Avid 2006 Annual Report Download - page 89

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79
Under some of the Company’s equity compensation plans, employees have the option to satisfy any withholding
tax obligations by tendering to the Company a portion of the common stock received under the award. In addition,
under some of the Company’s equity award agreements, employees are required to satisfy any withholding
tax obligation by tendering the Company a portion of the common stock received under the award. During
the years ended December 31, 2006 and 2005, the Company received approximately 4,039 shares and 1,588
shares, respectively, of its common stock in exchange for $0.2 million and $0.1 million, respectively, of employee
withholding liabilities paid by the Company. During the year ended December 31, 2004, the Company did not
receive any shares to satisfy tax withholding obligations.
Warrant
In connection with the acquisition of Softimage Inc., the Company issued to Microsoft a ten-year warrant to
purchase 1,155,235 shares of the Company’s common stock, valued at $26.2 million. The warrant became
exercisable on August 3, 2000, at a price of $47.65 per share, and expires on August 3, 2008.
L. STOCK PLANS
Stock Option and Award Plans
The Company has several stock-based compensation plans under which employees, officers, directors and
consultants may be granted stock awards or options to purchase the Company’s common stock, generally at
the market price on the date of grant. Certain plans allow for options to be granted at below market price under
certain circumstances, although this is typically not the Company’s practice. The options become exercisable
over various periods, typically four years for employees and one year for non-employee directors, and have a
maximum term of ten years. As of December 31, 2006, 2,545,960 shares of common stock remain available to
cover future stock option grants under the Company’s stock-based compensation plans, including 2,127,926 shares
that may alternatively be issued as awards of restricted stock, restricted stock units or other forms of stock-based
compensation.
Beginning with the adoption of SFAS 123(R) in the first quarter of 2006, the Company recorded stock-based
compensation expense for the fair value of stock options. Stock-based compensation expense of $16.8 million,
$2.4 million and $1.4 million, resulting from the adoption of SFAS 123(R), the acquisition of M-Audio and the
issuance of restricted stock and restricted stock units, was included in the following captions in the Company’s
consolidated statements of operations for the years ended December 31, 2006, 2005 and 2004, respectively (in
thousands):
2006 2005 2004
Product cost of revenues $ 516 $ – $ –
Services cost of revenues 801 – –
Research and development expense 4,925 272 159
Marketing and selling expense 4,833 772 434
General and administrative expense 5,766 1,403 855
$ 16,841 $ 2,447 $ 1,448
In addition, stock-based compensation totaling $180,000 was included in the caption “restructuring costs, net”
during 2006 related to stock-based compensation expense for the acceleration of vesting for certain employees
who were terminated in a restructuring program.
If the Company had applied the fair value recognition provisions of SFAS No. 123 to all stock-based employee
awards for the years ended December 31, 2005 and 2004, the Company’s net income (loss) and earnings (loss) per
share would have been adjusted to the pro forma amounts shown in Note B – “Summary of Significant Accounting
Policies.”
The fair values of restricted stock awards, including restricted stock and restricted stock units, are based on the
intrinsic values of the awards at the date of grant. As permitted under SFAS No. 123 and SFAS 123(R), the Company
uses the Black-Scholes option pricing model to estimate the fair value of stock option grants. The Black-Scholes
model relies on a number of key assumptions to calculate estimated fair values. For stock options granted prior
to 2006, the Company recognized stock-compensation expense using the graded-vesting attribution method. For
options granted since the adoption of SFAS 123(R), the Company uses the straight-line attribution method.