CAPITAL STOCK

Preferred Stock

The Company has authorized up to one million shares of preferred stock, $0.01 par value per share, for issuance. Each 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 may be determined by the Company’s board of directors (the “Board”).

Common Stock Repurchases

In April 2007, the Company’s Board approved a stock repurchase program that authorized the Company to repurchase up to $100 million of the Company’s common stock through transactions on the open market, in block trades or otherwise. In February 2008, the Company’s Board of Directors approved a $100 million increase in the authorized funds for the repurchase of the Company’s common stock. At December 31, 2014, there was $80.3 million available for future stock repurchases under the program. This stock repurchase program has no expiration date. During the years ended December 31, 2014, 2013 and 2012, no shares were repurchased under this program.

Under some of the Company’s equity compensation plans, employees have the option or may be required to satisfy minimum withholding tax obligations by tendering to the Company a portion of the common stock received under the award.

Stock Incentive Plans

In November 2014, the Company registered an aggregate of 3,750,000 of its shares of $0.01 par value per share common stock, which have been authorized and reserved for issuance under the Avid Technology, Inc. 2014 Stock Incentive Plan (the “Plan”). The Plan was originally adopted by the Company’s Board of Directors on September 14, 2014 and approved by the Company’s stockholders on October 29, 2014. In connection with the approval of the Plan the Company’s Amended and Restated 2005 Stock Incentive Plan has been closed; no additional awards may be granted under that Plan. Shares available for issuance under the Company’s 2014 Stock Incentive Plan totaled 3,267,184 at December 31, 2014.

Under the Plan, the Company may grant stock awards or options to purchase the Company’s common stock to employees, officers, directors and consultants. The exercise price for options generally must be no less than market price on the date of grant. Awards may be performance-based where vesting or exercisability is conditioned on achieving performance objectives, time-based or a combination of both. Current option grants become exercisable over various periods, typically three to four years for employees and one year for non-employee directors, and have a maximum term of seven to ten years. Restricted stock and restricted stock unit awards with time-based vesting typically vest over three to four years for employees and one year for non-employee directors.

In November 2014, the Compensation Committee of the Board of Directors modified certain market and performance based options and restricted stock units held by seven employees of the Company that were originally granted between 2009 and 2013. The modifications included (i) a conversion of vesting conditions from market and performance bases to a four year service period, including providing credit for service already rendered prior to the modification and (ii) an acceleration clause that allows vesting of between 50% and 100% of unvested awards if certain 2014 Adjusted EBITDA targets are achieved. In total, options to purchase 933,750 shares and 31,250 restricted stock units were modified, which resulted in incremental compensation expense of $4.3 million, $2.3 million of which was recognized upon modification, $1.5 million of which was recognized in the quarter ended December 31, 2014 upon achieving specific 2014 Adjusted EBITDA targets and the remaining $0.5 million will be recognized within the next twelve months.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option grants with time-based vesting. The Black-Scholes model relies on a number of key assumptions to calculate estimated fair value. The assumed dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present expectation to pay cash dividends and the Company’s current credit agreement precludes the Company from paying dividends. Historically, the expected stock-price volatility assumption has been based on recent (six-month trailing) implied volatility calculations. These calculations are performed on exchange traded options of the Company’s common stock, based on the implied volatility of long-term (9- to 39-month term) exchange-traded options. During 2014, the Company changed the method of calculating the expected volatility. The expected volatility is now based on actual historic stock volatility for periods equivalent to the expected term of the award. The assumed risk-free interest rate is the U.S. Treasury security rate with a term equal to the expected life of the option. The assumed expected life is based on company-specific historical experience considering the exercise behavior of past grants and models the pattern of aggregate exercises.

The fair value of restricted stock and restricted stock unit awards with time-based vesting is based on the intrinsic value of the awards at the date of grant, as the awards have a purchase price of $0.01 per share.

The Company also issues stock option grants or restricted stock unit awards with vesting based on market conditions, specifically the Company’s stock price; performance conditions, generally the Company’s return on equity or operating margin. The fair values and derived service periods for all grants that include vesting based on market conditions are estimated using the Monte Carlo valuation method. For stock option grants that include vesting based on performance conditions, the fair values are estimated using the Black-Scholes option pricing model. For restricted stock unit awards that include vesting based on performance conditions, the fair values are estimated based on the intrinsic values of the awards at the date of grant, as the awards have a purchase price of $0.01 per share.

Information with respect to options granted under all stock option plans for the year ended December 31, 2014 was as follows:



	Total Shares		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Options outstanding at January 1, 2014	4,726,415		$14.18
Granted	2,097,350		$7.54
Exercised	(25,505	)	$9.79
Forfeited or canceled	(1,234,149	)	$16.44
Options outstanding at December 31, 2014	5,564,111		$11.20	4.83	$24,940
Options vested at December 31, 2014 or expected to vest	5,272,012		$11.38	4.71	$23,086
Options exercisable at December 31, 2014	3,044,259		$13.81	3.91	$9,144

The following table sets forth the weighted-average key assumptions and fair value results for stock options granted during the years ended December 31, 2014, 2013 and 2012:



	Year Ended December 31,
	2014	2013	2012
Expected dividend yield	0.00%	0.00%	0.00%
Risk-free interest rate	1.24%	0.87%	0.94%
Expected volatility	50.3%	50.1%	52.8%
Expected life (in years)	4.16	4.68	4.56
Weighted-average fair value of options granted (per share)	$3.03	$3.33	$4.89

During the years ended December 31, 2014, 2013 and 2012, the cash received from and the aggregate intrinsic value of stock options exercised was not significant. The Company did not realize a material tax benefit from the tax deductions for stock option exercises during the years ended December 31, 2014, 2013 or 2012.

Information with respect to non-vested restricted stock units for the year ended December 31, 2014 was as follows:



	Non-Vested Restricted Stock Units
	Total Shares		Weighted- Average Grant-Date Fair Value	Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Non-vested at January 1, 2014	322,733		$11.30
Granted	801,316		$10.19
Vested	(264,513	)	$11.19
Forfeited	(47,656	)	$15.25
Non-vested at December 31, 2014	811,880		$10.01	0.88	$11,529
Expected to vest	741,436		$10.02	0.84	$10,528

The weighted-average grant date fair value of restricted stock units granted during the years ended December 31, 2014, 2013 and 2012 was $10.19, $7.84 and $10.95, respectively. The total fair value of restricted stock units vested during the years ended December 31, 2014, 2013, and 2012 was $2.5 million, $1.1 million, and $2.3 million, respectively.

Employee Stock Purchase Plan

The Company’s Second Amended and Restated 1996 Employee Stock Purchase Plan (the “ESPP”) offers the Company’s shares for purchase at a price equal to 85% of the closing price on the applicable offering period termination date. Shares issued under the ESPP are considered compensatory. Accordingly, the Company is required to measure fair value and record compensation expense for share purchase rights granted under the ESPP. The Company last issued shares under the ESPP on January 31, 2013. On March 8, 2013, participation in the ESPP was suspended. On November 12, 2014 the Board of Directors approved resumption of the Company’s ESPP upon the completion of certain required reports to the Securities Exchange Commission. A special plan period was opened from December 1, 2014 to January 31, 2015 and was available to all eligible employees of the Company. In order to compensate for the shortened special plan period, the maximum payroll deductions by participating employees was increased from 10% to 15% during the special plan period, with the overall payroll deduction cap of $2,500 for the special plan period remaining unchanged. A total of 441,913 shares remained available for issuance under the ESPP at December 31, 2014.

The Company uses the Black-Scholes option pricing model to calculate the fair value of shares issued under the ESPP. The Black-Scholes model relies on a number of key assumptions to calculate estimated fair values. The following table sets forth the weighted-average key assumptions and fair value results for shares issued under the ESPP during the years ended December 31, 2014, 2013 and 2012:



	Year Ended December 31,
	2014	2013	2012
Expected dividend yield	0.00%	0.00%	0.00%
Risk-free interest rate	0.09%	0.09%	0.08%
Expected volatility	35.0%	51.0%	51.5%
Expected life (in years)	0.17	0.25	0.25
Weighted-average fair value of shares issued (per share)	$2.02	$1.00	$1.30

The following table sets forth the quantities and average prices of shares issued under the ESPP for the years ended December 31, 2014, 2013 and 2012:



	Year Ended December 31,
	2014	2013	2012
Shares issued under the ESPP	—	27,936	142,658
Average price of shares issued	$—	$6.29	$6.96

Stock-Based Compensation Expense

The Company uses the accelerated method of attribution for awards with performance conditions and graded vesting features for options granted during 2014 and the straightline method for restricted stock units and options granted prior to 2014. The Company estimates forfeiture rates at the time awards are made based on historical and estimated future turnover rates and applies these rates in the calculation of estimated compensation cost. The estimation of forfeiture rates includes a quarterly review of historical turnover rates and an update of the estimated forfeiture rates to be applied to employee classes for the calculation of stock-based compensation. Forfeiture rates for the calculation of stock-based compensation were estimated and applied based on three classes, non-employee directors, executive management staff and other employees. The Company’s annualized estimated forfeiture rates were 0% for non-employee director awards, 10% for executive management staff and 15% for other employee awards. Then-current estimated forfeiture rates are applied quarterly to all outstanding stock options and non-vested restricted stock awards, which may result in a revised estimate of compensation costs related to these stock-based grants.

Stock-based compensation was included in the following captions in the Company’s consolidated statements of operations for the years ended December 31, 2014, 2013 and 2012, respectively (in thousands):



	Year Ended December 31,
	2014		2013		2012
Cost of products revenues	$	397	$	360	$	410
Cost of services revenues	279		436		582
Research and development expenses	502		582		986
Marketing and selling expenses	3,658		1,778		3,754
General and administrative expenses	6,677		3,761		5,700
Total	$	11,513	$	6,917	$	11,432

At December 31, 2014, there was $11.0 million of total unrecognized compensation cost, before forfeitures, related to non-vested stock-based compensation awards granted under the Company’s stock-based compensation plans. The Company expects this amount to be amortized approximately as follows: $6.6 million in 2015, $3.5 million in 2016 and $0.9 million in 2017. At December 31, 2014, the weighted-average recognition period of the unrecognized compensation cost was approximately 1.1.