<PAGE>
AVID TECHNOLOGY, INC.
Metropolitan Technology Park
One Park West
Tewksbury, MA 01876
March 26, 1998
OFIS Filer Support
SEC Operations Center
6432 General Green Way
Alexandria, VA 22312-2413
Re: Avid Technology, Inc.
File No. 0-21174
Annual Report on Form 10-K
Ladies and Gentlemen:
Pursuant to regulations of the Securities and Exchange Commission,
submitted herewith for filing on behalf of Avid Technology, Inc. is the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
This filing is being effected by direct transmission to the Commission's
EDGAR System.
Very truly yours,
/s/ Frederic G. Hammond
Frederic G. Hammond
General Counsel
<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 0-21174
AVID TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2977748
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
METROPOLITAN TECHNOLOGY PARK, ONE PARK WEST, TEWKSBURY, MA 01876
(Address of principal executive offices) (Zip Code)
(978) 640-6789
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock $.01 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $858,533,865 based on the closing price of the
Common Stock on the NASDAQ National Market on March 18, 1998.
The number of shares outstanding of the registrant's Common Stock as of March
18, 1998, was 23,269,527.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT DESCRIPTION 10-K PART
Portions of the Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held May 19, 1998... III
- -------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
Avid develops, markets, sells and supports a wide range of disk-based systems
for creating and manipulating digital media content. Avid's digital, nonlinear
video and film editing systems are designed to improve the productivity of video
and film editors by enabling them to edit moving pictures and sound in a faster,
easier, more creative, and more cost-effective manner than traditional analog
tape-based systems. Avid also develops and sells digital editing systems and
newsroom computer systems for creating content in the digital news production
market for delivering news content to air. Avid also develops and sells digital
audio systems for the professional audio market. Avid's products are used
worldwide in production and post-production facilities; film studios; network,
affiliate, independent, and cable television stations; recording studios;
advertising agencies; government and educational institutions; and corporate
video departments.
In January 1995, Avid effected a merger with Digidesign, Inc. ("Digidesign").
Digidesign is a leading provider of computer-based, digital audio production
systems for the professional music, film, broadcast, multimedia, and home
recording markets. In March 1995, Avid acquired through merger Elastic Reality,
Inc. ("Elastic Reality"), and Parallax Software Limited and 3 Space Software
Limited (together "Parallax Software"). Elastic Reality and Parallax Software
now form Avid's graphics and effects group. This group develops a range of image
manipulation products that allow users in the video and film post-production and
broadcast markets to create graphics and special effects for use in feature
films, television programs and advertising, and news programs.
The text of this document may include forward-looking statements. Actual results
may differ materially from those described herein, depending on such factors as
are described herein, including under "Certain Factors That May Affect Future
Results."
DIGITAL MEDIA CONTENT MARKETS
Digital media are media elements, whether video or audio or graphics, in which
the image, sound or picture is recorded and stored as digital values, as opposed
to analog signals. For example, a letter prepared on a computer using word
processing software is the digital media representation of a typewritten letter.
The word-processed letter example also illustrates some of the characteristics
of digital media, such as flexible editing, the ability to create different
versions, simple production of multiple identical copies, and easy integration
with other digital media types, such as charts and graphics. These
characteristics generally provide digital formats with advantages over their
analog equivalents. However, creating and manipulating digital content typically
requires new digital content creation tools; for example, the typewriter has
given way to dedicated word processors and, more recently, to desktop computers
running word processing software.
Digital formats and tools have largely displaced analog formats and tools in
many markets, such as word processing, electronic spreadsheets, desktop
publishing, graphics, and electronic and mechanical design. Because of more
challenging technical and cost hurdles in handling digital forms of film, video
and audio signals, markets that rely on these media types have begun to migrate
to digital formats and tools only in recent years.
As technical advances in digital media content creation tools have made this
migration possible, users have become able to create more complex content that
may incorporate several elements of digital media. For example, many video games
now include live action video, detailed 3D graphics, and high quality audio, all
created, manipulated, and played back in digital form. Feature films, such as
Titanic or Jurassic Park, integrate sophisticated computer-generated special
effects into traditional live action shots.
The Company participates currently in three principal end-user markets in which
there are well-established analog, or tape-based, content creation processes and
which are transitioning to digital, or disk-based, content creation tools. These
three markets are (i) video and film editing and effects; (ii) digital news
production; and (iii) professional audio.
Avid's video and film editing and effects market consists of professional users
and users in the corporate office, government, education, and consumer markets.
Professional users produce video and film material, such as feature films,
commercial spots, entertainment and documentary programming, industrial videos,
and music videos. These users are typically employed in independent production
or post-production companies, which are firms that rent out production and
post-production equipment and professionals on a project basis. Professional
users are also found in television facilities, film studios, and certain large
corporations that perform digital media production and post production in-house.
Users in corporations and various other institutions use digital media content
tools to distribute information enriched by the addition of digital media
content to their customers and employees. Educational users and home consumers
use content creation tools to enrich school and home presentations. Avid's
digital news production market is comprised of over-the-air and cable broadcast
companies that originate news programming. This market includes national and
international broadcasters, such as the British Broadcasting Corporation (BBC),
the Cable News Network (CNN), and the National Broadcasting Company (NBC), as
well as network affiliates, local independent television stations, and local and
regional cable operators who produce news programming.
Avid's professional audio market is comprised of professional music recording
studios, project studios, radio broadcasters, and home studios. Music recording
and project studios operate in the same manner as the independent video and film
production and post production firms, as described above. This market also
includes audio production and post-production in video and film.
STRATEGY
Avid's mission is to be the leading provider of powerful digital content
creation tools used to entertain and inform the world. The Company's strategy
consists of four key elements:
Maintain Existing Markets:
The Company continues to focus its activities on markets where digital
media content creation takes place. The Company has addressed its initial
efforts to the professional video and film editing markets, including film
and television studios and independent production and post-production
firms. The Company extended its target markets to the music and audio
production and post-production markets, through the acquisition of
Digidesign in 1995, and the broadcast news production market, through the
introduction of Avid-developed digital news editing solutions and through
the acquisition in 1994 of SofTECH and the newsroom systems division of
Basys Automation Systems, Inc. ("Basys"), both of which offered broadcast
newsroom computer systems. In March 1995, Avid expanded its position in
the feature film and video production and post-production markets through
the acquisitions of Elastic Reality and Parallax Software, developers of
special effects software.
Expand Presence in Existing Markets:
The Company believes that it has established unit and revenue market share
leadership positions in the professional video and film digital editing
markets, the digital audio market, and the markets for digital news
editing and broadcast newsroom computer systems. The Company plans to
strengthen these positions by enhancing its existing products, by
developing and introducing new products that satisfy a broader range of
customer needs in these markets, through internal development, joint
development with third parties or acquisition, and by providing excellent
customer service, support, and training.
Target New Markets:
The Company believes that many business communications needs, including
employee and customer training, new product introduction, and management
communications, can be enriched by integrating digital media elements,
including video and audio. As a result, the Company intends to target
users in corporations, educational and government institutions, and small
businesses who, if offered digital media content creation tools
appropriate to their skill levels, price constraints, and other business
requirements, could use digital media presentations in their daily
operations to improve the power and scope of their business
communications.
The company believes that it is the market leader in off-line editing for
television and that expansion opportunity exists in television online
editing, which is the final piece of the post-production process that
today is still mainly tape-based. The Company believes that because
digital solutions address the needs of this editing process, tape will be
replaced by digital solutions.
Drive and Support Open Industry Standards:
The Company designs its products so that they are based on and can
co-exist with major industry-wide standards, including computer platforms,
operating systems, networking protocols, data compression, and digital
media handling formats. In addition, in response to growing customer
demand for open standards that enable the seamless integration of analog
and digital media tools from different vendors, the Company has undertaken
an initiative to establish the Open Media Framework Interchange ("OMFI")
as an industry standard media file interchange format to facilitate the
transfer of various media types, such as video, audio, animation, film,
and graphics, among various systems and applications used in the media
production processes. The Company has published the OMFI file format and
is seeking to promulgate it as an industry standard. Hundreds of vendors
and end users endorse the OMFI standard and more than 40 vendors are
supporting the OMFI standard in their products.
PRODUCTS
The following lists the Company's products within the three principal markets in
which they are sold. A description follows of the major products and product
families in each of these categories.
Video and Film Editing and Effects
Media Composer:
The Media Composer system is Avid's original product offering and still accounts
for a significant portion of its revenues. The Company believes that the Media
Composer product line holds a greater unit market share than any other digital
non-linear editing system in professional video editing markets. The Media
Composer product line now includes four models (the Media Composer Off-line,
1000, 9000 and Media Station), which provide various levels of capability and
functionality. The Media Composer is a disk-based digital, nonlinear editing
system designed primarily for use by professional film and video editors. The
Media Composer system converts visual and audio source material on tape to a
digital format and stores the converted material on a range of hard disk storage
devices. Once digitized, the stored media can be previewed, edited, and played
back. The Media Composer family of products is used to create high-quality
productions such as television shows and commercials, feature films, music
videos, corporate videos, and other non-broadcast finished videos.
Film Composer:
The Film Composer system is a 24 frames per second ("fps") editing system for
projects that originate and finish on film. Film footage can be converted to
video signals for editing, but because video runs at 30 fps and film at 24 fps,
a standard 30 fps video editing system will not yield an accurate 24 fps film
cut list from which to cut a master. The Film Composer includes software that
determines which frames on the videotape are actual frames from the film source
material and allows the creation of a frame accurate cut list. The Film Composer
software also includes special features to meet the specific needs of film
editors. The Company believes that Film Composer holds a greater unit market
share than any other digital non-linear editing system in professional film
editing markets.
Avid Xpress for Macintosh:
Avid Xpress for Macintosh (formerly known as MCXpress for Macintosh) is a
digital, nonlinear video editing system designed to meet the needs of
professional media entrepreneurs involved with video and multimedia production
for a variety of distribution mediums including videotape, CD-ROM and the
Internet. Avid Xpress for Macintosh has a streamlined user interface and editing
model targeted for this category of user. This attribute allows existing Media
Composer users to easily migrate to Avid Xpress systems and provides media and
project interchange between the products.
MCXpress for Windows NT:
MCXpress for Windows NT is a digital, nonlinear video editing system designed
for the same market as Avid Xpress for Macintosh, but is targeted to users who
prefer Windows NT-based computers. MCXpress for Windows NT offers professional
picture quality and editing features, support for multiple media delivery
options, AVI output, integration with third-party Windows applications, a
built-in titling tool, and a plug-in effects architecture.
Avid Cinema:
Avid Cinema is a desktop editing product designed for people who have had no
previous video editing experience. Avid Cinema is targeted at users in home,
school, and corporate environments. A simple interface guides users through the
process of making their own, near-VHS-quality movies to save to videotape, put
in a slide presentation, or post on a web page. These movies can include video,
transition effects, narration, titles and music. Avid Cinema currently employs
Apple's QuickTime technology and allows users to save QuickTime files for
various distribution formats.
Media Illusion:
Media Illusion is Avid's digital compositing, layering and special effects
software solution running on Silicon Graphics computers. It provides
comprehensive nonlinear compositing based on an intuitive, interactive process
tree, that enables powerful and efficient effects creation. Media Illusion is
used by professionals in both video and film post-production.
Matador:
Matador is a two-dimensional ("2D") post-production paint software solution.
Matador provides the user with painting, image treatment, rotoscoping, tracking,
and multi-layered 2D animation in a single, resolution independent system. The
Company believes that Matador holds a greater unit market share than any other
paint software in professional film and video special effects markets.
Elastic Reality:
Elastic Reality is a software solution that provides tools for performing 2D and
3D hierarchical animation, character animation, warping and morphing of shapes
and images, color correction and matte making, and compositing. Elastic Reality
is based on Avid's proprietary "shape-to-shape" morphing interface. The Company
believes that Elastic Reality holds a greater unit market share than any other
morphing and warping software in professional film and video special effects
markets.
Storage Systems:
Avid offers a family of media storage solutions for use with its systems.
Storage systems are used to add media editing or playback capacity, improve
image quality, support workgroup media sharing, and protect media from loss due
to hardware failure. Avid purchases disk, tape and optical drives, and storage
enclosure sub-systems from third-party manufacturers, integrates them, enhances
their performance, tests and certifies them for use with Avid systems, and
packages them in various configurations. These storage systems range in capacity
from nine gigabytes to well over one terabyte (1,000 gigabytes).
Digital News Production
NewsCutter:
NewsCutter is a disk-based digital, nonlinear video editing system designed to
meet the demands of television news production. NewsCutter enables broadcast
news editors to edit news, features, and news series. The user interface for
NewsCutter has been designed for fast, easy editing to meet the time-critical
demands of daily news deadlines. Based on the same core technology as the Media
Composer system, the NewsCutter system offers a range of editing and effects
features, including dissolves, wipes and graphics, and character generation.
NewsCutter can operate as a standalone editing system or as a client sharing a
central library of audio and video media on a server.
AirPlay MP:
AirPlay MP is a disk-based random access insertion and playback system that
provides television broadcasters and cable operators with the ability to
transmit high-quality short form video to air directly from disk, including
short form news, promos, station IDs, and commercials. Television news programs
typically have numerous short form segments, many of which have been
pre-recorded and edited. Operators traditionally have had to manage multiple
tape decks to play back such segments in the desired sequence during the
program. For news applications, AirPlay MP is designed to reduce on-air errors
by simplifying the process of inserting the correct story at the correct time.
For commercial playback, AirPlay MP is used to air spots automatically in the
slots sold to advertisers. Because of the random access capability of AirPlay
MP, spot placements can be changed quickly and easily. AirPlay MP shares media
compatibility with both NewsCutter and Media Composer so that news stories
prepared on NewsCutter and commercial and promotional spots prepared on Media
Composer can be played back on AirPlay without resorting to tape.
Avid MediaServer:
The Avid MediaServer is a workgroup video production server that provides
simultaneous access to a central computer-based library of video and audio media
files. Based on the Silicon Graphics family of servers, Avid MediaServer
supports multiple editing and/or playback workstations. The Avid MediaServer
system is designed to allow television broadcasters to capture electronic news
feeds, edit stories, and play them to air all in a computer-based environment.
AvidNews:
Avid entered the newsroom computer systems ("NRCS") market through the
acquisition in 1994 of the newsroom division of Basys and of SofTECH Systems,
both of which developed and sold NRCS products. These products have now been
consolidated into a single offering, AvidNews. Newsroom computer systems are the
management information systems for television newsrooms. AvidNews provides a
computer based process of news production: story assignment and resource
scheduling, story research, story creation and collaboration. Journalists use
the system to access wire stories, schedule, script, edit text portions of
stories, and send and receive mail and messages. Producers use the system to
assign journalists and crews to stories and to review work-in-progress.
Professional Audio
Pro Tools:
Pro Tools is a multi-track random access digital audio workstation developed by
Digidesign for the professional music, audio post-production, and radio
production markets. Pro Tools features include audio recording, advanced
waveform editing, mixing, signal processing, and automation. Pro Tools is an
open architecture in which more than 100 Digidesign Development Partners provide
additional solutions that expand the functionality of Digidesign's systems,
enhancing their appeal to customers. Pro Tools software is compatible across a
range of Digidesign hardware platforms, from high-end Pro Tools 24 down through
Pro-Tools III and Audiomedia III. Pro Tools PowerMix software runs without
Digidesign hardware on Power-PC Macintosh computers using host audio
capabilities. The Company believes that Pro Tools holds a greater unit market
share than any other digital audio workstation product in professional audio
markets.
AudioVision:
AudioVision is a high performance digital audio workstation designed
specifically to meet the needs of the audio post-production professional
working with film and video. AudioVision is compatible with projects
originating on Avid's Media Composer and Film Composer systems. Typical
applications include sound editing for feature film and television programming,
ADR (automatic dialogue replacement), and commercial spot production.
AudioVision allows the user to record, edit and process sound in sync
with Avid-format digital video. AudioVision includes project management and
database tools, integrated DSP and the ability to edit audio and video together.
The system offers a high level of interchange with other Avid systems, including
Pro Tools.
SALES AND SERVICE
Avid sells its products through a combination of indirect and direct sales
channels. Since late 1996, the Company has increasingly emphasized its indirect
channel, including independent distributors, value-added re-sellers ("VARs") and
dealers, as the primary means of distribution, providing for broader market
coverage and clearer delineation from Avid's direct sales channel and direct
sales management. Avid's direct sales organization currently focuses on
approximately 115 strategic accounts which are large volume purchasers, which
require significant pre-sales and post-sales customer services and which have
the potential to work with Avid in developing new product or market
opportunities.
As a result of the shifting of emphasis to the indirect sales channel, the
Company has increased its support of top customers while the proportion of
revenues generated through its indirect channels has been increased.
The Company maintains sales offices in 32 cities in 16 countries and has
relationships with more than 500 distributors, VARs and dealers throughout the
world.
Pro Tools 24 and other Digidesign-developed products are sold generally through
dealers and distributors. Because this channel tends to focus on music-related
products, there is, currently, little overlap between this channel and Avid's
video, film and broadcast market sales channels.
Avid currently provides direct customer support through regional telephone
support centers and field service representatives in major markets. Support
offerings include up to 24-hour, seven day per week options for both telephone
support and on-site representation, hardware replacement and software upgrades.
In addition, customer support is provided by VARs and distributors.
Customer training is provided directly by Avid and through a network of 45
authorized third-party Avid training centers in 14 countries.
MANUFACTURING AND SUPPLIERS
Avid's manufacturing operations consist primarily of the testing of
subassemblies and components purchased from third parties, the duplication of
software and the configuration, assembly and testing of board sets, software,
related hardware components, and complete systems. Avid relies on independent
contractors to manufacture components and subassemblies to Avid's
specifications. Avid's systems undergo testing and quality assurance at the
final assembly stage.
The Company is dependent upon sole source suppliers for certain key components
used in its products. Products purchased by the Company or its VARs and
distributors from sole source vendors include computers from Apple and SGI;
video compression chips manufactured by C-Cube Microsystems; a small computer
systems interface ("SCSI") accelerator board from ATTO Technology; a 3D digital
video effects board from Pinnacle Systems; application specific integrated
circuits ("ASICS") from AMI, Atmel, and LSI Logic; digital signal processing
integrated circuit from Motorola; and a fibre channel adapter from Adaptec, Inc.
The Company purchases these sole source components pursuant to purchase orders
placed from time to time. The Company also manufactures certain circuit boards
under license from Truevision, Inc. The Company generally does not carry
significant inventories of these source components and has no guaranteed supply
arrangements. These purchasing arrangements can result in delays in obtaining
products from time to time. No assurance can be given that sole source suppliers
will devote the resources necessary to support the enhancement or continued
availability of such components or that any such supplier will not encounter
financial difficulties. While the Company believes that alternative sources of
supply for its sole source components could be developed, its business and
results of operations could be materially adversely affected if it were to
encounter an interruption in its sources of supply.
Avid has manufacturing facilities in Tewksbury, Massachusetts; Dublin, Ireland;
and Palo Alto and Menlo Park, California.
RESEARCH AND DEVELOPMENT
Avid's research and development efforts currently are focused on 1) the
development or enhancement of digital media content creation tools that operate
on Windows-based computers, Apple computers, and Unix-based computers; 2) the
development of hardware and software enhancements and additions to its existing
video, film and audio editing systems, and digital news gathering and newsroom
computer systems that lower Avid's costs; 3) the development of hardware and
software enhancements and additions to its existing video, film and audio
editing systems, and digital news gathering and newsroom computer systems to
meet additional needs of the professional production, post-production, and
broadcast news markets; 4) the development of AvidNews, a next generation
newsroom computer system intended to integrate standard text-based newsroom
computer system functionality with nonlinear video and audio functionality; 5)
the development of DV-native editing and playback solutions for the broadcast
news markets; and 6) the development of new media storage solutions. The Company
undertakes research and development activities in Tewksbury, Massachusetts, Palo
Alto, California, and London, England.
COMPETITION
The markets for Avid's products are highly competitive and subject to rapid
change. Competition is fragmented with a large number of suppliers providing
different types of products to different markets.
In the video and film production and post-production markets, Avid encounters
competition primarily from vendors that offer similar digital editing products
based on standard computer platforms, including Discreet Logic and its
subsidiary, D/VISION, Fast America, ImMix (a subsidiary of Scitex America),
Lightworks USA (a subsidiary of Tektronix), Media 100 (formerly known as Data
Translation, Inc.), Quantel (a subsidiary of Carlton Communications PLC),
Softimage (a subsidiary of Microsoft) and Panasonic (a subsidiary of
Matsushita).
Avid also competes with vendors, such as Sony, Matsushita and Tektronix, that
generally have offered analog-based products. Avid expects that competition from
these vendors will increase to the extent that such vendors develop and
introduce digital media products, as well as new versions of their analog
products.
In the broadcast news market, Avid competes primarily with vendors such as Sony,
Panasonic, Tektronix (including primarily its subsidiaries Lightworks USA, The
Grass Valley Group and NewStar), Quantel, Associated Press, and BTS (a
subsidiary of Philips). Avid expects that competition from these vendors will
increase to the extent such vendors continue to develop and introduce digital or
new analog-based products. The Company also competes in certain segments of this
market with other providers of digital media products, including Media 100 and
ImMix.
In the music production and post-production markets, the Company competes
primarily with traditional analog tape-based system suppliers, including AMS,
Fritz Studer, Otari, Sony, Tascam, and Yamaha; digital tape-based system
suppliers, including Alesis, Tascam, and other disk-based digital audio
production system suppliers, including Sonic Solutions, Soundscape, Sadie,
Yamaha, Fairlight, and Ensoniq. In addition, companies such as Creative
Technology currently provide low cost (under $500) digital audio playback cards
targeted primarily at the personal computer game market. There can be no
assurance that these companies will not introduce products that are more
directly competitive with the Company's products.
In the market for graphics and special effects products, Avid competes primarily
with Adobe, Alias Research (a subsidiary of Silicon Graphics), Chyron, Discreet
Logic, Quantel, and Softimage.
The Company may face competition in any or all of these markets in the future
from computer manufacturers, such as Digital Equipment, Hewlett-Packard, IBM,
and Silicon Graphics, as well as from software vendors, such as Microsoft,
Oracle, and Sybase. All of these companies have announced their intentions to
enter some or all of the Company's target markets, including specifically the
broadcast news and special effects market. In addition, certain developers of
shrink-wrapped digital media software products, such as Adobe and Macromedia,
either offer or have announced video and audio editing products which may
compete with certain of the Company's products.
The primary competitive factors in all of the Company's markets are
price/performance, functionality, product quality, reputation, product line
breadth, access to distribution channels, customer service and support, brand
name awareness, and ease of use.
EMPLOYEES
The Company employed 1,599 people as of December 31, 1997.
ITEM 2. PROPERTIES
The Company's principal administrative, sales and marketing, research and
development, support, and manufacturing facilities are located in three
buildings adjacent to one another in an office park located in Tewksbury,
Massachusetts. The Company's leases on such buildings expire in June 2010.
The Company also leases a facility in Dublin, Ireland for the manufacture and
distribution of its products and in Palo Alto, California, which houses
Digidesign headquarters and certain other research and development operations.
In September 1995, the Company's United Kingdom subsidiary entered into a
15-year lease in London, England.
The Company also maintains sales and marketing support offices in leased
facilities in various other locations throughout the world.
See Note K - "Commitment and Contingencies" in the Notes to Consolidated
Financial Statements for information concerning the Company's obligations under
all operating leases as of December 31, 1997.
In addition, the Company anticipates no difficulty in retaining occupancy of any
of its manufacturing, office or sales and marketing support facilities through
lease renewals prior to expiration or through month-to-month occupancy, or in
replacing them with equivalent facilities.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
DATA TRANSLATION, INC.
On June 7, 1995, the Company filed a patent infringement complaint in the United
States District Court for the District of Massachusetts against Data
Translation, Inc., a Marlboro, Massachusetts-based company. Avid is seeking
judgment against Data Translation that, among other things, Data Translation has
willfully infringed Avid's patent number 5,045,940, entitled "Video/Audio
Transmission System and Method." Avid is also seeking an award of treble damages
together with prejudgment interest and costs, Avid's costs and reasonable
attorneys' fees, and an injunction to prohibit further infringement by Data
Translation. The litigation has been dismissed without prejudice (with leave to
refile) pending a decision by the U.S. Patent and Trademark Office on a reissue
patent application based on the issued patent.
CLASS ACTION SHAREHOLDER LITIGATION
In December 1995, six purported shareholder class action complaints were filed
in the United States District Court for the District of Massachusetts naming the
Company and certain of its underwriters and past and present officers and
directors as defendants. On July 31, 1996, the six actions were consolidated
into two lawsuits: one brought under the 1934 Securities Exchange Act (the "`34
Act suit") and one under the 1933 Securities Act (the "`33 Act suit"). Principal
allegations contained in the two complaints include claims that the defendants
violated federal securities laws and state common law by allegedly making false
and misleading statements and by allegedly failing to disclose material
information that was required to be disclosed, purportedly causing the value of
the Company's stock to be artificially inflated. The `34 Act suit was brought on
behalf of all persons who bought the Company's stock between July 26, 1995 and
December 20, 1995. The `33 Act suit was brought on behalf of persons who bought
the Company's stock pursuant to its September 21, 1995 public offering. Both
complaints seek unspecified damages for the decline of the value of the
Company's stock during the applicable period. A motion to dismiss both the `34
Act suit and the `33 Act suit was filed on October 18, 1996. After briefing and
argument on the motions, the Court issued its decision on August 14, 1997. With
respect to the `33 Act suit, the Court dismissed the claims against the
underwriters, dismissed the claims brought against the Company under ss.12(2) of
the `33 Act, and dismissed the plaintiffs' claims relating to the Company's all
digital newsroom (in both the `33 Act and `34 Act cases) on the grounds that the
plaintiffs had failed to allege a material misrepresentation or omission.
Finding that it was required to draw all reasonable inferences in favor of the
plaintiffs, the Court declined to dismiss the plaintiffs' remaining claims in
the `33 Act case and the `34 Act claims relating to matters other than the all
digital newsroom. On September 26, 1997, the plaintiffs filed a motion seeking
to have the Court reconsider its dismissal of the underwriters from the `33 Act
suit, which the underwriters have opposed. The plaintiffs also sought leave to
amend both the `33 Act and the `34 Act Complaints to add claims concerning the
all digital newsroom, which the Company opposed. In February 1998, the Company
and the Plaintiffs entered into a Stipulation of Settlement in both suits and
the judge issued an order granting preliminary approval to the settlement. A
Final Settlement Approval hearing is scheduled for May 28, 1998. The Company
believes the potential settlement will not have a material effect on the
Company's consolidated financial position or results of operations. In the event
the settlement is not finally approved, the Company believes that it and the
other defendants have meritorious defenses to the remaining allegations made by
the plaintiffs and intends to contest these lawsuits vigorously. Nonetheless, in
the event the settlement is not approved, an adverse resolution of this
litigation could have a material adverse effect on the Company's consolidated
financial position or results of operations in the period in which the
litigation is resolved. In such event, a reasonable estimate of the Company's
potential loss for damages cannot be made at this time.
COMBINED LOGIC COMPANY
On March 11, 1996, the Company was named as defendant in a patent infringement
suit filed in the United States District Court for the Western District of Texas
by Combined Logic Company, a California partnership located in Beverly Hills,
California. On May 16, 1996, the suit was transferred to the United States
District Court for the Southern District of New York on motion by the Company.
The complaint alleges infringement by Avid of U.S. patent number 4,258,385,
issued in 1981, and seeks injunctive relief, treble damages and costs, and
attorneys' fees. The Company believes that it has meritorious defenses to the
complaint and intends to contest it vigorously. However, an adverse resolution
of this litigation could have an adverse effect on the Company's consolidated
financial position or results of operations in the period in which the
litigation is resolved. No costs have been accrued for this possible loss
contingency.
OTHER
The Company also receives inquiries from time to time with regard to additional
possible patent infringement claims. These inquiries are generally referred to
counsel and are in various stages of discussion. If any infringement is
determined to exist, the Company may seek licenses or settlements. In addition,
from time to time as a normal incidence of the nature of the Company's business,
various claims, charges, and litigation have been asserted or commenced against
the Company arising from or related to contractual or employee relations or
product performance. Management does not believe these claims will have a
material adverse effect on the financial position or results of operations of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
last quarter of the fiscal year ended December 31, 1997.
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is (i) the name and age of each present executive officer of the
Company; (ii) the position(s) presently held by each person named; and (iii) the
principal occupation held by each person named for at least the past five years.
EXECUTIVE OFFICER AGE POSITION(S)
William J. Miller 52 Chairman of the Board, President
and Chief Executive Officer
William L. Flaherty 50 Senior Vice President of
Finance, Chief Financial Officer
and Treasurer
David R. Froker 42 Senior Vice President and
General Manager of Digidesign
C. Edward Hazen 47 Senior Vice President and
General Manager of Office and
Consumer Products
Clifford A. Jenks 46 Executive Vice President and
General Manager of Editing
and Effects
Rose G. O'Donnell 54 Senior Vice President of
Technical Strategies
David E. Olson 48 Senior Vice President and
General Manager, Digital News
Production
Judith M. Oppenheim 56 Senior Vice President of Human
Resources and Corporate Services
Eric C. Peters 47 Senior Vice President and Chief
Technology Officer
Jean Proulx 55 Senior Vice President and
General Manager of Professional
Products
James T. Wandrey 43 Vice President and Corporate
Controller
- --------------------
WILLIAM J. MILLER. Mr. Miller joined the Company in April 1996 and has been
Chairman, Chief Executive Officer and President since September 1996. From April
1996 to September 1996, Mr. Miller was Chairman and Chief Executive Officer.
Prior to that time, Mr. Miller was Chief Executive Officer of Quantum
Corporation (1992-1995).
WILLIAM L. FLAHERTY. Mr. Flaherty joined the Company in September 1996 and has
been Senior Vice President of Finance and Chief Financial Officer since January
1997 and Treasurer since December 1997. He was Vice President of Finance and
Chief Financial Officer from September 1996 to January 1997. Prior to joining
Avid, Mr. Flaherty was Senior Vice President, Finance and Chief Financial
Officer (February - September 1996), and Vice President, Finance and Chief
Financial Officer (1993 - February 1996), of Gibson Greetings Inc., and was Vice
President and Treasurer of FMR Corp., the parent company of Fidelity Investments
Group (1989-1992).
DAVID R. FROKER. Mr. Froker has been Senior Vice President and General Manager
of Digidesign since January 1997. Mr. Froker was General Manager of Digidesign
from March 1996 to January 1997. Prior to that time, he was Vice President,
Business Development of Digidesign, Inc. (1994-1995). He was Product Group
Manager at Amdahl (1988-1993).
C. EDWARD HAZEN. Mr. Hazen has been Senior Vice President and General Manager of
Office and Consumer Products since December 1997. He was Senior Vice President
of Business Development and Corporate Treasurer from January 1997 to December
1997. He was Vice President, Finance and Treasurer from January 1996 to January
1997, Vice President, Chief Financial Officer and Treasurer From November 1995
to January 1996, and Vice President and Treasurer from March 1993 to January
1996. Mr. Hazen was a Managing Director of Robertson, Stephens & Company
(1987-1993).
CLIFFORD A. JENKS. Mr. Jenks has been Executive Vice President and General
Manager of Editing and Effects since December 1997. He was Senior Vice President
of Worldwide Sales and Marketing from January 1997 to December 1997. He was Vice
President Worldwide Sales and Marketing from October 1996 to January 1997. Mr.
Jenks was Chief Operating Officer of Zenith Data Systems (1992-1996), and Vice
President Sales and Marketing Operations of Apple Computer, Inc. (1989-1992).
ROSE G. O'DONNELL. Ms. O'Donnell has been Senior Vice President of Technical
Strategies since April 1997. Ms. O'Donnell was Senior Vice President of
Engineering from January 1997 to April 1997. She was Vice President, Engineering
from November 1994 to January 1997. Ms. O'Donnell was General Manager of the
Technology Division of Hewlett-Packard (1989-1994).
DAVID E. OLSON. Mr. Olson has been Senior Vice President and General Manager,
Digital News Production since November 1997. Mr. Olson was Senior Vice President
of Worldwide Operations of the Company and Chief Operating Officer of Digidesign
from January 1997 to November 1997. He was Vice President of Worldwide
Operations for Avid from June 1996 to January 1997. Mr. Olson was Vice
President of Operations at Digidesign, Inc. from August 1991 to June 1996.
JUDITH M. OPPENHEIM. Ms. Oppenheim has been Senior Vice President of Human
Resources and Corporate Services since January 1997. She was Vice President of
Human Resources from November 1992 to January 1997. Ms. Oppenheim was Vice
President, Human Resources at The Forum Corporation (1989- 1992).
ERIC C. PETERS. Mr. Peters has been Senior Vice President and Chief Technology
Officer since January 1997. He was Vice President, Technology and Chief
Technology Officer from August 1988 to January 1997.
JEAN PROULX. Ms. Proulx has been Senior Vice President and General Manager of
Professional Products since December 1997. She was Senior Vice President of
Engineering from May 1997 to December 1997. She was Vice President of Emerging
Business at IBM from October 1995 to May 1997, was the Vice President of Network
Software Business Unit at Digital Equipment Corporation from January 1994 to
October 1995, and was Director of the modern Macintosh Operating Group at Apple
Computer from August 1992 to November 1993.
JAMES T. WANDREY. Mr. Wandrey has been a Vice President and Corporate Controller
since April 1997. He was Product Group Finance Director for Alcatel Telecom from
February 1997 to April 1997 and Corporate Controller at Alcatel Network Systems
from January 1995 to February 1997, both of these are units of Alcatel Alsthom
S.A. Mr. Wandrey was a Division Controller at Hewlett Packard Company from April
1992 to February 1995.
There are no family relationships among the named officers.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the Nasdaq National Market under the
symbol AVID. The table below shows the high and low sales prices of the Common
Stock for each calendar quarter the fiscal years ended December 31, 1997 and
1996.
<TABLE>
<CAPTION>
1997 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter $14.000 $9.000
Second Quarter 28.125 12.375
Third Quarter 38.000 22.000
Fourth Quarter 33.000 23.000
</TABLE>
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter $23.125 $16.250
Second Quarter 26.000 17.875
Third Quarter 20.625 12.375
Fourth Quarter 16.375 10.125
</TABLE>
The approximate number of holders of record of the Company's Common Stock at
March 18, 1998, was 580. This number does not include shareholders for whom
shares were held in a "nominee" or "street" name.
The Company has never declared or paid cash dividends on its capital stock and
currently intends to retain all available funds for use in the operation of its
business. The Company therefore does not anticipate paying any cash dividends in
the foreseeable future.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected condensed consolidated financial data
for Avid Technology, Inc. In January 1995, Avid Technology, Inc. (Avid)
completed a merger with Digidesign, Inc. (Digidesign) that was accounted for as
a pooling of interests. All financial data presented herein have been restated
to include the combined financial results of Avid and Digidesign as though the
merger had occurred retroactively. Prior to the merger, Digidesign had a March
31 fiscal year end. Effective with the merger, Digidesign's fiscal year end was
changed from March 31 to December 31 to conform with Avid's year end. The
results of Digidesign's operations for the twelve-month periods ended December
31, 1994 and March 31, 1994 are included in the Company's 1994 and 1993 results,
respectively. Accordingly, Digidesign's operations for the three months January
through March 1994 are included in the Company's results for both of the years
ended December 31, 1993 and December 31, 1994. Revenues, net income, and diluted
earnings per share for Digidesign for the three months ended March 31, 1994 were
$8,510,000, $1,078,000 and $0.14 respectively. Net income for this period has
been reported as an adjustment to consolidated 1994 retained earnings. In March
1995, the Company acquired Elastic Reality, Inc., a developer of digital image
manipulation software, and Parallax Software Limited and 3 Space Software
Limited, together developers of paint and compositing software. The Company's
previous years' financial statements have not been restated to include
operations of Parallax Software Limited, 3 Space Software Limited and Elastic
Reality, Inc. as they were not material to the Company's consolidated operations
and financial condition. Costs associated with these mergers, approximately
$5,456,000, were charged to operations in 1995. In addition, the Company
acquired certain other businesses which were accounted for as purchases; the
results of such acquisitions have been included in the Company's financial
statements since the respective dates of acquisition. The selected consolidated
financial data below should be read in conjunction with the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere in
this filing.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
In thousands (except per share data)
<TABLE>
<CAPTION>
For the year ended
December 31,
------------------------------------------------
1997 1996 1995 1994 1993
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $471,338 $429,009 $406,650 $233,633 $134,366
Cost of revenues 221,553 238,808 198,841 108,057 60,939
------------------------------------------------
Gross profit 249,785 190,201 207,809 125,576 73,427
------------------------------------------------
Operating expenses:
Research and development 73,470 69,405 53,841 28,223 16,396
Marketing and selling 120,394 127,006 107,780 61,366 38,960
General and administrative 25,808 24,203 18,085 12,575 7,801
Nonrecurring costs 28,950 5,456 3,750
------------------------------------------------
Total operating expenses 219,672 249,564 185,162 102,164 66,907
------------------------------------------------
Operating income (loss) 30,113 (59,363) 22,647 23,412 6,520
Other income and expense, net 8,125 3,416 1,380 1,675 1,791
------------------------------------------------
Income (loss) before income
taxes 38,238 (55,947) 24,027 25,087 8,311
Provision for (benefit from)
income taxes 11,854 (17,903) 8,588 7,294 2,209
------------------------------------------------
Net income (loss) $26,384 $(38,044) $15,439 $17,793 $6,102
================================================
Net income (loss) per common
share - basic $1.14 $(1.80) $0.81 $1.10 $0.45
================================================
Net income (loss) per common
share - diluted $1.08 $(1.80) $0.77 $0.99 $0.40
================================================
Weighted average common shares
outstanding - basic 23,065 21,163 19,010 16,238 13,539
================================================
Weighted average common shares
outstanding - diluted 24,325 21,163 20,165 17,921 15,216
================================================
</TABLE>
Earnings per share data have been restated for all periods presented to reflect
the adoption of SFAS No. 128 as of December 31, 1997.
CONSOLIDATED BALANCE SHEET DATA:
In thousands
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------
1997 1996 1995 1994 1993
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $186,474 $145,320 $162,260 $86,513 $91,473
Total assets 356,805 300,979 331,604 182,174 132,355
Long-term debt, less current
portion 403 1,186 2,945 2,369 545
Total stockholders' equity 241,794 213,415 247,966 127,887 106,732
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The text of this document may include forward-looking statements. Actual results
may differ materially from those described herein, depending on such factors as
are described herein, including under "Certain Factors That May Affect Future
Results."
Avid develops and provides digital film, video and audio editing and special
effects software and hardware technologies to create media content for
information and entertainment applications. Integrated with the Company's
digital storage and networking solutions, Avid's products are used worldwide in
film studios; video production and post-production facilities; network,
independent and cable television stations; recording studios; advertising
agencies; government and educational institutions; corporate communications
departments; and by individual home users.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
statements of operations as a percentage of net revenues for the periods
indicated:
<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
Cost of revenues 47.0% 55.7% 48.9%
---------- ---------- ----------
Gross profit 53.0% 44.3% 51.1%
---------- ---------- ----------
Operating Expenses:
Research and development 15.6% 16.2% 13.2%
Marketing and selling 25.5% 29.6% 26.5%
General and administrative 5.5% 5.6% 4.4%
Nonrecurring costs 6.7% 1.4%
---------- ---------- ----------
Total operating expenses 46.6% 58.1% 45.5%
---------- ---------- ----------
Operating income (loss) 6.4% (13.8)% 5.6%
Other income and expense, net 1.7% 0.8% 0.3%
---------- ---------- ----------
Income (loss) before income taxes 8.1% (13.0)% 5.9%
Provision for (benefit from) income
taxes 2.5% (4.1)% 2.1%
---------- ---------- ----------
Net income (loss) 5.6% (8.9)% 3.8%
========== ========== ==========
</TABLE>
Net Revenues
The Company's net revenues have been derived mainly from the sales of disk-based
digital, nonlinear media editing systems and related peripherals, licensing of
related software, and sales of software maintenance contracts. Net revenues
increased by $42.3 million (9.9%) to $471.3 million in the year ended December
31, 1997 from $429.0 million in 1996. Net revenues for the year ended December
31, 1996 of $429.0 million increased by $22.3 million (5.5%) from $406.7 million
in 1995. The increase during 1997 in net revenues was primarily the result of
growth in unit sales of MCXpress products for Macintosh and NT platforms,
storage systems, and digital audio products. The increase in net revenues from
1995 to 1996 was primarily the result of worldwide growth in unit sales of the
Media Composer product line and of digital audio products. During 1997, the
Company began shipments of new versions of MCXpress and Avid Xpress, AudioVision
4.0, Pro Tools 24, AvidNews and Mediashare F/C. To date, product returns of all
products have been immaterial.
During 1997, the Company continued to shift an increasing proportion of its
sales through indirect channels such as distributors and resellers. Net revenues
derived through indirect channels were greater than 60% of net revenue for the
year ended December 31, 1997, compared to greater than 40% of net revenue for
1996.
International sales (sales to customers outside North America) accounted for
approximately 48.6% of the Company's 1997 net revenues compared to approximately
49.5% for 1996 and 46.7% for 1995. International sales increased by 4.9% in 1997
compared to 1996 and by 11.7% in 1996 compared to 1995. The increase in
international sales in 1997 was attributable primarily to higher unit sales of
the storage, MCXpress, and Pro Tools products in Europe. Revenue growth from
1996 to 1997 was impacted adversely due to the strengthening of the U.S. dollar
against various currencies. The increase in international sales in 1996 was
attributable primarily to higher unit sales of Media Composer and Pro Tools
product lines in Europe.
Gross Profit
Cost of revenues consists primarily of costs associated with the acquisition of
components; the assembly, test, and distribution of finished products;
provisions for inventory obsolescence; warehousing; shipping; and post-sales
customer support costs. The resulting gross profit fluctuates based on factors
such as the mix of products sold, the cost and proportion of third-party
hardware included in the systems sold by the Company, the distribution channels
through which products are sold, the timing of new product introductions, the
offering of product upgrades, price discounts and other sales promotion programs
and sales of aftermarket hardware products. Gross margin increased to 53.0% in
1997 compared to 44.3% in 1996 and 51.1% in 1995. The increase during 1997 was
primarily due to lower material costs and manufacturing efficiencies, reduced
discounts and other sales promotion programs, and a favorable product mix. The
decrease in 1996 compared to 1995 largely reflects the effects of upgrading
Media Composer systems for use on PCI-based computers and an increase in
manufacturing overhead associated with higher facility, information system and
customer support costs allocated to costs of revenues. In addition, the
Company's decrease in gross margin in 1996 resulted from increased provisions
for inventory obsolescence, the fourth quarter non-cash charge of $5.6 million
related principally to spare parts which were no longer required to support the
Company's business, and the recognition of approximately $6.2 million of revenue
from the sale of certain server-based broadcast products at a relatively low
gross margin. The Company currently expects gross margins during 1998 to be
slightly above 1997 levels.
Research and Development
Research and development expenses increased by $4.1 million (5.9%) in the year
ended December 31, 1997 compared to 1996 and increased by $15.6 million (28.9%)
in the year ended December 31, 1996 compared to 1995. The increased expenditures
in 1997 were primarily due to provisions resulting from the Company's profit
sharing plan and additions to the Company's engineering staffs for the continued
development of new and existing products. Offsetting these increases was the
allocation in 1997 of product marketing costs to sales and marketing expenses
rather than to research and development expenses, as that allocation more
appropriately reflected the activities of that function. The increase from 1995
to 1996 was primarily due to the continued development of new and existing
products. The 1995 expenses are net of $2.9 million of payments received during
1995 under certain development agreements with third parties. Research and
development expenses decreased as a percentage of net revenues to 15.6% in 1997
from 16.2% in 1996 due to the allocation of product marketing costs to sales and
marketing and the increase in net revenues, offset by increased expenditures due
to continued development of new and existing products. The increase to 16.2% in
1996 from 13.2% in 1995 was due to significant resources required to develop and
maintain various existing products. The Company capitalized software development
costs, net of write-offs, of approximately $0.1 million, $1.5 million and $3.6
million in 1997, 1996 and 1995 respectively. This represents 0.1%, 2.1% and 6.2%
of total research and development costs during 1997, 1996 and 1995 respectively.
These costs are amortized into cost of revenues over the estimated life of the
related products, generally 12 to 24 months. Amortization, net of write-offs
totaled approximately $0.9 million, $2.9 million and $1.2 million in 1997, 1996
and 1995, respectively. The capitalized software development costs are
associated primarily with enhancements to Media Composer software and also
development of software to be used in other products.
Marketing and Selling
Marketing and selling expenses decreased by $6.6 million (5.2%) in the year
ended December 31, 1997 compared to 1996 and increased by $19.2 million (17.8%)
in the year ended December 31, 1996 compared to 1995. The decrease in sales and
marketing in 1997 was primarily due to the effect of the restructuring of the
Company's sales and marketing operations during the first quarter of 1997. The
Company has shifted its primary distribution emphasis from a direct sales force
to indirect sales channels, which reduced certain costs including direct sales
compensation and office overhead expenses in 1997. The reduction in these costs
was partially offset by the allocation in 1997 of product marketing costs to
sales and marketing rather than to research and development. The increase in
sales and marketing in 1996 compared to 1995 was primarily due to expansion of
the Company's field sales operations and the opening of field sales offices
domestically and internationally during the latter part of 1995. Marketing and
selling expenses decreased as a percentage of net revenues to 25.5% in 1997 from
29.6% in 1996, and from 26.5% in 1995. This decrease in 1997 was primarily due
to the increase in net revenues in 1997 compared to 1996.
General and Administrative
General and administrative expenses increased $1.6 million (6.6%) in the year
ended December 31, 1997 compared to 1996 and increased by $6.1 million (33.8%)
in the year ended December 31, 1996 compared to 1995. This increase in general
and administrative expenses for 1997 compared to 1996 was primarily due to
provisions resulting from the Company's profit sharing plan. The increase in
general and administrative expenses in 1996 compared to 1995 was primarily due
to increased staffing and associated costs necessary to support the Company's
growth as well as increased legal expenses associated with various litigation
matters to which the Company is a party and certain severance and recruiting
costs. General and administrative expenses as a percentage of net revenues were
5.5% in 1997 compared to 5.6% in 1996 and increased from 4.4% in 1995.
Nonrecurring Costs
During the first quarter of 1996, the Company recorded charges for nonrecurring
costs consisting of $7.0 million for restructuring charges related to February
1996 staffing reductions of approximately 70 employees primarily in the U.S.,
the Company's concurrent decision to discontinue certain products and
development projects and $13.2 million for product transition costs in
connection with the transition from NuBus to PCI bus technology in certain of
its product lines. Included in the $7.0 million for restructuring charges were
approximately $5.0 million of cash payments and $2.0 million of non-cash
charges. During the third quarter of 1996, the Company recorded charges for
costs of $8.8 million, associated primarily with the Company's decision not to
release the Avid Media Spectrum product line. Approximately $7.2 million of the
$8.8 million nonrecurring charge related to non-cash items associated with the
write-off of assets. The Company has completed the related restructuring
actions. In the first quarter of 1995, the Company acquired Digidesign, Inc.,
Parallax Software Limited, 3 Space Software Limited and Elastic Reality, Inc. In
connection with these acquisitions, the Company recorded merger costs of
approximately $5.5 million, of which $3.9 million represented direct transaction
expenses and $1.6 million consisted of various restructuring charges.
Other Income and Expense, Net
Interest and other income, net consists of interest income, other income and
interest expense. Interest and other income, net for 1997 which consisted
primarily of interest income, increased $4.7 million from 1996 which, in turn,
increased $2.0 million from 1995. For the years ended December 31, 1997 and
December 31, 1996, interest and other income, net increased primarily due to
higher cash and investment balances. In addition, 1996 other income increased
from the 1995 amount due to the spin-out of certain technologies which resulted
in equity income, a gain on sale of a product line, and royalties received
during the year.
Provision for (Benefit from) Income Taxes
The Company's effective tax rate was 31%, 32%, and 36%, respectively, for 1997,
1996 and 1995. The 1997 effective tax rate of 31.0% is different from the
Federal statutory rate of 35.0% due primarily to the Company's foreign
subsidiaries, which are taxed in the aggregate at a lower rate, and the U.S.
Federal Research Tax Credit. The 1996 effective tax rate is different from the
Federal statutory rate of 35.0% primarily due to the impact of the Company's
foreign subsidiaries. The 1995 effective tax rate of 36% is greater than the
Federal statutory rate primarily due to non-deductible merger costs. The 1995
provision included taxes of $8.7 million at an effective rate of 32% on $27.5
million of earnings before merger charges. The 1995 provision also included a
tax benefit of $640,000 on merger costs of $5.5 million, of which $1.6 million
were tax deductible.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date through both private and public
sales of equity securities as well as through cash flows from operations. As of
December 31, 1997, the Company's principal sources of liquidity included cash,
cash equivalents, and marketable securities totaling approximately $187.0
million.
The Company's operating activities generated cash of $111.2 million in 1997
compared to generating cash of $40.9 million in 1996. Cash was generated during
the twelve months ended December 31, 1997 primarily from net income, as well as
increases in accrued expenses and income taxes payable and reductions in
inventory. In 1997, the increase in accrued expenses was primarily due to
provisions for profit sharing while the reduction in inventory resulted from
improved stock turns.
The Company purchased $15.7 million of property and equipment and other assets
during 1997, compared to $28.2 million in 1996. These purchases were primarily
of hardware and software for the Company's information systems and equipment to
support research and development activities.
In 1995, the Company entered into an unsecured line of credit agreement with a
group of banks which provided revolving credit. The original expiration date of
June 30, 1996 has been extended to June 30, 1998. Under the terms of the
agreement, as amended in June 1997, the Company may borrow up to $35,000,000.
The Company must pay an annual commitment fee of .25% of the average daily
unused portion of the facility, payable quarterly in arrears. The Company has
two loan options available under the agreement: the Base Rate Loan and the LIBOR
Rate Loan. The interest rates to be paid on the outstanding borrowings for each
loan annually are equal to the Base Rate or LIBOR plus 1.25%, respectively.
Additionally, the Company is required to maintain certain financial ratios and
is bound by covenants over the life of the agreement, including a restriction on
the payment of dividends. The Company has in certain periods prior to 1997 been
in default of certain financial covenants. On these occasions the defaults have
been waived by the banks. There can be no assurance that the Company will not
default in future periods or that, if in default, it will be able to obtain such
waivers. The Company had no borrowings against the line and was not in default
of any financial covenants as of December 31, 1997. The Company believes
existing cash and marketable securities, internally generated funds and
available borrowings under its bank credit line will be sufficient to meet the
Company's cash requirements, including capital expenditures, at least through
the end of 1998. In the event the Company requires additional financing, the
Company believes that it would be able to obtain such financing; however, there
can be no assurance that it would be successful in doing so, or that it could do
so on terms favorable to the Company.
On October 23, 1997 and February 5, 1998, the Company announced that the Board
of Directors authorized the repurchase of up to 1.0 million and 1.5 million
shares, respectively, of the Company's common stock. Purchases have and will be
made in the open market or in privately negotiated transactions. The Company
plans to use any repurchased shares for its employee stock plans. As of December
31, 1997, the Company had repurchased a total of 1.0 million shares at a cost of
$28.8 million, which completed the program announced in October.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), was issued which requires businesses to
disclose comprehensive income and its components in general purpose financial
statements, with reclassification of prior period financial statements. SFAS 130
is effective for fiscal periods beginning after December 15, 1997 and its
adoption is not expected to have a material impact on the Company's disclosures.
In June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"), was
issued which redefines how operating segments are determined and requires
disclosures of certain financial and descriptive information about a company's
operating segments. SFAS 131 is effective for fiscal periods beginning after
December 15, 1997 and its adoption may require additional disclosure of the
Company's historical financial data.
In October 1997, Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), was issued which provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. SOP 97-2
is effective for transactions entered into in fiscal years beginning after
December 15, 1997. The Company will adopt the guidelines of SOP 97-2 as of
January 1, 1998 and its adoption is not expected to have a material impact on
the Company's financial results.
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
A number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, the following:
The Company's gross margin has fluctuated, and may continue to fluctuate, based
on factors such as the mix of products sold, cost and the proportion of
third-party hardware included in the systems sold by the Company, the
distribution channels through which products are sold, the timing of new product
introductions, the offering of product and platform upgrades, price discounts
and other sales promotion programs, the volume of sales of aftermarket hardware
products, the costs of swapping or fixing products released to the market with
errors or flaws, provisions for inventory obsolescence, allocations of overhead
costs to manufacturing and customer support costs to cost of goods, sales of
third-party computer hardware to its distributors, and competitive pressure on
selling prices of products. The Company's systems and software products
typically have higher gross margins than storage devices and product upgrades.
Gross profit varies from product to product depending primarily on the
proportion and cost of third-party hardware included in each product. The
Company, from time to time, adds functionality and features to its systems. If
such additions are accomplished through the use of more, or more costly,
third-party hardware, and if the Company does not increase the price of such
systems to offset these increased costs, the Company's gross margins on such
systems would be adversely affected.
The Company has shifted an increasing proportion of its sales through indirect
channels such as distributors and resellers. The majority of the Company's
product sales to the broadcast industry, however, continues to be sold on a
direct basis. The Company believes the overall shift to indirect channels has
resulted in an increase in the number of software and circuit board "kits" sold
through indirect channels in comparison with turnkey systems consisting of CPUs,
monitors, and peripheral devices, including accompanying software and circuit
boards, sold by the Company through its direct sales force to customers.
Resellers and distributors typically purchase software and "kits" from the
Company and other turnkey components from other vendor sources in order to
produce complete systems for resale. Therefore, to the extent the Company
increases its sales through indirect channels, its revenue per unit sale will be
less than it would have been had the same sale been made directly by the
Company. In the event the Company is unable to increase the volume of sales in
order to offset this decrease in revenue per sale or is unable to continue to
reduce its costs associated with such sales, profits could be adversely
affected.
In 1995, the Company shipped server-based, all-digital broadcast newsroom
systems to a limited number of beta sites. These systems incorporate a variety
of the Company's products, as well as a significant amount of hardware purchased
from third parties, including computers purchased from Silicon Graphics, Inc.
("SGI"). Because some of the technology and products in these systems were new
and untested in live broadcast environments at the time that such systems were
originally installed, the Company provided greater than normal discounts to
these initial customers. In addition, because some of the technology and
products in these systems were new and untested in live broadcast environments
at the time that such systems were originally installed, the Company has
incurred unexpected delays and greater than expected costs in completing and
supporting these initial installations to customers' satisfaction. As of
December 31, 1997, all revenues and costs related to the initial installations
have been recognized. The Company has recognized approximately $7.7 million in
revenues from these initial installations and approximately $10.1 million of
related costs. The Company had provided a reserve for estimated costs in excess
of anticipated revenues. In 1996 and 1997, the Company installed additional
server-based, all-digital broadcast newsroom systems at other customer sites.
Some of these systems have been accepted by customers, and the resulting
revenues and associated costs were recognized by the Company. Others of these
systems have not yet been accepted by customers. The Company believes that such
installations, when and if fully recognized as revenue on customer acceptance,
will be profitable. However, the Company is unable to determine whether and when
the systems will be accepted. In any event, the Company believes that, because
of the high proportion of third-party hardware, including computers and storage
devices, included in such systems, the gross margins on such sales will be lower
than the gross margins generally on the Company's other systems.
The Company's operating expense levels are based, in part, on its expectations
of future revenues. In recent quarters more than 40% of the Company's revenues
for the quarter have been recorded in the third month of the quarter. Further,
in many cases, quarterly operating expense levels cannot be reduced rapidly in
the event that quarterly revenue levels fail to meet internal expectations.
Therefore, if quarterly revenue levels fail to meet internal expectations upon
which expense levels are based, the Company's operating results would be
adversely affected and there can be no assurance that the Company would be able
to operate profitably. Reductions of certain operating expenses, if incurred, in
the face of lower than expected revenues could involve material one-time charges
associated with reductions in headcount, trimming product lines, eliminating
facilities and offices, and writing off certain assets.
The Company has significant deferred tax assets in the accompanying balance
sheets. The deferred tax assets reflect the net tax effects of tax credit and
operating loss carryforwards and temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced.
The Company has expanded its product line to address the digital media
production needs of the television broadcast news market and the emerging market
for multimedia production tools, including the corporate user market. The
Company has limited experience in serving these markets, and there can be no
assurance that the Company will be able to develop such products successfully,
that such products will achieve widespread customer acceptance, or that the
Company will be able to develop distribution and support channels to serve these
markets. A significant portion of the Company's future growth will depend on
customer acceptance in these and other new markets. Any failure of such products
to achieve market acceptance, additional costs and expenses incurred by the
Company to improve market acceptance of such products and to develop new
distribution and support channels, or the withdrawal from the market of such
products or of the Company from such new markets could have a material adverse
effect on the Company's business and results of operations.
The Company has from time to time developed new products, or upgraded existing
products that incorporate advances in enabling technologies. The Company
believes that further advances will occur in such enabling technologies,
including microprocessors, computers, operating systems, networking
technologies, bus architectures, storage devices, and digital media formats. The
Company may be required, based on market demand or the decision of certain
suppliers, to end the manufacturing of certain products based on earlier
generations of technology, to upgrade existing products or develop other
products that incorporate these further advances. In particular, the Company
believes that it will be necessary to develop additional products which operate
using Intel Architecture ("IA")-based computers and the Windows NT operating
system. There can be no assurance that customers will not defer purchases of
existing Apple-based products in anticipation of the release of IA-based or
NT-based products, that the Company will be successful in developing additional
IA-based, NT-based or other new products or that they will gain market
acceptance, if developed. Any deferral by customers of purchases of existing
Apple-based products or any failure by the Company to develop such new products
in a timely way or to gain market acceptance for them could have a material
adverse effect on the Company's business and results of operations.
The Company's products operate primarily only on Apple computers. Apple
continues to suffer business and financial difficulties. In consideration of
these difficulties, there can be no assurance that customers will not delay
purchases of Apple-based products, or purchase competitors' products based on
non-Apple computers, that Apple will continue to develop and manufacture
products suitable for the Company's existing and future markets or that the
Company will be able to secure an adequate supply of Apple computers, the
occurrence of any of which could have a material adverse effect on the Company's
business and results of operations.
The Company is also dependent on a number of other suppliers as sole source
vendors of certain other key components of its products and systems. Products
purchased by the Company from sole source vendors include computers from Apple
and SGI; video compression chips manufactured by C-Cube Microsystems; a small
computer systems interface ("SCSI") accelerator board from ATTO Technology; a 3D
digital video effects board from Pinnacle Systems; application specific
integrated circuits ("ASICS") from Lucent, AMI, Atmel, and LSI Logic; digital
signal processing integrated circuit from Motorola; and a fibre channel adapter
card from Adaptec. The Company purchases these sole source components pursuant
to purchase orders placed from time to time. The Company also manufactures
certain circuit boards under license from Truevision, Inc. The Company generally
does not carry significant inventories of these sole source components and has
no guaranteed supply arrangements. No assurance can be given that sole source
suppliers will devote the resources necessary to support the enhancement or
continued availability of such components or that any such supplier will not
encounter technical, operating or financial difficulties that might imperil the
Company's supply of such sole source components. While the Company believes that
alternative sources of supply for sole source components could be developed, or
systems redesigned to permit the use of alternative components, its business and
results of operations would be materially affected if it were to encounter an
untimely or extended interruption in its sources of supply.
The markets for digital media editing and production systems are intensely
competitive and subject to rapid change. The Company encounters competition in
the video and film editing and effects, digital news production, and
professional audio markets. Many current and potential competitors of the
Company have substantially greater financial, technical, distribution, support,
and marketing resources than the Company. Such competitors may use these
resources to lower their product costs and thus be able to lower prices to
levels at which the Company could not operate profitably. Further, such
competitors may be able to develop products comparable or superior to those of
the Company or adapt more quickly than the Company to new technologies or
evolving customer requirements. Accordingly, there can be no assurance that the
Company will be able to compete effectively in its target markets or that future
competition will not adversely affect its business and results of operations.
A significant portion of the Company's business is conducted in currencies other
than the U.S. dollar. Changes in the value of major foreign currencies relative
to the value of the U.S. dollar, therefore, could adversely affect future
revenues and operating results. The Company attempts to reduce the impact of
currency fluctuations on results through the use of forward exchange contracts
that hedge foreign currency-denominated intercompany net receivables or payable
balances. The Company has generally not hedged transactions with external
parties, although it periodically re-evaluates its hedging practices.
The Company is involved in various legal proceedings, including patent and
securities litigation; an adverse resolution of any such proceedings could have
a material adverse effect on the Company's business and results of operations.
See Note K to Consolidated Financial Statements, and ITEM 3, "Legal
Proceedings." This litigation has also been described in previously filed
reports on Form 10-Q and 10-K.
The Company recognizes that it must ensure that its products and operations will
not be adversely impacted by year 2000 software failures (the "Year 2000 issue")
which can arise in time-sensitive software applications which utilize a field of
two digits to define the applicable year. In such applications, a date using
"00" as the year may be recognized as the year 1900 rather than the year 2000.
In general, the Company expects to resolve Year 2000 issues through planned
replacement or upgrades. In addition, the Company expects that any costs
incurred to modify its internal systems will not be material. Although
management does not expect Year 2000 issues to have a material impact on its
business or future results of operations, there can be no assurance that there
will not be interruptions of operations or other limitations of system
functionality or that the Company will not incur significant costs to avoid such
interruptions or limitations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
<PAGE>
AVID TECHNOLOGY, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1997
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
<PAGE>
AVID TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 8:
Report of Independent Accountants................................ 24
Consolidated Statements of Operations for the years ended December
31, 1997, 1996 and 1995........................................ 25
Consolidated Balance Sheets as of December 31, 1997 and 1996..... 26
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995............................... 27
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995........................................ 28
Notes to Consolidated Financial Statements....................... 29
Consolidated Financial Statement Schedule for the years ended
December 31, 1997, 1996 and 1995 included in Item 14(d):
Schedule II -...................Valuation and Qualifying Accounts F-1
Schedules other than that listed above have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Avid Technology, Inc.:
We have audited the consolidated balance sheets of Avid Technology, Inc. as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. We also audited the financial statement
schedule of Avid Technology, Inc. listed in Item 14(d) of this Form 10-K. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Avid Technology,
Inc. as of December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 4, 1998
<PAGE>
AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net revenues $471,338 $429,009 $406,650
Cost of revenues 221,553 238,808 198,841
------- ------- -------
Gross profit 249,785 190,201 207,809
Operating expenses:
Research and development 73,470 69,405 53,841
Marketing and selling 120,394 127,006 107,780
General and administrative 25,808 24,203 18,085
Nonrecurring costs 28,950 5,456
------- ------- -------
Total operating expenses 219,672 249,564 185,162
------- ------- -------
Operating income (loss) 30,113 (59,363) 22,647
Interest and other income 8,291 3,786 2,216
Interest expense (166) (370) (836)
-------- ------- -------
Income (loss) before income taxes 38,238 (55,947) 24,027
Provision for (benefit from) income taxes 11,854 (17,903) 8,588
-------- ------- -------
Net income (loss) $26,384 $(38,044) $15,439
======== ======= =======
Net income (loss) per common share -
basic $1.14 $(1.80) $0.81
======== ======== =======
Net income (loss) per common share -
diluted $1.08 $(1.80) $0.77
======== ======== =======
Weighted average common shares
outstanding - basic 23,065 21,163 19,010
======== ======= =======
Weighted average common shares
outstanding - diluted 24,325 21,163 20,165
======== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
AVID TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $108,308 $75,795
Marketable securities 78,654 17,248
Accounts receivable, net of allowances of
$7,529 and $7,519 in 1997 and 1996,
respectively 79,773 86,187
Inventories 9,842 28,359
Deferred tax assets 17,160 15,852
Prepaid expenses 4,645 6,310
Other current assets 2,700 1,947
------------ -----------
Total current assets 301,082 231,698
Marketable securities 997
Property and equipment, net 38,917 49,246
Long-term deferred tax assets 14,820 15,538
Other assets 1,986 3,500
------------ -----------
Total assets $356,805 $300,979
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $22,166 $25,332
Current portion of long-term debt 783 1,726
Accrued compensation and benefits 23,737 9,085
Accrued expenses 30,249 21,844
Income taxes payable 11,210 3,258
Deferred revenues 26,463 25,133
------------ -----------
Total current liabilities 114,608 86,378
------------ -----------
Long-term debt, less current portion 403 1,186
Commitments and contingencies (Note K)
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized; no shares issued or
outstanding - -
Common stock, $.01 par value, 50,000,000
shares authorized;24,156,938 and 21,338,369
shares issued and 23,199,636 and
21,338,369 shares outstanding at December
31, 1997 and 1996, respectively 242 213
Additional paid-in capital 252,307 212,474
Retained earnings 27,286 1,451
Treasury stock, at cost, 957,302
and 0 shares at December 31, 1997
and 1996, respectively (27,548)
Deferred compensation (8,034)
Cumulative translation adjustment (2,472) (724)
Net unrealized gains on marketable securities 13 1
------------ -----------
Total stockholders' equity 241,794 213,415
------------ -----------
Total liabilities and stockholders' equity $356,805 $300,979
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Consolidated Statements of Stockholders' Equity
(in thousands, except share data)
<TABLE>
<CAPTION>
Net
Unrealized
Gains
Additional Cumulative (Losses) on Total
Common Stock Paid-in Retained Treasury Deferred Translation Marketable Stockholders'
Shares Amount Capital Earnings Stock Compensation Adjustment Securities Equity
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December
31, 1994 16,545,344 $166 $107,585 $20,920 $(578) $(206) $127,887
Exercise of stock options
and related tax benefits 741,313 7 11,899 11,906
Sale of common stock under
Employee Stock Purchase
Plan 50,744 1 1,203 1,204
Stock issued in connnection
with acquisitions 1,522,744 14 85 3,136 3,235
Sale of common stock in a
public offering, net of
issuance costs of $560 2,075,000 21 88,146 88,167
Translation adjustment (122) (122)
Net unrealized gains on
marketable securities 250 250
Net income 15,439 15,439
------------------------------------------------------------------------------------------------------
Balances at December
31, 1995 20,935,145 209 208,918 39,495 (700) 44 247,966
Exercise of stock options 260,055 3 1,185 1,188
Sale of common stock under
Employee Stock Purchase
Plan 143,169 1 2,371 2,372
Translation adjustment (24) (24)
Net unrealized losses on
marketable securities (43) (43)
Net loss (38,044) (38,044)
------------------------------------------------------------------------------------------------------
Balances at December
31, 1996 21,338,369 213 212,474 1,451 (724) 1 213,415
Sale of common stock 1,552,632 16 14,712 14,728
Acquisition of 1,000,000
shares of common stock $(28,776) (28,776)
Exercise of (758,298)stock
options and related tax
benefits 715,600 8 14,006 (549) 1,228 14,693
Sale of common stock under
Employee Stock Purchase
Plan 204,137 2 1,989 1,991
Restricted stock issuance 347,200 3 9,152 $(9,152) 3
Restricted stock grants
cancelled and compensation
expense (1,000) (26) 1,118 1,092
Translation adjustment (1,748) (1,748)
Net unrealized gains on
marketable securities 12 12
Net income 26,384 26,384
------------------------------------------------------------------------------------------------------
Balances at December 31,
1997 24,156,938 $242 $252,307 $27,286 $(27,548) $(8,034) $(2,472) $13 $241,794
======================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
AVID TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1997 1996 1995
------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $26,384 $(38,044) $15,439
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 25,380 29,641 19,539
Compensation from stock grants and
options 2,119
Provision for accounts receivable
allowances 3,304 6,627 3,006
Deferred income taxes (617) (18,384) (8,158)
Tax benefit of stock option exercises 3,658 6,023
Provision for product transition
costs and nonrecurring inventory
write-offs, non-cash portion 18,750
Provision for other nonrecurring
costs, non-cash portion 7,048
Loss (gain) on disposal of equipment 222 1,410 (80)
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable (2,215) 13,836 (51,877)
Inventories 22,514 14,479 (31,648)
Prepaid expenses and other
current assets 663 147 1,271
Accounts payable (2,940) (3,819) 11,559
Income taxes payable 7,556 (3,206) 1,747
Accrued expenses 23,047 9,107 7,062
Deferred revenues 2,119 3,356 6,825
--------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 111,194 40,948 (19,292)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (107) (2,295) (3,570)
Purchases of property, equipment and
other assets, net (15,685) (28,219) (42,410)
Purchases of marketable securities (147,960) (29,430) (68,911)
Proceeds from sales of marketable
securities 87,564 58,786 50,152
Proceeds from disposals of equipment 2,227 1,550 423
--------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (73,961) 392 (64,316)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (1,726) (2,000) (2,148)
Proceeds from issuance of common stock 26,729 3,560 95,353
Purchase of common stock for treasury (28,776)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (3,773) 1,560 93,205
Effects of exchange rate changes on cash and
cash equivalents (947) 48 (5)
-------- -------- --------
Net increase in cash and cash equivalents 32,513 42,948 9,592
Cash and cash equivalents at beginning of year 75,795 32,847 23,255
-------- ------- --------
Cash and cash equivalents at end of year $108,308 $75,795 $32,847
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Acquisition of equipment under capital
lease obligations $186
Acquisition of equipment under capital
lease obligations $2,719
Issuance of common stock in connection
with acquisitions $99
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
AVID TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION AND OPERATIONS
Avid Technology, Inc. ("Avid" or "the Company") develops, markets, sells, and
supports a wide range of disk-based systems for creating and manipulating
digital media content. Avid's digital, nonlinear video and film editing systems
are designed to improve the productivity of video and film editors by enabling
them to edit moving pictures and sound in a faster, easier, more creative, and
more cost-effective manner than traditional analog tape-based systems. Avid also
develops and sells digital editing systems and newsroom computer systems for
creating content in the digital production market and for delivering news
content to air as well as digital audio systems for the professional audio
market. Avid's products are used worldwide in production and post-production
facilities; film studios; network, affiliate, independent and cable television
stations; recording studios; advertising agencies; government and educational
institutions; and corporate video departments. The Company's digital editing
systems have accounted for the majority of the Company's revenues to date.
As described in Note O, in January 1995, Avid effected a merger with Digidesign,
Inc. (Digidesign). Digidesign designs, assembles, markets, and supports random
access digital audio production software and related application-specific
hardware components, some of which are used in Avid products. The merger has
been accounted for as a pooling of interests and the historical consolidated
financial statements of Avid Technology, Inc. for all periods prior to the
acquisition presented herein have been restated to include the financial
position, results of operations and cash flows of Digidesign.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies follows:
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Intercompany balances and transactions have been
eliminated. Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year presentation.
The Company's preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. The most significant estimates included in these financial statements
include accounts receivable and sales allowances, inventory valuation and income
tax valuation allowances. Actual results could differ from those estimates.
Translation of Foreign Currencies
The functional currency of the Company's foreign subsidiaries is the local
currency, except for the Irish manufacturing branch and Avid Technology Sales
Ltd. in Ireland, whose functional currencies are the U.S. dollar. The assets and
liabilities of the subsidiaries whose functional currencies are other than the
U.S. dollar are translated into U.S. dollars at the current exchange rate in
effect at the balance sheet date. Income and expense items are translated using
the average exchange rate during the period. Cumulative translation adjustments
are reflected as a separate component of stockholders' equity. Foreign currency
transaction gains and losses are included in results of operations.
The Company enters into foreign exchange forward contracts to hedge the effect
of certain asset and liability positions of its foreign subsidiaries. Gains and
losses associated with currency rate changes on the contracts are recorded in
results of operations, offsetting losses and gains on the related assets and
liabilities. The cash flows related to the gains and losses of foreign currency
forward contracts are classified in the statements of cash flows as part of cash
flows from operations.
The market risk exposure from forward contracts is assessed in light of the
underlying currency exposures and is limited by the term of the Company's
contracts, generally one month. Credit risk from forward contracts is minimized
through the placement of contracts with multiple financial institutions. Forward
contracts are revalued monthly by comparing contract rates to month-end exchange
rates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or fewer to be cash equivalents. Cash
equivalents consist primarily of taxable and tax-exempt money market funds,
bankers' acceptances, short-term time deposits, short-term government
obligations, and commercial paper.
Marketable Securities
Marketable securities consist primarily of state and municipal bonds and
commercial paper. Certain of these marketable securities with maturities in
excess of one year are classified as long-term investments in marketable
securities. The Company has classified its debt securities as "available for
sale," and reports them at fair value, with unrealized gains and losses excluded
from earnings and reported as an adjustment to stockholders' equity.
Inventories
Inventories, principally purchased components, are stated at the lower of cost
(determined on a first-in, first-out basis) or market value. Inventory in the
digital media market, including the Company's inventory, is subject to rapid
technological change or obsolescence; therefore utilization of existing
inventory may differ from the Company's estimates.
Property and Equipment
Property and equipment is recorded at cost and depreciated using the
straight-line method over the estimated useful life of the asset. Leasehold
improvements are amortized over the shorter of the useful life of the
improvement or the remaining term of the lease. Expenditures for maintenance and
repairs are expensed as incurred. Upon retirement or other disposition of
assets, the cost and related accumulated depreciation are eliminated from the
accounts and the resulting gain or loss is reflected in income. A significant
portion of the property and equipment is subject to rapid technological
obsolescence; as a result, the depreciation and amortization periods could
ultimately shorten to reflect the change in future technology.
Revenue Recognition
Revenue is recognized upon product shipment, provided that no significant vendor
obligations remain outstanding and the resulting receivable is deemed
collectible by management. In instances where product is shipped with the
commitment to provide a future upgrade or extended installation services, the
Company will defer the revenue related to the upgrade or installation services.
In addition, the Company may offer rebates on certain products from time to time
which are accounted for as offsets to revenues upon shipment. Maintenance
revenue is recognized ratably over the term of the maintenance agreement.
Service revenue, principally training, is recognized as the services are
provided. Included in accounts receivable allowances are sales allowances
provided for expected returns and credits and an allowance for bad debts.
Warranty Expense
The Company provides a warranty reserve at the time of sale for the estimated
costs to repair or replace defective hardware products.
Research and Development Costs
Research and development costs are expensed as incurred except for costs of
internally developed or externally purchased software that qualify for
capitalization. Capitalized costs are amortized using the straight-line method
upon general release, over the expected life of the related products, generally
12 to 24 months. The straight-line method generally results in approximately the
same amount of expense as that calculated using the ratio that current period
gross product revenues bear to total anticipated gross product revenues. The
Company evaluates the net realizable value of capitalized software on an ongoing
basis, relying on a number of business and economic factors which could result
in shorter amortization periods.
Computation of Net Income (Loss) Per Common Share
Net income per common share is presented for both basic earnings per share
("Basic EPS") and diluted earnings per share ("Diluted EPS"). Basic EPS is based
upon the weighted average number of common shares outstanding during the period.
Diluted EPS is based upon the weighted average number of common and common
equivalent shares outstanding during the period. Common stock equivalent shares
are included in the Diluted EPS calculation where the effect of their inclusion
would be dilutive. Net loss per common share, both basic and dilutive, is based
upon the weighted average number of common shares outstanding during the period.
Common equivalent shares result from the assumed exercise of outstanding stock
options, the proceeds of which are then assumed to have been used to repurchase
outstanding common stock using the treasury stock method.
Recent Accounting Pronouncements
In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), was issued which requires businesses to
disclose comprehensive income and its components in general purpose financial
statements, with reclassification of prior period financial statements. SFAS 130
is effective for fiscal periods beginning after December 15, 1997 and its
adoption is not expected to have a material impact on the Company's disclosures.
In June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"), was
issued which redefines how operating segments are determined and requires
disclosures of certain financial and descriptive information about a company's
operating segments. SFAS 131 is effective for fiscal periods beginning after
December 15, 1997 and its adoption may require additional disclosure of the
Company's historical financial data.
In October 1997, Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), was issued which provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. SOP 97-2
is effective for transactions entered into in fiscal years beginning after
December 15, 1997. The Company will adopt the guidelines of SOP 97-2 as of
January 1, 1998 and its adoption is not expected to have a material impact on
the Company's financial results.
C. MARKETABLE SECURITIES
Gross realized and unrealized gains and losses for the years ended December 31,
1997 and 1996 were immaterial.
1997 Amortized Fair
---- Cost Value
---------- ---------
Federal, State, and Municipal Obligations $78,641 $78,654
========== =========
1996
----
Federal, State, and Municipal Obligations $11,465 $11,463
Commercial paper 6,779 6,782
---------- ---------
$18,244 $18,245
========== =========
All marketable securities held at December 31, 1997 mature within 1 year.
D. INVENTORIES
Inventories consist of the following (in thousands):
December 31,
---------------------------
1997 1996
---------- ----------
Raw materials $5,488 $19,182
Work in process 674 870
Finished goods 3,680 8,307
---------- ----------
$9,842 $28,359
========== ==========
E. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Capitalized purchased and internally developed software costs, included in other
assets at December 31, 1997 and 1996, consist of the following (in thousands):
DECEMBER 31,
1997 1996
------ ------
Capitalized software development costs $6,424 $6,322
Less accumulated amortization 5,483 4,595
------ ------
$941 $1,727
====== ======
Computer software costs capitalized during 1997, 1996, and 1995 amounted to
approximately $107,000, $2,295,000, and $3,570,000, respectively. Amortization
of computer software costs during those periods was approximately $893,000,
$3,185,000, and $1,220,000, respectively. During 1996 as part of the
nonrecurring costs, described in Note N, capitalized software costs of $829,000
and accumulated amortization of $334,000 were written off.
F. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
Depreciable December 31,
Life 1997 1996
----------- ------- -------
Computer and video equipment 3 to 5 years $75,042 $68,171
Office equipment 3 to 5 years 4,652 4,233
Furniture and fixtures 3 to 5 years 6,820 6,915
Leasehold improvements 3 to 10 years 13,105 12,962
------- -------
99,619 92,281
Less accumulated depreciation and
amortization 60,702 43,035
------- -------
$38,917 $49,246
======= =======
As of December 31, 1997 and 1996, property and equipment included approximately
$6,607,000 of equipment under capital leases.
G. LONG TERM DEBT
Capital Leases
During November 1994 and January 1995, the Company entered into equipment
financing arrangements with a bank for aggregate borrowings of up to
$10,000,000, at various interest rates (ranging from 4.6% to 8.1%) determined at
the borrowing date. This equipment financing arrangement expired in March 1996
and was not renewed. As of December 31, 1997 and 1996, $1,186,000 and
$2,912,000, respectively was outstanding as capital leases under these
arrangements. Borrowings are collateralized by certain assets of the Company.
As of December 31, 1997, future minimum lease payments under capital leases were
as follows (in thousands):
YEAR AMOUNT
------ --------
1998 $831
1999 412
-------
Total minimum lease payments 1,243
Less amounts representing interest 57
-------
Present value of minimum lease
payments 1,186
Less current portion of long-term
debt 783
-------
Long-term portion of capital
lease obligations $403
=======
Total cash payments for interest in 1997, 1996, and 1995 were approximately
$136,000, $311,000, and $741,000, respectively.
Line of Credit
The Company has an unsecured line of credit with a group of banks which provides
for up to $35.0 million in revolving credit. The line of credit agreement was
amended on June 27, 1997 to expire on June 30, 1998. Under the terms of the
agreement, the Company must pay an annual commitment fee of 1/4% of the average
daily unused portion of the facility, payable quarterly in arrears. The Company
has two loan options available under the agreement: the Base Rate Loan and the
LIBOR Rate Loan. The interest rates to be paid on the outstanding borrowings for
each loan annually are equal to the Base Rate or LIBOR plus 1.25%, respectively.
Additionally, the Company is required to maintain certain financial ratios and
is bound by covenants over the life of the agreement, including a restriction on
the payment of dividends. The Company had no borrowings against this facility as
of December 31, 1997.
Three of the Company's European subsidiaries have unsecured overdraft facilities
that permit aggregate borrowings of Italian Lire 300,000,000, Irish Punt 150,000
and German Mark 800,000. No borrowings were outstanding under these facilities
as of December 31, 1997.
H. INCOME TAXES
Income (loss) before income taxes and the components of the income tax provision
(benefit) for the years ended December 31, 1997, 1996, and 1995 are as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income (loss) before income taxes:
United States $22,017 $(61,242) $5,582
Foreign 16,221 5,295 18,445
-------- -------- --------
Total income (loss) before
income taxes $38,238 $(55,947) $24,027
======== ======== ========
Provisions for (benefit from) income taxes:
Current tax expense:
Federal $2,353 $(3,235) $7,433
Foreign 4,667 3,189 5,487
State 75 (16) 1,094
-------- -------- --------
Total current 7,095 (62) 14,014
Deferred tax benefit:
Federal 4,937 (15,820) (4,968)
Foreign (1,237) (32)
State 1,059 (2,021) (426)
-------- -------- --------
Total deferred 4,759 (17,841) (5,426)
-------- -------- --------
Total income tax provision
(benefit) $11,854 $(17,903) $8,588
======== ======== ========
</TABLE>
Net cash payments or (refunds) for income taxes in 1997, 1996, and 1995 were
approximately $(1,104,103), $4,911,000, and $7,927,000 respectively. The net
refund in 1997 was the result of the 1996 loss, which was carried back to 1993,
1994, and 1995 for federal tax purposes.
The cumulative amount of undistributed earnings of subsidiaries which is
intended to be permanently reinvested and for which U.S. income taxes have not
been provided totaled $34,806,000 at December 31, 1997.
Deferred tax assets are comprised of the following (in thousands):
December 31,
---------------------------
1997 1996
------------ ------------
Allowances for accounts receivable $1,583 $1,406
Difference in accounting for:
Revenue 3,922 2,440
Costs and expenses 9,372 6,764
Inventories 2,738 4,650
Purchased technology 43 324
Deferred intercompany profit 23 589
Tax credit and net operating loss
carryforwards 14,820 15,538
Other (521) (321)
-------- --------
Net deferred tax assets $31,980 $31,390
======== ========
For U.S. Federal Income Tax purposes at December 31, 1997, the Company has tax
credit carryforwards of approximately $7,291,000 which will expire between 1998
and 2012 and a net operating loss carryforward of approximately $18,105,000
which will expire in 2011. Deferred tax assets reflect the net tax effects of
the tax credits and operating loss carryforwards and temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Although realization is
not assured, management believes it is more likely than not that all of the
deferred tax assets will be realized; accordingly, no valuation allowance has
been recorded for net deferred tax assets. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income are reduced.
A reconciliation of the Company's income tax provision (benefit) to the
statutory federal tax rate follows:
1997 1996 1995
--------- ---------- ----------
Statutory rate 35% (35%) 35%
Nondeductible merger costs 6
Tax credits (4) (1) (3)
Foreign operations (3) 4 (2)
State taxes, net of federal
benefit 2 (2) 2
Municipal bond interest (2)
Foreign sales corporation (1) (1)
Other 2 2 1
-------- -------- --------
31% (32%) 36%
======== ======== ========
Consolidated results of operations include results of manufacturing operations
in Ireland. Income from the sale of products manufactured or developed in
Ireland is subject to a 10% Irish tax rate through the year 2010. The favorable
Irish tax rate resulted in tax benefits of approximately $900,000 in 1997 and
$1,300,000 in 1995. The 1996 Irish tax benefit was immaterial to the results of
operations. The 1997 basic and dilutive per share tax benefit was $0.04 and
$0.04, respectively. The 1995 basic and dilutive per share tax benefit was $0.07
and $0.06, respectively.
I. CAPITAL STOCK
Preferred Stock
The Company is authorized to issue up to one million shares of Preferred Stock,
$.01 par value per share. Each such series of Preferred Stock shall have such
rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges, and liquidation
preferences, as shall be determined by the Board of Directors.
In February 1996, the Board of Directors approved a Shareholder Rights Plan. The
rights were distributed in March 1996 as a dividend at the rate of one right for
each share of Common Stock outstanding. No value has been assigned to these
rights. The rights may be exercised to purchase shares of a new series of $.01
par value junior participating preferred stock or to purchase a number of shares
of the Company's Common Stock which equals the exercise price of the right, $115
divided by one-half of the then-current market price, upon occurrence of certain
events, including the purchase of 20% or more of the Company's Common Stock by a
person or group of affiliated or associated persons. The rights expire on
February 28, 2006, and may be redeemed by the Company for $.01 each at any time
prior to the tenth day following a change in control and in certain other
circumstances.
Common Stock
During June and July 1997, the Company granted 347,200 shares of $.01 par value
restricted common stock to certain employees under the 1997 Stock Incentive Plan
approved by the shareholders on June 4, 1997. These shares vest annually in 20%
increments beginning May 1, 1998. Accelerated vesting may occur if certain stock
price performance goals established by the Board of Directors are met. Unvested
restricted shares are subject to forfeiture in the event that an employee ceases
to be employed by the Company. The Company initially recorded, as a separate
component of stockholders' equity, deferred compensation of approximately
$9,100,000 with respect to this restricted stock. This deferred compensation
represents the excess of fair value of the restricted shares at the date of the
award over the purchase price and is recorded as compensation expense ratably as
the shares vest. As of December 31, 1997, approximately $1,092,000 was recorded
as compensation expense.
On October 23, 1997 and February 5, 1998, the Company announced that the Board
of Directors authorized the repurchase of up to 1.0 million and 1.5 million
shares, respectively, of the Company's common stock. Purchases have and will be
made in the open market or in privately negotiated transactions. The Company
plans to use any repurchased shares for its employee stock plans. As of December
31, 1997, the Company had repurchased a total of 1.0 million shares at a cost of
$28,776,000, which completed the program announced in October.
Effective with the merger between Avid and Digidesign, as of January 1, 1995 all
issued and outstanding shares of Digidesign Common Stock were converted into the
right to receive Avid Common Stock at an exchange ratio of 0.79.
In September 1995, the Company issued 2,000,000 shares of its Common Stock
through a public offering. The Company issued an additional 75,000 shares in
October 1995 as the underwriters exercised a portion of their over-allotment
option. Proceeds to the Company totaled approximately $88,167,000, net of
expenses and underwriters' commissions associated with the offering.
J. EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLANS
1991 Profit Sharing Plan
The Company has a profit sharing plan under section 401(k) of the Internal
Revenue Code covering substantially all U.S. employees. The 401(k) plan allows
employees to make contributions up to a specified percentage of their
compensation. The Company may, upon resolution by the Board of Directors, make
discretionary contributions to the plan. No discretionary contributions had been
made as of December 31, 1995. Effective January 1, 1996, the Company began
contributing 33% of up to the first 6% of an employee's salary contributed to
the plan by the employee. The Company's contributions to this plan totaled
$988,000 and $946,000 in 1997 and 1996, respectively.
In addition, the Company has various retirement plans covering certain European
employees. Certain of the plans require the Company to match employee
contributions up to a specified percentage as defined by the plans. The Company
made contributions of approximately $489,000, $400,000 and $302,000 in 1997,
1996, and 1995, respectively.
1997 Profit Sharing Plan
In January 1997, the Board of Directors approved the 1997 Profit Sharing Plan
(the "1997 Plan"). The 1997 Plan, effective January 1, 1997, covers
substantially all employees of the Company and its participating subsidiaries,
other than those employees covered by other incentive plans. The Plan provides
that the Company contribute a varying percentage of salary (0% to 10%) based on
the Company's achievement of targeted return on invested capital in 1997, as
defined by the Plan.
1998 Profit Sharing Plan
In December 1997, the Board of Directors approved the 1998 Profit Sharing Plan
(the "1998 Plan"). The 1998 Plan, effective January 1, 1998 covers substantially
all employees of the Company and its participating subsidiaries, other than
those employees covered by other incentive plans. The Plan provides that the
Company contribute a varying percentage of salary based on the Company's
achievement of targeted return on invested capital in 1998, as defined by the
Plan.
1998 Variable Compensation Plan
In December 1997, the Board of Directors approved the 1998 Executive and Senior
Management Variable Compensation Plan (the "1998 Variable Plan"). The 1998
Variable Plan, effective January 1, 1998, covers executive officers and senior
management. The plan provides that the Company contribute a varying percentage
of salary based on the Company's achievement of targeted return on invested
capital in 1998, as defined by the Plan.
STOCK PLANS
1989 Stock Option Plan
The 1989 Stock Option Plan (the "1989 Plan") allows for the issuance of
incentive and non-qualified stock options to purchase the Company's Common
Stock. Incentive stock options may not be granted at less than the fair market
value of the Company's Common Stock at the date of grant and are exercisable for
a term not to exceed ten years. For holders of 10% or more of the total combined
voting power of all classes of the Company's stock, options may not be granted
at less than 110% of the fair market value of the Common Stock at the date of
grant, and the option term may not exceed 5 years. In connection with the
establishment of the 1993 Stock Incentive Plan, the 1989 Plan was amended to
provide that, subject to certain exceptions, no further options or awards could
be issued thereunder.
1991 Stock Option Plan
Digidesign had an employee stock option plan whereby an aggregate of 1,500,000
shares of common stock were reserved for issuance. Effective upon the
acquisition by Avid, the stock option agreements were assigned to Avid and Avid
registered the 670,884 shares, equivalent to the number of options outstanding,
taking into effect the exchange ratio of 0.79 shares of Avid Common Stock for
each share of Digidesign Common Stock. Under the plan, options may be granted to
employees, directors, consultants, and advisors to the Company. Incentive stock
options may be granted at prices not lower than fair market value, as
established by the Board of Directors on the date of grant. Non-qualified stock
options may be granted at not less than 85% of fair market value, as established
by the Board of Directors on the date of grant. Avid has not granted any options
under this plan. The options expire in a maximum of ten years and may be either
incentive stock options or non-qualified stock options, determined at the
discretion of the Board of Directors. Options are immediately exercisable,
subject to a right of repurchase which generally lapses as to 25% of the subject
shares on the first anniversary of the vesting commencement date, and as to an
additional 2.083% for each succeeding full month of continuous employment.
1993 Stock Incentive Plan
Under the 1993 Stock Incentive Plan (the "1993 Plan"), a maximum of 800,000
shares of Common Stock may be issued upon exercise of incentive stock options or
non-qualified stock options, or in connection with awards of restricted stock
grants, stock appreciation rights or performance shares. The terms of the
incentive stock options granted under this plan are substantially the same as
for those granted under the 1989 Plan. The options generally vest ratably over a
four-year period.
1993 Director Stock Option Plan
The 1993 Director Stock Option Plan (the "Director Plan"), as amended April 12,
1996, provides for the grant of options to purchase up to a maximum of 220,000
shares of Common Stock of the Company to non-employee directors of the Company,
at an exercise price equal to the fair market value of the stock on the date of
grant. Certain options vest immediately whereas other options vest ratably over
a four-year period from the date of grant.
1994 Stock Option Plan
The 1994 Stock Option Plan, as amended on February 12, 1996, allows for the
issuance of incentive and non-qualified options to purchase up to a maximum of
2,400,000 shares of the Company's Common Stock. The terms of the options granted
under this plan are essentially the same as for those granted under the 1989
Plan.
1997 Stock Incentive Plan
The 1997 Stock Incentive Plan covers employees, consultants, and directors of
the Company, and allows for the issuance of incentive and non-qualified stock
options and restricted stock grants to purchase the Company's Common Stock. An
aggregate of 1,000,000 shares of Common Stock are reserved for issuance under
the plan including up to 500,000 shares of restricted stock which may be issued
pursuant to the plan. The terms of the options granted under this plan are
essentially the same as for those granted under the 1989 Plan. The options
generally vest ratably over a four-year period.
1997 Stock Option Plan
In December 1997, the Board of Directors approved the 1997 Stock Option Plan.
This plan, which covers employees and consultants, other than executive officers
and directors, allows for the issuance of non-qualified options to purchase up
to 1,000,000 shares of the Company's common stock. The terms of the options
granted under this plan are essentially the same as for those granted under the
1989 Plan. The options generally vest over a four-year period.
Employee Stock Purchase Plan
On July 31, 1996, the 1993 Employee Stock Purchase Plan (the "1993 Purchase
Plan") expired and was replaced with the 1996 Employee Stock Purchase Plan (the
"1996 Purchase Plan"). The 1996 Purchase Plan authorizes the issuance of a
maximum of 200,000 shares of Common Stock in semi-annual offerings at a price
equal to the lower of 85% of the closing price on the applicable offering
commencement date or 85% of the closing price on the applicable offering
termination date. In December 1997, the Board of Directors approved an amendment
to the Plan. The amendment, which is subject to shareholder approval, adds
500,000 shares of common stock to the number of shares authorized to be issued
under the Plan.
As disclosed in Note I, the Company has announced programs to repurchase up to
2.5 million shares of common stock for use in its employee stock purchase plans.
Stock Based Compensation Plans
The Company has eight stock-based compensation plans, which are described above.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which is effective for periods beginning after December 15, 1995.
SFAS No. 123 requires that companies either recognize compensation expense for
grants of stock, stock options, and other equity instruments based on fair
value, or provide pro forma disclosures of net income and earnings per share in
the notes to the financial statements. The Company adopted SFAS No. 123 in 1996
and elected the disclosure-only alternative provisions. The Company has chosen
to continue to account for stock-based compensation granted to employees and
directors using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock issued to Employees", and related
interpretations. Accordingly, compensation cost for stock options granted to
employees and directors is measured as the excess, if any, of the fair value of
the Company's stock at the date of the grant over the amount that must be paid
to acquire the stock. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
for the awards under these plans consistent with the methodology prescribed
under SFAS No. 123, the Company's net income (loss) and earnings per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------------------------------------------------------------
Net Earnings Earnings Net Earnings Earnings Net Earnings Earnings
Income per share per share Income per share per share Income per share per share
(Loss) Basic Dilutive (Loss) Basic Dilutive (Loss) Basic Dilutive
----------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As
Reported $26,384 $1.14 $1.08 $(38,044) $(1.80) $(1.80) $15,439 $0.81 $0.77
======= ===== ===== ========= ====== ====== ======= ===== =====
Pro
Forma $18,855 $0.82 $0.76 $(46,400) $(2.19) $(2.19) $10,889 $0.57 $0.52
======= ===== ===== ========= ====== ====== ======= ===== =====
</TABLE>
The fair value of each option granted during 1997, 1996, and 1995 is estimated
on the date of grant using the Black-Scholes option-pricing model utilizing the
following weighted-average assumptions: (1) zero-coupon U.S. government issues
with interest rates of 6.47%, 6.05% and 6.26%, for 1997, 1996 and 1995
respectively, (2) expected option life from date of vesting of 17 months (3)
expected stock volatility of 61.2% for 1997 and 58.31% for 1996 and 1995, and
(4) expected dividend yield of 0.0%.
The fair value of awards under the Employee Stock Purchase Plans periods during
1997, 1996, and 1995 is estimated on the date of the purchase using the
Black-Scholes option-pricing model utilizing the following weighted average
assumptions: (1) expected option life of 6 months, (2) expected volatility of
61.2% for 1997 and 58.31% for 1996 and 1995, and (3) expected dividend yield of
0.0%. The risk-free interest rate used in determining the fair value of the
plans was determined to be the rate on a zero-coupon six month U.S. Government
issue on the first day of the offering period for each of the six plan periods.
These interest rates ranged from 4.97% to 6.21% for all years presented. The
amount of compensation expense, net of income taxes related to the Employee
Stock Purchase plans, included in the pro forma net income (loss) and earnings
per share detailed in the table above, is approximately $499,000, $626,000, and
$837,000 for 1997, 1996, and 1995, respectively.
The effects of applying SFAS No. 123 for the purposes of pro forma disclosures
may not be indicative of the effects on reported net income (loss) and net
income (loss) per share for future years, as the pro forma disclosures include
the effects of only those awards granted after January 1, 1995.
Information with respect to options granted under all stock option plans is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- ------------------------ ----------------------
Wtd Avg. Wtd Avg. Wtd Avg.
Price Price Price
Shares Per Share Shares Per Share Shares Per Share
----------------------- ------------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year January 1, 3,547,356 $16.18 2,986,595 $21.59 2,956,569
Granted, at fair value 1,243,950 $14.77 2,273,398 $17.01 1,105,040 $33.60
Exercised (758,298) $13.23 (260,055) $4.56 (741,313) $8.03
Cancelled (459,481) $17.17 (1,452,582) $30.55 (333,701) $26.26
---------- ---------- ----------
Options outstanding at
end of year December 31, 3,573,527 $16.09 3,547,356 $16.18 2,986,595 $21.59
========== ====== ========== ====== ========== ======
Options exercisable at
December 31, 1,338,726 $16.04 1,237,924 $13.71 999,602 $12.76
========== ====== ========== ====== ========== ======
Options available for future
grant at December 31, 674,296 866,759 821,801
========== ========== ==========
Weighted average fair value
of options granted during
the year $7.46 $6.93 $15.59
========== ========== ==========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------- ----------------------------------
Weighted-Average
Remaining Weighted-Average Weighted-Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ------------------ ----------- -------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.0100 to $13.0000 1,220,057 7.82 $10.4889 354,883 $ 8.3389
$13.1875 to $15.3125 271,419 8.74 $14.2218 77,918 $14.2806
$15.6250 to $16.5000 978,908 8.19 $16.4563 398,770 $16.4632
$16.6875 to $19.6250 504,340 7.66 $18.8271 278,099 $18.4287
$19.7500 to $46.7500 598,803 8.20 $25.4678 229,056 $24.9226
--------- ----------
$ 0.0100 to $46.7500 3,573,527 8.03 $16.0938 1,338,726 $16.0379
========= ==== ======== ========== ========
</TABLE>
On February 12, 1996, the Board of Directors authorized that all options under
the 1994 Stock Option Plan at an exercise price greater or equal to $28.48
would be eligible to be exchanged for options with an exercise price at the
then fair market value of $16.50 per share and a first vest date of February 21,
1997. This cancellation and reissuance of stock options affected approximately
860,000 options.
K. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its office space and certain equipment under non-cancelable
operating leases. The future minimum lease commitments under these
non-cancelable leases at December 31, 1997 are as follows (in thousands):
1998 $11,682
1999 10,516
2000 9,722
2001 5,823
2002 5,475
Thereafter 33,472
------------
Total $76,690
============
The Company's two leases for corporate office space in Tewksbury, Massachusetts,
and the lease for the Company's Burbank, California sales and support office,
expiring June 2010 and January 2007, respectively, contain renewal options to
extend the respective terms of each lease for an additional 60 months.
The accompanying consolidated results of operations reflect rent expense on a
straight-line basis over the term of the leases. Total rent expense under
operating leases was approximately $13,321,762, $11,425,000 and $6,818,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
The total of future minimum rentals to be received under non-cancelable
subleases related to the above leases is $2.1 million.
Purchase Commitments
As of December 31, 1997, the Company has entered into two short-term
non-cancelable purchase commitments for certain components used in its normal
operations. The purchase commitments covered by these agreements aggregate
approximately $5,958,000.
The Company currently buys certain key components used in its products from sole
source suppliers. These components are purchased through purchase orders placed
from time to time. The Company generally does not carry significant inventories
of these sole source components and has no guaranteed supply arrangements for
them. These purchasing arrangements can result in delays in obtaining products
from time to time. While the Company believes that alternative sources of supply
for its sole source components could be developed, its business and results of
operations could be adversely affected if it were to encounter an extended
interruption in its source of supply.
Accounts Sold with Recourse
The Company from time to time sells systems to unrelated financial institutions
which lease such systems to end-user customers. In certain of these
transactions, the Company accepts varying amounts of recourse from such
unrelated third-party lessors. At December 31, 1997 and 1996, the third-party
lessors' uncollected balance of lease receivables with recourse totaled
approximately $57,977,000 and $22,565,000, respectively with approximately
$15,428,000 and $7,964,000, respectively of associated recourse to Avid.
Included in the Company's accrued expenses are provisions for estimated losses
under such recourse agreements. To date, the Company has experienced no
significant write-offs or returns under such recourse agreements.
Research and Development Contracts
During 1995, the Company entered into research and development contracts with
third parties under which it received $4,300,000 to be used in the development
of certain specified products. The Company granted to such third parties, among
other things, discounted pricing on the products developed. Approximately
$2,900,000 was recorded as a reduction of the related development costs during
1995. At December 31, 1995, $1,400,000 was included in accrued expenses due to
the status of related product development and other terms of the underlying
contracts. During 1996, that accrued amount was substantially utilized for
related contract obligations.
Contingencies
On June 7, 1995, the Company filed a patent infringement complaint in the United
States District Court for the District of Massachusetts against Data
Translation, Inc., a Marlboro, Massachusetts-based company. Avid is seeking
judgment against Data Translation that, among other things, Data Translation has
willfully infringed Avid's patent number 5,045,940, entitled "Video/Audio
Transmission System and Method." Avid is also seeking an award of treble damages
together with prejudgment interest and costs, Avid's costs and reasonable
attorneys' fees, and an injunction to prohibit further infringement by Data
Translation. The litigation has been dismissed without prejudice (with leave to
refile) pending a decision by the U.S. Patent and Trademark Office on a reissue
patent application based on the issued patent.
In December 1995, six purported shareholder class action complaints were filed
in the United States District Court for the District of Massachusetts naming the
Company and certain of its underwriters and officers and directors as
defendants. On July 31, 1996, the six actions were consolidated into two
lawsuits: one brought under the 1934 Securities Exchange Act (the "`34 Act
suit") and one under the 1933 Securities Act (the "`33 Act suit"). Principal
allegations contained in the two complaints include claims that the defendants
violated federal securities laws and state common law by allegedly making false
and misleading statements and by allegedly failing to disclose material
information that was required to be disclosed, purportedly causing the value of
the Company's stock to be artificially inflated. The `34 Act suit was brought on
behalf of all persons who bought the Company's stock between July 26, 1995 and
December 20, 1995. The `33 Act suit was brought on behalf of persons who bought
the Company's stock pursuant to its September 21, 1995 public offering. Both
complaints seek unspecified damages for the decline of the value of the
Company's stock during the applicable period. A motion to dismiss both the `34
Act suit and the `33 Act suit was filed on October 18, 1996. After briefing and
argument on the motions, the Court issued its decision on August 14, 1997. With
respect to the `33 Act suit, the Court dismissed the claims against the
underwriters, dismissed the claims brought against the Company under ss.12(2) of
the `33 Act, and dismissed the plaintiffs' claims relating to the Company's all
digital newsroom (in both the `33 Act and `34 Act cases) on the grounds that the
plaintiffs had failed to allege a material misrepresentation or omission.
Finding that it was required to draw all reasonable inferences in favor of the
plaintiffs, the Court declined to dismiss the plaintiffs' remaining claims in
the `33 Act case and the `34 Act claims relating to matters other than the all
digital newsroom. On September 26, 1997, the plaintiffs filed a motion seeking
to have the Court reconsider its dismissal of the underwriters from the `33 Act
suit, which the underwriters have opposed. The plaintiffs also sought leave to
amend their `33 Act Complaint to add new claims concerning the all digital
newsroom, which the Company opposed. In February 1998, the Company and the
Plaintiffs entered into a Stipulation of Settlement in both suits and the judge
issued an order granting preliminary approval to the settlement. A Final
Settlement Approval hearing is scheduled for May 28, 1998. The Company believes
the potential settlement will not have a material effect on the Company's
consolidated financial position or results of operations. In the event the
settlement is not finally approved, the Company believes that it and the other
defendants have meritorious defenses to the remaining allegations made by the
plaintiffs and intends to contest these lawsuits vigorously. Nonetheless, in the
event the settlement is not approved, an adverse resolution of this litigation
could have a material adverse effect on the Company's consolidated financial
position or results of operations in the period in which the litigation is
resolved. In such event, a reasonable estimate of the Company's potential loss
for damages cannot be made at this time.
On March 11, 1996, the Company was named as defendant in a patent infringement
suit filed in the United States District Court for the Western District of Texas
by Combined Logic Company, a California partnership located in Beverly Hills,
California. On May 16, 1996, the suit was transferred to the United States
District Court for the Southern District of New York on motion by the Company.
The complaint alleges infringement by Avid of U.S. patent number 4,258,385,
issued in 1981, and seeks injunctive relief, treble damages and costs, and
attorneys' fees. The Company believes that it has meritorious defenses to the
complaint and intends to contest it vigorously. However, an adverse resolution
of this litigation could have a material adverse effect on the Company's
consolidated financial position or results of operations in the period in which
the litigation is resolved. No costs have been accrued for this possible loss
contingency.
The Company also receives inquiries from time to time with regard to additional
possible patent infringement claims. These inquiries are generally referred to
counsel and are in various stages of discussion. If any infringement is
determined to exist, the Company may seek licenses or settlements. In addition,
from time to time as a normal incidence of the nature of the Company's business,
various claims, charges, and litigation have been asserted or commenced against
the Company arising from or related to contractual or employee relations or
product performance. Management does not believe these claims will have a
material adverse effect on the financial position or results of operations of
the Company.
The Company has entered into employment agreements with certain officers of the
Company that provide for severance pay and benefits, including accelerated
vesting of options. Under the terms of the agreements, these officers receive
100% of such severance benefits if they are involuntarily terminated. Such
agreements are effective for two years and are automatically extended for
successive one year periods after the second anniversary, unless 30 days advance
written notice is given by either party. The Company has also entered into
change in control employment agreements with certain officers of the Company. As
defined in the agreements, a change in control includes, but is not limited to:
a third person or entity becoming the beneficial owner of 30% or more of the
Company's common stock, the shareholders approving any plan or proposal for the
liquidation or dissolution of the Company, or within a twenty-four month period
a majority of the members of the Company's Board of Directors ceasing to
continue as members of the board unless their successors are each approved by at
least two-thirds of the Company's directors. If at any time within two years of
the change in control, the officer's employment is terminated by the Company for
any reason other than cause or by the officer for good reason, as such terms are
defined in the agreement, then the employee is entitled to receive certain
severance payments plus an amount equal to compensation earned under the
management incentive compensation plan during the previous two years as well as
accelerated vesting of options.
L. FINANCIAL INSTRUMENTS
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist of temporary cash investments and trade receivables. The
Company places its excess cash in marketable investment grade securities. There
are no significant concentrations in any one issuer of debt securities. The
Company places its cash, cash equivalents and investments with financial
institutions with high credit standing. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer bases, and their dispersion across different
regions. The Company also maintains reserves for potential credit losses and
such losses have been within management's expectations.
Forward Exchange Contracts
As of December 31, 1997 and 1996, the Company had approximately $22,138,000 and
$24,738,000, respectively, of foreign exchange forward contracts outstanding,
denominated in various European and Asian currencies, the Canadian dollar and
the Australian dollar, as a hedge against its committed exposures. The following
table summarizes the December 31, 1997 currencies and approximate U.S. dollar
amounts involved; the Company is the seller with respect to each contract with
the exception of the Irish pound contract (in thousands):
Approximate
Local Currency U.S. Dollar
Amount Equivalent
------------------ ------------------
Australian Dollar 1,200 $787
Singapore Dollar 1,900 1,132
Canadian Dollar 2,600 1,809
German Mark 10,600 5,953
Italian Lire 4,500,000 2,566
Irish Pound 900 1,302
French Franc 26,000 4,361
Japanese Yen 548,000 4,228
--------
$22,138
========
The forward exchange contracts generally have maturities of one month. Net gains
(losses) of approximately $3,226,000, $968,000 and $(687,000) resulting from
forward exchange contracts were included in results of operations in 1997, 1996
and 1995, respectively. The fair values of these forward exchange contracts as
of December 31, 1997 and 1996 approximate the contract amounts.
M. GEOGRAPHICAL INFORMATION
A summary of the Company's operations by geographical area for the years ended
December 31, 1997, 1996 and 1995 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Net revenues:
North America $328,547 $283,959 $283,474
Asia Pacific and Latin America 39,165 36,424 23,365
Europe 165,785 153,311 131,014
Eliminations of transfers from North
America to other areas (62,159) (44,685) (31,203)
--------- --------- ---------
Total net revenues $471,338 $429,009 $406,650
========= ========= =========
Operating income (loss):
North America $14,862 $(63,451)(1) $11,111
Asia Pacific and Latin America 278 (191)(1) 1,480
Europe 15,182 4,991 (1) 16,732
Eliminations (209) (712) (6,676)(2)
--------- --------- ---------
Total operating income (loss) $30,113 $(59,363) $22,647
========= ========= =========
Identifiable assets:
North America $126,286 $158,846 $196,143
Asia Pacific and Latin America 12,242 15,965 20,408
Europe 48,958 49,385 61,412
Eliminations (17,643) (17,257) (26,851)
--------- --------- ---------
Total identifiable assets $169,843 $206,939 $251,112
Corporate assets 186,962 94,040 80,492
--------- --------- ---------
Total assets at December 31, $356,805 $300,979 $331,604
========= ========= =========
<FN>
(1) Includes nonrecurring costs, as described in Note N, of $24,248,000,
$632,000, and $4,070,000 recorded in North America, Asia Pacific, Latin America,
and Europe, respectively, in 1996.
(2) Includes expenses of $5,456,000 related to merger costs.
</FN>
</TABLE>
Sales outside North America included in North American operations were
approximately $22,086,000, $22,477,000 and $35,680,000 in 1997, 1996 and 1995,
respectively.
Transfers between geographic areas are accounted for at prices which, in
general, provide a profit after coverage of all manufacturing costs.
Identifiable assets are those assets of the Company that are identified with the
operations in each geographic area. Corporate assets are principally cash and
marketable securities.
N. NONRECURRING COSTS
In the first quarter of 1996, the Company recorded a nonrecurring charge of
$20,150,000. Included in this charge was $7,000,000 associated with
restructuring, consisting of approximately $5,000,000 of costs related to staff
reductions of approximately 70 employees, primarily in the U.S., and associated
write-offs of fixed assets, and $2,000,000 related to the decision to
discontinue development of certain products and projects. Included in this
$7,000,000 were approximately $4,976,000 of cash payments consisting of
$3,617,000 of salaries and related severance costs and $1,359,000 of other staff
reduction and discontinued development costs. The non-cash charges of $2,024,000
recorded during 1996 consists primarily of $1,459,000 for the write-off of fixed
assets. Also included in this $20,150,000 nonrecurring charge is $13,150,000
related to product transition costs associated with the transition from NuBus to
PCI bus technology in some of the Company's product lines. As of December 31,
1996, the Company had completed the related restructuring and product transition
actions.
In September 1996, the Company recorded a nonrecurring charge of
$8,800,000, associated primarily with the Company's decision not to release the
Avid Media Spectrum product line. This charge includes costs to write-off
inventory, fixed assets, capitalized software and various other costs associated
with the canceled product line. Approximately $7,200,000 of the charge relates
to non-cash items associated with the write-off of assets. As of December 31,
1997, the Company had completed the related restructuring.
As described in Note O, in connection with the 1995 acquisitions, the Company
incurred merger costs of approximately $5,456,000. Of this amount, approximately
$3,900,000 represented a provision for direct transaction expenses, primarily
professional fees, and $1,600,000 consisted of various restructuring charges.
O. ACQUISITIONS
In March 1995, the Company acquired Parallax Software Limited and 3 Space
Software Limited, developers of paint and compositing software, and Elastic
Reality, Inc., a developer of special effects software. These transactions,
which were accounted for as poolings of interest, were effected through the
exchange of approximately 1.5 million shares of the Company's Common Stock for
all of the issued and outstanding shares of these entities. The December 31,
1995, accompanying statement of stockholders' equity includes a retained
earnings adjustment for December 31, 1994 for retained earnings of the companies
as the Company's previous years' financial statements were not restated. The
operations of Parallax Software Limited, 3 Space Software Limited and Elastic
Reality, Inc. were not material to the Company's consolidated operations.
In January 1995, the Company completed a merger with Digidesign. The merger was
accounted for as a pooling of interests and was effected through the exchange of
approximately 6 million shares of the Company's Common Stock for all of the
issued and outstanding shares of Digidesign based on a merger exchange ratio of
.79 shares of Avid Common Stock for each share of Digidesign Common Stock. The
historical consolidated financial statements for all years prior to the
acquisition were restated in the consolidated financial statements to include
the financial position, results of operations and cash flows of Digidesign.
P. NET INCOME (LOSS) PER SHARE
The Company computes basic and diluted earnings per share in accordance with
Financial Accounting Standards No. 128, "Earnings per Share," which the Company
adopted as of December 31, 1997. The following table reconciles the numerator
and denominator of the basic and diluted earnings per share computations shown
on the Consolidated Statements of Operations:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
(In thousands, except per share data) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic EPS
Numerator:
Net income (loss) $26,384 $(38,044) $15,439
Denominator:
Common shares outstanding 23,065 21,163 19,010
Basic EPS $1.14 $(1.80) $0.81
======= ======== ========
Diluted EPS
Numerator:
Net income (loss) $26,384 $(38,044) $15,439
Denominator:
Common shares outstanding 23,065 21,163 19,010
Common stock equivalents 1,260 1,155
------- -------- --------
24,325 21,163 20,165
Diluted EPS $1.08 $(1.80) $0.77
======= ======== ========
</TABLE>
Options to purchase 319,541 and 403,280 shares of common stock outstanding
during the years ended December 31, 1997 and 1995, respectively, were excluded
from the year-to-date calculation of diluted net income per share because the
exercise prices of those options exceeded the average market price of common
stock during those periods. Options to purchase 3,547,356 shares of common stock
outstanding during the year ended December 31, 1996 were excluded from the
year-to-date calculation of diluted net loss per share as the effect of their
inclusion would have been anti-dilutive.
Earnings per share data have been restated for all periods presented to reflect
the adoption of SFAS No. 128.
Q. QUARTERLY RESULTS (UNAUDITED)
The following information has been derived from unaudited consolidated financial
statements that, in the opinion of management, include all normal recurring
adjustments necessary for a fair presentation of such information.
In thousands, except per share data:
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------------------------------------
1997 1996
-------------------------------------------- --------------------------------------------
Dec. Sept. Jun. Mar. Dec. Sept. Jun. Mar.
31 30 30 31 31 30 30 31
-------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $123,735 $116,510 $122,884 $108,209 $113,211 $114,664 $109,095 $92,039
Cost of revenues 54,062 51,606 59,700 56,185 66,266(1) 60,670 59,416 52,456
-------------------------------------------- --------------------------------------------
Gross profit 69,673 64,904 63,184 52,024 46,945 53,994 49,679 39,583
-------------------------------------------- --------------------------------------------
Operating expenses:
Research & development 20,160 18,598 18,296 16,416 17,583 17,569 16,637 17,616
Marketing & selling 31,301 30,109 30,687 28,297 32,182 31,303 33,088 30,433
General & administrative 6,977 6,734 6,294 5,803 5,857 6,767 6,081 5,498
Nonrecurring costs 8,800 20,150
-------------------------------------------- --------------------------------------------
Total operating expenses 58,438 55,441 55,277 50,516 55,622 64,439 55,806 73,697
-------------------------------------------- --------------------------------------------
Operating income (loss) 11,235 9,463 7,907 1,508 (8,677) (10,445) (6,127) (34,114)
Other income, net 2,244 2,596 2,045 1,240 1,596 523 710 587
-------------------------------------------- --------------------------------------------
Income (loss) before
income taxes 13,479 12,059 9,952 2,748 (7,081) (9,922) (5,417) (33,527)
Provision for (benefit from)
income taxes 4,178 3,231 3,483 962 (2,250) (3,164) (1,760) (10,729)
-------------------------------------------- --------------------------------------------
Net income (loss) $9,301 $8,828 $6,469 $1,786 $(4,831) $(6,758) $(3,657) $(22,798)
============================================ =============================================
Net income (loss)
per share - basic $0.39 $0.37 $0.28 $0.08 $(0.23) $(0.32) $(0.17) $(1.08)
============================================ =============================================
Net income (loss)
per share - diluted $0.37 $0.34 $0.27 $0.08 $(0.23) $(0.32) $(0.17) $(1.08)
============================================ =============================================
Weighted average
common shares
outstanding - basic 23,601 23,912 23,164 21,550 21,306 21,224 21,104 21,019
============================================ =============================================
Weighted average
common shares
outstanding - diluted 25,231 25,747 24,075 21,750 21,306 21,224 21,104 21,019
============================================ =============================================
High common stock price $33.000 $38.000 $28.125 $14.000 $16.375 $20.625 $26.000 $23.125
Low common stock price $23.000 $22.000 $12.375 $9.000 $10.125 $12.375 $17.875 $16.250
<FN>
(1) Includes a non-cash charge of $5.6 million related principally to spare
parts which are no longer required to support the Company's business.
</FN>
</TABLE>
Earnings per share data have been restated for all periods presented to reflect
the adoption of SFAS No. 128.
The Company's quarterly operating results fluctuate as a result of a number of
factors including, without limitation, the timing of new product introductions,
marketing expenditures, promotional programs, and periodic discounting due to
competitive factors. The Company's operating results may fluctuate in the future
as a result of these and other factors, including the Company's success in
developing and introducing new products, its products and customer mix and the
level of competition which it experiences. The Company operates with a
relatively small backlog. Quarterly sales and operating results therefore
generally depend on the volume and timing of orders received during the quarter.
The Company's expense levels are based in part on its forecasts of future
revenues. If revenues are below expectations, the Company's operating results
may be adversely affected. Accordingly, there can be no assurance that the
Company will be profitable in any particular quarter.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is contained in part under the caption "EXECUTIVE
OFFICERS OF THE COMPANY" in Part I hereof, and the remainder is contained in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
May 19, 1998 (the "1998 Proxy Statement") under the captions "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is contained in the Company's 1998 Proxy Statement
under the captions "Election of Directors - Directors' Compensation" and
"Executive Compensation" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is contained in the Company's 1998 Proxy Statement
under the caption "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements are included in Item 8:
- Report of Independent Accountants
- Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995
- Consolidated Balance Sheets as of December 31, 1997 and 1996
- Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995
- Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
- Notes to Consolidated Financial Statements
(a) 2. FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statement schedule is included in Item
14(d):
Schedule II - Valuation and Qualifying Accounts
Schedules other than that listed above have been omitted since the required
information is not present, or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
a) 3. LISTING OF EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 Certificate of Amendment of the Third Amended and Restated Certificate
of Incorporation of the Registrant (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q as filed with the Commission
on May 15, 1995, File No. 0-21174).
3.2 Third Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to the Registrant's Registration
Statement on Form S-8 as filed with the Commission on June 9, 1993, File
No. 33-64126).
3.3 Amended and Restated By-Laws of the Registrant (incorporated by
reference to the Registrant's Registration Statement on Form S-1 as
declared effective by the Commission on March 11, 1993, File No.
33-57796).
3.4 Certificate of Designations establishing Series A Junior Participating
Preferred Stock (the "Certificate of Designations") (incorporated by
reference to the Registrant's Current Report on Form 8-K as filed with
the Commission on March 8, 1996).
3.5 Certificate of Correction to the Certificate of Designations
(incorporated by reference to the Registrant's Current Report on Form
8-K as filed with the Commission on March 8, 1996).
4.1 Specimen Certificate representing the Registrant's Common Stock
(incorporated by reference to the Registrant's Registration Statement on
Form S-1 as declared effective by the Commission on March 11, 1993, File
No. 33-57796).
4.2 Rights Agreement, dated as of February 29, 1996, between the Registrant
and The First National Bank of Boston, as Rights Agent (incorporated by
reference to the Registrant's Current Report on Form 8-K as filed with
the Commission on March 8, 1996, File No. 0-21174).
10.1 Lease dated September 29, 1995 between Allied Dunbar Insurance PLC and
Avid Technology Limited (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on November
14, 1995, File No. 0-21174).
10.2 Lease dated August 30, 1995 between Syntex (U.S.A.) Inc. and Avid
Technology, Inc. (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on November
14, 1995, File No. 0-21174).
10.3 Lease between MGI Andover Street, Inc. and Avid Technology, Inc. dated
March 21, 1995 (incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q as filed with the Commission on May 15, 1995, File
No. 0-21174).
10.4 Amended and Restated lease dated as of June 7, 1996 between MGI One Park
West, Inc. and Avid Technology, Inc. (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q as filed with the Commission
on August 14, 1996, File No. 0-21174).
10.5 Amended and Restated Revolving Credit Agreement among Avid Technology,
Inc., The First National Bank of Boston, as agent, NationsBank of Texas,
N.A., BayBank and ABN AMRO Bank N.V. dated as of July 1, 1995
(incorporated by reference to the Registrant's Quarterly Report on Form
10-Q as filed with the Commission on August 9, 1995, File No. 0-21174).
10.6 First Amendment dated September 30, 1995 to Amended and Restated
Revolving Credit Agreement by and among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on November
14 , 1995, File No. 0-21174).
10.7 Second Amendment dated as of February 28, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.8 Third Amendment dated as of May 8, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.9 Fourth Amendment dated as of June 28, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.10 Fifth Amendment dated as of July 1, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.11 Sixth Amendment dated as of June 27, 1997 to Amended and Restated
Revolving Credit Agreement and Assignment (the "Sixth Amendment"), by
and among AVID TECHNOLOGY, INC., a Delaware corporation (the
"Borrower"), BANKBOSTON, N.A. (formerly known as The First National Bank
of Boston) and the other lending institutions listed on Schedule 1 to
the Credit Agreement, amending certain provisions of the Amended and
Restated Revolving Credit Agreement dated as of June 30, 1995
(incorporated by reference to the Registrant's Quarterly Report on Form
10-Q as filed with the Commission on August 12, 1997, File No. 0-21174).
*#10.12 Seventh Amendment dated as of October 1, 1997 to Amended and Restated
Revolving Credit Agreement (the "Seventh Amendment"), by and among AVID
TECHNOLOGY,INC., a Delaware corporation (the "Borrower"), BANKBOSTON,
N.A. (formerly known as The First National Bank of Boston) and the other
lending institutions listed on Schedule 1 to the Credit Agreement,
amending certain provisions of the Amended and Restated Revolving
Credit Agreement dated as of June 30, 1995.
10.13 Form of Distribution Agreement (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared effective by
the Commission on March 11, 1993, File No. 33-57796).
10.14 Form of Purchase and License Agreement (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared effective by
the Commission on March 11, 1993, File No. 33-57796).
10.15 Form of Software Only License Agreement (incorporated by reference to
the Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
#10.16 1989 Stock Option Plan (incorporated by reference to the Registrant's
Registration Statement on Form S-1 as declared effective by the
Commission on March 11, 1993, File No. 33-57796).
#10.17 1993 Stock Incentive Plan (incorporated by reference to the Registrant's
Registration Statement on Form S-1 as declared effective by the
Commission on March 11, 1993, File No. 33-57796).
#10.18 1993 Director Stock Option Plan, as amended (incorporated by reference
to the Registrant's Proxy Statement as filed with the Commission on
April 27, 1995, File No. 0-21174).
#10.19 1993 Executive Compensation Agreement (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared effective by
the Commission on March 11, 1993, File No. 33-57796).
#10.20 1993 Employee Stock Purchase Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on June 9, 1993, File No. 33-64130).
#10.21 1994 Stock Option Plan, as amended (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on October 27, 1995, File No. 33-98692).
#10.22 Digidesign, Inc. 1991 Stock Option Plan (incorporated by reference to
Registrant's Quarterly Report on Form 10-Q as filed with the Commission
on May 15, 1995, File No. 0-21174).
#10.23 1995 Executive Variable Compensation Program (incorporated by reference
to the Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on May 15, 1995, File No. 0-21174).
*#10.24 1998 Executive and Senior Management Variable Compensation Plan.
#10.25 1997 Stock Option Plan.
*#10.26 1996 Employee Stock Purchase Plan, as amended.
#10.27 1998 Non-Qualified Deferred Compensation Plan (incorporated by reference
to the Registrant's Registration Statement on Form S-8 as filed with the
Commission on December 18, 1997, File No. 33-42569).
*#10.28 1998 Profit Sharing Plan.
*#10.29 Employment Agreement between the Company and William J. Miller.
*#10.30 Change-in-Control Agreement between the Company and William J. Miller.
*#10.31 Employment Agreement between the Company and William L. Flaherty.
*#10.32 Change-in-Control Agreement between the Company and William L. Flaherty.
#10.33 Employment agreement between the Company and Clifford Jenks(incorporated
by reference to the Registrant's quarterly Report on Form 10-Q as filed
with the Commission on November 14, 1996, File No. 0-21174).
*21 Subsidiaries of the Registrant.
*23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
- ------------------
*documents filed herewith
#Management contract or compensatory plan identified pursuant to Item 14 (a) 3.
(b) REPORTS ON FORM 8-K
For the fiscal quarter ended December 31, 1997, the Company filed no Current
Reports on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AVID TECHNOLOGY, INC.
(Registrant)
By: /s/ William J. Miller By: /s/ William L. Flaherty
---------------------- -----------------------
William J. Miller William L. Flaherty
Chairman of the Board, Senior Vice President of
President and Chief Finance, Chief Financial
Executive Officer Officer and Treasurer
(Principal Executive Officer) (Principal Financial Officer)
Date: March 26, 1998 Date: March 26, 1998
-------------------- --------------------
By: /s/ James T. Wandrey
-----------------------
James T. Wandrey
Vice President and
Corporate Controller
(Principal Accounting Officer)
Date: March 26, 1998
--------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
NAME TITLE DATE
/s/Charles T. Brumback Director March 16, 1998
- ---------------------- --------------
Charles T. Brumback
/s/William E. Foster Director March 16, 1998
- ---------------------- --------------
William E. Foster
/s/Peter C. Gotcher Director March 16, 1998
- ---------------------- --------------
Peter C. Gotcher
/s/Robert M. Halperin Director March 16, 1998
- ---------------------- --------------
Robert M. Halperin
/s/Nancy Hawthorne Director March 13, 1998
- ---------------------- --------------
Nancy Hawthorne
/s/Roger J. Heinen, Jr. Director March 16, 1998
- ---------------------- --------------
Roger J. Heinen, Jr.
/s/William S. Kaiser Director March 13, 1998
- ---------------------- --------------
William S. Kaiser
/s/Lucille S. Salhany Director March 16, 1998
- ---------------------- --------------
Lucille S. Salhany
/s/William J. Warner Director March 19, 1998
- ---------------------- --------------
William J. Warner
<PAGE>
AVID TECHNOLOGY, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1997
ITEM 14(d)
FINANCIAL STATEMENT SCHEDULE
<PAGE>
AVID TECHNOLOGY, INC.
SCHEDULE II - SUPPLEMENTAL VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additions
----------------------
Balance Charged Charged Balance
at to to at
beginning costs and other end of
Description of period expenses accounts Deductions period
- ------------------------------- ---------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
December 31, 1997 $6,959,243 $2,032,489 $(413,862) $(1,479,977)(a) $7,097,893
December 31, 1996 6,011,617 5,599,130 792,927 (5,444,431)(a) 6,959,243
December 31, 1995 2,307,817 4,304,775 179,578 (780,553)(a) 6,011,617
Sales returns and allowances
December 31, 1997 $559,600 $152,272(b) $(281,162)(a) $430,710
December 31, 1996 460,595 283,478(b) (184,473)(a) 559,600
December 31, 1995 846,936 35,837(b) (422,178)(a) 460,595
Inventory valuation allowance
December 31, 1997 $8,372,460 $5,136,384 $166,187 $(4,747,190)(a) $8,927,840
December 31, 1996 9,780,463 22,925,413 (24,333,416)(a) 8,372,460
December 31, 1995 5,462,514 10,089,567 972,371 (6,743,989)(a) 9,780,463
<FN>
(a) Amount represents write-offs net of recoveries.
(b) Sales returns provisions are charged directly against revenue.
</FN>
</TABLE>
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE
3.1 Certificate of Amendment of the Third Amended and Restated Certificate
of Incorporation of the Registrant (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q as filed with the Commission
on May 15, 1995, File No. 0-21174).
3.2 Third Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to the Registrant's Registration
Statement on Form S-8 as filed with the Commission on June 9, 1993, File
No. 33-64126).
3.3 Amended and Restated By-Laws of the Registrant (incorporated by
reference to the Registrant's Registration Statement on Form S-1 as
declared effective by the Commission on March 11, 1993, File No.
33-57796).
3.4 Certificate of Designations establishing Series A Junior Participating
Preferred Stock (the "Certificate of Designations") (incorporated by
reference to the Registrant's Current Report on Form 8-K as filed with
the Commission on March 8, 1996).
3.5 Certificate of Correction to the Certificate of Designations
(incorporated by reference to the Registrant's Current Report on Form
8-K as filed with the Commission on March 8, 1996).
4.1 Specimen Certificate representing the Registrant's Common Stock
(incorporated by reference to the Registrant's Registration Statement on
Form S-1 as declared effective by the Commission on March 11, 1993, File
No. 33-57796).
4.2 Rights Agreement, dated as of February 29, 1996, between the Registrant
and The First National Bank of Boston, as Rights Agent (incorporated by
reference to the Registrant's Current Report on Form 8-K as filed with
the Commission on March 8, 1996, File No. 0-21174).
10.1 Lease dated September 29, 1995 between Allied Dunbar Insurance PLC and
Avid Technology Limited (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on November
14, 1995, File No. 0-21174).
10.2 Lease dated August 30, 1995 between Syntex (U.S.A.) Inc. and Avid
Technology, Inc. (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on November
14, 1995, File No. 0-21174).
10.3 Lease between MGI Andover Street, Inc. and Avid Technology, Inc. dated
March 21, 1995 (incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q as filed with the Commission on May 15, 1995, File
No. 0-21174).
10.4 Amended and Restated lease dated as of June 7, 1996 between MGI One Park
West, Inc. and Avid Technology, Inc. (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q as filed with the Commission
on August 14, 1996, File No. 0-21174).
10.5 Amended and Restated Revolving Credit Agreement among Avid Technology,
Inc., The First National Bank of Boston, as agent, NationsBank of Texas,
N.A., BayBank and ABN AMRO Bank N.V. dated as of July 1, 1995
(incorporated by reference to the Registrant's Quarterly Report on Form
10-Q as filed with the Commission on August 9, 1995, File No. 0-21174).
10.6 First Amendment dated September 30, 1995 to Amended and Restated
Revolving Credit Agreement by and among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q as filed with the Commission on November
14, 1995, File No. 0-21174).
10.7 Second Amendment dated as of February 28, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.8 Third Amendment dated as of May 8, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.9 Fourth Amendment dated as of June 28, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.10 Fifth Amendment dated as of July 1, 1996 to Amended and Restated
Revolving Credit Agreement among Avid Technology, Inc., The First
National Bank of Boston, as agent, NationsBank of Texas, N.A., BayBank
and ABN AMRO Bank N.V. dated as of June 30, 1996 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q as filed
with the Commission on August 14, 1996, File No. 0-21174).
10.11 Sixth Amendment dated as of June 27, 1997 to Amended and Restated
Revolving Credit Agreement and Assignment (the "Sixth Amendment"), by
and among AVID TECHNOLOGY, INC., a Delaware corporation (the
"Borrower"), BANKBOSTON, N.A. (formerly known as The First National Bank
of Boston) and the other lending institutions listed on Schedule 1 to
the Credit Agreement, amending certain provisions of the Amended and
Restated Revolving Credit Agreement dated as of June 30, 1995
(incorporated by reference to the Registrant's Quarterly Report on Form
10-Q as filed with the Commission on August 12, 1997, File No. 0-21174).
*#10.12 Seventh Amendment dated as of October 1, 1997 to Amended and Restated
Revolving Credit Agreement (the "Seventh Amendment"), by and among AVID
TECHNOLOGY,INC., a Delaware corporation (the "Borrower"), BANKBOSTON,
N.A. (formerly known as The First National Bank of Boston) and the other
lending institutions listed on Schedule 1 to the Credit Agreement,
amending certain provisions of the Amended and Restated Revolving Credit
Agreement dated as of June 30, 1995.
10.13 Form of Distribution Agreement (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared effective by
the Commission on March 11, 1993, File No. 33-57796).
10.14 Form of Purchase and License Agreement (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared effective by
the Commission on March 11, 1993, File No. 33-57796).
10.15 Form of Software Only License Agreement (incorporated by reference to
the Registrant's Registration Statement on Form S-1 as declared
effective by the Commission on March 11, 1993, File No. 33-57796).
#10.16 1989 Stock Option Plan (incorporated by reference to the Registrant's
Registration Statement on Form S-1 as declared effective by the
Commission on March 11, 1993, File No. 33-57796).
#10.17 1993 Stock Incentive Plan (incorporated by reference to the Registrant's
Registration Statement on Form S-1 as declared effective by the
Commission on March 11, 1993, File No. 33-57796).
#10.18 1993 Director Stock Option Plan, as amended (incorporated by reference
to the Registrant's Proxy Statement as filed with the Commission on
April 27, 1995, File No. 0-21174).
#10.19 1993 Executive Compensation Agreement (incorporated by reference to the
Registrant's Registration Statement on Form S-1 as declared effective by
the Commission on March 11, 1993, File No. 33-57796).
#10.20 1993 Employee Stock Purchase Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on June 9, 1993, File No. 33-64130).
#10.21 1994 Stock Option Plan, as amended (incorporated by reference to the
Registrant's Registration Statement on Form S-8 as filed with the
Commission on October 27, 1995, File No. 33-98692).
#10.22 Digidesign, Inc. 1991 Stock Option Plan (incorporated by reference to
Registrant's Quarterly Report on Form 10-Q as filed with the Commission
on May 15, 1995, File No. 0-21174).
#10.23 1995 Executive Variable Compensation Program (incorporated by reference
to the Registrant's Quarterly Report on Form 10-Q as filed with the
Commission on May 15, 1995, File No. 0-21174).
*#10.24 1998 Executive and Senior Management Variable Compensation Plan.
*#10.25 1997 Stock Option Plan.
#10.26 1996 Employee Stock Purchase Plan, as amended.
#10.27 1998 Non-Qualified Deferred Compensation Plan (incorporated by reference
to the Registrant's Registration Statement on Form S-8 as filed with the
Commission on December 18, 1997, File No. 33-42569).
*#10.28 1998 Profit Sharing Plan.
*#10.29 Employment Agreement between the Company and William J. Miller.
*#10.30 Change-in-Control Agreement between the Company and William J. Miller.
*#10.31 Employment Agreement between the Company and William L. Flaherty.
*#10.32 Change-in-Control Agreement between the Company and William L. Flaherty.
#10.33 Employment agreement between the Company and Clifford Jenks(incorporated
by reference to the Registrant's quarterly Report on Form 10-Q as filed
with the Commission on November 14, 1996, File No. 0-21174).
*21 Subsidiaries of the Registrant.
*23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
- ------------------
*documents filed herewith
#Management contract or compensatory plan identified pursuant to Item 14 (a) 3.
Exhibit 10.12
SEVENTH AMENDMENT
TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
- ------------------------------------------------------------------------------
Seventh Amendment dated as of October 1, 1997 to Amended and Restated
Revolving Credit Agreement (the "Seventh Amendment"), by and among AVID
TECHNOLOGY, INC., a Delaware corporation (the "Borrower"), BANKBOSTON, N.A.
(FORMERLY KNOWN AS THE FIRST NATIONAL BANK OF BOSTON) and the other lending
institutions listed on SCHEDULE 1 to the Credit Agreement (as hereinafter
defined) (the "Banks") and BANKBOSTON, N.A., as agent for the Banks (in such
capacity, the "Agent"), amending certain provisions of the Amended and Restated
Revolving Credit Agreement dated as of June 30, 1995 (as amended and in effect
from time to time, the "Credit Agreement") by and among the Borrower, the Banks
and the Agent. Terms not otherwise defined herein which are defined in the
Credit Agreement shall have the same respective meanings herein as therein.
WHEREAS, the Borrower, the Banks and the Agent have agreed to modify
certain terms and conditions of the Credit Agreement as specifically set forth
in this Seventh Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SS.1. AMENDMENT TO SS.7 OF THE CREDIT AGREEMENT. Section 7.3 of the
Credit Agreement is hereby amended by deleting the text of ss.7.3(g) in its
entirety and restating it as follows:
(g) an Investment by the Borrower in Pluto Technologies, Inc.
("Pluto") in an aggregate amount of not more than $1,100,000 pursuant to a
joint development and marketing agreement between the Borrower and Pluto;
PROVIDED, that no Default or Event of Default has occurred and is
continuing or would exist immediately after giving effect to such
Investment.
SS.2. CONDITIONS TO EFFECTIVENESS. This Seventh Amendment shall not
become effective until the Agent receives a counterpart of this Seventh
Amendment executed by the Borrower, the Banks and the Agent.
SS.3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby repeats, on and
as of the date hereof, each of the representations and warranties made by it in
ss.5 of the Credit Agreement, PROVIDED, that all references therein to the
Credit Agreement shall refer to such Credit Agreement as amended hereby. In
addition, the Borrower hereby represents and warrants that the execution and
delivery by the Borrower of this Seventh Amendment and the performance by the
Borrower of all of its agreements and obligations under the Credit Agreement as
amended hereby are within the corporate authority of the Borrower and have been
duly authorized by all necessary corporate action on the part of the Borrower.
SS.4. RATIFICATION, ETC. Except as expressly amended hereby, the Credit
Agreement and all documents, instruments and agreements related thereto are
hereby ratified and confirmed in all respects and shall continue in full force
and effect. The Credit Agreement and this Seventh Amendment shall be read and
construed as a single agreement. All references in the Credit Agreement or any
related agreement or instrument to the Credit Agreement shall hereafter refer to
the Credit Agreement as amended hereby.
SS.5. NO WAIVER. Nothing contained herein shall constitute a waiver
of, impair or otherwise affect any Obligations, any other obligation of the
Borrower or any rights of the Agent or the Banks consequent thereon.
SS.6. COUNTERPARTS. This Seventh Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
SS.7. GOVERNING LAW. THIS SEVENTH AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICT OF LAWS).
IN WITNESS WHEREOF, the parties hereto have executed this Seventh
Amendment as a document under seal as of the date first above written.
AVID TECHNOLOGY, INC.
By: /s/ C. Edward Hazen
---------------------------
Title: Treasurer
BANKBOSTON, N.A.,
individually and as Agent
By: /s/John B. Desmond
----------------------------
Title: Vice President
ABN AMRO BANK N.V.
By: /s/ Brian M. Horgan
-------------------------
Title: Vice President
Exhibit 10.24
Avid Technology, Inc.
1998 Executive and Senior Management
Variable Compensation Plan Description
PARTICIPATION
Senior Consulting Engineers, Directors, Vice Presidents, and Executive Officers
in salary grades determined by the Board of Directors participate in this Plan.
GOALS AND MEASUREMENT
ROIC is the Plan goal and is calculated as shown below:
OPERATING INCOME
ROIC = ------------------------------------------------
Total Non-Cash Assets MINUS Interest-Bearing Debt
OPERATING INCOME (the numerator) is defined as profit from operations. Operating
Income offers the advantage over Net Income (which was used as the numerator in
the 1997 ROIC calculation) of factoring out the effects of tax rate, income
earned on cash balances not currently used in the Company's operations, and
interest expense on any interest-bearing debt. It therefore focuses on those
operational areas influenced by the vast majority of participants in this Plan.
INVESTED CAPITAL (the denominator) is defined as total assets less cash and
debt. It therefore encompasses all the places where the Company truly employs
funds in its operations. In the 1997 Plan, Invested Capital was defined somewhat
differently as Stockholders' Equity less cash. This revised 1998 definition
again focuses on operating performance.
In 1998, executive variable compensation will be based on a relative comparison
of Avid's actual 1998 ROIC performance with the ROIC performance of its chosen
peer group, the S&P High Tech Composite, for the four-quarter period ended on or
nearest to September 30, 1997. The benchmark in 1998 is the peer group rather
than Avid's annual budget.
The Plan will begin paying out if Avid's ROIC equals a percentile of peer group
performance set by the Board. 100% award payout will occur at a percentile of
peer group performance set by the Board rather than at attainment of Avid's
annual budget as in prior years.
In order to pay out more than 100% of target, 1998 operating income must be
higher than that of 1997 by a factor determined by the Board of Directors.
TARGET AWARDS
The target variable compensation award is the award a Plan participant will
receive if Avid achieves the median ROIC performance of its peer group. The
target award can be expressed as either a dollar amount or as a percentage of
base salary.
PRORATED AWARDS
Individual awards will be prorated under the following circumstances:
1) Any salary changes throughout the year will be prorated.
2) If a participant is hired after January 1, the variable compensation
award will be prorated for that portion of the fiscal year worked for
Avid. For example, if the participant is hired July 1, 1998, s/he will
receive 50% of the calculated variable compensation award.
3) If a participant is promoted after January 1 to a position with a
higher variable compensation award, the 1998 award will be prorated for
that portion of the fiscal year each award level was in effect.
4) If a participant becomes disabled and qualifies for benefits under
Avid's long-term disability plan, the variable compensation award will be
prorated for that portion of the fiscal year s/he was paid though the Avid
payroll as an employee.
5) If a participant is laid off by Avid, the variable compensation award
will be prorated through the effective employment termination date. In
this case, the payout may not exceed 100% of the prorated target award.
6) If a participant dies while in Avid employment, the variable
compensation award will be prorated as of the date of death and paid to
the surviving spouse, or if none, to the estate.
PLAN PAYOUT
The Plan payout will be determined after audited financial results for 1998 are
determined and released, near the end of January 1999. Plan payout is expected
to occur in February. Employees must be employed by Avid at the time of actual
Plan payout to receive their incentive compensation award, unless eligible for a
prorated award as described above.
CHANGES TO THE PLAN
The Company reserves the right at its sole discretion to modify, amend, revoke,
or suspend the Plan at any time
This is a Plan summary and is not intended to be and shall not be interpreted as
an employment contract.
Exhibit 10.25
AVID TECHNOLOGY, INC.
1997 STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1997 Stock Option Plan (the "Plan") of Avid
Technology, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and thereby better aligning the interests of such
persons with those of the Company's stockholders. Except where the context
otherwise requires, the term "Company" shall include any present or future
subsidiary corporations of Avid Technology, Inc. as defined in Section 424(f) of
the Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder.
2. ELIGIBILITY
All of the Company's employees, other than those who are also executive
officers or directors, and the Company's consultants and advisors are eligible
to be granted options (each, an "Option") under the Plan. Any person who has
been granted an Option under the Plan shall be deemed a "Participant".
3. ADMINISTRATION, DELEGATION
(a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered by
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Options and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Option. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Options and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Options and the maximum number of shares for any one
Participant to be made by such executive officers.
(c) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. STOCK AVAILABLE FOR OPTIONS
(a) NUMBER OF SHARES. Subject to adjustment under Section 4(c), Options
may be made under the Plan for up to 1,000,000 shares of Common Stock, $.01 par
value per share, of the Company (the "Common Stock"). If any Option expires or
is terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Option shall again be available for the
grant of Options under the Plan, subject, however, in the case of Incentive
Stock Options (as hereinafter defined), to any limitation required under the
Code. Shares issued under the Plan may consist in whole or in part of authorized
but unissued shares or treasury shares.
(b) PER-PARTICIPANT LIMIT. Subject to adjustment under Section 4(c), for
Options granted after the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares with
respect to which an Option may be granted to any Participant under the Plan
shall be 300,000 per calendar year. The Per-Participant limit described in this
Section 4(b) shall be construed and applied consistently with Section 162(m) of
the Code.
(c) ADJUSTMENT TO COMMON STOCK. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, and (ii) the number and class of security and exercise price
per share subject to each outstanding Option, shall be appropriately adjusted by
the Company (or substituted Options may be granted, if applicable) to the extent
the Board shall determine, in good faith, that such an adjustment (or
substitution) is necessary and appropriate. If this Section 4(c) applies and
Section 6(e)(1) also applies to any event, Section 6(e)(1) shall be applicable
to such event, and this Section 4(c) shall not be applicable.
5. STOCK OPTIONS
(a) GENERAL. The Board may grant Options to purchase Common Stock and
determine the number of shares of Common Stock to be covered by each Option, the
exercise price of each Option and the conditions and limitations applicable to
the exercise of each Option, including conditions relating to applicable federal
or state securities laws, as it considers necessary or advisable. An Option
which is not intended to be an Incentive Stock Option (as hereinafter defined)
shall be designated a "Nonstatutory Stock Option".
(b) INCENTIVE STOCK OPTIONS; STOCKHOLDER APPROVAL REQUIRED. An Option that
the Board intends to be an "incentive stock option" as defined in Section 422 of
the Code (an "Incentive Stock Option") shall be subject to and shall be
construed consistently with the requirements of Section 422 of the Code.
Notwithstanding that an Option may be designated by the Board as an Incentive
Stock Option, no Option granted under the Plan shall be an Incentive Stock
Option unless the Plan is approved by the Company's stockholders within 12
months of the date upon which the Board adopts the Plan. The Company shall have
no liability to a Participant, or any other party, if an Option (or any part
thereof) which is intended to be an Incentive Stock Option is not an Incentive
Stock Option.
(c) EXERCISE PRICE. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) DURATION OF OPTIONS. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) EXERCISE OF OPTION. Options may be exercised only by delivery to the
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
(f) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an Option, delivery of an
irrevocable and unconditional undertaking by a credit worthy broker to
deliver promptly to the Company sufficient funds to pay the exercise
price, or delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a credit worthy broker
to deliver promptly to the Company cash or a check sufficient to pay
the exercise price;
(3) to the extent permitted by the Board and explicitly provided in the
Option (i) by delivery of shares of Common Stock owned by the
Participant valued at their fair market value as determined by the
Board in good faith ("Fair Market Value"), which Common Stock was
owned by the Participant at least six months prior to such delivery,
(ii) by delivery of a promissory note of the Participant to the
Company on terms determined by the Board, or (iii) by payment of such
other lawful consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
6. GENERAL PROVISIONS APPLICABLE TO OPTIONS
(a) TRANSFERABILITY OF OPTIONS. Except as the Board may otherwise
determine or provide in an Option, Options shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
(b) DOCUMENTATION. Each Option under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Option may
contain terms and conditions in addition to those set forth in the Plan.
(c) BOARD DISCRETION. Except as otherwise provided by the Plan, each type
of Option may be made alone in addition or in relation to any other type of
Option. The terms of each type of Option need not be identical, and the Board
need not treat Participants uniformly.
(d) TERMINATION OF STATUS. The Board shall determine the effect on an
Option of the disability, death, retirement, authorized leave of absence or
other change in the employment or other status of a Participant and the extent
to which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Option.
(e) ACQUISITION EVENTS
(1) CONSEQUENCES OF ACQUISITION EVENTS. Upon the occurrence of an
Acquisition Event (as defined below), or the execution by the Company
of any agreement with respect to an Acquisition Event, the Board shall
take any one or more of the following actions with respect to then
outstanding Options: (i) provide that outstanding Options shall be
assumed, or equivalent Options shall be substituted, by the acquiring
or succeeding corporation (or an affiliate thereof), provided that any
such Options substituted for Incentive Stock Options shall satisfy, in
the determination of the Board, the requirements of Section 424(a) of
the Code; (ii) upon written notice to the Participants, provide that
all then unexercised Options will become exercisable in full as of a
specified date (the "Acceleration Date") prior to the Acquisition
Event and will terminate immediately prior to the consummation of such
Acquisition Event, except to the extent exercised by the Participants
between the Acceleration Date and the consummation of such Acquisition
Event; and (iii) in the event of an Acquisition Event under the terms
of which holders of Common Stock will receive upon consummation
thereof a cash payment for each share of Common Stock surrendered
pursuant to such Acquisition Event (the "Acquisition Price"), provide
that all outstanding Options shall terminate upon consummation of such
Acquisition Event and each Participant shall receive, in exchange
therefor, a cash payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of Common Stock
subject to such outstanding Options (whether or not then exercisable),
exceeds (B) the aggregate exercise price of such Options. An
"Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving or acquiring entity) less than 50% of the combined voting
power of the voting securities of the Company or such surviving or
acquiring entity outstanding immediately after such merger or
consolidation; (b) any sale of all or substantially all of the assets
of the Company; (c) the complete liquidation of the Company; or (d)
the acquisition of "beneficial ownership" (as defined in Rule 13d-3
under the Exchange Act) of securities of the Company representing 50%
or more of the combined voting power of the Company's then outstanding
securities (other than through a merger or consolidation or an
acquisition of securities directly from the Company) by any "person",
as such term is used in Sections 13(d) and 14(d) of the Exchange Act
other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any
corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportion as their ownership of
stock of the Company.
(2) ASSUMPTION OF OPTIONS UPON CERTAIN EVENTS. The Board may grant Options
under the Plan in substitution for options held by employees of
another corporation who become employees of the Company as a result of
a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of property or stock of the
employing corporation. The substitute Options shall be granted on such
terms and conditions as the Board considers appropriate in the
circumstances.
(f) WITHHOLDING. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Options to such Participant no later than the
date of the event creating the tax liability. The Board may allow Participants
to satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Option creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(g) AMENDMENT OF OPTION. The Board may amend, modify or terminate any
outstanding Option, including but not limited to, substituting therefor another
Option of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(h) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan until (i) all conditions
of the Option have been met or removed to the satisfaction of the Company, (ii)
in the opinion of the Company's counsel, all other legal matters in connection
with the issuance and delivery of such shares have been satisfied, including any
applicable securities laws and any applicable stock exchange or stock market
rules and regulations, and (iii) the Participant has executed and delivered to
the Company such representations or agreements as the Company may consider
appropriate to satisfy the requirements of any applicable laws, rules or
regulations.
(i) ACCELERATION. The Board may at any time provide that any Options shall
become immediately exercisable in full or in part.
7. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any claim
or right to be granted an Option, and the grant of an Option shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Option.
(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable
Option, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Option until becoming the record holder of such shares.
(c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on
the date on which it is adopted by the Board, but no Option designated as an
Incentive Stock Option shall be an Incentive stock Option unless and until the
Plan has been approved by the Company's stockholders within 12 months of the
date upon which the Board adopts the Plan. No Options shall be granted under the
Plan after the completion of ten years from the date on which the Plan was
adopted by the Board but Options previously granted may remain exercisable
beyond that date.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time.
(e) GOVERNING LAW. The provisions of the Plan and all Options made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
Exhibit 10.26
AVID TECHNOLOGY, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
February 12, 1996
The purpose of this Plan is to provide eligible employees of Avid
Technology, Inc. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's common stock, $.01 par value
(the "Common Stock"), commencing on August 1, 1996. Two Hundred Thousand
(200,000) shares of Common Stock in the aggregate have been approved for this
purpose.
1. ADMINISTRATION. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. ELIGIBILITY. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined in Section 9) to purchase Common Stock under the Plan
provided that:
(a) they are regularly employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than five months in
a calendar year; and
(b) they have been employed by the Company or a Designated
Subsidiary for at least three months prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on
the first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
3. OFFERINGS. The Company will make one or more offerings ("Offerings") to
employees to purchase stock under this Plan. Offerings will begin each August 1
and February 1, or the first business day thereafter (the "Offering Commencement
Dates"). Each Offering Commencement Date will begin a six month period (a "Plan
Period") during which payroll deductions will be made and held for the purchase
of Common Stock at the end of the Plan Period. The Board or the Committee may,
at its discretion, choose a different Plan Period of twelve (12) months or less
for subsequent Offerings.
4. PARTICIPATION. An employee eligible on the Offering Commencement Date
of any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the employee's appropriate payroll
office at least 30 days prior to the applicable Offering Commencement Date. The
form will authorize a regular payroll deduction from the Compensation received
by the employee during the Plan Period. Unless an employee files a new form or
withdraws from the Plan, his deductions and purchases will continue at the same
rate for future Offerings under the Plan as long as the Plan remains in effect.
The term "Compensation" means the amount of money reportable on the employee's
Federal Income Tax Withholding Statement, excluding overtime, shift premium,
incentive or bonus awards, allowances and reimbursements for expenses such as
relocation allowances for travel expenses, income or gains on the exercise of
Company stock options or stock appreciation rights, and similar items, whether
or not shown on the employee's Federal Income Tax Withholding Statement, but
including, in the case of salespersons, sales commissions to the extent
determined by the Board or the Committee.
5. DEDUCTIONS. The Company will maintain payroll deduction accounts for
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction in any dollar amount up to a
maximum of ten percent (10%) of the Compensation he or she receives during the
Plan Period or such shorter period during which deductions from payroll are
made. The Board or the Committee may set a minimum payroll deduction
requirement.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other stock
purchase plan of the Company and its subsidiaries, to accrue at a rate which
exceeds $25,000 of the fair market value of such Common Stock (determined at the
Offering Commencement Date of the Plan Period) for each calendar year in which
the Option is outstanding at any time.
6. DEDUCTION CHANGES. An employee may decrease or discontinue his payroll
deduction once during any Plan Period, by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. INTEREST. Interest will not be paid on any employee accounts, except to
the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. WITHDRAWAL OF FUNDS. An employee may at any time prior to the close of
business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Plan Period. The employee may participate in any subsequent Offering in
accordance with terms and conditions established by the Board or the Committee,
except that employees who are also directors or officers of the Company within
the meaning of Section 16 of the Securities Exchange Act of 1934 (the "Exchange
Act") and the rules promulgated thereunder may not participate again for a
period of at least six months as provided in Rule 16b-3(d)(2)(i) or any
successor provision.
9. PURCHASE OF SHARES. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, such number of whole shares of Common Stock of the Company
reserved for the purposes of the Plan as does not exceed the number of shares
determined by dividing six percent (6%) of such employee's annualized
Compensation for the immediately prior six-month period by the price determined
in accordance with the formula set forth in the following paragraph but using
the closing price on the Offering Commencement Date of such Plan Period.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the closing price of the Common Stock on
the Nasdaq National Market or (c) the average of the closing bid and asked
prices in the over-the-counter market, whichever is applicable, as published in
THE WALL STREET JOURNAL. If no sales of Common Stock were made on such a day,
the price of the Common Stock for purposes of clauses (a) and (b) above shall be
the reported price for the next preceding day on which sales were made.
Each employee who continues to be a participant in the Plan on the
Exercise Date shall be deemed to have exercised his Option at the Option Price
on such date and shall be deemed to have purchased from the Company the number
of full shares of Common Stock reserved for the purpose of the Plan that his
accumulated payroll deductions on such date will pay for pursuant to the formula
set forth above (but not in excess of the maximum number determined in the
manner set forth above).
Any balance remaining in an employee's payroll deduction account at the
end of a Plan Period will be automatically refunded to the employee, except that
any balance which is less than the purchase price of one share of Common Stock
will be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded.
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the street
name of a brokerage firm, bank or other nominee holder designated by the
employee.
11. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. In the event
of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the Company may, in
its discretion, designate. If, prior to the last business day of the Plan
Period, the Designated Subsidiary by which an employee is employed shall cease
to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. RIGHTS NOT TRANSFERABLE. Rights under this Plan are not transferable
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. APPLICATION OF FUNDS. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event of
a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and the
share limitation set forth in Section 9, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the Board or
the Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. MERGER. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger, and the Committee shall take such steps in
connection with such merger as the Committee shall deem necessary to assure that
the provisions of Paragraph 15 shall thereafter be applicable, as nearly as
reasonably may be, in relation to the said securities or property as to which
such holder of such Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, (a) subject to the provisions of
clauses (b) and (c), after the effective date of such transaction, each holder
of an outstanding Option shall be entitled, upon exercise of such Option, to
receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (b) all outstanding Options may be cancelled by
the Board or the Committee as of a date prior to the effective date of any such
transaction and all payroll deductions shall be paid out to the participating
employees; or (c) all outstanding Options may be cancelled by the Board or the
Committee as of the effective date of any such transaction, provided that notice
of such cancellation shall be given to each holder of an Option, and each holder
of an Option shall have the right to exercise such Option in full based on
payroll deductions then credited to his account as of a date determined by the
Board or the Committee, which date shall not be less than ten (10) days
preceding the effective date of such transaction.
17. AMENDMENT OF THE PLAN. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the shareholders of the Company is required by Section 423 of
the Code or by Rule 16b-3 under the Exchange Act, such amendment shall not be
effected without such approval, and (b) in no event may any amendment be made
which would cause the Plan to fail to comply with Section 16 of the Exchange Act
and the rules promulgated thereunder, as in effect from time to time, or Section
423 of the Code.
18. INSUFFICIENT SHARES. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
19. TERMINATION OF THE PLAN. This Plan may be terminated at any time by
the Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and deliver
Common Stock under this Plan is subject to listing on a national stock exchange
or quotation on the Nasdaq National Market and the approval of all governmental
authorities required in connection with the authorization, issuance or sale of
such stock. The Plan shall be governed by Delaware law except to the extent that
such law is preempted by federal law. The Plan is intended to comply with the
provisions of Rule 16b-3 promulgated under the Securities Exchange Act of 1934.
Any provision inconsistent with such Rule shall to that extent be inoperative
and shall not affect the validity of the Plan.
21. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
22. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
23. EFFECTIVE DATE AND APPROVAL OF SHAREHOLDERS. The Plan shall take
effect on February 12, 1996 subject to approval by the shareholders of the
Company as required by Rule 16b-3 under the Exchange Act and by Section 423 of
the Code, which approval must occur within twelve months of the adoption of the
Plan by the Board.
Adopted by the Board of Directors
on February 12, 1996
Approved by the stockholders on
June 5, 1996
Exhibit 10.28
AVID TECHNOLOGY, INC.
1998 PROFIT SHARING PLAN DESCRIPTION
PURPOSE OF THE PLAN
The purpose of the Profit Sharing Plan is to reward all Avid employees for
improving Company performance as measured by Return on Invested Capital (ROIC).
ELIGIBILITY TO PARTICIPATE IN THE PLAN
All regular Avid employees who are not already covered by a sales commission
plan or the Executive Variable Compensation Plan are eligible to participate.
Employees hired after January 1, 1998 but before October 1, 1998 are eligible to
participate on a prorated basis. Employees hired on or after October 1, 1998
will be eligible to participate in the Plan beginning January 1, 1999. Temporary
employees are excluded from the Plan. However, if a temporary employee transfers
to a regular position prior to October 1, 1998, he/she will participate on a
prorated basis. Rehires will be treated as new employees under the Plan.
OPERATION OF THE PLAN
At target performance the Plan pays a percentage of the 1998 base salary which
has been paid to participants during the year while a Plan participant. This
includes vacation, personal time, sick time, and holiday time BUT NOT overtime,
shift differential, or other premium pay. The Plan pays more for performance
above target.
Performance is measured by Avid's 1998 ROIC. In 1998 Avid's ROIC performance
will be evaluated against a peer group of other publicly-traded high technology
companies. The Standard & Poor's High Technology Composite will comprise this
peer group. The 1998 Plan target award is set at a percentile ROIC of the peer
group selected by the Board of Directors.
WHAT IS ROIC?
ROIC is calculated as shown below:
OPERATING INCOME
ROIC = --------------------------------------------------
Total Non-Cash Assets MINUS Interest-Bearing Debt
Operating Income (the numerator) is defined as profit from operations.
Invested Capital (the denominator) is defined as total assets less cash and
debt.
CHANGES IN STATUS
Individual awards will be prorated under the following circumstances:
1) Any salary changes throughout the year are automatically prorated since
Profit Sharing is calculated on the actual base salary paid during 1998.
2) If a participant is hired after January 1, his/her Profit Sharing will
be automatically prorated for that portion of the fiscal year worked for
Avid since it will be calculated on actual base salary paid during 1998.
For example, if the participant is hired July 1, 1998, his/her Profit
Sharing will be based on a half a year's base salary.
3) If a participant transfers from a temporary to a regular position
before October 1, 1998, his/her Profit Sharing will be calculated on the
base salary paid after transferring to the regular position.
4) If a participant is on an approved leave of absence for a portion of
1998, his/her Profit Sharing will be calculated on the base salary paid
during the year. This has the effect of prorating the award for any
portion of the leave which was unpaid.
5) If a participant becomes disabled and qualifies for benefits under
Avid's long-term disability plan, his/her Profit Sharing award will be
calculated on the base salary paid while on the Avid payroll as an
employee.
6) If a participant is laid off by Avid, the Profit Sharing award will be
calculated on the base salary paid through the effective employment
termination date. In this case, the payout may not exceed 100% of the
prorated target award.
7) If a participant dies while in Avid employment, the Profit Sharing
award will be calculated on the base salary paid prior to date of death.
The award will be paid to the surviving spouse, or if none, to the estate.
TIMING OF PLAN PAYOUT
The Plan payout will be determined after audited financial results for 1998 are
determined and publicly released, near the end of January 1999. Plan payout is
expected to occur in February. Employees must be employed by Avid at the time of
actual Plan payout to receive their Plan award, unless eligible for a prorated
award as described above. Employees who are on approved leave of absence at the
time of actual Plan payout will be considered to be employed for this purpose.
CHANGES TO THE PLAN
The Company reserves the right at its sole discretion to modify, amend, revoke,
or suspend the Plan at any time
This is a Plan summary and is not intended to be and shall not be interpreted as
an employment contract.
<PAGE>
Exhibit 10.29
EMPLOYMENT AGREEMENT
November 10, 1997
CONFIDENTIAL
William J. Miller
c/o Avid Technology, Inc.
Metropolitan Technology Park
One Park West
Tewksbury, MA 01876
Dear Bill:
Continuity of management of Avid Technology, Inc. ("Avid") is a critical
factor to the continued growth and success of Avid. The Avid Board of Directors
believes that it is in the best interest of the Company to reinforce and
encourage the continued attention and dedication of key members of management to
their assigned duties.
In consideration of the mutual promises contained in this letter, it is
hereby agreed that Avid shall provide to you, and that you shall receive from
Avid, the benefits set forth in this letter (the "Agreement") if your employment
with Avid, and its subsidiaries, is terminated during the term of this
Agreement.
1. PURPOSE
This Agreement establishes certain special arrangements relating to the
termination of your employment with Avid for any reason other than: (i)
your becoming totally and permanently disabled under the Avid long-term
disability plan or policy, or (ii) your death.
2. TERM OF AGREEMENT
This Agreement shall become effective on the date hereof (the "Effective
Date") and shall terminate one year thereafter. The term shall be
automatically extended for successive one-year periods after the first
anniversary, unless 30 days' advance written notice is given by you or by
Avid terminating this Agreement as of any anniversary date.
3. TERMINATION OF EMPLOYMENT
Your employment may be terminated in accordance with any of the following
paragraphs, but only upon one (1) month's advance written notice (which
period shall be referred to in this Agreement as the "Notice Period"). The
expiration of the Notice Period shall be your "Date of Termination."
(a) INVOLUNTARY TERMINATION WITHOUT CAUSE. Avid may terminate your
employment without Cause (as defined below). In such an event, you shall
continue to receive your full base salary during the Notice Period. Upon
your Date of Termination, you shall be entitled to those benefits provided
under Section 4.
(b) INVOLUNTARY TERMINATION FOR CAUSE. Avid may terminate your employment
for "Cause" by written notice setting forth the Cause for termination.
"Cause" means a willful engaging in gross misconduct materially and
demonstrably injurious to Avid or the willful and continued failure by you
substantially to perform your duties with the Company (other than any such
failure resulting from your incapacity due to physical or mental illness)
after a written demand for substantial performance is delivered to you by
the Board of Directors which specifically identifies the manner in which
the Board believes that you have not substantially performed your duties.
"Willful" means an act or omission in bad faith and without reasonable
belief that such act or omission was in or not opposed to the best
interests of Avid. Upon your Date of Termination, you shall be entitled
only to those benefits provided under Section 5.
(c) VOLUNTARY TERMINATION WITHOUT GOOD REASON. You may voluntarily
terminate your employment without Good Reason (as defined below). In such
an event, you shall continue to receive your full base salary and
Employment Benefits during the Notice Period provided you satisfactorily
perform your duties during the Notice Period, unless you are relieved of
those duties by Avid. Upon your Date of Termination, you shall be entitled
only to those benefits provided under Section 5.
(d) VOLUNTARY TERMINATION WITH GOOD REASON. You may voluntarily terminate
your employment with Good Reason. "Good Reason" shall mean a significant
diminution in your duties or responsibilities or any acquisition of Avid
that results in your no longer serving as Chief Executive Officer of an
independent public company. In such an event, you shall continue to
receive your full base salary and Employment Benefits during the Notice
Period. provided you satisfactorily perform your duties during the Notice
Period, unless you are relieved of those duties by Avid. Upon your Date of
Termination, you shall be entitled to those benefits provided under
Section 4.
4. SPECIAL SEVERANCE BENEFITS
If your employment with Avid is involuntarily terminated by Avid without
Cause pursuant to Section 3(a) or by you for Good Reason pursuant to
Section 3(d), then you shall receive the following benefits as long as you
continue to comply with your obligations under Section 8 of this Agreement
and any Invention and Nondisclosure Agreement (or similar agreement)
between you and the Company:
(a) Your base salary shall be continued in effect for a period of twelve
(12) months from your Date of Termination (hereinafter called your
"Severance Pay Period"). Avid will also pay you, during the thirteenth
through twenty-fourth months following termination, on a semi-monthly
basis, the amount by which your monthly base salary at the Date of
Termination exceeds your monthly compensation from your new employer;
(b) You will receive incentive compensation payments in an aggregate
amount equal to your target award for the calendar year immediately
preceding the calendar year in which your Date of Termination occurs,
payable in equal semi-monthly installments during the 12 months following
the Date of Termination. You shall have no right to any pro-rated
incentive compensation in respect of the year of termination;
(c) Notwithstanding any provision to the contrary in any Avid stock plan,
or under the terms of any grant, award agreement or form for exercising
any right under any such plan, any stock options or restricted stock
awards held by you as of the Date of Termination shall become exercisable
or vested, as the case may be, as to an additional number of shares equal
to the number that would have been exercisable or vested as of the end of
the 12 month period immediately following the Date of Termination. Nothing
in this Agreement shall be construed to extend the time period within
which any option may be exercised beyond the period specified in the
applicable stock plan or under the terms of any grant, award agreement or
form for exercising any right under any such plan;
(d) During the Severance Pay Period, in the event you elect to continue to
participate in the Company's medical and dental plans to the extent
permitted under COBRA, the Company shall pay the cost of such
participation;
(e) You shall be entitled to full executive outplacement assistance with
an agency selected by Avid; and
(f) If you do not find employment in Massachusetts following such
termination, Avid shall reimburse you for relocation expenses back to
California or Minnesota, as you may elect.
5. BENEFITS UPON VOLUNTARY TERMINATION WITHOUT GOOD REASON OR TERMINATION
FOR CAUSE.
Upon your termination for Cause in accordance with Section 3(b) or your
termination without Good Reason in accordance with Section 3(c), all
benefits under this Agreement will be void. In such an event, you shall be
eligible for the benefits (if any) provided in accordance with the plans
and policies of Avid which are then applicable to employees of Avid
generally.
6. CONFIDENTIALITY.
The provisions of the Employee Invention and Non-Disclosure Agreement
between you and Avid shall continue in full force and effect following any
termination of employment.
7. RELATIONSHIP TO CHANGE-IN-CONTROL AGREEMENT, ETC.
(a) In the event you become entitled to any benefits under any
Change-in-Control Employment Agreement between you and Avid, such
Change-in-Control Employment Agreement shall control and this Agreement
shall be void and of no further force or effect.
(b) Except as expressly set forth in Section 7(a), this Agreement
supersedes all prior agreements with Avid related to the subject matter
hereof (including all provisions of the letter agreement dated April 3,
1996 other than Sections 5(a), 5(b) and the language of Section 7 through
and including clause (i) thereof, which shall survive), and the special
severance benefits provided under this Agreement are to be provided
instead of any other Avid severance arrangements. Avid's severance
policies and practices are superseded except to the extent incorporated
herein. Notwithstanding the foregoing, nothing contained in this Agreement
shall have any affect upon your rights under any tax qualified "pension
benefit plan", as such term is defined in the Employee Retirement Income
Security Act of 1974, as amended (ERISA); or any other "welfare benefit
plan" as defined in ERISA, including by way of illustration and not
limitation, any medical surgical or hospitalization benefit coverage or
long-term disability benefit coverage; or under any deferred compensation
or equity incentive arrangement, including by way of illustration and not
limitation, any stock incentive plan, non-qualified pension plan, or
phantom stock plan.
8. COVENANT NOT TO COMPETE AND NOT TO SOLICIT.
(a) During the term of this Agreement, and for a period of two (2) years
following the termination of your employment for any reason, you agree you
will not engage in any business (whether as an owner, partner, officer,
director, employee, consultant or otherwise, except as the holder of not
more than 1% of the outstanding stock of a publicly-held company) that
competes or plans to compete with Avid in the business of the development,
manufacture, promotion, distribution or sale of digital film, video or
audio editing, special effects or newsroom automation systems or products
or any other business in which Avid is engaged or plans to engage at the
time of your termination. Without limiting the foregoing, during such
period you shall not be employed by or otherwise serve as a consultant to
Abekas, Accom, Adobe, Carlton Communications, Chyron, Data Translation,
Discreet Logic, DVision, FAST Technology, Hewlett-Packard, Immix, InSync,
Kodak, Lightworks, Macromedia, Matrox, Media 100, Metacreations, MGI,
Newsmaker, Newstar, Panasonic/Matsushita, Philips, Pinnacle Systems, Play
Systems, Pluto Technologies International, Progressive Networks, Quantel,
SADIE, Scitex, Sonic Solutions, SONY, Softimage/Microsoft, Tektronix,
Transoft, Truevision, VDONet or VXtreme, or any of their subsidiaries and
affiliates.
(b) You also agree that, for a period of two (2) years from the date of
your termination, you will not, either directly or indirectly through an
agency, new employer or otherwise, solicit the employment of (or solicit
to engage as an independent contractor or consultant) any person who at
any time during the one year preceding such solicitation was an employee
or independent contractor of Avid or any Avid affiliate.
(c) If any restriction in this Section 8 is found by any court of
competent jurisdiction to be unenforceable because it extends for too long
a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may
be enforceable.
(d) The restrictions contained in this Section 8 are necessary for the
protection of the business and good will of Avid and are considered by you
to be reasonable for such purpose. You agree that any breach of this
Section 8 will cause Avid substantial and irrevocable damage and,
therefore, in the event of any such breach, in addition to such other
remedies which may be available, Avid shall have the right to seek
specific performance and injunctive relief.
9. NOTICE.
Notice required or permitted under this Agreement shall be in writing and
shall be deemed to have been given when delivered or mailed by the United
States certified mail, return receipt requested, postage prepaid, in a
properly addressed envelope. Notices to Avid shall be addressed to the
Corporate Secretary.
10. MODIFICATION; SUCCESSORS.
No provision of this Agreement may be waived, modified, or discharged
except pursuant to a written instrument signed by you and Avid. This
agreement is binding upon any successor to all or substantially all
business or assets of Avid.
11. INDEMNIFICATION.
The Company will indemnify you to the extent set forth in the Certificate
of Incorporation and By-laws of the Company for all acts or omissions
occurring during the period of your employment.
12. VALIDITY; COUNTERPARTS
This agreement shall be governed by and construed under the laws of the
Commonwealth of Massachusetts. The validity or enforceability of any
provision hereof shall not affect the validity or enforceability of any
other provision hereof. This Agreement may be executed in one or more
counterparts, each of which together will constitute one and the same
instrument.
Accepted and Agreed Sincerely,
as of November 10, 1997 Avid Technology, Inc.
By: /S/ Judith Oppenheim
/S/ William J. Miller -------------------------
- ------------------------- Name: Judith Oppenheim
William J. Miller Title: Sr. Vice President - Human Resources
<PAGE>
Exhibit 10.30
CHANGE-IN-CONTROL AGREEMENT
November 10, 1997
Mr. William J. Miller
Chief Executive Officer
Avid Technology, Inc.
Metropolitan Technology Park
One Park West
Tewksbury, MA 01876
The Board of Directors (the "Board") of Avid Technology, Inc. ("Avid" or
the "Company") recognizes that your contributions to the past and future growth
and success of the Company have been and will be substantial and the Board
desires to assure the Company of your continued services for the benefit of the
Company, particularly in the face of a change-in-control of the Company.
This letter agreement ("Agreement") therefore sets forth those benefits
which the Company will provide to you in the event your employment within the
Company is terminated after a "Change in Control of the Company" (as defined in
Paragraph 2 (i)) under the circumstances described below.
1. TERM.
If a Change in Control of the Company should occur while you are still an
employee of the Company, then this Agreement shall continue in effect from the
date of such Change in Control of the Company for so long as you remain an
employee of the Company, but in no event for more than two full calendar years
following such Change in Control of the Company; provided, however, that the
expiration of the term of this Agreement shall not adversely affect your rights
under this Agreement which have accrued prior to such expiration. If no Change
in Control of the Company occurs before your status as an employee of the
Company is terminated, this Agreement shall expire on such date. Prior to a
Change in Control of the Company, your employment may be terminated by the
Company with or without Cause (as defined in Paragraph 3(ii)), and/or this
Agreement may be terminated by the Company, at any time upon written notice to
you and, in either or both such events, you shall not be entitled to any of the
benefits provided hereunder; provided, however, that the Company may not
terminate this Agreement following the occurrence of a Potential Change in
Control of the Company (as defined in Paragraph 2(ii)) unless (a) at least one
year has expired since the most recent event or transaction constituting a
Potential Change in Control of the Company and (b) in respect of a Potential
Change in Control of the Company which previously occurred, no facts or
circumstances continue to exist which, if initially occurring at the time any
termination of this Agreement is to occur, would constitute a Potential Change
in Control of the Company.
2. CHANGE IN CONTROL; POTENTIAL CHANGE IN CONTROL.
(i) For purposes of this Agreement, a "Change in Control of the Company"
shall be deemed to have occurred only if any of the following events
occur:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"))(a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 30% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a
Change of Control: (A) any acquisition directly from the Company,
(B) any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company, or (D) any
acquisition by any corporation pursuant to a transaction which
satisfies the criteria set forth in clauses (A), (B) and (C) of
subparagraph (c) of this Paragraph 2(i); or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least
a majority of the Board; provided, however, that any individual
becoming a director subsequently to the date hereof whose election,
or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets
of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then-outstanding shares of common
stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors,
of the corporation resulting from such Business Combination (which
as used in this Paragraph 2(i)(c) shall include, without limitation,
a corporation which as a result of such transaction owns all or
substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as
their ownership immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be and (B) no Person (excluding any
corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns,
directly or indirectly, 30% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting form
such Business Combination, or the combined voting power of the
then-outstanding voting securities of such corporation.
(ii) For purposes of this Agreement, a "Potential Change in Control of the
Company" shall be deemed to have occurred if (A) the Company shall enter
into an agreement, the consummation of which would result in the
occurrence of a Change in Control of the Company, or (B) any person shall
publicly announce an intention to take or to consider taking actions which
if consummated would constitute a Change in Control of the Company, or (C)
the Company shall receive any written communication from any third party
or third parties, acting as principal or as authorized representative of a
disclosed principal, which is publicly disclosed and proposes (or
indicates a desire to engage in discussions relating to the possibility of
or with a view toward) a transaction the consummation of which would
result in the occurrence of a Change in Control of the Company, or (D) any
Person other than the Company or a subsidiary thereof or any employee
benefit plan sponsored by the Company or a subsidiary thereof or a
corporation owned, directly or indirectly, by the shareholders of the
Company in substantially the same proportions as their ownership of stock
in the Company, shall (I) become the beneficial owner (within the meaning
of Rule 13d-3 under the Exchange Act), (II) disclose directly or
indirectly to the Company or publicly a plan or intention to become the
beneficial owner or (E) any Person described in clause (D) above who
becomes the beneficial owner, directly or indirectly, of voting shares
representing 20.0% or more of the combined voting power of the Outstanding
Company Voting Securities shall increase his beneficial ownership of such
securities by 5% or more over the percentage acquired in the transaction
which previously gave rise to the occurrence of a Potential Change in
Control of the Company. Notwithstanding the foregoing, any event or
transaction which would otherwise constitute a Potential Change in Control
of the Company shall not constitute a Potential Change in Control of the
Company if the negotiations or other actions leading to such event or
transaction were initiated by the Company (it being understood that the
occurrence of such a Company-initiated event or transaction shall not
affect the existence of any Potential Change in Control of the Company
resulting from any other event or transaction).
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
If a Change in Control of the Company shall have occurred while you are
still an employee of the Company, you shall be entitled to the payments and
benefits provided in Paragraph 4 hereof upon the subsequent termination of your
employment within two (2) full calendar years of such Change in Control, by you
or by the Company unless such termination is (a) because of your death or
"Disability", (b) by the Company for "Cause" (as defined below), or (c) by you
other than for "Good Reason" (as defined below), in any of which events you
shall not be entitled to receive benefits under this Agreement.
(i) "DISABILITY". If, as a result of your incapacity due to physical or
mental illness, you shall have been deemed "disabled" by the institution
appointed by the Company to administer the Company's Long-Term Disability
Plan (or successor plan) because you shall have been absent from your
duties with the Company on a full-time basis for six months and shall not
have returned to full-time performance of your duties within thirty days
after written notice is given you, the Company may terminate your
employment for Disability.
(ii) "CAUSE". For the purposes of this Agreement, the Company shall have
"Cause" to terminate your employment only upon
(A) the willful and continued failure by you substantially to
perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness or
any failure resulting from your terminating your employment with the
Company for "Good Reason" (as defined below)) after a written demand
for substantial performance is delivered to you by the Board which
specifically identifies the manner in which the Board believes that
you have not substantially performed your duties, or
(B) the willful engaging by you in gross misconduct materially and
demonstrably injurious to the Company.
For purposes of this paragraph, no act, or failure to act, on your
part shall be considered "willful" unless done, or omitted to be
done, by you not in good faith and without reasonable belief that
your action or omission was in the best interests of the Company.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held
for that purpose (after at least 20 days prior notice to you and an
opportunity for you, together with your counsel, to be heard before
the Board), finding that in the good faith opinion of the Board you
failed to perform your duties or engaged in misconduct as set forth
in clause (A) or (B) of this Paragraph 3(ii) and that you did not
correct such failure or cease such misconduct after being requested
to do so by the Board.
(iii) "GOOD REASON". You may terminate your employment for Good Reason.
For purpose of this Agreement, "Good Reason" shall mean:
(A) the assignment to you of any duties materially inconsistent
with, or any material diminution of, your positions, duties,
responsibilities, and status with the Company immediately prior to a
Change in Control of the Company, or a material change in your
titles or offices as in effect immediately prior to a Change in
Control of the Company, or any removal of you from, or any failure
to reelect you to, any such positions;
(B) a reduction by the Company in your base salary in effect
immediately prior to a Change in Control of the Company or a failure
by the Company to increase your base salary (within fifteen months
of your last increase) in an amount which is substantially similar,
on a percentage basis, to the average percentage increase in base
salary for all officers of the Company during the twelve months
preceding your increase;
(C) the failure by the Company to continue in effect any life
insurance, health or accident or disability plan in which you are
participating or are eligible to participate at the time of a Change
in Control of the Company (or plans providing you with substantially
similar benefits), except as otherwise required in terms of such
plans as in effect at the time of any Change in Control of the
Company or the taking of any action by the Company which would
adversely affect your participation in or materially reduce your
benefits under any of such plans or deprive you of any material
fringe benefits enjoyed by you at the time of a Change in Control of
the Company or the failure by the Company to provide you with the
number of paid vacation days to which you are entitled in accordance
with the vacation policies of the Company in effect at the time of a
Change in Control of the Company;
(D) the failure by the Company to (i) continue in effect any
material incentive or variable compensation plan in which you
participate immediately prior to the Change of Control, unless an
equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, (ii)
continue your participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of your
participation relative to other participants, as existed at the time
of the Change of Control or (iii) award cash bonuses to you in
amounts and in a manner substantially consistent with past practice
in light of the Company's financial performance;
(E) any requirement by the Company that (i) the location of which
you perform your principal duties for the Company be changed to a
new location that is more than 45 miles from the location at which
you perform your principal duties for the Company at the time of the
Change in Control of the Company or (ii) you are required to travel
on an overnight basis to a significantly greater extent than you
were required to so travel prior to the Change in Control of the
Company;
(F) any material breach by the Company of any provision of this
Agreement (including, without limitation, Paragraph 6), which is not
cured within 30 days after written notice thereof; or
(G) any purported termination of your employment by the Company
which is not effected pursuant to a Notice of Termination satisfying
the requirements of subparagraph (iv) below (and, if applicable,
subparagraph (ii) above); and for purposes of this Agreement, no
such purported termination shall be effective.
(iv) NOTICE OF TERMINATION. Any termination by the Company pursuant to
subparagraphs (i) or (ii) above or by you pursuant to subparagraph (iii)
above shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of your termination under the provision so indicated.
(v) DATE OF TERMINATION. "Date of Termination" shall mean:
(A) if this Agreement is terminated for Disability, thirty days
after Notice of Termination is given (provided that you shall not
have returned to the performance of your duties on a full-time basis
during such thirty-day period),
(B) if your employment is terminated pursuant to subparagraph (iii)
above, the date specified in the Notice of Termination, and
(C) if your employment is terminated for any other reason, the date
on which a Notice of Termination is given (or, if a Notice of
Termination is not given, the date of such termination).
4. COMPENSATION DURING DISABILITY OR UPON TERMINATION.
(i) If, after a Change in Control of the Company, you shall fail to
perform your duties hereunder as a result of incapacity due to physical or
mental illness, you shall continue to receive your full base salary twice
a month at the rate then in effect and any awards under the
Executive/Senior Management Variable Compensation Plan or any successor
plan shall continue to accrue and to be paid during such period until your
employment is terminated (and, if the Company maintains a Long Term
Disability Plan, you shall be eligible for coverage thereunder in
accordance with the terms thereof and subject to the satisfaction of all
applicable conditions, including without limitation, the timely filing of
a notice of claim); provided, however, in the event the Company makes no
interim individual accruals for the Executive/Senior Management Variable
Compensation Plan or any successor plan in respect of any period for which
no award has been made under such Plan because of such termination of this
Agreement or of employment, you shall receive payment in the amount equal
to the product of (a) the amount awarded to you under such Plan or any
successor plan during the period most recently ended, multiplied by (b) a
fraction (hereinafter the "Partial Service Fraction"), the numerator of
which is the whole and partial months of service completed in the current
period, and the denominator of which is the number of months in the period
most recently ended for which an award was made.
(ii) If, after a Change in Control of the Company, your employment shall
be terminated for Cause, the Company shall pay you for your full base
salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given and the Company shall have no further
obligations to you under this Agreement.
(iii) If, within two years after a Change in Control of the Company, the
Company shall terminate your employment, other than pursuant to Paragraph
3(i) or 3(ii) hereof or by reason of death, or you shall terminate your
employment for Good Reason,
(A) The Company shall pay you as severance pay (and without regard
to the provisions of any benefit plan) in a lump sum in cash on the
fifth day following the Date of Termination, the following amounts:
(x) your accrued but unpaid base salary through the Date of
Termination at the rate in effect at the time Notice of
Termination is given, plus an amount equal to the amount, if
any, of any incentive compensation awards which have not been
paid but which have been earned by you under the
Executive/Senior Management Variable Compensation Plan or any
successor plan (including awards which have been deferred,
except to the extent such awards have been transferred, prior
to a Change in Control of the Company, by the Company to a
trustee in an irrevocable trust) it being understood that you
shall have earned in each year for which an award shall be
payable an amount equal to the product of (a) the amount
awarded you under such Plan or any successor plan during the
period most recently ended, multiplied by (b) the Partial
Service Fraction; and
(y) an amount equal to the sum of your annual base salary at
the highest rate in effect during the twelve (12) month period
immediately preceding the Date of Termination plus two times
the amount of the highest award to you under the
Executive/Senior Management Variable Compensation Plan or any
successor plan during the twenty-four (24) month period ended
on the Date of Termination.
(B) For a twenty-four (24) month period after such termination, the
Company shall arrange to provide you with life, dental, accident and
group health insurance benefits substantially similar to those that
you were receiving immediately prior to such termination to the
extent that the Company's plans then permit the Company to provide
you with such benefits. Notwithstanding the foregoing, the Company
shall not provide any such benefits to you to the extent that an
equivalent benefit is received by you from another employer during
such period, and you shall report any such benefit actually received
by you to the Company;
(C) The exercisability of all outstanding stock options and
restricted stock awards then held by you shall accelerate in full
(to the extent such options or awards have not been, or would not
otherwise be, accelerated at or prior to such time pursuant to the
terms of the letter agreement dated April 3, 1996 between you and
the Company), provided that if such acceleration would disqualify
the Change in Control from being accounted for as a pooling of
interests and such accounting treatment would otherwise be available
and is desired, such exercisability and vesting will not be
accelerated; and
(D) You shall be entitled to full executive outplacement assistance
with an agency selected by the Company.
(iv) You shall not be required to mitigate the amount of any payment
provided for in this Paragraph 4 by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this Paragraph 4 be
reduced by any compensation earned by you as the result of employment by
another employer after the Date of Termination, or otherwise.
(v) Nothing in this Agreement shall prevent or limit your continuing or
future participation in any plan, program, policy or practice provided by
the Company to its employees and for which you may qualify nor, subject to
Paragraph 13 hereof, shall anything herein limit or otherwise affect such
rights as you may have under any contract or agreement between you and the
Company; provided, however, that to the extent you are entitled to receive
any payments hereunder upon termination of your employment, you shall not
be entitled to any payments under any severance plan, program, policy or
practice of the Company then in effect.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(i) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the your benefit and/or any
acceleration of vesting of any options or restricted stock awards (whether
paid or payable or distributed or distributable or provided pursuant to
the terms of this Agreement or otherwise, but determined without regard to
any additional payments required under this Paragraph 5) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code or any interest or penalties are incurred by you with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"),
then you shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after the payment by you of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest an
penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, you retain an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Paragraph 5(i), if it shall be determined that you are
entitled to a Gross-Up Payment, but that you, after taking into account
the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $50,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to you resulting
from an elimination of the Gross-Up Payment and a reduction of the
Payments, in an aggregate, to an amount (the "Reduced Amount") such that
the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to you and the Payments, in the aggregate,
shall be reduced to the Reduced Amount.
(ii) Subject to the provisions of Paragraph 5(i), all determinations
required to be made under this Paragraph 5, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by Coopers and Lybrand or such other certified public accounting firm
as may be designated by the Company (the "Accounting Firm") which shall
provide detailed supporting calculations to both the Company and you
within 15 business days of the receipt of notice from you that there has
been a Payment, or such earlier time as is requested by the Company. In
the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity, or group affecting the Change of Control, the
Company shall appoint another nationally recognized accounting firm to
make the determinations required hereunder.
All fees and expenses of the Accounting Firm shall be borne by the
Company. Any Gross-Up Payment, as determined pursuant to this Paragraph 5,
shall be paid by the Company to you within ten business days of the
receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and you. As a result of
the uncertainty in the application of Section 4999 of the Code at the time
of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Paragraph 5(iii) and you thereafter are
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for your benefit.
(iii) You shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon
as practical but no later than ten business days after you are informed in
writing of such a claim and shall apprise the Company of the nature of the
claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies you in writing
prior to the expiration of such period that it desires to contest such
claim, you shall:
(A) give the Company any information reasonably requested by the
Company relating to such claim,
(B) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(C) cooperate with the Company in good faith in order to effectively
contest such claim, and
(D) permit the Company to participate in any proceedings relating to
such claim.
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold you harmless, on
an after-tax basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation of
the foregoing provisions of this Paragraph 5(iii), the Company shall
control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct you to pay the
tax claimed and sue for a refund or to contest the claim in any
permissible manner, and you agree to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs you to pay such
claim and sue for a refund, the Company shall advance the amount of such
payment to you, on an interest-free basis, and shall indemnify and hold
the you harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect
to such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for your taxable year with
respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and you shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or other taxing authority.
(iv) If, after the receipt by you of an amount advanced by the Company
pursuant to Paragraph 5(iii), you become entitled to receive any refund
with respect to such a claim, you shall (subject to the Company's
complying with the requirements of Paragraph 5(iii)) promptly pay to the
Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
you of an amount advanced by the Company pursuant to Paragraph 5(iii), a
determination is made that you shall not be entitled to any refund with
respect to such claim any the Company does not notify you in writing of
its intent to contest such denial of refund prior to the expiration of 30
days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
6. SUCCESSOR'S BINDING AGREEMENT.
(i) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all
of the business and/or the assets of the Company, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had
taken place. As used in this Agreement, "Company" shall mean the Company
as defined above and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
paragraph 6 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(ii) This Agreement shall inure to the benefit of, and be enforceable by,
your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die
while any amounts would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there be no such designee, to
your estate.
7. EMPLOYMENT.
In consideration of the foregoing obligations of the Company, you agree to
be bound by the terms and conditions of this Agreement and to remain in the
employ of the Company during any period following the announcement by any person
of any proposed transaction or transactions which, if effected, would result in
a Change in Control of the Company until a Change in Control of the Company has
taken place, or in the opinion of the Board, such person has abandoned or
terminated its efforts to effect a Change in Control of the Company. Subject to
the foregoing, nothing contained in this Agreement shall impair or interfere in
any way with your right to terminate your employment or the right of the Company
to terminate your employment with or without Cause prior to a Change in Control
of the Company. Nothing contained in this Agreement shall be construed as a
contract of employment between the Company and you or as a right for you to
continue in the employ of the Company, or as a limitation on the right of the
Company to discharge you with or without Cause prior to a Change in Control of
the Company.
8. COMPETITIVE ACTIVITY.
(i) If your employment terminates under circumstances that entitle you to
receive benefits under this Agreement (as described in the first sentence
of paragraph 3 of this Agreement), then, unless the Company materially
breaches this Agreement, you agree you will not for a period of two (2)
years after such termination engage in any business (whether as an owner,
partner, officer, director, employee, consultant or otherwise, except as
the holder of not more than 1% of the outstanding stock of a publicly-held
company) that competes or plans to compete with Avid in the business of
the development, manufacture, promotion, distribution or sale of digital
film, video or audio editing, special effects or newsroom automation
systems or products or any other business in which Avid is engaged or
plans to engage at the time of your termination. Without limiting the
foregoing, during such period you shall not be employed by or otherwise
serve as a consultant to Abekas, Accom, Adobe, Carlton Communications,
Chyron, Data Translation, Discreet Logic, DVision, FAST Technology,
Hewlett-Packard, Immix, InSync, Kodak, Lightworks, Macromedia, Matrox,
Media 100, Metacreations, MGI, Newsmaker, Newstar, Panasonic/Matsushita,
Philips, Pinnacle Systems, Play Systems, Pluto Technologies International,
Progressive Networks, Quantel, SADIE, Scitex, Sonic Solutions, SONY,
Softimage/Microsoft, Tektronix, Transoft, Truevision, VDONet or VXtreme,
or any of their subsidiaries and affiliates.
(ii) You also agree that, for a period of two (2) years from the date of
your termination, you will not, either directly or indirectly through an
agency, new employer or otherwise, solicit the employment of (or solicit
to engage as an independent contractor or consultant) any person who at
any time during the one year preceding such solicitation was an employee
or independent contractor of Avid or any Avid affiliate.
9. INJUNCTIVE RELIEF.
You acknowledge and agree that the remedy of the Company at law for any
breach of the covenants and agreements contained in Paragraph 8 of this
Agreement will be inadequate, and that the Company shall be entitled to
injunctive relief against any such breach or threatened breach. You represent
and agree that such injunctive relief shall not prohibit you from earning a
livelihood acceptable to you.
10. NOTICE.
For the purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed to the respective addresses
set forth on the first page of this Agreement, provided that all other notices
to the Company should be directed to the attention to the Corporate Secretary of
the Company, or to such address as either party may have furnished to the other
in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
11. INDEMNIFICATION.
The Company will indemnify you to the extent set forth in the Certificate
of Incorporation and By-laws of the Company as in effect on the date of the
Change in Control of the Company.
12. FURTHER ASSURANCES.
Each party hereto agrees to furnish and execute such additional forms and
documents, and to take such further action, as shall be reasonable and
customarily required in connection with the performance of this Agreement or the
payment of benefits hereunder.
13. ENTIRE AGREEMENT.
This Agreement represents the entire agreement of the parties with respect
to the subject matter hereof and supersedes any other agreement between the
parties with respect to such subject matter, including, without limitation, all
provisions of the letter agreement dated April 3, 1996 between you and the
Company (other than the provisions of Sections 5(a) and 5(b) thereof).
14. 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
in the same instrument.
15. LEGAL FEES AND EXPENSES.
In addition to any other benefits to which you may be entitled hereunder,
the Company shall pay all reasonable legal fees and expenses which you may incur
as a result of the Company's contesting the validity, enforceability or your
interpretation of, or determination under, this Agreement or otherwise as a
result of any termination as a result of which you are entitled to the benefits
set forth in this Agreement.
16. MISCELLANEOUS.
(i) No provision of this Agreement may be modified, waived, or discharged
unless such waiver, modification, or discharge is agreed to in writing
signed by you and such officer as may be specifically designated by the
Board of Directors of the Company.
(ii) No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at
any time prior or subsequent time.
(iii) The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
(iv) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement, which shall remain in full force and effect.
(v) The Company may withhold from any amounts payable under this Agreement
such federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
If this Agreement correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this
Agreement which will then constitute our agreement on this subject.
Sincerely,
Avid Technology, Inc.
By: /s/ Judith Oppenheim
--------------------------
Name: Judith Oppenheim
Title: Sr. Vice President - Human Resources
I acknowledge receipt and agree with the foregoing terms and conditions.
/S/ William J. Miller
- --------------------------
William J. Miller
Date: NOVEMBER 10, 1997
Exhibit 10.31
EMPLOYMENT AGREEMENT
December 1, 1997
CONFIDENTIAL
William L. Flaherty
c/o Avid Technology, Inc.
Metropolitan Technology Park
One Park West
Tewksbury, MA 01876
Dear Bill:
Continuity of management of Avid Technology, Inc. ("Avid") is a critical
factor to the continued growth and success of Avid. The Avid Board of Directors
believes that it is in the best interest of the Company to reinforce and
encourage the continued attention and dedication of key members of management to
their assigned duties.
In consideration of the mutual promises contained in this letter, it is
hereby agreed that Avid shall provide to you, and that you shall receive from
Avid, the benefits set forth in this letter (the "Agreement") if your employment
with Avid, and its subsidiaries, is terminated during the term of this
Agreement.
1. PURPOSE
This Agreement establishes certain special arrangements relating to the
termination of your employment with Avid for any reason other than: (i)
your becoming totally and permanently disabled under the Avid long-term
disability plan or policy, or (ii) your death.
2. TERM OF AGREEMENT
This Agreement shall become effective on the date hereof (the "Effective
Date") and shall terminate one year thereafter. The term shall be
automatically extended for successive one-year periods after the first
anniversary, unless 30 days' advance written notice is given by you or by
Avid terminating this Agreement as of any anniversary date.
3. TERMINATION OF EMPLOYMENT
Your employment may be terminated in accordance with any of the following
paragraphs, but only upon one (1) month's advance written notice (which
period shall be referred to in this Agreement as the "Notice Period"). The
expiration of the Notice Period shall be your "Date of Termination."
(a) INVOLUNTARY TERMINATION WITHOUT CAUSE. Avid may terminate your
employment without Cause (as defined below). In such an event, you shall
continue to receive your full base salary during the Notice Period. Upon
your Date of Termination, you shall be entitled to those benefits provided
under Section 4.
(b) INVOLUNTARY TERMINATION FOR CAUSE. Avid may terminate your employment
for "Cause" by written notice setting forth the Cause for termination.
"Cause" means a willful engaging in gross misconduct materially and
demonstrably injurious to Avid or the willful and continued failure by you
substantially to perform your duties with the Company (other than any such
failure resulting from your incapacity due to physical or mental illness)
after a written demand for substantial performance is delivered to you by
the Chief Executive Officer which specifically identifies the manner in
which the Chief Executive Officer believes that you have not substantially
performed your duties. "Willful" means an act or omission in bad faith and
without reasonable belief that such act or omission was in or not opposed
to the best interests of Avid. Upon your Date of Termination, you shall be
entitled only to those benefits provided under Section 5.
(c) VOLUNTARY TERMINATION WITHOUT GOOD REASON. You may voluntarily
terminate your employment without Good Reason (as defined below). In such
an event, you shall continue to receive your full base salary and
Employment Benefits during the Notice Period provided you satisfactorily
perform your duties during the Notice Period, unless you are relieved of
those duties by Avid. Upon your Date of Termination, you shall be entitled
only to those benefits provided under Section 5.
(d) VOLUNTARY TERMINATION WITH GOOD REASON. You may voluntarily terminate
your employment with Good Reason. "Good Reason" shall mean a significant
diminution in your duties or responsibilities or any acquisition of Avid
that results in your no longer serving as Chief Financial Officer of an
independent public company. In such an event, you shall continue to
receive your full base salary and Employment Benefits during the Notice
Period. provided you satisfactorily perform your duties during the Notice
Period, unless you are relieved of those duties by Avid. Upon your Date of
Termination, you shall be entitled to those benefits provided under
Section 4.
4. SPECIAL SEVERANCE BENEFITS
If your employment with Avid is involuntarily terminated by Avid without
Cause pursuant to Section 3(a) or by you for Good Reason pursuant to
Section 3(d), then you shall receive the following benefits as long as you
continue to comply with your obligations under Section 8 of this Agreement
and any Invention and Nondisclosure Agreement (or similar agreement)
between you and the Company:
(a) Your base salary shall be continued in effect for a period of twelve
(12) months from your Date of Termination (hereinafter called your
"Severance Pay Period"). Avid will also pay you, during the thirteenth
through twenty-fourth months following termination, on a semi-monthly
basis, the amount by which your monthly base salary at the Date of
Termination exceeds your monthly compensation from your new employer;
(b) You will receive incentive compensation payments in an aggregate
amount equal to your target award for the calendar year immediately
preceding the calendar year in which your Date of Termination occurs,
payable in equal semi-monthly installments during the 12 months following
the Date of Termination. You shall have no right to any pro-rated
incentive compensation in respect of the year of termination;
(c) Notwithstanding any provision to the contrary in any Avid stock plan,
or under the terms of any grant, award agreement or form for exercising
any right under any such plan, any stock options or restricted stock
awards held by you as of the Date of Termination shall become exercisable
or vested, as the case may be, as to an additional number of shares equal
to the number that would have been exercisable or vested as of the end of
the 12 month period immediately following the Date of Termination. Nothing
in this Agreement shall be construed to extend the time period within
which any option may be exercised beyond the period specified in the
applicable stock plan or under the terms of any grant, award agreement or
form for exercising any right under any such plan;
(d) During the Severance Pay Period, in the event you elect to continue to
participate in the Company's medical and dental plans to the extent
permitted under COBRA, the Company shall pay the cost of such
participation; and
(e) You shall be entitled to full executive outplacement assistance with
an agency selected by Avid.
5. BENEFITS UPON VOLUNTARY TERMINATION WITHOUT GOOD REASON OR TERMINATION
FOR CAUSE.
Upon your termination for Cause in accordance with Section 3(b) or your
termination without Good Reason in accordance with Section 3(c), all
benefits under this Agreement will be void. In such an event, you shall be
eligible for the benefits (if any) provided in accordance with the plans
and policies of Avid which are then applicable to employees of Avid
generally.
6. CONFIDENTIALITY.
The provisions of the Employee Invention and Non-Disclosure Agreement
between you and Avid shall continue in full force and effect following any
termination of employment.
7. RELATIONSHIP TO CHANGE-IN-CONTROL AGREEMENT, ETC.
(a) In the event you become entitled to any benefits under any
Change-in-Control Employment Agreement between you and Avid, such
Change-in-Control Employment Agreement shall control and this agreement
shall be void and of no further force or effect.
(b) Except as expressly set forth in Section 7(a), this Agreement
supersedes all prior agreements with Avid related to the subject matter
hereof (including all provisions of the letter agreement dated August 21,
1996 other than the language under the heading "Severance and Change in
Control" through and including clause (i) thereof, which shall survive),
and the special severance benefits provided under this Agreement are to be
provided instead of any other Avid severance arrangements. Avid's
severance policies and practices are superseded except to the extent
incorporated herein. Notwithstanding the foregoing, nothing contained in
this Agreement shall have any affect upon your rights under any tax
qualified "pension benefit plan", as such term is defined in the Employee
Retirement Income Security Act of 1974, as amended (ERISA); or any other
"welfare benefit plan" as defined in ERISA, including by way of
illustration and not limitation, any medical surgical or hospitalization
benefit coverage or long-term disability benefit coverage; or under any
deferred compensation or equity incentive arrangement, including by way of
illustration and not limitation, any stock incentive plan, non-qualified
pension plan, or phantom stock plan.
8. COVENANT NOT TO COMPETE AND NOT TO SOLICIT.
(a) During the term of this Agreement, and for a period of two (2) years
following the termination of your employment for any reason, you agree you
will not engage in any business (whether as an owner, partner, officer,
director, employee, consultant or otherwise, except as the holder of not
more than 1% of the outstanding stock of a publicly-held company) that
competes or plans to compete with Avid in the business of the development,
manufacture, promotion, distribution or sale of digital film, video or
audio editing, special effects or newsroom automation systems or products
or any other business in which Avid is engaged or plans to engage at the
time of your termination. Without limiting the foregoing, during such
period you shall not be employed by or otherwise serve as a consultant to
Abekas, Accom, Adobe, Carlton Communications, Chyron, Data Translation,
Discreet Logic, DVision, FAST Technology, Hewlett-Packard, Immix, InSync,
Kodak, Lightworks, Macromedia, Matrox, Media 100, Metacreations, MGI,
Newsmaker, Newstar, Panasonic/Matsushita, Philips, Pinnacle Systems, Play
Systems, Pluto Technologies International, Progressive Networks, Quantel,
SADIE, Scitex, Sonic Solutions, SONY, Softimage/Microsoft, Tektronix,
Transoft, Truevision, VDONet or VXtreme or any of their subsidiaries and
affiliates.
(b) You also agree that, for a period of two (2) years from the date of
your termination, you will not, either directly or indirectly through an
agency, new employer or otherwise, solicit the employment of (or solicit
to engage as an independent contractor or consultant) any person who at
any time during the one year preceding such solicitation was an employee
or independent contractor of Avid or any Avid affiliate.
(c) If any restriction in this Section 8 is found by any court of
competent jurisdiction to be unenforceable because it extends for too long
a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may
be enforceable.
(d) The restrictions contained in this Section 8 are necessary for the
protection of the business and good will of Avid and are considered by you
to be reasonable for such purpose. You agree that any breach of this
Section 8 will cause Avid substantial and irrevocable damage and,
therefore, in the event of any such breach, in addition to such other
remedies which may be available, Avid shall have the right to seek
specific performance and injunctive relief.
9. NOTICE.
Notice required or permitted under this Agreement shall be in writing and
shall be deemed to have been given when delivered or mailed by the United
States certified mail, return receipt requested, postage prepaid, in a
properly addressed envelope. Notices to Avid shall be addressed to the
Corporate Secretary.
10. MODIFICATION; SUCCESSORS.
No provision of this Agreement may be waived, modified, or discharged
except pursuant to a written instrument signed by you and Avid. This
agreement is binding upon any successor to all or substantially all
business or assets of Avid.
11. INDEMNIFICATION.
The Company will indemnify you to the extent set forth in the Certificate
of Incorporation and By-Laws of the Company for all acts or omissions
occurring during the period of your employment.
12. VALIDITY; COUNTERPARTS
This agreement shall be governed by and construed under the laws of the
Commonwealth of Massachusetts. The validity or enforceability of any
provision hereof shall not affect the validity or enforceability of any
other provision hereof. This Agreement may be executed in one or more
counterparts, each of which together will constitute one and the same
instrument.
Accepted and Agreed Sincerely,
as of December 1, 1997 Avid Technology, Inc.
By: /S/ William J. Miller
-------------------------------
/S/ William L. Flaherty Name: William J. Miller
- ------------------------- Title:Chairman and Chief Executive
William L. Flaherty Officer
Exhibit 10.32
CHANGE-IN-CONTROL AGREEMENT
December 1, 1997
Mr. William L. Flaherty
Chief Financial Officer
Avid Technology, Inc.
Metropolitan Technology Park
One Park West
Tewksbury, MA 01876
The Board of Directors (the "Board") of Avid Technology, Inc. ("Avid" or
the "Company") recognizes that your contributions to the past and future growth
and success of the Company have been and will be substantial and the Board
desires to assure the Company of your continued services for the benefit of the
Company, particularly in the face of a change-in-control of the Company.
This letter agreement ("Agreement") therefore sets forth those benefits
which the Company will provide to you in the event your employment within the
Company is terminated after a "Change in Control of the Company" (as defined in
Paragraph 2 (i)) under the circumstances described below.
1. TERM.
If a Change in Control of the Company should occur while you are still an
employee of the Company, then this Agreement shall continue in effect from the
date of such Change in Control of the Company for so long as you remain an
employee of the Company, but in no event for more than two full calendar years
following such Change in Control of the Company; provided, however, that the
expiration of the term of this Agreement shall not adversely affect your rights
under this Agreement which have accrued prior to such expiration. If no Change
in Control of the Company occurs before your status as an employee of the
Company is terminated, this Agreement shall expire on such date. Prior to a
Change in Control of the Company, your employment may be terminated by the
Company with or without Cause (as defined in Paragraph 3(ii)), and/or this
Agreement may be terminated by the Company, at any time upon written notice to
you and, in either or both such events, you shall not be entitled to any of the
benefits provided hereunder; provided, however, that the Company may not
terminate this Agreement following the occurrence of a Potential Change in
Control of the Company (as defined in Paragraph 2(ii)) unless (a) at least one
year has expired since the most recent event or transaction constituting a
Potential Change in Control of the Company and (b) in respect of a Potential
Change in Control of the Company which previously occurred, no facts or
circumstances continue to exist which, if initially occurring at the time any
termination of this Agreement is to occur, would constitute a Potential Change
in Control of the Company.
2. CHANGE IN CONTROL; POTENTIAL CHANGE IN CONTROL.
(i) For purposes of this Agreement, a "Change in Control of the Company"
shall be deemed to have occurred only if any of the following events
occur:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"))(a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 30% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a
Change of Control: (A) any acquisition directly from the Company,
(B) any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company, or (D) any
acquisition by any corporation pursuant to a transaction which
satisfies the criteria set forth in clauses (A), (B) and (C) of
subparagraph (c) of this Paragraph 2(i); or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least
a majority of the Board; provided, however, that any individual
becoming a director subsequently to the date hereof whose election,
or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets
of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then-outstanding shares of common
stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors,
of the corporation resulting from such Business Combination (which
as used in this Paragraph 2(i)(c) shall include, without limitation,
a corporation which as a result of such transaction owns all or
substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as
their ownership immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be and (B) no Person (excluding any
corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns,
directly or indirectly, 30% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting form
such Business Combination, or the combined voting power of the
then-outstanding voting securities of such corporation.
(ii) For purposes of this Agreement, a "Potential Change in Control of the
Company" shall be deemed to have occurred if (A) the Company shall enter
into an agreement, the consummation of which would result in the
occurrence of a Change in Control of the Company, or (B) any person shall
publicly announce an intention to take or to consider taking actions which
if consummated would constitute a Change in Control of the Company, or (C)
the Company shall receive any written communication from any third party
or third parties, acting as principal or as authorized representative of a
disclosed principal, which is publicly disclosed and proposes (or
indicates a desire to engage in discussions relating to the possibility of
or with a view toward) a transaction the consummation of which would
result in the occurrence of a Change in Control of the Company, or (D) any
Person other than the Company or a subsidiary thereof or any employee
benefit plan sponsored by the Company or a subsidiary thereof or a
corporation owned, directly or indirectly, by the shareholders of the
Company in substantially the same proportions as their ownership of stock
in the Company, shall (I) become the beneficial owner (within the meaning
of Rule 13d-3 under the Exchange Act), (II) disclose directly or
indirectly to the Company or publicly a plan or intention to become the
beneficial owner or (E) any Person described in clause (D) above who
becomes the beneficial owner, directly or indirectly, of voting shares
representing 20.0% or more of the combined voting power of the Outstanding
Company Voting Securities shall increase his beneficial ownership of such
securities by 5% or more over the percentage acquired in the transaction
which previously gave rise to the occurrence of a Potential Change in
Control of the Company. Notwithstanding the foregoing, any event or
transaction which would otherwise constitute a Potential Change in Control
of the Company shall not constitute a Potential Change in Control of the
Company if the negotiations or other actions leading to such event or
transaction were initiated by the Company (it being understood that the
occurrence of such a Company-initiated event or transaction shall not
affect the existence of any Potential Change in Control of the Company
resulting from any other event or transaction).
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
If a Change in Control of the Company shall have occurred while you are
still an employee of the Company, you shall be entitled to the payments and
benefits provided in Paragraph 4 hereof upon the subsequent termination of your
employment within two (2) full calendar years of such Change in Control, by you
or by the Company unless such termination is (a) because of your death or
"Disability", (b) by the Company for "Cause" (as defined below), or (c) by you
other than for "Good Reason" (as defined below), in any of which events you
shall not be entitled to receive benefits under this Agreement.
(i) "DISABILITY". If, as a result of your incapacity due to physical or
mental illness, you shall have been deemed "disabled" by the institution
appointed by the Company to administer the Company's Long-Term Disability
Plan (or successor plan) because you shall have been absent from your
duties with the Company on a full-time basis for six months and shall not
have returned to full-time performance of your duties within thirty days
after written notice is given you, the Company may terminate your
employment for Disability.
(ii) "CAUSE". For the purposes of this Agreement, the Company shall have
"Cause" to terminate your employment only upon
(A) the willful and continued failure by you substantially to
perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness or
any failure resulting from your terminating your employment with the
Company for "Good Reason" (as defined below)) after a written demand
for substantial performance is delivered to you by the Board which
specifically identifies the manner in which the Board believes that
you have not substantially performed your duties, or
(B) the willful engaging by you in gross misconduct materially and
demonstrably injurious to the Company.
For purposes of this paragraph, no act, or failure to act, on your
part shall be considered "willful" unless done, or omitted to be
done, by you not in good faith and without reasonable belief that
your action or omission was in the best interests of the Company.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held
for that purpose (after at least 20 days prior notice to you and an
opportunity for you, together with your counsel, to be heard before
the Board), finding that in the good faith opinion of the Board you
failed to perform your duties or engaged in misconduct as set forth
in clause (A) or (B) of this Paragraph 3(ii) and that you did not
correct such failure or cease such misconduct after being requested
to do so by the Board.
(iii) "GOOD REASON". You may terminate your employment for Good Reason.
For purpose of this Agreement, "Good Reason" shall mean:
(A) the assignment to you of any duties materially inconsistent
with, or any material diminution of, your positions, duties,
responsibilities, and status with the Company immediately prior to a
Change in Control of the Company, or a material change in your
titles or offices as in effect immediately prior to a Change in
Control of the Company, or any removal of you from, or any failure
to reelect you to, any such positions;
(B) a reduction by the Company in your base salary in effect
immediately prior to a Change in Control of the Company or a failure
by the Company to increase your base salary (within fifteen months
of your last increase) in an amount which is substantially similar,
on a percentage basis, to the average percentage increase in base
salary for all officers of the Company during the twelve months
preceding your increase;
(C) the failure by the Company to continue in effect any life
insurance, health or accident or disability plan in which you are
participating or are eligible to participate at the time of a Change
in Control of the Company (or plans providing you with substantially
similar benefits), except as otherwise required in terms of such
plans as in effect at the time of any Change in Control of the
Company or the taking of any action by the Company which would
adversely affect your participation in or materially reduce your
benefits under any of such plans or deprive you of any material
fringe benefits enjoyed by you at the time of a Change in Control of
the Company or the failure by the Company to provide you with the
number of paid vacation days to which you are entitled in accordance
with the vacation policies of the Company in effect at the time of a
Change in Control of the Company;
(D) the failure by the Company to (i) continue in effect any
material incentive or variable compensation plan in which you
participate immediately prior to the Change of Control, unless an
equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, (ii)
continue your participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of your
participation relative to other participants, as existed at the time
of the Change of Control or (iii) award cash bonuses to you in
amounts and in a manner substantially consistent with past practice
in light of the Company's financial performance;
(E) any requirement by the Company that (i) the location of which
you perform your principal duties for the Company be changed to a
new location that is more than 45 miles from the location at which
you perform your principal duties for the Company at the time of the
Change in Control of the Company or (ii) you are required to travel
on an overnight basis to a significantly greater extent than you
were required to so travel prior to the Change in Control of the
Company;
(F) any material breach by the Company of any provision of this
Agreement (including, without limitation, Paragraph 6), which is not
cured within 30 days after written notice thereof; or
(G) any purported termination of your employment by the Company
which is not effected pursuant to a Notice of Termination satisfying
the requirements of subparagraph (iv) below (and, if applicable,
subparagraph (ii) above); and for purposes of this Agreement, no
such purported termination shall be effective.
(iv) NOTICE OF TERMINATION. Any termination by the Company pursuant to
subparagraphs (i) or (ii) above or by you pursuant to subparagraph (iii)
above shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of your termination under the provision so indicated.
(v) DATE OF TERMINATION. "Date of Termination" shall mean:
(A) if this Agreement is terminated for Disability, thirty days
after Notice of Termination is given (provided that you shall not
have returned to the performance of your duties on a full-time basis
during such thirty-day period),
(B) if your employment is terminated pursuant to subparagraph (iii)
above, the date specified in the Notice of Termination, and
(C) if your employment is terminated for any other reason, the date
on which a Notice of Termination is given (or, if a Notice of
Termination is not given, the date of such termination).
4. COMPENSATION DURING DISABILITY OR UPON TERMINATION.
(i) If, after a Change in Control of the Company, you shall fail to
perform your duties hereunder as a result of incapacity due to physical or
mental illness, you shall continue to receive your full base salary twice
a month at the rate then in effect and any awards under the
Executive/Senior Management Variable Compensation Plan or any successor
plan shall continue to accrue and to be paid during such period until your
employment is terminated (and, if the Company maintains a Long Term
Disability Plan, you shall be eligible for coverage thereunder in
accordance with the terms thereof and subject to the satisfaction of all
applicable conditions, including without limitation, the timely filing of
a notice of claim); provided, however, in the event the Company makes no
interim individual accruals for the Executive/Senior Management Variable
Compensation Plan or any successor plan in respect of any period for which
no award has been made under such Plan because of such termination of this
Agreement or of employment, you shall receive payment in the amount equal
to the product of (a) the amount awarded to you under such Plan or any
successor plan during the period most recently ended, multiplied by (b) a
fraction (hereinafter the "Partial Service Fraction"), the numerator of
which is the whole and partial months of service completed in the current
period, and the denominator of which is the number of months in the period
most recently ended for which an award was made.
(ii) If, after a Change in Control of the Company, your employment shall
be terminated for Cause, the Company shall pay you for your full base
salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given and the Company shall have no further
obligations to you under this Agreement.
(iii) If, within two years after a Change in Control of the Company, the
Company shall terminate your employment, other than pursuant to Paragraph
3(i) or 3(ii) hereof or by reason of death, or you shall terminate your
employment for Good Reason,
(A) The Company shall pay you as severance pay (and without regard
to the provisions of any benefit plan) in a lump sum in cash on the
fifth day following the Date of Termination, the following amounts:
(x) your accrued but unpaid base salary through the Date of
Termination at the rate in effect at the time Notice of
Termination is given, plus an amount equal to the amount, if
any, of any incentive compensation awards which have not been
paid but which have been earned by you under the
Executive/Senior Management Variable Compensation Plan or any
successor plan (including awards which have been deferred,
except to the extent such awards have been transferred, prior
to a Change in Control of the Company, by the Company to a
trustee in an irrevocable trust) it being understood that you
shall have earned in each year for which an award shall be
payable an amount equal to the product of (a) the amount
awarded you under such Plan or any successor plan during the
period most recently ended, multiplied by (b) the Partial
Service Fraction; and
(y) an amount equal to the sum of your annual base salary at
the highest rate in effect during the twelve (12) month period
immediately preceding the Date of Termination plus two times
the amount of the highest award to you under the
Executive/Senior Management Variable Compensation Plan or any
successor plan during the twenty-four (24) month period ended
on the Date of Termination.
(B) For a twenty-four (24) month period after such termination, the
Company shall arrange to provide you with life, dental, accident and
group health insurance benefits substantially similar to those that
you were receiving immediately prior to such termination to the
extent that the Company's plans then permit the Company to provide
you with such benefits. Notwithstanding the foregoing, the Company
shall not provide any such benefits to you to the extent that an
equivalent benefit is received by you from another employer during
such period, and you shall report any such benefit actually received
by you to the Company;
(C) The exercisability of all outstanding stock options and
restricted stock awards then held by you shall accelerate in full
(to the extent such options or awards have not been, or would not
otherwise be, accelerated at or prior to such time pursuant to the
terms of the letter agreement dated August 21, 1996 between you and
the Company), provided that if such acceleration would disqualify
the Change in Control from being accounted for as a pooling of
interests and such accounting treatment would otherwise be available
and is desired, such exercisability and vesting will not be
accelerated; and
(D) You shall be entitled to full executive outplacement assistance
with an agency selected by the Company.
(iv) You shall not be required to mitigate the amount of any payment
provided for in this Paragraph 4 by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this Paragraph 4 be
reduced by any compensation earned by you as the result of employment by
another employer after the Date of Termination, or otherwise.
(v) Nothing in this Agreement shall prevent or limit your continuing or
future participation in any plan, program, policy or practice provided by
the Company to its employees and for which you may qualify nor, subject to
Paragraph 13 hereof, shall anything herein limit or otherwise affect such
rights as you may have under any contract or agreement between you and the
Company; provided, however, that to the extent you are entitled to receive
any payments hereunder upon termination of your employment, you shall not
be entitled to any payments under any severance plan, program, policy or
practice of the Company then in effect.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(i) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the your benefit and/or any
acceleration of vesting of any options or restricted stock awards (whether
paid or payable or distributed or distributable or provided pursuant to
the terms of this Agreement or otherwise, but determined without regard to
any additional payments required under this Paragraph 5) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code or any interest or penalties are incurred by you with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"),
then you shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after the payment by you of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest an
penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, you retain an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments. Not withstanding the foregoing
provisions of this Paragraph 5(i), if it shall be determined that you are
entitled to a Gross-Up Payment, but that you, after taking into account
the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $50,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to you resulting
from an elimination of the Gross-Up Payment and a reduction of the
Payments, in an aggregate, to an amount (the "Reduced Amount") such that
the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to you and the Payments, in the aggregate,
shall be reduced to the Reduced Amount.
(ii) Subject to the provisions of Paragraph 5(i), all determinations
required to be made under this Paragraph 5, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by Coopers and Lybrand or such other certified public accounting firm
as may be designated by the Company (the "Accounting Firm") which shall
provide detailed supporting calculations to both the Company and you
within 15 business days of the receipt of notice from you that there has
been a Payment, or such earlier time as is requested by the Company. In
the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity, or group affecting the Change of Control, the
Company shall appoint another nationally recognized accounting firm to
make the determinations required hereunder.
All fees and expenses of the Accounting Firm shall be borne by the
Company. Any Gross-Up Payment, as determined pursuant to this Paragraph 5,
shall be paid by the Company to you within ten business days of the
receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and you. As a result of
the uncertainty in the application of Section 4999 of the Code at the time
of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Paragraph 5(iii) and you thereafter are
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for your benefit.
(iii) You shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon
as practical but no later than ten business days after you are informed in
writing of such a claim and shall apprise the Company of the nature of the
claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies you in writing
prior to the expiration of such period that it desires to contest such
claim, you shall:
(A) give the Company any information reasonably requested by the
Company relating to such claim,
(B) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(C) cooperate with the Company in good faith in order to effectively
contest such claim, and
(D) permit the Company to participate in any proceedings relating to
such claim,
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold you harmless, on
an after-tax basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation of
the foregoing provisions of this Paragraph 5(iii), the Company shall
control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct you to pay the
tax claimed and sue for a refund or to contest the claim in any
permissible manner, and you agree to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs you to pay such
claim and sue for a refund, the Company shall advance the amount of such
payment to you, on an interest-free basis, and shall indemnify and hold
the you harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect
to such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for your taxable year with
respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and you shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or other taxing authority.
(iv) If, after the receipt by you of an amount advanced by the Company
pursuant to Paragraph 5(iii), you become entitled to receive any refund
with respect to such a claim, you shall (subject to the Company's
complying with the requirements of Paragraph 5(iii)) promptly pay to the
Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
you of an amount advanced by the Company pursuant to Paragraph 5(iii), a
determination is made that you shall not be entitled to any refund with
respect to such claim any the Company does not notify you in writing of
its intent to contest such denial of refund prior to the expiration of 30
days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
6. SUCCESSOR'S BINDING AGREEMENT.
(i) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all
of the business and/or the assets of the Company, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had
taken place. As used in this Agreement, "Company" shall mean the Company
as defined above and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
paragraph 6 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(ii) This Agreement shall inure to the benefit of, and be enforceable by,
your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die
while any amounts would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there be no such designee, to
your estate.
7. EMPLOYMENT.
In consideration of the foregoing obligations of the Company, you agree to
be bound by the terms and conditions of this Agreement and to remain in the
employ of the Company during any period following the announcement by any person
of any proposed transaction or transactions which, if effected, would result in
a Change in Control of the Company until a Change in Control of the Company has
taken place, or in the opinion of the Board, such person has abandoned or
terminated its efforts to effect a Change in Control of the Company. Subject to
the foregoing, nothing contained in this Agreement shall impair or interfere in
any way with your right to terminate your employment or the right of the Company
to terminate your employment with or without Cause prior to a Change in Control
of the Company. Nothing contained in this Agreement shall be construed as a
contract of employment between the Company and you or as a right for you to
continue in the employ of the Company, or as a limitation on the right of the
Company to discharge you with or without Cause prior to a Change in Control of
the Company.
8. COMPETITIVE ACTIVITY.
(i) If your employment terminates under circumstances that entitle you to
receive benefits under this Agreement (as described in the first sentence
of paragraph 3 of this Agreement), then, unless the Company materially
breaches this Agreement, you agree you will not for a period of two (2)
years after such termination engage in any business (whether as an owner,
partner, officer, director, employee, consultant or otherwise, except as
the holder of not more than 1% of the outstanding stock of a publicly-held
company) that competes or plans to compete with Avid in the business of
the development, manufacture, promotion, distribution or sale of digital
film, video or audio editing, special effects or newsroom automation
systems or products or any other business in which Avid is engaged or
plans to engage at the time of your termination. Without limiting the
foregoing, during such period you shall not be employed by or otherwise
serve as a consultant to Abekas, Accom, Adobe, Carlton Communications,
Chyron, Data Translation, Discreet Logic, DVision, FAST Technology,
Hewlett-Packard, Immix, InSync, Kodak, Lightworks, Macromedia, Matrox,
Media 100, Metacreations, MGI, Newsmaker, Newstar, Panasonic/Matsushita,
Philips, Pinnacle Systems, Play Systems, Pluto Technologies International,
Progressive Networks, Quantel, SADIE, Scitex, Sonic Solutions, SONY,
Softimage/Microsoft, Tektronix, Transoft, Truevision, VDONet or VXtreme,
or any of their subsidiaries and affiliates.
(ii) You also agree that, for a period of two (2) years from the date of
your termination, you will not, either directly or indirectly through an
agency, new employer or otherwise, solicit the employment of (or solicit
to engage as an independent contractor or consultant) any person who at
any time during the one year preceding such solicitation was an employee
or independent contractor of Avid or any Avid affiliate.
9. INJUNCTIVE RELIEF.
You acknowledge and agree that the remedy of the Company at law for any
breach of the covenants and agreements contained in Paragraph 8 of this
Agreement will be inadequate, and that the Company shall be entitled to
injunctive relief against any such breach or threatened breach. You represent
and agree that such injunctive relief shall not prohibit you from earning a
livelihood acceptable to you.
10. NOTICE.
For the purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed to the respective addresses
set forth on the first page of this Agreement, provided that all other notices
to the Company should be directed to the attention to the Corporate Secretary of
the Company, or to such address as either party may have furnished to the other
in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
11. INDEMNIFICATION.
The Company will indemnify you to the extent set forth in the Certificate
of Incorporation and By-laws of the Company as in effect on the date of the
Change in Control of the Company.
12. FURTHER ASSURANCES.
Each party hereto agrees to furnish and execute such additional forms and
documents, and to take such further action, as shall be reasonable and
customarily required in connection with the performance of this Agreement or the
payment of benefits hereunder.
13. ENTIRE AGREEMENT.
This Agreement represents the entire agreement of the parties with respect
to the subject matter hereof and supersedes any other agreement between the
parties with respect to such subject matter, including, without limitation, all
provisions of the letter agreement dated August 21, 1996 between you and the
Company (other than the first sentence of the section entitled "Severance and
Change in Control" thereof).
14. 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
in the same instrument.
15. LEGAL FEES AND EXPENSES.
In addition to any other benefits to which you may be entitled hereunder,
the Company shall pay all reasonable legal fees and expenses which you may incur
as a result of the Company's contesting the validity, enforceability or your
interpretation of, or determination under, this Agreement or otherwise as a
result of any termination as a result of which you are entitled to the benefits
set forth in this Agreement.
16. MISCELLANEOUS.
(i) No provision of this Agreement may be modified, waived, or discharged
unless such waiver, modification, or discharge is agreed to in writing
signed by you and such officer as may be specifically designated by the
Board of Directors of the Company.
(ii) No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at
any time prior or subsequent time.
(iii) The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
(iv) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement, which shall remain in full force and effect.
(v) The Company may withhold from any amounts payable under this Agreement
such federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
If this Agreement correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this
Agreement which will then constitute our agreement on this subject.
Sincerely,
Avid Technology, Inc.
By: /S/ William J. Miller
----------------------------
Name: William J. Miller
Title:Chairman and Chief Executive
Officer
I acknowledge receipt and agree with the foregoing terms and conditions.
/S/ William L. Flaherty
- ----------------------------
William L. Flaherty
Date: DECEMBER 1, 1997
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 1997
AVID TECHNOLOGY WORLDWIDE, INC. (Delaware)
AVID TECHNOLOGY SECURITIES CORPORATION (Massachusetts)
ELASTIC REALITY, INC. (Wisconsin)
AVID TECHNOLOGY FSC LIMITED (Barbados)
AVID TECHNOLOGY EUROPE LIMITED (England)
AVID TECHNOLOGY HQ LIMITED (England)
AVID TECHNOLOGY IBERIA LTD (England)
AVID TECHNOLOGY SYSTEMS LIMITED (England)
PARALLAX SOFTWARE LIMITED (England)
3 SPACE SOFTWARE LIMITED (England)
AVID TECHNOLOGY S.A.R.L. (France)
AVID TECHNOLOGY G.m.b.H. (Germany)
AVID TECHNOLOGY SALES LIMITED (Ireland)
AVID TECHNOLOGY S.R.L. (Italy)
AVID TECHNOLOGY HOLDING B.V. (Netherlands)
AVID TECHNOLOGY INTERNATIONAL B.V. (Netherlands)
AVID JAPAN K.K. (Japan)
AVID TECHNOLOGY (S.E. ASIA) PTE LTD (Singapore)
AVID TECHNOLOGY (AUSTRALIA) PTY LTD (Australia)
AVID NORTH ASIA LIMITED (Hong Kong)
Exhibit 23.1
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statements of
Avid Technology, Inc. on Form S-3 (File Nos. 33-93472, 33-96456 and 333-03128)
and Form S-8 (File Nos. 33-64126, 33-64130, 33-64128, 33-64124, 33-82478,
33-88318, 33-98692, 333-08821, 333-08823, 333-08825, 333-30367, 333-42569 and
333-42571) of our report dated February 4, 1998, on our audits of the
consolidated financial statements and financial statement schedule of Avid
Technology, Inc. as of December 31, 1997 and 1996, and for each of the three
years in the period ended December 31, 1997, which report is included in this
Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS ON THE FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1997 AND THE
CONSOLIDATED STATEMENT OF INCOME AS FILED ON FORM 10-K FOR THE PERIOD ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 108,308
<SECURITIES> 78,654
<RECEIVABLES> 87,302
<ALLOWANCES> 7,529
<INVENTORY> 9,842
<CURRENT-ASSETS> 301,082
<PP&E> 99,619
<DEPRECIATION> 60,702
<TOTAL-ASSETS> 356,805
<CURRENT-LIABILITIES> 114,608
<BONDS> 0
0
0
<COMMON> 242
<OTHER-SE> 241,552
<TOTAL-LIABILITY-AND-EQUITY> 356,805
<SALES> 471,338
<TOTAL-REVENUES> 471,338
<CGS> 221,553
<TOTAL-COSTS> 221,553
<OTHER-EXPENSES> 219,672
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 38,238
<INCOME-TAX> 11,854
<INCOME-CONTINUING> 26,384
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,384
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS ON THE FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1996 AND THE
CONSOLIDATED STATEMENT OF INCOME AS FILED ON FORM 10-K FOR THE PERIOD ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. THE EARNINGS PER SHARE INFORMATION, INCLUDED BELOW, HAS
BEEN RESTATED TO REFLECT THE ADOPTION OF SFAS NO. 128.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 75,795
<SECURITIES> 17,248
<RECEIVABLES> 93,706
<ALLOWANCES> 7,519
<INVENTORY> 28,359
<CURRENT-ASSETS> 231,698
<PP&E> 92,281
<DEPRECIATION> 43,035
<TOTAL-ASSETS> 300,979
<CURRENT-LIABILITIES> 86,378
<BONDS> 0
0
0
<COMMON> 213
<OTHER-SE> 213,202
<TOTAL-LIABILITY-AND-EQUITY> 300,979
<SALES> 429,009
<TOTAL-REVENUES> 429,009
<CGS> 238,808
<TOTAL-COSTS> 238,808
<OTHER-EXPENSES> 249,564
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (55,947)
<INCOME-TAX> (17,903)
<INCOME-CONTINUING> (38,044)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,044)
<EPS-PRIMARY> (1.80)
<EPS-DILUTED> (1.80)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
INCOME AS FILED ON THE FORM 10-Q FOR THE PERIODS ENDED SEPTEMBER 30, 1997
(UNAUDITED), JUNE 30, 1997 (UNAUDITED), AND MARCH 31, 1997 (UNAUDITED),
RESPECTIVELY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. THE QUARTERLY EARNINGS PER SHARE INFORMATION INCLUDED BELOW HAS BEEN
RESTATED TO REFLECT THE ADOPTION OF SFAS NO. 128.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 115,704 89,606 122,981
<SECURITIES> 69,147 57,801 17,875
<RECEIVABLES> 85,858 88,561 76,805
<ALLOWANCES> 6,047 6,777 6,982
<INVENTORY> 18,701 23,271 24,133
<CURRENT-ASSETS> 307,548 277,809 259,691
<PP&E> 97,768 95,821 93,786
<DEPRECIATION> 57,771 52,951 47,851
<TOTAL-ASSETS> 367,032 348,965 324,015
<CURRENT-LIABILITIES> 108,638 107,808 93,059
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 241 237 230
<OTHER-SE> 257,567 240,140 229,741
<TOTAL-LIABILITY-AND-EQUITY> 367,032 348,965 324,015
<SALES> 347,602 231,093 108,209
<TOTAL-REVENUES> 347,602 231,093 108,209
<CGS> 167,491 115,886 56,185
<TOTAL-COSTS> 167,491 115,886 56,185
<OTHER-EXPENSES> 161,234 105,792 50,516
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 24,759 12,700 2,748
<INCOME-TAX> 7,675 4,445 962
<INCOME-CONTINUING> 17,084 8,255 1,786
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 17,084 8,255 1,786
<EPS-PRIMARY> 0.75 0.37 0.08
<EPS-DILUTED> 0.72 0.36 0.08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
INCOME AS FILED ON THE FORM 10-Q FOR THE PERIODS ENDED SEPTEMBER 30, 1996
(UNAUDITED), JUNE 30, 1996 (UNAUDITED), AND MARCH 31, 1996 (UNAUDITED),
RESPECTIVELY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. THE QUARTERLY EARNINGS PER SHARE INFORMATION INCLUDED BELOW HAS BEEN
RESTATED TO REFLECT THE ADOPTION OF SFAS NO. 128
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1996 JUN-30-1996 MAR-31-1996
<CASH> 72,986 53,902 25,750
<SECURITIES> 2,663 1,036 27,064
<RECEIVABLES> 88,621 92,244 99,903
<ALLOWANCES> 5,058 4,729 7,585
<INVENTORY> 51,667 65,357 70,089
<CURRENT-ASSETS> 243,855 240,074 246,428
<PP&E> 98,199 96,650 91,645
<DEPRECIATION> 45,176 39,987 35,197
<TOTAL-ASSETS> 299,728 302,747 306,441
<CURRENT-LIABILITIES> 80,559 77,907 77,619
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 213 211 211
<OTHER-SE> 217,455 222,591 226,052
<TOTAL-LIABILITY-AND-EQUITY> 299,728 302,747 306,441
<SALES> 315,798 201,134 92,039
<TOTAL-REVENUES> 315,798 201,134 92,039
<CGS> 172,542 111,872 52,456
<TOTAL-COSTS> 172,542 111,872 52,456
<OTHER-EXPENSES> 193,941 129,503 73,697
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> (48,865) (38,944) (33,527)
<INCOME-TAX> (15,652) (12,489) (10,729)
<INCOME-CONTINUING> (33,213) (26,455) (22,798)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (33,213) (26,455) (22,798)
<EPS-PRIMARY> (1.57) (1.26) (1.08)
<EPS-DILUTED> (1.57) (1.26) (1.08)
</TABLE>
