AVID TECHNOLOGY, INC.
Avid Technology Park
One Park West
Tewksbury, MA 01876
November 13, 2002
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, DC 20549
Re: Avid Technology, Inc.
File No. 0-21174
Quarterly Report on Form 10-Q
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 Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 2002.
This filing is being effected by direct transmission to the Commission's
EDGAR System.
Very truly yours,
/s/ Carol E. Kazmer
Carol E. Kazmer
General Counsel
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
---------
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.)
AVID TECHNOLOGY PARK
ONE PARK WEST
TEWKSBURY, MA 01876
(Address of principal executive offices)
Registrant's telephone number, including area code: (978) 640-6789
Indicate by check mark whether the registrant 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 for such shorter period that the
registrant was required to file such reports).
Yes X No _____
Indicate by check mark whether the registrant has been subject to such
filing requirements for the past 90 days.
Yes X No _____
The number of shares outstanding of the registrant's Common Stock as of November
5, 2002 was 26,526,815.
AVID TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements:
a) Condensed Consolidated Statements of Operations (unaudited)for the
three and nine months ended September 30, 2002 and 2001 .............1
b) Consolidated Balance Sheets as of September 30, 2002 (unaudited)
and December 31, 2001 ...............................................2
c) Condensed Consolidated Statements of Cash Flows (unaudited)for
the nine months ended September 30, 2002 and 2001 ...................3
d) Notes to Condensed Consolidated Financial Statements (unaudited).....4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................12
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk ......26
ITEM 4. Controls and Procedures ........................................27
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K ...............................28
Signatures ..................................................................29
CERTIFICATION ...............................................................30
EXHIBIT INDEX ...............................................................32
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
(unaudited) (unaudited) (unaudited) (unaudited)
Net revenues $107,832 $102,281 $305,935 $329,849
Cost of revenues 53,222 50,444 153,528 160,473
------------- ------------- ------------- -------------
Gross profit 54,610 51,837 152,407 169,376
------------- ------------- ------------- -------------
Operating expenses:
Research and development 20,916 19,630 61,145 64,785
Marketing and selling 25,677 27,614 75,418 88,880
General and administrative 5,454 5,299 14,985 17,699
Restructuring and other costs, net 8,303 (327) 8,549
Amortization of acquisition-related
intangible assets 257 5,088 861 30,640
------------- ------------- ------------- -------------
Total operating expenses 52,304 65,934 152,082 210,553
------------- ------------- ------------- -------------
Operating income (loss) 2,306 (14,097) 325 (41,177)
Other income (expense), net 259 605 (192) 3,996
------------- ------------- ------------- -------------
Income (loss) before income taxes 2,565 (13,492) 133 (37,181)
Provision for income taxes 300 700 1,400 2,300
------------- ------------- ------------- -------------
Net income (loss) $2,265 ($14,192) ($1,267) ($39,481)
============= ============= ============= =============
Net income (loss) per common share - basic $0.09 ($0.55) ($0.05) ($1.55)
============= ============= ============= =============
Net income (loss) per common share - diluted $0.09 ($0.55) ($0.05) ($1.55)
============= ============= ============= =============
Weighted average shares outstanding - basic 26,287 25,745 26,064 25,513
============= ============= ============= =============
Weighted average shares outstanding - diluted 26,550 25,745 26,064 25,513
============= ============= ============= =============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
1
AVID TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2002 2001
------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $55,867 $45,613
Marketable securities 22,368 27,348
Accounts receivable, net of allowances of $11,552 and
$11,497 at September 30, 2002 and December 31, 2001,
respectively 62,330 78,010
Inventories 29,864 21,690
Deferred tax assets, net 745 695
Prepaid expenses 6,195 6,722
Other current assets 3,674 3,440
------------- -------------
Total current assets 181,043 183,518
Property and equipment, net 24,352 27,164
Acquisition-related intangible assets, net 1,520 3,462
Goodwill 1,087 -
Other assets 669 1,662
------------- -------------
Total assets $208,671 $215,806
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $26,340 $19,076
Accrued compensation and benefits 12,695 13,023
Accrued expenses and other current liabilities 22,550 26,125
Income taxes payable 8,686 10,932
Deferred revenues 30,489 28,872
------------- -------------
Total current liabilities 100,760 98,028
Long-term debt and other liabilities (Note 6) - 13,020
Commitments and contingencies (Note 7) Stockholders' equity:
Preferred stock
Common stock 266 266
Additional paid-in capital 355,860 357,446
Accumulated deficit (238,292) (235,926)
Treasury stock (3,368) (8,035)
Deferred compensation (343) (1,294)
Accumulated other comprehensive loss (6,212) (7,699)
------------- -------------
Total stockholders' equity 107,911 104,758
------------- -------------
Total liabilities and stockholders' equity $208,671 $215,806
============= =============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended September 30,
2002 2001
--------------- ---------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,267) ($39,481)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 9,821 42,242
Provision for doubtful accounts 1,350 1,867
Compensation from stock grants and options 901 2,178
Equity in income of non-consolidated companies (158) (1,164)
Gain on sale of businesses (327) (2,272)
Write-down of investment in non-consolidated company 1,000 1,100
Changes in operating assets and liabilities,
net of effects of acquisition:
Accounts receivable 16,183 24,045
Inventories (8,027) (331)
Prepaid expenses and other current assets 669 (40)
Accounts payable 7,123 (12,158)
Income taxes payable (2,378) (817)
Accrued expenses, compensation and benefits and other
current liabilities (3,744) (6,190)
Deferred revenues 1,458 (1,349)
- ------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 22,604 7,630
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (7,117) (9,448)
Payments for other long-term assets (130) (361)
Dividends from non-consolidated company 59
Payments for business acquisition, net of cash acquired (5,439)
Payments on note issued in connection with acquisition (13,020)
Collections of notes receivable from sale of business 327 333
Purchases of marketable securities (16,173) (17,728)
Proceeds from sales of marketable securities 21,099 22,305
- ------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (14,955) (10,338)
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of common stock for treasury (4,155)
Proceeds from issuance of common stock 2,032 5,289
- ------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,032 1,134
- ------------------------------------------------------------------------------------------------
Effects of exchange rate changes on cash and cash equivalents 573 (297)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 10,254 (1,871)
Cash and cash equivalents at beginning of period 45,613 64,875
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $55,867 $63,004
- ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
PART I. FINANCIAL INFORMATION
ITEM 1D. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL INFORMATION
The accompanying condensed consolidated financial statements include the
accounts of Avid Technology, Inc. and its wholly owned subsidiaries
(collectively, "Avid" or the "Company"). These financial statements are
unaudited. However, in the opinion of management, the condensed consolidated
financial statements include all adjustments, consisting of only normal,
recurring adjustments, necessary for their fair presentation. Interim results
are not necessarily indicative of results expected for a full year. The
accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions for Form 10-Q and therefore do not include all
information and footnotes necessary for a complete presentation of operations,
the financial position, and cash flows of the Company, in conformity with
generally accepted accounting principles. The Company filed audited consolidated
financial statements for the year ended December 31, 2001 on Form 10-K, which
included all information and footnotes necessary for such presentation.
The Company's preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 reflected
in these financial statements include accounts receivable and sales allowances,
inventory valuation and income tax valuation allowances. Actual results could
differ from those estimates.
2. NET INCOME (LOSS) PER SHARE
Basic and diluted net income (loss) per share were as follows (in thousands,
except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
2002 2001 2002 2001
----------- ---------- ---------- -----------
Net income (loss) $2,265 ($14,192) ($1,267) ($39,481)
=========== ========== ========== ===========
Weighted average common shares
outstanding - basic 26,287 25,745 26,064 25,513
Weighted average potential common stock 263
----------- ---------- ---------- -----------
Weighted average common shares
outstanding - diluted 26,550 25,745 26,064 25,513
=========== ========== ========== ===========
Basic net income (loss) per share $0.09 ($0.55) ($0.05) ($1.55)
Diluted net income (loss) per share $0.09 ($0.55) ($0.05) ($1.55)
Common stock options and warrants that
were considered anti-dilutive securities
and excluded from the diluted net income
(loss) per share calculations were as
follows, on a weighted-average basis: 8,330 9,034 8,907 9,010
4
For the three and nine months ended September 30, 2002 and 2001, certain stock
options and warrants have been excluded from the diluted net income (loss) per
share calculation as their effect would be anti-dilutive. For periods that the
Company reports a net loss, all potential common stock is considered
anti-dilutive; for periods when the Company reports net income, only potential
common shares with purchase prices in excess of the Company's average common
stock fair value for the related period are considered anti-dilutive.
3. INVENTORIES
Inventories consisted of the following (in thousands):
September 30, December 31,
2002 2001
---------------- ----------------
Raw materials $13,705 $13,043
Work in process 2,648 2,553
Finished goods 13,511 6,094
---------------- ----------------
$29,864 $21,690
================ ================
As of September 30, 2002 and December 31, 2001, the finished goods inventory
included deferred costs of $3.9 million and $1.5 million, respectively,
associated with product shipped to customers for which revenue had not yet been
recognized.
4. INVESTMENT IN JOINT VENTURE AND ACQUISITIONS
In January 1999, Avid and Tektronix, Inc. established a 50/50 owned and funded
newsroom computer system joint venture, AvStar Systems LLC ("AvStar"). The joint
venture was dedicated to providing the next generation of newsroom computer
systems products by combining both companies' newsroom computer systems
technologies and certain personnel. In September 1999, Tektronix transferred its
interest in AvStar to a third party, The Grass Valley Group, Inc. (now a unit of
Thomson Multimedia). In September 2000, AvStar began doing business as iNews,
LLC ("iNews").
The Company's investment in the joint venture was accounted for under the equity
method of accounting. The pro rata share of earnings of the joint venture
recorded by the Company during the nine-month period ended September 30, 2001,
related to iNews operating results for the fourth quarter of 2000, was
approximately $1.1 million. In January 2001, the Company acquired Grass Valley
Group's 50% interest in iNews for approximately $6.0 million. This acquisition
was accounted for under the purchase method of accounting. Accordingly, the
assets and liabilities that represented the acquired 50% interest were recorded
in the Company's financial statements as of the acquisition date based on their
fair values, while the assets and liabilities that represented Avid's investment
in the joint venture were recorded as of the acquisition date based on the book
values of the joint venture's assets and liabilities without adjustment. Since
the acquisition date, operating results of iNews have been included in the
5
consolidated operating results of the Company. The purchase price of $6.0
million was initially allocated to net tangible assets of $1.7 million,
completed technologies of $2.5 million and work force of $1.8 million. The
Company recorded amortization of these intangible assets of $0.2 million and
$0.6 million in the three- and nine-month periods ended September 30, 2002,
respectively, and $0.5 million and $1.2 million in the three- and nine-month
periods ended September 30, 2001, respectively. In connection with the adoption
of SFAS 142, the Company reclassified the remaining acquired work force balance,
of $1.1 million, to goodwill on January 1, 2002 (see Note 5).
5. GOODWILL AND INTANGIBLE ASSETS
In June 2001, the FASB issued Statement of Accounting Standard No. 142 ("SFAS
142"), "Goodwill and Other Intangible Assets." SFAS 142, which supersedes APB
Opinion No. 17 "Intangible Assets", addresses how acquired goodwill and other
intangible assets should be accounted for in financial statements subsequent to
their initial recognition. The provisions of SFAS 142 (1) prohibit the
amortization of goodwill and indefinite-lived intangible assets, (2) require
that goodwill and indefinite-lived intangible assets be tested annually for
impairment (and in interim periods if certain events occur indicating that the
carrying value of goodwill and/or indefinite-lived intangible assets may be
impaired), (3) require that "reporting units" be identified for the purposes of
assessing potential future impairments of goodwill and (4) remove the forty-year
limitation on the amortization period of intangible assets that have finite
lives. SFAS No. 142 requires that goodwill not be amortized but rather be tested
for impairment at the reporting unit level at least annually and more frequently
upon the occurrence of certain events. Additionally, SFAS 142 provides guidance
about how to determine and measure goodwill impairment and requires disclosure
of information about goodwill and other intangible assets in the years
subsequent to their acquisition.
In connection with its adoption of SFAS 142 on January 1, 2002, the Company
reclassified the remaining value of acquired work force from the iNews
acquisition, of $1.1 million, to goodwill and, as a result, ceased amortizing
this amount; prior to this reclassification, the Company had no unamortized
goodwill.
SFAS 142 requires the Company to test all existing goodwill for impairment as of
January 1, 2002, on a reporting unit basis. SFAS 142 prescribes a two-phase
process of impairment testing of goodwill. The first phase, which under SFAS
142's transitional guidance was required to be completed by June 30, 2002, tests
for impairment by comparing the fair value of each reporting unit with its book
value. The second phase, which under SFAS 142's transitional guidance is
required to be completed by December 31, 2002, is not necessary if the fair
value of each reporting unit exceeds its book value, as tested in the first
phase. If the second phase is necessary the impairment of goodwill is measured
by comparing the fair value of each reporting unit's goodwill with the related
carrying amount of the goodwill. A reporting unit is an operating segment, as
defined by SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information", or one level below an operating segment. Upon adoption of
SFAS 142, the Company determined that its reporting units are its two operating
segments, Video and Film Editing and Effects, and Professional Audio. The
Company completed the first phase of the impairment analysis during the second
quarter of 2002 and found no instances of impairment of its recorded goodwill as
of January 1, 2002. Additional impairment analyses will be completed at least
annually, including as of December 31, 2002, or more frequently when events and
circumstances indicate that the recorded goodwill might be impaired.
6
Finite-lived intangible assets at September 30, 2002 and December 31, 2001
consisted only of completed technologies with a gross carrying amount of $3.9
million and $6.5 million, respectively. The related accumulated amortization was
$2.4 million and $3.1 million at September 30, 2002 and December 31, 2001,
respectively. Completed technologies are amortized on a straight-line basis over
periods ranging from 3 to 4.5 years. The Company expects amortization of these
intangible assets to be approximately $0.3 million for the remainder of 2002,
$1.0 million during 2003, and $0.2 million during 2004.
The following summary reflects the pro forma results of operations as if SFAS
142 had been retroactively applied as of January 1, 2001 (in thousands, except
per share amounts):
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ----------- -----------
Reported net income (loss) $2,265 ($14,192) ($1,267) ($39,481)
Goodwill amortization, net of tax 3,238 23,062
Amortization of work force, net of tax 989 2,790
------------ ------------ ----------- -----------
Pro forma net income (loss) $2,265 ($9,965) ($1,267) ($13,629)
============ ============ =========== ===========
Basic net income (loss) per share:
As reported $0.09 ($0.55) ($0.05) ($1.55)
Pro forma $0.09 ($0.39) ($0.05) ($0.53)
Weighted average common shares
outstanding - basic 26,287 25,745 26,064 25,513
Diluted net income (loss) per share:
As reported $0.09 ($0.55) ($0.05) ($1.55)
Pro forma $0.09 ($0.39) ($0.05) ($0.53)
Weighted average common shares
outstanding - diluted 26,550 25,745 26,064 25,513
6. LONG-TERM DEBT AND OTHER LIABILITIES
In connection with the acquisition of Softimage Inc. ("Softimage") from
Microsoft Corporation ("Microsoft") in 1998, Avid issued a $5.0 million
subordinated note (the "Note") to Microsoft. The principal amount of the Note,
including any adjustments relative to unvested Avid stock options forfeited by
Softimage employees plus all unpaid accrued interest, was due on June 15, 2003.
The Note bore interest at 9.5% per year, payable quarterly. Through December 31,
2001, the Note had been increased by approximately $16.0 million for forfeited
Avid stock options. During 1999, the Company made a principal payment of $8.0
million. On February 6, 2002, the Company made a payment of approximately $13.0
million in full satisfaction of the Company's outstanding note to Microsoft. The
Company made cash payments for interest during the three-month period ended
September 30, 2001 of $0.3 million. The Company made cash payments for interest
during the nine-month periods ended September 30, 2002 and 2001 of $20,000 and
$0.9 million, respectively.
7
7. COMMITMENTS AND CONTINGENCIES
On June 7, 1995, Avid filed a patent infringement complaint in the United States
District Court for the District of Massachusetts against Data Translation, Inc.
(now known as Media 100), a Marlboro, Massachusetts-based company. Avid is
seeking judgment against Media 100 that, among other things, Media 100 willfully
infringed Avid's U.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 Media
100. On January 16, 1998, the litigation was 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.
On March 11, 1996, Avid was named as a 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, and
seeks injunctive relief, treble damages and costs, and attorneys' fees. Avid
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.
In March 1999, Avid and Tektronix, Inc. were sued by Glen Holly Entertainment,
Inc., a Tektronix distributor, claiming that Tektronix's discontinuance of the
Tektronix Lightworks product line was the result of a strategic alliance by
Tektronix and Avid. Glen Holly raised antitrust and common law claims against
the Company and Tektronix, and sought lost future profits, treble damages,
attorneys' fees, and interest. The anti trust claims against the Company and
Tektronix were dismissed by the United States District Court for the District of
California on March 23, 2001, and the remaining common law claim against Avid
was dismissed by stipulation and court order on April 6, 2001. Glen Holly is
appealing the lower court's decision. Avid views the complaint and appeal as
without merit and intends to defend itself 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.
Avid receives inquiries from time to time with regard to possible patent
infringement claims. If any infringement should be found to exist, the Company
may seek licenses or settlements. In addition, 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, intellectual property rights 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.
8. COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss), net of taxes, consists of net income (loss),
the net changes in foreign currency translation adjustment and the net
8
unrealized gains and losses on available-for-sale securities. The following is a
summary of the Company's comprehensive income (loss), net of taxes (in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------
2002 2001 2002 2001
----------- ----------- ---------- -----------
Net income (loss) $2,265 ($14,192) ($1,267) ($39,481)
Foreign currency translation adjustment (563) 1,365 1,478 (1,023)
Unrealized gains (losses) on securities (5) (1,736) 9 (2,280)
----------- ----------- ---------- -----------
Total comprehensive income (loss) $1,697 ($14,563) $220 ($42,784)
=========== =========== ========== ===========
9. SEGMENT INFORMATION
The Company's organizational structure is based on strategic business units that
offer various products to the principle markets in which the Company's products
are sold. These business units equate to two reportable segments: Video and Film
Editing and Effects, and Professional Audio. The following is a summary of the
Company's operations by operating segment (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
2002 2001 2002 2001
---------- ---------- ----------- ------------
Video and Film Editing and Effects:
Net revenues $73,821 $76,807 $203,797 $244,047
========== ========== =========== ============
Operating loss ($1,768) ($2,650) ($11,465) ($10,662)
========== ========== =========== ============
Professional Audio:
Net revenues $34,011 $25,474 $102,138 $85,802
========== ========== =========== ============
Operating income $4,331 $1,944 $12,324 $8,674
========== ========== =========== ============
Combined Segments:
Net revenues $107,832 $102,281 $305,935 $329,849
========== ========== =========== ============
Operating income (loss) $2,563 ($706) $859 ($1,988)
========== ========== =========== ============
The following table reconciles operating income (loss) for reportable segments
to total consolidated operating income (loss) (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2002 2001 2002 2001
----------- ---------- ---------- -----------
Total operating income (loss) for reportable segments $2,563 ($706) $859 ($1,988)
Unallocated amounts:
Amortization of acquisition-related intangible assets (257) (5,088) (861) (30,640)
Restructuring and other costs, net (8,303) 327 (8,549)
----------- ---------- ---------- -----------
Consolidated operating income (loss) $2,306 ($14,097) $325 ($41,177)
=========== ========== ========== ===========
9
10. RESTRUCTURING AND OTHER COSTS, NET
During the nine months ended September 30, 2001, the Company implemented
restructuring plans resulting in the termination of 194 employees. The Company
incurred charges of approximately $10.1 million under these plans, which
included $7.5 million for severance and related costs of the terminated
employees and $2.6 million for facility vacancy costs, including a
non-cancelable lease commitment and a non-cash charge relating to the
disposition of leasehold improvements.
The following table sets forth the activity in the restructuring accrual
accounts for the nine months ended September 30, 2002 (in thousands):
Employee Facilities
Related Related Total
------------ ------------ -------------
Accrual balance at December 31, 2001 $1,471 $3,619 $5,090
Non-cash charges (1,100) (1,100)
Cash payments (834) (519) (1,353)
Revisions of estimated liabilities 70 (70) -
------------ ------------ -------------
Accrual balance at September 30, 2002 $707 $1,930 $2,637
============ ============ =============
The Company expects that the majority of the remaining $0.7 million
employee-related accrual balance will be expended over the next three months and
will be funded from working capital. The majority of the facilities-related
accrual represents estimated losses on subleases of space vacated as part of
various restructuring actions. The leases extend through 2010 unless the Company
is able to negotiate an earlier termination.
In December 1999, the Company entered into an agreement to sell its Italian
subsidiary to a third party, which established the entity as a distributor of
Avid products. The sale was completed in the first quarter of 2000. In 1999, the
Company incurred and recorded a loss of approximately $2.0 million relating to
the sale, including a reserve of $1.0 million for the Company's guarantee of the
new entity's line of credit with a bank and $0.8 million for loans extended to
the buyers in connection with the transaction. The line of credit guarantee
ended on January 31, 2001 without requiring any cash payment by Avid.
Accordingly, in the quarter ended March 31, 2001, the Company recorded a credit
of $1.0 million associated with the reversal of the reserve, which was included
under the caption restructuring and other costs, net, where the charge had
originally been recorded. In addition, in the quarter ended June 30, 2002, the
Company received a payment of $0.3 million under the note received as partial
consideration from the buyers of the Italian subsidiary. The Company also
received a payment of $0.3 million under the note in the quarter ended June 30,
2001. These payments were recorded as credits to restructuring and other costs,
net, since the note was fully reserved when received. The payment received in
the quarter ended June 30, 2002 satisfied the remaining balance of the note in
full.
In addition, in the quarter ended September 30, 2001, the Company recorded a
credit of $0.2 million to restructuring and other costs, net, associated with a
reduction in its estimated liability for executive severance related to a charge
initially recorded in 1999.
10
11. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146") which nullifies EITF Issue No.
94-3 "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred,
whereas EITF No 94-3 had allowed the liability to be recorded at the commitment
date of an exit plan. The Company is required to adopt the provisions of SFAS
146 effective for exit or disposal activities initiated after December 31, 2002,
and is currently evaluating the impact of adoption of this statement.
11
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company develops, markets, sells and supports a wide range of
software, and hardware and software systems, for digital media production,
management and distribution. Digital media are media elements, whether video,
audio or graphics, in which the image, sound or picture is recorded and stored
as digital values, as opposed to analog, or tape-based, signals. Our product and
service offerings enable customers to "Make, Manage and Move Media."
Make Media. To make media, we offer digital, non-linear video and film
editing systems to enable customers to edit moving pictures and sound in a
faster, easier, more creative, and more cost-effective manner than by use of
traditional analog tape-based systems. (Non-linear systems allow editors to
access material as needed rather than requiring them to work sequentially.) To
complement these non-linear editing systems, we develop and sell 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 shows and advertising, and news programs. The
products include 3D and special effects software products from our Softimage
subsidiary. We also offer digital audio systems through our Digidesign division.
Digidesign's audio systems have applications in music, film, television, video,
broadcast, streaming media, and web development. These systems are based upon
proprietary Digidesign/Avid audio hardware, software, and control surfaces, and
permit users to record, edit, mix, process, and master audio in an integrated
manner.
Manage Media. We provide complete network, storage, and database
solutions based on our Avid Unity MediaNetwork technology. This technology
enables users to share and manage media assets throughout a project or
organization. The ability to effectively manage digital media assets is a
critical component of success for many broadcast and media companies with
multiple product lines and geographic locations. Accordingly, we have designed
our products to work together in the network, storage, and database environment,
allowing for the sharing of data and increasing the effectiveness of our
customers' workflow. Our key technologies help our customers to reduce costs and
increase the value of their media assets by letting them easily and quickly
"repurpose" or find new uses or markets for their assets.
Move Media. We offer products that allow customers to distribute their
final product. For example, we provide technology for playback directly to air
for broadcast television applications. In addition, because we believe that the
Internet will eventually become a critical content distribution channel, we
develop and sell Internet-ready products.
Our 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, corporate communication departments, and by game developers and
Internet professionals. Projects produced using our products--from major motion
pictures and prime-time television to music, video, and marquee recording
artists--have been honored with Oscar(R), Emmy(R), and Grammy(R) awards, as well
as a host of other international awards. (Oscar is a registered trademark and
service mark of the Academy of Motion Picture Arts and Sciences. Emmy is a
registered trademark of ATAS/NATAS. Grammy is a registered trademark of The
National Academy of Recording Arts and Sciences, Inc.)
12
RESULTS OF OPERATIONS
Net Revenues
The Company's net revenues are derived mainly from the sales of
computer-based digital, non-linear media editing systems and related
peripherals, licensing of related software, and sales of software maintenance
contracts. This market has been, and is expected to continue to be, highly
competitive. A significant portion of these revenues is generated by sales near
the end of each quarter, which can impact our ability to accurately forecast
revenues on a quarterly basis. Increasingly, revenues are also being derived
from sales of "solutions", encompassing multiple products and networking
capabilities that enable users to share and manage media throughout a project or
organization. Such solution sales may include training and installation
services, as well as workflow management assistance, to be provided either by
Avid or a third party. Depending upon the complexity of the arrangement and the
level of involvement by Avid, the revenues resulting from these solution sales
may be deferred for one or more quarters while the services are being performed.
Net revenues increased by $5.5 million (5.4%) to $107.8 million in the
quarter ended September 30, 2002 from $102.3 million for the same quarter in
2001. This increase occurred primarily due to the continued demand for Pro
Tools|HD in our Professional Audio ("Audio") segment and to a very successful
Media Composer upgrade promotion for our Video and Film Editing and Effects
("Video") segment. The Audio segment also delivered third-party promotional
software for which revenue had previously been deferred. We also saw increased
demand for our Avid Xpress DV product in the Video segment. These increases were
partially offset by decreases in most other Video segment products. Revenue from
the combined segments includes a positive currency effect of approximately $2.4
million in 2002 versus the same period a year ago (assuming prior quarter
revenues were expressed at current quarter exchange rates), primarily due to a
strengthening of the euro.
Net revenues decreased by $23.9 million (7.2%) to $305.9 million for the
nine months ended September 30, 2002 from $329.8 million for the nine months
ended September 30, 2001. This decrease occurred across most product families in
our Video business, in particular the Media Composer and Avid Xpress systems. We
believe that a portion of this decline was due to the general worldwide economic
slowdown. More specifically, we believe that a reduction in advertising spending
worldwide has had a negative impact on our post-production video business,
causing our customers to reduce capital spending pending an upturn in their
businesses. Revenue in our Video segment was also adversely impacted by pricing
reductions and discounts. Our Audio business contributed favorably to revenues
for the nine months ended September 30, 2002 due to strong demand for its new
flagship digital audio workstation, Pro Tools|HD, which was introduced in
January 2002.
Net revenues derived through indirect channels were approximately 81% of
net revenues for the three months ended September 30, 2002, compared to 74% of
net revenues for the same period in 2001. Indirect channel revenues were
approximately 82% of net revenues for the nine months ended September 30, 2002,
compared to approximately 80% for the same period in 2001. In both cases, the
13
increase was due primarily to the higher proportion of Audio revenue in the
current period, which is sold only through indirect channels.
Sales in the Americas accounted for 56% of each of the Company's third
quarter 2002 and 2001 net revenues. For each of the nine-month periods ended
September 30, 2002 and 2001, sales in the Americas accounted for 55% of net
revenues. For the three-month period ended September 30, 2002, Americas sales
increased by approximately $2.9 million or 5.0%, compared to the same period in
2001. For the nine-month period ended September 30, 2002, Americas sales
decreased by approximately $10.0 million or 5.6%, compared to the same period in
2001.
Sales in the Europe and Asia Pacific regions accounted for 44% of each
of the Company's third quarter 2002 and 2001 net revenues. For the nine-month
periods ended September 30, 2002 and 2001, sales in the Europe and Asia Pacific
regions accounted for 45% of net revenues. The combined Europe and Asia Pacific
sales in the third quarter of 2002 increased by approximately $2.7 million or
6.0%, compared to the same period in 2001. For the nine-month period ended
September 30, 2002, sales decreased by approximately $13.9 million or 9.3%,
compared to the same period in 2001.
Gross Profit
Cost of revenues consists primarily of costs associated with the
procurement of components; the assembly, test and distribution of finished
products; warehousing; post-sales customer support costs; royalties for
third-party software included in the products; and provisions for inventory
obsolescence. The resulting gross profit fluctuates based on factors such as the
mix of products sold, the cost and proportion of third-party hardware and
software included in the systems sold, the offering of product upgrades, price
discounts and other sales promotion programs, the distribution channels through
which products are sold, the timing of new product introductions, sales of after
market peripheral hardware products such as disk drives, and currency exchange
rate fluctuations.
Gross margin decreased to 50.6% in the third quarter of 2002 compared to
50.7% in the same period of 2001. This decrease was primarily due to price
reductions and discounting in the Video segment and higher manufacturing costs
in the Audio segment, both of which were partially offset by the positive margin
impact to Audio of delivering third-party promotional software for which revenue
had previously been deferred. Additionally, there was a positive impact from
currency exchange rate fluctuations, primarily a strengthening of the euro, for
the three-month period ended September 30, 2002, resulting in higher U.S. dollar
equivalent revenue.
Gross margin decreased to 49.8% for the nine months ended September 30,
2002 from 51.3% for the same period in 2001. This decrease was primarily due to
price reductions and discounting in the Video segment, and a less favorable
product mix, both of which were partially offset by the positive margin impact
from Audio delivering promotional software for which revenue had previously been
deferred.
Research and Development
Research and development expenses increased by $1.3 million (6.6%) in
the third quarter of 2002 compared to the same period in 2001, primarily due to
funding from a third-party received in 2001 for a particular project which
offset related research and development costs; no third-party funding was
14
received in 2002. Because the higher net spending occurred in a quarter where
revenues also increased, research and development expenses increased only
slightly as a percentage of net revenues to 19.4% in the third quarter of 2002,
compared to 19.2% in the same quarter of 2001. Research and development expenses
decreased by $3.6 million (5.6%) for the nine months ended September 30, 2002
compared to the same period in 2001. The decrease in the nine-month period ended
September 30, 2002 was primarily due to reduced personnel related costs as a
result of restructuring actions implemented in late 2001, partially offset by
the absence of third-party project funding mentioned above. Despite the lower
spending in the nine-month period ended September 30, 2002, research and
development expenses increased as a percentage of net revenues (to 20.0%, as
compared to19.6% for the nine months ended September 30, 2001) due to the
decrease in revenue for the first three quarters of 2002.
Marketing and Selling
Marketing and selling expenses decreased by $1.9 million (7.0%) in the
third quarter of 2002 compared to the same period in 2001, primarily due to
decreases in trade show expenses, provision for bad debt expense and various
marketing programs, partially offset by increased employee incentive
compensation. Due to the decrease in spending and increase in revenues,
marketing and selling expenses decreased as a percentage of net revenues to
23.8% in the third quarter of 2002, compared to 27.0% in the same quarter of
2001. Marketing and selling expenses decreased by $13.5 million (15.1%) for the
nine months ended September 30, 2002 compared to the same period in 2001. The
decrease for the nine-month period ended September 30, 2002 was primarily due to
reduced personnel-related and travel expenses, various marketing programs, trade
show expenses and a positive currency effect, due to the strengthening of the
euro. Due to the significantly lower spending in the nine-month period ended
September 30, 2002, marketing and selling expenses decreased as a percentage of
net revenues to 24.7%, as compared to 26.9% for the nine months ended September
30, 2001, despite the decrease in revenue for the first three quarters of 2002.
General and Administrative
General and administrative expenses increased by $0.2 million (2.9%) in
the third quarter of 2002 compared to the same period in 2001, primarily due to
increased personnel-related expenses (including severance payments to former
executives of the Company), partially offset by a reduction in outside legal
fees. Despite the slight increase in spending, general and administrative
expenses decreased as a percentage of net revenue to 5.1% in the third quarter
of 2002, compared to 5.2% in the same quarter of 2001, due to the increase in
revenue in the third quarter of 2002. General and administrative expenses
decreased by $2.7 million (15.3%) for the nine months ended September 30, 2002
compared to the same period in 2001. For the year-to-date periods, the decrease
was primarily due to a reduction in outside legal fees and personnel-related
expenditures. Due to the significantly lower spending in the nine-month period
ended September 30, 2002, general and administrative expenses decreased as a
percentage of net revenues to 4.9%, as compared to 5.4% for the nine months
ended September 30, 2001, despite the decrease in revenue for the first three
quarters of 2002.
Restructuring and Other Costs, Net
During the nine months ended September 30, 2001, the Company implemented
restructuring plans resulting in the termination of 194 employees. The Company
incurred charges of approximately $10.1 million under these plans, which
15
included $7.5 million for severance and related costs of the terminated
employees and $2.6 million for facility vacancy costs, including a
non-cancelable lease commitment and a non-cash charge relating to the
disposition of leasehold improvements.
In December 1999, the Company entered into an agreement to sell its
Italian subsidiary to a third party, which established the entity as a
distributor of Avid products. The sale was completed in the first quarter of
2000. In 1999, the Company incurred and recorded a loss of approximately $2.0
million relating to the sale, including a reserve of $1.0 million for the
Company's guarantee of the new entity's line of credit with a bank and $0.8
million for loans extended to the buyers in connection with the transaction. The
line of credit guarantee ended on January 31, 2001 without requiring any cash
payment by Avid. Accordingly, in the quarter ended March 31, 2001, the Company
recorded a credit of $1.0 million associated with the reversal of the reserve,
which was included under the caption restructuring and other costs, net, where
the charge had originally been recorded. In addition, in the quarter ended June
30, 2002, the Company received a payment of $0.3 million under the note received
as partial consideration from the buyers of the Italian subsidiary. The Company
also received a payment of $0.3 million under the note in the quarter ended June
30, 2001. These payments were recorded as credits to restructuring and other
costs, net, since the note was fully reserved when received. The payment
received in the quarter ended June 30, 2002 satisfied the remaining balance of
the note in full.
In addition, in the quarter ended September 30, 2001, the Company
recorded a credit of $0.2 million to restructuring and other costs, net,
associated with a reduction in its estimated liability for executive severance
related to a charge initially recorded in 1999.
Amortization of Acquisition-Related Intangible Assets
In connection with the August 1998 acquisition of the business of
Softimage, the Company allocated $88.2 million of the total purchase price of
$247.9 million to intangible assets, consisting of completed technologies, work
force and trade name, and $127.8 million to goodwill. During the second and
third quarters of 2000 and the first quarter of 2001, the Company recorded
additional intangible assets as it acquired three smaller companies: The Motion
Factory, Inc., Pluto Technologies International Inc. and iNews, LLC. In
connection with these acquisitions, the Company allocated $6.5 million to
intangible assets, consisting of completed technologies and work force. Results
for the quarter ended September 30, 2002 and 2001 reflect amortization of $0.3
million and $5.1 million, respectively, associated with these
acquisition-related intangible assets. Results for the nine-month periods ended
September 30, 2002 and 2001 reflect amortization of $0.9 million and $30.6
million, respectively, associated with these acquisition-related intangible
assets.
As of January 1, 2002, in connection with the adoption of SFAS 142, the
Company reclassified $1.1 million of previously recorded acquired work force to
goodwill and, as a result, ceased amortizing this amount. During 2002, the
Company recorded no goodwill or acquired work force amortization as compared to
approximately $4.2 million and $25.9 million in the three- and nine-month
periods ended September 30, 2001, respectively.
16
Other Income (Expense), Net
Other income (expense), net, generally consists primarily of income
associated with various non-consolidated companies, interest income, and
interest expense. Other income (expense), net, for the third quarter 2002 was
$0.3 million compared to $0.6 million for the same quarter last year, a decrease
of $0.3 million. The decrease was due primarily to a realized gain associated
with the sale of equity securities in the prior-year quarter, as well as a
decrease in interest income during 2002 as a result of lower interest rates,
partially offset by a decrease in interest expense due to the payment in full of
our previously outstanding note to Microsoft. For the nine-month period ended
September 30, 2002, other income (expense), net, decreased $4.2 million to
($0.2) million as compared to the same period in 2001, primarily due to a gain
in 2001 on the sale of Avid Sports LLC equity securities, the absence of any
equity in the net income of iNews in the 2002 period as a result of the
Company's acquisition of the remaining iNews ownership interest in the first
quarter of 2001 and reduced interest income, partially offset by a decrease in
interest expense. The Company recorded charges of $1.0 million and $1.1 million
in the nine months ended September 30, 2002 and 2001, respectively, to write off
an impaired investment accounted for under the cost method. The Company
considered evidence of recent financing transactions and reviews of operating
plans of the underlying entity in our impairment analysis.
Provision for Income Taxes
The Company recorded a tax provision of $0.3 million for the third
quarter of 2002 after recording a tax provision of $0.6 million and $0.5 million
in the first and second quarters of 2002, respectively. This compares to a tax
provision of $0.7 million recorded in the third quarter of 2001 and $0.8 million
in each of the first two quarters of 2001. In general, these provisions were
comprised of taxes payable by the Company's foreign subsidiaries. The tax
provision for the third quarter of 2002 also reflects the benefit of an
anticipated refund of prior years' U.S. Alternative Minimum Tax. No tax benefit
was recorded on the losses generated in the U.S. because utilization of net
operating loss carryforwards is not assured.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date through cash flows from
operations as well as through both private and public sales of equity
securities. As of September 30, 2002, the Company's principal sources of
liquidity included cash, cash equivalents and marketable securities totaling
approximately $78.2 million.
With respect to cash flows, net cash provided by operating activities
was $22.6 million for the nine months ended September 30, 2002, compared to $7.6
million provided by operating activities in the same period of 2001. During the
nine months ended September 30, 2002, net cash provided by operating activities
primarily reflects the net loss adjusted for depreciation and amortization and
other non-cash adjustments, as well as a decrease in accounts receivable and an
increase in accounts payable, partly offset by an increase in inventory. During
the nine months ended September 30, 2001, net cash provided by operating
activities primarily reflects the net loss adjusted for depreciation and
amortization and a decrease in accounts receivable, offset by decreases in
accrued expenses and accounts payable.
17
The Company purchased $7.1 million of property and equipment during the
nine months ended September 30, 2002, compared to $9.4 million in the same
period in 2001. The purchases for the nine-month period ended September 30, 2002
primarily reflects hardware and software to support research and development.
The purchases for the nine-month period ended September 30, 2001 primarily
reflect $3.4 million of computers, furniture and fixtures purchased in
connection with the move of the main Digidesign facility to Daly City,
California, as well as hardware and software to support research and development
activities and the Company's information systems.
During the nine months ended September 30, 2002, the Company made a cash
payment of approximately $13.0 million in full satisfaction of the Company's
outstanding note to Microsoft. During the nine months ended September 30, 2001,
the Company made a cash payment, net of cash acquired, of $5.4 million for the
purchase of the remaining 50% of iNews. During the nine months ended September
30, 2002 and 2001, the Company received net proceeds from the maturity and sale
of marketable securities of $4.4 million and $4.6 million, respectively.
During the nine months ended September 30, 2002 and 2001, the Company
received cash proceeds of approximately $2.0 million and $5.3 million,
respectively, from the issuance of common stock upon stock option exercises and
under the Company's employee stock purchase plan.
During 1998, the Company's board of directors authorized the repurchase
of up to 3.5 million shares of the Company's common stock. Purchases were made
in the open market or in privately negotiated transactions. During the first
quarter of 2001, 232,000 shares were repurchased at a cost of approximately $4.2
million, which completed the stock buyback program. The Company has used, and
plans to continue to use, the repurchased shares for reissuance under its
employee stock plans.
The Company believes existing cash, cash equivalents, marketable
securities and internally generated funds will be sufficient to meet the
Company's cash requirements for at least the next 12 months. In the event the
Company requires additional financing, the Company believes that it will be able
to obtain such financing; however, there can be no assurance that the Company
would be successful in doing so, or that the Company could do so on favorable
terms.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146") which nullifies EITF
Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Acitvity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred,
whereas EITF No 94-3 had allowed the liability to be recorded at the commitment
date of an exit plan. The Company is required to adopt the provisions of SFAS
146 effective for exit or disposal activities initiated after December 31, 2002
and is currently evaluating the impact of adoption of this statement.
18
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Some of the statements in this Form 10-Q relating to our future
performance constitute forward-looking statements. Such forward-looking
statements are based upon management's current expectations and involve known
and unknown risks. Realization of any of these risks may cause actual results to
differ materially from the results described in the forward-looking statements.
Certain of these risks are as follows:
Our future success will depend in part upon our ability to enhance our existing
products and introduce new products in the digital editing market.
Our core digital video and film editing market predominantly uses Avid
products, particularly Media Composer, which represents a significant portion of
our revenues, and future growth in this market could therefore be limited. Our
future growth will depend in part upon our ability to introduce new features and
functionality for Media Composer, improve upon its price/performance, respond to
competitive offerings, introduce and transition to new products, and adapt to
new industry requirements and standards. Any delay or failure to develop these
enhancements or to introduce other new products in this market could harm our
business and reduce our operating results. At the same time, the introduction
and transition to new products could have an impact on the market for our
existing products, which could adversely affect our revenues and business.
The broadcast market is large, widely dispersed, and highly competitive, and we
may not be successful in growing our customer base or predicting customer demand
in this market.
We are currently building our presence in the broadcast market and have
augmented our NewsCutter offering with the Avid Unity for News products, and
with the server, newsroom, and browser products obtained in the Pluto and iNews
acquisitions. The broadcast market is distinguished from our traditional Video
business in that turn-key, fully integrated, complex "solutions" (including the
configuration of unique workflows), rather than discrete point products, are
frequently required by the customer. As a relatively new player in the broadcast
market, we may encounter difficulties in establishing ourselves, creating
compelling customer solutions, and developing a strong, loyal customer base. As
the broadcast market converts from analog to digital, our strategy has been to
build our broadcast solutions team in response to customer demand. To the extent
that customer demand exceeds our expectations, we may encounter difficulties in
the short run meeting our customers' needs. Meanwhile, our competitors may
devote greater resources to the broadcast market than we do, or may be able to
leverage their market presence more effectively. If we are unsuccessful in
capturing a share of this digital broadcast market or in predicting customer
demand, our business and revenues could be adversely affected.
We have a significant share of the professional audio market, and therefore
growth in this market will depend in part on our ability to successfully
introduce new products.
Currently, products of our Digidesign division have captured a
significant portion of the professional audio market. Our future success will
depend in part upon our ability to offer, on a timely and cost-effective basis,
new audio products and enhancements of our existing audio products. The timely
development of new or enhanced products is a complex and uncertain process, and
we could experience design, manufacturing, marketing, or other difficulties that
delay or prevent our development, introduction or marketing of new products or
enhancements, which, in turn, could harm our business.
19
We are expanding our product line and offering solutions to new markets, and our
future revenues depend in part on the success of this expansion.
Traditionally, we have been a point product company. Increasingly, we
are providing end-to-end solutions for our customers. We are expanding our
product line beyond our core video editing market to offer digital media
production solutions to the broadcast news market (including cable and Internet
news), the on-line film and video finishing market, and the emerging market for
multimedia production tools (including the Internet and corporate markets).
Because these markets are evolving, we must anticipate our customers' future
needs and introduce compelling new products, gain market acceptance, and
establish appropriate distribution channels, support, and maintenance. To the
extent that our customers' needs are not as we anticipate, we may need to adjust
our plans accordingly, which could cause delays, unexpected expenses, and
reallocation of our resources, and which in turn could harm our business and
reduce our operating results.
Competition in the 3D animation market has increased dramatically since our
acquisition of Softimage.
The animation market has changed significantly from the time when we
acquired our Softimage subsidiary in August 1998. While Softimage once dominated
the higher end of the 3D market (i.e., feature films and other intensive
graphics applications), competitors' products have eroded Softimage's market
share and have contributed to downward price pressure, which has resulted in
reduced margins. In addition, we have experienced delays in introducing new
products in the 3D space. Finally, revenues in recent years have been
increasingly derived from sales to the games industry and non-traditional
markets. If these non-traditional markets were to slow or delay their purchases
of 3D tools, our revenues could be adversely affected. To the extent that these
factors continue or worsen, our business could suffer.
We use independent firms and contractors to perform some of our product
development activities.
Independent firms and contractors, some of whom are located in other
countries, perform some of our product development activities. We generally own
the software developed by these contractors. The use of independent firms and
contractors, especially those located abroad, could expose us to risks related
to governmental regulation, intellectual property ownership and rights, exchange
rate fluctuation, political instability and unrest, natural disasters, and other
risks, which could adversely impact our revenues.
Our products are complex and delays or difficulties in introducing new products
could harm our business.
Our future success will depend in part on our ability to offer products
that compete favorably with our competitors' products in terms of reliability,
performance, ease of use, range of features, product enhancements, reputation,
price, and training. Delays or difficulties in product development and
introduction may harm our business. Our products are internally complex and,
despite extensive testing and quality control, may contain errors or defects.
20
Such errors or defects could cause us to issue corrective releases and could
result in loss of revenues, increased product returns, lack of market
acceptance, and damage to our reputation.
New product announcements by our competitors and by us could have the
effect of reducing customer demand for our existing products. Some of our new
products constitute upgrades of existing products. In the past, we have offered
discounts on the price of such upgrades to existing customers, which, where
appropriate, have been based upon the return of circuit boards and system keys.
To the extent that such circuit boards and system keys are not returned, it can
decrease the revenue generated by such new products. New product introductions
require us to devote time and resources to training our sales channels in
product features and target customers, with the temporary result that the sales
channels have less time to devote to selling our products.
Qualifying and supporting our products on multiple computer platforms is time
consuming and expensive.
Our software engineers devote significant time and effort to qualify and
support our products on various computer platforms, including most notably,
Microsoft's Windows and Apple's Macintosh platforms. Computer platform
modifications and upgrades require additional time to be spent to ensure that
our products will function properly. To the extent that the current
configuration of the qualified and supported platforms change or that we need to
qualify and support new platforms, we could be required to expend valuable
engineering resources, which is likely to adversely affect our operating
results.
Our operating results are dependent on several unpredictable factors.
The revenue and gross profit on our products depend on many factors.
Such factors include:
o mix of products sold;
o the cost and the proportion of third-party hardware included in such products;
o product distribution channels;
o timing of new product introductions;
o product offers and platform upgrades;
o price discounts and sales promotion programs;
o volume of sales of aftermarket hardware products;
o costs of swapping or fixing products released to the market with defects;
o provisions for inventory obsolescence;
o allocations of manufacturing overhead and customer support costs to cost
of goods;
o sales of third-party computer hardware to distributors;
o competitive pressure on product prices;
o costs incurred in connection with "solution" sales which typically have
longer selling and implementation cycles;
o timing and delivery of "solutions" to customers; and
o currency fluctuations.
Negative changes in any of these factors could reduce our revenue and
gross profit.
21
Our operating costs are tied to projections of future revenues, which may differ
from actual results.
Our operating expense levels are based, in part, on our expectations of
future revenues. Such future revenues are difficult to predict. For example, the
current worldwide economic slowdown has had an impact on our recent results, and
if this slowdown persists, it may continue to lower our revenues. Additionally,
a significant portion of our business occurs near the end of each quarter, which
can impact our ability to precisely forecast revenues on a quarterly basis.
Further, we are generally unable to reduce quarterly operating expense levels
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, our results of operations
could be adversely affected.
The markets for our products are competitive, and we expect competition to
intensify in the future.
The digital video, audio, and animation markets are competitive, with
limited barriers to entry, and are characterized by pressure to reduce prices,
incorporate new features, and accelerate the release of new products. Many of
our current and potential competitors have substantially greater financial,
technical, distribution, support, and marketing resources than we do. Such
competitors may use these resources to lower their product costs, allowing them
to reduce prices to levels at which we could not operate profitably. Further,
such competitors may be able to develop products comparable or superior to ours,
or adapt more quickly to new technologies or evolving customer requirements. If
we are unable to compete effectively in our target markets, our business and
results of operations could suffer.
Poor global macroeconomic conditions could disproportionately impact our
industry.
As a result of unfavorable economic conditions and reduced capital
spending, our customers in the media, broadcast and content-creation industries
have delayed or reduced expenditures. The revenue growth and profitability of
our business depends primarily on the overall demand for our products. Softening
demand for our products resulting from ongoing economic uncertainty may result
in decreased revenues or earnings levels or growth rates. If global economic
conditions worsen, demand for our products may weaken, and our business and
results of operations could suffer.
We depend on a number of sole source suppliers.
We are dependent on a number of specific suppliers for certain key
components of our products. We purchase these sole source components pursuant to
purchase orders placed from time to time. We generally do not carry significant
inventories of these sole source components and have no guaranteed supply
arrangements. If any of our sole source vendors failed to supply or enhance such
components, it could imperil our supply of these components. Similarly, if any
of our vendors encountered technical, operating or financial difficulties, it
might threaten our supply of these components. While we believe that alternative
sources of supply for sole source components could be developed, or our products
redesigned to permit the use of alternative components, an interruption in our
sources of supply could damage our business and negatively affect our operating
results.
22
If we fail to maintain strong relationships with our resellers, distributors,
and component suppliers, our ability to successfully deploy our products may be
harmed.
We sell many of our products and services indirectly through resellers
and distributors. These resellers and distributors typically purchase software
and "kits" from us, and other turn-key components from other vendors, in order
to produce complete systems for resale. Any disruption to our resellers and
distributors, or their third-party suppliers, could reduce our revenues.
Moreover, we are increasingly distributing our products directly, which could
put us in competition with our resellers and distributors and could adversely
affect our revenues.
If we become dependent on third-party hardware for our products, our operating
results could be harmed.
Our gross profit margin varies from product to product depending
primarily on the proportion and cost of third-party hardware included in each
product. From time to time, we add functionality and features to our products.
If we effect such additions through the use of more, or more costly, third-party
hardware, and do not increase the price of such products to offset these
increased costs, then our gross profit margin on these products could decrease.
Our future growth could be harmed if we lose the services of our key personnel.
Our success depends upon the services of a number of key current
employees. The loss of the services of one or more of these key employees could
harm our business. Our success also depends upon our ability to attract highly
skilled new employees. Competition for such employees is intense in the
industries and geographic areas in which we operate. If we are unable to compete
successfully for such employees, our business could suffer.
Our websites could subject us to legal claims that could harm our business.
Certain of our websites provide interactive information and services to
our customers. To the extent that materials may be posted on and/or downloaded
from the websites and distributed to others, we may be subject to claims for
defamation, negligence, copyright or trademark infringement, personal injury, or
other theories of liability based on the nature, content, publication and
distribution of such materials. In addition, although we have attempted to limit
our exposure by contract, we may also be subject to claims for indemnification
by end users in the event that the security of our websites is compromised. As
these websites are available on a worldwide basis, the websites could
potentially be subject to a wide variety of international laws.
Regulations could be enacted that restrict our Internet initiatives.
As a result of the increasing use and popularity of the Internet,
federal, state, and local authorities may adopt new laws and regulations
governing the Internet. These laws and regulations may cover issues such as
privacy, distribution, and content. The enactment of any additional laws or
regulations could impede the growth of the Internet, harm our Internet
initiatives, and place additional financial burdens on our business.
23
We could incur substantial costs protecting our intellectual property or
defending against a claim of infringement.
Our ability to compete successfully and achieve future revenue growth
will depend, in part, on our ability to protect our proprietary technology and
operate without infringing upon the rights of others. We rely upon a combination
of patent, copyright, and trademark laws, trade secret, confidentiality
procedures, and contractual provisions, as well as hardware security keys, to
protect our proprietary technology. However, our means of protecting our
proprietary rights may not be adequate. From time to time unauthorized persons
have obtained, copied, and used information that we consider proprietary.
Policing the unauthorized use of our proprietary technology is costly and
time-consuming, and software piracy can be expected to be a persistent problem.
We occasionally receive communications suggesting that our products may
infringe the intellectual property rights of others. It is our practice to
investigate the factual basis of such communications and negotiate licenses
where appropriate. While it may be necessary or desirable in the future to
obtain licenses relating to one or more products or relating to current or
future technologies, we may be unable to do so on commercially reasonable terms.
If we are unable to protect our proprietary technology or unable to negotiate
licenses for the use of others' intellectual property, our business could be
impaired.
We are currently involved in various legal proceedings, including patent
litigation. An adverse resolution of any such proceedings could harm our
business and reduce our results of operations. See Note 7, "Commitments and
Contingencies" in the Company's unaudited quarterly financial statements.
If we acquire other companies or businesses, we will be subject to risks that
could hurt our business.
We periodically acquire businesses, form strategic alliances, or make
debt or equity investments. The risks associated with such acquisitions,
alliances, and investments include, among others, the difficulty of assimilating
the operations and personnel of the target companies, the failure to realize
anticipated return on investment, cost savings and synergies, and the diversion
of management's time and attention. Such acquisitions, alliances, and
investments often involve significant transaction-related costs and could cause
short-term disruption to normal operations. If we are unable to overcome or
counter these risks, it could undermine our business and lower our operating
results.
Our operating results could be harmed by currency fluctuations.
A significant portion of our business is conducted in currencies other
than the U.S. dollar. Accordingly, changes in the value of major foreign
currencies (including the euro, the British pound, and the Japanese yen)
relative to the value of the U.S. dollar could lower future revenues and
operating results.
24
Our stock price may continue to be volatile.
The market price of our common stock has been volatile in the recent
past and could fluctuate substantially in the future based upon a number of
factors, some of which are beyond our control. These factors include:
o changes in our quarterly operating results;
o shortfalls in revenues or earnings compared to securities analysts'
expectations;
o changes in analysts' recommendations or projections;
o fluctuations in investors' perceptions of us or our competitors;
o shifts in the markets for our products;
o development and marketing of products by our competitors;
o changes in our relationships with suppliers, distributors, resellers,
system integrators, or customers; and
o continuing effects of the worldwide economic downturn.
Further, the stock market has witnessed unusual volatility with respect to the
price of equity securities of high technology companies generally, and this
volatility has, at times, appeared to be unrelated to any of the factors above.
25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market Risk
The Company's primary exposures to market risk are the effect of
volatility in currencies on asset and liability positions of our international
subsidiaries that are denominated in foreign currencies, and the effect of
fluctuations in interest rates earned on our cash equivalents and marketable
securities.
Foreign Currency Exchange Risk
The Company derives approximately 50% of its revenues from customers
outside the United States. This business is, for the most part, transacted
through international subsidiaries and generally in the currency of the end-user
customers. This circumstance exposes the Company to risks associated with
changes in foreign currency that can impact revenues, net income (loss) and cash
flow. The Company enters into foreign currency forward-exchange contracts to
hedge the foreign exchange exposure of certain forecasted receivables, payables
and cash balances of its foreign subsidiaries. Gains and losses associated with
currency rate changes on the contracts are recorded in results of operations,
offsetting gains and losses on the related assets and liabilities. The success
of this hedging program depends on forecasts of transaction activity in the
various currencies. To the extent that these forecasts are over- or understated
during the periods of currency volatility, the Company could experience
unanticipated currency gains or losses.
At September 30, 2002, the Company had $32.1 million of forward-exchange
contracts outstanding, denominated in euros, Japanese yen, Singapore dollars,
Canadian dollars and British pounds, as a hedge against forecasted foreign
currency-denominated receivables, payables and cash balances. Net gains of $0.2
million resulting from forward-exchange contracts were included in the results
of operations in the third quarter of 2002, which partially offset net
transaction and translation losses on the related assets and liabilities for the
same period of $0.5 million. For the nine-month period ended September 30, 2002,
net losses of $2.8 million resulting from forward-exchange contracts were
included in the results of operations and were more than offset by net
transaction and translation gains on the related asset and liabilities for the
same period of $3.3 million. A hypothetical 10% change in foreign currency rates
would not have a material impact on the Company's results of operations,
assuming the above-mentioned forecast of foreign currency exposure is accurate,
because the impact on the forward contracts as a result of a 10% change would at
least partially offset the impact on the asset and liability positions of the
Company's foreign subsidiaries.
Interest Rate Risk
At September 30, 2002, the Company held $78.2 million in cash, cash
equivalents and marketable securities, including short-term government and
government agency obligations. Marketable securities are classified as
"available for sale" and are recorded on the balance sheet at market value, with
any unrealized gain or loss recorded in accumulated other comprehensive income
(loss). A hypothetical 10% increase or decrease in interest rates would not have
a material impact on the fair market value of these instruments due to their
short maturity.
26
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Controls and Procedures. We maintain disclosure controls and
procedures designed to ensure that material information related to Avid,
including our consolidated subsidiaries, is made known to management on a
regular basis. In response to recent legislation and proposed regulations, we
reviewed our internal controls structure and our disclosure controls and
procedures. We believe our existing controls and procedures are adequate to
enable us to comply with our disclosure obligations. We also established a
disclosure committee, which consists of members of the Company's senior
management, as well as financial and legal professionals.
Changes in Controls and Procedures. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these internal controls after the date of our most recent evaluation.
27
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
The exhibits listed in the accompanying index to exhibits are filed as
part of this Quarterly Report on Form 10-Q.
(b) REPORTS ON FORM 8-K. For the fiscal quarter ended September 30, 2002,
the Company filed no current reports on Form 8-K.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Avid Technology, Inc.
Date: November 13, 2002 By: /s/ Paul J. Milbury
--------------------------------
Paul J. Milbury
Chief Financial Officer
(Principal Financial Officer)
Date: November 13, 2002 By: /s/ Carol L. Reid
--------------------------------
Carol L. Reid
Vice President and Corporate Controller
(Principal Accounting Officer)
29
CERTIFICATION
I, David A. Krall, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Avid Technology,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrants' other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined for
purposes of Rule 13a-14 under the Securities Exchange Act of 1934, as amended)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report was prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on the
required evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and to the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls that could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
/s/ David A. Krall
-------------------------------------
David A. Krall
President and Chief Executive Officer
(principal executive officer)
30
CERTIFICATION
I, Paul J. Milbury, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Avid Technology,
Inc. (the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrants' other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined for
purposes of Rule 13a-14 under the Securities Exchange Act of 1934, as amended)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report was prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on the
required evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and to the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls that could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Paul J. Milbury
------------------------------------------
Paul J. Milbury
Vice President and Chief Financial Officer
(principal financial officer)
31
EXHIBIT INDEX
Exhibit No. Description
10.1 Executive Employment Agreement by and between the Company and
David A. Krall, dated as of July 24, 2002.
10.2 Executive Employment Agreement by and between the Company and
Joseph Bentivegna, dated as of July 24, 2002.
10.3 Executive Employment Agreement by and between the Company and
Ethan E. Jacks, dated as of July 24, 2002.
10.4 Executive Employment Agreement by and between the Company and
David Lebolt, dated as of July 24, 2002.
10.5 Executive Employment Agreement by and between the Company and
Paul Milbury, dated as of July 24, 2002.
10.6 Executive Employment Agreement by and between the Company and
Michael Rockwell, dated as of July 24, 2002.
10.7 Executive Employment Agreement by and between the Company and
Ann C. Smith, dated as of July 24, 2002.
10.8 Executive Employment Agreement by and between the Company and
Charles L. Smith, dated as of July 24, 2002.
10.9 Change-in-Control Agreement by and between the Company and
David A. Krall, dated as of July 24, 2002.
10.10 Change-in-Control Agreement by and between the Company and
Joseph Bentivegna, dated as of July 24, 2002.
10.11 Change-in-Control Agreement by and between the Company and
Ethan E. Jacks, dated as of July 24, 2002.
10.12 Change-in-Control Agreement by and between the Company and
David Lebolt, dated as of July 24, 2002.
10.13 Change-in-Control Agreement by and between the Company and
Paul Milbury, dated as of July 24, 2002.
10.14 Change-in-Control Agreement by and between the Company and
Michael Rockwell, dated as of July 24, 2002.
32
10.15 Change-in-Control Agreement by and between the Company and
Ann C. Smith, dated as of July 24, 2002.
10.16 Change-in-Control Agreement by and between the Company and
Charles L. Smith, dated as of July 24, 2002.
99.1 Statement Pursuant to 18 U.S.C.ss.1350, dated as of November 13, 2002
33
EXECUTIVE EMPLOYMENT AGREEMENT
AVID TECHNOLOGY, INC.
This Employment Agreement ("Agreement") is entered into as of July 24,
2002 (the "Effective Date") between Avid Technology, Inc., a Delaware
corporation with its principal executive offices at Avid Technology Park,
Tewksbury, Massachusetts (the "Company"), and David A. Krall ("Executive") of 31
Avery Lane, Andover, Massachusetts 01810.
Article 1. Services
1.1. Service. During the Term (as defined below), the Company shall retain the
services of Executive to serve as an executive of the Company and the Executive
shall devote his time and render services to the Company upon the terms and
conditions set forth below.
1.2. Duties. During the Term, Executive agrees to perform such executive duties
consistent with his position as may be assigned to him from time to time by the
Chief Executive Officer or the Board of Directors and to devote his full working
time and attention to such duties.
1.3. No Conflicting Commitments. During the Term, Executive will not undertake
any commitments, engage or have an interest in any outside business activities
or enter into any consulting agreements which, in the opinion of the Company,
conflict with the Company's interests or which might impair the performance of
Executive's duties as a full time employee of the Company.
Article 2. Term
2.1. Term. Subject to earlier termination pursuant to the provisions of this
Agreement, the term of this Agreement (the "Term") shall commence on the
Effective Date and shall continue until terminated by either the Company or the
Executive upon at least 12 months' written notice to the other, provided such
notice may not be given by the Company prior to 24 months after the Effective
Date. Unless the services of the Executive have terminated prior to or upon the
end of the Term in accordance with the provisions of this Agreement, from and
after the end of the Term, the Executive shall be an employee-at-will.
Article 3. Payments
3.1. Base Compensation. The Company shall pay to Executive a base salary (the
"Base Salary") of $420,000 per annum, payable in regular installments in
accordance with the Company's usual payment practices. The Base Salary shall be
reviewed by the Board of Director's Compensation Committee during the term of
this Agreement and adjusted accordingly at the discretion of the Compensation
Committee.
3.2. Incentive Payments. During the time Executive is an employee of the Company
he shall be entitled to participate, at the sole discretion of the Board of
Directors, in any cash incentive payment or bonus plan established by the
Company for its executive officers, as such plan is amended from time to time.
3.3. Fringe Benefits. During the time Executive is an employee hereunder, in
addition to Executive's Base Salary and incentive payments or bonuses, if any,
the Company shall provide Executive and his dependents medical insurance and
such other benefits as are generally made available by the Company to its
full-time executive employees, as amended from time to time.
3.4. Participation in Equity Incentive Plans. Executive shall be entitled to
participate in the Company's stock option plans during the Term to the extent
and in the manner determined by the Company's Board of Directors in its absolute
discretion.
Article 4. Termination
4.1. Termination. Executive's employment hereunder shall terminate immediately
upon the occurrence of any of the following events:
4.1.1. Executive's death;
4.1.2. Executive's Disability (as defined below);
4.1.3. The termination of Executive's services hereunder by the Company
for Cause (as defined below), to be effective immediately upon delivery of
notice thereof;
4.1.4. The termination of Executive's services hereunder by the Company,
without Cause and not as a result of Executive's death or Disability, to be
effective immediately upon delivery of notice thereof; or
4.1.5. The termination of Executive's services hereunder by Executive
without Good Reason (as defined below) to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
4.1.6. The termination of Executive's services hereunder by Executive
with Good Reason (as defined below), to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
"Cause" shall mean (i) Executive's material failure to perform (other
than by reason of death or Disability) his duties and responsibilities as
assigned by the Chief Executive Officer or Board in accordance with Section 1.2
above, which is not remedied after thirty (30) days' written notice from the
Company (if such failure is susceptible to cure), (ii) a breach of any of the
provisions of this Agreement or the invention and non-disclosure agreement
between the Executive and the Company, which is not cured after ten (10) days'
written notice from the Company (if such breach is susceptible to cure), (iii) a
serious and material violation of Company policy (for purposes of this clause
any violation of the Company's Conflict of Interest policy shall be deemed
serious and material), which is not cured after ten (10) days' written notice
from the Company (if such breach is susceptible to cure), (iv) fraud,
embezzlement or other material dishonesty with respect to the Company, or (v)
commission of a felony or any other crime involving fraud, dishonesty or moral
turpitude. Notwithstanding the foregoing, "Cause" shall not include any failure
to achieve results as a result of factors or events beyond the reasonable
control of the Executive.
2
"Disability" shall mean the Executive's absence from the full-time
performance of his duties with the Company for 9 months as a result of
incapacity due to mental or physical illness, as a result of which the Executive
is deemed "disabled" by the institution appointed by the Company to administer
its long-term disability plan (or any successor plan).
"Good Reason" shall mean (i) a material reduction in the nature of
Executive's duties or the scope of Executive's responsibility from those in
effect on the date of this Agreement, without Executive's express written
consent; (ii) a reduction in Executive's Base Salary as in effect on the date
hereof or as the same may be increased from time to time, without Executive's
express written consent, other than a reduction which is part of an
across-the-board proportionate reduction in the salaries of all senior
executives of the Company imposed because the Company is experiencing financial
hardship (provided such reduction is not more than 20% and does not continue for
more than 12 months); (iii) the Company's requiring Executive to be based
anywhere other than within fifty (50) miles of Employee's office location as in
effect on the date hereof, without Executive's express written consent; and (iv)
any material breach of this Agreement by the Company; provided, however, that a
termination for Good Reason by Executive can only occur only (i) if Executive
has given the Company a notice of intent to terminate for Good Reason at least
ten (10) days before giving the termination notice described in Section 4.1.6
above and the Company has not cured the cause for Good Reason within that ten
(10) day period, and (ii) such notice is given within 90 days after the
occurrence of the event giving rise to Good Reason.
4.2. Adjustments Upon Termination.
4.2.1. If Executive's services to the Company terminate pursuant to
Sections 4.1.1 or 4.1.2 hereof, (a) the Company shall continue to make payments
to Executive or Executive's heirs, successors or legal representatives, as the
case may be, in accordance with Section 3.1 hereof until twelve (12) months
after the date of such death or Disability (less the amount of any payments
made to the Executive under any long-term disability plan of the Company) and
(b) 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
Executive as of the date of death or Disability 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 death or Disability. The Company shall
have no other liability or obligation under this Agreement to Executive's
executors, legal representatives, administrators, heirs or assigns or any other
person claiming under or through Executive.
4.2.2. If Executive's services to the Company terminate pursuant to
Section 4.1.3 or 4.1.5 hereof, (a) all payments and benefits provided to
Executive under this Agreement shall cease as of the effective date of such
termination, except that Executive shall be entitled to any amounts earned,
accrued or owing but not yet paid under Section 3.1 above and any benefits due
in accordance with the terms of any applicable benefits plans and programs of
the Company and (b) all vesting of all stock options then held by the Executive
shall immediately cease as of the date of such termination.
3
4.2.3. If Executive's services to the Company terminate pursuant to
Section 4.1.4 or 4.1.6 hereof, (a) the Company shall continue to make payments
to Executive in accordance with Section 3.1 hereof (i) until twelve (12) months
after the effective date of such termination (the "Severance Pay Period") and
(ii) during the months from thirteen (13) to twenty-four (24) months after the
Effective Date of such termination, to the extent (but only to the extent) the
Executive's monthly Base Salary at the time of termination exceeds Executive's
monthly compensation from his new employer, (b) the Company shall pay Executive
incentive compensation for the year in which the Termination occurred, in the
amount of Executive's target award multiplied by the applicable actual plan
payout factor and pro rated by the number of months Executive is employed by the
Company during the year of Termination; the bonus will be paid in a lump sum on
or about the date on which the Company pays bonuses to senior executives who
remain employed with the Company, (c) the Company shall continue to provide
Executive with benefits in accordance with Section 3.3 hereof throughout the
Severance Pay Period, (d) the Company shall provide Executive with outplacement
benefits in accordance with the Company's then-current executive outplacement
program, and (e) 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 Executive 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; provided, however, that in order
to be eligible to receive any of the salary or benefits under this Section
4.2.3, Executive shall be required to sign a general release of claims against
the Company, excluding any claims concerning the Company's obligations under
this Agreement. 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. No other payments or benefits
shall be due under this Agreement to Executive, but Executive shall be entitled
to any benefits accrued or earned in accordance with the terms of any applicable
benefit plans and programs of the Company.
Article 5. Non-Competition and Non-Solicitation
5.1. Non-Competition and Non-Solicitation. Executive acknowledges and recognizes
the highly competitive nature of the businesses of the Company and accordingly
agrees that during the Term and for a period of one (1) year after the effective
date of termination of Executive's employment hereunder:
5.1.1. Executive will not engage in any activity which is competitive
with any business which is now, or is at any time during Executive's employment
with the Company, conducted by the Company, including without limitation
becoming an employee, investor (except for passive investments of not more than
one percent (1%) of the outstanding shares of, or any other equity interest in,
4
a company or entity listed or traded on a national securities exchange or in an
over-the-counter securities market), officer, agent, partner or director of, or
other participant in, any firm, person or other entity in any geographic area
that competes or plans to compete with the Company in the business of the
development, manufacture, promotion, distribution or sale of digital film, video
or audio editing, special effects, 3D or newsroom automation systems or products
or other business in which the Company is engaged or plans to engage at the time
of Executive's termination. Without limiting the foregoing, the parties agree
that the following businesses are, as of the date of this Agreement, competitive
with the Company: Adobe, Apple, Autodesk/Discreet Logic, Euphonics, Fairlight,
Mackie, Media 100, MOTU, Newtek, Pinnacle Systems, Quantel, SGI/Alias Wavefront,
Sony, Steinberg, Thomson/The Grass Valley Group, and all subsidiaries and
affiliates of the foregoing companies.
5.1.2. Executive will not directly or indirectly assist others in
engaging in any of the activities in which Executive is prohibited to engage by
Section 5.1.1 above.
5.1.3. Executive will not directly or indirectly (a) induce any employee
of the Company to engage in any activity in which Executive is prohibited from
engaging by Section 5.1.1 above or to terminate his or her employment with the
Company, or (b) employ or offer employment to any person who was employed by the
Company unless such person shall have ceased to be employed by the Company for a
period of at least one (1) year.
5.2. Reasonableness of Restrictions. It is expressly understood and agreed that
(a) although Executive and the Company consider the restrictions contained in
this Article 5 to be reasonable, if a final judicial determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Article 5 is unenforceable, such restriction shall
not be rendered void but shall be deemed to be enforceable to such maximum
extent as such court may judicially determine or indicate to be enforceable and
(b) if any restriction contained in this Agreement is determined to be
unenforceable and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
5.3. Remedies for Breach. Executive acknowledges and agrees that the Company's
remedies at law for a breach or threatened breach of any of the provisions of
this Section 5 would be inadequate and, in recognition of this fact, Executive
agrees that, in the event of such a breach or threatened breach, in addition to
any remedies at law, the Company, without posting any bond, shall be entitled to
obtain equitable relief in the form of specific performance, temporary
restraining orders, temporary or permanent injunctions or any other equitable
remedy which may then be available. Notwithstanding any provision of this
Agreement to the contrary, upon the occurrence of any breach of Section 5.1, if
Executive is employed by the Company, the Company may immediately terminate the
employment of Executive for Cause in accordance with Section 4.1.3, and, whether
or not Executive is employed by the Company, the Company shall immediately cease
to have any obligations to make payments to Executive under this Agreement.
5.4. Survivorship. Notwithstanding the termination of this Agreement or
Executive's services hereunder for any reason, this Article 5 shall survive any
such termination.
5
Article 6. Miscellaneous
6.1. Obligation of Successors. Subject to Section 6.4, any successor to
substantially all of the Company's assets and business, and any successor to
substantially all of the assets of the division of the Company in which
Executive is employed, whether by merger, consolidation, purchase of assets or
otherwise, shall succeed to the rights and obligations of the Company hereunder.
6.2. Notice. All notices required or permitted hereunder shall be in writing and
deemed effectively given (i) when delivered in person, (ii) on the third
business day after mailing by registered or certified mail, postage prepaid,
(iii) on the next business day after delivery to an air courier for next day
delivery, paid by the sender, or (iv) when sent by telecopy or facsimile
transmission during normal business hours (9:00 a.m. to 5:00 p.m.) where the
recipient is located (or if sent after such hours, as of commencement of the
next business day), followed within twenty-four hours by notification pursuant
to any of the foregoing methods of delivery, in all cases addressed to the other
party hereto as follows:
(a) If to the Company:
Avid Technology, Inc.
Avid Technology Park
One Park West
Tewksbury, MA 01876
Attention: Vice President, Human Resources
Facsimile: (978) 640-0065
(b) If to Executive:
David A. Krall
31 Avery Lane
Andover, MA 01810
or at such other address or addresses as either party shall designate to the
other in accordance with this Section 6.2.
6.3. Survivorship. The respective rights and obligations of the parties under
this Agreement shall survive any termination of Executive's employment to the
extent necessary to the intended preservation of such rights and obligations.
6.4. Complete Agreement; Amendments. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any and all prior agreements between the parties with respect to the
subject matter hereof, except for the Change in Control Agreement between
Executive and the Company dated July 24, 2002, as it may be amended from time to
time (the "Change in Control Agreement"). This Agreement shall terminate upon
the occurrence of a Change in Control (as defined in the Change in Control
Agreement) during the term of the Change in Control Agreement. It may not be
modified or amended except upon written amendment approved by the Company's
Chief Executive Officer and executed by a duly authorized officer of the Company
and by Executive.
6
6.5. Applicable Law. This Agreement shall be interpreted in accordance with the
laws of the Commonwealth of Massachusetts and the parties hereby submit to the
jurisdiction of the courts of that state.
6.6. Severability. If any one or more of the provisions of this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
it shall not affect any other term or provision of this Agreement. If any
provision in this Agreement shall be held to be excessively broad, it shall be
construed by limiting it so as to be enforceable to the extent compatible with
applicable law.
6.7. Binding Effect. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
legal representatives, successors, assigns and personal representatives, except
that the duties, responsibilities and rights of Executive under this Agreement
are of a personal nature and shall not be assignable or delegatable in whole or
in part by Executive, except to the extent that the rights of Executive
hereunder may be enforceable by his heirs, executors, administrators or legal
representatives.
6.8. Captions. Captions of sections have been added only for convenience and
shall not be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Agreement as of the date first above written.
Avid Technology, Inc.
By: /s/ Paul J. Milbury
-------------------------------
Paul J. Milbury
Chief Financial Officer
/s/ David A. Krall
----------------------------------
David A. Krall, individually
7
EXECUTIVE EMPLOYMENT AGREEMENT
AVID TECHNOLOGY, INC.
This Employment Agreement ("Agreement") is entered into as of July 24,
2002 (the "Effective Date") between Avid Technology, Inc., a Delaware
corporation with its principal executive offices at Avid Technology Park,
Tewksbury, Massachusetts (the "Company"), and Joseph Bentivegna ("Executive") of
1 Whistler Lane, Southborough, Massachusetts 01772.
Article 1. Services
1.1. Service. During the Term (as defined below), the Company shall retain the
services of Executive to serve as an executive of the Company and the Executive
shall devote his time and render services to the Company upon the terms and
conditions set forth below.
1.2. Duties. During the Term, Executive agrees to perform such executive duties
consistent with his position as may be assigned to him from time to time by the
Chief Executive Officer or the Board of Directors and to devote his full working
time and attention to such duties.
1.3. No Conflicting Commitments. During the Term, Executive will not undertake
any commitments, engage or have an interest in any outside business activities
or enter into any consulting agreements which, in the opinion of the Company,
conflict with the Company's interests or which might impair the performance of
Executive's duties as a full time employee of the Company.
Article 2. Term
2.1. Term. Subject to earlier termination pursuant to the provisions of this
Agreement, the term of this Agreement (the "Term") shall commence on the
Effective Date and shall continue until terminated by either the Company or the
Executive upon at least 12 months' written notice to the other, provided such
notice may not be given by the Company prior to 24 months after the Effective
Date. Unless the services of the Executive have terminated prior to or upon the
end of the Term in accordance with the provisions of this Agreement, from and
after the end of the Term, the Executive shall be an employee-at-will.
Article 3. Payments
3.1. Base Compensation. The Company shall pay to Executive a base salary (the
"Base Salary") of $280,000 per annum, payable in regular installments in
accordance with the Company's usual payment practices. The Base Salary shall be
reviewed by the Board of Director's Compensation Committee during the term of
this Agreement and adjusted accordingly at the discretion of the Compensation
Committee.
3.2. Incentive Payments. During the time Executive is an employee of the Company
he shall be entitled to participate, at the sole discretion of the Board of
Directors, in any cash incentive payment or bonus plan established by the
Company for its executive officers, as such plan is amended from time to time.
3.3. Fringe Benefits. During the time Executive is an employee hereunder, in
addition to Executive's Base Salary and incentive payments or bonuses, if any,
the Company shall provide Executive and his dependents medical insurance and
such other benefits as are generally made available by the Company to its
full-time executive employees, as amended from time to time.
3.4. Participation in Equity Incentive Plans. Executive shall be entitled to
participate in the Company's stock option plans during the Term to the extent
and in the manner determined by the Company's Board of Directors in its absolute
discretion.
Article 4. Termination
4.1. Termination. Executive's employment hereunder shall terminate immediately
upon the occurrence of any of the following events:
4.1.1. Executive's death;
4.1.2. Executive's Disability (as defined below);
4.1.3. The termination of Executive's services hereunder by the Company
for Cause (as defined below), to be effective immediately upon delivery of
notice thereof;
4.1.4. The termination of Executive's services hereunder by the Company,
without Cause and not as a result of Executive's death or Disability, to be
effective immediately upon delivery of notice thereof; or
4.1.5. The termination of Executive's services hereunder by Executive
without Good Reason (as defined below) to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
4.1.6. The termination of Executive's services hereunder by Executive
with Good Reason (as defined below), to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
"Cause" shall mean (i) Executive's material failure to perform (other
than by reason of death or Disability) his duties and responsibilities as
assigned by the Chief Executive Officer or Board in accordance with Section 1.2
above, which is not remedied after thirty (30) days' written notice from the
Company (if such failure is susceptible to cure), (ii) a breach of any of the
provisions of this Agreement or the invention and non-disclosure agreement
between the Executive and the Company, which is not cured after ten (10) days'
written notice from the Company (if such breach is susceptible to cure), (iii) a
serious and material violation of Company policy (for purposes of this clause
any violation of the Company's Conflict of Interest policy shall be deemed
serious and material), which is not cured after ten (10) days' written notice
from the Company (if such breach is susceptible to cure), (iv) fraud,
embezzlement or other material dishonesty with respect to the Company, or (v)
commission of a felony or any other crime involving fraud, dishonesty or moral
turpitude. Notwithstanding the foregoing, "Cause" shall not include any failure
to achieve results as a result of factors or events beyond the reasonable
control of the Executive.
2
"Disability" shall mean the Executive's absence from the full-time
performance of his duties with the Company for 9 months as a result of
incapacity due to mental or physical illness, as a result of which the Executive
is deemed "disabled" by the institution appointed by the Company to administer
its long-term disability plan (or any successor plan).
"Good Reason" shall mean (i) a material reduction in the nature of
Executive's duties or the scope of Executive's responsibility from those in
effect on the date of this Agreement, without Executive's express written
consent; (ii) a reduction in Executive's Base Salary as in effect on the date
hereof or as the same may be increased from time to time, without Executive's
express written consent, other than a reduction which is part of an
across-the-board proportionate reduction in the salaries of all senior
executives of the Company imposed because the Company is experiencing financial
hardship (provided such reduction is not more than 20% and does not continue for
more than 12 months); (iii) the Company's requiring Executive to be based
anywhere other than within fifty (50) miles of Employee's office location as in
effect on the date hereof, without Executive's express written consent; and (iv)
any material breach of this Agreement by the Company; provided, however, that a
termination for Good Reason by Executive can only occur only (i) if Executive
has given the Company a notice of intent to terminate for Good Reason at least
ten (10) days before giving the termination notice described in Section 4.1.6
above and the Company has not cured the cause for Good Reason within that ten
(10) day period, and (ii) such notice is given within 90 days after the
occurrence of the event giving rise to Good Reason.
4.2. Adjustments Upon Termination.
4.2.1. If Executive's services to the Company terminate pursuant to
Sections 4.1.1 or 4.1.2 hereof, (a) the Company shall continue to make payments
to Executive or Executive's heirs, successors or legal representatives, as the
case may be, in accordance with Section 3.1 hereof until twelve (12) months
after the date of such death or Disability (less the amount of any payments
made to the Executive under any long-term disability plan of the Company) and
(b) 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
Executive as of the date of death or Disability 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 death or Disability. The Company shall
have no other liability or obligation under this Agreement to Executive's
executors, legal representatives, administrators, heirs or assigns or any other
person claiming under or through Executive.
4.2.2. If Executive's services to the Company terminate pursuant to
Section 4.1.3 or 4.1.5 hereof, (a) all payments and benefits provided to
Executive under this Agreement shall cease as of the effective date of such
termination, except that Executive shall be entitled to any amounts earned,
accrued or owing but not yet paid under Section 3.1 above and any benefits due
in accordance with the terms of any applicable benefits plans and programs of
the Company and (b) all vesting of all stock options then held by the Executive
shall immediately cease as of the date of such termination.
3
4.2.3. If Executive's services to the Company terminate pursuant to
Section 4.1.4 or 4.1.6 hereof, (a) the Company shall continue to make payments
to Executive in accordance with Section 3.1 hereof until twelve (12) months
after the effective date of such termination (the "Severance Pay Period"), (b)
the Company shall pay Executive incentive compensation for the year in which the
Termination occurred, in the amount of Executive's target award multiplied by
the applicable actual plan payout factor and pro rated by the number of months
Executive is employed by the Company during the year of Termination; the bonus
will be paid in a lump sum on or about the date on which the Company pays
bonuses to senior executives who remain employed with the Company, (c) the
Company shall continue to provide Executive with benefits in accordance with
Section 3.3 hereof throughout the Severance Pay Period, (d) the Company shall
provide Executive with outplacement benefits in accordance with the Company's
then-current executive outplacement program, and (e) 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 Executive 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; provided, however, that in order to be eligible to receive any of
the salary or benefits under this Section 4.2.3, Executive shall be required to
sign a general release of claims against the Company, excluding any claims
concerning the Company's obligations under this Agreement. 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. No other payments or benefits shall be due under this
Agreement to Executive, but Executive shall be entitled to any benefits accrued
or earned in accordance with the terms of any applicable benefit plans and
programs of the Company.
Article 5. Non-Competition and Non-Solicitation
5.1. Non-Competition and Non-Solicitation. Executive acknowledges and recognizes
the highly competitive nature of the businesses of the Company and accordingly
agrees that during the Term and for a period of one (1) year after the effective
date of termination of Executive's employment hereunder:
5.1.1. Executive will not engage in any activity which is competitive
with any business which is now, or is at any time during Executive's employment
with the Company, conducted by the Company, including without limitation
becoming an employee, investor (except for passive investments of not more than
one percent (1%) of the outstanding shares of, or any other equity interest in,
a company or entity listed or traded on a national securities exchange or in an
over-the-counter securities market), officer, agent, partner or director of, or
other participant in, any firm, person or other entity in any geographic area
that competes or plans to compete with the Company in the business of the
development, manufacture, promotion, distribution or sale of digital film, video
4
or audio editing, special effects, 3D or newsroom automation systems or products
or other business in which the Company is engaged or plans to engage at the time
of Executive's termination. Without limiting the foregoing, the parties agree
that the following businesses are, as of the date of this Agreement, competitive
with the Company: Adobe, Apple, Autodesk/Discreet Logic, Euphonics, Fairlight,
Mackie, Media 100, MOTU, Newtek, Pinnacle Systems, Quantel, SGI/Alias Wavefront,
Sony, Steinberg, Thomson/The Grass Valley Group, and all subsidiaries and
affiliates of the foregoing companies.
5.1.2. Executive will not directly or indirectly assist others in
engaging in any of the activities in which Executive is prohibited to engage by
Section 5.1.1 above.
5.1.3. Executive will not directly or indirectly (a) induce any employee
of the Company to engage in any activity in which Executive is prohibited from
engaging by Section 5.1.1 above or to terminate his or her employment with the
Company, or (b) employ or offer employment to any person who was employed by the
Company unless such person shall have ceased to be employed by the Company for a
period of at least one (1) year.
5.2. Reasonableness of Restrictions. It is expressly understood and agreed that
(a) although Executive and the Company consider the restrictions contained in
this Article 5 to be reasonable, if a final judicial determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Article 5 is unenforceable, such restriction shall
not be rendered void but shall be deemed to be enforceable to such maximum
extent as such court may judicially determine or indicate to be enforceable and
(b) if any restriction contained in this Agreement is determined to be
unenforceable and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
5.3. Remedies for Breach. Executive acknowledges and agrees that the Company's
remedies at law for a breach or threatened breach of any of the provisions of
this Section 5 would be inadequate and, in recognition of this fact, Executive
agrees that, in the event of such a breach or threatened breach, in addition to
any remedies at law, the Company, without posting any bond, shall be entitled to
obtain equitable relief in the form of specific performance, temporary
restraining orders, temporary or permanent injunctions or any other equitable
remedy which may then be available. Notwithstanding any provision of this
Agreement to the contrary, upon the occurrence of any breach of Section 5.1, if
Executive is employed by the Company, the Company may immediately terminate the
employment of Executive for Cause in accordance with Section 4.1.3, and, whether
or not Executive is employed by the Company, the Company shall immediately cease
to have any obligations to make payments to Executive under this Agreement.
5.4. Survivorship. Notwithstanding the termination of this Agreement or
Executive's services hereunder for any reason, this Article 5 shall survive any
such termination.
Article 6. Miscellaneous
6.1. Obligation of Successors. Subject to Section 6.4, any successor to
substantially all of the Company's assets and business, and any successor to
substantially all of the assets of the division of the Company in which
Executive is employed, whether by merger, consolidation, purchase of assets or
otherwise, shall succeed to the rights and obligations of the Company hereunder.
5
6.2. Notice. All notices required or permitted hereunder shall be in writing and
deemed effectively given (i) when delivered in person, (ii) on the third
business day after mailing by registered or certified mail, postage prepaid,
(iii) on the next business day after delivery to an air courier for next day
delivery, paid by the sender, or (iv) when sent by telecopy or facsimile
transmission during normal business hours (9:00 a.m. to 5:00 p.m.) where the
recipient is located (or if sent after such hours, as of commencement of the
next business day), followed within twenty-four hours by notification pursuant
to any of the foregoing methods of delivery, in all cases addressed to the other
party hereto as follows:
(a) If to the Company:
Avid Technology, Inc.
Avid Technology Park
One Park West
Tewksbury, MA 01876
Attention: Vice President, Human Resources
Facsimile: (978) 640-0065
(b) If to Executive:
Joseph Bentivegna
1 Whistler Lane
Southborough, MA 01772
or at such other address or addresses as either party shall designate to the
other in accordance with this Section 6.2.
6.3. Survivorship. The respective rights and obligations of the parties under
this Agreement shall survive any termination of Executive's employment to the
extent necessary to the intended preservation of such rights and obligations.
6.4. Complete Agreement; Amendments. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any and all prior agreements between the parties with respect to the
subject matter hereof, except for the Change in Control Agreement between
Executive and the Company dated July 24, 2002, as it may be amended from time to
time (the "Change in Control Agreement"). This Agreement shall terminate upon
the occurrence of a Change in Control (as defined in the Change in Control
Agreement) during the term of the Change in Control Agreement. It may not be
modified or amended except upon written amendment approved by the Company's
Chief Executive Officer and executed by a duly authorized officer of the Company
and by Executive.
6.5. Applicable Law. This Agreement shall be interpreted in accordance with the
laws of the Commonwealth of Massachusetts and the parties hereby submit to the
jurisdiction of the courts of that state.
6
6.6. Severability. If any one or more of the provisions of this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
it shall not affect any other term or provision of this Agreement. If any
provision in this Agreement shall be held to be excessively broad, it shall be
construed by limiting it so as to be enforceable to the extent compatible with
applicable law.
6.7. Binding Effect. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
legal representatives, successors, assigns and personal representatives, except
that the duties, responsibilities and rights of Executive under this Agreement
are of a personal nature and shall not be assignable or delegatable in whole or
in part by Executive, except to the extent that the rights of Executive
hereunder may be enforceable by his heirs, executors, administrators or legal
representatives.
6.8. Captions. Captions of sections have been added only for convenience and
shall not be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Agreement as of the date first above written.
Avid Technology, Inc.
By: /s/ David A. Krall
--------------------------------
David A. Krall
Chief Executive Officer
/s/ Joseph Bentivegna
-----------------------------------
Joseph Bentivegna, individually
7
EXECUTIVE EMPLOYMENT AGREEMENT
AVID TECHNOLOGY, INC.
This Employment Agreement ("Agreement") is entered into as of July 24,
2002 (the "Effective Date") between Avid Technology, Inc., a Delaware
corporation with its principal executive offices at Avid Technology Park,
Tewksbury, Massachusetts (the "Company"), and Ethan E. Jacks ("Executive") of 86
Concord Road, Weston, Massachusetts 02493.
Article 1. Services
1.1. Service. During the Term (as defined below), the Company shall retain the
services of Executive to serve as an executive of the Company and the Executive
shall devote his time and render services to the Company upon the terms and
conditions set forth below.
1.2. Duties. During the Term, Executive agrees to perform such executive duties
consistent with his position as may be assigned to him from time to time by the
Chief Executive Officer or the Board of Directors and to devote his full working
time and attention to such duties.
1.3. No Conflicting Commitments. During the Term, Executive will not undertake
any commitments, engage or have an interest in any outside business activities
or enter into any consulting agreements which, in the opinion of the Company,
conflict with the Company's interests or which might impair the performance of
Executive's duties as a full time employee of the Company.
Article 2. Term
2.1. Term. Subject to earlier termination pursuant to the provisions of this
Agreement, the term of this Agreement (the "Term") shall commence on the
Effective Date and shall continue until terminated by either the Company or the
Executive upon at least 12 months' written notice to the other, provided such
notice may not be given by the Company prior to 24 months after the Effective
Date. Unless the services of the Executive have terminated prior to or upon the
end of the Term in accordance with the provisions of this Agreement, from and
after the end of the Term, the Executive shall be an employee-at-will.
Article 3. Payments
3.1. Base Compensation. The Company shall pay to Executive a base salary (the
"Base Salary") of $285,000 per annum, payable in regular installments in
accordance with the Company's usual payment practices. The Base Salary shall be
reviewed by the Board of Director's Compensation Committee during the term of
this Agreement and adjusted accordingly at the discretion of the Compensation
Committee.
3.2. Incentive Payments. During the time Executive is an employee of the Company
he shall be entitled to participate, at the sole discretion of the Board of
Directors, in any cash incentive payment or bonus plan established by the
Company for its executive officers, as such plan is amended from time to time.
3.3. Fringe Benefits. During the time Executive is an employee hereunder, in
addition to Executive's Base Salary and incentive payments or bonuses, if any,
the Company shall provide Executive and his dependents medical insurance and
such other benefits as are generally made available by the Company to its
full-time executive employees, as amended from time to time.
3.4. Participation in Equity Incentive Plans. Executive shall be entitled to
participate in the Company's stock option plans during the Term to the extent
and in the manner determined by the Company's Board of Directors in its absolute
discretion.
Article 4. Termination
4.1. Termination. Executive's employment hereunder shall terminate immediately
upon the occurrence of any of the following events:
4.1.1. Executive's death;
4.1.2. Executive's Disability (as defined below);
4.1.3. The termination of Executive's services hereunder by the Company
for Cause (as defined below), to be effective immediately upon delivery of
notice thereof;
4.1.4. The termination of Executive's services hereunder by the Company,
without Cause and not as a result of Executive's death or Disability, to be
effective immediately upon delivery of notice thereof; or
4.1.5. The termination of Executive's services hereunder by Executive
without Good Reason (as defined below) to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
4.1.6. The termination of Executive's services hereunder by Executive
with Good Reason (as defined below), to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
"Cause" shall mean (i) Executive's material failure to perform (other
than by reason of death or Disability) his duties and responsibilities as
assigned by the Chief Executive Officer or Board in accordance with Section 1.2
above, which is not remedied after thirty (30) days' written notice from the
Company (if such failure is susceptible to cure), (ii) a breach of any of the
provisions of this Agreement or the invention and non-disclosure agreement
between the Executive and the Company, which is not cured after ten (10) days'
written notice from the Company (if such breach is susceptible to cure), (iii) a
serious and material violation of Company policy (for purposes of this clause
any violation of the Company's Conflict of Interest policy shall be deemed
serious and material), which is not cured after ten (10) days' written notice
from the Company (if such breach is susceptible to cure), (iv) fraud,
embezzlement or other material dishonesty with respect to the Company, or (v)
commission of a felony or any other crime involving fraud, dishonesty or moral
turpitude. Notwithstanding the foregoing, "Cause" shall not include any failure
to achieve results as a result of factors or events beyond the reasonable
control of the Executive.
2
"Disability" shall mean the Executive's absence from the full-time
performance of his duties with the Company for 9 months as a result of
incapacity due to mental or physical illness, as a result of which the Executive
is deemed "disabled" by the institution appointed by the Company to administer
its long-term disability plan (or any successor plan).
"Good Reason" shall mean (i) a material reduction in the nature of
Executive's duties or the scope of Executive's responsibility from those in
effect on the date of this Agreement, without Executive's express written
consent; (ii) a reduction in Executive's Base Salary as in effect on the date
hereof or as the same may be increased from time to time, without Executive's
express written consent, other than a reduction which is part of an
across-the-board proportionate reduction in the salaries of all senior
executives of the Company imposed because the Company is experiencing financial
hardship (provided such reduction is not more than 20% and does not continue for
more than 12 months); (iii) the Company's requiring Executive to be based
anywhere other than within fifty (50) miles of Employee's office location as in
effect on the date hereof, without Executive's express written consent; and (iv)
any material breach of this Agreement by the Company; provided, however, that a
termination for Good Reason by Executive can only occur only (i) if Executive
has given the Company a notice of intent to terminate for Good Reason at least
ten (10) days before giving the termination notice described in Section 4.1.6
above and the Company has not cured the cause for Good Reason within that ten
(10) day period, and (ii) such notice is given within 90 days after the
occurrence of the event giving rise to Good Reason.
4.2. Adjustments Upon Termination.
4.2.1. If Executive's services to the Company terminate pursuant to
Sections 4.1.1 or 4.1.2 hereof, (a) the Company shall continue to make payments
to Executive or Executive's heirs, successors or legal representatives, as the
case may be, in accordance with Section 3.1 hereof until twelve (12) months
after the date of such death or Disability (less the amount of any payments
made to the Executive under any long-term disability plan of the Company) and
(b) 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
Executive as of the date of death or Disability 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 death or Disability. The Company shall
have no other liability or obligation under this Agreement to Executive's
executors, legal representatives, administrators, heirs or assigns or any other
person claiming under or through Executive.
4.2.2. If Executive's services to the Company terminate pursuant to
Section 4.1.3 or 4.1.5 hereof, (a) all payments and benefits provided to
Executive under this Agreement shall cease as of the effective date of such
termination, except that Executive shall be entitled to any amounts earned,
accrued or owing but not yet paid under Section 3.1 above and any benefits due
in accordance with the terms of any applicable benefits plans and programs of
the Company and (b) all vesting of all stock options then held by the Executive
shall immediately cease as of the date of such termination.
3
4.2.3. If Executive's services to the Company terminate pursuant to
Section 4.1.4 or 4.1.6 hereof, (a) the Company shall continue to make payments
to Executive in accordance with Section 3.1 hereof until twelve (12) months
after the effective date of such termination (the "Severance Pay Period"), (b)
the Company shall pay Executive incentive compensation for the year in which the
Termination occurred, in the amount of Executive's target award multiplied by
the applicable actual plan payout factor and pro rated by the number of months
Executive is employed by the Company during the year of Termination; the bonus
will be paid in a lump sum on or about the date on which the Company pays
bonuses to senior executives who remain employed with the Company, (c) the
Company shall continue to provide Executive with benefits in accordance with
Section 3.3 hereof throughout the Severance Pay Period, (d) the Company shall
provide Executive with outplacement benefits in accordance with the Company's
then-current executive outplacement program, and (e) 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 Executive 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; provided, however, that in order to be eligible to receive any of
the salary or benefits under this Section 4.2.3, Executive shall be required to
sign a general release of claims against the Company, excluding any claims
concerning the Company's obligations under this Agreement. 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. No other payments or benefits shall be due under this
Agreement to Executive, but Executive shall be entitled to any benefits accrued
or earned in accordance with the terms of any applicable benefit plans and
programs of the Company.
Article 5. Non-Competition and Non-Solicitation
5.1. Non-Competition and Non-Solicitation. Executive acknowledges and recognizes
the highly competitive nature of the businesses of the Company and accordingly
agrees that during the Term and for a period of one (1) year after the effective
date of termination of Executive's employment hereunder:
5.1.1. Executive will not engage in any activity which is competitive
with any business which is now, or is at any time during Executive's employment
with the Company, conducted by the Company, including without limitation
becoming an employee, investor (except for passive investments of not more than
one percent (1%) of the outstanding shares of, or any other equity interest in,
a company or entity listed or traded on a national securities exchange or in an
over-the-counter securities market), officer, agent, partner or director of, or
other participant in, any firm, person or other entity in any geographic area
that competes or plans to compete with the Company in the business of the
development, manufacture, promotion, distribution or sale of digital film, video
4
or audio editing, special effects, 3D or newsroom automation systems or products
or other business in which the Company is engaged or plans to engage at the time
of Executive's termination. Without limiting the foregoing, the parties agree
that the following businesses are, as of the date of this Agreement, competitive
with the Company: Adobe, Apple, Autodesk/Discreet Logic, Euphonics, Fairlight,
Mackie, Media 100, MOTU, Newtek, Pinnacle Systems, Quantel, SGI/Alias Wavefront,
Sony, Steinberg, Thomson/The Grass Valley Group, and all subsidiaries and
affiliates of the foregoing companies.
5.1.2. Executive will not directly or indirectly assist others in
engaging in any of the activities in which Executive is prohibited to engage by
Section 5.1.1 above.
5.1.3. Executive will not directly or indirectly (a) induce any employee
of the Company to engage in any activity in which Executive is prohibited from
engaging by Section 5.1.1 above or to terminate his or her employment with the
Company, or (b) employ or offer employment to any person who was employed by the
Company unless such person shall have ceased to be employed by the Company for a
period of at least one (1) year.
5.2. Reasonableness of Restrictions. It is expressly understood and agreed that
(a) although Executive and the Company consider the restrictions contained in
this Article 5 to be reasonable, if a final judicial determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Article 5 is unenforceable, such restriction shall
not be rendered void but shall be deemed to be enforceable to such maximum
extent as such court may judicially determine or indicate to be enforceable and
(b) if any restriction contained in this Agreement is determined to be
unenforceable and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
5.3. Remedies for Breach. Executive acknowledges and agrees that the Company's
remedies at law for a breach or threatened breach of any of the provisions of
this Section 5 would be inadequate and, in recognition of this fact, Executive
agrees that, in the event of such a breach or threatened breach, in addition to
any remedies at law, the Company, without posting any bond, shall be entitled to
obtain equitable relief in the form of specific performance, temporary
restraining orders, temporary or permanent injunctions or any other equitable
remedy which may then be available. Notwithstanding any provision of this
Agreement to the contrary, upon the occurrence of any breach of Section 5.1, if
Executive is employed by the Company, the Company may immediately terminate the
employment of Executive for Cause in accordance with Section 4.1.3, and, whether
or not Executive is employed by the Company, the Company shall immediately cease
to have any obligations to make payments to Executive under this Agreement.
5.4. Survivorship. Notwithstanding the termination of this Agreement or
Executive's services hereunder for any reason, this Article 5 shall survive any
such termination.
Article 6. Miscellaneous
6.1. Obligation of Successors. Subject to Section 6.4, any successor to
substantially all of the Company's assets and business, and any successor to
substantially all of the assets of the division of the Company in which
Executive is employed, whether by merger, consolidation, purchase of assets or
otherwise, shall succeed to the rights and obligations of the Company hereunder.
5
6.2. Notice. All notices required or permitted hereunder shall be in writing and
deemed effectively given (i) when delivered in person, (ii) on the third
business day after mailing by registered or certified mail, postage prepaid,
(iii) on the next business day after delivery to an air courier for next day
delivery, paid by the sender, or (iv) when sent by telecopy or facsimile
transmission during normal business hours (9:00 a.m. to 5:00 p.m.) where the
recipient is located (or if sent after such hours, as of commencement of the
next business day), followed within twenty-four hours by notification pursuant
to any of the foregoing methods of delivery, in all cases addressed to the other
party hereto as follows:
(a) If to the Company:
Avid Technology, Inc.
Avid Technology Park
One Park West
Tewksbury, MA 01876
Attention: Vice President, Human Resources
Facsimile: (978) 640-0065
(b) If to Executive:
Ethan E. Jacks
86 Concord Road
Weston, MA 02493
or at such other address or addresses as either party shall designate to the
other in accordance with this Section 6.2.
6.3. Survivorship. The respective rights and obligations of the parties under
this Agreement shall survive any termination of Executive's employment to the
extent necessary to the intended preservation of such rights and obligations.
6.4. Complete Agreement; Amendments. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any and all prior agreements between the parties with respect to the
subject matter hereof, except for the Change in Control Agreement between
Executive and the Company dated July 24, 2002, as it may be amended from time to
time (the "Change in Control Agreement"). This Agreement shall terminate upon
the occurrence of a Change in Control (as defined in the Change in Control
Agreement) during the term of the Change in Control Agreement. It may not be
modified or amended except upon written amendment approved by the Company's
Chief Executive Officer and executed by a duly authorized officer of the Company
and by Executive.
6.5. Applicable Law. This Agreement shall be interpreted in accordance with the
laws of the Commonwealth of Massachusetts and the parties hereby submit to the
jurisdiction of the courts of that state.
6
6.6. Severability. If any one or more of the provisions of this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
it shall not affect any other term or provision of this Agreement. If any
provision in this Agreement shall be held to be excessively broad, it shall be
construed by limiting it so as to be enforceable to the extent compatible with
applicable law.
6.7. Binding Effect. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
legal representatives, successors, assigns and personal representatives, except
that the duties, responsibilities and rights of Executive under this Agreement
are of a personal nature and shall not be assignable or delegatable in whole or
in part by Executive, except to the extent that the rights of Executive
hereunder may be enforceable by his heirs, executors, administrators or legal
representatives.
6.8. Captions. Captions of sections have been added only for convenience and
shall not be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Agreement as of the date first above written.
Avid Technology, Inc.
By: /s/ David A. Krall
---------------------------------
David A. Krall
Chief Executive Officer
/s/ Ethan E. Jacks
------------------------------------
Ethan E. Jacks, individually
7
EXECUTIVE EMPLOYMENT AGREEMENT
AVID TECHNOLOGY, INC.
This Employment Agreement ("Agreement") is entered into as of July 24,
2002 (the "Effective Date") between Avid Technology, Inc., a Delaware
corporation with its principal executive offices at Avid Technology Park,
Tewksbury, Massachusetts (the "Company"), and David Lebolt ("Executive") of 461
Second Street, #220, San Francisco, California 94107.
Article 1. Services
1.1. Service. During the Term (as defined below), the Company shall retain the
services of Executive to serve as an executive of the Company and the Executive
shall devote his time and render services to the Company upon the terms and
conditions set forth below.
1.2. Duties. During the Term, Executive agrees to perform such executive duties
consistent with his position as may be assigned to him from time to time by the
Chief Executive Officer or the Board of Directors and to devote his full working
time and attention to such duties.
1.3. No Conflicting Commitments/Dedication of Services. During the Term,
Executive will devote Executive's entire productive time, ability and attention
to the business of the Company. Executive will also not, without the Company's
prior written consent, directly or indirectly engage in any employment,
consulting, or other activity that would conflict with Executive's employment
obligations to the Company (including Executive's duty of loyalty to the
Company), the Company's business interests, or which might impair the
performance of Executive's duties as a full time employee of the Company.
Article 2. Term
2.1. Term. Subject to earlier termination pursuant to the provisions of this
Agreement, the term of this Agreement (the "Term") shall commence on the
Effective Date and shall continue until terminated by either the Company or the
Executive upon at least 12 months' written notice to the other, provided such
notice may not be given by the Company prior to 24 months after the Effective
Date. Unless the services of the Executive have terminated prior to or upon the
end of the Term in accordance with the provisions of this Agreement, from and
after the end of the Term, the Executive shall be an employee-at-will.
Article 3. Payments
3.1. Base Compensation. The Company shall pay to Executive a base salary (the
"Base Salary") of $290,000 per annum, payable in regular installments in
accordance with the Company's usual payment practices. The Base Salary shall be
reviewed by the Board of Director's Compensation Committee during the term of
this Agreement and adjusted accordingly at the discretion of the Compensation
Committee.
3.2. Incentive Payments. During the time Executive is an employee of the
Company, he shall be entitled to participate, at the sole discretion of the
Board of Directors, in any cash incentive payment or bonus plan established by
the Company for its executive officers, as such plan is amended from time to
time.
3.3. Fringe Benefits. During the time Executive is an employee hereunder, in
addition to Executive's Base Salary and incentive payments or bonuses, if any,
the Company shall provide Executive and his dependents medical insurance and
such other benefits as are generally made available by the Company to its
full-time executive employees, as amended from time to time.
3.4. Participation in Equity Incentive Plans. Executive shall be entitled to
participate in the Company's stock option plans during the Term to the extent
and in the manner determined by the Company's Board of Directors in its absolute
discretion.
Article 4. Termination
4.1. Termination. Executive's employment hereunder shall terminate immediately
upon the occurrence of any of the following events:
4.1.1. Executive's death;
4.1.2. Executive's Disability (as defined below);
4.1.3. The termination of Executive's services hereunder by the Company
for Cause (as defined below), to be effective immediately upon delivery of
notice thereof;
4.1.4. The termination of Executive's services hereunder by the Company,
without Cause and not as a result of Executive's death or Disability, to be
effective immediately upon delivery of notice thereof; or
4.1.5. The termination of Executive's services hereunder by Executive
without Good Reason (as defined below) to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
4.1.6. The termination of Executive's services hereunder by Executive
with Good Reason (as defined below), to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
"Cause" shall mean (i) Executive's material failure to perform (other
than by reason of death or Disability, as defined below) his duties and
responsibilities as assigned by the Chief Executive Officer or Board in
accordance with Section 1.2 above, which is not remedied after thirty (30) days'
written notice from the Company (if such failure is susceptible to cure), (ii) a
breach of any of the provisions of this Agreement or the invention and
non-disclosure agreement between the Executive and the Company, which is not
cured after ten (10) days' written notice from the Company (if such breach is
susceptible to cure), (iii) a serious and material violation of Company policy
(for purposes of this clause any violation of the Company's Conflict of Interest
policy shall be deemed serious and material), which is not cured after ten (10)
days' written notice from the Company (if such breach is susceptible to cure),
(iv) fraud, embezzlement or other material dishonesty with respect to the
2
Company, or (v) commission of a felony or any other crime involving fraud,
dishonesty or moral turpitude. Notwithstanding the foregoing, "Cause" shall not
include any failure to achieve results as a result of factors or events beyond
the reasonable control of the Executive.
"Disability" shall mean the Executive's absence from the full-time
performance of his duties with the Company for 9 months as a result of
incapacity due to mental or physical illness, as a result of which the Executive
is deemed "disabled" by the institution appointed by the Company to administer
its long-term disability plan (or any successor plan).
"Good Reason" shall mean (i) a material reduction in the nature of
Executive's duties or the scope of Executive's responsibility from those in
effect on the date of this Agreement, without Executive's express written
consent; (ii) a reduction in Executive's Base Salary as in effect on the date
hereof or as the same may be increased from time to time, without Executive's
express written consent, other than a reduction which is part of an
across-the-board proportionate reduction in the salaries of all senior
executives of the Company imposed because the Company is experiencing financial
hardship (provided such reduction is not more than 20% and does not continue for
more than 12 months); (iii) the Company's requiring Executive to be based
anywhere other than within fifty (50) miles of Employee's office location as in
effect on the date hereof, without Executive's express written consent; and (iv)
any material breach of this Agreement by the Company; provided, however, that a
termination for Good Reason by Executive can only occur only (i) if Executive
has given the Company a notice of intent to terminate for Good Reason at least
ten (10) days before giving the termination notice described in Section 4.1.6
above and the Company has not cured the cause for Good Reason within that ten
(10) day period, and (ii) such notice is given within 90 days after the
occurrence of the event giving rise to Good Reason.
4.2. Adjustments Upon Termination.
4.2.1. If Executive's services to the Company terminate pursuant to
Sections 4.1.1 or 4.1.2 hereof, (a) the Company shall continue to make payments
to Executive or Executive's heirs, successors or legal representatives, as the
case may be, in accordance with Section 3.1 hereof until twelve (12) months
after the date of such death or Disability (less the amount of any payments
made to the Executive under any long-term disability plan of the Company) and
(b) 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
Executive as of the date of death or Disability 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 death or Disability. The Company shall
have no other liability or obligation under this Agreement to Executive's
executors, legal representatives, administrators, heirs or assigns or any other
person claiming under or through Executive.
3
4.2.2. If Executive's services to the Company terminate pursuant to
Section 4.1.3 or 4.1.5 hereof, (a) all payments and benefits provided to
Executive under this Agreement shall cease as of the effective date of such
termination, except that Executive shall be entitled to any amounts earned,
accrued or owing but not yet paid under Section 3.1 above and any benefits due
in accordance with the terms of any applicable benefits plans and programs of
the Company and (b) all vesting of all stock options then held by the Executive
shall immediately cease as of the date of such termination.
4.2.3. If Executive's services to the Company terminate pursuant to
Section 4.1.4 or 4.1.6 hereof, (a) the Company shall continue to make payments
to Executive in accordance with Section 3.1 hereof until twelve (12) months
after the effective date of such termination (the "Severance Pay Period"), (b)
the Company shall pay Executive incentive compensation for the year in which the
Termination occurred, in the amount of Executive's target award multiplied by
the applicable actual plan payout factor and pro rated by the number of months
Executive is employed by the Company during the year of Termination; the bonus
will be paid in a lump sum on or about the date on which the Company pays
bonuses to senior executives who remain employed with the Company, (c) the
Company shall continue to provide Executive with benefits in accordance with
Section 3.3 hereof throughout the Severance Pay Period, (d) the Company shall
provide Executive with outplacement benefits in accordance with the Company's
then-current executive outplacement program, and (e) 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 Executive 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; provided, however, that in order to be eligible to receive any of
the salary or benefits under this Section 4.2.3, Executive shall be required to
sign a general release of claims against the Company, excluding any claims
concerning the Company's obligations under this Agreement. 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. No other payments or benefits shall be due under this
Agreement to Executive, but Executive shall be entitled to any benefits accrued
or earned in accordance with the terms of any applicable benefit plans and
programs of the Company.
Article 5. Non-Competition and Non-Solicitation
5.1. Non-Competition and Non-Solicitation. Executive acknowledges and recognizes
the highly competitive nature of the businesses of the Company and accordingly
agrees to the following:
5.1.1. During the term of employment with the Company, Executive will
have access to and become acquainted with information of a confidential,
proprietary or secret nature which is or may be either applicable to, or related
in any way to, the present or future business of the Company, the research and
development or investigation of the Company, or the business of any customer of
the Company. For example, trade secret information includes, but is not limited
to, devices, secret inventions, processes and compilations of information,
records, specifications and information concerning customers or vendors.
Executive agrees to not disclose any of the above-mentioned trade secrets,
directly or indirectly, or use them in any way, either during the term of this
Agreement or at any time thereafter, except as required in the course of
employment with the Company. Executive also agrees to abide by the Company's
policies and regulations, as established from time to time for the protection of
its trade secret information. Without limiting the foregoing, the parties agree
4
that the following businesses are, as of the date of this Agreement, competitive
with the Company: Adobe, Apple, Autodesk/Discreet Logic, Euphonics, Fairlight,
Mackie, Media 100, MOTU, Newtek, Pinnacle Systems, Quantel, SGI/Alias Wavefront,
Sony, Steinberg, Thomson/The Grass Valley Group, and all subsidiaries and
affiliates of the foregoing companies. As such, any use of or disclosure by
Executive of the Company's confidential, proprietary, or trade secret
information to such businesses would constitute unfair competition, which is
prohibited under this Agreement, as well as by law.
5.1.2. Executive also hereby agrees to disclose to the Company any and
all inventions, discoveries, improvements, trade secrets, formulas, techniques,
processes, and know-how, whether or not patentable and whether or not reduced to
practice, made or conceived by Executive, either solely or in conjunction with
others, during the period of Executive's employment with the Company, which
relate to or result from the actual or demonstrably anticipated business, work
or research in development of the Company, or which result, to any extent, from
use of the Company's premises or property, or are suggested by any task assigned
to Executive or any work performed by Executive for or on behalf of the Company.
Executive also acknowledges and agrees that all such inventions shall be the
sole property of the Company and Executive hereby assigns to the Company
Executive's entire right and interest in all the inventions; provided, however,
that such assignment does not apply to any invention which qualifies fully under
the provision of section 2870 of the California Labor Code.
5.1.3. Executive will not directly or indirectly assist others in
engaging in any of the activities in which Executive is prohibited to engage by
Sections 5.1.1 and 5.1.2 above.
5.1.4. Executive will not directly or indirectly (a) induce any employee
of the Company to engage in any activity in which Executive is prohibited from
engaging by Sections 5.1.1 and 5.1.2 above or to terminate his or her employment
with the Company, or (b) employ or offer employment to any person who was
employed by the Company unless such person shall have ceased to be employed by
the Company for a period of at least one (1) year.
5.2. Reasonableness of Restrictions. It is expressly understood and agreed that
(a) although Executive and the Company consider the restrictions contained in
this Article 5 to be reasonable, if a final judicial determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Article 5 is unenforceable, such restriction shall
not be rendered void but shall be deemed to be enforceable to such maximum
extent as such court may judicially determine or indicate to be enforceable and
(b) if any restriction contained in this Agreement is determined to be
unenforceable and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
5
5.3. Remedies for Breach. Executive acknowledges and agrees that the Company's
remedies at law for a breach or threatened breach of any of the provisions of
this Section 5 would be inadequate and, in recognition of this fact, Executive
agrees that, in the event of such a breach or threatened breach, in addition to
any remedies at law, the Company, without posting any bond, shall be entitled to
obtain equitable relief in the form of specific performance, temporary
restraining orders, temporary or permanent injunctions or any other equitable
remedy which may then be available. Notwithstanding any provision of this
Agreement to the contrary, upon the occurrence of any breach of Section 5.1, if
Executive is employed by the Company, the Company may immediately terminate the
employment of Executive for Cause in accordance with Section 4.1.3, and, whether
or not Executive is employed by the Company, the Company shall immediately cease
to have any obligations to make payments to Executive under this Agreement.
5.4. Survivorship. Notwithstanding the termination of this Agreement or
Executive's services hereunder for any reason, this Article 5 shall survive any
such termination.
Article 6. Miscellaneous
6.1. Obligation of Successors. Subject to Section 6.4, any successor to
substantially all of the Company's assets and business, and any successor to
substantially all of the assets of the division of the Company in which
Executive is employed, whether by merger, consolidation, purchase of assets or
otherwise, shall succeed to the rights and obligations of the Company hereunder.
6.2. Notice. All notices required or permitted hereunder shall be in writing and
deemed effectively given (i) when delivered in person, (ii) on the third
business day after mailing by registered or certified mail, postage prepaid,
(iii) on the next business day after delivery to an air courier for next day
delivery, paid by the sender, or (iv) when sent by telecopy or facsimile
transmission during normal business hours (9:00 a.m. to 5:00 p.m.) where the
recipient is located (or if sent after such hours, as of commencement of the
next business day), followed within twenty-four hours by notification pursuant
to any of the foregoing methods of delivery, in all cases addressed to the other
party hereto as follows:
(a) If to the Company:
Avid Technology, Inc.
Avid Technology Park
One Park West
Tewksbury, MA 01876
Attention: Vice President, Human Resources
Facsimile: (978) 640-0065
(b) If to Executive:
David Lebolt
461 Second Street, #220
San Francisco, CA 94107
or at such other address or addresses as either party shall designate to the
other in accordance with this Section 6.2.
6
6.3. Survivorship. The respective rights and obligations of the parties under
this Agreement shall survive any termination of Executive's employment to the
extent necessary to the intended preservation of such rights and obligations.
6.4. Complete Agreement; Amendments. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any and all prior agreements between the parties with respect to the
subject matter hereof, except for the Change in Control Agreement between
Executive and the Company dated July 24, 2002, as it may be amended from time to
time (the "Change in Control Agreement"). This Agreement shall terminate upon
the occurrence of a Change in Control (as defined in the Change in Control
Agreement) during the term of the Change in Control Agreement. It may not be
modified or amended except upon written amendment approved by the Company's
Chief Executive Officer and executed by a duly authorized officer of the Company
and by Executive.
6.5. Applicable Law. This Agreement shall be interpreted in accordance with the
laws of the Commonwealth of Massachusetts and the parties hereby submit to the
jurisdiction of the courts of that state.
6.6. Severability. If any one or more of the provisions of this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
it shall not affect any other term or provision of this Agreement. If any
provision in this Agreement shall be held to be excessively broad, it shall be
construed by limiting it so as to be enforceable to the extent compatible with
applicable law.
6.7. Binding Effect. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
legal representatives, successors, assigns and personal representatives, except
that the duties, responsibilities and rights of Executive under this Agreement
are of a personal nature and shall not be assignable or delegatable in whole or
in part by Executive, except to the extent that the rights of Executive
hereunder may be enforceable by his heirs, executors, administrators or legal
representatives.
6.8. Captions. Captions of sections have been added only for convenience and
shall not be deemed to be a part of this Agreement.
* * *
7
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Agreement as of the date first above written.
Avid Technology, Inc.
By: /s/ David A. Krall
--------------------------------
David A. Krall
Chief Executive Officer
/s/ David Lebolt
-----------------------------------
David Lebolt, individually
8
EXECUTIVE EMPLOYMENT AGREEMENT
AVID TECHNOLOGY, INC.
This Employment Agreement ("Agreement") is entered into as of July 24,
2002 (the "Effective Date") between Avid Technology, Inc., a Delaware
corporation with its principal executive offices at Avid Technology Park,
Tewksbury, Massachusetts (the "Company"), and Paul J. Milbury ("Executive") of
163 Suffolk Road, Chestnut Hill, Massachusetts 02467.
Article 1. Services
1.1. Service. During the Term (as defined below), the Company shall retain the
services of Executive to serve as an executive of the Company and the Executive
shall devote his time and render services to the Company upon the terms and
conditions set forth below.
1.2. Duties. During the Term, Executive agrees to perform such executive duties
consistent with his position as may be assigned to him from time to time by the
Chief Executive Officer or the Board of Directors and to devote his full working
time and attention to such duties.
1.3. No Conflicting Commitments. During the Term, Executive will not undertake
any commitments, engage or have an interest in any outside business activities
or enter into any consulting agreements which, in the opinion of the Company,
conflict with the Company's interests or which might impair the performance of
Executive's duties as a full time employee of the Company.
Article 2. Term
2.1. Term. Subject to earlier termination pursuant to the provisions of this
Agreement, the term of this Agreement (the "Term") shall commence on the
Effective Date and shall continue until terminated by either the Company or the
Executive upon at least 12 months' written notice to the other, provided such
notice may not be given by the Company prior to 24 months after the Effective
Date. Unless the services of the Executive have terminated prior to or upon the
end of the Term in accordance with the provisions of this Agreement, from and
after the end of the Term, the Executive shall be an employee-at-will.
Article 3. Payments
3.1. Base Compensation. The Company shall pay to Executive a base salary (the
"Base Salary") of $300,000 per annum, payable in regular installments in
accordance with the Company's usual payment practices. The Base Salary shall be
reviewed by the Board of Director's Compensation Committee during the term of
this Agreement and adjusted accordingly at the discretion of the Compensation
Committee.
3.2. Incentive Payments. During the time Executive is an employee of the Company
he shall be entitled to participate, at the sole discretion of the Board of
Directors, in any cash incentive payment or bonus plan established by the
Company for its executive officers, as such plan is amended from time to time.
3.3. Fringe Benefits. During the time Executive is an employee hereunder, in
addition to Executive's Base Salary and incentive payments or bonuses, if any,
the Company shall provide Executive and his dependents medical insurance and
such other benefits as are generally made available by the Company to its
full-time executive employees, as amended from time to time.
3.4. Participation in Equity Incentive Plans. Executive shall be entitled to
participate in the Company's stock option plans during the Term to the extent
and in the manner determined by the Company's Board of Directors in its absolute
discretion.
Article 4. Termination
4.1. Termination. Executive's employment hereunder shall terminate immediately
upon the occurrence of any of the following events:
4.1.1. Executive's death;
4.1.2. Executive's Disability (as defined below);
4.1.3. The termination of Executive's services hereunder by the Company
for Cause (as defined below), to be effective immediately upon delivery of
notice thereof;
4.1.4. The termination of Executive's services hereunder by the Company,
without Cause and not as a result of Executive's death or Disability, to be
effective immediately upon delivery of notice thereof; or
4.1.5. The termination of Executive's services hereunder by Executive
without Good Reason (as defined below) to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
4.1.6. The termination of Executive's services hereunder by Executive
with Good Reason (as defined below), to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
"Cause" shall mean (i) Executive's material failure to perform (other
than by reason of death or Disability) his duties and responsibilities as
assigned by the Chief Executive Officer or Board in accordance with Section 1.2
above, which is not remedied after thirty (30) days' written notice from the
Company (if such failure is susceptible to cure), (ii) a breach of any of the
provisions of this Agreement or the invention and non-disclosure agreement
between the Executive and the Company, which is not cured after ten (10) days'
written notice from the Company (if such breach is susceptible to cure), (iii) a
serious and material violation of Company policy (for purposes of this clause
any violation of the Company's Conflict of Interest policy shall be deemed
serious and material), which is not cured after ten (10) days' written notice
from the Company (if such breach is susceptible to cure), (iv) fraud,
embezzlement or other material dishonesty with respect to the Company, or (v)
commission of a felony or any other crime involving fraud, dishonesty or moral
turpitude. Notwithstanding the foregoing, "Cause" shall not include any failure
to achieve results as a result of factors or events beyond the reasonable
control of the Executive.
2
"Disability" shall mean the Executive's absence from the full-time
performance of his duties with the Company for 9 months as a result of
incapacity due to mental or physical illness, as a result of which the Executive
is deemed "disabled" by the institution appointed by the Company to administer
its long-term disability plan (or any successor plan).
"Good Reason" shall mean (i) a material reduction in the nature of
Executive's duties or the scope of Executive's responsibility from those in
effect on the date of this Agreement, without Executive's express written
consent; (ii) a reduction in Executive's Base Salary as in effect on the date
hereof or as the same may be increased from time to time, without Executive's
express written consent, other than a reduction which is part of an
across-the-board proportionate reduction in the salaries of all senior
executives of the Company imposed because the Company is experiencing financial
hardship (provided such reduction is not more than 20% and does not continue for
more than 12 months); (iii) the Company's requiring Executive to be based
anywhere other than within fifty (50) miles of Employee's office location as in
effect on the date hereof, without Executive's express written consent; and (iv)
any material breach of this Agreement by the Company; provided, however, that a
termination for Good Reason by Executive can only occur only (i) if Executive
has given the Company a notice of intent to terminate for Good Reason at least
ten (10) days before giving the termination notice described in Section 4.1.6
above and the Company has not cured the cause for Good Reason within that ten
(10) day period, and (ii) such notice is given within 90 days after the
occurrence of the event giving rise to Good Reason.
4.2. Adjustments Upon Termination.
4.2.1. If Executive's services to the Company terminate pursuant to
Sections 4.1.1 or 4.1.2 hereof, (a) the Company shall continue to make payments
to Executive or Executive's heirs, successors or legal representatives, as the
case may be, in accordance with Section 3.1 hereof until twelve (12) months
after the date of such death or Disability (less the amount of any payments made
to the Executive under any long-term disability plan of the Company) and (b)
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 Executive as
of the date of death or Disability 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 death or Disability. The Company shall have no other
liability or obligation under this Agreement to Executive's executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through Executive.
4.2.2. If Executive's services to the Company terminate pursuant to
Section 4.1.3 or 4.1.5 hereof, (a) all payments and benefits provided to
Executive under this Agreement shall cease as of the effective date of such
termination, except that Executive shall be entitled to any amounts earned,
accrued or owing but not yet paid under Section 3.1 above and any benefits due
in accordance with the terms of any applicable benefits plans and programs of
the Company and (b) all vesting of all stock options then held by the Executive
shall immediately cease as of the date of such termination.
3
4.2.3. If Executive's services to the Company terminate pursuant to
Section 4.1.4 or 4.1.6 hereof, (a) the Company shall continue to make payments
to Executive in accordance with Section 3.1 hereof until twelve (12) months
after the effective date of such termination (the "Severance Pay Period"), (b)
the Company shall pay Executive incentive compensation for the year in which the
Termination occurred, in the amount of Executive's target award multiplied by
the applicable actual plan payout factor and pro rated by the number of months
Executive is employed by the Company during the year of Termination; the bonus
will be paid in a lump sum on or about the date on which the Company pays
bonuses to senior executives who remain employed with the Company, (c) the
Company shall continue to provide Executive with benefits in accordance with
Section 3.3 hereof throughout the Severance Pay Period, (d) the Company shall
provide Executive with outplacement benefits in accordance with the Company's
then-current executive outplacement program, and (e) 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 Executive 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; provided, however, that in order to be eligible to receive any of
the salary or benefits under this Section 4.2.3, Executive shall be required to
sign a general release of claims against the Company, excluding any claims
concerning the Company's obligations under this Agreement. 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. No other payments or benefits shall be due under this
Agreement to Executive, but Executive shall be entitled to any benefits accrued
or earned in accordance with the terms of any applicable benefit plans and
programs of the Company.
Article 5. Non-Competition and Non-Solicitation
5.1. Non-Competition and Non-Solicitation. Executive acknowledges and recognizes
the highly competitive nature of the businesses of the Company and accordingly
agrees that during the Term and for a period of one (1) year after the effective
date of termination of Executive's employment hereunder:
5.1.1. Executive will not engage in any activity which is competitive
with any business which is now, or is at any time during Executive's employment
with the Company, conducted by the Company, including without limitation
becoming an employee, investor (except for passive investments of not more than
one percent (1%) of the outstanding shares of, or any other equity interest in,
a company or entity listed or traded on a national securities exchange or in an
over-the-counter securities market), officer, agent, partner or director of, or
other participant in, any firm, person or other entity in any geographic area
that competes or plans to compete with the Company in the business of the
development, manufacture, promotion, distribution or sale of digital film, video
4
or audio editing, special effects, 3D or newsroom automation systems or products
or other business in which the Company is engaged or plans to engage at the time
of Executive's termination. Without limiting the foregoing, the parties agree
that the following businesses are, as of the date of this Agreement, competitive
with the Company: Adobe, Apple, Autodesk/Discreet Logic, Euphonics, Fairlight,
Mackie, Media 100, MOTU, Newtek, Pinnacle Systems, Quantel, SGI/Alias Wavefront,
Sony, Steinberg, Thomson/The Grass Valley Group, and all subsidiaries and
affiliates of the foregoing companies.
5.1.2. Executive will not directly or indirectly assist others in
engaging in any of the activities in which Executive is prohibited to engage by
Section 5.1.1 above.
5.1.3. Executive will not directly or indirectly (a) induce any employee
of the Company to engage in any activity in which Executive is prohibited from
engaging by Section 5.1.1 above or to terminate his or her employment with the
Company, or (b) employ or offer employment to any person who was employed by the
Company unless such person shall have ceased to be employed by the Company for a
period of at least one (1) year.
5.2. Reasonableness of Restrictions. It is expressly understood and agreed that
(a) although Executive and the Company consider the restrictions contained in
this Article 5 to be reasonable, if a final judicial determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Article 5 is unenforceable, such restriction shall
not be rendered void but shall be deemed to be enforceable to such maximum
extent as such court may judicially determine or indicate to be enforceable and
(b) if any restriction contained in this Agreement is determined to be
unenforceable and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
5.3. Remedies for Breach. Executive acknowledges and agrees that the Company's
remedies at law for a breach or threatened breach of any of the provisions of
this Section 5 would be inadequate and, in recognition of this fact, Executive
agrees that, in the event of such a breach or threatened breach, in addition to
any remedies at law, the Company, without posting any bond, shall be entitled to
obtain equitable relief in the form of specific performance, temporary
restraining orders, temporary or permanent injunctions or any other equitable
remedy which may then be available. Notwithstanding any provision of this
Agreement to the contrary, upon the occurrence of any breach of Section 5.1, if
Executive is employed by the Company, the Company may immediately terminate the
employment of Executive for Cause in accordance with Section 4.1.3, and, whether
or not Executive is employed by the Company, the Company shall immediately cease
to have any obligations to make payments to Executive under this Agreement.
5.4. Survivorship. Notwithstanding the termination of this Agreement or
Executive's services hereunder for any reason, this Article 5 shall survive any
such termination.
Article 6. Miscellaneous
6.1. Obligation of Successors. Subject to Section 6.4, any successor to
substantially all of the Company's assets and business, and any successor to
5
substantially all of the assets of the division of the Company in which
Executive is employed, whether by merger, consolidation, purchase of assets or
otherwise, shall succeed to the rights and obligations of the Company hereunder.
6.2. Notice. All notices required or permitted hereunder shall be in writing and
deemed effectively given (i) when delivered in person, (ii) on the third
business day after mailing by registered or certified mail, postage prepaid,
(iii) on the next business day after delivery to an air courier for next day
delivery, paid by the sender, or (iv) when sent by telecopy or facsimile
transmission during normal business hours (9:00 a.m. to 5:00 p.m.) where the
recipient is located (or if sent after such hours, as of commencement of the
next business day), followed within twenty-four hours by notification pursuant
to any of the foregoing methods of delivery, in all cases addressed to the other
party hereto as follows:
(a) If to the Company:
Avid Technology, Inc.
Avid Technology Park
One Park West
Tewksbury, MA 01876
Attention: Vice President, Human Resources
Facsimile: (978) 640-0065
(b) If to Executive:
Paul J. Milbury
163 Suffolk Road
Chestnut Hill, MA 02467
or at such other address or addresses as either party shall designate to the
other in accordance with this Section 6.2.
6.3. Survivorship. The respective rights and obligations of the parties under
this Agreement shall survive any termination of Executive's employment to the
extent necessary to the intended preservation of such rights and obligations.
6.4. Complete Agreement; Amendments. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any and all prior agreements between the parties with respect to the
subject matter hereof, except for the Change in Control Agreement between
Executive and the Company dated July 24, 2002, as it may be amended from time to
time (the "Change in Control Agreement"). This Agreement shall terminate upon
the occurrence of a Change in Control (as defined in the Change in Control
Agreement) during the term of the Change in Control Agreement. It may not be
modified or amended except upon written amendment approved by the Company's
Chief Executive Officer and executed by a duly authorized officer of the Company
and by Executive.
6.5. Applicable Law. This Agreement shall be interpreted in accordance with the
laws of the Commonwealth of Massachusetts and the parties hereby submit to the
jurisdiction of the courts of that state.
6
6.6. Severability. If any one or more of the provisions of this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
it shall not affect any other term or provision of this Agreement. If any
provision in this Agreement shall be held to be excessively broad, it shall be
construed by limiting it so as to be enforceable to the extent compatible with
applicable law.
6.7. Binding Effect. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
legal representatives, successors, assigns and personal representatives, except
that the duties, responsibilities and rights of Executive under this Agreement
are of a personal nature and shall not be assignable or delegatable in whole or
in part by Executive, except to the extent that the rights of Executive
hereunder may be enforceable by his heirs, executors, administrators or legal
representatives.
6.8. Captions. Captions of sections have been added only for convenience and
shall not be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Agreement as of the date first above written.
Avid Technology, Inc.
By: /s/ David A. Krall
--------------------------------
David A. Krall
Chief Executive Officer
/s/ Paul J. Milbury
-----------------------------------
Paul J. Milbury, individually
7
EXECUTIVE EMPLOYMENT AGREEMENT
AVID TECHNOLOGY, INC.
This Employment Agreement ("Agreement") is entered into as of July 24,
2002 (the "Effective Date") between Avid Technology, Inc., a Delaware
corporation with its principal executive offices at Avid Technology Park,
Tewksbury, Massachusetts (the "Company"), and Michael Rockwell ("Executive") of
50 Hidden Road, Andover, Massachusetts 01810.
Article 1. Services
1.1. Service. During the Term (as defined below), the Company shall retain the
services of Executive to serve as an executive of the Company and the Executive
shall devote his time and render services to the Company upon the terms and
conditions set forth below.
1.2. Duties. During the Term, Executive agrees to perform such executive duties
consistent with his position as may be assigned to him from time to time by the
Chief Executive Officer or the Board of Directors and to devote his full working
time and attention to such duties.
1.3. No Conflicting Commitments. During the Term, Executive will not undertake
any commitments, engage or have an interest in any outside business activities
or enter into any consulting agreements which, in the opinion of the Company,
conflict with the Company's interests or which might impair the performance of
Executive's duties as a full time employee of the Company.
Article 2. Term
2.1. Term. Subject to earlier termination pursuant to the provisions of this
Agreement, the term of this Agreement (the "Term") shall commence on the
Effective Date and shall continue until terminated by either the Company or the
Executive upon at least 12 months' written notice to the other, provided such
notice may not be given by the Company prior to 24 months after the Effective
Date. Unless the services of the Executive have terminated prior to or upon the
end of the Term in accordance with the provisions of this Agreement, from and
after the end of the Term, the Executive shall be an employee-at-will.
Article 3. Payments
3.1. Base Compensation. The Company shall pay to Executive a base salary (the
"Base Salary") of $250,000 per annum, payable in regular installments in
accordance with the Company's usual payment practices. The Base Salary shall be
reviewed by the Board of Director's Compensation Committee during the term of
this Agreement and adjusted accordingly at the discretion of the Compensation
Committee.
3.2. Incentive Payments. During the time Executive is an employee of the Company
he shall be entitled to participate, at the sole discretion of the Board of
Directors, in any cash incentive payment or bonus plan established by the
Company for its executive officers, as such plan is amended from time to time.
3.3. Fringe Benefits. During the time Executive is an employee hereunder, in
addition to Executive's Base Salary and incentive payments or bonuses, if any,
the Company shall provide Executive and his dependents medical insurance and
such other benefits as are generally made available by the Company to its
full-time executive employees, as amended from time to time.
3.4. Participation in Equity Incentive Plans. Executive shall be entitled to
participate in the Company's stock option plans during the Term to the extent
and in the manner determined by the Company's Board of Directors in its absolute
discretion.
Article 4. Termination
4.1. Termination. Executive's employment hereunder shall terminate immediately
upon the occurrence of any of the following events:
4.1.1. Executive's death;
4.1.2. Executive's Disability (as defined below);
4.1.3. The termination of Executive's services hereunder by the Company
for Cause (as defined below), to be effective immediately upon delivery of
notice thereof;
4.1.4. The termination of Executive's services hereunder by the Company,
without Cause and not as a result of Executive's death or Disability, to be
effective immediately upon delivery of notice thereof; or
4.1.5. The termination of Executive's services hereunder by Executive
without Good Reason (as defined below) to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
4.1.6. The termination of Executive's services hereunder by Executive
with Good Reason (as defined below), to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
"Cause" shall mean (i) Executive's material failure to perform (other
than by reason of death or Disability) his duties and responsibilities as
assigned by the Chief Executive Officer or Board in accordance with Section 1.2
above, which is not remedied after thirty (30) days' written notice from the
Company (if such failure is susceptible to cure), (ii) a breach of any of the
provisions of this Agreement or the invention and non-disclosure agreement
between the Executive and the Company, which is not cured after ten (10) days'
written notice from the Company (if such breach is susceptible to cure), (iii) a
serious and material violation of Company policy (for purposes of this clause
any violation of the Company's Conflict of Interest policy shall be deemed
serious and material), which is not cured after ten (10) days' written notice
from the Company (if such breach is susceptible to cure), (iv) fraud,
embezzlement or other material dishonesty with respect to the Company, or (v)
commission of a felony or any other crime involving fraud, dishonesty or moral
turpitude. Notwithstanding the foregoing, "Cause" shall not include any failure
to achieve results as a result of factors or events beyond the reasonable
control of the Executive.
2
"Disability" shall mean the Executive's absence from the full-time
performance of his duties with the Company for 9 months as a result of
incapacity due to mental or physical illness, as a result of which the Executive
is deemed "disabled" by the institution appointed by the Company to administer
its long-term disability plan (or any successor plan).
"Good Reason" shall mean (i) a material reduction in the nature of
Executive's duties or the scope of Executive's responsibility from those in
effect on the date of this Agreement, without Executive's express written
consent; (ii) a reduction in Executive's Base Salary as in effect on the date
hereof or as the same may be increased from time to time, without Executive's
express written consent, other than a reduction which is part of an
across-the-board proportionate reduction in the salaries of all senior
executives of the Company imposed because the Company is experiencing financial
hardship (provided such reduction is not more than 20% and does not continue for
more than 12 months); (iii) the Company's requiring Executive to be based
anywhere other than within fifty (50) miles of Employee's office location as in
effect on the date hereof, without Executive's express written consent; and (iv)
any material breach of this Agreement by the Company; provided, however, that a
termination for Good Reason by Executive can only occur only (i) if Executive
has given the Company a notice of intent to terminate for Good Reason at least
ten (10) days before giving the termination notice described in Section 4.1.6
above and the Company has not cured the cause for Good Reason within that ten
(10) day period, and (ii) such notice is given within 90 days after the
occurrence of the event giving rise to Good Reason.
4.2. Adjustments Upon Termination.
4.2.1. If Executive's services to the Company terminate pursuant to
Sections 4.1.1 or 4.1.2 hereof, (a) the Company shall continue to make payments
to Executive or Executive's heirs, successors or legal representatives, as the
case may be, in accordance with Section 3.1 hereof until twelve (12) months
after the date of such death or Disability (less the amount of any payments
made to the Executive under any long-term disability plan of the Company) and
(b) 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
Executive as of the date of death or Disability 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 death or Disability. The Company shall
have no other liability or obligation under this Agreement to Executive's
executors, legal representatives, administrators, heirs or assigns or any other
person claiming under or through Executive.
4.2.2. If Executive's services to the Company terminate pursuant to
Section 4.1.3 or 4.1.5 hereof, (a) all payments and benefits provided to
Executive under this Agreement shall cease as of the effective date of such
termination, except that Executive shall be entitled to any amounts earned,
accrued or owing but not yet paid under Section 3.1 above and any benefits due
3
in accordance with the terms of any applicable benefits plans and programs of
the Company and (b) all vesting of all stock options then held by the Executive
shall immediately cease as of the date of such termination.
4.2.3. If Executive's services to the Company terminate pursuant to
Section 4.1.4 or 4.1.6 hereof, (a) the Company shall continue to make payments
to Executive in accordance with Section 3.1 hereof until twelve (12) months
after the effective date of such termination (the "Severance Pay Period"), (b)
the Company shall pay Executive incentive compensation for the year in which the
Termination occurred, in the amount of Executive's target award multiplied by
the applicable actual plan payout factor and pro rated by the number of months
Executive is employed by the Company during the year of Termination; the bonus
will be paid in a lump sum on or about the date on which the Company pays
bonuses to senior executives who remain employed with the Company, (c) the
Company shall continue to provide Executive with benefits in accordance with
Section 3.3 hereof throughout the Severance Pay Period, (d) the Company shall
provide Executive with outplacement benefits in accordance with the Company's
then-current executive outplacement program, and (e) 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 Executive 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; provided, however, that in order to be eligible to receive any of
the salary or benefits under this Section 4.2.3, Executive shall be required to
sign a general release of claims against the Company, excluding any claims
concerning the Company's obligations under this Agreement. 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. No other payments or benefits shall be due under this
Agreement to Executive, but Executive shall be entitled to any benefits accrued
or earned in accordance with the terms of any applicable benefit plans and
programs of the Company.
Article 5. Non-Competition and Non-Solicitation
5.1. Non-Competition and Non-Solicitation. Executive acknowledges and recognizes
the highly competitive nature of the businesses of the Company and accordingly
agrees that during the Term and for a period of one (1) year after the effective
date of termination of Executive's employment hereunder:
5.1.1. Executive will not engage in any activity which is competitive
with any business which is now, or is at any time during Executive's employment
with the Company, conducted by the Company, including without limitation
becoming an employee, investor (except for passive investments of not more than
one percent (1%) of the outstanding shares of, or any other equity interest in,
a company or entity listed or traded on a national securities exchange or in an
over-the-counter securities market), officer, agent, partner or director of, or
other participant in, any firm, person or other entity in any geographic area
that competes or plans to compete with the Company in the business of the
development, manufacture, promotion, distribution or sale of digital film, video
4
or audio editing, special effects, 3D or newsroom automation systems or products
or other business in which the Company is engaged or plans to engage at the time
of Executive's termination. Without limiting the foregoing, the parties agree
that the following businesses are, as of the date of this Agreement, competitive
with the Company: Adobe, Apple, Autodesk/Discreet Logic, Euphonics, Fairlight,
Mackie, Media 100, MOTU, Newtek, Pinnacle Systems, Quantel, SGI/Alias Wavefront,
Sony, Steinberg, Thomson/The Grass Valley Group, and all subsidiaries and
affiliates of the foregoing companies.
5.1.2. Executive will not directly or indirectly assist others in
engaging in any of the activities in which Executive is prohibited to engage by
Section 5.1.1 above.
5.1.3. Executive will not directly or indirectly (a) induce any employee
of the Company to engage in any activity in which Executive is prohibited from
engaging by Section 5.1.1 above or to terminate his or her employment with the
Company, or (b) employ or offer employment to any person who was employed by the
Company unless such person shall have ceased to be employed by the Company for a
period of at least one (1) year.
5.2. Reasonableness of Restrictions. It is expressly understood and agreed that
(a) although Executive and the Company consider the restrictions contained in
this Article 5 to be reasonable, if a final judicial determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Article 5 is unenforceable, such restriction shall
not be rendered void but shall be deemed to be enforceable to such maximum
extent as such court may judicially determine or indicate to be enforceable and
(b) if any restriction contained in this Agreement is determined to be
unenforceable and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
5.3. Remedies for Breach. Executive acknowledges and agrees that the Company's
remedies at law for a breach or threatened breach of any of the provisions of
this Section 5 would be inadequate and, in recognition of this fact, Executive
agrees that, in the event of such a breach or threatened breach, in addition to
any remedies at law, the Company, without posting any bond, shall be entitled to
obtain equitable relief in the form of specific performance, temporary
restraining orders, temporary or permanent injunctions or any other equitable
remedy which may then be available. Notwithstanding any provision of this
Agreement to the contrary, upon the occurrence of any breach of Section 5.1, if
Executive is employed by the Company, the Company may immediately terminate the
employment of Executive for Cause in accordance with Section 4.1.3, and, whether
or not Executive is employed by the Company, the Company shall immediately cease
to have any obligations to make payments to Executive under this Agreement.
5.4. Survivorship. Notwithstanding the termination of this Agreement or
Executive's services hereunder for any reason, this Article 5 shall survive any
such termination.
Article 6. Miscellaneous
6.1. Obligation of Successors. Subject to Section 6.4, any successor to
substantially all of the Company's assets and business, and any successor to
5
substantially all of the assets of the division of the Company in which
Executive is employed, whether by merger, consolidation, purchase of assets or
otherwise, shall succeed to the rights and obligations of the Company hereunder.
6.2. Notice. All notices required or permitted hereunder shall be in writing and
deemed effectively given (i) when delivered in person, (ii) on the third
business day after mailing by registered or certified mail, postage prepaid,
(iii) on the next business day after delivery to an air courier for next day
delivery, paid by the sender, or (iv) when sent by telecopy or facsimile
transmission during normal business hours (9:00 a.m. to 5:00 p.m.) where the
recipient is located (or if sent after such hours, as of commencement of the
next business day), followed within twenty-four hours by notification pursuant
to any of the foregoing methods of delivery, in all cases addressed to the other
party hereto as follows:
(a) If to the Company:
Avid Technology, Inc.
Avid Technology Park
One Park West
Tewksbury, MA 01876
Attention: Vice President, Human Resources
Facsimile: (978) 640-0065
(b) If to Executive:
Michael Rockwell
50 Hidden Road
Andover, MA 01810
or at such other address or addresses as either party shall designate to the
other in accordance with this Section 6.2.
6.3. Survivorship. The respective rights and obligations of the parties under
this Agreement shall survive any termination of Executive's employment to the
extent necessary to the intended preservation of such rights and obligations.
6.4. Complete Agreement; Amendments. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any and all prior agreements between the parties with respect to the
subject matter hereof, except for the Change in Control Agreement between
Executive and the Company dated July 24, 2002, as it may be amended from time to
time (the "Change in Control Agreement"). This Agreement shall terminate upon
the occurrence of a Change in Control (as defined in the Change in Control
Agreement) during the term of the Change in Control Agreement. It may not be
modified or amended except upon written amendment approved by the Company's
Chief Executive Officer and executed by a duly authorized officer of the Company
and by Executive.
6.5. Applicable Law. This Agreement shall be interpreted in accordance with the
laws of the Commonwealth of Massachusetts and the parties hereby submit to the
jurisdiction of the courts of that state.
6
6.6. Severability. If any one or more of the provisions of this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
it shall not affect any other term or provision of this Agreement. If any
provision in this Agreement shall be held to be excessively broad, it shall be
construed by limiting it so as to be enforceable to the extent compatible with
applicable law.
6.7. Binding Effect. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
legal representatives, successors, assigns and personal representatives, except
that the duties, responsibilities and rights of Executive under this Agreement
are of a personal nature and shall not be assignable or delegatable in whole or
in part by Executive, except to the extent that the rights of Executive
hereunder may be enforceable by his heirs, executors, administrators or legal
representatives.
6.8. Captions. Captions of sections have been added only for convenience and
shall not be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Agreement as of the date first above written.
Avid Technology, Inc.
By: /s/ David A. Krall
-------------------------------
David A. Krall
Chief Executive Officer
/s/ Michael Rockwell
----------------------------------
Michael Rockwell, individually
7
EXECUTIVE EMPLOYMENT AGREEMENT
AVID TECHNOLOGY, INC.
This Employment Agreement ("Agreement") is entered into as of July 24,
2002 (the "Effective Date") between Avid Technology, Inc., a Delaware
corporation with its principal executive offices at Avid Technology Park,
Tewksbury, Massachusetts (the "Company"), and Ann C. Smith ("Executive") of 59
Wild Road Drive, Andover, Massachusetts 01810.
Article 1. Services
1.1. Service. During the Term (as defined below), the Company shall retain the
services of Executive to serve as an executive of the Company and the Executive
shall devote his time and render services to the Company upon the terms and
conditions set forth below.
1.2. Duties. During the Term, Executive agrees to perform such executive duties
consistent with his position as may be assigned to him from time to time by the
Chief Executive Officer or the Board of Directors and to devote his full working
time and attention to such duties.
1.3. No Conflicting Commitments. During the Term, Executive will not undertake
any commitments, engage or have an interest in any outside business activities
or enter into any consulting agreements which, in the opinion of the Company,
conflict with the Company's interests or which might impair the performance of
Executive's duties as a full time employee of the Company.
Article 2. Term
2.1. Term. Subject to earlier termination pursuant to the provisions of this
Agreement, the term of this Agreement (the "Term") shall commence on the
Effective Date and shall continue until terminated by either the Company or the
Executive upon at least 12 months' written notice to the other, provided such
notice may not be given by the Company prior to 24 months after the Effective
Date. Unless the services of the Executive have terminated prior to or upon the
end of the Term in accordance with the provisions of this Agreement, from and
after the end of the Term, the Executive shall be an employee-at-will.
Article 3. Payments
3.1. Base Compensation. The Company shall pay to Executive a base salary (the
"Base Salary") of $225,000 per annum, payable in regular installments in
accordance with the Company's usual payment practices. The Base Salary shall be
reviewed by the Board of Director's Compensation Committee during the term of
this Agreement and adjusted accordingly at the discretion of the Compensation
Committee.
3.2. Incentive Payments. During the time Executive is an employee of the Company
he shall be entitled to participate, at the sole discretion of the Board of
Directors, in any cash incentive payment or bonus plan established by the
Company for its executive officers, as such plan is amended from time to time.
3.3. Fringe Benefits. During the time Executive is an employee hereunder, in
addition to Executive's Base Salary and incentive payments or bonuses, if any,
the Company shall provide Executive and his dependents medical insurance and
such other benefits as are generally made available by the Company to its
full-time executive employees, as amended from time to time.
3.4. Participation in Equity Incentive Plans. Executive shall be entitled to
participate in the Company's stock option plans during the Term to the extent
and in the manner determined by the Company's Board of Directors in its absolute
discretion.
Article 4. Termination
4.1. Termination. Executive's employment hereunder shall terminate immediately
upon the occurrence of any of the following events:
4.1.1. Executive's death;
4.1.2. Executive's Disability (as defined below);
4.1.3. The termination of Executive's services hereunder by the Company
for Cause (as defined below), to be effective immediately upon delivery of
notice thereof;
4.1.4. The termination of Executive's services hereunder by the Company,
without Cause and not as a result of Executive's death or Disability, to be
effective immediately upon delivery of notice thereof; or
4.1.5. The termination of Executive's services hereunder by Executive
without Good Reason (as defined below) to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
4.1.6. The termination of Executive's services hereunder by Executive
with Good Reason (as defined below), to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
"Cause" shall mean (i) Executive's material failure to perform (other
than by reason of death or Disability) his duties and responsibilities as
assigned by the Chief Executive Officer or Board in accordance with Section 1.2
above, which is not remedied after thirty (30) days' written notice from the
Company (if such failure is susceptible to cure), (ii) a breach of any of the
provisions of this Agreement or the invention and non-disclosure agreement
between the Executive and the Company, which is not cured after ten (10) days'
written notice from the Company (if such breach is susceptible to cure), (iii) a
serious and material violation of Company policy (for purposes of this clause
any violation of the Company's Conflict of Interest policy shall be deemed
serious and material), which is not cured after ten (10) days' written notice
from the Company (if such breach is susceptible to cure), (iv) fraud,
embezzlement or other material dishonesty with respect to the Company, or (v)
commission of a felony or any other crime involving fraud, dishonesty or moral
turpitude. Notwithstanding the foregoing, "Cause" shall not include any failure
to achieve results as a result of factors or events beyond the reasonable
control of the Executive.
2
"Disability" shall mean the Executive's absence from the full-time
performance of his duties with the Company for 9 months as a result of
incapacity due to mental or physical illness, as a result of which the Executive
is deemed "disabled" by the institution appointed by the Company to administer
its long-term disability plan (or any successor plan).
"Good Reason" shall mean (i) a material reduction in the nature of
Executive's duties or the scope of Executive's responsibility from those in
effect on the date of this Agreement, without Executive's express written
consent; (ii) a reduction in Executive's Base Salary as in effect on the date
hereof or as the same may be increased from time to time, without Executive's
express written consent, other than a reduction which is part of an
across-the-board proportionate reduction in the salaries of all senior
executives of the Company imposed because the Company is experiencing financial
hardship (provided such reduction is not more than 20% and does not continue for
more than 12 months); (iii) the Company's requiring Executive to be based
anywhere other than within fifty (50) miles of Employee's office location as in
effect on the date hereof, without Executive's express written consent; and (iv)
any material breach of this Agreement by the Company; provided, however, that a
termination for Good Reason by Executive can only occur only (i) if Executive
has given the Company a notice of intent to terminate for Good Reason at least
ten (10) days before giving the termination notice described in Section 4.1.6
above and the Company has not cured the cause for Good Reason within that ten
(10) day period, and (ii) such notice is given within 90 days after the
occurrence of the event giving rise to Good Reason.
4.2. Adjustments Upon Termination.
4.2.1. If Executive's services to the Company terminate pursuant to
Sections 4.1.1 or 4.1.2 hereof, (a) the Company shall continue to make payments
to Executive or Executive's heirs, successors or legal representatives, as the
case may be, in accordance with Section 3.1 hereof until twelve (12) months
after the date of such death or Disability (less the amount of any payments made
to the Executive under any long-term disability plan of the Company) and (b)
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 Executive as
of the date of death or Disability 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 death or Disability. The Company shall have no other
liability or obligation under this Agreement to Executive's executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through Executive.
4.2.2. If Executive's services to the Company terminate pursuant to
Section 4.1.3 or 4.1.5 hereof, (a) all payments and benefits provided to
Executive under this Agreement shall cease as of the effective date of such
termination, except that Executive shall be entitled to any amounts earned,
accrued or owing but not yet paid under Section 3.1 above and any benefits due
3
in accordance with the terms of any applicable benefits plans and programs of
the Company and (b) all vesting of all stock options then held by the Executive
shall immediately cease as of the date of such termination.
4.2.3. If Executive's services to the Company terminate pursuant to
Section 4.1.4 or 4.1.6 hereof, (a) the Company shall continue to make payments
to Executive in accordance with Section 3.1 hereof until twelve (12) months
after the effective date of such termination (the "Severance Pay Period"), (b)
the Company shall pay Executive incentive compensation for the year in which the
Termination occurred, in the amount of Executive's target award multiplied by
the applicable actual plan payout factor and pro rated by the number of months
Executive is employed by the Company during the year of Termination; the bonus
will be paid in a lump sum on or about the date on which the Company pays
bonuses to senior executives who remain employed with the Company, (c) the
Company shall continue to provide Executive with benefits in accordance with
Section 3.3 hereof throughout the Severance Pay Period, (d) the Company shall
provide Executive with outplacement benefits in accordance with the Company's
then-current executive outplacement program, and (e) 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 Executive 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; provided, however, that in order to be eligible to receive any of
the salary or benefits under this Section 4.2.3, Executive shall be required to
sign a general release of claims against the Company, excluding any claims
concerning the Company's obligations under this Agreement. 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. No other payments or benefits shall be due under this
Agreement to Executive, but Executive shall be entitled to any benefits accrued
or earned in accordance with the terms of any applicable benefit plans and
programs of the Company.
Article 5. Non-Competition and Non-Solicitation
5.1. Non-Competition and Non-Solicitation. Executive acknowledges and recognizes
the highly competitive nature of the businesses of the Company and accordingly
agrees that during the Term and for a period of one (1) year after the effective
date of termination of Executive's employment hereunder:
5.1.1. Executive will not engage in any activity which is competitive
with any business which is now, or is at any time during Executive's employment
with the Company, conducted by the Company, including without limitation
becoming an employee, investor (except for passive investments of not more than
one percent (1%) of the outstanding shares of, or any other equity interest in,
a company or entity listed or traded on a national securities exchange or in an
over-the-counter securities market), officer, agent, partner or director of, or
other participant in, any firm, person or other entity in any geographic area
that competes or plans to compete with the Company in the business of the
development, manufacture, promotion, distribution or sale of digital film, video
4
or audio editing, special effects, 3D or newsroom automation systems or products
or other business in which the Company is engaged or plans to engage at the time
of Executive's termination. Without limiting the foregoing, the parties agree
that the following businesses are, as of the date of this Agreement, competitive
with the Company: Adobe, Apple, Autodesk/Discreet Logic, Euphonics, Fairlight,
Mackie, Media 100, MOTU, Newtek, Pinnacle Systems, Quantel, SGI/Alias Wavefront,
Sony, Steinberg, Thomson/The Grass Valley Group, and all subsidiaries and
affiliates of the foregoing companies.
5.1.2. Executive will not directly or indirectly assist others in
engaging in any of the activities in which Executive is prohibited to engage by
Section 5.1.1 above.
5.1.3. Executive will not directly or indirectly (a) induce any employee
of the Company to engage in any activity in which Executive is prohibited from
engaging by Section 5.1.1 above or to terminate his or her employment with the
Company, or (b) employ or offer employment to any person who was employed by the
Company unless such person shall have ceased to be employed by the Company for a
period of at least one (1) year.
5.2. Reasonableness of Restrictions. It is expressly understood and agreed that
(a) although Executive and the Company consider the restrictions contained in
this Article 5 to be reasonable, if a final judicial determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Article 5 is unenforceable, such restriction shall
not be rendered void but shall be deemed to be enforceable to such maximum
extent as such court may judicially determine or indicate to be enforceable and
(b) if any restriction contained in this Agreement is determined to be
unenforceable and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
5.3. Remedies for Breach. Executive acknowledges and agrees that the Company's
remedies at law for a breach or threatened breach of any of the provisions of
this Section 5 would be inadequate and, in recognition of this fact, Executive
agrees that, in the event of such a breach or threatened breach, in addition to
any remedies at law, the Company, without posting any bond, shall be entitled to
obtain equitable relief in the form of specific performance, temporary
restraining orders, temporary or permanent injunctions or any other equitable
remedy which may then be available. Notwithstanding any provision of this
Agreement to the contrary, upon the occurrence of any breach of Section 5.1, if
Executive is employed by the Company, the Company may immediately terminate the
employment of Executive for Cause in accordance with Section 4.1.3, and, whether
or not Executive is employed by the Company, the Company shall immediately cease
to have any obligations to make payments to Executive under this Agreement.
5.4. Survivorship. Notwithstanding the termination of this Agreement or
Executive's services hereunder for any reason, this Article 5 shall survive any
such termination.
Article 6. Miscellaneous
6.1. Obligation of Successors. Subject to Section 6.4, any successor to
substantially all of the Company's assets and business, and any successor to
5
substantially all of the assets of the division of the Company in which
Executive is employed, whether by merger, consolidation, purchase of assets or
otherwise, shall succeed to the rights and obligations of the Company hereunder.
6.2. Notice. All notices required or permitted hereunder shall be in writing and
deemed effectively given (i) when delivered in person, (ii) on the third
business day after mailing by registered or certified mail, postage prepaid,
(iii) on the next business day after delivery to an air courier for next day
delivery, paid by the sender, or (iv) when sent by telecopy or facsimile
transmission during normal business hours (9:00 a.m. to 5:00 p.m.) where the
recipient is located (or if sent after such hours, as of commencement of the
next business day), followed within twenty-four hours by notification pursuant
to any of the foregoing methods of delivery, in all cases addressed to the other
party hereto as follows:
(a) If to the Company:
Avid Technology, Inc.
Avid Technology Park
One Park West
Tewksbury, MA 01876
Attention: Vice President, Human Resources
Facsimile: (978) 640-0065
(b) If to Executive:
Ann C. Smith
59 Wild Rose Drive
Andover, MA 01810
or at such other address or addresses as either party shall designate to the
other in accordance with this Section 6.2.
6.3. Survivorship. The respective rights and obligations of the parties under
this Agreement shall survive any termination of Executive's employment to the
extent necessary to the intended preservation of such rights and obligations.
6.4. Complete Agreement; Amendments. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any and all prior agreements between the parties with respect to the
subject matter hereof, except for the Change in Control Agreement between
Executive and the Company dated July 24, 2002, as it may be amended from time to
time (the "Change in Control Agreement"). This Agreement shall terminate upon
the occurrence of a Change in Control (as defined in the Change in Control
Agreement) during the term of the Change in Control Agreement. It may not be
modified or amended except upon written amendment approved by the Company's
Chief Executive Officer and executed by a duly authorized officer of the Company
and by Executive.
6.5. Applicable Law. This Agreement shall be interpreted in accordance with the
laws of the Commonwealth of Massachusetts and the parties hereby submit to the
jurisdiction of the courts of that state.
6
6.6. Severability. If any one or more of the provisions of this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
it shall not affect any other term or provision of this Agreement. If any
provision in this Agreement shall be held to be excessively broad, it shall be
construed by limiting it so as to be enforceable to the extent compatible with
applicable law.
6.7. Binding Effect. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
legal representatives, successors, assigns and personal representatives, except
that the duties, responsibilities and rights of Executive under this Agreement
are of a personal nature and shall not be assignable or delegatable in whole or
in part by Executive, except to the extent that the rights of Executive
hereunder may be enforceable by his heirs, executors, administrators or legal
representatives.
6.8. Captions. Captions of sections have been added only for convenience and
shall not be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Agreement as of the date first above written.
Avid Technology, Inc.
By: /s/ David A. Krall
--------------------------------
David A. Krall
Chief Executive Officer
/s/ Ann C. Smith
-----------------------------------
Ann C. Smith, individually
7
EXECUTIVE EMPLOYMENT AGREEMENT
AVID TECHNOLOGY, INC.
This Employment Agreement ("Agreement") is entered into as of July 24,
2002 (the "Effective Date") between Avid Technology, Inc., a Delaware
corporation with its principal executive offices at Avid Technology Park,
Tewksbury, Massachusetts (the "Company"), and Charles L. Smith ("Executive") of
7 Porter Road, Andover, Massachusetts 01810.
Article 1. Services
1.1. Service. During the Term (as defined below), the Company shall retain the
services of Executive to serve as an executive of the Company and the Executive
shall devote his time and render services to the Company upon the terms and
conditions set forth below.
1.2. Duties. During the Term, Executive agrees to perform such executive duties
consistent with his position as may be assigned to him from time to time by the
Chief Executive Officer or the Board of Directors and to devote his full working
time and attention to such duties.
1.3. No Conflicting Commitments. During the Term, Executive will not undertake
any commitments, engage or have an interest in any outside business activities
or enter into any consulting agreements which, in the opinion of the Company,
conflict with the Company's interests or which might impair the performance of
Executive's duties as a full time employee of the Company.
Article 2. Term
2.1. Term. Subject to earlier termination pursuant to the provisions of this
Agreement, the term of this Agreement (the "Term") shall commence on the
Effective Date and shall continue until terminated by either the Company or the
Executive upon at least 12 months' written notice to the other, provided such
notice may not be given by the Company prior to 24 months after the Effective
Date. Unless the services of the Executive have terminated prior to or upon the
end of the Term in accordance with the provisions of this Agreement, from and
after the end of the Term, the Executive shall be an employee-at-will.
Article 3. Payments
3.1. Base Compensation. The Company shall pay to Executive a base salary (the
"Base Salary") of $300,000 per annum, payable in regular installments in
accordance with the Company's usual payment practices. The Base Salary shall be
reviewed by the Board of Director's Compensation Committee during the term of
this Agreement and adjusted accordingly at the discretion of the Compensation
Committee.
3.2. Incentive Payments. During the time Executive is an employee of the Company
he shall be entitled to participate, at the sole discretion of the Board of
Directors, in any cash incentive payment or bonus plan established by the
Company for its executive officers, as such plan is amended from time to time.
3.3. Fringe Benefits. During the time Executive is an employee hereunder, in
addition to Executive's Base Salary and incentive payments or bonuses, if any,
the Company shall provide Executive and his dependents medical insurance and
such other benefits as are generally made available by the Company to its
full-time executive employees, as amended from time to time.
3.4. Participation in Equity Incentive Plans. Executive shall be entitled to
participate in the Company's stock option plans during the Term to the extent
and in the manner determined by the Company's Board of Directors in its absolute
discretion.
Article 4. Termination
4.1. Termination. Executive's employment hereunder shall terminate immediately
upon the occurrence of any of the following events:
4.1.1. Executive's death;
4.1.2. Executive's Disability (as defined below);
4.1.3. The termination of Executive's services hereunder by the Company
for Cause (as defined below), to be effective immediately upon delivery of
notice thereof;
4.1.4. The termination of Executive's services hereunder by the Company,
without Cause and not as a result of Executive's death or Disability, to be
effective immediately upon delivery of notice thereof; or
4.1.5. The termination of Executive's services hereunder by Executive
without Good Reason (as defined below) to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
4.1.6. The termination of Executive's services hereunder by Executive
with Good Reason (as defined below), to be effective thirty (30) days after
Executive delivers prior written notice thereof from Executive to the Company.
"Cause" shall mean (i) Executive's material failure to perform (other
than by reason of death or Disability) his duties and responsibilities as
assigned by the Chief Executive Officer or Board in accordance with Section 1.2
above, which is not remedied after thirty (30) days' written notice from the
Company (if such failure is susceptible to cure), (ii) a breach of any of the
provisions of this Agreement or the invention and non-disclosure agreement
between the Executive and the Company, which is not cured after ten (10) days'
written notice from the Company (if such breach is susceptible to cure), (iii) a
serious and material violation of Company policy (for purposes of this clause
any violation of the Company's Conflict of Interest policy shall be deemed
serious and material), which is not cured after ten (10) days' written notice
from the Company (if such breach is susceptible to cure), (iv) fraud,
embezzlement or other material dishonesty with respect to the Company, or (v)
commission of a felony or any other crime involving fraud, dishonesty or moral
turpitude. Notwithstanding the foregoing, "Cause" shall not include any failure
to achieve results as a result of factors or events beyond the reasonable
control of the Executive.
2
"Disability" shall mean the Executive's absence from the full-time
performance of his duties with the Company for 9 months as a result of
incapacity due to mental or physical illness, as a result of which the Executive
is deemed "disabled" by the institution appointed by the Company to administer
its long-term disability plan (or any successor plan).
"Good Reason" shall mean (i) a material reduction in the nature of
Executive's duties or the scope of Executive's responsibility from those in
effect on the date of this Agreement, without Executive's express written
consent; (ii) a reduction in Executive's Base Salary as in effect on the date
hereof or as the same may be increased from time to time, without Executive's
express written consent, other than a reduction which is part of an
across-the-board proportionate reduction in the salaries of all senior
executives of the Company imposed because the Company is experiencing financial
hardship (provided such reduction is not more than 20% and does not continue for
more than 12 months); (iii) the Company's requiring Executive to be based
anywhere other than within fifty (50) miles of Employee's office location as in
effect on the date hereof, without Executive's express written consent; and (iv)
any material breach of this Agreement by the Company; provided, however, that a
termination for Good Reason by Executive can only occur only (i) if Executive
has given the Company a notice of intent to terminate for Good Reason at least
ten (10) days before giving the termination notice described in Section 4.1.6
above and the Company has not cured the cause for Good Reason within that ten
(10) day period, and (ii) such notice is given within 90 days after the
occurrence of the event giving rise to Good Reason.
4.2. Adjustments Upon Termination.
4.2.1. If Executive's services to the Company terminate pursuant to
Sections 4.1.1 or 4.1.2 hereof, (a) the Company shall continue to make payments
to Executive or Executive's heirs, successors or legal representatives, as the
case may be, in accordance with Section 3.1 hereof until twelve (12) months
after the date of such death or Disability (less the amount of any payments made
to the Executive under any long-term disability plan of the Company) and (b)
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 Executive as
of the date of death or Disability 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 death or Disability. The Company shall have no other
liability or obligation under this Agreement to Executive's executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through Executive.
4.2.2. If Executive's services to the Company terminate pursuant to
Section 4.1.3 or 4.1.5 hereof, (a) all payments and benefits provided to
Executive under this Agreement shall cease as of the effective date of such
termination, except that Executive shall be entitled to any amounts earned,
accrued or owing but not yet paid under Section 3.1 above and any benefits due
3
in accordance with the terms of any applicable benefits plans and programs of
the Company and (b) all vesting of all stock options then held by the Executive
shall immediately cease as of the date of such termination.
4.2.3. If Executive's services to the Company terminate pursuant to
Section 4.1.4 or 4.1.6 hereof, (a) the Company shall continue to make payments
to Executive in accordance with Section 3.1 hereof until twelve (12) months
after the effective date of such termination (the "Severance Pay Period"), (b)
the Company shall pay Executive incentive compensation for the year in which the
Termination occurred, in the amount of Executive's target award multiplied by
the applicable actual plan payout factor and pro rated by the number of months
Executive is employed by the Company during the year of Termination; the bonus
will be paid in a lump sum on or about the date on which the Company pays
bonuses to senior executives who remain employed with the Company, (c) the
Company shall continue to provide Executive with benefits in accordance with
Section 3.3 hereof throughout the Severance Pay Period, (d) the Company shall
provide Executive with outplacement benefits in accordance with the Company's
then-current executive outplacement program, and (e) 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 Executive 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; provided, however, that in order to be eligible to receive any of
the salary or benefits under this Section 4.2.3, Executive shall be required to
sign a general release of claims against the Company, excluding any claims
concerning the Company's obligations under this Agreement. 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. No other payments or benefits shall be due under this
Agreement to Executive, but Executive shall be entitled to any benefits accrued
or earned in accordance with the terms of any applicable benefit plans and
programs of the Company.
Article 5. Non-Competition and Non-Solicitation
5.1. Non-Competition and Non-Solicitation. Executive acknowledges and recognizes
the highly competitive nature of the businesses of the Company and accordingly
agrees that during the Term and for a period of one (1) year after the effective
date of termination of Executive's employment hereunder:
5.1.1. Executive will not engage in any activity which is competitive
with any business which is now, or is at any time during Executive's employment
with the Company, conducted by the Company, including without limitation
becoming an employee, investor (except for passive investments of not more than
one percent (1%) of the outstanding shares of, or any other equity interest in,
a company or entity listed or traded on a national securities exchange or in an
over-the-counter securities market), officer, agent, partner or director of, or
other participant in, any firm, person or other entity in any geographic area
that competes or plans to compete with the Company in the business of the
development, manufacture, promotion, distribution or sale of digital film, video
4
or audio editing, special effects, 3D or newsroom automation systems or products
or other business in which the Company is engaged or plans to engage at the time
of Executive's termination. Without limiting the foregoing, the parties agree
that the following businesses are, as of the date of this Agreement, competitive
with the Company: Adobe, Apple, Autodesk/Discreet Logic, Euphonics, Fairlight,
Mackie, Media 100, MOTU, Newtek, Pinnacle Systems, Quantel, SGI/Alias Wavefront,
Sony, Steinberg, Thomson/The Grass Valley Group, and all subsidiaries and
affiliates of the foregoing companies.
5.1.2. Executive will not directly or indirectly assist others in
engaging in any of the activities in which Executive is prohibited to engage by
Section 5.1.1 above.
5.1.3. Executive will not directly or indirectly (a) induce any employee
of the Company to engage in any activity in which Executive is prohibited from
engaging by Section 5.1.1 above or to terminate his or her employment with the
Company, or (b) employ or offer employment to any person who was employed by the
Company unless such person shall have ceased to be employed by the Company for a
period of at least one (1) year.
5.2. Reasonableness of Restrictions. It is expressly understood and agreed that
(a) although Executive and the Company consider the restrictions contained in
this Article 5 to be reasonable, if a final judicial determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Article 5 is unenforceable, such restriction shall
not be rendered void but shall be deemed to be enforceable to such maximum
extent as such court may judicially determine or indicate to be enforceable and
(b) if any restriction contained in this Agreement is determined to be
unenforceable and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
5.3. Remedies for Breach. Executive acknowledges and agrees that the Company's
remedies at law for a breach or threatened breach of any of the provisions of
this Section 5 would be inadequate and, in recognition of this fact, Executive
agrees that, in the event of such a breach or threatened breach, in addition to
any remedies at law, the Company, without posting any bond, shall be entitled to
obtain equitable relief in the form of specific performance, temporary
restraining orders, temporary or permanent injunctions or any other equitable
remedy which may then be available. Notwithstanding any provision of this
Agreement to the contrary, upon the occurrence of any breach of Section 5.1, if
Executive is employed by the Company, the Company may immediately terminate the
employment of Executive for Cause in accordance with Section 4.1.3, and, whether
or not Executive is employed by the Company, the Company shall immediately cease
to have any obligations to make payments to Executive under this Agreement.
5.4. Survivorship. Notwithstanding the termination of this Agreement or
Executive's services hereunder for any reason, this Article 5 shall survive any
such termination.
Article 6. Miscellaneous
6.1. Obligation of Successors. Subject to Section 6.4, any successor to
substantially all of the Company's assets and business, and any successor to
5
substantially all of the assets of the division of the Company in which
Executive is employed, whether by merger, consolidation, purchase of assets or
otherwise, shall succeed to the rights and obligations of the Company hereunder.
6.2. Notice. All notices required or permitted hereunder shall be in writing and
deemed effectively given (i) when delivered in person, (ii) on the third
business day after mailing by registered or certified mail, postage prepaid,
(iii) on the next business day after delivery to an air courier for next day
delivery, paid by the sender, or (iv) when sent by telecopy or facsimile
transmission during normal business hours (9:00 a.m. to 5:00 p.m.) where the
recipient is located (or if sent after such hours, as of commencement of the
next business day), followed within twenty-four hours by notification pursuant
to any of the foregoing methods of delivery, in all cases addressed to the other
party hereto as follows:
(a) If to the Company:
Avid Technology, Inc.
Avid Technology Park
One Park West
Tewksbury, MA 01876
Attention: Vice President, Human Resources
Facsimile: (978) 640-0065
(b) If to Executive:
Charles L. Smith
7 Porter Road
Andover, MA 01810
or at such other address or addresses as either party shall designate to the
other in accordance with this Section 6.2.
6.3. Survivorship. The respective rights and obligations of the parties under
this Agreement shall survive any termination of Executive's employment to the
extent necessary to the intended preservation of such rights and obligations.
6.4. Complete Agreement; Amendments. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any and all prior agreements between the parties with respect to the
subject matter hereof, except for the Change in Control Agreement between
Executive and the Company dated July 24, 2002, as it may be amended from time to
time (the "Change in Control Agreement"). This Agreement shall terminate upon
the occurrence of a Change in Control (as defined in the Change in Control
Agreement) during the term of the Change in Control Agreement. It may not be
modified or amended except upon written amendment approved by the Company's
Chief Executive Officer and executed by a duly authorized officer of the Company
and by Executive.
6.5. Applicable Law. This Agreement shall be interpreted in accordance with the
laws of the Commonwealth of Massachusetts and the parties hereby submit to the
jurisdiction of the courts of that state.
6
6.6. Severability. If any one or more of the provisions of this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
it shall not affect any other term or provision of this Agreement. If any
provision in this Agreement shall be held to be excessively broad, it shall be
construed by limiting it so as to be enforceable to the extent compatible with
applicable law.
6.7. Binding Effect. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
legal representatives, successors, assigns and personal representatives, except
that the duties, responsibilities and rights of Executive under this Agreement
are of a personal nature and shall not be assignable or delegatable in whole or
in part by Executive, except to the extent that the rights of Executive
hereunder may be enforceable by his heirs, executors, administrators or legal
representatives.
6.8. Captions. Captions of sections have been added only for convenience and
shall not be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Agreement as of the date first above written.
Avid Technology, Inc.
By: /s/ David A. Krall
--------------------------------
David A. Krall
Chief Executive Officer
/s/ Charles L. Smith
-----------------------------------
Charles L. Smith, individually
7
Change-in-Control Agreement
Date: July 24, 2002
David A. Krall
Avid Technology, Inc.
Avid 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 future growth and
success of the Company 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)
and (B) 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 40% 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 from 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 a
merger, acquisition or similar 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 actions which if consummated would
constitute a 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 24 months after such Change in Control, by you or by the
Company unless such termination is (a) because of your death, (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 nine (9) 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 Company which specifically identifies the manner in which the Company
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, or
(C) an act by you of fraud, embezzlement or other material dishonesty with
respect to the Company, or
(D) commission of a felony or any other crime involving fraud, dishonesty or
moral turpitude.
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.
(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;
(B) a reduction by the Company in your base salary in effect immediately prior
to a Change in Control of the Company (other than the reduction of up to 5% for
a period of not more than six months which is part of an across the board
proportionate reduction in the salaries of other peer executives of the Company
imposed because the Company is experiencing financial hardship);
(C) the failure by the Company to maintain your participation in any life
insurance, medical, health and accident, disability and vacation plan or policy
of the Company on terms not less favorable than those provided by the Company to
other peer executives of the Company;
(D) the failure by the Company to maintain your participation in a bonus or
incentive plan that provides for an annual target bonus not lower than your
target bonus (at a payout factor of one) for the fiscal year in which the Change
in Control of the Company occurs;
(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 50 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 Disability, 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 you shall receive payment during such period of Disability 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 if 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 no more than 30 days
following the Date of Termination, the following amounts:
(x) the sum of (A) your accrued but unpaid base salary through
the Date of Termination, (B) the product of (x) the greater
of your highest annual bonus earned in the two most recent
full fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs, and
(y) a fraction, the numerator of which is the number of days
in the then current fiscal year through the Date of
Termination, and the denominator of which is 365 and (C) the
amount of any compensation previously deferred by you
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent no
previously paid (the sum of the amounts described in
clauses (A), (B), and (C) shall be hereinafter referred to
as the "Accrued Obligations"); and
(y) the amount equal to one and a half (1.5) times (or, in the
case of death, one (1) times) the sum of your annual base
salary at the highest rate in effect during the 12 months
preceding the Date of Termination and the greater of your
highest annual bonus earned in the two most recent full
fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs.
(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) Notwithstanding anything to the contrary in the applicable stock option or
restricted stock agreement, the exercisability of all outstanding stock options
and restricted stock awards then held by you for the purchase of common stock of
the Company (or securities exchanged for such common stock in connection with
the Change in Control of the Company) shall accelerate in full and you shall be
entitled to exercise any such options until 24 months after the Date of
Termination; 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 11
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 and 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
PricewaterhouseCoopers LLP 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. You shall not pay such claim prior to
the expiration of the 30-day period following the date on which you give 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. COMPETITIVE ACTIVITY.
(i) Unless the Company materially breaches this Agreement, you agree you will
not for a period of one (1) year after termination of your employment with the
Company, engage in any activity which is competitive with any business which is
now, or is at any time during your employment with the Company, conducted by the
Company, including without limitation becoming an employee, investor (except for
passive investments of not more than one percent (1%) of the outstanding shares
of, or any other equity interest in, a company or entity listed or traded on a
national securities exchange or in an over-the-counter securities market),
officer, agent, partner or director of, or other participant in, any firm,
person or other entity in any geographic area that competes or plans to compete
with the Company in the business of the development, manufacture, promotion,
distribution or sale of digital film, video or audio editing, special effects,
3D or newsroom automation systems or products or other business in which the
Company is engaged or plans to engage at the time of your termination. Without
limiting the foregoing, the parties agree that the following businesses are, as
of the date of this Agreement, competitive with the Company: Adobe, Apple,
Autodesk/Discreet Logic, Euphonics, Fairlight, Mackie, Media 100, MOTU, Newtek,
Pinnacle Systems, Quantel, SGI/Alias Wavefront, Sony, Steinberg, Thomson/The
Grass Valley Group, and all subsidiaries and affiliates of the foregoing
companies.
(ii) You will not directly or indirectly assist others in engaging in any of the
activities in which you are prohibited to engage by paragraph 7(i) above.
(iii) You will not directly or indirectly (a) induce any employee of the Company
to engage in any activity in which you are prohibited from engaging by paragraph
7(i) above or to terminate your employment with the Company, or (b) employ or
offer employment to any person who was employed by the Company unless such
person shall have ceased to be employed by the Company for a period of at least
one (1) year.
8. 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 7 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.
9. 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.
10. 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.
11. 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 limitations,
the Employment Agreement dated July 24, 2002.
12. 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.
13. 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.
14. 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/ Paul J. Milbury
-----------------------------------
Paul J. Milbury
Chief Financial Officer
I acknowledge receipt and agree with the foregoing terms and conditions.
/s/ David A. Krall
- -----------------------------
David A. Krall
Change-in-Control Agreement
Date: July 24, 2002
Joseph Bentivegna
Avid Technology, Inc.
Avid 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 future growth and
success of the Company 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)
and (B) 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 40% 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 from 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 a
merger, acquisition or similar 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 actions which if consummated would
constitute a 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 24 months after such Change in Control, by you or by the
Company unless such termination is (a) because of your death, (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 nine (9) 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 Company which specifically identifies the manner in which the Company
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, or
(C) an act by you of fraud, embezzlement or other material dishonesty with
respect to the Company, or
(D) commission of a felony or any other crime involving fraud, dishonesty or
moral turpitude.
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.
(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;
(B) a reduction by the Company in your base salary in effect immediately prior
to a Change in Control of the Company (other than the reduction of up to 5% for
a period of not more than six months which is part of an across the board
proportionate reduction in the salaries of other peer executives of the Company
imposed because the Company is experiencing financial hardship);
(C) the failure by the Company to maintain your participation in any life
insurance, medical, health and accident, disability and vacation plan or policy
of the Company on terms not less favorable than those provided by the Company to
other peer executives of the Company;
(D) the failure by the Company to maintain your participation in a bonus or
incentive plan that provides for an annual target bonus not lower than your
target bonus (at a payout factor of one) for the fiscal year in which the Change
in Control of the Company occurs;
(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 50 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 Disability, 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 you shall receive payment during such period of Disability 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 if 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 no more than 30 days
following the Date of Termination, the following amounts:
(x) the sum of (A) your accrued but unpaid base salary through
the Date of Termination, (B) the product of (x) the greater
of your highest annual bonus earned in the two most recent
full fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs, and
(y) a fraction, the numerator of which is the number of days
in the then current fiscal year through the Date of
Termination, and the denominator of which is 365 and (C) the
amount of any compensation previously deferred by you
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent no
previously paid (the sum of the amounts described in
clauses (A), (B), and (C) shall be hereinafter referred to
as the "Accrued Obligations"); and
(y) the amount equal to one and a half (1.5) times (or, in the
case of death, one (1) times) the sum of your annual base
salary at the highest rate in effect during the 12 months
preceding the Date of Termination and the greater of your
highest annual bonus earned in the two most recent full
fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs.
(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) Notwithstanding anything to the contrary in the applicable stock option or
restricted stock agreement, the exercisability of all outstanding stock options
and restricted stock awards then held by you for the purchase of common stock of
the Company (or securities exchanged for such common stock in connection with
the Change in Control of the Company) shall accelerate in full and you shall be
entitled to exercise any such options until 24 months after the Date of
Termination; 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 11
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 and 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
PricewaterhouseCoopers LLP 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. You shall not pay such claim prior to
the expiration of the 30-day period following the date on which you give 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. COMPETITIVE ACTIVITY.
(i) Unless the Company materially breaches this Agreement, you agree you will
not for a period of one (1) year after termination of your employment with the
Company, engage in any activity which is competitive with any business which is
now, or is at any time during your employment with the Company, conducted by the
Company, including without limitation becoming an employee, investor (except for
passive investments of not more than one percent (1%) of the outstanding shares
of, or any other equity interest in, a company or entity listed or traded on a
national securities exchange or in an over-the-counter securities market),
officer, agent, partner or director of, or other participant in, any firm,
person or other entity in any geographic area that competes or plans to compete
with the Company in the business of the development, manufacture, promotion,
distribution or sale of digital film, video or audio editing, special effects,
3D or newsroom automation systems or products or other business in which the
Company is engaged or plans to engage at the time of your termination. Without
limiting the foregoing, the parties agree that the following businesses are, as
of the date of this Agreement, competitive with the Company: Adobe, Apple,
Autodesk/Discreet Logic, Euphonics, Fairlight, Mackie, Media 100, MOTU, Newtek,
Pinnacle Systems, Quantel, SGI/Alias Wavefront, Sony, Steinberg, Thomson/The
Grass Valley Group, and all subsidiaries and affiliates of the foregoing
companies.
(ii) You will not directly or indirectly assist others in engaging in any of the
activities in which you are prohibited to engage by paragraph 7(i) above.
(iii) You will not directly or indirectly (a) induce any employee of the Company
to engage in any activity in which you are prohibited from engaging by paragraph
7(i) above or to terminate your employment with the Company, or (b) employ or
offer employment to any person who was employed by the Company unless such
person shall have ceased to be employed by the Company for a period of at least
one (1) year.
8. 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 7 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.
9. 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.
10. 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.
11. 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 limitations,
the Employment Agreement dated July 24, 2002.
12. 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.
13. 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.
14. 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/ David A. Krall
-----------------------------------
David A. Krall
Chief Executive Officer
I acknowledge receipt and agree with the foregoing terms and conditions.
/s/ Joseph Bentivegna
- -----------------------------
Joseph Bentivegna
Change-in-Control Agreement
Date: July 24, 2002
Ethan E. Jacks
Avid Technology, Inc.
Avid 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 future growth and
success of the Company 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)
and (B) 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 40% 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 from 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 a
merger, acquisition or similar 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 actions which if consummated would
constitute a 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 24 months after such Change in Control, by you or by the
Company unless such termination is (a) because of your death, (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 nine (9) 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 Company which specifically identifies the manner in which the Company
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, or
(C) an act by you of fraud, embezzlement or other material dishonesty with
respect to the Company, or
(D) commission of a felony or any other crime involving fraud, dishonesty or
moral turpitude.
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.
(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;
(B) a reduction by the Company in your base salary in effect immediately prior
to a Change in Control of the Company (other than the reduction of up to 5% for
a period of not more than six months which is part of an across the board
proportionate reduction in the salaries of other peer executives of the Company
imposed because the Company is experiencing financial hardship);
(C) the failure by the Company to maintain your participation in any life
insurance, medical, health and accident, disability and vacation plan or policy
of the Company on terms not less favorable than those provided by the Company to
other peer executives of the Company;
(D) the failure by the Company to maintain your participation in a bonus or
incentive plan that provides for an annual target bonus not lower than your
target bonus (at a payout factor of one) for the fiscal year in which the Change
in Control of the Company occurs;
(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 50 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 Disability, 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 you shall receive payment during such period of Disability 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 if 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 no more than 30 days
following the Date of Termination, the following amounts:
(x) the sum of (A) your accrued but unpaid base salary through
the Date of Termination, (B) the product of (x) the greater
of your highest annual bonus earned in the two most recent
full fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs, and
(y) a fraction, the numerator of which is the number of days
in the then current fiscal year through the Date of
Termination, and the denominator of which is 365 and (C) the
amount of any compensation previously deferred by you
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent no
previously paid (the sum of the amounts described in
clauses (A), (B), and (C) shall be hereinafter referred to
as the "Accrued Obligations"); and
(y) the amount equal to one and a half (1.5) times (or, in the
case of death, one (1) times) the sum of your annual base
salary at the highest rate in effect during the 12 months
preceding the Date of Termination and the greater of your
highest annual bonus earned in the two most recent full
fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs.
(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) Notwithstanding anything to the contrary in the applicable stock option or
restricted stock agreement, the exercisability of all outstanding stock options
and restricted stock awards then held by you for the purchase of common stock of
the Company (or securities exchanged for such common stock in connection with
the Change in Control of the Company) shall accelerate in full and you shall be
entitled to exercise any such options until 24 months after the Date of
Termination; 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 11
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 and 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
PricewaterhouseCoopers LLP 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. You shall not pay such claim prior to
the expiration of the 30-day period following the date on which you give 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. COMPETITIVE ACTIVITY.
(i) Unless the Company materially breaches this Agreement, you agree you will
not for a period of one (1) year after termination of your employment with the
Company, engage in any activity which is competitive with any business which is
now, or is at any time during your employment with the Company, conducted by the
Company, including without limitation becoming an employee, investor (except for
passive investments of not more than one percent (1%) of the outstanding shares
of, or any other equity interest in, a company or entity listed or traded on a
national securities exchange or in an over-the-counter securities market),
officer, agent, partner or director of, or other participant in, any firm,
person or other entity in any geographic area that competes or plans to compete
with the Company in the business of the development, manufacture, promotion,
distribution or sale of digital film, video or audio editing, special effects,
3D or newsroom automation systems or products or other business in which the
Company is engaged or plans to engage at the time of your termination. Without
limiting the foregoing, the parties agree that the following businesses are, as
of the date of this Agreement, competitive with the Company: Adobe, Apple,
Autodesk/Discreet Logic, Euphonics, Fairlight, Mackie, Media 100, MOTU, Newtek,
Pinnacle Systems, Quantel, SGI/Alias Wavefront, Sony, Steinberg, Thomson/The
Grass Valley Group, and all subsidiaries and affiliates of the foregoing
companies.
(ii) You will not directly or indirectly assist others in engaging in any of the
activities in which you are prohibited to engage by paragraph 7(i) above.
(iii) You will not directly or indirectly (a) induce any employee of the Company
to engage in any activity in which you are prohibited from engaging by paragraph
7(i) above or to terminate your employment with the Company, or (b) employ or
offer employment to any person who was employed by the Company unless such
person shall have ceased to be employed by the Company for a period of at least
one (1) year.
8. 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 7 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.
9. 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.
10. 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.
11. 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 limitations,
the Employment Agreement dated July 24, 2002.
12. 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.
13. 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.
14. 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/ David A. Krall
---------------------------------------
David A. Krall
Chief Executive Officer
I acknowledge receipt and agree with the foregoing terms and conditions.
/s/ Ethan E. Jacks
- -----------------------------
Ethan E. Jacks
Change-in-Control Agreement
Date: July 24, 2002
David Lebolt
Avid Technology, Inc.
Avid 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 future growth and
success of the Company 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)
and (B) 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 40% 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 from 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 a
merger, acquisition or similar 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 actions which if consummated would
constitute a 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 24 months after such Change in Control, by you or by the
Company unless such termination is (a) because of your death, (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 nine (9) 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 Company which specifically identifies the manner in which the Company
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, or
(C) an act by you of fraud, embezzlement or other material dishonesty with
respect to the Company, or
(D) commission of a felony or any other crime involving fraud, dishonesty or
moral turpitude.
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.
(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;
(B) a reduction by the Company in your base salary in effect immediately prior
to a Change in Control of the Company (other than the reduction of up to 5% for
a period of not more than six months which is part of an across the board
proportionate reduction in the salaries of other peer executives of the Company
imposed because the Company is experiencing financial hardship);
(C) the failure by the Company to maintain your participation in any life
insurance, medical, health and accident, disability and vacation plan or policy
of the Company on terms not less favorable than those provided by the Company to
other peer executives of the Company;
(D) the failure by the Company to maintain your participation in a bonus or
incentive plan that provides for an annual target bonus not lower than your
target bonus (at a payout factor of one) for the fiscal year in which the Change
in Control of the Company occurs;
(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 50 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 Disability, 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 you shall receive payment during such period of Disability 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 if 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 no more than 30 days
following the Date of Termination, the following amounts:
(x) the sum of (A) your accrued but unpaid base salary through
the Date of Termination, (B) the product of (x) the greater
of your highest annual bonus earned in the two most recent
full fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs, and
(y) a fraction, the numerator of which is the number of days
in the then current fiscal year through the Date of
Termination, and the denominator of which is 365 and (C) the
amount of any compensation previously deferred by you
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent no
previously paid (the sum of the amounts described in
clauses (A), (B), and (C) shall be hereinafter referred to
as the "Accrued Obligations"); and
(y) the amount equal to one and a half (1.5) times (or, in the
case of death, one (1) times) the sum of your annual base
salary at the highest rate in effect during the 12 months
preceding the Date of Termination and the greater of your
highest annual bonus earned in the two most recent full
fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs.
(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) Notwithstanding anything to the contrary in the applicable stock option or
restricted stock agreement, the exercisability of all outstanding stock options
and restricted stock awards then held by you for the purchase of common stock of
the Company (or securities exchanged for such common stock in connection with
the Change in Control of the Company) shall accelerate in full and you shall be
entitled to exercise any such options until 24 months after the Date of
Termination; 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 11
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 and 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
PricewaterhouseCoopers LLP 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. You shall not pay such claim prior to
the expiration of the 30-day period following the date on which you give 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. DEDICATION OF SERVICES, NON-DISCLOSURE OF TRADE SECRETS, DISCLOSURE AND
ASSIGNMENT OF INVENTIONS, SOLICITATION AND PROHIBITED COMPETITIVE
ACTIVITY.
(i) Dedication of Services. You agree that while you are employed by the Company
that you shall devote your entire productive time, ability and attention to the
business of the Company. You further agree that during the period of employment
by the Company, you will not, without the Company's prior written consent,
directly or indirectly engage in any employment, consulting, or other activity
that would conflict with your employment obligations to the Company, including
your duty of loyalty to the Company.
(ii) Agreement Not to Disclose or Use Confidential, Proprietary Information or
Trade Secrets. During the term of employment with the Company, you will have
access to and become acquainted with information of a confidential, proprietary
or secret nature which is or may be either applicable to, or related in any way
to, the present or future business of the Company, the research and development
or investigation of the Company, or the business of any customer of the Company.
For example, trade secret information includes, but is not limited to, devices,
secret inventions, processes and compilations of information, records,
specifications and information concerning customers or vendors. You agree to not
disclose any of the above-mentioned trade secrets, directly or indirectly, or
use them in any way, either during the term of this Agreement or at any time
thereafter, except as required in the court of employment with the Company. You
also agree to abide by the Company's policies and regulations, as established
from time to time for the protection of its trade secret information. Without
limiting the foregoing, the parties agree that the following businesses are, as
of the date of this Agreement, competitive with the Company: Adobe, Apple,
Autodesk/Discreet Logic, Euphonics, Fairlight, Mackie, Media 100, MOTU, Newtek,
Pinnacle Systems, Quantel, SGI/Alias Wavefront, Sony, Steinberg, Thomson/The
Grass Valley Group, and all subsidiaries and affiliates of the foregoing
companies. As such, any use of or disclosure by you of the Company's
confidential, proprietary, or trade secret information to such businesses would
constitute unfair competition, which is prohibited under this Agreement, as well
as by law.
(iii) Disclosure and Assignment of Inventions. You hereby agree to disclose to
the Company any and all inventions, discoveries, improvements, trade secrets,
formulas, techniques, processes, and know-how, whether or not patentable and
whether or not reduced to practice, made or conceived by you, either solely or
in conjunction with others, during the period of your employment with the
Company, which relate to or result from the actual or demonstrably anticipated
business, work or research in development of the Company, or which result, to
any extent, from use of the Company's premises or property, or are suggested by
any task assigned to you or nay work performed by you for or on behalf of the
Company.
You acknowledge and agree that all such inventions shall be the sole property of
the Company and you hereby assign to the Company your entire right and interest
in all the inventions; provided, however, that such assignment does not apply to
any invention which qualifies fully under the provision of section 2870 of the
California Labor Code.
(iv) You will not directly or indirectly assist others in engaging in any of the
activities in which you are prohibited to engage by paragraphs 7(i) and 7(ii)
above.
(v) You will not directly or indirectly (a) induce any employee of the Company
to engage in any activity in which you are prohibited from engaging by
paragraphs 7(i) and 7(ii) above or to terminate their employment with the
Company, or (b) employ or offer employment to any person who was employed by the
Company unless such person shall have ceased to be employed by the Company for a
period of at least one (1) year.
8. 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 7 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.
9. 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.
10. 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.
11. 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 limitations,
the Employment Agreement dated July 24, 2002.
12. 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.
13. 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.
14. 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 State of California.
(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/ David A. Krall
---------------------------------------
David A. Krall
Chief Executive Officer
I acknowledge receipt and agree with the foregoing terms and conditions.
/s/ David Lebolt
- -----------------------------
David Lebolt
Change-in-Control Agreement
Date: July 24, 2002
Paul J. Milbury
Avid Technology, Inc.
Avid 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 future growth and
success of the Company 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)
and (B) 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 40% 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 from 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 a
merger, acquisition or similar 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 actions which if consummated would
constitute a 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 24 months after such Change in Control, by you or by the
Company unless such termination is (a) because of your death, (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 nine (9) 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 Company which specifically identifies the manner in which the Company
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, or
(C) an act by you of fraud, embezzlement or other material dishonesty with
respect to the Company, or
(D) commission of a felony or any other crime involving fraud, dishonesty or
moral turpitude.
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.
(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;
(B) a reduction by the Company in your base salary in effect immediately prior
to a Change in Control of the Company (other than the reduction of up to 5% for
a period of not more than six months which is part of an across the board
proportionate reduction in the salaries of other peer executives of the Company
imposed because the Company is experiencing financial hardship);
(C) the failure by the Company to maintain your participation in any life
insurance, medical, health and accident, disability and vacation plan or policy
of the Company on terms not less favorable than those provided by the Company to
other peer executives of the Company;
(D) the failure by the Company to maintain your participation in a bonus or
incentive plan that provides for an annual target bonus not lower than your
target bonus (at a payout factor of one) for the fiscal year in which the Change
in Control of the Company occurs;
(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 50 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 Disability, 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 you shall receive payment during such period of Disability 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 if 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 no more than 30 days
following the Date of Termination, the following amounts:
(x) the sum of (A) your accrued but unpaid base salary through
the Date of Termination, (B) the product of (x) the greater
of your highest annual bonus earned in the two most recent
full fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs, and
(y) a fraction, the numerator of which is the number of days
in the then current fiscal year through the Date of
Termination, and the denominator of which is 365 and (C) the
amount of any compensation previously deferred by you
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent no
previously paid (the sum of the amounts described in
clauses (A), (B), and (C) shall be hereinafter referred to
as the "Accrued Obligations"); and
(y) the amount equal to one and a half (1.5) times (or, in the
case of death, one (1) times) the sum of your annual base
salary at the highest rate in effect during the 12 months
preceding the Date of Termination and the greater of your
highest annual bonus earned in the two most recent full
fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs.
(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) Notwithstanding anything to the contrary in the applicable stock option or
restricted stock agreement, the exercisability of all outstanding stock options
and restricted stock awards then held by you for the purchase of common stock of
the Company (or securities exchanged for such common stock in connection with
the Change in Control of the Company) shall accelerate in full and you shall be
entitled to exercise any such options until 24 months after the Date of
Termination; 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 11
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 and 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
PricewaterhouseCoopers LLP 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. You shall not pay such claim prior to
the expiration of the 30-day period following the date on which you give 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. COMPETITIVE ACTIVITY.
(i) Unless the Company materially breaches this Agreement, you agree you will
not for a period of one (1) year after termination of your employment with the
Company, engage in any activity which is competitive with any business which is
now, or is at any time during your employment with the Company, conducted by the
Company, including without limitation becoming an employee, investor (except for
passive investments of not more than one percent (1%) of the outstanding shares
of, or any other equity interest in, a company or entity listed or traded on a
national securities exchange or in an over-the-counter securities market),
officer, agent, partner or director of, or other participant in, any firm,
person or other entity in any geographic area that competes or plans to compete
with the Company in the business of the development, manufacture, promotion,
distribution or sale of digital film, video or audio editing, special effects,
3D or newsroom automation systems or products or other business in which the
Company is engaged or plans to engage at the time of your termination. Without
limiting the foregoing, the parties agree that the following businesses are, as
of the date of this Agreement, competitive with the Company: Adobe, Apple,
Autodesk/Discreet Logic, Euphonics, Fairlight, Mackie, Media 100, MOTU, Newtek,
Pinnacle Systems, Quantel, SGI/Alias Wavefront, Sony, Steinberg, Thomson/The
Grass Valley Group, and all subsidiaries and affiliates of the foregoing
companies.
(ii) You will not directly or indirectly assist others in engaging in any of the
activities in which you are prohibited to engage by paragraph 7(i) above.
(iii) You will not directly or indirectly (a) induce any employee of the Company
to engage in any activity in which you are prohibited from engaging by paragraph
7(i) above or to terminate your employment with the Company, or (b) employ or
offer employment to any person who was employed by the Company unless such
person shall have ceased to be employed by the Company for a period of at least
one (1) year.
8. 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 7 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.
9. 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.
10. 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.
11. 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 limitations,
the Employment Agreement dated July 24, 2002.
12. 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.
13. 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.
14. 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/ David A. Krall
---------------------------------------
David A. Krall
Chief Executive Officer
I acknowledge receipt and agree with the foregoing terms and conditions.
/s/ Paul J. Milbury
- ------------------------------
Paul J. Milbury
Change-in-Control Agreement
Date: July 24, 2002
Michael Rockwell
Avid Technology, Inc.
Avid 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 future growth and
success of the Company 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)
and (B) 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 40% 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 from 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 a
merger, acquisition or similar 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 actions which if consummated would
constitute a 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 24 months after such Change in Control, by you or by the
Company unless such termination is (a) because of your death, (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 nine (9) 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 Company which specifically identifies the manner in which the Company
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, or
(C) an act by you of fraud, embezzlement or other material dishonesty with
respect to the Company, or
(D) commission of a felony or any other crime involving fraud, dishonesty or
moral turpitude.
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.
(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;
(B) a reduction by the Company in your base salary in effect immediately prior
to a Change in Control of the Company (other than the reduction of up to 5% for
a period of not more than six months which is part of an across the board
proportionate reduction in the salaries of other peer executives of the Company
imposed because the Company is experiencing financial hardship);
(C) the failure by the Company to maintain your participation in any life
insurance, medical, health and accident, disability and vacation plan or policy
of the Company on terms not less favorable than those provided by the Company to
other peer executives of the Company;
(D) the failure by the Company to maintain your participation in a bonus or
incentive plan that provides for an annual target bonus not lower than your
target bonus (at a payout factor of one) for the fiscal year in which the Change
in Control of the Company occurs;
(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 50 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 Disability, 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 you shall receive payment during such period of Disability 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 if 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 no more than 30 days
following the Date of Termination, the following amounts:
(x) the sum of (A) your accrued but unpaid base salary through
the Date of Termination, (B) the product of (x) the greater
of your highest annual bonus earned in the two most recent
full fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs, and
(y) a fraction, the numerator of which is the number of days
in the then current fiscal year through the Date of
Termination, and the denominator of which is 365 and (C) the
amount of any compensation previously deferred by you
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent no
previously paid (the sum of the amounts described in
clauses (A), (B), and (C) shall be hereinafter referred to
as the "Accrued Obligations"); and
(y) the amount equal to one and a half (1.5) times (or, in the
case of death, one (1) times) the sum of your annual base
salary at the highest rate in effect during the 12 months
preceding the Date of Termination and the greater of your
highest annual bonus earned in the two most recent full
fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs.
(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) Notwithstanding anything to the contrary in the applicable stock option or
restricted stock agreement, the exercisability of all outstanding stock options
and restricted stock awards then held by you for the purchase of common stock of
the Company (or securities exchanged for such common stock in connection with
the Change in Control of the Company) shall accelerate in full and you shall be
entitled to exercise any such options until 24 months after the Date of
Termination; 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 11
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 and 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
PricewaterhouseCoopers LLP 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. You shall not pay such claim prior to
the expiration of the 30-day period following the date on which you give 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. COMPETITIVE ACTIVITY.
(i) Unless the Company materially breaches this Agreement, you agree you will
not for a period of one (1) year after termination of your employment with the
Company, engage in any activity which is competitive with any business which is
now, or is at any time during your employment with the Company, conducted by the
Company, including without limitation becoming an employee, investor (except for
passive investments of not more than one percent (1%) of the outstanding shares
of, or any other equity interest in, a company or entity listed or traded on a
national securities exchange or in an over-the-counter securities market),
officer, agent, partner or director of, or other participant in, any firm,
person or other entity in any geographic area that competes or plans to compete
with the Company in the business of the development, manufacture, promotion,
distribution or sale of digital film, video or audio editing, special effects,
3D or newsroom automation systems or products or other business in which the
Company is engaged or plans to engage at the time of your termination. Without
limiting the foregoing, the parties agree that the following businesses are, as
of the date of this Agreement, competitive with the Company: Adobe, Apple,
Autodesk/Discreet Logic, Euphonics, Fairlight, Mackie, Media 100, MOTU, Newtek,
Pinnacle Systems, Quantel, SGI/Alias Wavefront, Sony, Steinberg, Thomson/The
Grass Valley Group, and all subsidiaries and affiliates of the foregoing
companies.
(ii) You will not directly or indirectly assist others in engaging in any of the
activities in which you are prohibited to engage by paragraph 7(i) above.
(iii) You will not directly or indirectly (a) induce any employee of the Company
to engage in any activity in which you are prohibited from engaging by paragraph
7(i) above or to terminate your employment with the Company, or (b) employ or
offer employment to any person who was employed by the Company unless such
person shall have ceased to be employed by the Company for a period of at least
one (1) year.
8. 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 7 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.
9. 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.
10. 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.
11. 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 limitations,
the Employment Agreement dated July 24, 2002.
12. 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.
13. 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.
14. 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/ David A. Krall
---------------------------------------
David A. Krall
Chief Executive Officer
I acknowledge receipt and agree with the foregoing terms and conditions.
/s/ Michael Rockwell
- ----------------------------
Michael Rockwell
Change-in-Control Agreement
Date: July 24, 2002
Ann C. Smith
Avid Technology, Inc.
Avid 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 future growth and
success of the Company 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)
and (B) 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 40% 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 from 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 a
merger, acquisition or similar 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 actions which if consummated would
constitute a 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 24 months after such Change in Control, by you or by the
Company unless such termination is (a) because of your death, (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 nine (9) 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 Company which specifically identifies the manner in which the Company
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, or
(C) an act by you of fraud, embezzlement or other material dishonesty with
respect to the Company, or
(D) commission of a felony or any other crime involving fraud, dishonesty or
moral turpitude.
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.
(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;
(B) a reduction by the Company in your base salary in effect immediately prior
to a Change in Control of the Company (other than the reduction of up to 5% for
a period of not more than six months which is part of an across the board
proportionate reduction in the salaries of other peer executives of the Company
imposed because the Company is experiencing financial hardship);
(C) the failure by the Company to maintain your participation in any life
insurance, medical, health and accident, disability and vacation plan or policy
of the Company on terms not less favorable than those provided by the Company to
other peer executives of the Company;
(D) the failure by the Company to maintain your participation in a bonus or
incentive plan that provides for an annual target bonus not lower than your
target bonus (at a payout factor of one) for the fiscal year in which the Change
in Control of the Company occurs;
(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 50 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 Disability, 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 you shall receive payment during such period of Disability 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 if 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 no more than 30 days
following the Date of Termination, the following amounts:
(x) the sum of (A) your accrued but unpaid base salary through
the Date of Termination, (B) the product of (x) the greater
of your highest annual bonus earned in the two most recent
full fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs, and
(y) a fraction, the numerator of which is the number of days
in the then current fiscal year through the Date of
Termination, and the denominator of which is 365 and (C) the
amount of any compensation previously deferred by you
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent no
previously paid (the sum of the amounts described in
clauses (A), (B), and (C) shall be hereinafter referred to
as the "Accrued Obligations"); and
(y) the amount equal to one and a half (1.5) times (or, in the
case of death, one (1) times) the sum of your annual base
salary at the highest rate in effect during the 12 months
preceding the Date of Termination and the greater of your
highest annual bonus earned in the two most recent full
fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs.
(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) Notwithstanding anything to the contrary in the applicable stock option or
restricted stock agreement, the exercisability of all outstanding stock options
and restricted stock awards then held by you for the purchase of common stock of
the Company (or securities exchanged for such common stock in connection with
the Change in Control of the Company) shall accelerate in full and you shall be
entitled to exercise any such options until 24 months after the Date of
Termination; 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 11
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 and 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
PricewaterhouseCoopers LLP 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. You shall not pay such claim prior to
the expiration of the 30-day period following the date on which you give 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. COMPETITIVE ACTIVITY.
(i) Unless the Company materially breaches this Agreement, you agree you will
not for a period of one (1) year after termination of your employment with the
Company, engage in any activity which is competitive with any business which is
now, or is at any time during your employment with the Company, conducted by the
Company, including without limitation becoming an employee, investor (except for
passive investments of not more than one percent (1%) of the outstanding shares
of, or any other equity interest in, a company or entity listed or traded on a
national securities exchange or in an over-the-counter securities market),
officer, agent, partner or director of, or other participant in, any firm,
person or other entity in any geographic area that competes or plans to compete
with the Company in the business of the development, manufacture, promotion,
distribution or sale of digital film, video or audio editing, special effects,
3D or newsroom automation systems or products or other business in which the
Company is engaged or plans to engage at the time of your termination. Without
limiting the foregoing, the parties agree that the following businesses are, as
of the date of this Agreement, competitive with the Company: Adobe, Apple,
Autodesk/Discreet Logic, Euphonics, Fairlight, Mackie, Media 100, MOTU, Newtek,
Pinnacle Systems, Quantel, SGI/Alias Wavefront, Sony, Steinberg, Thomson/The
Grass Valley Group, and all subsidiaries and affiliates of the foregoing
companies.
(ii) You will not directly or indirectly assist others in engaging in any of the
activities in which you are prohibited to engage by paragraph 7(i) above.
(iii) You will not directly or indirectly (a) induce any employee of the Company
to engage in any activity in which you are prohibited from engaging by paragraph
7(i) above or to terminate your employment with the Company, or (b) employ or
offer employment to any person who was employed by the Company unless such
person shall have ceased to be employed by the Company for a period of at least
one (1) year.
8. 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 7 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.
9. 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.
10. 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.
11. 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 limitations,
the Employment Agreement dated July 24, 2002.
12. 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.
13. 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.
14. 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/David A.Krall
---------------------------------------
David A. Krall
Chief Executive Officer
I acknowledge receipt and agree with the foregoing terms and conditions.
/s/ Ann C. Smith
- -----------------------------
Ann C. Smith
Change-in-Control Agreement
Date: July 24, 2002
Charles L. Smith
Avid Technology, Inc.
Avid 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 future growth and
success of the Company 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)
and (B) 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 40% 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 from 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 a
merger, acquisition or similar 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 actions which if consummated would
constitute a 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 24 months after such Change in Control, by you or by the
Company unless such termination is (a) because of your death, (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 nine (9) 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 Company which specifically identifies the manner in which the Company
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, or
(C) an act by you of fraud, embezzlement or other material dishonesty with
respect to the Company, or
(D) commission of a felony or any other crime involving fraud, dishonesty or
moral turpitude.
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.
(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;
(B) a reduction by the Company in your base salary in effect immediately prior
to a Change in Control of the Company (other than the reduction of up to 5% for
a period of not more than six months which is part of an across the board
proportionate reduction in the salaries of other peer executives of the Company
imposed because the Company is experiencing financial hardship);
(C) the failure by the Company to maintain your participation in any life
insurance, medical, health and accident, disability and vacation plan or policy
of the Company on terms not less favorable than those provided by the Company to
other peer executives of the Company;
(D) the failure by the Company to maintain your participation in a bonus or
incentive plan that provides for an annual target bonus not lower than your
target bonus (at a payout factor of one) for the fiscal year in which the Change
in Control of the Company occurs;
(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 50 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 Disability, 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 you shall receive payment during such period of Disability 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 if 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 no more than 30 days
following the Date of Termination, the following amounts:
(x) the sum of (A) your accrued but unpaid base salary through
the Date of Termination, (B) the product of (x) the greater
of your highest annual bonus earned in the two most recent
full fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs, and
(y) a fraction, the numerator of which is the number of days
in the then current fiscal year through the Date of
Termination, and the denominator of which is 365 and (C) the
amount of any compensation previously deferred by you
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent no
previously paid (the sum of the amounts described in
clauses (A), (B), and (C) shall be hereinafter referred to
as the "Accrued Obligations"); and
(y) the amount equal to one and a half (1.5) times (or, in the
case of death, one (1) times) the sum of your annual base
salary at the highest rate in effect during the 12 months
preceding the Date of Termination and the greater of your
highest annual bonus earned in the two most recent full
fiscal years preceding the Date of Termination and your
target bonus award (at a payout factor of one) for the
fiscal year in which the Date of Termination occurs.
(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) Notwithstanding anything to the contrary in the applicable stock option or
restricted stock agreement, the exercisability of all outstanding stock options
and restricted stock awards then held by you for the purchase of common stock of
the Company (or securities exchanged for such common stock in connection with
the Change in Control of the Company) shall accelerate in full and you shall be
entitled to exercise any such options until 24 months after the Date of
Termination; 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 11
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 and 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
PricewaterhouseCoopers LLP 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. You shall not pay such claim prior to
the expiration of the 30-day period following the date on which you give 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. COMPETITIVE ACTIVITY.
(i) Unless the Company materially breaches this Agreement, you agree you will
not for a period of one (1) year after termination of your employment with the
Company, engage in any activity which is competitive with any business which is
now, or is at any time during your employment with the Company, conducted by the
Company, including without limitation becoming an employee, investor (except for
passive investments of not more than one percent (1%) of the outstanding shares
of, or any other equity interest in, a company or entity listed or traded on a
national securities exchange or in an over-the-counter securities market),
officer, agent, partner or director of, or other participant in, any firm,
person or other entity in any geographic area that competes or plans to compete
with the Company in the business of the development, manufacture, promotion,
distribution or sale of digital film, video or audio editing, special effects,
3D or newsroom automation systems or products or other business in which the
Company is engaged or plans to engage at the time of your termination. Without
limiting the foregoing, the parties agree that the following businesses are, as
of the date of this Agreement, competitive with the Company: Adobe, Apple,
Autodesk/Discreet Logic, Euphonics, Fairlight, Mackie, Media 100, MOTU, Newtek,
Pinnacle Systems, Quantel, SGI/Alias Wavefront, Sony, Steinberg, Thomson/The
Grass Valley Group, and all subsidiaries and affiliates of the foregoing
companies.
(ii) You will not directly or indirectly assist others in engaging in any of the
activities in which you are prohibited to engage by paragraph 7(i) above.
(iii) You will not directly or indirectly (a) induce any employee of the Company
to engage in any activity in which you are prohibited from engaging by paragraph
7(i) above or to terminate your employment with the Company, or (b) employ or
offer employment to any person who was employed by the Company unless such
person shall have ceased to be employed by the Company for a period of at least
one (1) year.
8. 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 7 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.
9. 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.
10. 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.
11. 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 limitations,
the Employment Agreement dated July 24, 2002.
12. 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.
13. 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.
14. 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/ David A. Krall
---------------------------------------
David A. Krall
Chief Executive Officer
I acknowledge receipt and agree with the foregoing terms and conditions.
/s/ Charles L. Smith
- ------------------------------
Charles L. Smith
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report on Form 10-Q of Avid
Technology, Inc. (the "Company") for the period ended September 30, 2002, as
filed with the Securities Exchange Commission on the date hereof (the "Report"),
the undersigned, David A. Krall, Chief Executive Officer of the Company, and
Paul J. Milbury, Chief Financial Officer of the Company, each hereby certifies,
pursuant to 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Dated: November 13, 2002 /s/ David A. Krall
-------------------------------------
David A. Krall
Chief Executive Officer
Dated: November 13, 2002 /s/ Paul J. Milbury
-------------------------------------
Paul J. Milbury
Chief Financial Officer