UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.              )

 

 

Avid Technology, Inc.

Avid Technology Park
One Park West
Tewksbury, Massachusetts 01876

Notice of 2007 Annual Meeting of Stockholders to be Held on Wednesday, May 16, 2007

The 2007 Annual Meeting of Stockholders of Avid Technology, Inc. will be held on Wednesday, May 16, 2007, at our offices located at 1925 Andover Street, Tewksbury, Massachusetts at 10:00 a.m., local time, to consider and act upon the following matters:

1.                To elect two Class II Directors to serve for three-year terms.

2.                To ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for the current fiscal year.

3.                To consider such other business as may properly come before the meeting or any adjournment thereof.

The foregoing items of business are more fully described in the proxy statement accompanying this notice. Stockholders of record at the close of business on March 20, 2007 are entitled to notice of and to vote at the meeting or any adjournment thereof. A copy of our Annual Report to Stockholders for 2006, which contains consolidated financial statements and other information of interest to stockholders, accompanies this notice and proxy statement. All stockholders are cordially invited to attend the meeting.

	By Order of our Board of Directors,
	PAIGE PARISI
	Secretary
Tewksbury, Massachusetts
April 5, 2007

 

YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.  WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.

Table of Contents

 

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Avid Technology, Inc.

Avid Technology Park
One Park West
Tewksbury, Massachusetts 01876

Proxy Statement for the Annual Meeting of Stockholders
to be Held on Wednesday, May 16, 2007

This proxy statement is furnished in connection with the solicitation of proxies by our board of directors for use at our company’s 2007 annual meeting of stockholders and at any adjournments of that meeting. The annual meeting will be held at 10:00 a.m., local time, on May 16, 2007, at our offices located at 1925 Andover Street, Tewksbury, Massachusetts. All proxies will be voted in accordance with the stockholders’ instructions, and if no choice is specified, the proxies will be voted in favor of the matters set forth in the accompanying notice of the annual meeting. Any proxy may be revoked by a stockholder at any time before its exercise by delivery of written revocation or a subsequently dated proxy to our Secretary, or by voting in person at the annual meeting.

The notice of the annual meeting, this proxy statement, the accompanying proxy card and our 2006 Annual Report are being mailed to stockholders on or about April 5, 2007.

Voting Securities and Votes Required

At the close of business on March 20, 2007, the record date for the determination of stockholders entitled to notice of and to vote at the annual meeting, there were outstanding and entitled to vote an aggregate of 41,247,018 shares of our common stock, $.01 par value per share. Stockholders are entitled to one vote per share.

Shares of common stock represented in person or by proxy (including shares that abstain or do not vote for any reason with respect to one or more of the matters presented for stockholder approval) will be counted for purposes of determining whether a quorum is present at the annual meeting. The affirmative vote of the holders of a plurality of the shares of common stock present or represented and voting at the annual meeting is required for the election of the Class II Directors. The affirmative vote of the holders of a majority of the shares of common stock present or represented and voting at the annual meeting is required to ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for the current fiscal year.

Shares that abstain from voting as to a particular matter, and shares held in “street name” by brokers or nominees who indicate on their proxies that they do not have discretionary authority to vote such shares as to a particular matter, or broker non-votes, will not be counted as votes in favor of such matter, and also will not be counted as votes cast or shares voting on such matter. Accordingly, assuming the presence of a quorum, abstentions and broker non-votes will not affect the voting on the election of the Class II Directors or the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the current fiscal year.

Costs of Soliciting Proxies

We bear all costs for this solicitation of proxies. In addition to solicitations by mail, our directors, officers and employees may solicit proxies by telephone, email or personally without additional compensation. Brokers, custodians and fiduciaries will be requested to forward proxy soliciting material to the owners of shares of our common stock that they hold in their names. We will reimburse banks and brokers for their reasonable out-of-pocket expenses incurred in connection with the distribution of our proxy materials.

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Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information with respect to the beneficial ownership of our common stock by:

·       each person known by us to beneficially own more than five percent of the outstanding shares of our common stock;

·       each of our directors;

·       each executive officer named in the Summary Compensation Table for Fiscal Year 2006 set forth on page 22; and

·       all of our directors and executive officers as a group.

Except as otherwise noted, information in the following table is as of January 15, 2007.

                 * Less than 1%

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       (1) The number of shares beneficially owned by each person or entity is calculated pursuant to rules promulgated by the Securities and Exchange Commission. Under those rules, a person or entity is considered to beneficially own all shares for which the person or entity has sole or shared voting or investment power, and all shares that the person or entity has the right to acquire within 60 days after January 15, 2007. The inclusion of any shares of common stock deemed beneficially owned does not constitute an admission of beneficial ownership of such shares. Unless otherwise indicated, each person or entity has sole voting or dispositive power with respect to the shares identified as being beneficially owned by that person or entity.

       (2) Percentage ownership calculations are based on 41,104,049 shares of our common stock outstanding as of January 15, 2007. Any shares that a person or entity has the right to acquire within 60 days after January 15, 2007 are deemed to be outstanding for the purpose of calculating the percentage of outstanding common stock owned by such person or entity. These shares, however, are not considered outstanding when computing the percentage ownership of any other person or entity.

       (3) Beneficial ownership as of January 4, 2007, as reported in a Form 4 Statement of Changes in Beneficial Ownership of Securities filed with the Securities and Exchange Commission on January 4, 2007, and an amendment to Schedule 13D filed with the Securities and Exchange Commission on July 26, 2006, by Blum Capital Partners, L.P. (“Blum LP”), Richard C. Blum & Associates, Inc. (“RCBA Inc.”), Blum Strategic GP III, L.L.C. (“Blum GP III”), Blum Strategic GP III, L.P. (“Blum GP III LP”), Blum Strategic Partners III, L.P. (“Blum Strategic III”) and Saddlepoint Partners GP, L.L.C. (“Saddlepoint GP”) (collectively, the “Blum Reporting Persons”). The Blum Reporting Persons beneficially own the following: (i) 1,998,629 shares of common stock held by Blum LP and RCBA Inc. on behalf of the limited partnerships for which Blum LP serves as the general partner, or on behalf of an entity for which Blum LP serves as investment advisor, (ii) 3,923,904 shares of common stock held by Blum GP III which serves as general partner of Blum GP III LP which, in turn, serves as the general partner of Blum Strategic III, (iii) 217,550 shares of common stock held by Saddlepoint GP on behalf of a partnership for which it serves as the general partner, and (iv) 68,900 shares of common stock that are legally owned by The Nuclear Decommissioning Trust of Dominion Nuclear Connecticut, Inc. and 68,900 shares of common stock that are legally owned by Virginia Electric and Power Company Qualified Nuclear Decommissioning Trust (collectively, the “Investment Advisory Clients”), with respect to which Blum LP has voting and investment power. Each Investment Advisory Client has entered into an investment management agreement with Blum LP, but neither Investment Advisory Client has any contract, arrangement or understanding with the other Investment Advisory Client, or any other Blum Reporting Person, with respect to the acquisition, ownership, disposition or voting of any shares of common stock. Each Investment Advisory Client disclaims membership in a group with any Blum Reporting Person or with the other Investment Advisory Client, and each disclaims beneficial ownership of any shares beneficially owned by the Blum Reporting Persons other than for its own account. Voting and dispositive power concerning the above shares are shared by Blum LP, Blum GP III and Saddlepoint GP.

       (4) Beneficial ownership as of December 31, 2006, as reported in an amendment to a Schedule 13G filed with the Securities and Exchange Commission on January 9, 2007 by Columbia Wanger Asset Management, L.P. (“Columbia Wanger”) and Columbia Acorn Trust (“CAT”), a Massachusetts business trust that is advised by Columbia Wanger. The shares beneficially owned by Columbia Wanger include shares held by CAT that constitute approximately 11.7% of our outstanding common stock.

       (5) Beneficial ownership as of December 31, 2006, as reported in a Schedule 13G filed with the Securities and Exchange Commission on January 5, 2007 by Private Capital Management, L.P. (“PCM”). The shares beneficially owned by PCM include 4,793,550 shares of common stock held by clients of PCM

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who have delegated proxy voting authority to PCM and with respect to which PCM has shared voting and dispositive power.

       (6) Beneficial ownership as of December 31, 2006, as reported in a Schedule 13G filed with the Securities and Exchange Commission on February 13, 2007 by T. Rowe Price Associates, Inc. (“TRPA”) and T. Rowe Price Mid-Cap Growth Fund, Inc. (“TRPMC”). The shares beneficially owned by TRPA include 2,250,000 shares beneficially owned by TRPMC. TRPA has sole voting power with respect to 838,760 of the shares it beneficially owns. TRPMC does not have sole or shared dispositive power with respect to any of the shares it beneficially owns.

       (7) Beneficial ownership as of December 31, 2006, as reported in an amendment to a Schedule 13G filed with the Securities and Exchange Commission on February 13, 2007 by PRIMECAP Management Company (“PRIMECAP”). Of the 2,182,800 shares of common stock PRIMECAP beneficially owns, it has sole voting power with respect to 158,800 shares.

       (8) Beneficial ownership as of December 31, 2006, as reported in a Schedule 13G filed with the Securities and Exchange Commission on January 23, 2007 by Barclays Global Investors, NA (“BGINA”), Barclays Global Fund Advisors (“BGFA”) and Barclays Global Investors, Ltd. (“BGIL”). Of the 850,194 shares of common stock BGINA beneficially owns, it has sole voting power with respect to 702,986 shares. BGFA beneficially owns 1,266,891 shares of common stock and BGIL beneficially owns 26,187 shares of common stock.

       (9) Consists of shares of common stock issuable upon the exercise of outstanding stock options.

(10) Consists of shares of common stock issuable upon the exercise of outstanding stock options.

(11) Consists of 30,000 shares of common stock issuable upon the exercise of outstanding stock options and 3,000 shares of common stock held by a limited liability company of which Dr. Guttag is the managing member.

(12) Consists of shares of common stock issuable upon the exercise of outstanding stock options.

(13) Includes 40,000 shares of common stock issuable upon the exercise of outstanding stock options.

(14) Consists of shares of common stock issuable upon the exercise of outstanding stock options.

(15) Includes 497,438 shares of common stock issuable upon the exercise of outstanding stock options and upon the vesting of restricted stock units.

(16) Consists of shares of common stock issuable upon the exercise of outstanding stock options and upon the vesting of restricted stock units.

(17) Includes 56,348 shares of common stock issuable upon the exercise of outstanding stock options and upon the vesting of restricted stock units.

(18) Includes 54,392 shares of common stock issuable upon the exercise of outstanding stock options and upon the vesting of restricted stock units.

(19) Includes 60,556 shares of common stock issuable upon the exercise of outstanding stock options and upon the vesting of restricted stock units.

(20) Mr. Bentivegna resigned as an executive officer of our company effective November 15, 2006.

(21) Mr. Smith resigned as an executive officer of our company effective November 15, 2006.

(22) Includes 988,983 shares of common stock issuable upon the exercise of outstanding stock options and upon the vesting of restricted stock units.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and the holders of more than 10% of our common stock to file with the Securities and Exchange Commission initial reports of ownership of our common stock and other equity securities on a Form 3 and reports of changes in ownership on a Form 4 or a Form 5. Officers, directors and 10% stockholders are required by Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) forms that they file. To our knowledge, based solely on a review of copies of reports filed by the persons required to file such reports and written representations from those persons, we believe that all filing requirements of Section 16(a) were satisfied with respect to the year ended December 31, 2006.

PROPOSAL 1—ELECTION OF DIRECTORS

General

Our board of directors is divided into three classes, designated as Class I, Class II and Class III Directors, with one class elected each year. Members of each class hold office for a three-year term. Our board of directors currently consists of seven members, two of whom are Class I Directors, two of whom are Class II Directors and three of whom are Class III Directors. Both of our Class II Directors have been nominated for re-election at our annual meeting this year for terms expiring at our 2010 annual meeting. The terms of our Class III Directors expire at our 2008 annual meeting and the terms of our Class I Directors expire at our 2009 annual meeting.

The persons named in the enclosed proxy will vote to elect David A. Krall and Pamela F. Lenehan as Class II Directors, unless authority to vote for the election of either or both of the nominees is withheld by marking the proxy to that effect. Both nominees have indicated their willingness to serve if elected, but if either or both of the nominees should be unable or unwilling to serve, proxies may be voted for substitute nominee(s) designated by our board of directors.

Our corporate governance guidelines provide that directors are expected to attend our annual meeting of stockholders. All of our directors attended our 2006 annual meeting of stockholders.

Directors

Set forth below regarding each continuing director and each nominee is his or her name, age as of March 31, 2007, principal occupation, and business experience during at least the past five years, all positions he or she holds with us, if any, the names of other publicly held corporations for which he or she serves as a director, and the year during which he or she first became a member of our board of directors. There are no family relationships among any of our directors and executive officers.

Nominees

Class II Directors (Terms to expire at the 2010 annual meeting)

David A. Krall, 46, has served as a director since October 2000 and has been an employee since 1995. Mr. Krall has served as our President and Chief Executive Officer since April 2000, and served as our President and Chief Operating Officer from October 1999 until April 2000. Previously, Mr. Krall served as Chief Operating Officer of Digidesign, our audio division, from July 1998 to October 1999, and as Vice President of Engineering of Digidesign from June 1996 to July 1998.

Pamela F. Lenehan, 54, has served as a director since April 2001. Since June 2002, Ms. Lenehan has served as President of Ridge Hill Consulting, LLC, a strategy and financial consulting firm. From September 2001 until June 2002, Ms. Lenehan was self-employed as a private investor. From March 2000 until September 2001, Ms. Lenehan was Vice President and Chief Financial Officer of Convergent

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Networks, Inc., a manufacturer of switching equipment. From February 1995 until January 2000, she was Senior Vice President, Corporate Development and Treasurer of Oak Industries, Inc., a manufacturer of telecommunications components. Previously, Ms. Lenehan was a Managing Director of Investment Banking at Credit Suisse First Boston and a Vice President of Corporate Banking at Chase Manhattan Bank. Ms. Lenehan is a member of the Board of Directors of Spartech Corporation, a processor of engineered thermoplastics, and Monotype Imaging Holdings Inc., a supplier of font and imaging technologies.

Board Recommendation

Our board of directors recommends that our stockholders vote “FOR” the election of Mr. Krall and Ms. Lenehan as Class II Directors.

Continuing Members of our Board of Directors

Class I Directors (Terms to expire at our 2009 annual meeting)

George H. Billings, 56, became a director in March 2004. Since 1987, Mr. Billings has been the President of Billings & Co., a management consulting firm focused on the wireless communications and related industries. Mr. Billings also served as Chief Operating Officer from March 1998 to June 1998, and as Chief Executive Officer from June 1998 to May 1999 of Silicon Wireless, Ltd., a developer of wireless communication technology. In addition, from May 1992 to May 1997, Mr. Billings served first as the Chief Operating Officer and later as Vice Chairman of Radio Movil Digital Americas, Inc., a wireless dispatch communications company with investments in South America. Previously, Mr. Billings served as General Manager of the Washington-Baltimore Cellular Telephone Company Partnership (d/b/a Cellular One), and as Vice President of Corporate Development of the Communications Satellite Corporation.

Nancy Hawthorne, 55, became a director in October 1997. Since August 2001, Ms. Hawthorne has served as Chair and Chief Executive Officer of Clerestory, LLC, a financial advisory and investment firm.  In addition, from 1996 until July 1997, Ms. Hawthorne was Chief Executive Officer and Managing Partner of Hawthorne, Krauss & Associates, LLC, a provider of consulting services to corporate management. From July 1997 until July 2001, Ms. Hawthorne was self-employed, providing a variety of financial strategy consulting services. Previously, Ms. Hawthorne served as Treasurer and Chief Financial Officer of Continental Cablevision. Ms. Hawthorne also serves as a director of the Metropolitan Series Fund, Inc., a mutual fund established by the Metropolitan Life Insurance Company.

Class III Directors (Terms to expire at our 2008 annual meeting)

Elizabeth M. Daley, 64, became a director in February 2005. Dr. Daley has been Dean of the School of Cinematic Arts at the University of Southern California since 1989.

John V. Guttag, 58, became a director in October 2002. Dr. Guttag has been a professor at the Massachusetts Institute of Technology since January 1979, and served as Chair of the Department of Electrical Engineering and Computer Science from January 1999 to September 2004. In addition, Dr. Guttag is co-head of the Networks and Mobile Systems Group within MIT’s Computer Science and Artificial Intelligence Laboratory.

Youngme E. Moon, 42, became a director in September 2005. Dr. Moon has been a professor at Harvard Business School since 1998. Prior to that, Dr. Moon was a professor at the Massachusetts Institute of Technology from 1997 to 1998.

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Director Candidates

The process followed by our nominating and governance committee to identify and evaluate director candidates consists of reviewing recommendations from members of our board of directors and others (including stockholders), evaluating biographical and background information relating to potential candidates, and interviewing possible candidates.

In considering whether to recommend a particular candidate for inclusion in our board of directors’ slate of recommended director nominees, our nominating and governance committee considers the criteria set forth in our Corporate Governance Guidelines. These criteria include the candidate’s integrity, business acumen, knowledge of our business and industry, age, experience, commitment to participate as a director and conflicts of interest that would impair the candidate’s ability to act in the interests of all stockholders. Our nominating and governance committee does not assign specific weights to particular criteria, and no particular criterion is a prerequisite for any prospective nominee. Our nominating and governance committee believes that the backgrounds and qualifications of our directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow our board of directors to fulfill its responsibilities.

Stockholders may recommend individuals to our nominating and governance committee for consideration as potential director candidates by submitting the name, together with appropriate biographical information and background materials, and a statement as to whether the stockholder or group of stockholders making the recommendation has beneficially owned more than 5% of our common stock for at least a year as of the date the recommendation is made, to the Nominating and Governance Committee, c/o Secretary, Avid Technology, Inc., Avid Technology Park, One Park West, Tewksbury, Massachusetts 01876.

Assuming that appropriate biographical and background material has been provided on a timely basis, our nominating and governance committee will evaluate stockholder-recommended candidates by following substantially the same process, and considering substantially the same criteria, as it follows for candidates submitted by others. If our board of directors decides to nominate a stockholder-recommended candidate and recommends his or her election, then his or her name will be included in our proxy materials for the next annual meeting.

Communicating with our Board of Directors

Our board of directors will give appropriate attention to written communications that are submitted by our stockholders, and will respond if and as appropriate. The chairman of our board of directors, with the assistance of our General Counsel, is primarily responsible for communications with stockholders and for providing copies or summaries of the communication to the other directors. Stockholders who wish to send communications on any topic to our board of directors should address such communications to the Board of Directors, c/o Secretary, Avid Technology, Inc., Avid Technology Park, One Park West, Tewksbury, Massachusetts 01876.

DIRECTOR COMPENSATION

Our company uses a combination of cash and equity-based compensation to attract and retain candidates to serve on our board of directors. We do not compensate directors who are also our employees for their service on our board of directors. Therefore, Mr. Krall, the Chief Executive Officer of our company, does not receive any compensation for his service on our board of directors.

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Cash Compensation for Non-Employee Directors

Cash compensation for non-employee directors is determined in May of each year and takes effect July 1st of each year. From January 1, 2006 to June 30, 2006, we paid our non-employee directors a retainer fee of $12,500. We also paid our non-employee directors a fee of $1,500 for each board of directors meeting attended through June 30, 2006 and a fee of $1,500 for each committee meeting attended through June 30, 2006. In addition, we paid the chairman of our board of directors, Ms. Hawthorne, a fee of $7,500 for this six-month time period. We paid the chairman of each of our other committees (audit committee: Ms. Lenehan, compensation committee: Dr. Guttag, nominating and governance committee: Mr. Billings and strategy committee: Mr. Billings) a fee of $2,500 for this six-month time period.

From July 1, 2006 to December 31, 2006, we paid our non-employee directors a retainer fee of $22,500. Beginning July 1, 2006, in lieu of meeting fees, non-employee members of our board were paid a retainer fee for each committee on which they served. The retainer fee for audit committee members was $2,500 for this six-month time period. The retainer fee for members of all other committees was $1,500 for this six-month time period. In addition, we paid the chairman of our board of directors, Ms. Hawthorne, a fee of $15,000 for this six-month time period. We paid the chairman of our audit committee, Ms. Lenehan, a fee of $7,500 for this six-month time period. We paid the chairmen of our compensation, and nominating and governance committees, Dr. Guttag and Mr. Billings, respectively, a fee of $5,000 for this six-month time period. We paid the co-chairmen of our strategy committee, Mr. Billings and Dr. Moon, a fee of $2,500 for this six-month time period. The strategy committee disbanded in December 2006.

Equity Compensation for Non-Employee Directors

In addition to the cash compensation described above, non-employee directors are entitled to receive equity compensation under our 1993 Director Stock Option Plan, as amended, or our 2005 Stock Incentive Plan, as amended. Our compensation committee reviews equity compensation for non-employee directors annually and submits its recommendations to the full board for consideration and approval.

Under our 1993 Director Stock Option Plan, our non-employee directors are entitled to receive an option to purchase 10,000 shares of our common stock upon their initial election to our board of directors. In addition, each non-employee director receives an option to purchase 10,000 shares of our common stock on the date of each annual meeting of stockholders, provided the director has then served a minimum of six months on our board of directors.

Under our 2005 Stock Incentive Plan, our non-employee directors may receive equity compensation subject to the following maximum grant levels:

·       upon election to our board of directors, a stock option for up to 15,000 shares of our common stock or a restricted stock award or a restricted stock unit award for up to 7,500 shares of our common stock; and

·       annually on the date of our annual meeting, a stock option for up to 15,000 shares of common stock or a restricted stock award or a restricted stock unit award for up to 7,500 shares of our common stock, provided the non-employee director has served a minimum of six months on our board of directors.

In each case, the non-employee director may receive a combination of awards, provided that the aggregate number of shares subject to each award does not exceed 15,000 shares of common stock, and each share of common stock subject to a restricted stock award or a restricted stock unit award shall be considered two shares of common stock for the purpose of such limitation. Additionally, our board of directors has determined that any grant under the 1993 Director Stock Option Plan to a non-employee director shall be included in the limits applicable to awards granted under the 2005 Stock Incentive Plan.

Grants to non-employee directors of stock options are at an exercise price per share equal to the closing price of our company’s common stock on NASDAQ on the date of grant. Grants to non-employee

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directors of stock options upon their initial election to our board of directors vest 12 months from the date of grant. Grants to non-employee directors of annual stock options vest on the earlier of 12 months from the date of grant or immediately prior to the next annual meeting of our stockholders following the date of grant, unless otherwise specified in the applicable option agreement. Awards of restricted stock and restricted stock units granted under the 2005 Stock Incentive Plan may vest no sooner than one-third of such award per year. Stock options granted under the 1993 Director Stock Option Plan have a term of 6 years, while those granted under the 2005 Stock Incentive Plan have a term of 10 years. Stock options granted under the 1993 Director Stock Option Plan become exercisable in full upon a change-in-control (as such term is defined in the 1993 Director Stock Option Plan).

During 2006, each of our non-employee directors was granted an option to purchase 10,000 shares of our common stock under our 2005 Stock Incentive Plan at an exercise price of $38.69, equal to the closing price of our common stock on NASDAQ on the date of grant, May 24, 2006.

Non-Qualified Deferred Compensation for Non-Employee Directors

The members of our board of directors are eligible to participate in our non-qualified deferred compensation plan, which was established to provide participants with the opportunity to defer the receipt of all or a portion of their director’s fees. Please see page 27 of this proxy statement for a discussion of our non-qualified deferred compensation program.

DIRECTOR COMPENSATION TABLE FOR FISCAL YEAR 2006

The following table sets forth a summary of the compensation we paid to our non-employee directors for service on our board in 2006:

Name				Fees Earned or Paid in Cash($)					Stock Awards ($)				Option Awards ($)(1)			Non-Equity Incentive Plan Compensation ($)				Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)				All Other Compensation ($)(2)					Total ($)
George H. Billings					$	81,000				—			$	179,468			—				—				—				$	260,468
Elizabeth M. Daley					$	51,500				—			$	120,976			—				—				—				$	172,476
John V. Guttag					$	61,500				—			$	179,468			—				—				$	9,741			$	250,709
Nancy Hawthorne					$	103,500				—			$	179,468			—				—				$	4,808			$	287,776
Pamela F. Lenehan					$	75,500				—			$	179,468			—				—				—				$	254,968
Youngme E. Moon					$	55,500				—			$	196,592			—				—				—				$	252,092

(1)           The amount shown represents the amount of compensation cost that our company recognized for fiscal year 2006 for all options held by each of our non-employee directors as computed in accordance with SFAS No. 123(R) utilizing the modified prospective transition method. In accordance with SFAS No. 123(R), the fair value of each stock option is determined on the date of grant using the Black-Scholes option pricing model. This value is then amortized ratably over the vesting period. See Note L of the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2006 regarding assumptions underlying valuation of equity awards. The grant date fair value, computed in accordance with SFAS No. 123(R), of stock options granted to each of our non-employee directors in 2006 was $149,942. The grant date fair value was determined by using the Black-Scholes option pricing model. As of December 31, 2006, each non-employee director held stock options for the following number of shares: Mr. Billings: 30,000; Dr. Daley: 20,000; Dr. Guttag: 40,000; Ms. Hawthorne: 58,000; Ms. Lenehan: 50,000; and Dr. Moon: 20,000.

(2)           Amounts listed under “All Other Compensation” represent earnings on non-qualified deferred compensation for 2006. None of our directors earned preferential or above-market earnings on deferred compensation.

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Board of Directors and Committee Meetings

During 2006, our board of directors met eight times and acted by written consent six times.  Each director was present for at least 75% of the aggregate number of our board of directors meetings and meetings held by all committees on which that director then served.

Our board of directors has established three standing committees, audit, compensation, and nominating and governance, each of which operates under a charter that has been approved by our board of directors.  Each committee reviews its charter periodically, and then recommends any proposed revisions to our board of directors for approval.  The audit committee charter was last revised in October 2004 and the nominating and governance committee charter was last revised in February 2004.  The compensation committee charter was last reviewed by our compensation committee on February 9, 2007.  It is expected that our board of directors will review and consider the committee’s proposed revisions at its meeting scheduled for May 16, 2007.  Current copies of each committee's charter are available in the corporate governance section of our website at www.avid.com and can be accessed by clicking on “About Us”, "Investor Relations" and "Corporate Governance."

Members of each committee are selected by our board of directors upon recommendations from our nominating and governance committee.  Each of our standing committees is authorized to retain independent legal, accounting and other advisors, and to compensate them for their services.

Our board of directors has determined that Mr. Billings, Dr. Daley, Dr. Guttag, Ms. Hawthorne, Ms. Lenehan and Dr. Moon are independent directors as defined under the rules of The NASDAQ Stock Market, which we refer to as NASDAQ, and each of our three standing committees is composed of independent directors as defined by the NASDAQ rules.

Audit Committee

The current members of our audit committee are Mr. Billings, Ms. Hawthorne and Ms. Lenehan.  Our board of directors has determined that each member of our audit committee is an "audit committee financial expert" as defined in Item 407(d)(5) of Regulation S-K.  In addition, our board of directors has determined that the members of our audit committee meet the additional independence criteria required for audit committee membership under applicable NASDAQ listing standards.  Our audit committee's responsibilities include:

·       appointing, approving the compensation of, and assessing the independence of, our independent registered public accounting firm;

·       overseeing the work of our independent registered public accounting firm, including reviewing certain reports required to be made to the audit committee by the independent registered public accounting firm;

·       overseeing the work of our internal audit function, including approving the internal audit annual plan submitted by the internal auditing staff;

·       reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures;

·       reviewing, approving and ratifying “related person transactions” as defined on page 35;

·       monitoring our internal controls over financial reporting, disclosure controls and procedures; and

·       meeting independently with our internal auditing staff, our independent registered public accounting firm and management.

Our audit committee met 12 times and acted by written consent two times during 2006.

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Nominating and Governance Committee

The current members of our nominating and governance committee are Mr. Billings, Ms. Hawthorne and Dr. Moon.  Our nominating and governance committee's responsibilities include:

·       identifying individuals qualified to become members of our board of directors;

·       recommending to our board of directors the persons to be nominated for election as directors and to each of the committees of our board of directors;

·       reviewing and making recommendations to our board of directors with respect to management succession planning;

·       developing and recommending to our board of directors corporate governance principles; and

·       overseeing an annual evaluation of our board of directors.

Our nominating and governance committee met 14 times and acted by written consent one time during 2006.

Compensation Committee

The current members of our compensation committee are Dr. Daley, Dr. Guttag, Ms. Hawthorne and Ms. Lenehan.  The chairman of our compensation committee is responsible for setting the compensation committee’s meeting agendas and calendar after receiving input from the other members of the committee, as well as from our human resources, legal, tax and finance departments.  Our compensation committee's responsibilities include:

·       administering our executive officer compensation program;

·       overseeing the development of our company’s compensation plans and policies;

·       annually reviewing and approving corporate goals and objectives relevant to the compensation of executive officers;

·       annually reviewing and submitting its recommendations regarding executive officer compensation (including the compensation of the executive officers named in the Summary Compensation Table for Fiscal Year 2006 on page 22) to our board of directors for approval;

·       overseeing performance evaluations of our executive officers and other senior executives in conjunction with other members of our board of directors;

·       administering our equity incentive plans, including reviewing and submitting its recommendations regarding equity grants to executive officers to our board of directors for approval; and

·       reviewing and making recommendations to our board of directors with respect to director compensation.

Our compensation committee submits its recommendations regarding annual compensation of our executive officers to the independent members of our board of directors for approval.  Our board of directors believes that all independent directors, not just those on the compensation committee, should be involved in setting, analyzing, reviewing and approving executive officer annual compensation.  All other decisions regarding executive officer compensation are made by our compensation committee, including decisions related to the compensation of new executive officers and the terms of executive officer employment and change-in-control agreements.

Our compensation committee met ten times and acted by written consent six times during 2006.  Of the ten meetings, one full meeting, and portions of two other meetings, were held in executive session.  Our

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Chief Executive Officer, Chief Financial Officer, Vice President of Human Resources and General Counsel each attended a majority of the compensation committee meetings that were not held in executive session.

Compensation Committee Interlocks and Insider Participation

None of our executive officers is a member of the compensation committee of another corporation or other entity (or serves an equivalent function for such corporation or other entity) whose executive officers served on our board of directors.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The purpose of this section of our proxy statement is to give you an overview of our executive compensation program, the material decisions we made with respect to each element of our executive compensation program and the material factors that we considered in making those decisions.  Throughout this proxy statement, we refer to the individuals who served as our company’s Chief Executive Officer and Chief Financial Officer in 2006, as well as the other executive officers included in the Summary Compensation Table for Fiscal Year 2006 on page 22, as our “Named Executive Officers.”  Following this section of the proxy statement, you will find a series of tables containing specific information about the compensation earned or paid in 2006 to our Named Executive Officers.  This section of the proxy statement is designed to put that information into context within our overall executive compensation program.

Our compensation committee administers our executive officer compensation program.  The types of compensation and benefits provided to our Named Executive Officers are similar to those provided to our other executive officers.

Compensation Philosophy and Program Design

Our compensation committee believes that executive officer compensation must be designed to maximize long-term stockholder value by being closely aligned with (i) overall company performance and (ii) the contribution each executive officer makes to that performance.  To ensure that our executive officer compensation program is maximizing long-term stockholder value, our compensation committee designs the program to achieve the following objectives:

·       attract individuals who are most capable of building long-term value for our stockholders;

·       retain executive officers whose contributions are critical to our long-term success;

·       link a substantial portion of each executive officer’s compensation to our  company’s performance;

·       link each executive officer’s annual cash incentive compensation to the performance of that executive officer;

·       provide a balanced mix of cash and equity compensation to align the short- and long-term interests of our executive officers with those of our stockholders;

·       make certain that each of the components of our program is transparent so that the program is easily understood by our stockholders;

·       ensure that the compensation of each executive officer is commensurate with his or her experience and performance rather than his or her title; and

·       encourage a team-based leadership culture.

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In order to accomplish these objectives, our compensation committee takes the following actions:

·       reviews executive officer performance to determine if individual goals are met at the end of the year;

·       reviews tally sheets for executive officers, which include all components of executive officer compensation: base salary, annual cash incentive compensation, long-term equity incentive compensation, the dollar value to the executive and cost to our company of all perquisites and other personal benefits, the earnings and accumulated payout obligations under our non-qualified deferred compensation program and the estimated payout obligations under severance and change-in-control scenarios;

·       seeks input from our Chief Executive Officer on the performance of all other executive officers;

·       holds executive sessions (without our management present); and

·       seeks information from its independent compensation consultant on the performance and executive compensation of members of relevant peer groups.

In 2006, our compensation committee made the following changes to our executive compensation program:

·       reviewed more comprehensive tally sheets for our executive officers, which included all elements of compensation for the prior five years in order to understand each executive officer’s total annual compensation and the accumulated value of the compensation paid to each of them by our company;

·       responded to new accounting rules regarding the expensing of stock options by accelerating to September 2005 the grant date for half of the projected 2006 annual key performer stock options to executive officers and granting the remaining half in March 2006 in the form of restricted stock units;

·       eliminated the executive officer financial planning benefit beginning in 2007; and

·       adopted a policy to no longer provide tax “gross-up” provisions in new executive officer change-in-control agreements.

Compensation Consultant

Each year our compensation committee engages an independent outside compensation consultant to advise the committee on all matters related to compensation, including executive and board compensation.  In January 2006, our compensation committee reviewed its relationship with its then compensation consultant and, after interviewing other independent outside compensation consultants, engaged a new compensation consultant, Watson Wyatt Worldwide, in March 2006. Watson Wyatt Worldwide did not perform any other work for our company outside of advising the compensation committee on compensation matters and our company does not retain its own compensation consultant. Our compensation committee has the sole authority to hire and fire its compensation consultant. Representatives from our compensation consultant attended all of the compensation committee meetings to which they were invited, which represented 60% of the compensation committee meetings held in 2006.

The nature and scope of the compensation consultant’s assignments relating to executive compensation for 2006 and 2007 included:

·       assisting the compensation committee in articulating our company’s compensation philosophy by interviewing executive officers and other senior members of management regarding our compensation programs and evaluating our short- and long-term incentive compensation plans

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against the compensation philosophy to determine if the plans are in alignment with our compensation philosophy;

·       selecting appropriate peer groups for benchmarking executive officer and outside board of director compensation;

·       preparing executive compensation pay study and competitive assessments to benchmark 2006 and 2007 compensation. These reports addressed all aspects of executive officer compensation, including salary, short-term incentive compensation, long-term incentive compensation, equity ownership guidelines for executive officers, mix of pay, executive compensation philosophy, tally sheets and contingent payment analysis in the event of an executive officer’s termination or a change-in-control of our company;

·       examining our current short- and long-term incentive compensation plans, assessing their past effectiveness in appropriately compensating for performance and identifying gaps between our plans and market practices and desired results;

·       recommending design changes to our short- and long-term incentive compensation plans;

·       reviewing management’s proposed short-term incentive plan design, including metrics, goal setting, plan mechanics, payout rates and incentive opportunities;

·       proposing aggregate and individual award levels for our executive officers under our long-term equity incentive plan based on competitive value, aggregate dilution and expense, and appropriate internal pay equity and progression;

·       assisting with the determination of our executive officer termination benefits, including the calculation of any applicable parachute payments and gross-up amounts related to excise taxes under Internal Revenue Code Sections 280G and 4999;

·       preparing a director pay study and competitive assessment to benchmark our director compensation for 2006 and 2007; and

·       making recommendations regarding the treatment of equity upon retirement for employees, including executive officers, under our 2005 Stock Incentive Plan.

Elements of Executive Compensation

Our compensation program for our executive officers consists of the following components:

·       base salary;

·       annual cash incentive compensation;

·       long-term equity incentive compensation; and

·       other benefit programs.

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When determining 2006 executive officer compensation, our compensation committee set base salary at the median, total target annual cash compensation (base salary plus annual cash incentive compensation) at the 75th percentile and long-term equity incentive compensation between the 50th and 75th percentile of (i) a peer group of companies with similar revenues from similar industries (which we refer to as the Avid Peer Group) and (ii) a broader general industry peer group consisting of comparably sized high technology companies drawn from published survey sources, including Radford High Technology Executive Compensation Survey, Clark Consulting CHiPS Executive & Senior Management Survey and Mellon HR&IS High Technology Executive Total Compensation Survey (which we refer to as the Industry Peer Group). The companies that comprised the 2006 Avid Peer Group are: Activision, Inc., Adobe Systems Inc., Autodesk, Inc., Brocade Communications Systems, Inc., Cadence Design Systems, Inc., Citrix Systems, Inc., Cognos Incorporated, Hyperion Solutions Corporation, Juniper Networks, Inc., Lexar Media, Inc., McAfee, Inc., Mentor Graphics Corporation, Mercury Interactive Corporation, Navarre Corporation, Network Appliance, Inc., Novell, Inc., Parametric Technology Corporation and Take-Two Interactive Software, Inc.

Based on information publicly available in October 2005, the Avid Peer Group had (i) a median market capitalization of approximately $3.5 billion, compared to our market capitalization of approximately $1.6 billion and (ii) median annual revenues of approximately $868 million, compared to approximately $775 million in revenue for our company.

Actual compensation paid to our executive officers will be greater than or less than target compensation depending on how our company actually performs. In 2006, our company did not meet its minimum operating profit threshold under our company’s 2006 Employee Bonus Plan. As a result, no bonuses were paid to our executive officers under the 2006 Employee Bonus Plan. In 2006, actual total annual cash compensation (base salary plus annual cash incentive compensation) paid to our Named Executive Officers, excluding our Chief Executive Officer, ranged from 57% to 63% of target annual cash compensation. Our Chief Executive Officer’s actual annual cash compensation in 2006 was 42% of his target annual cash compensation.

When setting 2007 executive compensation, our compensation committee retained the same target levels for base salary and long-term equity compensation relative to the Avid Peer Group but it changed the total target annual cash compensation (base salary plus annual cash incentive compensation) from the 75th percentile to between the 50th and 75th percentile, and redefined the Avid Peer Group to include the following 14 companies: Activision, Inc., Advanced Digital Information Corporation, Autodesk, Inc., Cadence Design Systems, Inc., Dolby Laboratories, Inc., Intergraph Corporation, Itron, Inc., Mentor Graphics Corporation, National Instruments Corporation, Network Appliance, Inc., Parametric Technology Corporation, Synopsys, Inc., Tektronix, Inc. and THQ Inc.

The compensation committee redefined the Avid Peer Group in part due to our company’s revenue growth, our company’s expansion into the consumer video market, and mergers and acquisitions within the former Avid Peer Group.

Based on information publicly available in May 2006, the new Avid Peer Group had (i) a median market capitalization of approximately $2.2 billion, compared to our market capitalization of approximately $1.7 billion, and (ii) median annual revenues of approximately $768 million, compared to approximately $828 million in revenue for our company.

Our company does not have a policy for the allocation between either cash and non-cash or short-term and long-term incentive compensation. However, we do follow a philosophy that has led us to granting a majority of total compensation to executive officers in the form of incentive compensation. In 2006, on average, 27% of total target compensation for our Named Executive Officers, excluding our Chief Executive Officer, was fixed (base salary) and 73% was variable (annual cash incentive compensation and long-term equity incentive compensation). Of the variable compensation, 62% was performance-based

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(our company’s performance and the individual’s performance) and 38% was non-performance based (restricted stock units). For our Chief Executive Officer, 16% of his total target compensation was fixed and 84% was variable. Of his variable compensation, 64% was performance-based and 36% was non-performance-based.

As set forth in the Summary Compensation Table for Fiscal Year 2006 on page 22, on average, base salaries paid to our Named Executive Officers, excluding our Chief Executive Officer, comprised 35% of their total compensation in 2006. For our Chief Executive Officer, base salary comprised 25% of his total compensation in 2006. No bonuses were paid to our executive officers for fiscal year 2006.

Base Salary

In general, our compensation committee targets base salaries for our executive officers at the median level of the compensation range for the Avid Peer Group and the Industry Peer Group. In addition to external market data from these two peer groups, our compensation committee also considers the executive officer’s experience, personal performance and the anticipated value of his or her future impact on our company’s success, any of which factors could cause the actual base salary amount to fall above or below the median level. Base salaries for the Named Executive Officers are reviewed on an annual basis, as well as at the time of a promotion or other change in responsibilities. Merit increases usually take effect on January 1st of each year.

In the fourth quarter of 2005, David A. Krall, our President and Chief Executive Officer, provided our compensation committee with his recommendations regarding base salaries for 2006 for all of our executive officers excluding himself. Mr. Krall based his recommendation on his subjective assessment of each of our executive officers’ personal performance and external market data from the two peer groups. Our compensation committee considered Mr. Krall’s recommendations and approved salary increases for our executive officers effective January 1, 2006. The average increase in base salary for our executive officers as a group, excluding Mr. Krall, was 4.4%. In addition, in December 2005, our compensation committee determined that Mr. Krall’s base salary should be increased by 4.0%. Our compensation committee based its decision on its assessment of Mr. Krall’s performance and external market data from the two peer groups.

In the fourth quarter of 2006, Mr. Krall provided our compensation committee with his recommendations regarding base salaries for 2007 for all of our executive officers excluding himself. The compensation committee concurred with Mr. Krall’s recommendations and determined that, given our company’s overall performance in 2006, none of our Named Executive Officers, including Mr. Krall, would receive an increase in base salary for 2007.

Annual Cash Incentive Compensation

A significant portion of each of our executive officers’ total annual cash compensation is dependent on our company’s achievement of financial objectives set forth in our 2006 Employee Bonus Plan. The 2006 Employee Bonus Plan is a broad-based plan used to provide incentives to executive and non-executive employees. In 2006, virtually all of our employees who did not participate in a sales commission program were eligible to participate in the 2006 Employee Bonus Plan, allowing them to share in the growth and success of our company.

Any bonus payout under our 2006 Employee Bonus Plan to our executive officers is based on the following three factors, which are discussed in more detail below:

·       the executive officer’s cash bonus target;

·       the financial performance of our company; and

·       the executive officer’s individual performance.

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In December 2005, our compensation committee established a 2006 annual cash bonus target for each of our executive officers using the data collected from the Avid Peer Group and the Industry Peer Group. In establishing the annual cash bonus targets, our compensation committee’s goal was to set targets at a level such that total annual cash compensation paid to each of our executive officers if the target was achieved would be at approximately the 75th percentile of total annual cash compensation paid to similarly situated executive officers in the two peer groups. For 2006, cash bonus targets for our executive officers ranged from 50% to 140% of each executive officer’s base salary.

For purposes of the 2006 Employee Bonus Plan, our company’s financial performance for 2006 was measured by revenue and operating profit, and was evaluated as follows:

·       in order for our executive officers to receive any bonus payout for 2006, revenues for 2006 needed to exceed 2005 revenues (as such revenues are adjusted for any acquisitions made by us) and a minimum operating profit needed to be reached. If our company did not achieve both of these thresholds, no bonus payouts would be paid to any of our executive officers with respect to fiscal year 2006. If both of these thresholds were met, each of our executive officers would become eligible to receive a percentage of his or her target. When setting these thresholds, our compensation committee believed the thresholds were reasonably achievable;

·       if our company achieved its target operating profit, each of our executive officers would become eligible to receive 100% of his or her target, subject to further adjustment based on his or her performance. If we achieved operating results above the threshold but below the target, the bonus payout would be an amount less than 100% of the target; and

·       if our company exceeded its target operating profit, 15% of the excess amount would be added to the total bonus pool available for all participating employees, including our executive officers.

With respect to individual performance, our compensation committee retains the discretion to increase each of our executive officers’ bonus payout by as much as 20% of such executive officer’s target or reduce it to zero, based upon the committee’s evaluation of the executive officer’s overall performance and contributions to our company.

In 2006, our company exceeded its 2005 revenues but did not meet the minimum operating profit threshold. As a result, our compensation committee did not award any bonuses to our executive officers under the 2006 Employee Bonus Plan.

Long-Term Equity Incentive Compensation

Long-term equity incentive compensation for our executive officers consists of stock options, time-vested restricted stock and time-vested restricted stock units (we refer to all three types of equity incentive compensation as “equity incentive awards”), and is intended to represent the largest portion of total compensation for our executive officers. Our compensation committee grants equity incentive awards to our executive officers (and to other employees) under our annual key performer equity incentive awards program. In addition to annual key performer equity incentive awards, our company also grants equity incentive awards to our executive officers (and other employees) when they join our company or are promoted, based upon the employee’s job level and skills, the requirements of the position and comparative compensation data of similarly situated employees of relevant peer group companies.

Our compensation committee approved annual key performer equity incentive awards for 2007 in February 2007 based upon a budget that was approved by our board of directors. Factors affecting the 2007 awards for executive officers are discussed in further detail below. Our board of directors has adopted the following procedures for future grants of long-term equity compensation awards. At the last regularly scheduled meeting of our compensation committee each year, the committee will determine the company’s annual key performer equity incentive awards budget for the following year, including the planned value of

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shares that may be granted by our Chief Executive Officer to non-executive employees under specific delegated authority and the proposed individual annual equity incentive awards to executive officers. The compensation committee will then formally recommend this budget to our full board of directors. At our board of directors’ last scheduled meeting each year, our board of directors will review and approve (with or without changes) our compensation committee’s recommendation. At the first regularly scheduled meeting of our compensation committee following our filing of our Annual Report on Form 10-K with the Securities and Exchange Commission, our compensation committee will make annual key performer grants, effective as of the date of such meeting, to all executive officers who have been selected to receive annual equity incentive awards. Our compensation committee may make other equity incentive awards from time to time as it deems appropriate. Neither our company nor our board of directors, including our compensation committee, has any plan, program or practice of timing equity incentive awards in coordination with the release or withholding of material non-public information.

Historically, our compensation committee granted key performer equity awards to our executive officers in the form of stock options. In determining the size of each stock option award to our executive officers, our compensation committee considered the following two measures: (i) the estimated value of the stock option award based on the Black-Scholes pricing model and (ii) the number of shares underlying the stock option award as a percentage of the total number of shares of our common stock outstanding. In reviewing these two measures, our compensation committee focused on values in the 50th to 75th percentile relative to similarly situated executive officers in the Avid Peer Group and the Industry Peer Group. Our compensation committee also considered each executive officer's individual performance. Stock options are awarded at the closing price of our company’s common stock on NASDAQ on the date of grant.

In 2005, to alleviate the potentially dilutive effect of long-term equity incentive compensation, our compensation committee restricted, on an aggregate basis, the total number of stock option awards that could be granted to all of our employees and members of our board of directors to 3% of the total number of shares of common stock outstanding on December 31, 2004, subject to revision based on changes in circumstances. In September 2005, in anticipation of a new Financial Accounting Standards Board rule requiring companies to expense stock options beginning in 2006, our compensation committee accelerated half of the projected 2006 key performer stock option awards to reduce the financial impact to our company of such awards in the future. The remaining 50% of the 2006 key performer stock option awards were granted in March 2006; however, our compensation committee elected to make these awards in the form of restricted stock units rather than stock options. Restricted stock units represent the promise to receive shares of our common stock in the future. No ownership of the underlying common stock is conveyed when restricted stock units are awarded and the restricted stock units do not carry voting rights or other stockholder rights until the restricted stock units vest. Our compensation committee made this decision after considering the cost impact associated with mandatory stock option expensing, the higher perceived value to our employees of restricted stock as compared to stock options and the recent trend in the compensation field of providing a mixed portfolio of appreciation (stock options) and full-value (restricted stock) equity compensation awards. The compensation committee chose restricted stock units rather than restricted stock for the following reasons: (i) restricted stock units receive more favorable tax treatment for non-U.S. employees, (ii) with restricted stock units, employees do not need to assess the pros and cons of filing an 83(b) election form with the Internal Revenue Service, which presents a financial risk to employees if our common stock price declines or the restricted stock does not vest, and (iii) the lower administrative costs to administer a restricted stock unit program. To convert a stock option award to restricted stock or restricted stock units, our compensation committee divided the expected Black-Scholes value of the stock option award that would have been delivered by the then-current share price of our common stock. This resulted in a ratio of one share of restricted stock or one restricted stock unit for every 2.33 shares that would have been granted under a stock option.

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During 2006, 610 of our employees received restricted stock units under our annual key performer equity incentive awards program, including our executive officers. Our executive officers received restricted stock units representing 76,601 shares of common stock under our stock incentive plans, or 37% of the total restricted stock units awarded to our employees. Such restricted stock units vest in four equal annual installments beginning on the first anniversary of the date of grant.

When determining the total budget for 2007 long-term equity incentive compensation for our company, our compensation committee replaced its historic dilution-based approach with an aggregate expense-based approach. Under this aggregate expense-based approach, our compensation committee focused on:

·       delivering long-term equity incentive compensation to our executive officers between the 50th and 75th percentile of the Avid Peer Group;

·       the associated cost to our company of delivering this value to our executive officers; and

·       the allocation of this value among our executive officers.

Based on this analysis, our compensation committee set the value of long-term equity incentive compensation for our executive officers in 2007 between the 50th and 75th percentile of the Avid Peer Group. To determine the forms of equity in which this value would be delivered, our compensation committee reviewed current trends in the market as well as the perceived value of the various forms of equity. In addition, our compensation committee sought input from members of our management on our company’s long-term equity incentive program objectives. Our compensation committee then evaluated the alternative forms of equity against these objectives. After considering all of this information, our compensation committee determined that 50% of the 2007 long-term equity incentive compensation value would be delivered to our executive officers in the form of time-based stock options and 50% would be delivered in the form of time-based restricted stock units. By using a mix of time-based stock options and time-based restricted stock units, our compensation committee is able to compensate executive officers for sustained increases in our company’s stock performance through the grant of stock options, as well as promote retention and equity ownership through the award of time-based restricted stock units coupled with stock ownership guidelines described below.

Stock Ownership Guidelines

We introduced stock ownership guidelines in 2006 to further align the interests of our executive officers with those of our stockholders. These guidelines became effective on January 1, 2007. Under the guidelines, our executive officers are expected to hold our common stock in an amount at least equal to a multiple of their base salary as determined by their position. The guidelines range from one times base salary for certain of our executive officers to three times base salary for our Chief Executive Officer. For purposes of these guidelines, stock ownership includes shares as to which our executive officers have direct ownership, including restricted stock and restricted stock units, but does not include unexercised stock options. Our executive officers are expected to meet their ownership guidelines within three years of becoming subject to the guidelines.

Personal Benefits and Perquisites

In 2006, other than receiving certain financial planning advice with a maximum cap of $3,000, our executive officers did not receive any other personal benefits that are not available to all other eligible employees. From time to time, our company has reimbursed our executive officers and other employees for reasonable expenses associated with relocation and associated tax payments. In 2006, Messrs. Krall, Rockwell and Rastogi received reimbursement for relocation benefits and/or associated tax payments in connection with relocations from Massachusetts to California. Our executive officers are eligible to

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participate in the same medical and life insurance programs as all of our other eligible employees and are eligible to receive the same employer match under our 401(k) retirement program. There are no outstanding loans to any of our executive officers. We believe that the ideal corporate culture is one in which executive officers operate under the same standards as all other employees. As a result, we do not provide our executive officers with car allowances, reserved parking spaces, separate dining or health club facilities or other personal benefit perquisites. As further evidence of our commitment to this corporate culture, we elected to discontinue reimbursing our executive officers for financial planning advice beginning in January 2007.

Tax and Accounting Implications

Policy With Respect To Tax Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended, places a limit of $1,000,000 on the amount of compensation that a public company may deduct in any one year with respect to each of its five most highly paid executive officers. There is an exception to the $1,000,000 limit for performance-based compensation meeting certain requirements. Annual cash incentive compensation and stock option awards are generally considered performance-based compensation and are, therefore, fully deductible. Salary and time-vesting restricted stock or restricted stock units are generally not deductible. Our compensation committee's primary objective is to establish compensation programs that maximize the creation of long-term stockholder value and, therefore, the committee has not adopted a policy requiring all executive compensation to be deductible. However, our compensation committee reviews the potential effect of Section 162(m) periodically and, if consistent with its goal of increasing stockholder value, seeks to structure executive officer compensation in a manner that is intended to allow deductions under Section 162(m). Our compensation committee reserves the right to use its judgment to authorize compensation payments which may be subject to the Section 162(m) limitation when it believes such payments are appropriate and in the best interests of our stockholders, after taking into consideration changing business conditions and the performance of our employees receiving such compensation.

In 2006, the total non-performance–based compensation for one of our Named Executive Officers, former Vice President and General Manager of Avid Video, Charles L. Smith, was above the $1,000,000 threshold due to the payment of severance benefits upon the termination of his employment in November 2006. As a result, we will not be able to deduct a portion of his total compensation (approximately $309,000).

Non-Qualified Deferred Compensation

The American Jobs Creation Act of 2004 changed the tax rules applicable to non-qualified deferred compensation arrangements.  The final rules have not become effective yet, but based on the guidance that has been released to date from the Internal Revenue Service, our company believes we are in good faith compliance with The American Jobs Creation Act of 2004 which became effective January 1, 2005.

Accounting for Stock-Based Compensation

Beginning on January 1, 2006, our company began accounting for stock-based compensation in accordance with the requirements of Financial Accounting Standards Board Statement 123(R).  For a discussion of the role this new rule played in our compensation committee’s determination of the types of long-term equity compensation to award our executive officers in 2006 and 2007, please see page 17 of this proxy statement under the heading “Long-Term Equity Incentive Compensation.”

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Conclusion

Our compensation committee has reviewed all components of our company’s compensation program for executive officers, including base salary, annual cash incentive compensation, long-term equity incentive compensation, the dollar value to the executive and cost to the company of all perquisites and other personal benefits, the earnings and accumulated payout obligations under our non-qualified deferred compensation program and the estimated payout obligations under severance and change-in-control scenarios.  Our compensation committee reviewed tally sheets for each of our executive officers setting forth all the above components and attaching dollar amounts under various payout scenarios.  Our compensation committee also studied the accumulated value delivered to our executive officers arising from our compensation to them.

In determining the compensation paid to each of our executive officers in 2006, our compensation committee also considered the relative difference between our Chief Executive Officer’s compensation and the compensation paid to all of our other executive officers.

Our compensation committee believes our compensation programs should be competitive enough to attract and retain the talented managers necessary to build the business, provide significant rewards for strong financial performance and align the interests of management with our stockholders.

REPORT OF THE COMPENSATION COMMITTEE OF AVID’S BOARD OF DIRECTORS

The compensation committee of the board of directors has reviewed and discussed the Compensation Discussion and Analysis of this proxy statement with the company’s management.  Based on its review and discussions with management, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

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SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 2006

The table below summarizes 2006 compensation paid to or earned by our Chief Executive Officer, our Chief Financial Officer, our three other most highly compensated executive officers and two former executive officers, who we refer to collectively as our Named Executive Officers.

(1)          Represents the amount of compensation cost to our company in fiscal year 2006 with respect to awards granted in fiscal year 2006 and previous fiscal years, as computed in accordance with Statement of Financial Accounting Standards (SFAS) No. 123(R). For option awards outstanding at the time we adopted SFAS No. 123(R), our compensation cost has been estimated as if we utilized the modified prospective transition method. In order to perform these calculations, the fair value of each stock option is determined on the date of grant using the Black-Scholes option pricing model and the fair value of each stock award is measured by the closing price of our company’s common stock on NASDAQ on the date of grant. In connection with Mr. Rastogi’s promotion to Vice President of Corporate Development in September 2005, he received an option to purchase 20,000 shares of common stock. Using the Black-Scholes option pricing model, this stock option has a fair value on the date of grant equal to $147,912. In connection with Mr. Smith’s termination of employment on November 15, 2006, he forfeited options to purchase 86,000 shares of common stock, 2,000 shares of restricted stock and 5,604 restricted stock units. In connection with Mr. Bentivegna’s termination of employment on November 15, 2006, he forfeited options to purchase 62,062 shares of common stock, 2,000 shares of restricted stock and 5,604 restricted stock units. See Note L of the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2006 regarding assumptions underlying valuation of equity awards.

(2)          None of our executive officers received bonuses for fiscal year 2006 under our 2006 Employee Bonus Plan.

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(3)          During 2006, none of our executive officers earned preferential or above-market earnings on deferred compensation.

(4)          “All Other Compensation” for each of the Named Executive Officers includes the following:

 

(a)          In 2005, Messrs. Krall and Rockwell relocated from Massachusetts to California. Messrs. Krall and Rockwell were reimbursed $149,190 and $89,625, respectively, for relocation expenses in 2005. Mr. Rastogi relocated from Massachusetts to California in 2006. These amounts represent reimbursement of relocation expenses incurred in 2006 related to the relocation of Messrs. Rockwell and Rastogi.

(b)         Represents tax reimbursements that Messrs. Krall, Rockwell and Rastogi received in connection with their relocation from Massachusetts to California.

(c)          Mr. Smith’s employment was terminated on November 15, 2006. Pursuant to the terms of his executive employment agreement, he is entitled to receive a total severance package with a value of $664,701, which includes (i) cash severance of $333,000 payable as follows:  50% to be paid six months after the date of termination and the remaining 50% to be paid in equal bi-weekly installments in accordance with our company’s normal payroll practices beginning the seventh month after the date of termination, (ii) 12 months of continued medical coverage following the termination of his employment at an estimated cost of $14,196, (iii) 12 months acceleration of vesting of all unvested equity awards as of his termination date valued as follows: $140,677 representing the SFAS No. 123(R) compensation cost resulting from the acceleration of vesting of stock awards and $161,828 representing the SFAS No. 123(R) compensation cost resulting from the acceleration of vesting of stock options and (iv) outplacement benefits at an estimated cost of $15,000. Termination Benefits also includes the payment of $25,615 to Mr. Smith for unused vacation time.

(d)         Mr. Bentivegna’s employment was terminated on November 15, 2006. Pursuant to the terms of his executive employment agreement, he is entitled to receive a total severance package with a value of $617,362, which includes (i) cash severance of $322,000 payable as follows:  50% to be paid six months after the date of termination and the remaining 50% to be paid in equal bi-weekly installments in accordance with our company’s normal payroll practices beginning the seventh month after the date of termination, (ii) 12 months of continued medical coverage following the termination of his employment at an estimated cost of $14,196, (iii) 12 months acceleration of vesting of all unvested equity awards as of his termination date valued as follows: $140,677 representing the SFAS No. 123(R) compensation cost resulting from the acceleration of vesting of stock awards and $125,489 representing the SFAS No. 123(R) compensation cost resulting from the acceleration of vesting of stock options and (iv) outplacement benefits at an estimated cost of $15,000. Termination Benefits also includes the payment of $7,431 to Mr. Bentivegna for unused vacation time.

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GRANTS OF PLAN-BASED AWARDS FOR FISCAL YEAR 2006

The following table sets forth information regarding (i) our 2006 Employee Bonus Plan awards granted to each Named Executive Officer and (ii) our key performer restricted stock unit awards granted to each Named Executive Officer.

(1)          These awards were granted pursuant to our 2006 Employee Bonus Plan, an annual non-equity incentive plan. Bonus awards under our 2006 Employee Bonus Plan, which are based on the achievement of various company milestones and individual performance, are determined as the result of formulae contained in the 2006 Employee Bonus Plan. Our 2006 Employee Bonus Plan is described in detail in the Compensation Discussion and Analysis above. The “Target” is the amount our Named Executive Officers would receive assuming our company achieved its target operating profit in 2006 and 2006 revenues exceeded 2005 revenues. For our Named Executive Officers, our 2006 Employee Bonus Plan begins to pay out when our company achieves its minimum operating profit for 2006. Our 2006 Employee Bonus Plan does not have a maximum limit on the amount of the award that may be paid under the plan. As a result, maximum payouts are not readily ascertainable for each Named Executive Officer. Even if our company milestones are met, our compensation committee has the discretion to decrease a bonus to a Named Executive Officer to zero. Because we did not achieve our minimum operating profit in 2006, no bonuses were paid to our Named Executive Officers under our 2006 Employee Bonus Plan.

(2)          These restricted stock units were granted pursuant to our 2005 Stock Incentive Plan, as amended, in connection with our annual key performer equity incentive award program. These restricted stock units vest in four equal annual installments beginning on the one year anniversary of the grant date.

(3)          These amounts represent the grant date fair value, computed in accordance with SFAS No. 123(R), of restricted stock units granted to our Named Executive Officers in 2006. The grant date fair value was determined by multiplying the total number of shares of our common stock underlying the restricted stock units by $47.02, the closing price of our company’s common stock on NASDAQ on the grant date in accordance with SFAS No. 123(R).

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OUTSTANDING EQUITY AWARDS AT 2006 FISCAL YEAR-END

The following table sets forth information regarding the outstanding equity awards held by our Named Executive Officers as of December 31, 2006.

       (1) For the Named Executive Officers, unvested stock options and restricted stock units vest in full if, within two years following a change-in-control of our company, the Named Executive Officer is terminated by us without Cause (as defined in the change-in-control agreement) or if the Named Executive Officer terminates his employment with us for Good Reason (as defined in the change-in-control agreement).

       (2) These unvested shares vest in full on January 10, 2007.

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       (3) 2.083% of the shares subject to this option vest each month until February 10, 2008 when all shares shall be vested.

       (4) In October 2005, our board of directors approved a partial acceleration of the vesting of this option so that the option became immediately exercisable as to the number of shares that would have been exercisable as of December 31, 2007. Beginning on January 17, 2008, 2.083% of the shares subject to this option vest each month until February 17, 2009 when all shares shall be vested.

       (5) 2.083% of the shares subject to this option vest each month until September 2, 2009 when all shares shall be vested.

       (6) 2.083% of the shares subject to this option vest each month until December 31, 2007 when all shares shall be vested.

       (7) 25% of these unvested shares will vest annually on March 9th of each of 2007, 2008, 2009 and 2010.

       (8) This amount was determined by multiplying the total number of shares of our common stock underlying the restricted stock units by $37.26, the closing price of our company’s common stock on NASDAQ on December 29, 2006.

       (9) Mr. Smith’s employment was terminated on November 15, 2006. Pursuant to the terms of his executive employment agreement, Mr. Smith received an additional one year vesting on all unvested equity awards that he held as of his termination date. All other unvested equity awards that he held as of his termination date terminated. Mr. Smith had 90 days from his termination date to exercise his vested stock options.

(10) Mr. Bentivegna’s employment was terminated on November 15, 2006. Pursuant to the terms of his executive employment agreement, Mr. Bentivegna received an additional one year vesting on all unvested equity awards that he held as of his termination date. All other unvested equity awards that he held as of his termination date terminated. Mr. Bentivegna had 90 days from his termination date to exercise his vested stock options.

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