employment for Good Reason, unless such termination occurs within 180 days of a Change in Control, the Company will make a lump sum payment to Mr. Habiger equal to 175% of his annual base salary at the level in effect immediately prior to his termination; and (ii) in the event of a Change in Control, all of Mr. Habiger’s outstanding unvested stock options, restricted stock units, or other equity compensation will immediately vest in full and the Company will make a lump sum payment equal to 175% of his annual base salary at the level in effect at the time of the Change in Control.

The Executive Employment Agreement between the Company and Mr. Leighton, the Company’s Executive Vice President and Chief Financial Officer (the “Leighton Agreement”), provides for a base salary of $300,000, which is the same as his base salary prior to the effective date of the Leighton Agreement, and the right to participate in any long term or annual incentive plans maintained by the Company for its executives. The Leighton Agreement provides that (i) if Mr. Leighton’s employment is terminated without Cause or if Mr. Leighton terminates his employment for Good Reason, unless such termination occurs within 180 days of a Change in Control, the Company will make a lump sum payment to Mr. Leighton equal to 100% of his annual base salary at the level in effect immediately prior to his termination; and (ii) in the event of a Change in Control, all of Mr. Leighton’s outstanding unvested stock options, restricted stock units, or other equity compensation will immediately vest in full and the Company will make a lump sum payment equal to 100% of his annual base salary at the level in effect at the time of the Change in Control.

The Executive Employment Agreement between the Company and Mr. Ely, the Company’s Executive Vice President of Strategy (the “Ely Agreement”), provides for a base salary of $300,000 and the right to participate in any long term or annual incentive plans maintained by the Company for its executives. The Ely Agreement provides that (i) if Mr. Ely’s employment is terminated without Cause or if Mr. Ely terminates his employment for Good Reason, unless such termination occurs within 180 days of a Change in Control, the Company will make a lump sum payment to Mr. Ely equal to 100% of his annual base salary at the level in effect immediately prior to his termination; and (ii) in the event of a Change in Control, all of Mr. Ely’s outstanding unvested stock options, restricted stock units, or other equity compensation will immediately vest in full and the Company will make a lump sum payment equal to 100% of his annual base salary at the level in effect at the time of the Change in Control.

Prior to the effective date of the Ely Agreement, Mr. Ely’s cash compensation was comprised of a base salary of $230,000 and a performance-based component providing for additional cash compensation up to $50,000.

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The Habiger Agreement, Leighton Agreement, and Ely Agreement each define “Cause” as (i) Executive’s conviction of any felony under federal or state law, or any fraud, misappropriation or embezzlement, or (ii) Executive’s breach of a fiduciary duty owed to Company or commission of a material violation of the Invention and Confidential Information Agreement previously entered into between them.

The Habiger Agreement, Leighton Agreement, and Ely Agreement each define “Good Reason” as (a) a material adverse change in Executive’s position causing it to be of materially less stature or responsibility without Executive’s written consent, and such a materially adverse change shall in all events be deemed to occur if Executive no longer serves as Chief Executive Officer, in the case of Mr. Habiger, Executive Vice President and Chief Financial Officer, in the case of Mr. Leighton, and Executive Vice President of Strategy, in the case of Mr. Ely, of a publicly traded company, unless Executive consents in writing to such change; (b) a reduction, without Executive’s written consent, in his level of compensation (including base salary and fringe benefits); (c) a relocation of his principal place of employment by more than 50 miles, or (d) failure to cure a material breach by Company (or its successor) of the agreement within thirty (30) days after written notice from Executive to the Company identifying such breach.

Pursuant to the Habiger Agreement, Leighton Agreement, and Ely Agreement, “Change in Control” means a “Corporate Transaction” as such term is defined in the Company’s 2004 Equity Compensation Plan (the “2004 ECP”). Under the 2004 ECP, “Corporate Transaction” means any of the following transactions, provided, however, that the Administrator (as defined in the 2004 ECP) shall determine under parts (iv) and (v) whether multiple transactions are related, and its determination shall be final, binding and conclusive: (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company; (iii) the complete liquidation or dissolution of the Company; (iv) any reverse merger or series of related transactions culminating in a reverse merger (including, but not limited to, a tender offer followed by a reverse merger) in which the Company is the surviving entity but (A) the shares of Common Stock (as defined in the 2004 ECP) outstanding immediately prior to such merger are converted or exchanged by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than forty percent (40%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger or the initial transaction culminating in such merger, but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction; or (v) acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act (as defined in the 2004 ECP)) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction.

The foregoing descriptions are qualified in their entirety by reference to the Habiger Agreement, the Leighton Agreement, and the Ely Agreement, which are attached as Exhibits 10.1, 10.2 and 10.3 to this Form 8-K and are incorporated herein by reference.

ITEM 8.01 OTHER EVENTS

On January 23, 2007, the Board approved the Board of Directors Compensation Policy (the “Policy”). Pursuant to the Policy, the Board shall review the annual compensation targets, including cash compensation target percentage, at each annual meeting of the Board for the non-employee Board members (each, an “Outside Director”) and each Outside Director who serves as chairman of either the Board or a standing committee of the Board (each, a “Chairman”). The Policy provides for an initial annual compensation target of $100,000 for an Outside Director and for each Chairman an initial annual compensation target equal to 120% of the annual compensation target for an Outside Director. The Policy sets the initial cash compensation target percentage at 30% of annual compensation target and the initial equity compensation target percentage at 70%, for both Outside Directors and Chairmen.

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In the event the annual meeting of the Board is scheduled later than October 1 in any year, then, in light of the inability to calculate the next year’s annual equity compensation target percentage as contemplated under the Policy until such meeting is held, the Policy provides that effective on October 1 of that year the equity compensation target percentage for both Outside Directors and Chairmen shall be shall be reduced to 0% and the cash compensation target percentage for both Outside Directors and Chairmen shall be increased to 100%, each until the occurrence of such annual meeting.

The foregoing description is qualified in its entirety by reference to the Policy, which is attached as Exhibit 10.4 to this Form 8-K and is incorporated herein by reference.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

d. Exhibits

The following exhibits are furnished with this Current Report on Form 8-K:

Exhibit	Description
10.1	Executive Employment Agreement, effective as of January 23, 2007, by and between Sonic Solutions and David C. Habiger.
10.2	Executive Employment Agreement, effective as of January 23, 2007, by and between Sonic Solutions and A. Clay Leighton.
10.3	Executive Employment Agreement, effective as of January 23, 2007, by and between Sonic Solutions and Mark Ely.
10.4	Board of Directors Compensation Policy, effective as of January 23, 2007.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SONIC SOLUTIONS
By:	/s/ David C. Habiger
	Name:	David C. Habiger
	Title:	President and Chief Executive Officer
		(Principal Executive Officer)

Date: January 23, 2007

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EX-10.1

EXHIBIT 10.1

Habiger Employment Agreement

EXECUTIVE EMPLOYMENT AGREEMENT

This Executive Employment Agreement (this “Agreement”), effective as of January 23, 2007 (the “Effective Date”) is made by and between Sonic Solutions (“Company”) and David C. Habiger (“Executive”).

RECITALS

WHEREAS, Company presently employs Executive as its Chief Executive Officer; and

WHEREAS, Company is desirous of continuing to employ Executive in an executive capacity on the terms and conditions, and for the consideration, hereinafter set forth and Executive is desirous of continuing in the employ of Company on such terms and conditions and for such consideration;

NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, Company and Executive agree as follows:

AGREEMENT

1.Employment and Duties.

1.1.Employment. Beginning as of Effective Date, Company agrees to employ Executive and Executive agrees to be employed by Company in accordance with the terms and conditions of this Agreement.

1.2.Position. During the term of employment under this Agreement, Company shall employ Executive in the position of Chief Executive Officer of Company, or in such other executive positions as the parties mutually may agree.

1.3.Duties and Services. Executive agrees to serve in the position referred to in Section 1.2 and to perform diligently and to the best of his abilities the duties and services appertaining to such office as reasonably directed by Company. Executive’s employment shall also be subject to the policies contained in Company’s Conduct of Conduct and other similar documents, all as amended from time to time.

1.4.Other Interests. Executive agrees, during the period of his employment by Company, to devote his full business time, energy and best efforts to the business and affairs of Company and its affiliates and not to engage without the Company’s consent, directly or indirectly, in any other business, investment, or activity that interferes with Executive’s performance of Executive’s duties hereunder, is contrary to the interests of Company or any of its affiliates, or except as approved by Company in advance, requires any significant portion of Executive’s business time.

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1.5.Duty of Loyalty. Executive acknowledges and agrees that Executive owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of Company and to do no act which would injure the business, interests, or reputation of Company or any of its subsidiaries or affiliates. In keeping with these duties, Executive shall make full disclosure to Company of all business opportunities pertaining to Company’s business and shall not appropriate for Executive’s own benefit business opportunities concerning the subject matter of the fiduciary relationship.

1.6.Conflicts of Interest. It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Company or any of its affiliates, involves a possible conflict of interest. In keeping with Executive’s fiduciary duties to Company, Executive agrees that Executive shall not knowingly become involved in a conflict of interest with Company or any of its affiliates, or upon discovery thereof, allow such a conflict to continue. Moreover, Executive agrees that Executive shall disclose to Company any facts which might involve such a conflict of interest that has not been approved by Company’s Board of Directors (the “Board”). Executive agrees that Company’s determination as to whether a conflict of interest exists shall be conclusive. Company reserves the right to take such action as, in its judgment, will end the conflict.

2.At Will Employment. Executive’s employment is at-will, and, subject to Section 6 and the other terms hereof, either Executive or Company the Company may terminate the employment relationship at any time, with or without cause or notice.

3.Compensation.

3.1.Base Salary. Executive shall receive an annual base salary equal to $350,000. Executive’s base salary shall be reviewed periodically, and may be modified from time to time by the Board (or as the Board may designate consistent with applicable laws and regulations, by the Compensation Committee or other committee of the Board or by an officer of the Company) in its sole discretion and, after any such change, Executive’s new level of base salary shall be Executive’s base salary for purposes of this Agreement until the effective date of any subsequent change. Executive’s base salary shall be paid in equal installments in accordance with Company’s standard policy regarding payment of compensation to its employees.

3.2.Incentive Compensation. While Executive is actively employed under this Agreement, Executive shall be entitled to participate in any long term or annual incentive plans maintained by Company for its executives.

3.3.Other Benefits. While employed by Company, Executive shall be allowed to participate, on the same basis generally as other employees of Company, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the Effective Date or thereafter are made available by Company to Company’s employees. Such benefits plans and programs may include, without limitation, medical, health, and dental care, life insurance, and disability protection. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs.

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3.4.Changes Permitted. Company shall not by reason of Sections 3.2 and 3.3 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any of such benefit plans or programs, so long as such actions are similarly applicable to covered employees generally.

4.Protection of Information. Executive and Company each ratify, confirm and acknowledge their continuing agreement to the terms set forth in the Invention and Confidential Information Agreement previously entered into between them.

5.Statements Concerning Company; Legal Requirements.

5.1.Statements Concerning Company. Executive shall refrain, both during the employment relationship and after the employment relationship terminates, from publishing any oral or written statements about Company, any of its affiliates, or any of such entities’ officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose confidential information about Company, any of its affiliates, or any of such entities’ business affairs; or that place Company, any of its affiliates, or any of such entities’ officers, employees, agents, or representatives in a false light before the public. A violation or threatened violation of this prohibition may be enjoined by the courts.

5.2.Compliance with Laws. Executive shall at all times comply with United States laws applicable to Executive’s actions on behalf of Company, including, without limitation, the United States Foreign Corrupt Practices Act.

6.Benefits Upon Termination of Employment.

6.1.Termination without Cause or for Good Reason. In the event that Executive’s employment is terminated by Company without Cause (as defined in Section 6.2) or voluntarily by Executive for Good Reason (as defined in Section 6.3) and unless such termination occurs within 180 days of a Change in Control (as defined in Section 7), Company shall provide Executive with a lump sum payment in an amount equal to 175% of Executive’s annual base salary at the level in effect immediately prior to his termination, less applicable deductions or withholdings.

6.2.Circumstances Under Which Termination Benefits Will Not Be Paid. Company shall not be obligated to provide Executive the termination benefits described in Section 6.1 if Executive’s employment is terminated by Company for Cause or if Executive voluntarily terminates his employment with Company other than for Good Reason. For purposes hereof, “Cause” shall mean (i) Executive’s conviction of any felony under federal or state law, or any fraud, misappropriation or embezzlement, or (ii) Executive’s breach of a fiduciary duty owed to Company or commission of a material violation of Section 4.

6.3.Termination for Good Reason. Executive may voluntarily terminate his employment with Company for Good Reason within 30 days of the occurrence of:

(a) a material adverse change in Executive’s position causing it to be of materially less stature or responsibility without Executive’s written consent, and such a materially adverse change shall in all events be deemed to occur if Executive no longer serves as Chief Executive Officer of a publicly traded company, unless Executive consents in writing to such change;

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(b) a reduction, without Executive’s written consent, in his level of compensation (including base salary and fringe benefits);

(c) a relocation of his principal place of employment by more than 50 miles, or

(d) failure to cure a material breach by Company (or its successor) of this Agreement within thirty (30) days after written notice from Executive to the Company identifying such breach.

7.Change in Control.

7.1.Definition. For purposes of this Agreement, “Change in Control” shall have the same meaning as “Corporate Transaction,” as such term is defined in the Company’s 2004 Equity Compensation Plan.

7.2.Benefit Upon Change in Control. In the event of a Change in Control, Company shall provide Executive with the following benefits:

(a) Executive shall receive a lump sum payment in an amount equal to 175% of his annual base salary at the level in effect immediately prior to the Change in Control, less applicable deductions or withholdings; and

(b) All unvested stock options, restricted stock units, or other equity compensation held by Executive at the time of such Change in Control shall immediately vest in full.

8.Miscellaneous.

8.1.Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Company to: Sonic Solutions 101 Rowland Way Novato, CA 94945 Attention: General Counsel

If to Executive to: c/o Sonic Solutions 101 Rowland Way Novato, CA 94945

or to such other address as either party may furnish to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt.

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8.2.Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the state of California, as applied to agreements entered into and performed entirely within the state of California between residents of the state of California.

8.3.No Waiver. No waiver of any breach of any provision of this Agreement will constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provisions hereof, and no waiver will be effective unless made in writing and signed by a duly authorized representative of the waiving party.

8.4.Severability. If for any reason a court of competent jurisdiction finds any provision of this Agreement, or portion thereof, to be unenforceable, that provision of the Agreement will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remainder of this Agreement will continue in full force and effect.

8.5.Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.

8.6.Withholding of Taxes and Other Employment Deductions. Company may withhold from any benefits and payments made pursuant to this Agreement all federal, state, city and other taxes as may be required pursuant to any law or governmental regulation or ruling and all other normal employee deductions made with respect to Company’s employees generally.

8.7.Headings. The Section headings have been inserted for purposes of convenience and shall not be used for interpretive purposes.

8.8.Gender and Plurals. Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular number includes the plural and conversely.

8.9.Affiliate. As used in this Agreement, the term “affiliate” shall mean any entity which owns or controls, is owned or controlled by, or is under common ownership or control with, Company.

8.10.Assignment. This Agreement shall be binding upon and inure to the benefit of Company and any successor of Company, by merger or otherwise. Except as provided in the preceding sentence, this Agreement, and the rights and obligations of the parties hereunder, are personal and neither this Agreement, nor any right, benefit, or obligation of either party hereto, shall be subject to voluntary or involuntary assignment, alienation or transfer, whether by operation of law or otherwise, without the prior written consent of the other party.

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8.11.Entire Agreement. Except as provided in (i) written company policies promulgated by Company dealing with issues such as securities trading, business ethics, governmental affairs and political contributions, consulting fees, commissions or other payments, compliance with law, investments and outside business interests as officers and employees, reporting responsibilities, administrative compliance, and the like, (ii) the written benefits, plans, and programs referenced in Sections 3.2 and 3.3, and (iii) any written agreements contemporaneously or hereafter executed by Company and Executive, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to Executive’s employment relationship with Company and the term and termination of such relationship, and replaces and merges previous agreements and discussions pertaining to the employment relationship between Company and Executive. Notwithstanding the preceding provisions of this Section 8.11, except as may expressly be provided herein, the execution of this Agreement shall not affect the rights of the parties pursuant to (A) stock options and restricted stock units previously awarded to Executive and currently outstanding under any and all stock plans maintained by Company, and (B) any confidentiality, non-disclosure or similar agreement or commitment between the parties. Each party to this Agreement acknowledges that no representation, inducement, promise or agreement, oral or written, has been made by either party, or by anyone acting on behalf of either party, which is not embodied herein, and that no agreement, statement, or promise relating to the employment of Executive by Company, which is not contained in this Agreement, shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing and signed by the party to be charged.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

EXECUTIVE	SONIC SOLUTIONS
By: /s/ David Habiger	By: /s/ Paul Norris
Name: David Habiger	Name: Paul Norris
Date: January 23, 2007	Title: SVP and General Counsel
	Date: January 23, 2007

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EX-10.2

EXHIBIT 10.2

Leighton Employment Agreement

EXECUTIVE EMPLOYMENT AGREEMENT

This Executive Employment Agreement (this “Agreement”), effective as of January 23, 2007 (the “Effective Date”) is made by and between Sonic Solutions (“Company”) and A. Clay Leighton (“Executive”).

RECITALS

WHEREAS, Company presently employs Executive as its Executive Vice President and Chief Financial Officer; and

WHEREAS, Company is desirous of continuing to employ Executive in an executive capacity on the terms and conditions, and for the consideration, hereinafter set forth and Executive is desirous of continuing in the employ of Company on such terms and conditions and for such consideration;

NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, Company and Executive agree as follows:

AGREEMENT

1.Employment and Duties.

1.1.Employment. Beginning as of Effective Date, Company agrees to employ Executive and Executive agrees to be employed by Company in accordance with the terms and conditions of this Agreement.

1.2.Position. During the term of employment under this Agreement, Company shall employ Executive in the position of Executive Vice President and Chief Financial Officer of Company, or in such other executive positions as the parties mutually may agree.

1.3.Duties and Services. Executive agrees to serve in the position referred to in Section 1.2 and to perform diligently and to the best of his abilities the duties and services appertaining to such office as reasonably directed by Company. Executive’s employment shall also be subject to the policies contained in Company’s Conduct of Conduct and other similar documents, all as amended from time to time.

1.4.Other Interests. Executive agrees, during the period of his employment by Company, to devote his full business time, energy and best efforts to the business and affairs of Company and its affiliates and not to engage without the Company’s consent, directly or indirectly, in any other business, investment, or activity that interferes with Executive’s performance of Executive’s duties hereunder, is contrary to the interests of Company or any of its affiliates, or except as approved by Company in advance, requires any significant portion of Executive’s business time.

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1.5.Duty of Loyalty. Executive acknowledges and agrees that Executive owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of Company and to do no act which would injure the business, interests, or reputation of Company or any of its subsidiaries or affiliates. In keeping with these duties, Executive shall make full disclosure to Company of all business opportunities pertaining to Company’s business and shall not appropriate for Executive’s own benefit business opportunities concerning the subject matter of the fiduciary relationship.

1.6.Conflicts of Interest. It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Company or any of its affiliates, involves a possible conflict of interest. In keeping with Executive’s fiduciary duties to Company, Executive agrees that Executive shall not knowingly become involved in a conflict of interest with Company or any of its affiliates, or upon discovery thereof, allow such a conflict to continue. Moreover, Executive agrees that Executive shall disclose to Company any facts which might involve such a conflict of interest that has not been approved by Company’s Board of Directors (the “Board”). Executive agrees that Company’s determination as to whether a conflict of interest exists shall be conclusive. Company reserves the right to take such action as, in its judgment, will end the conflict.

2.At Will Employment. Executive’s employment is at-will, and, subject to Section 6 and the other terms hereof, either Executive or Company the Company may terminate the employment relationship at any time, with or without cause or notice.

3.Compensation.

3.1.Base Salary. Executive shall receive an annual base salary equal to $300,000. Executive’s base salary shall be reviewed periodically, and may be modified from time to time by the Board (or as the Board may designate consistent with applicable laws and regulations, by the Compensation Committee or other committee of the Board or by an officer of the Company) in its sole discretion and, after any such change, Executive’s new level of base salary shall be Executive’s base salary for purposes of this Agreement until the effective date of any subsequent change. Executive’s base salary shall be paid in equal installments in accordance with Company’s standard policy regarding payment of compensation to its employees.

3.2.Incentive Compensation. While Executive is actively employed under this Agreement, Executive shall be entitled to participate in any long term or annual incentive plans maintained by Company for its executives.

3.3.Other Benefits. While employed by Company, Executive shall be allowed to participate, on the same basis generally as other employees of Company, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the Effective Date or thereafter are made available by Company to Company’s employees. Such benefits plans and programs may include, without limitation, medical, health, and dental care, life insurance, and disability protection. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs.

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3.4.Changes Permitted. Company shall not by reason of Sections 3.2 and 3.3 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any of such benefit plans or programs, so long as such actions are similarly applicable to covered employees generally.

4.Protection of Information. Executive and Company each ratify, confirm and acknowledge their continuing agreement to the terms set forth in the Invention and Confidential Information Agreement previously entered into between them.

5.Statements Concerning Company; Legal Requirements.

5.1.Statements Concerning Company. Executive shall refrain, both during the employment relationship and after the employment relationship terminates, from publishing any oral or written statements about Company, any of its affiliates, or any of such entities’ officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose confidential information about Company, any of its affiliates, or any of such entities’ business affairs; or that place Company, any of its affiliates, or any of such entities’ officers, employees, agents, or representatives in a false light before the public. A violation or threatened violation of this prohibition may be enjoined by the courts.

5.2.Compliance with Laws. Executive shall at all times comply with United States laws applicable to Executive’s actions on behalf of Company, including, without limitation, the United States Foreign Corrupt Practices Act.

6.Benefits Upon Termination of Employment.

6.1.Termination without Cause or for Good Reason. In the event that Executive’s employment is terminated by Company without Cause (as defined in Section 6.2) or voluntarily by Executive for Good Reason (as defined in Section 6.3) and unless such termination occurs within 180 days of a Change in Control (as defined in Section 7), Company shall provide Executive with a lump sum payment in an amount equal to 100% of Executive’s annual base salary at the level in effect immediately prior to his termination, less applicable deductions or withholdings.

6.2.Circumstances Under Which Termination Benefits Will Not Be Paid. Company shall not be obligated to provide Executive the termination benefits described in Section 6.1 if Executive’s employment is terminated by Company for Cause or if Executive voluntarily terminates his employment with Company other than for Good Reason. For purposes hereof, “Cause” shall mean (i) Executive’s conviction of any felony under federal or state law, or any fraud, misappropriation or embezzlement, or (ii) Executive’s breach of a fiduciary duty owed to Company or commission of a material violation of Section 4.

6.3.Termination for Good Reason. Executive may voluntarily terminate his employment with Company for Good Reason within 30 days of the occurrence of:

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(a) a material adverse change in Executive’s position causing it to be of materially less stature or responsibility without Executive’s written consent, and such a materially adverse change shall in all events be deemed to occur if Executive no longer serves as Executive Vice President and Chief Financial Officer of a publicly traded company, unless Executive consents in writing to such change;

(b) a reduction, without Executive’s written consent, in his level of compensation (including base salary and fringe benefits);

(c) a relocation of his principal place of employment by more than 50 miles, or

(d) failure to cure a material breach by Company (or its successor) of this Agreement within thirty (30) days after written notice from Executive to the Company identifying such breach.

7.Change in Control.

7.1.Definition. For purposes of this Agreement, “Change in Control” shall have the same meaning as “Corporate Transaction,” as such term is defined in the Company’s 2004 Equity Compensation Plan.

7.2.Benefit Upon Change in Control. In the event of a Change in Control, Company shall provide Executive with the following benefits:

(a) Executive shall receive a lump sum payment in an amount equal to 100% of his annual base salary at the level in effect immediately prior to the Change in Control, less applicable deductions or withholdings; and

(b) All unvested stock options, restricted stock units, or other equity compensation held by Executive at the time of such Change in Control shall immediately vest in full.

8.Miscellaneous.

8.1.Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Company to: Sonic Solutions 101 Rowland Way Novato, CA 94945 Attention: General Counsel

If to Executive to: c/o Sonic Solutions 101 Rowland Way Novato, CA 94945

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or to such other address as either party may furnish to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt.

8.2.Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the state of California, as applied to agreements entered into and performed entirely within the state of California between residents of the state of California.

8.3.No Waiver. No waiver of any breach of any provision of this Agreement will constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provisions hereof, and no waiver will be effective unless made in writing and signed by a duly authorized representative of the waiving party.

8.4.Severability. If for any reason a court of competent jurisdiction finds any provision of this Agreement, or portion thereof, to be unenforceable, that provision of the Agreement will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remainder of this Agreement will continue in full force and effect.

8.5.Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.

8.6.Withholding of Taxes and Other Employment Deductions. Company may withhold from any benefits and payments made pursuant to this Agreement all federal, state, city and other taxes as may be required pursuant to any law or governmental regulation or ruling and all other normal employee deductions made with respect to Company’s employees generally.

8.7.Headings. The Section headings have been inserted for purposes of convenience and shall not be used for interpretive purposes.

8.8.Gender and Plurals. Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular number includes the plural and conversely.

8.9.Affiliate. As used in this Agreement, the term “affiliate” shall mean any entity which owns or controls, is owned or controlled by, or is under common ownership or control with, Company.

8.10.Assignment. This Agreement shall be binding upon and inure to the benefit of Company and any successor of Company, by merger or otherwise. Except as provided in the preceding sentence, this Agreement, and the rights and obligations of the parties hereunder, are personal and neither this Agreement, nor any right, benefit, or obligation of either party hereto, shall be subject to voluntary or involuntary assignment, alienation or transfer, whether by operation of law or otherwise, without the prior written consent of the other party.

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8.11.Entire Agreement. Except as provided in (i) written company policies promulgated by Company dealing with issues such as securities trading, business ethics, governmental affairs and political contributions, consulting fees, commissions or other payments, compliance with law, investments and outside business interests as officers and employees, reporting responsibilities, administrative compliance, and the like, (ii) the written benefits, plans, and programs referenced in Sections 3.2 and 3.3, and (iii) any written agreements contemporaneously or hereafter executed by Company and Executive, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to Executive’s employment relationship with Company and the term and termination of such relationship, and replaces and merges previous agreements and discussions pertaining to the employment relationship between Company and Executive. Notwithstanding the preceding provisions of this Section 8.11, except as may expressly be provided herein, the execution of this Agreement shall not affect the rights of the parties pursuant to (A) stock options and restricted stock units previously awarded to Executive and currently outstanding under any and all stock plans maintained by Company, and (B) any confidentiality, non-disclosure or similar agreement or commitment between the parties. Each party to this Agreement acknowledges that no representation, inducement, promise or agreement, oral or written, has been made by either party, or by anyone acting on behalf of either party, which is not embodied herein, and that no agreement, statement, or promise relating to the employment of Executive by Company, which is not contained in this Agreement, shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing and signed by the party to be charged.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

EXECUTIVE	SONIC SOLUTIONS
By: /s/ A. Clay Leighton	By: /s/ Paul Norris
Name: A. Clay Leighton	Name: Paul Norris
Date: January 23, 2007	Title: SVP and General Counsel
	Date: January 23, 2007

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EX-10.3

EXHIBIT 10.3

Ely Employment Agreement

EXECUTIVE EMPLOYMENT AGREEMENT

This Executive Employment Agreement (this “Agreement”), effective as of January 23, 2007 (the “Effective Date”) is made by and between Sonic Solutions (“Company”) and Mark Ely (“Executive”).

RECITALS

WHEREAS, Company presently employs Executive as its Executive Vice President of Strategy; and

WHEREAS, Company is desirous of continuing to employ Executive in an executive capacity on the terms and conditions, and for the consideration, hereinafter set forth and Executive is desirous of continuing in the employ of Company on such terms and conditions and for such consideration;

NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, Company and Executive agree as follows:

AGREEMENT

1.Employment and Duties.

1.1.Employment. Beginning as of Effective Date, Company agrees to employ Executive and Executive agrees to be employed by Company in accordance with the terms and conditions of this Agreement.

1.2.Position. During the term of employment under this Agreement, Company shall employ Executive in the position of Executive Vice President of Strategy of Company, or in such other executive positions as the parties mutually may agree.

1.3.Duties and Services. Executive agrees to serve in the position referred to in Section 1.2 and to perform diligently and to the best of his abilities the duties and services appertaining to such office as reasonably directed by Company. Executive’s employment shall also be subject to the policies contained in Company’s Conduct of Conduct and other similar documents, all as amended from time to time.

1.4.Other Interests. Executive agrees, during the period of his employment by Company, to devote his full business time, energy and best efforts to the business and affairs of Company and its affiliates and not to engage without the Company’s consent, directly or indirectly, in any other business, investment, or activity that interferes with Executive’s performance of Executive’s duties hereunder, is contrary to the interests of Company or any of its affiliates, or except as approved by Company in advance, requires any significant portion of Executive’s business time.

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1.5.Duty of Loyalty. Executive acknowledges and agrees that Executive owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of Company and to do no act which would injure the business, interests, or reputation of Company or any of its subsidiaries or affiliates. In keeping with these duties, Executive shall make full disclosure to Company of all business opportunities pertaining to Company’s business and shall not appropriate for Executive’s own benefit business opportunities concerning the subject matter of the fiduciary relationship.

1.6.Conflicts of Interest. It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Company or any of its affiliates, involves a possible conflict of interest. In keeping with Executive’s fiduciary duties to Company, Executive agrees that Executive shall not knowingly become involved in a conflict of interest with Company or any of its affiliates, or upon discovery thereof, allow such a conflict to continue. Moreover, Executive agrees that Executive shall disclose to Company any facts which might involve such a conflict of interest that has not been approved by Company’s Board of Directors (the “Board”). Executive agrees that Company’s determination as to whether a conflict of interest exists shall be conclusive. Company reserves the right to take such action as, in its judgment, will end the conflict.

2.At Will Employment. Executive’s employment is at-will, and, subject to Section 6 and the other terms hereof, either Executive or Company the Company may terminate the employment relationship at any time, with or without cause or notice.

3.Compensation.

3.1.Base Salary. Executive shall receive an annual base salary equal to $300,000. Executive’s base salary shall be reviewed periodically, and may be modified from time to time by the Board (or as the Board may designate consistent with applicable laws and regulations, by the Compensation Committee or other committee of the Board or by an officer of the Company) in its sole discretion and, after any such change, Executive’s new level of base salary shall be Executive’s base salary for purposes of this Agreement until the effective date of any subsequent change. Executive’s base salary shall be paid in equal installments in accordance with Company’s standard policy regarding payment of compensation to its employees.

3.2.Incentive Compensation. While Executive is actively employed under this Agreement, Executive shall be entitled to participate in any long term or annual incentive plans maintained by Company for its executives.

3.3.Other Benefits. While employed by Company, Executive shall be allowed to participate, on the same basis generally as other employees of Company, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the Effective Date or thereafter are made available by Company to Company’s employees. Such benefits plans and programs may include, without limitation, medical, health, and dental care, life insurance, and disability protection. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs.

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3.4.Changes Permitted. Company shall not by reason of Sections 3.2 and 3.3 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any of such benefit plans or programs, so long as such actions are similarly applicable to covered employees generally.

4.Protection of Information. Executive and Company each ratify, confirm and acknowledge their continuing agreement to the terms set forth in the Invention and Confidential Information Agreement previously entered into between them.

5.Statements Concerning Company; Legal Requirements.

5.1.Statements Concerning Company. Executive shall refrain, both during the employment relationship and after the employment relationship terminates, from publishing any oral or written statements about Company, any of its affiliates, or any of such entities’ officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose confidential information about Company, any of its affiliates, or any of such entities’ business affairs; or that place Company, any of its affiliates, or any of such entities’ officers, employees, agents, or representatives in a false light before the public. A violation or threatened violation of this prohibition may be enjoined by the courts.

5.2.Compliance with Laws. Executive shall at all times comply with United States laws applicable to Executive’s actions on behalf of Company, including, without limitation, the United States Foreign Corrupt Practices Act.

6.Benefits Upon Termination of Employment.

6.1.Termination without Cause or for Good Reason. In the event that Executive’s employment is terminated by Company without Cause (as defined in Section 6.2) or voluntarily by Executive for Good Reason (as defined in Section 6.3) and unless such termination occurs within 180 days of a Change in Control (as defined in Section 7), Company shall provide Executive with a lump sum payment in an amount equal to 100% of Executive’s annual base salary at the level in effect immediately prior to his termination, less applicable deductions or withholdings.

6.2.Circumstances Under Which Termination Benefits Will Not Be Paid. Company shall not be obligated to provide Executive the termination benefits described in Section 6.1 if Executive’s employment is terminated by Company for Cause or if Executive voluntarily terminates his employment with Company other than for Good Reason. For purposes hereof, “Cause” shall mean (i) Executive’s conviction of any felony under federal or state law, or any fraud, misappropriation or embezzlement, or (ii) Executive’s breach of a fiduciary duty owed to Company or commission of a material violation of Section 4.

6.3.Termination for Good Reason. Executive may voluntarily terminate his employment with Company for Good Reason within 30 days of the occurrence of:

(a) a material adverse change in Executive’s position causing it to be of materially less stature or responsibility without Executive’s written consent, and such a materially adverse change shall in all events be deemed to occur if Executive no longer serves as Executive Vice President of Strategy of a publicly traded company, unless Executive consents in writing to such change;

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(b) a reduction, without Executive’s written consent, in his level of compensation (including base salary and fringe benefits);

(c) a relocation of his principal place of employment by more than 50 miles, or

(d) failure to cure a material breach by Company (or its successor) of this Agreement within thirty (30) days after written notice from Executive to the Company identifying such breach.

7.Change in Control.

7.1.Definition. For purposes of this Agreement, “Change in Control” shall have the same meaning as “Corporate Transaction,” as such term is defined in the Company’s 2004 Equity Compensation Plan.

7.2.Benefit Upon Change in Control. In the event of a Change in Control, Company shall provide Executive with the following benefits:

(a) Executive shall receive a lump sum payment in an amount equal to 100% of his annual base salary at the level in effect immediately prior to the Change in Control, less applicable deductions or withholdings; and

(b) All unvested stock options, restricted stock units, or other equity compensation held by Executive at the time of such Change in Control shall immediately vest in full.

8.Miscellaneous.

8.1.Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Company to: Sonic Solutions 101 Rowland Way Novato, CA 94945 Attention: General Counsel

If to Executive to: c/o Sonic Solutions 101 Rowland Way Novato, CA 94945

or to such other address as either party may furnish to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt.

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8.2.Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the state of California, as applied to agreements entered into and performed entirely within the state of California between residents of the state of California.

8.3.No Waiver. No waiver of any breach of any provision of this Agreement will constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provisions hereof, and no waiver will be effective unless made in writing and signed by a duly authorized representative of the waiving party.

8.4.Severability. If for any reason a court of competent jurisdiction finds any provision of this Agreement, or portion thereof, to be unenforceable, that provision of the Agreement will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remainder of this Agreement will continue in full force and effect.

8.5.Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.

8.6.Withholding of Taxes and Other Employment Deductions. Company may withhold from any benefits and payments made pursuant to this Agreement all federal, state, city and other taxes as may be required pursuant to any law or governmental regulation or ruling and all other normal employee deductions made with respect to Company’s employees generally.

8.7.Headings. The Section headings have been inserted for purposes of convenience and shall not be used for interpretive purposes.

8.8.Gender and Plurals. Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular number includes the plural and conversely.

8.9.Affiliate. As used in this Agreement, the term “affiliate” shall mean any entity which owns or controls, is owned or controlled by, or is under common ownership or control with, Company.

8.10.Assignment. This Agreement shall be binding upon and inure to the benefit of Company and any successor of Company, by merger or otherwise. Except as provided in the preceding sentence, this Agreement, and the rights and obligations of the parties hereunder, are personal and neither this Agreement, nor any right, benefit, or obligation of either party hereto, shall be subject to voluntary or involuntary assignment, alienation or transfer, whether by operation of law or otherwise, without the prior written consent of the other party.

8.11.Entire Agreement. Except as provided in (i) written company policies promulgated by Company dealing with issues such as securities trading, business ethics, governmental affairs and political contributions, consulting fees, commissions or other payments, compliance with law, investments and outside business interests as officers and employees, reporting responsibilities, administrative compliance, and the like, (ii) the written benefits, plans, and programs referenced in Sections 3.2 and 3.3, and (iii) any written agreements contemporaneously or hereafter executed by Company and Executive, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to Executive’s employment relationship with Company and the term and termination of such relationship, and replaces and merges previous agreements and discussions pertaining to the employment relationship between Company and Executive. Notwithstanding the preceding provisions of this Section 8.11, except as may expressly be provided herein, the execution of this Agreement shall not affect the rights of the parties pursuant to (A) stock options and restricted stock units previously awarded to Executive and currently outstanding under any and all stock plans maintained by Company, and (B) any confidentiality, non-disclosure or similar agreement or commitment between the parties. Each party to this Agreement acknowledges that no representation, inducement, promise or agreement, oral or written, has been made by either party, or by anyone acting on behalf of either party, which is not embodied herein, and that no agreement, statement, or promise relating to the employment of Executive by Company, which is not contained in this Agreement, shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing and signed by the party to be charged.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

EXECUTIVE	SONIC SOLUTIONS
By: /s/ Mark Ely	By: /s/ Paul Norris
Name: Mark Ely	Name: Paul Norris
Date: January 23, 2007	Title: SVP and General Counsel
	Date: January 23, 2007

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EX-10.4

EXHIBIT 10.4

Board of Directors Compensation Policy

Board of Directors Compensation Policy

This Compensation Policy (the “Policy”) is adopted as of this 23rd day of January 2007. The Policy is intended to govern compensation for individuals serving as non-employee directors of Sonic Solutions (the “Company”).

1.Definitions

As used in this Policy, the following terms shall have the indicated meanings:

1.1“Outside Director” means an individual serving as a member of the board of directors who is not an employee of the Company.

1.2“Chairman” means an Outside Director who serves as chairman of either the board or a standing committee of the board.

1.3“Annual Board Meeting” means that meeting of the board of directors that is required by the Company’s charter to be held immediately following the annual meeting of shareholders.

1.4“Change in Control” means a “Corporate Transaction,” as such term is defined in the Company’s 2004 Equity Compensation Plan.

2.Compensation Targets

2.1Annual Compensation Targets.The board shall consider the current annual compensation targets for Outside Directors and Chairmen and the cash compensation target percentage at the Annual Board Meeting and revise them if the board considers such revision desirable. The board may revise the annual compensation targets of Outside Directors or Chairmen or the cash compensation target percentage at any time in its sole discretion.

2.2Initial Compensation Targets. Until otherwise determined by the board pursuant to Section 2.1 above, the annual compensation target for an Outside Director shall be $100,000 and the annual compensation target for a Chairman shall be 120% of the annual compensation target for an Outside Director. The cash compensation target percentage for both Outside Directors and Chairmen is set at 30% of the applicable annual compensation target.

3.Calculation and Payment of Compensation

3.1Calculation and Payment of Cash Compensation.

(a)Standard Calculation. Annual cash compensation for Outside Directors and Chairmen shall be set by taking the annual compensation target, multiplying by the cash compensation target percentage, and then rounding to the next highest thousand dollar increment.

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(b)Special Calculation. In the event the Annual Board Meeting is scheduled later than October 1 in any year, then, in light of the inability to calculate the next year’s annual equity compensation target percentage as contemplated hereunder until such Annual Meeting is held, effective on October 1 of that year, the equity compensation target percentage for both Outside Directors and Chairmen shall be shall be reduced to 0% and the cash compensation target percentage for both Outside Directors and Chairmen shall be increased to 100%, each until the occurrence of such Annual Board Meeting.

(c)Payment. Cash compensation shall be paid to Outside Directors and Chairmen on a calendar quarter basis. The Company’s Chief Financial Officer is authorized to adjust cash compensation paid for days served (in the case of individuals joining or leaving the board, or assuming or leaving a chairmanship), or for rates which vary in any particular quarter.

3.2Calculation and Payment of Equity Compensation.

(a)Type of Equity Compensation; When Granted; How Valued. Equity compensation may take the form of stock options, restricted stock, or other equity based units at the discretion of the board, and within limits imposed by applicable regulations, and shareholder authorization. Unless the board in its sole discretion determines otherwise, the same form of equity compensation used in the compensation plans of executive officers shall be used for compensation of Outside Directors and Chairmen. Annual equity compensation for Outside Directors and Chairmen shall be granted by board action at the Annual Board Meeting. Valuation of such equity compensation shall be performed using the closing price of the Company’s stock on the day of the Annual Board Meeting, or, if the Annual Board Meeting is held on a day on which the Company’s stock is not traded, using the closing price on the last day on which the Company’s stock traded preceding the day of the Annual Board Meeting. Valuation of equity units shall be made using the same procedures utilized by the Company for calculating stock compensation for financial reporting purposes.

(b)Calculation of Equity Compensation. Equity compensation for Outside Director or Chairmen shall be calculated by multiplying the applicable annual compensation target by the reciprocal of the cash compensation target percentage. The resulting dollar amount shall then be divided by the value calculated for an equity based unit. The resulting number of units shall then be rounded up to the next even thousand units. Let us consider an example for an Outside Director: assume the form of equity compensation to be used is a stock option, that the Company’s shares are trading at $20, and that the application of the standard valuation formula yields a value of $9 per stock option. Taking the reciprocal of the target cash compensation percentage, that is, 70%, and multiplying the annual target by this amount, yields a value of $70,000. Dividing by the unit value yields 70,000 ÷ 9 = 7,777.77. Rounding up results in an option on 8,000 shares of the Company’s stock.

(c)Terms of Equity Compensation. Units of equity compensation for Outside Directors or Chairmen shall vest over four years on the same schedule the Company utilizes for other employees with acceleration of vesting in case of a Change in Control.

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3.3Compensation for New Board Members.

(a)Special Equity Grant. Outside Directors or Chairmen who join the Company’s board (whether at the time of the Annual Board Meeting or another time) may receive, at the discretion of the board, a one-time grant of equity units greater than that made to directors at the most recent Annual Board Meeting.

(b)Cash Compensation. Outside Directors or Chairmen who join the Company’s board at a time other than the Annual Board Meeting shall have their cash compensation set at the same level as that currently being paid to serving Outside Directors or Chairmen.

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