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”).

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 1,089,131 at December 31, 2016.

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 were 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 was recognized in 2015.

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 Financing Agreement precludes the Company from paying dividends. 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 and performance conditions, generally using adjusted EBITDA. 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, 2016 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, 2016	4,345,334		$10.68
Granted	—		$—
Exercised	(787,867	)	$7.67
Forfeited or canceled	(709,965	)	$15.06
Options outstanding at December 31, 2016	2,847,502		$10.43	2.85	$—
Options vested at December 31, 2016 or expected to vest	2,847,502		$10.43	2.85	$—
Options exercisable at December 31, 2016	2,707,454		$10.57	2.78	$—

The following table sets forth the weighted-average key assumptions and fair value results for stock options granted during the years ended December 31, 2015 and 2014. No options were granted during the year ended December 31, 2016.



	Year Ended December 31,
		2015	2014
Expected dividend yield		0.00%	0.00%
Risk-free interest rate		1.07%	1.24%
Expected volatility		52.0%	50.3%
Expected life (in years)		4.48	4.16
Weighted-average fair value of options granted (per share)		$3.91	$3.03

The cash received from stock options exercised during the years ended December 31, 2016 and 2015 was $5.6 million and $5.0 million, respectively. During the year ended December 31, 2014, the cash received from stock options exercised was not material. During the years ended December 31, 2016, 2015 and 2014, the aggregate intrinsic value of stock options exercised was not material.

Information with respect to non-vested restricted stock units for the year ended December 31, 2016 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, 2016	1,266,008		$9.97
Granted	1,880,411		$6.25
Vested	(465,392	)	$11.74
Forfeited	(525,246	)	$7.93
Non-vested at December 31, 2016	2,155,781		$6.85	1.13	$9,464
Expected to vest	1,520,098		$6.70	1.13	$6,673

The weighted-average grant date fair value of restricted stock units granted during the years ended December 31, 2016, 2015 and 2014 was $6.25, $10.31 and $10.19, respectively. The total fair value of restricted stock units vested during the years ended December 31, 2016, 2015, and 2014 was $5.5 million, $4.2 million, and $2.5 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. In July 2015, the Board of Directors approved an amendment to the plan to change the subscription period from three to six months and accordingly to adjust the payroll cap to $5,000 per plan period. A total of 214,271 shares remained available for issuance under the ESPP at December 31, 2016.

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, 2016, 2015 and 2014:



	Year Ended December 31,
	2016	2015	2014
Expected dividend yield	0.00%	0.00%	0.00%
Risk-free interest rate	0.40%	0.03%	0.09%
Expected volatility	69.0%	37.0%	35.0%
Expected life (in years)	0.49	0.24	0.17
Weighted-average fair value of shares issued (per share)	$1.20	$2.15	$2.02

The following table sets forth the quantities and average prices of shares issued under the ESPP for the years ended December 31, 2016, 2015 and 2014:



	Year Ended December 31,
	2016	2015	2014
Shares issued under the ESPP	129,342	98,300	—
Average price of shares issued	$4.35	$10.17	$—

The Company did not realize a material tax benefit from the tax deductions for stock option exercises, vested restricted stock units and shares issued under the ESPP during the years ended December 31, 2016, 2015 or 2014.

Stock-Based Compensation Expense

Stock-based compensation was included in the following captions in the Company’s consolidated statements of operations for the years ended December 31, 2016, 2015 and 2014, respectively (in thousands):



	Year Ended December 31,
	2016		2015		2014
Cost of products revenues	$	60	$	199	$	397
Cost of services revenues	381		624		279
Research and development expenses	376		461		502
Marketing and selling expenses	1,958		1,785		3,658
General and administrative expenses	5,141		6,445		6,677
Total	$	7,916	$	9,514	$	11,513

At December 31, 2016, there was $8.4 million of total unrecognized compensation cost 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: $4.5 million in 2017, $2.8 million in 2018 and $1.1 million in 2019. At December 31, 2016, the weighted-average recognition period of the unrecognized compensation cost was approximately 1.2 years.