New Avid Bonus Plan Contemplates “Reorganization Event”

Posted by Joe Zaller
Aug 01 2013

Avid recently established a new employee bonus plan, whereby payments will be triggered upon the earlier of:

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(i)            filing by the Company of its Annual Report on Form 10-K with respect to the year ended December 31, 2012 (the “10-K Filing Date”);

 

(ii)           immediately prior to consummation of a Reorganization Event (as defined in the Company’s Amended and Restated 2005 Stock Incentive Plan);

              

(iii)          with respect to Participants who are not officers of the Company (as defined in Rule 16a-1 promulgated pursuant to the Securities Exchange Act of 1934, as amended) as of such date, March 31, 2014; and

              

(iv)          with respect to Participants who are officers of the Company (as defined in Rule 16a-1 promulgated pursuant to the Securities Exchange Act of 1934, as amended) as of March 31, 2014, such date on or subsequent to March 31, 2014 as may be determined in the sole discretion of the Committee.

 

According to the terms of the program,  “In no event shall a Bonus Payment Date be subsequent to December 31, 2014, and the Plan shall terminate upon the earlier of (x) all Bonus Payments being made pursuant to the Plan and (y) December 31, 2014.”

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Companies establish bonus schemes all the time, and at a total of $1.7m, this one is nothing unusual for a company of Avid’s size and available cash ($56.1m as of June 30, 2013).

So what’s the big deal?

It’s entirely possible that there is no big deal here.  The company will file its delayed Form 10-K with the SEC and carry on as usual.

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However, it is interesting to note that Avid has specifically said a potential time for bonus payments is:

 “immediately prior to consummation of a Reorganization Event (as defined in the Company’s Amended and Restated 2005 Stock Incentive Plan)”

 

According to Avid’s Amended and Restated 2005 Stock Incentive Plan (found in Appendix C of this document):

“(1)    Definition.    A “Reorganization Event” shall mean:

(i) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled,

(ii) any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction or

(iii) any liquidation or dissolution of the Company.”

 

It’s widely known that Avid is in the middle of a major accounting review.

Avid replaced its CFO in April 2013, and announced in July 2013 that it has also replaced its  Chief Accounting Officer.

 

In February 2013, Avid delayed the release of its Q4 and full year 2012 results, saying it needed “additional time for the company to evaluate its current and historical accounting treatment related to bug fixes, upgrades and enhancements to certain products which the company has provided to certain customers.”

 

In March 2013 the company received notice of potential delisting from NASDAQ for failure to submit its 2012 10-K filing to the SEC.

 

In May 2013, Avid said that following an internal investigation into its current and historical accounting treatment related to software updates, the company concluded that its “unaudited interim consolidated financial statements for the quarterly periods ended (i) September 30, 2012 and 2011, (ii) June 30, 2012 and 2011, and (iii) March 31, 2012 and 2011, as well as its audited consolidated financial statements for the years ended December 31, 2011, 2010 and 2009 should no longer be relied upon because of errors in the application of US GAAP.”

At that time Avid said it is “working diligently to complete the review and continues to focus its efforts on completing the Form 10-K filing as soon as possible,” and that it intends to submit a plan to NASDAQ staff as to how it intends to regain compliance with continued listing requirements.

 

There’s no doubt that these public disclosures, along with a raft of shareholder lawsuits related to the company’s accounting review are probably making it a bit stressful at Avid these days.

But as they say: “the show must go on,” and Avid’s employees must continue to serve the needs of their customers with a “business as usual” mentality, despite what must be a very distracting time for the company.  Thus it’s only logical that the Avid would seek to reward and retain its key employees through the new bonus pool.

It also seems logical that Avid would be considering all its options during a time like this, and judging by the language of the bonus agreement the company is planning for a variety of outcomes – three of which include business as usual and no change in corporate structure or company ownership.

In the event that something does happen to trigger a “Reorganization Event,” as defined by the company’s Amended and Restated 2005 Stock Incentive Plan, it’s probably safe to assume this is far more likely to be a merger or sale than  a liquidation of the company, which at the end of the day is another “business as usual” outcome.

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Related Content:

Avid 2013 Remediation Bonus Plan

Amended and Restated 2005 Stock Incentive Plan

Avid Replaces Chief Accounting Officer

Avid Replaces Chief Financial Officer

Avid Says its 2009 – 2011 Financial Statements No Longer Reliable

Avid Delays Release of Q4 and Full Year 2012 Results, Shares Fall

Avid Receives Notice of Potential Delisting From NASDAQ for Failure to Submit 10-K Filing

Greenfield Resigns from Avid Board of Directors

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