POLYCOM INC
10-Q, 1997-08-13
TELEPHONE & TELEGRAPH APPARATUS
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                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549
                                           
                                      FORM 10-Q
                                           
 _X_  Quarterly report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934


                     FOR THE QUARTERLY PERIOD ENDED JUNE 29, 1997
                                           
                                          or
                                           
 ___   Transition report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934

                  For the transition period from ___________ to ___________
                                           
                                           
                                COMMISSION FILE NUMBER     0-27130
                                           
                                     POLYCOM, INC.
                -----------------------------------------------------
                (Exact name of registrant as specified in its charter)
                                           

           DELAWARE                                          94-3128324
 -------------------------------                      ----------------------
 (State or other jurisdiction of                         (I.R.S. employer
  incorporation or organization)                      identification number)
                                           
2584 JUNCTION AVENUE,  SAN JOSE, CA.                         95134-1902
- ---------------------------------------               ----------------------
(Address of principal executive offices)                     (Zip Code)


   (Registrant's telephone number, including area code, is (408) 474-2900)
                                           

Indicate by check mark whether the Registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
Registrant was required to file such reports) and (2) has been subject to 
such filing requirements for the past 90 days.

                                            Yes  _X_         No ____
                                           
There were 19,172,594 shares of the Company's Common Stock, par value $.0005,
outstanding on August 8, 1997.

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<PAGE>


                                    POLYCOM, INC.
                                           
                                        INDEX
                                           
                                 REPORT ON FORM 10-Q
                         FOR THE QUARTER ENDED JUNE 30, 1997
                                           
                                           
                                                                      Page
                                                                     Number
                                                                     ------

PART I    FINANCIAL INFORMATION

  Item 1  Financial Statements:

          Condensed Consolidated Balance Sheets as of June 30, 1997
          and December 31, 1996.......................................... 3

          Condensed Consolidated Statements of Operations for the 
          Three and Six Month Periods Ended June 30, 1997 and 
          June 30, 1996.................................................. 4

          Condensed Consolidated Statements of Cash Flows for the Six
          Month Periods Ended June 30, 1997 and June 30, 1996............ 5

          Notes to Condensed Consolidated Financial Statements........... 6

  Item 2  Management's Discussion and Analysis of Financial Condition 
          and Results of Operations...................................... 9

PART II   OTHER INFORMATION

          Item 1 - Legal Proceedings.................................... 17
          Item 2 - Change in Securities................................. 17
          Item 3 - Default Upon Senior Securities....................... 17
          Item 4 - Submission of Matters to a Vote of Security Holders.. 17
          Item 5 - Other Information.................................... 17
          Item 6 - Exhibits and Reports on Form 8-K..................... 17

SIGNATURE............................................................... 18

                                                                              2

<PAGE>

PART 1                        FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                 POLYCOM, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)

                                                    June 30,    December 31,
                                                      1997         1996     
                                                  -----------   ------------
                                                  (Unaudited)               
ASSETS
Current assets:
  Cash and cash equivalents                       $ 14,905       $  9,548 
  Short-term investments                             5,003         10,101
  Accounts receivable, net of allowance for 
    doubtful accounts of $442 at June 30, 1997 
    and $443 at December 31, 1996                    5,241          6,965
  Inventories                                        8,197          7,458
  Other current assets                               1,050            384
                                                  --------       --------
    Total current assets                            34,396         34,456
Fixed assets, net                                    3,457          3,164
Other assets                                           367            100
                                                  --------       --------
      Total assets                                $ 38,220       $ 37,720
                                                  --------       --------
                                                  --------       --------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                $  5,610       $  4,307
  Accrued and other current liabilities              2,187          2,192
                                                  --------       --------
    Total current liabilities                        7,797          6,499
                                                  --------       --------
Stockholders' equity:
  Common stock                                          10             10
  Additional paid-in capital                        42,799         42,521
  Notes receivable from stockholders                   (19)           (29)
  Accumulated deficit                              (12,367)       (11,281)
                                                  --------       --------
    Total stockholders' equity                      30,423         31,221
                                                  --------       --------
      Total liabilities and stockholders' equity $  38,220      $  37,720 
                                                  --------       --------
                                                  --------       --------


   The accompanying notes are an integral part of these financial statements.


                                                                              3

<PAGE>


                                     POLYCOM, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                     (UNAUDITED)
                       (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                       Three Months Ended    Six Months Ended
                                       June 30,  June 30,   June 30,  June 30,
                                         1997      1996       1997     1996
                                       -------    ------     -------  -------

Net revenues                           $11,500    $9,250     $22,010  $17,488
Cost of net revenues                     6,148     4,287      11,801    8,059
                                       -------    ------     -------  -------
    Gross profit                         5,352     4,963      10,209    9,429
                                       -------    ------     -------  -------

Operating expenses:
  Sales and marketing                    2,704     2,199       5,386    4,270
  Research and development               2,380     2,023       4,601    3,793
  General and administrative               763       540       1,453    1,038
  Acquisition expenses                     340         -         340        -
                                       -------    ------     -------  -------
    Total operating expenses             6,187     4,762      11,780    9,101
                                       -------    ------     -------  -------

Operating income/(loss)                   (835)      201      (1,571)     328

Interest income, net                       270       200         552      224
Other expense, net                          47        12          67       29
                                       -------    ------     -------  -------
Net income/(loss)                      $  (612)   $  389     $(1,086) $   523 
                                       -------    ------     -------  -------
                                       -------    ------     -------  -------

Net income/(loss) per share            $ (0.03)   $ 0.02     $ (0.06) $  0.03 
                                       -------    ------     -------  -------
                                       -------    ------     -------  -------

Weighted average shares outstanding     19,043    18,975      19,001   18,069 
                                       -------    ------     -------  -------
                                       -------    ------     -------  -------


   The accompanying notes are an integral part of these financial statements.


                                                                              4

<PAGE>


                                     POLYCOM, INC.
                    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      (UNAUDITED)
                                     (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   Six Months Ended
                                                                 June 30,     June 30,
                                                                   1997         1996
                                                                 -------     --------
<S>                                                              <C>         <C>
Cash flows from operating activities:
Net income/(loss)                                                $(1,086)   $     523 
 Adjustments to reconcile net income/(loss) to net cash 
     provided by/(used in) operating activities:
  Depreciation and amortization                                      874          726 
  Provision for excess and obsolete inventories                      412          164 
 Changes in assets & liabilities:
   Accounts receivable                                             1,724       (2,110)
   Inventories                                                    (1,151)      (1,848)
   Prepaid expenses and other assets                                (933)        (100)
   Accounts payable                                                1,303        1,182 
   Accrued and other liabilities                                      (5)         365 
                                                                 -------    ---------
Net cash provided by/(used in) operating activities                1,138       (1,098)
                                                                 -------    ---------
Cash flows from investing activities:
   Acquisition of fixed assets                                    (1,167)        (315)
   Proceeds from sale and maturity of short term investments       7,353       83,929 
   Purchases of short term investments                            (2,255)    (101,773)
                                                                 -------    ---------
Net cash provided by/(used in) investing activities                3,931      (18,159)
                                                                 -------    ---------
Cash flows from financing activities:
   Proceeds from issuance of notes payable                             -        1,824 
   Repayment of notes payable and capital leases                       -       (4,816)
   Proceeds from issuance of common stock, net of repurchases        278       20,078 
   Proceeds from repayment of notes receivable from stockholders      10           60 
                                                                 -------    ---------
Net cash provided by financing activities                            288       17,146 
                                                                 -------    ---------
Net increase/(decrease) in cash and cash equivalents               5,357       (2,111)
Cash and cash equivalents, beginning of year                       9,548        3,539 
                                                                 -------    ---------
Cash and cash equivalents, end of period                         $14,905    $   1,428 
                                                                 -------    ---------
                                                                 -------    ---------
Supplemental disclosure of cash flow information:
 Cash paid for interest                                          $     -    $     101 
Supplemental schedule of noncash investing and financing:
 Fixed assets financed by notes payable                          $     -    $     329 
 Common stock issued for notes from shareholders                 $     -    $      17 
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                                                              5

<PAGE>

                                    POLYCOM, INC.
                 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                     (UNAUDITED)
                                           
                                           
1. BASIS OF PRESENTATION

The condensed consolidated balance sheet as of June 30, 1997 and the 
condensed consolidated statements of operations for the three and six month 
periods ending June 30, 1997 and 1996 and condensed consolidated statements 
of cash flows for the six month periods ending June 30, 1997 and 1996, have 
been prepared by the Company without audit.  

The preparation of financial statements in conformity with United States' 
generally accepted accounting principles requires management to make 
estimates and assumptions that affect the reported amounts of assets and 
liabilities and disclosure of contingent assets and liabilities at the date 
of the financial statements and the reported amounts of revenues and expenses 
during the reported period.  Actual results could differ from those estimates.

In the opinion of management, all adjustments (which include only normal 
recurring adjustments) necessary to present fairly the financial position, 
results of operations and cash flows at June 30, 1997 and for all periods 
presented have been made.  The condensed consolidated balance sheet at 
December 31, 1996 has been derived from the audited financial statements at 
that date.

Certain information and footnote disclosures normally included in financial 
statements prepared in accordance with generally accepted accounting 
principles have been condensed or omitted pursuant to the Securities and 
Exchange Commission rules and regulations.  These condensed financial 
statements should be read in conjunction with the audited financial 
statements and notes thereto included in the Company's Report on Form 10-K 
dated March 26, 1997, as amended on May 6, 1997, and filed with the 
Securities and Exchange Commission.

The Company uses a 52-53 week fiscal year.  Each reporting period ends on the 
last Sunday of a month.  As a result, a fiscal year may not end as of the 
same day as the calendar period.  For convenience of presentation, the 
accompanying consolidated financial statements have been shown as ending on 
June 30 and December 31 of each applicable period.

This Report on Form 10-Q contains forward looking statements that involve 
risks and uncertainties, including possible fluctuations in quarterly 
results; the market acceptance of ShowStation and the risks associated with 
this emerging market; the acceptance of SoundPoint, SoundStation Premier and 
other new products; the timely launch of the color ShowStation product; the 
success of the manufacturing transfer of the SoundStation Premier product 
line; the impact of competitive products and pricing; the completion of the 
potential merger with ViaVideo Communications, Inc. and the risks associated 
with integrating the two companies; the profitability of the 
videoconferencing division; and the other risks detailed from time to time in 
the Company's SEC reports, including the Form 10-K dated March 26, 1997, as 
amended on May 6, 1997, and the Form 10-Qs.

2. INVENTORIES

Inventories are stated at the lower of cost or market.  Cost is determined in 
a manner which approximates the first-in, first-out ("FIFO") method.  
Inventories consisted of the following (in thousands): 

                                           June 30,      Dec 31,
                                               1997         1996
                                               ----         ----
               Raw Materials              $  2,693     $  3,252
               Finished Goods                5,504        4,206
                                          --------     --------
                                          $  8,197     $  7,458
                                          --------     --------
                                          --------     --------


                                                                              6

<PAGE>


3. BANK LINE OF CREDIT

On July 11, 1997, the Company signed an agreement with Silicon Valley Bank 
for a $5.0 million bank revolving line of credit which replaces the line of 
credit that expired on April 15, 1997 but was extended until July 31, 1997.  
Borrowings under the line are unsecured and bear interest at the bank's prime 
rate (currently 8.5%).  Borrowings under the line are subject to certain 
financial covenants and restrictions on indebtedness, equity distributions, 
financial guarantees, business combinations and other related items. The line 
expires in July 1999.  

4. STOCK OPTION REPRICING

In March 1997, the Company implemented an option cancellation and regrant 
program for employees (other than executive officers) holding stock options 
with exercise prices per share in excess of $4.50. Outstanding options 
covering an aggregate of 223,200 shares with exercise prices in excess of 
$4.50 per share were canceled and new options for the same number of shares 
were granted with an exercise price of $4.375 per share. The new options will 
vest over a five-year period beginning on March 5, 1997.

5. PER SHARE INFORMATION

Net income/(loss) per share is computed using the weighted average number of 
common and dilutive common equivalent shares outstanding during the period. 
Common equivalent shares consist of shares issuable upon the exercise of 
stock options, using the treasury stock method. Common stock issued under a 
stock option plan which are subject to repurchase are excluded from shares 
issued in the computation of net loss per share as their effect is 
antidilutive.

6.  RECENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 
128). SFAS No. 128 establishes a different method of computing net 
income/(loss) per share than is currently required under Accounting 
Principles Board Opinion No. 15.  Under SFAS No. 128, the Company will be 
required to present both basic net income/(loss) per share and diluted net 
income/(loss) per share.  Basic and diluted net loss per share is expected to 
approximate the currently presented net loss per share.  However, basic net 
income per share is expected to be higher than net income per share as 
currently computed because the effect of dilutive stock options will not be 
considered in computing basic net income per share.  Diluted net income per 
share is expected to be comparable to the currently presented net income per 
share.  The Company will adopt SFAS No. 128 in its fiscal quarter ending 
December 31, 1997 and at that time all historical net income/(loss) per share 
data will be restated to conform to the provisions of SFAS No. 128.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income". 
SFAS No. 130 establishes standards for the reporting and display of 
comprehensive income and its components in a full set of general purpose 
financial statements.  Comprehensive income is defined as the change in 
equity of a business enterprise during a period from transactions and other 
events and circumstances from non-owner sources.  The impact of adopting SFAS 
No. 130, which is effective for the Company in 1998, has not been determined.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an 
Enterprise and Related Information".  SFAS No. 131 requires publicly-held 
companies to report financial and other information about key 
revenue-producing segments of the entity for which such information is 
available and is utilized by the chief operation decision maker.  Specific 
information to be reported for individual segments includes profit or loss, 
certain revenue and expense items and total assets.  A reconciliation of 
segment financial information to amounts reported in the financial statements 
would be provided.  SFAS No. 131 is effective for the Company in 1998 and the 
impact of adoption has not been determined.


                                                                              7

<PAGE>

7. FIRST AGREEMENT WITH 3M

In March 1997, the Company entered into a joint marketing and development 
agreement with Minnesota Mining and Manufacturing Company (3M). Under the 
agreement, 3M provides $3.0 million in funding to Polycom for certain 
deliverables related to the development of dataconferencing products and may 
also provide shared technology resources for the development of future 
products. Polycom will grant 3M exclusive private-label rights in certain 
distribution channels to the products developed under this agreement subject 
to certain minimum volumes.  In addition, 3M received warrants to purchase up 
to 2,000,000 shares of the Company's common stock at an exercise price of 
$7.50 per share. The warrants expire in March 1999, which may be extended 
until March 2000 depending on the delivery of Polycom's first product 
developed under the agreement.

8. SECOND AGREEMENT WITH 3M

In June 1997, the Company entered into a second joint marketing and 
development agreement with Minnesota Mining and Manufacturing Company (3M).  
Under this agreement, 3M provides $2.5 million in funding to Polycom for 
certain deliverables related to the development of videoconferencing products 
and may also provide shared technology resources for the development of 
future products. Polycom will grant 3M exclusive private-label rights in 
certain distribution channels to the products developed under this agreement.

9. RELATED PARTY TRANSACTION

In March 1997, the Company loaned $250,000 to an officer of the Company under 
the terms of a note receivable which is due in March 2002. The note is 
secured by shares of the Company's stock owned by the officer.

10. LEASE COMMITMENTS

On May 12, 1997, the Company entered into a three year operating lease for 
19,890 square feet of a building in Livermore, California.  The space is 
being used as the Company's distribution and repair center.  The lease 
associated with this building will expire on May 31, 2000 and the minimum 
annual payments under this lease are as follows: 1997 - $69,615; 1998 - 
$126,302; 1999 - $138,235; 2000 - $59,670.


                                                                              8

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

OVERVIEW 

    Polycom Inc. ("Polycom" or "the Company") was incorporated in December 
1990 to develop, manufacture and market audioconferencing and 
dataconferencing products that facilitate meetings at a distance. The Company 
was engaged principally in research and development from inception through 
September 1992, when it began volume shipments of its first audioconferencing 
product, SoundStation. The Company's audioconferencing products include 
SoundStation, SoundStation EX, SoundStation Premier (introduced in November 
1996) and SoundPoint, a desktop audioconferencing product introduced in 
September 1996. The Company began shipping its first dataconferencing 
product, ShowStation, in November 1995. The Company markets its products 
domestically and internationally through a direct sales force and a network 
of value-added resellers (VARs), original equipment manufacturers (OEMs) and 
retail channels. Through June 30, 1997, the Company has derived a substantial 
majority of its net revenues from sales of its SoundStation products. The 
Company anticipates that sales of its SoundStation product line will continue 
to account for a substantial majority of net revenues at least through the 
year ending December 31, 1997. Any factor adversely affecting the demand or 
supply for the SoundStation product line could materially adversely affect 
the Company's business, financial condition, cash flows or results of 
operations. 

    From inception through the nine month period ended September 30, 1995, 
the Company incurred losses from operations, primarily as a result of its 
investments in the development of its products and the expansion of its sales 
and marketing, manufacturing and administrative organizations. The Company 
achieved profitability in the fourth quarter of 1995 and generated a small 
operating income in each quarter of fiscal 1996.  The Company incurred an 
operating loss in the first and second quarters of 1997. The Company intends 
to continue to invest significantly in research and development, and plans to 
operate with an operating loss or break-even results, excluding acquisition 
expenses, through the third quarter of 1997.  There can be no assurance that 
the Company will achieve its operating plans or achieve profitable operations 
in any subsequent period. 

    In January 1997, the Company announced plans to divisionalize the Company 
along the two lines of business, audioconferencing and dataconferencing.  The 
Company named a general manager for each division and formally restructured 
the Company's research and development organization into two separate 
divisions, reporting to each business' general manager.  Business unit 
alignments were also made in the Company's sales, marketing and general and 
administrative organizations.  In the second quarter of 1997, business unit 
alignments were also made in the manufacturing organization.  In June of 
1997, the Company announced an agreement to acquire ViaVideo Communications 
Inc. ("ViaVideo"), a company based in Austin, Texas, dedicated to the 
development of videoconferencing equipment. This acquisition, if completed, 
is expected to establish the Company in the videoconferencing market and will 
form the Company's third division. As of this date the merger is still 
pending.  See the discussion below for further details on this transaction. 

    In March 1997, the Company entered into a joint marketing and development 
agreement (the "First Agreement") with Minnesota Mining and Manufacturing 
Company (3M). Under the agreement, 3M provides $3.0 million in funding to 
Polycom for certain deliverables related to the development of the next 
generation dataconferencing product and will also provide shared technology 
resources for the development of future products. Polycom will grant 3M 
exclusive private-label rights in certain distribution channels to the 
products developed under this agreement subject to certain minimum volumes. 
In addition, 3M received warrants to purchase up to 2,000,000 shares of the 
Company's common stock at an exercise price of $7.50 per share. The warrants 
expire in March 1999, which may be extended until March 2000 depending on the 
delivery of Polycom's first product developed under the agreement. Through the 
first six months of 1997, the Company has received, and recorded as revenue, 
$2.0 million related to this agreement. There can be no assurance that the 
Company will receive the final $1.0 million from 3M under the First Agreement in
the current quarter or ever.

    In June 1997, the Company entered into a second joint marketing and 
development agreement with (3M)(the "Second Agreement"). Under this 
agreement, 3M provides $2.5 million in funding to Polycom for certain 
deliverables related to the development of videoconferencing products and may 
also provide shared technology resources for the development of future 
products. Polycom will 

                                                                              9

<PAGE>

grant 3M exclusive private-label rights in certain distribution channels to 
the products developed under this agreement.

    As mentioned above, in June 1997 the Company signed an agreement under 
which Polycom may acquire ViaVideo Communications, Inc.  This acquisition of 
ViaVideo, a development stage company with its initial videoconferencing 
product under development, is intended to add a videoconferencing product and 
engineering team to Polycom's audioconferencing and dataconferencing product 
portfolio.  

    Under the terms of the agreement, 9.7 million shares of Polycom common 
stock, plus up to an additional 300,000 shares based on future option grants 
by ViaVideo, will be exchanged for all outstanding shares and options of 
ViaVideo. Depending on the average price of Polycom's shares during a 
specified period preceding the acquisition, the total number of Polycom 
shares to be issued may be reduced so in no event will the total acquisition 
consideration exceed $90 million.  The transaction will be accounted for as a 
pooling of interests and will qualify as a tax-free reorganization.  The 
transaction is expected to be completed during the fourth quarter of 1997 or 
the first quarter of 1998 and is subject to various conditions which include 
first customer shipment by ViaVideo of its initial videoconferencing system 
no later than March 31, 1998 and Polycom's share price preceding the 
acquisition to be at or above $3.00 per share.  There can be no guarantee 
that ViaVideo will meet the required milestones, that the shareholders will 
approve the merger or of market acceptance and future profitability of this 
business.

    This Report on Form 10-Q contains forward looking statements that involve 
risks and uncertainties, including possible fluctuations in quarterly 
results; the market acceptance of ShowStation and the risks associated with 
this emerging market; the acceptance of SoundPoint, SoundStation Premier and 
other new products; the timely launch of the color ShowStation product; the 
success of the manufacturing transfer of the SoundStation Premier product 
line; the impact of competitive products and pricing; the completion of the 
planned merger with ViaVideo Communications, Inc. and the risks associated 
with integrating the companies; the profitability of the videoconferencing 
division; and the other risks detailed from time to time in the Company's SEC 
reports, including the Form 10-K dated March 26, 1997, as amended on May 6, 
1997 and the Form 10-Qs.

RESULTS OF OPERATIONS

    The following table sets forth, as a percentage of net revenues, 
condensed consolidated statements of operations data for the periods 
indicated.

<TABLE>
<CAPTION>
                                          Three Months Ended          Six Months Ended     
                                         June 30,     June 30,       June 30,     June 30, 
                                          1997          1996           1997         1996
                                         --------    --------        -------      --------
<S>                                      <C>         <C>             <C>          <C>
Net revenues                               100%        100%            100%         100%
Cost of net revenues                        53%         46%             54%          46%
                                          -----       -----           -----        -----
    Gross profit                            47%         54%             46%          54%
                                          -----       -----           -----        -----

Operating expenses:
  Sales and marketing                       23%         24%             24%          24%
  Research and development                  21%         22%             21%          22%
  General and administrative                 7%          6%              7%           6%
  Acquisition expenses                       3%          0%              2%           0%
                                          -----       -----           -----        -----
    Total operating expenses                54%         52%             54%          52%
                                          -----       -----           -----        -----

Operating income/(loss)                     (7%)         2%             (7%)          2%

Interest income, net                         2%          2%              3%           1%
Other expense, net                           0%          0%              0%           0%
                                          -----       -----           -----        -----
Net income/(loss)                           (5%)         4%             (5%)          3%
                                          -----       -----           -----        -----
                                          -----       -----           -----        -----
</TABLE>

                                                                            10

<PAGE>
    The following table sets forth net revenues by line of business for the
periods indicated (amounts in thousands).

<TABLE>
<CAPTION>
                                          Three Months Ended          Six Months Ended     
                                         June 30,     June 30,       June 30,     June 30, 
                                          1997          1996           1997         1996
                                         --------    --------        -------      --------
<S>                                      <C>         <C>             <C>          <C>
Audioconferencing:
Net revenues                              $9,421      $8,585         $17,766       $15,257
Cost of net revenues                       4,738       3,348           9,004         5,890 
                                         -------     -------         -------      --------
  Gross profit                            $4,683      $5,237         $ 8,762       $ 9,367 
                                         -------     -------         -------      --------
                                         -------     -------         -------      --------
  Gross margin %                             50%         61%             49%           61%

Dataconferencing:
Net revenues                              $2,079      $  665         $ 4,244       $ 2,231 
Cost of net revenues                       1,410         939           2,797         2,169 
                                         -------     -------         -------      --------
  Gross profit                            $  669      $ (274)        $ 1,447       $    62 
                                         -------     -------         -------      --------
                                         -------     -------         -------      --------
  Gross margin %                             32%        (41%)            34%            3%
</TABLE>


NET REVENUES

    Total net revenues were $11.5 million in the second quarter of 1997 
compared to $9.3 million in the second quarter of 1996, an increase of 24%. 
Within the audioconferencing product line, net revenues were $9.4 million in 
the second quarter of 1997, an increase of $0.8 million, or 10%, when 
compared to the same period for 1996.  The increase is due to the impact of 
unit sales growth of the SoundStation product as well as the SoundPoint 
product and SoundStation Premier introduced in the third and fourth quarters 
of 1996, respectively.  This was partially offset by a 37% price reduction on 
SoundStation product sold in North America effective January 1997 and a 30% 
price reduction on international SoundStation sales effective April 1997. 
Dataconferencing net revenues in the second quarter of 1997 increased $1.4 
million, or 213%, when compared to the second quarter of 1996.  However, much 
of the increase in dataconferencing net revenues was due to a $1.0 million 
payment associated with the joint marketing and development agreement with 
3M. 

    For the first six months of 1997, total net revenues were $22.0 million, 
an increase of $4.5 million or 26% compared to the same period in 1996.  The 
audioconferencing net revenues for the first six months of 1997 were up $2.5 
million, or 16%, when compared to the first six months of 1996.  This 
increase was due to the introduction of the new product lines in this 
division which was partially offset by the price reductions for the 
SoundStation product line.  For the first six months of 1997, SoundStation 
unit sales increased 29% over the same period in 1996, offsetting the impact 
of the price reduction. Dataconferencing revenues were $4.2 million for the 
first six months of 1997 versus $2.2 million in the first six months of 1996. 
This increase was due primarily to the First Agreement with 3M.  
Additionally, product revenue increases internationally offset product 
revenue decreases in North America.  

    During the second quarters of 1997 and 1996 and for the first six months 
of 1997 and 1996, the Company derived a substantial majority of its net 
revenues from sales of its SoundStation product family.  However, no customer 
or reseller accounted for more than 10% of the Company's net revenues during 
these same periods for either 1997 or 1996. Further, the Company received, 
and recorded as revenue, $2.0 million under the First 3M Agreement over the 
first six months of 1997. There can be no assurance that the Company will 
receive the final $1.0 million payment in the current quarter or ever.

    International net revenues for the second quarter and for the first six 
months of 1997 accounted for 22% of total net revenues for the Company, up 
slightly from the comparable periods in 1996.  The Company anticipates that 
international sales will continue to account for a significant portion of 
total net revenues for the foreseeable future. However, international net 
revenues may fluctuate in the future as the Company introduces new products, 
since the Company expects to initially introduce such products in North 
America and also because of the additional time required for product 
homologation and regulatory 


                                                                            11

<PAGE>

approvals of new products in international markets.  In addition, the 
implementation of the international price reduction for SoundStation products 
effective April 1997 will affect international revenues in future quarters.  
To the extent the Company is unable to expand international sales in a timely 
and cost-effective manner, the Company's business, financial condition or 
results of operations could be adversely affected. There can be no assurance 
that the Company will be able to maintain or increase international market 
demand for the Company's products.  To date, a substantial majority of the 
Company's international sales have been denominated in U.S. currency, 
however, the Company expects that in the future more international sales may 
be denominated in local currencies.

COST OF NET REVENUES

    Cost of net revenues consists primarily of the Company's manufacturing 
organization, contract manufacturers, tooling depreciation, warranty expense 
and allocation of overhead expenses.  The cost of net revenues represented 
53% and 46% of net revenues for the second quarters of 1997 and 1996, 
respectively.  By division, audioconferencing cost of net revenues was 50% in 
the second quarter of 1997 versus 39% in the 1996 second quarter, while 
dataconferencing cost of net revenues was 68% in the second quarter of 1997 
compared to 141% in the second quarter of 1996.  The increase in 
audioconferencing cost of net revenue percentage is primarily attributable to 
the SoundStation price reduction implemented in North America in January 1997 
and in the International regions in April 1997.  Additionally, the 
introduction of a lower margin audio product contributed to the higher cost 
of net revenues percentage.  In the dataconferencing division, the decrease 
in the cost of net revenues percentage is primarily due to the revenue 
received under the 3M agreement, which had very low associated costs, 
partially offset by an inventory write down associated with managing the end 
of life cycle for the initial ShowStation product.

    For the first six months of 1997 the cost of net revenues percentage was 
54%, compared to 46% for the same period in 1996.  The audioconferencing cost 
of net revenues was 51% in the first six months of 1997 versus 39% in the 
first six months of 1996.  This increase was due to the price reductions in 
the SoundStation product family mentioned above as well as the introduction 
of a lower margin audio product in the third quarter of 1996.  The 
dataconferencing cost of net revenues was 66% in the first six months of 1997 
versus 97% in the same period of 1996.  This decrease was due primarily to 
the revenues received under the First Agreement with 3M.

    The Company's historical price reductions have been driven by the 
Company's desire to expand the market for its products, and the Company may 
further reduce prices or introduce new products that carry higher costs in 
order to further expand the market or to respond to competitive pricing 
pressures, although there can be no assurance that such actions by the 
Company will expand the market for its products or be sufficient to meet 
competitive pricing pressures.  In the future, the cost of net revenue 
percentage may be affected by price competition and changes in unit volume, 
product cost and warranty expenses.  The cost of net revenues percentage may 
also be impacted by the mix of distribution channels used by the Company, the 
mix of products sold and the mix of International versus North American 
revenues. The Company typically realizes lower cost of net revenue 
percentages on direct sales than on sales through indirect channels and lower 
cost of net revenues percentage on international revenues than on North 
American revenues.  If sales through resellers, especially OEMs, increase as 
a percentage of total revenues, the Company's cost of net revenues percentage 
will be adversely impacted. 

    In June of 1997, the Company began manufacturing products at a 
manufacturing contractor based in Thailand.  The Company expects that this 
change will lower manufacturing costs, although there can be no guarantee 
that this will occur.  In July of 1997, the Company moved its distribution 
and product repair center to a new location in Livermore, California.  This 
move is expected to provide the Company with better control over its 
distribution and repair activities and may improve overall warranty and 
service costs, although there are no assurances that this will happen.     


                                                                            12

<PAGE>


SALES AND MARKETING EXPENSES

<TABLE>
<CAPTION>
                                        THREE MONTHS ENDED                  SIX MONTHS ENDED           
                                        ------------------                  ----------------
                                   JUNE 30,  JUNE 30,    INCREASE/      JUNE 30,  JUNE 30,    INCREASE/ 
$  IN THOUSANDS                        1997      1996   (DECREASE)          1997      1996   (DECREASE) 
- ---------------                        ----      ----   ----------          ----      ----   ----------
<S>                                <C>       <C>        <C>             <C>       <C>        <C>
Expenses                             $2,704    $2,199        23.0%        $5,386    $4,270        26.1%

% of Net Revenues                     23.5%     23.8%        (0.3%)        24.5%     24.4%         0.1%
</TABLE>


    Sales and marketing expenses consist primarily of salaries and 
commissions, advertising and promotional expenses, allocation of overhead 
expenses and customer service and support costs.  The increase in expenses of 
the second quarter of 1997 compared to the second quarter of 1996 was 
primarily related to the expansion of the Company's sales and marketing 
organizations, particularly in the international and retail sales channels.  
An increase in advertising and promotions also contributed to the overall 
increase.  For the first six months of 1997 compared to the same period for 
1996, the increase was due to the expansion of the marketing organization and 
the sales effort in the international regions, particularly Europe and Asia 
Pacific.  

    The Company expects to continue to increase its sales and marketing 
expenses in absolute dollar amounts in an effort to expand North American and 
international markets, market new products and establish and expand 
distribution channels.  In particular, due to the innovative nature of the 
ShowStation products, the Company has incurred significant expenses to 
develop a sales presence for the ShowStation product and believes it will be 
required to incur significant additional expenses for sales and marketing, 
including advertising, to educate potential customers as to the desirability 
of ShowStation.

RESEARCH AND DEVELOPMENT EXPENSES

<TABLE>
<CAPTION>
                                        THREE MONTHS ENDED                  SIX MONTHS ENDED           
                                        ------------------                  ----------------
                                   JUNE 30,  JUNE 30,    INCREASE/      JUNE 30,  JUNE 30,    INCREASE/ 
$  IN THOUSANDS                        1997      1996   (DECREASE)          1997      1996   (DECREASE) 
- ---------------                        ----      ----   ----------          ----      ----   ----------
<S>                                <C>       <C>        <C>             <C>       <C>        <C>

Expenses                             $2,380    $2,023        17.6%        $4,601    $3,793        21.3%

% of Net Revenues                     20.7%     21.9%        (1.2%)        20.9%     21.7%        (0.8%)
</TABLE>


    Research and development expenses consist primarily of compensation 
costs, consulting fees, allocation of overhead expense, supplies and 
depreciation.  The expense increases for the second quarter of 1997 versus 
the second quarter of 1996 and for the first six months of 1997 compared to 
the same period of 1996 were primarily attributable to increased staffing and 
associated support to expand and enhance the Company's product lines, 
particularly in the dataconferencing division.

    The Company believes that technological leadership is critical to its 
success and is committed to continuing a high level of research and 
development, especially in the development of the planned next generation 
ShowStation product.  Consequently, the Company intends to increase its 
research and development expenses in absolute dollars in the future.

GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                                        THREE MONTHS ENDED                  SIX MONTHS ENDED           
                                        ------------------                  ----------------
                                   JUNE 30,  JUNE 30,    INCREASE/      JUNE 30,  JUNE 30,    INCREASE/ 
$  IN THOUSANDS                        1997      1996   (DECREASE)          1997      1996   (DECREASE) 
- ---------------                        ----      ----   ----------          ----      ----   ----------
<S>                                <C>       <C>        <C>             <C>       <C>        <C>

Expenses                               $763      $540        41.3%        $1,453    $1,038        40.0%

% of Net Revenues                      6.6%      5.8%         0.8%          6.6%      5.9%         0.7%
</TABLE>


                                                                            13

<PAGE>

    General and administrative expenses consist primarily of compensation 
costs, outside legal and accounting expenses.  The increase in dollar amount 
for the second quarter of 1997 when compared to the same period of 1996 was 
primarily due to increased staffing, including the hiring of a president, to 
support the Company's growth and increased focus in both the 
audioconferencing and dataconferencing divisions.  The increase in expenses 
for the first six months of 1997 over the first six months of 1996 was due 
again to increased staffing to support the growth of the Company.  The 
Company believes that its general and administrative expenses will increase 
in absolute dollar amounts in the future primarily as a result of expansion 
of the Company's administrative staff and costs related to being a public 
company.

ACQUISITION EXPENSES

    For the second quarter of 1997 and the first six months of 1997, the 
Company incurred expenses totaling $0.3 million related to the pending 
acquisition of ViaVideo Communications, Inc.  A significant portion of these 
charges were for outside legal, accounting and consulting services.  
Management believes the acquisition related expenses will be less throughout 
the remainder of this fiscal year, however, there can be no assurances that 
this will happen, that the future charges will not be material or that the 
merger will ever be completed.

INTEREST INCOME, NET AND OTHER EXPENSES, NET

    Interest income, net consists of interest earned on the Company's cash 
equivalents and short-term investments net of any interest expense.  For the 
second quarter and first six months of 1997, interest income, net increased 
over the same periods of 1996 due to the increase the Company's cash 
equivalents and short-term investments as a result of its initial public 
offering in the second quarter of 1996.  In addition, interest expense 
recorded in 1997 is insignificant due to the reduction in debt after the 
initial public offering. 

    The Company accounts for income taxes in accordance with the Financial 
Accounting Standards Board's Statement of Financial Accounting Standards No. 
109 "Accounting for Income Taxes."  The Company expects to incur operating 
losses or break-even results, before acquisition related expenses, through 
the third quarter of 1997 and consequently expects to incur minimal federal 
and state income taxes in 1997.  As of December 31, 1996, the Company had 
approximately $6.4 million in federal net operating loss carryforwards and 
$790,000 in tax credit carryforwards.  The future utilization of the 
Company's net operating loss carryforwards may be subject to certain 
limitations upon certain changes in ownership. 

    The Company has established a valuation allowance against its deferred 
tax assets due to the uncertainty surrounding the realization of such assets. 
Management evaluates the recoverability of the deferred tax assets and the 
level of the valuation allowance on a quarterly basis.  At such time it is 
determined that it is more likely than not that deferred tax assets are 
realizable, the valuation allowance will be appropriately reduced.

OTHER FACTORS AFFECTING FUTURE OPERATIONS

    The Company's net revenues have grown primarily through increased market 
acceptance of its established audioconferencing product line, new product 
introductions and, to a lesser extent, through the expansion of the Company's 
North American and International distribution networks.  While the Company 
has experienced growth in net revenues in recent quarters, it does not 
believe that the historical growth rates in net revenues will be sustainable 
or indicative of future operating results. For example, the Company believes 
that the 37% price reduction in the North American list price of its 
SoundStation product line, effective December 1996 for resellers and January 
1997 for end user customers, and the 30% price reduction for SoundStation 
products sold internationally effective April 1997, negatively impacted the 
Company's net revenues and gross margins in the second quarter and first six 
months of 1997 and will continue to negatively impact net revenues and gross 
margins throughout 1997.  The Company expects that gross margins will 
continue to be negatively affected in the future as a result of several 
factors, including low to negative gross margins for the Company's 
first-generation ShowStation dataconferencing 

                                                                            14

<PAGE>

products, the reduction in the list prices of the SoundStation product line, 
the introduction of the lower margin SoundPoint desktop product line and 
continuing competitive price pressure in the audioconferencing and 
dataconferencing markets.  Although price reductions have been driven by the 
Company's desire to expand the market for its products, and the Company 
expects that in the future it may further reduce prices or introduce new 
products that carry lower margins in order to further expand the market or to 
respond to competitive pricing pressures, there can be no assurance that such 
actions by the Company will expand the market for its products or be 
sufficient to meet competitive pricing pressures.  In addition, the Company's 
limited operating history and limited resources, among other factors, make 
the prediction of future operating results difficult if not impossible. 
Further, there can be no assurance that the Company will receive the final 
$1.0 million payment from 3M, which would be recorded as revenue, under the 
First 3M Agreement in the current quarter or ever.

    In the past the Company has experienced delays from time to time in the 
introduction of certain new products and enhancements and expects that such 
delays may occur in the future.  For instance,  the introduction of 
ShowStation was delayed by approximately eighteen months from the originally 
anticipated date of introduction because of unforeseen technical challenges 
and difficulties in building core technologies and, for approximately six 
weeks in the first quarter of 1996, shipments were interrupted in order to 
correct software and other technical problems identified by initial 
customers.  In addition, SoundStation Premier first customer shipments were 
delayed from its original shipment target of September 1996 to November 1996 
due to engineering issues. Any similar delays could have a material adverse 
effect on the Company's results of operations.

    The Company's operating results have fluctuated in the past and may 
fluctuate in the future as a result of a number of factors, including market 
acceptance of the ShowStation products and other new product introductions 
and product enhancements by the Company or its competitors, the prices of the 
Company's or its competitors' products, the mix of products sold, the mix of 
products sold directly and through resellers, fluctuations in the level of 
international sales, the cost and availability of components, manufacturing 
costs, the level of warranty claims, changes in the Company's distribution 
network, the level of royalties to third parties and changes in general 
economic conditions. In addition, competitive pressure on pricing in a given 
quarter could adversely affect the Company's operating results for such 
period, and such price pressure over an extended period could materially 
adversely affect the Company's long-term profitability. The Company's ability 
to maintain or increase net revenues will depend upon its ability to increase 
unit sales volumes of its SoundStation, SoundStation Premier and SoundPoint 
families of audioconferencing products and the dataconferencing line of 
products, currently comprised of the ShowStation product, and any new 
products or product enhancements. There can be no assurance that the Company 
will be able to increase unit sales volumes of existing products, introduce 
and sell new products or reduce its costs as a percentage of net revenues. 

    The Company typically ships products within a short time after receipt of 
an order, does not usually have a significant backlog and backlog fluctuates 
significantly from period to period.  As a result, backlog at any point in 
time is not a good indicator of future net revenues and net revenues for any 
particular quarter cannot be predicted with any degree of accuracy. 
Accordingly, the Company's expectations for both short- and long-term future 
net revenues are based in large part on its own estimate of future demand and 
not on firm customer orders. In addition, the Company has in the past 
received orders and shipped a substantial percentage of the total products 
sold during a particular quarter in the last several weeks of the quarter. In 
some cases, these orders have consisted of distributor stocking orders and 
the Company has from time to time provided special incentives for 
distributors to purchase more than the minimum quantities required under 
their agreements with the Company.  Therefore, the Company has been 
uncertain, even during most of the quarter, what level of revenues it will 
achieve in the quarter and the impact that distributor stocking orders will 
have on revenues and gross margins in that quarter and subsequent quarters.  
In addition, because a substantial percentage of product sales occur at the 
end of the quarter, product mix and therefore gross margins are difficult to 
predict.  Further, there can be no guarantee that the Company's contracted 
manufacturers will be able to meet product demand before the quarter ends.  
The Company anticipates that this pattern of sales will continue in the 
future. Expense levels are based, in part, on these estimates and, since the 
Company is limited in its ability to reduce expenses quickly if orders and 
net revenues do not meet expectations in a particular period, operating 
results would be adversely affected.  In addition, a seasonal demand may 
develop for the Company's products in the future.  Due to all of the 
foregoing factors, it is likely that in some future quarter the 

                                                                            15

<PAGE>

Company's operating results will be below the expectations of public market 
analysts and investors.  In such event, the price of the Company's Common 
Stock would likely be materially adversely affected.
                                                                              
        
LIQUIDITY AND CAPITAL RESOURCES

    As of June 30, 1997, the Company's principal sources of liquidity 
included cash, cash equivalents and short-term investments of $19.9 million, 
an increase of $0.3 million from December 31, 1996.  Additionally, as of July 
11, 1997, the Company re-established a $5.0 million revolving bank line of 
credit from Silicon Valley Bank which had previously expired on April 15, 
1997. 

    The Company generated $1.1 million in cash from operating activities for 
the first six months of 1997 versus a use of $1.1 million in cash for the 
same period in 1996.  The improvement in cash from operating activities is 
due primarily to improved collections of accounts receivable, offset somewhat 
by a net loss in the first six months of 1997 compared to net income in the 
same period of 1996.

    The total net change in cash and cash equivalents for the first six 
months of 1997 was an increase of $5.4 million.  The primary sources of cash 
were $1.1 million from operating activities, and net sales of investments of 
$5.1 million.  The positive cash flow from operating activities was the 
result of a lower accounts receivable balance, a higher accounts payable 
balance, and a positive net income before non-cash items such as depreciation 
and increases to inventory reserves, offset by an increase in inventories and 
prepaid assets. The primary uses of cash during the first six months of 1997 
were purchases of property, plant and equipment of $1.2 million.  The Company 
expects to continue to purchase additional equipment throughout the remainder 
of 1997. 

    The Company's material commitments consist of obligations under its 
revolving bank line of credit, operating leases and a $200,000 stand-by 
letter of credit which has been issued to guarantee certain of the Company's 
contractual obligations.  The Company estimates that 1997 capital 
expenditures will total approximately $2.8 million.

    The Company believes that its available cash will be sufficient to meet 
the Company's operating expenses and capital requirements through at least 
December 31, 1997.  Thereafter, the Company may require additional funds to 
support its working capital requirements or for other purposes and may seek 
to raise such additional funds through public or private equity financing or 
from other sources.  There can be no assurance that additional financing will 
be available at all or that, if available, such financing will be obtainable 
on terms favorable to the Company and would not be dilutive.  The Company's 
future liquidity and cash requirements will depend on numerous factors, 
including introduction of new products and potential product family or 
technology acquisitions.


                                                                            16

<PAGE>

PART II       OTHER INFORMATION

Item 1.       LEGAL PROCEEDINGS

              Not Applicable

Item 2.       CHANGES IN SECURITIES

              Not Applicable

Item 3.       DEFAULTS UPON SENIOR SECURITIES

              Not Applicable
 
Item 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  The Company distributed its Definitive Proxy Statement, Proxy 
              and Annual Report to Stockholders on or about May 13, 1997, and 
              an Amendment to the Proxy Statement dated May 13, 1997 on or 
              about May 21, 1997, to each stockholder of record on May 9, 
              1997, for its Annual Meeting of Stockholders held June 11, 
              1997, (the "Annual Meeting"). At the Company's Annual Meeting, 
              the stockholders were asked to consider three proposals.

                  The first proposal involved the election of directors. The 
              existing Board of Directors selected six nominees, all of whom 
              ran unopposed and all of whom were then serving as directors of 
              the Company. The nominees of the Board, and the voting results 
              with respect thereto, were:

              Name                             Votes For                Withheld
              ----                             ---------                --------

              Brian L. Hinman                  13,452,435               41,982
              Robert C. Hagerty                13,463,402               31,015
              Bandel Carano                    13,461,402               33,015
              Stanley J. Meresman              13,467,118               27,299
              John P. Morgridge                13,457,118               37,299
              James R. Swartz                  13,467,118               27,299


                  The second proposal concerned amendments to the Company's 
              1996 Stock Incentive Plan including a 1,000,000-share increase 
              in the number of shares of Common Stock authorized for 
              issuance. The following numbers are the votes cast:

              For:                             10,779,724
              Against:                            518,117
              Abstentions:                         18,618
              Broker Non-Votes:                 2,177,958


                  The third and final proposal concerned the ratification of
              the Company's independent auditors for the fiscal year ending 
              December 29, 1997. The following numbers are the votes cast:

              For:                             13,345,625
              Against:                             75,062
              Abstentions:                          9,708
              Broker Non-Votes:                    64,022

Item 5.       OTHER INFORMATION

              Effective July 21, 1997, Dale Bastian joined the Company as the
              Vice President, Worldwide Sales and Service.  

Item 6        EXHIBITS AND REPORTS ON FORM 8-K

      (a)     List of Exhibits

NUMBER                                     EXHIBIT
- ------        ---------------------------------------------------------------
 2.1 (1)      Agreement and Plan of Reorganization by and between Polycom, 
              Inc. and ViaVideo Communications, Inc., dated June 11, 1997.

10.1 (2)      Joint Marketing and Development Agreement, dated June 10, 1997,
              by and between Polycom, Inc. and Minnesota Mining and
              Manufacturing Company, as amended on June 10, 1997.

11.1          Computation of Net Income/(Loss) per Common and Common Equivalent
              Share

  27          Financial Data Schedule

(1) Incorporated by reference from the Company's report on Form 8-K filed 
August 13, 1997.

(2) Confidential treatment requested as to certain portions of this document.

    (b)  Report on Form 8-K: No reports on Form 8-K were filed during the
         quarter ended June 30, 1997.


                                                                            17

<PAGE>

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the 
Registrant has duly caused this report to be signed on its behalf by the 
undersigned, thereunto duly authorized.

Dated:        August 13, 1997          POLYCOM, INC.


                                  /s/ Michael R. Kourey
                                  ----------------------------------
                                  Michael R. Kourey
                                  Chief Financial Officer
                                  (Duly Authorized Officer and Principal
                                  Financial and Accounting Officer)


                                                                            18


<PAGE>

                                                                 Exhibit 10.1

                    JOINT MARKETING AND DEVELOPMENT AGREEMENT
                                        
    This JOINT MARKETING AND DEVELOPMENT AGREEMENT (this "Agreement") dated 
as of the date of the execution of this Agreement by the last party to sign 
(the "Effective Date") is by and between MINNESOTA MINING AND MANUFACTURING 
COMPANY, a Delaware corporation, acting through its Visual Systems Division, 
with its principal place of business at 3M Austin Center, 6801 Riverplace 
Boulevard, Austin, Texas 78726-9000 ("3M") and POLYCOM, INC., a Delaware 
corporation, with its principal place of business at 2584 Junction Avenue, 
San Jose, California 95134-1902 ("Polycom"). As used herein, the term "Party" 
shall refer to 3M or Polycom, as the context may require, while the term 
"Parties" shall refer to 3M and Polycom collectively.  The term "Agreement" 
specifically includes all Exhibits referred to herein.

                                    RECITALS:
                                        
    WHEREAS, Polycom has developed a technology base for the development of 
teleconferencing products allowing the participation of individuals at remote 
locations through audio, data and video means; and

    WHEREAS, 3M, a leading, world wide manufacturer and marketer of products 
that facilitate the exchange of ideas in meetings of people, desires to 
purchase and distribute the teleconferencing products to be developed by 
Polycom and to assist in such development, all in accordance with the terms 
of this Agreement.

    NOW, THEREFORE, in consideration of the premises and of the mutual 
promises hereinafter set forth, the Parties hereto agree as follows:

                                    ARTICLE I
                   DEVELOPMENT OF VIDEO CONFERENCING PRODUCTS
                                        
    1.1  DEVELOPMENT OF POLYCOM PRODUCTS; DELIVERY OF PROTOTYPES.

    (a)  Subject to the terms and conditions of this Agreement, as of the 
Effective Date, Polycom intends to design, develop and prepare for commercial 
production a [ * ] device meeting the specifications set forth on Exhibit A 
(the "Polycom Product"). [ * ] [ * ]

* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission
<PAGE>


[ * ]

    (b)  3M agrees to provide funding to Polycom for its delivery of the 
initial Polycom Product in final, commercially marketable form [ * ] and the 
initial enhancement thereto (collectively, the "Polycom Deliverables") 
identified on the potential product migration schedule for the Polycom 
Product (the "Migration Schedule") attached hereto as Exhibit B at the times 
and in the amounts set forth below, provided that the associated Polycom 
Deliverable is delivered to 3M on or before the delivery date:

     DELIVERY         POLYCOM DELIVERABLES       PAYMENT DATE        AMOUNT
       DATE

      [ * ]                 [ * ]                    [ * ]           [ * ]


    In the event Polycom should fail to timely deliver any Polycom 
Deliverable, Polycom shall have the right to cure such failure for a period 
of up to [ * ] following such Delivery Date (each a "Cure Period") by 
delivering such Polycom Deliverable to 3M. Following Polycom's delivery of a 
Polycom Deliverable within a Cure Period, 3M shall deliver the funding amount 
due Polycom within [ * ] following the date of delivery.  If Polycom fails to 
timely cure such default, 3M shall have the right to terminate this Agreement 
by delivering written notice of termination to Polycom without any 
requirement of notice and further opportunity to cure as otherwise provided 
under Article 7 below. Notwithstanding the foregoing, Polycom's failure to 
deliver the First Migration Product to 3M prior [ * ] shall constitute a 
material breach of this Agreement of which Polycom shall be deemed to have 
been notified and been given a full opportunity to cure for purposes of 
Article 13 below.

    1.2  DEVELOPMENT OF 3M PROPRIETARY PRODUCTS.  The Parties agree that 3M 
shall have the right to request Polycom's development from time to time of 
unique [ * ] products based upon 3M design concepts incorporating Polycom's 
teleconferencing technology (each a "3M Proprietary Product"). Upon its 
receipt of a concept proposal from 3M, Polycom shall have [ * ] days to 
deliver a detailed development proposal, providing proposed specifications 
for the 3M Proprietary Product, along with an estimate of cost and a schedule 
of development to 3M.  Following its review of Polycom's development 
proposal, 3M shall notify Polycom whether it desires to proceed with 
development of the 3M Proprietary Product and, if it does, the Parties shall 
thereafter negotiate in good faith to develop a mutually agreed upon 
definitive plan of development for such

* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


                                      2
<PAGE>

3M Proprietary Product.  In no event shall Polycom be obligated to proceed 
with development of any 3M Proprietary Product unless and until the Parties 
have entered into a written development plan including, without limitation, 
costs and expenses.

    1.3  SCOPE OF PRODUCTS COVERED BY AGREEMENT; SPECIFICATIONS.  For the 
purposes of this Agreement, the terms Polycom Product and 3M Proprietary 
Product (each a "Product" and collectively, the "Products") shall include 
subsequent generations of each such Product and all options, accessories and 
enhancements thereto developed during the term hereof. The term 
"Specifications" means the detailed technical specifications for the Products 
including, but not limited to, product specifications, accessories 
specifications, performance requirements, packaging specifications, agency 
approvals and labels, quality control procedures and marking specifications 
in accordance with Section 3.4 below. 3M shall own the 3M Proprietary Product 
Specifications created by or for 3M except for any Polycom intellectual 
property and/or proprietary information, or any property owned by any third 
party, incorporated therein.  The Specifications may change from time to time 
through Engineering Change (as defined in Section 1.5 below) procedures.

    1.4  ENHANCEMENTS.  3M shall have the option to have included in all 
Products the enhancements that are developed by Polycom for the Products, 
including but not limited to those identified in the Migration Schedule.  In 
order to enable 3M to sell market-acceptable Products through the 
incorporation of such enhancements, Polycom agrees to provide 3M with a 
written report, in a mutually agreed format, by [ * ] summarizing the status 
of development for the Products for the [ * ].

    1.5  ENGINEERING CHANGE.  The term "Engineering Change" shall mean any 
design, material, or manufacturing process change to any Product, whether 
originating with 3M or Polycom.  Mutual agreement of the Parties shall be 
required for Engineering Changes that would affect the form, fit and/or 
material function of any Polycom Product or that would have the effect of 
rendering finished goods inventory or field service inventory of Polycom 
Products obsolete.  Any Engineering Change respecting any 3M Proprietary 
Product shall be at 3M's sole discretion.  Polycom agrees to give 3M prior 
written notice of any Engineering Change that would affect the safety, 
performance, serviceability, appearance, dimensions, packaging or field 
support of any Product.  Either Party may request an Engineering Change. 
Polycom, upon receiving such request from 3M or proposing any such change, 
shall evaluate it and provide 3M with estimates for changes in costs, 
performance, quality and schedule of the Products resulting from any such 
proposed Engineering Change.

    1.6  PROJECT MANAGEMENT.  The Parties shall form a management team to 
manage the Project (the "Management Team") consisting of one business 
representative and one technical representative designated by Polycom and 3M. 
Each Party shall designate its two representatives to the other Party in 
writing within [ * ] following the Effective Date.  The Management Team shall 
oversee the development of the Project, determine the course of development 
of the Products, including the updates and enhancements to be pursued, 
provide input and/or approval on behalf of their respective Parties, and 
resolve disputes to the extent possible.  In the event the Management Team is 
unable to resolve any dispute between the Parties, they shall refer the matter

* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


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to the senior management of Polycom and 3M's Visual System Division, 
respectively, for resolution.  If senior management is unable to informally 
resolve the dispute, the dispute resolution mechanism set forth in Article 19 
shall be invoked.

                                    ARTICLE 2
                              INTELLECTUAL PROPERTY


[ * ]


* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


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[ * ]


* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


                                      5
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[ * ]

                                  ARTICLE 3
                MANUFACTURING AND MARKETING RIGHTS; ROYALTIES
                                        
    3.1  MANUFACTURING.

    (a)  CHOICE OF MANUFACTURER.  The Parties shall mutually agree upon a 
manufacturer for the Products and Polycom shall thereafter promptly commence 
negotiations with such manufacturer and conduct such negotiations in a 
reasonably diligent manner in an effort to insure that the manufacture of the 
Products can be promptly commenced once the [ * ] has been delivered to 3M 
pursuant to the provisions of Section 1.1(b) above. 3M agrees to provide an 
assessment of the demand for Products in its market segments and such other 
information as Polycom may reasonably request, and to otherwise cooperate 
with Polycom, in order to engage in the initial manufacture.

    (b)  SUBSTITUTE AND/OR ADDITIONAL MANUFACTURER.  In order to allow the 
Parties to assess whether adequate manufacturing capacity will be available 
to meet both Parties' needs, each Party agrees to provide the other, by the 
[ * ], with a non-binding, written forecast of its anticipated requirements 
for Products for the [ * ].  If, after conferring in good faith, the Parties 
determine that any joint manufacturer will be unable to supply a Party with 
sufficient quantities of Products to meet demand in its market segment in 
light of the other Party's supply requirements, the Parties agree to engage a 
secondary or substitute manufacturer in order to meet such demand.  Further, 
if any joint manufacturer is unable to meet any cost reduction and/or quality 
improvement target(s) established by the Parties pursuant to the provisions 
of Section 3.11 below, the Parties agree to engage a substitute manufacturer 
capable of meeting such target(s) and the Parties' supply requirements for 
Products.  The Parties shall mutually agree upon any new manufacturer engaged 
to manufacture Products as described herein, and Polycom shall promptly 
commence negotiations with such manufacturer and conduct such negotiations in 
a reasonably diligent manner in an effort to insure that the manufacture of 
the Products will continue uninterrupted and that market demand will be met.

    (c)  PURCHASE TERMS; PRODUCT ALLOCATION.  The Parties agree to work 
together in negotiating with manufacturers in order to obtain purchase terms 
that are mutually beneficial.  In the event that the combined demand for 
Products of Polycom and 3M and its Affiliates from any

* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


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<PAGE>

manufacturer should exceed such manufacturer's manufacturing capacity in any 
given month, Polycom and 3M agree to allocate the available capacity between 
them pro rata based upon the forecast for that month set forth in the firm 
[ * ] forecast filed by each Party with such manufacturer.

    (d)  FAILSAFE PRODUCTION.  In the event that Polycom (i) suspends, for 
more than [ * ] or terminates its [ * ] business, (ii) becomes subject to any 
bankruptcy or insolvency proceeding under federal or state statute, which 
proceeding is not dismissed within [ * ] of the filing thereof, or (iii) 
becomes insolvent or subject to direct control by a trustee, receiver or 
similar authority, 3M shall have the right to have Products manufactured by a 
party of its choosing having the wherewithal to produce the Products to the 
Specifications and in accordance with the quality control procedures 
developed by the Parties.  In order to facilitate the manufacturing of 
Products by any subsequent manufacturer chosen by 3M, Polycom hereby grants 
any such manufacturer an irrevocable (only during the remaining term of this 
Agreement), royalty-free, nontransferable, non-exclusive, and 
non-sublicensable license in any of its intellectual property incorporated 
into the Specifications for the Products for the sole purpose of the 
manufacture of Products solely for the account of 3M and its Affiliates 
during the remaining term of this Agreement.  Additionally, Polycom agrees to 
place the source code for any software necessary in the manufacture and/or 
operation of Products into escrow, allowing 3M access thereto upon the 
occurrence of certain conditions, all as set forth in Exhibit C. 3M shall 
ensure that any such manufacturer shall not exercise the foregoing license 
unless and until one of the release conditions expressly set forth in Exhibit 
C has been triggered and escrow agent has released the Deposit Materials (as 
defined in Exhibit C) to 3M pursuant to Exhibit C.

    3.2  MARKETING RIGHTS.

    (a)  [ * ]

    (b)  [ * ]

* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


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actual delivery thereof to 3M. Prior to any such conversion becoming 
effective, Polycom shall deliver within [ * ] of the end of such [ * ] 
written notice to 3M of its failure to meet the required level of sales to 
maintain its exclusive marketing rights for Polycom Products. Thereafter, 3M 
shall have the opportunity to cure any such default by tendering a payment in 
cash or cash equivalents to Polycom in an amount equal to the royalties that 
would have been due Polycom on the difference between the sales goal 3M and 
its Affiliates had failed to reach and actual sales of 3M and its Affiliates 
for the period in question by no later [ * ] following 3M's receipt of such 
notice from Polycom. 3M's failure to timely cure any such default shall also 
cause a termination of the automatic renewal of this Agreement for any 
Renewal Term pursuant to the provisions of Section 6.2 below.

    3.3  MARKETING COMMITMENT.    [ * ]

    3.4  BRAND NAMES AND PATENT MARKINGS.  [ * ]

    3.5  POLYCOM DOCUMENTATION.  Polycom will provide 3M with master 
documentation that is inclusive of all features and functionality of the 
Products, along with other sales, marketing, instructional, packaging, 
labels, media, merchandise, manuals, service information and promotional 
positioning which 3M may use as part of its Product rollout.  Polycom agrees 
that 3M may alter this information with Polycom's prior approval, which shall 
not be unreasonably withheld or delayed.

    3.6  REGULATORY APPROVALS.  Polycom hereby agrees to promptly obtain, at 
its sole cost and expense, all regulatory approvals necessary to authorize 
the sale of Products by both Polycom and 3M in those countries identified on 
Exhibit E [ * ] attached hereto. Polycom agrees to obtain all required 
regulatory approvals in the countries identified in Column A of Exhibit E 
immediately upon the first commercial shipment of each Product delivered 
thereto.  With respect to countries identified in Columns B and C, Polycom 
shall obtain all required regulatory approvals in a timely fashion in the 
ordinary course of its business. Additionally, upon 3M's written request, 
Polycom agrees to seek (i) expedited approval for any country identified in 
Columns B or C and (ii) all regulatory approval necessary to authorize 3M's 
sale of Products in additional countries designated by 3M. 3M agrees to 
provide reasonable assistance to Polycom as

* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


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<PAGE>

may be required to obtain any such expedited or additional approval and to
bear all costs associated therewith.

    3.7  POLYCOM'S ROYALTY.

    (a)  DETERMINATION OF ROYALLY PERCENTAGE. 3M and its Affiliates shall pay 
Polycom royalties from the sale of Products equal to the percentage indicated 
below of the Net Billable Price they receive for sales up to and including 
the number of units of the Products (exclusive of options and accessories) 
(the "Cumulative Product Unit Sales Target") during each Royalty Period 
during the term hereof.  For purposes of this Agreement:

    (i)  [ * ]

    (ii) "Royalty Period" shall mean each successive period of twelve (12) 
    months commencing with the Commencement Date and each anniversary 
    thereof during the term of this Agreement.

As 3M and its Affiliates meet the Cumulative Product Unit Sales Targets 
during each Royalty Period, the royalty payable by 3M and/or its Affiliates 
on all subsequent sales of Products during the remainder of that Royalty 
Period shall be reduced to the next percentage range payable of the Net 
Billable Price received by 3M and all 3M Affiliates from such sales.        

                     [ * ]                    [ * ]


* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


                                      9
<PAGE>

                  ROYALTY          CUMULATIVE PRODUCT UNIT SALES TARGETS
                                         DURING A ROYALTY PERIOD

                   [ * ]                             [ * ]

    Royalties on sales of Products by 3M Affiliates may be paid directly to 
Polycom by any such Affiliate; however, 3M shall remain primarily liable for 
any such royalties in the event of default in payment by any of its 
Affiliates.

    (b)  PAYMENT.  Royalties shall be due and payable on a [ * ] with payment 
to be delivered on or before the [ * ]. If an audit discloses that 3M or any 
of its Affiliates had failed to pay any royalties due during an audited 
period, 3M or such Affiliate, as the case may be, shall tender payment of 
such unpaid royalties within [ * ] its receipt of notice of such discrepancy.

    3.8  AUDIT RIGHTS.  Polycom shall be entitled to examine all records of 
3M pertaining to its distribution and sale of Products at any time upon 
reasonable notice in order to verify the performance of 3M pursuant to 
Sections 3.2(b), 3.3 and 3.7 hereof.  All such audits shall be conducted by 
an independent auditor of Polycom's choosing in the offices of 3M during 
business hours.  The auditor shall report only whether any discrepancy in the 
required level of performance or payment was discovered and, if so, the 
amount thereof.  The costs of any such audit shall be borne by Polycom unless 
such audit discloses that 3M has failed to perform within [ * ] of the 
required level of performance or payment required in any audited period, in 
which case 3M shall bear all such costs. 3M agrees to establish a commodity 
classification for the 3M-branded Products on its internal records, in 
accordance with generally accepted accounting principles, that will 
facilitate verification of 3M's required sales and marketing expenditures in 
support of the 3M-branded Products by Polycom's independent auditor, subject 
to mutually agreed to  confidentiality restrictions.

    3.9  SALES AND SERVICE SUPPORT.  Polycom agrees to reasonably assist 3M 
in setting up such service facilities (which setup shall be at 3M's expense), 
and in training 3M's designated sales and service personnel, to provide 
adequate service support to the Products in the marketplace by the start of 
mass production of the Polycom Product. 3M agrees to provide first and second 
level customer support to its sales channels, direct sales representatives 
and 3M customers.  Polycom agrees to provide training to 3M sales and 
technical personnel involved in the marketing, sales and support of the 
Products as follows:

* Confidential Treatment Requested. Confidential portion has been filed 
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                                      10
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    (a) Polycom will provide initial sales training classes to a 
        reasonable number of 3M sales people designated by 3M at Polycom's 
        corporate office in Austin, Texas.  Such training classes shall be 
        held at mutually agreeable times and dates within [ * ] prior to 
        first commercial shipment of Products to 3M.  Thereafter, Polycom 
        will conduct sales training classes [ * ] at times and dates to be 
        mutually agreed upon at a 3M designated location; and

    (b) Polycom will provide initial technical training classes to a 
        reasonable number of 3M technical people designated by 3M at 
        Polycom's corporate office in Austin, Texas. Such training classes 
        shall be held at mutually agreeable times and dates within [ * ] 
        prior to first commercial shipment of Products to 3M.  Thereafter, 
        Polycom will conduct maintenance training classes once each calendar 
        quarter at times and dates to be mutually agreed upon at a 3M 
        designated location.

    3.10  QUALITY ASSURANCE; ENGINEERING DOCUMENTATION.  The Parties shall 
develop and implement a mutually acceptable quality assurance plan in the 
manufacture of the Products and require adherence to such plan by all 
manufacturers engaged to manufacture Products for their account.  Polycom 
agrees to provide 3M, within [ * ] days following its written request 
therefor, with engineering documentation sufficient to allow 3M to inspect 
and qualify the Products as meeting the Specifications, publish end-user and 
service support documentation, and provide adequate service support to 
distributors and/or purchasers of the Products.

    3.11  PRICE REDUCTION, QUALITY IMPROVEMENT AND PERFORMANCE ENHANCEMENT. 
The Parties agree to meet at least on a [ * ] to establish cost reduction, 
quality improvement and performance enhancement targets for Products       
and to develop effective and on-going cost reduction, quality improvement and 
performance enhancement programs, to meet or exceed the cost, quality, and 
performance enhancement targets.  Each and every detail of the manufacturing 
process, including without limitation, bill of materials, inventory control, 
material handling, material substitution, supplier substitution and cycle 
time, yield and process improvement, will be subject to these cost reductions 
and quality improvement programs.

                                    ARTICLE 4
                         REPRESENTATIONS AND WARRANTIES
                                        
    4.1  REPRESENTATIONS AND WARRANTIES OF 3M.  3M hereby represents and 
warrants to Polycom as follows:

    (a)  ORGANIZATION AND GOOD STANDING.  3M is a corporation duly organized, 
validly existing and in good standing under the laws of Delaware, with all 
requisite power and authority to carry on the business in which it is engaged 
and to own the property it owns. 3M is duly qualified and licensed to do 
business and is in good standing in all jurisdictions where the nature of its 
business makes such qualification necessary.

* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


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    (b)  AUTHORIZATION AND VALIDITY.  The execution, delivery and performance 
of this Agreement and the other agreements contemplated hereby, by 3M, and 
the consummation of the transaction contemplated hereby and thereby, have 
been duly authorized by 3M. This Agreement and each other agreement 
contemplated hereby have been duly executed and delivered by 3M and 
constitute legal, valid and binding obligations of 3M, enforceable against it 
and in accordance with their respective terms, except as may be limited by 
applicable bankruptcy, insolvency or similar laws affecting creditor's rights 
generally or the availability of equitable remedies.

    (c)  NO VIOLATION.  Neither the execution and performance of this 
Agreement or the agreements contemplated hereby nor the consummation of the 
transactions contemplated hereby or thereby will (i) result in a violation or 
breach of the Articles of Incorporation or Bylaws of 3M or any agreement or 
other instrument under which 3M is bound or to which any of the assets of 3M 
is subject, or result in the creation or imposition of any lien, charge or 
encumbrance upon any of such assets, or (ii) violate any applicable law, 
regulation or any judgment or order of any court or governmental agency.

    (d)  NO VIRUSES.  Any software supplied by 3M, its employees and/or 
agents incorporated into Product as delivered to the manufacturer shall be 
free of any wilfully introduced computer virus or any other similar or 
harmful, malicious or hidden programs or data, and 3M shall indemnify and 
hold harmless Polycom from (i) any cost or damages awarded against Polycom in 
connection with any such virus, programs or data and (ii) the cost of 
debugging any virus and the cost of alternative processing while debugging is 
underway.

    4.2  REPRESENTATIONS AND WARRANTIES OF POLYCOM.  Polycom hereby 
represents and warrants to 3M as follows:

    (a)  ORGANIZATION AND GOOD STANDING.  Polycom is a corporation duly 
organized, validly existing and in good standing under the laws of Delaware, 
with all requisite power and authority to carry on the business in which it 
is engaged and to own the property it owns.  Polycom is duly qualified and 
licensed to do business and is in good standing in all jurisdictions where 
the nature of its business makes such qualification necessary.

    (b)  AUTHORIZATION AND VALIDITY.  The execution, delivery and performance 
of this Agreement, and the other agreements contemplated hereby, by Polycom, 
and the consummation of the transaction contemplated hereby and thereby, have 
been duly authorized by Polycom.  This Agreement and each other agreement 
contemplated hereby have been duly executed and delivered by Polycom        
and constitute legal, valid and binding obligations of Polycom, enforceable 
against it and in accordance with their respective terms, except as may be 
limited by applicable bankruptcy, insolvency or similar laws affecting 
creditor's rights generally or the availability of equitable remedies.

    (c)  NO VIOLATION.  Neither the execution and performance of this 
Agreement or the agreements contemplated hereby nor the consummation of the 
transactions contemplated hereby or


                                      12
<PAGE>

thereby will (i) result in a violation or breach of the Articles of 
Incorporation or Bylaws of Polycom or any agreement or other instrument under 
which Polycom is bound or to which any of the assets of Polycom is subject, 
or result in the creation or imposition of any lien, charge or encumbrance 
upon any of such assets, or (ii) violate any applicable law, regulation or 
any judgment or order of any court or governmental agency.

    (d)  PATENTS AND TRADE SECRETS.

         (i)  To the best of Polycom's knowledge, Polycom owns all trade 
    secrets, patents and copyrights necessary to manufacture, distribute, 
    and sell Product, or possesses adequate licenses or other rights, if any, 
    therefor (collectively, the "Polycom Proprietary Rights").

         (ii) To the best of Polycom's knowledge at the time of incorporation 
    into a Product, Polycom has the right to use the Polycom Proprietary 
    Rights without infringing or violating the rights of any third parties.  
    To the best of Polycom's knowledge at the time of incorporation into a 
    Product, no claim has been asserted by any person to the ownership of, or 
    right to use, any Polycom Proprietary Right or challenging or questioning 
    the validity or effectiveness of any such license or agreement and Polycom 
    knows of no valid basis for any such claim.  To the best of Polycom's 
    knowledge at the time of incorporation into a Product, each of the Polycom 
    Proprietary Rights is valid and subsisting, has not been terminated and, 
    if applicable, has been duly issued or filed.  Polycom will maintain its 
    interest in the Polycom Proprietary Rights throughout the term of this 
    Agreement.

    (e)  PRODUCT DESIGN.  The design of Products, as delivered to any 
manufacturer for the manufacture of Products for 3M's account, will meet the 
Specifications therefor as mutually agreed to by Polycom and 3M hereunder.

    (f)  NO VIRUSES.  The software incorporated into Product, other than 
software supplied by 3M, its employees or agents, if any, or by a third party 
other than an independent contractor of Polycom, as delivered to the 
manufacturer, shall be free of any wilfully introduced computer virus or any 
other similar or harmful, malicious or hidden programs or data, and Polycom 
shall indemnify and hold harmless 3M from (i) any cost or damages awarded 
against 3M in connection with any such virus, programs or data and (ii) the 
cost of debugging any virus and the cost of alternative processing while 
debugging is underway.

    (g)  MAXIMUM FAILURE RATE.  In the event that Products purchased by 3M 
hereunder experience a field failure rate, based on a material Polycom design 
defect (excluding cosmetic defects), of [ * ] or more based upon returns of 
defective Products during any [ * ] Polycom shall reimburse 3M for any and 
all costs incurred by it in the repair or replacement of such Products; 
provided, however, that Polycom shall have no obligation with respect to such 
repair or replacement if it is determined that the defect is directly 
attributable to a 3M design.

* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


                                      13
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                                    ARTICLE 5
                            CONFIDENTIAL INFORMATION
                                        
    5.1  Either Party who receives Confidential Information of the other 
Party shall protect the confidentiality of such Confidential Information for 
a period of [ * ] from the termination of this Agreement. Confidential 
Information includes: (a) written materials delivered to the recipient marked 
as confidential or with a similar legend of confidentiality, (b) visual 
information indicated as confidential by means of written notices or signs, 
(c) oral information that is indicated orally to be confidential and 
subsequently summarized and designated as confidential in a written memo sent 
to the recipient within [ * ] and (d) disclosed in the form of tangible 
products or materials transmitted to the recipient with an accompanying 
written memorandum.  It is the responsibility of each Party to identify its 
own information which it deems to be "Confidential Information."

    5.2  Use of the disclosing Party's Confidential Information by the 
receiving Party shall be limited to the express purposes of this Agreement in 
the following areas:

    (a)  3M information in the areas of [ * ]

    (b)  Polycom information in the areas of [ * ]

    5.3  A recipient shall return or properly dispose of all information 
(including tangible products or materials) received from the disclosing Party 
upon request of the disclosing Party except that the recipient may retain in 
the office of its legal counsel one copy of written information for record 
purposes only.

    5.4  A recipient shall protect the disclosed Confidential Information by 
using the same degree of care, but no less than a reasonable degree of care, 
to prevent the unauthorized use or disclosure of the Confidential Information 
of the disclosing Party, as the recipient uses to protect its own 
Confidential Information of like nature. A recipient of the other Party's 
Confidential Information shall not disclose any such Confidential Information 
to any third party. Confidential information of the disclosing Party will be 
restricted to those directors, officers, employees, agents, or contractors of 
each receiving Party having a need-to-know.  In the event that the recipient 
is required by judicial or administrative process to divulge Confidential 
Information of the disclosing Party, the recipient shall promptly notify the 
disclosing Party and allow the disclosing Party a reasonable time to oppose 
such process prior to divulging such Confidential Information.

    5.5  This Agreement imposes no obligation upon a recipient with respect 
to information that (a) was in the recipient's possession before receipt from 
the disclosing Party, (b) is or becomes available to the public through no 
fault of the recipient, (c) is received in good faith by the recipient


* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


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from a third party and is not subject to an obligation of confidentiality
owed to the third party, (d) is independently developed by the recipient
without reference to information received hereunder, or (e) is the
disclosing Party's own Confidential Information and is disclosed by such
Party to a third party on a non-confidential basis.

                                    ARTICLE 6
                                      TERM
                                        
    6.1  TERM.  This Agreement shall be effective as of the Effective Date 
and shall continue in effect for [ * ] following the Commencement Date (the 
"Initial Term").

    6.2  RENEWAL.   Subject to the provisions of Section 3.2(b) above, this 
Agreement shall be automatically renewed for [ * ] (each a "Renewal Term")  
unless either Party gives written notice to the other Party of its desire to 
have the Agreement expire at the end of the Initial Term or initial Renewal 
Term, as the case may be, at least [ * ] prior to such expiration.

    6.3  BUSINESS REVIEW.  The Parties agree to meet at least [ * ] at a 
mutually agreeable place and time to discuss the results of their respective 
marketing programs and plans therefor, Product development results and plans, 
projected demand for each category of Product and Polycom's manufacturing 
capabilities and plans therefor, among other things.

                                    ARTICLE 7
                                   TERMINATION
                                        
    Either Party may terminate this Agreement during the Initial or Renewal 
Term, upon written notice sent in accordance with the provisions of Article 
17 below, in the event the other Party fails to perform a material obligation 
under this Agreement or otherwise is in breach of any of its material 
obligations hereunder.  The Party receiving such notice shall have [ * ] from 
the date of receipt thereof to cure the failure or breach.  If the Party 
receiving such notice does not cure the failure or breach within such cure 
period, the Party claiming breach may terminate this Agreement by sending 
written notice of termination in accordance with the provisions of Article 17 
below, to the other Party.
                                        
                                    ARTICLE 8
                            LIMITATION OF LIABILITIES
                                        
    IN THE EVENT EITHER PARTY SHOULD BECOME LIABLE TO THE OTHER FOR ANY 
MATTER RELATING TO THIS AGREEMENT, WHETHER ARISING IN CONTRACT, EQUITY OR 
TORT (INCLUDING, WITHOUT LIMITATION, NEGLIGENCE), AND IN ADDITION TO ANY 
OTHER LIMITATION OF LIABILITY OR REMEDY SET FORTH IN THIS AGREEMENT, THE 
AMOUNT OF DAMAGES RECOVERABLE BY THE INJURED PARTY SHALL NOT INCLUDE ANY 
AMOUNTS FOR INDIRECT OR CONSEQUENTIAL


* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


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DAMAGES, INCLUDING LOST PROFITS, LOST INCOME OR LOST SAVINGS, OR FOR ANY 
AMOUNTS WITH RESPECT TO CLAIMS BY ANY OTHER PARTY.  These exclusions do not 
apply to claims for personal injury by a third party.

                                    ARTICLE 9
                                 INDEMNIFICATION
                                        
    9.1  INDEMNIFICATION BY POLYCOM.  Polycom will indemnify, defend, and 
hold harmless 3M, the 3M Affiliates, and their respective directors, 
officers, shareholders, agents, and employees from any loss, claim, liability 
and expense (including reasonable attorney's fees, court costs, and other 
expenses of litigation) with respect to:

    (a)  any claim for sickness, bodily injury, personal injury, death, 
         property damage or loss as asserted by third parties where the 
         claim is based in whole or in any part on, or is in any way related 
         to, any act or omission attributable to Polycom, its agents, 
         employees, or subcontractors, or in any way related to the work 
         performed, or to be performed, by Polycom hereunder, except to the 
         extent that such claims are due solely and directly to the 
         negligence or intentional misconduct of 3M; and

    (b)  any claim that any Product infringes any patent, copyright, trade 
         secret or other intellectual property of a third party based upon 
         3M's sale of such Product hereunder except to the extent such claim 
         is based on Polycom's use of 3M's intellectual property licensed to 
         Polycom pursuant to the provisions of Sections 2.1 above.

Notwithstanding the foregoing, claims arising, directly or indirectly, from 
any feature that is unique to any 3M Proprietary Product developed hereunder 
shall not be subject to Polycom's obligations under this Section 9.1. 
Polycom further agrees that it will not knowingly provide 3M with an 
infringing product or knowingly specify any infringing technology for use in 
any Products. 3M shall give Polycom prompt notice of the assertion of such a 
claim, and permit Polycom full control, including, but not limited to, 
choice of counsel, in the negotiation, litigation, and/or settlement of any 
such claim and shall reasonably cooperate with Polycom in the defense and/or 
settlement of any such claim.

    9.2  INDEMNIFICATION BY 3M.  3M will indemnify, defend, and hold harmless 
Polycom, Polycom's Affiliates, and their respective directors, officers, 
shareholders, agents, and employees from any loss, claim, liability and 
expense (including reasonable attorney's fees, court cost, and other expenses 
of litigation) with respect to:

    (a)  any claim for sickness, bodily injury, personal injury, death,
         property damage or loss as asserted by third parties where the 
         claim is based in whole or in any part on, or is in any way related 
         to, any act or omission attributable to 3M, its agents, employees, 
         or subcontractors, or in any way related to the work performed, or 
         to be


                                      16
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         performed, except to the extent that such claims are due solely and 
         directly to the negligence or intentional misconduct of Polycom; and

    (b)  any claim that any feature that is unique to any 3M Proprietary 
         Product infringes any patent, copyright, trade secret or other 
         intellectual property of a third party based upon Polycom's 
         manufacture or 3M's sale of such Product hereunder.

3M further agrees that it will not knowingly provide Polycom with an 
infringing product or knowingly specify any infringing technology for use in 
any Products.  Polycom shall give 3M prompt notice of the assertion of such a 
claim, and permit 3M full control, including, but not limited to, choice of 
counsel, in the negotiation, litigation, and/or settlement of any such claim 
and shall reasonably cooperate with 3M in the defense and/or settlement of 
any such claim.

                                   ARTICLE 10
                                PUBLIC DISCLOSURE
                                        
         3M and Polycom agree not to disclose the terms and conditions of 
this Agreement, except as may be required by law or government regulations or 
in connection with any due diligence relating to any financing, merger or 
acquisition involving such Party, without written authorization of the other 
Party, for the term of this Agreement.  In the event such disclosure is 
required, the disclosing Party agrees to provide the other Party with prompt 
notice of such disclosure and, where possible, with prior notice thereof.

                                   ARTICLE 11
                                  FORCE MAJEURE
                                        
    11.1  If the performance of this Agreement or of any obligation hereunder 
is prevented, restricted or interfered with by reason of fire or earthquake 
or other casualty or accident; inability to procure raw materials, power or 
supplies (for reasons other than Polycom's negligence or fault or failure to 
timely order); war or other violence; or any law, order, proclamation, 
regulation, ordinance, demand or requirement of any government agency, court 
or intergovernmental body (collectively "Force majeure"), the Party whose 
performance is prevented, restricted or interfered with shall be excused from 
such performance to the extent of such prevention, restriction or 
interference; provided that the Party so affected shall use its reasonable 
efforts as to avoid or remove such causes of nonperformance and shall resume 
performance hereunder with the utmost dispatch whenever such causes are 
removed.

    11.2  If performance of this Agreement or of any obligation hereunder is 
prevented, restricted or interfered with for any reason set forth in this 
Article, and such prevention, restriction or interference lasts for, or is 
expected to last for more than [ * ] the Party whose performance is not 
affected by the force majeure condition shall have the option of being 
excused, without further obligation, from performance of the Agreement or of 
any obligation.

* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


                                      17
<PAGE>

                                   ARTICLE 12
                             RELATIONSHIP OF PARTIES
                                        
    12.1  No Party is an agent of any other Party and has no authority to 
bind any other Party, transact any business in any other Party's name or on 
its behalf, or make any promises or representations on behalf of any other 
Party.  Each Party makes this Agreement and will perform all of its 
respective obligations under this Agreement, as an independent contractor, 
and no joint venture, partnership or other relationship shall be created or 
implied by this Agreement.  The employees and agents of each Party are NOT 
for any purpose the employees or agents of the other Party.

    12.2  During the term of this Agreement and for a period of one year 
thereafter, both 3M and Polycom agree that they will not, directly or 
indirectly, for their own account or otherwise, solicit for employment or 
employ or engage as an independent contractor, consultant or otherwise, any 
employee, or former employee employed during the term hereof, of the other 
Party without such Party's prior written approval.

                                   ARTICLE 13
                                  NO ASSIGNMENT
                                        
    This Agreement may not be transferred or assigned, in whole or in part, 
by either Party hereto without the written consent of the other Party, except 
as a part of the transfer of substantially all of such Party's capital stock, 
assets or that portion of the transferring Party's business to which this 
Agreement pertains.  If at any time prior to [ * ] Polycom fails to cure a 
material breach of this Agreement of which Polycom has been notified pursuant 
to the terms of Section 1.1(b) or Article 7 above, and given an opportunity 
to cure as set forth therein, Polycom agrees to assign this Agreement, at 
3M's option, to a third party designated by 3M in writing.  In the event of 
any such assignment, Polycom agrees to grant such third party a 
non-exclusive, royalty-free, non-transferable, non-sublicensable license to 
any Polycom intellectual property necessary to the manufacture of any Product 
that is developed during the term of, and under, this Agreement for the sole 
purpose of development and manufacture of such Product solely for 3M and its 
Affiliates.

                                   ARTICLE 14
                                    SURVIVAL
                                        
    The rights and obligations of the Parties hereto under Articles 2, 4, 5, 
8, 9, 14, 16-20, Sections 3.7(b), 3.8 and 12.2 and all rights to payment shall 
survive any termination, cancellation or expiration of this Agreement.

* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


                                      18
<PAGE>

                                  ARTICLE 15
                               PARAGRAPH HEADINGS
                                        
    The title and headings of the various articles of this Agreement are 
inserted for convenience of reference only and shall not be constructed to 
affect the construction or interpretation of any of its provisions.

                                   ARTICLE 16
                                     WAIVER
                                        
    Any failure or delay by either Party in exercising any right or remedy in 
one or many instances will not prohibit a Party from exercising it at a later 
time or from exercising any other right or remedy.

                                   ARTICLE 17
                                     NOTICES
                                        
    Any notices required or permitted hereunder shall be given in writing 
either (a) through, personal delivery by courier with tracking capabilities 
or otherwise, (b) by telecopy or other electronic medium to be promptly 
followed by confirmation pursuant to subsections (a) or (c), or (c) by 
deposit in United States mail, postage paid, certified or registered mail, 
return receipt requested to the address stated below or to such other address 
notice of which is given in accordance with this Article 17:

If to 3M:          Division Vice President 
                   3M Visual Systems Division 
                   Minnesota Mining and Manufacturing Company 
                   3M Austin Center
                   6801 River Place Boulevard 
                   Austin, Texas 78726-9000

                   Telecopier No.: 512/984-5191

If to Polycom:     Chief Executive Officer 
                   Polycom, Inc.
                   2584 Junction Avenue 
                   San Jose, California 95134-1902

                   Telecopier No.: 415/474-2955
    
All notices shall be deemed given or made (x) on the date delivered if 
delivered personally, by courier or otherwise, (y) on the date initially 
received, if delivered by telecopy or other electronic


                                      19
<PAGE>

medium followed by confirmation by personal delivery or registered or 
certified mail, or (z) on the third business day after it is mailed, if 
mailed in accordance with subsection (c) above.

                                   ARTICLE 18
                         GOVERNING LAW; CHOICE OF FORUM
                                        
    18.1  THIS AGREEMENT IS ENTERED INTO AND PERFORMABLE IN SANTA CLARA
COUNTY, CALIFORNIA AND ANY QUESTIONS, CLAIMS, DISPUTES OR LITIGATION
CONCERNING OR ARISING FROM THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF
CALIFORNIA, USA WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS DOCTRINES OF
ANY FEDERAL STATE OF THE UNITED STATES OR ANY NATION STATE.

    18.2  The Parties agree that both California and Texas have a substantial 
relationship to this transaction, and each Party consents to personal 
jurisdiction in the courts thereof. Any action or suit arising from or 
related to this Agreement shall only be brought by the Parties in any federal 
or state court with appropriate jurisdiction over the subject matter 
established or sitting in (a) in the case of Polycom, state of Texas, located 
in Austin, Texas, and (b) in the case of 3M, the state of California, located 
in San Jose, California.

                                   ARTICLE 19
                               DISPUTE RESOLUTION
                                        
    19.1  UNAIDED NEGOTIATIONS.  To resolve any disputes among the Parties, 
3M or Polycom must first provide written notice to the other, specifying in 
as much detail as possible the source or reason for the dispute and the 
resolution proposed by the notifying Party.  The receiving Party shall 
respond in writing to any such notice within [ * ] after receipt. The 
receiving Party may include in its reply a detailed description of any 
disputes it would like to resolve and the proposed resolutions. The first 
notifying Party shall respond within [ * ]. If the dispute is not then 
resolved there shall follow within [ * ] of the last written response a 
meeting between at least one representative of each Party. Each Party agrees 
to have present such person or persons who are authorized to fully and 
finally resolve the dispute.  The purpose of this meeting shall be to discuss 
and negotiate in good faith the complete resolution of any outstanding 
dispute(s).  The date and time shall be mutually agreed (within the stated 
period), and the location of the meeting shall be chosen by the Party 
responding to the first notice.  Each Party shall bear its own costs 
(including travel expenses) incident to this negotiation and meeting.

    19.2  MEDIATION. Should the procedure outlined above not bring about a 
resolution of the dispute, then within [ * ] following the meeting of 
principals, the Party first sending the notice shall initiate a voluntary, 
nonbinding mediation conducted at a mutually-agreed location (or, if no 
location can be agreed upon in Chicago, Illinois), by a mutually-agreed 
mediator selected from the membership of the local chapter of the Association 
of Attorney-Mediators. Should the Parties for any reason be unable or 
unwilling to agree upon a mediator, they shall request the local chapter

* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


                                      20
<PAGE>

of the Association of Attorney-Mediators to appoint one of its members for 
them.  The Parties shall bear equally all costs and expenses (including any 
mediator's fees) of this mediation and endeavor in good faith to resolve 
their differences.  While this mediation shall be nonbinding in all respects 
(except agreements in settlement of the dispute negotiated by the Parties), 
each Party agrees that:

         (a)  It shall appear when directed by the mediator, be fully prepared
    to work towards a resolution of the dispute, and participate in good faith
    in the mediation towards a resolution of all disputed issues or concerns;

         (b)  The duty to mediate in good faith shall be specifically
    enforceable by the courts of California and Texas; and

         (c)  Should a court in any litigation stemming from the same general
    dispute or disagreement among the Parties determine that either did not
    participate in good faith in the mediation process hereunder, the court
    shall impose against such Party a sanction equal to the other Party's
    attorneys' fees in the resulting litigation, [ * ].

    19.3  LITIGATION.  In the event that the Parties are unable to resolve 
any outstanding disagreement or dispute as provided above, then, as a last 
resort, either Party may commence litigation; provided, however, that, in the 
case of Polycom, it must do so in the courts (state or federal, provided the 
court selected has subject matter jurisdiction) of the state of Texas located 
in Austin, Texas, and, in the case of 3M, it must do so in the Courts (state 
or federal, provided the court selected has subject matter jurisdiction) of 
the state of California located in San Jose, California.

                                   ARTICLE 20
                                ENTIRE AGREEMENT
                                        
    20.1  This Agreement and the exhibits referred to in this Agreement 
supersede and terminate all prior agreements, if any, whether written or 
oral, between the Parties with respect to the subject matter contained herein.

    20.2  Each Party agrees that it has not relied on any representation, 
warranty, or provisions not explicitly stated in this Agreement, and that no 
oral statement has been made to either Party that in any way tends to waive 
any of the terms or conditions of this Agreement.  This Agreement constitutes 
the final written expression of all terms of the Agreement, and it is a 
complete and exclusive statement of those terms.

    20.3  No part of this Agreement may be waived, modified, or supplemented 
hi any manner whatsoever (including a course of dealing or of performance or 
usage of trade) except by a written instrument signed by duly authorized 
officers of the Parties.

         (THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK)
                                        

* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


                                      21
<PAGE>

The Parties, intending to be bound, have signed this Agreement as of the 
Effective Date.


3M:                                   MINNESOTA MINING
                                      AND MANUFACTURING COMPANY


                                      By: /s/ C. A. Meek
                                         ---------------------------------

                                      Printed Name:  C. A. Meek
                                                   -----------------------

                                      Title: Division Vice President
                                            ------------------------------

                                      Date: 6/6/97
                                           -------------------------------


POLYCOM:                              POLYCOM, INC.


                                      By: /s/ Michael R. Koucey
                                         ---------------------------------

                                      Printed Name:  Michael R. Koucey
                                                   -----------------------

                                      Title: CFO
                                            ------------------------------

                                      Date: 6/10/97
                                           -------------------------------

Exhibit A    Specifications for Polycom Product
Exhibit B    Migration Schedule
Exhibit C    Source Code Escrow Provisions
Exhibit D    Minimum Sales Requirements to Maintain
              3M's Exclusive Marketing Rights
Exhibit E    [ * ] Regulatory Approval


                                         22

* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission

<PAGE>

                                      EXHIBIT A

                          SPECIFICATIONS FOR POLYCOM PRODUCT

                                        [ * ]



* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission


<PAGE>

                                      EXHIBIT B

                          POLYCOM PRODUCT MIGRATION SCHEDULE

                                        [ * ]



* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission

<PAGE>


                                      EXHIBIT C

                            SOURCE CODE ESCROW PROVISIONS


     1.  INITIAL DEPOSIT.  Within [ * ] after the Effective Date of this 
Agreement, Polycom shall deposit with Brobeck, Phleger & Harrison, L.L.P. 
("Escrow Agent"), a copy of the source code for software owned by Polycom and 
incorporated into the Specifications for the Polycom Product, including 
related documentation necessary for the manufacture and/or operation of the 
Polycom Products ("Initial Deposit").

     2.  SUPPLEMENTAL DEPOSIT.  A "Supplemental Deposit" will include any 
materials added to the Initial Deposit by Polycom pursuant to this Exhibit C. 
During the term of this Agreement, Polycom will deposit source code (a) for 
software owned by Polycom and incorporated into the Specifications for any 
Polycom Product and/or 3M Proprietary Product, including related 
documentation necessary for the manufacture and/or operation of any such 
Products (collectively, "Product Software") and (b) for any upgrades, bug 
fixes or new releases of any Product Software within [ * ] of Polycom's 
incorporation thereof into a Product. The Initial Deposit together with any 
Supplemental Deposits shall be collectively referred to herein as "Deposit 
Materials."

     3.  CONTENT AND ACCURACY.  Escrow Agent shall not be responsible for 
verifying the contents or validating the accuracy of the Deposit Materials or 
Polycom's labeling of the Deposit Materials.

     4.  RELEASE CONDITIONS.  During the term of this Agreement, Escrow Agent 
shall release the Deposit Materials to 3M only in accordance with all the 
terms and conditions of this Exhibit C and only in the event Polycom:

         i.   suspends, for [ * ], or terminates its [ * ] business;

         ii.  becomes subject to any bankruptcy or insolvency proceeding 
under federal or state statute, which proceeding is not dismissed within [ * ]
of the filing thereof; or

         iii. becomes insolvent or subject to direct control by a trustee, 
receiver or similar authority.

     The parties expressly acknowledge and agree that there are no other 
condition or circumstances under which Escrow Agent may release the Deposit 
Materials to 3M, unless otherwise instructed in a writing signed by both 
Polycom and 3M or pursuant to a court order.

     5.  CONDITIONS FOR USE AND LICENSE.  As set forth in Section 3.1(d) of 
this Agreement and subject to all the terms and conditions of this Agreement 
and this Exhibit C, Polycom grants to any 



* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission

<PAGE>

manufacturer chosen by 3M pursuant to Section 3.1(d) an irrevocable (only 
during the remaining term of this Agreement), royalty-free, non-transferable, 
non-exclusive and non-sublicensable license to use the Deposit Materials for 
the sole purpose of manufacturing the Products solely for the account of 3M 
and its Affiliates during the term of this Agreement. 3M shall ensure that 
any such manufacturer shall not exercise the foregoing license unless and 
until one of the release conditions expressly set forth in Paragraph 4 i-iii 
above has been triggered and Escrow Agent has released the Deposit Materials 
to 3M pursuant to Paragraph 6 below.

     6.  RELEASE OF DEPOSIT TO 3M.  Upon notice to Escrow Agent by 3M (in the 
form of an affidavit or declaration by an officer of 3M) of the occurrence of 
a release condition as specified in Paragraph 4 above, Escrow Agent shall so 
notify Polycom with a copy of the notice from 3M. If Polycom provides 
"Contrary Instructions" (as defined below) to Escrow Agent within [ * ] after 
the date of Escrow Agent's notice to Polycom, Escrow Agent shall not deliver 
the Deposit Materials to 3M. "Contrary Instructions" shall mean the filing of 
an affidavit or declaration with Escrow Agent by an officer of Polycom 
stating that a Release Condition has not occurred or has been cured.

     Escrow Agent will send a copy of any Contrary Instructions to 3M. Upon 
receipt of Contrary Instructions, Escrow Agent shall not release any Deposit 
Materials and shall continue to store the Deposit Materials until otherwise 
directed by Polycom and 3M jointly in writing or by court order.

     If Escrow Agent does not receive Contrary Instructions from Polycom, 
Escrow Agent is authorized to release the Deposit Materials to 3M pursuant to 
this Exhibit C.

     7.  INDEMNIFICATION.  Polycom and 3M each agree to indemnify, defend and 
hold Escrow Agent and its partners, officers, employees, contractors and 
agents harmless from and against all claims, actions, proceedings, suits, 
liabilities, losses, damages, settlements, costs, charges, penalties, 
attorneys' fees, and other expenses of any nature as a result of its 
obligations or performance of its obligations under this Exhibit C.

     8.  GENERAL.  Subject to all terms and conditions of this Exhibit C, 
Escrow Agent may act in reliance upon any written instructions, instrument or 
signature reasonably believed to be genuine and may assume that any person 
giving any written notice, request, advice or instruction in connection with 
or relating to this Exhibit C has been duly authorized to do so. Escrow Agent 
is not responsible for failure to fulfill its obligations under this Exhibit 
C due to causes beyond its reasonable control. Polycom and 3M expressly 
acknowledge and agree that Escrow Agent's only obligations shall be as 
expressly and unambiguously set forth in Exhibit C.


                                      C2

* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission

<PAGE>

                                      EXHIBIT D

        MNIMUM SALES REQUIREMENTS TO MAINTAIN 3M'S EXCLUSIVE MARKETING RIGHTS

                                        [ * ]



* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission

<PAGE>

                                      EXHIBIT E

                           [ * ] REGULATORY APPROVALS

                                        [ * ]



* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission
 
<PAGE>

                                   AMENDMENT

THIS AMENDMENT amends the Joint Marketing and Development Agreement dated 
June 6, 1997 (hereinafter "Agreement") between MINNESOTA MINING AND 
MANUFACTURING COMPANY, acting through its Visual Systems Division, with its 
principal place of business at 3M Center, 6801 River Place Blvd., Austin, 
Texas 78726-9000, ("3M"); and POLYCOM, INC., a Delaware corporation, with its 
principal place of business at 2584 Junction Avenue, San Jose, California 
95134-1902 ("Polycom").

POLYCOM and 3M agree as follows:

     1.  Delete Subsection 3.2(a) of the Agreement and substitute the following:

         (a)  [ * ]

     2.  Delete Subsection 3.4 of the Agreement and substitute the following:

              3.4  BRAND NAMES AND PATENT MARKINGS. [ * ]


                                       1


* Confidential Treatment Requested. Confidential portion has been filed 
  separately with the Securities and Exchange Commission
<PAGE>

     3.  This Amendment shall become effective on June 10, 1997.

     4.  Except as provided herein above all other terms and conditions of the 
         Agreement remain unamended.

The parties have signed this Amendment on the day and year indicated below.

MINNESOTA MINING AND                        POLYCOM, INC.
MANUFACTURING COMPANY

BY: /s/ C.A. MEEK                           BY: /s/ MICHAEL R. KOUREY
   -------------------------------             -------------------------------

TITLE: Division Vice President              TITLE: CFO
      ----------------------------                ----------------------------

DATE: June 10, 1997                         DATE: 6/10/97
     -----------------------------               -----------------------------





                                       2

<PAGE>


                                                      EXHIBIT 11.1

                              POLYCOM, INC.

                     COMPUTATION OF NET INCOME (LOSS)
                  PER COMMON AND COMMON EQUIVALENT SHARE
                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                           Three Months Ended   Six Months Ended  
                                                           ------------------  ------------------ 
                                                           June 30,  June 30,  June 30,  June 30, 
                                                             1997      1996      1997      1996   
                                                           --------  --------  --------  -------- 
<S>                                                         <C>      <C>       <C>       <C>
PRIMARY & FULLY DILUTED
    Weighted average common shares outstanding               19,043    13,450    19,001      8,099
    Common equivalent shares from options and warrants            0       393         0        254
    Common equivalent shares from common stock
      subject to repurchase (2)                                   0       574         0        602
    Common equivalent shares from convertible 
      redeemable preferred stock and warrants                     0     3,997         0      7,993
    Common equivalent shares from options and 
      convertable redeemable preferred stock (1)                  0       561         0      1,121
                                                             ------    ------    ------     ------
    Total shares                                             19,043    18,975    19,001     18,069
                                                             ------    ------    ------     ------
                                                             ------    ------    ------     ------

Net income (loss):
    Amount                                                   $ (612)    $ 389   $(1,086)     $ 523 

    Per share                                                $(0.03)    $0.02   $ (0.06)     $0.03 

</TABLE>




(1) Pursuant to the requirements of the Securities and Exchange Commission, 
common equivalent shares relating to stock options, using the treasury stock 
method and the initial public offering price of $9.00 per share, and common 
equivalent shares from convertible redeemable preferred stock using the 
if-converted method issued during the twelve months period prior to the 
initial public offering are included in the computation for the three month 
period and six month period ended June 30, 1996.

(2) Common stock issued under a stock option plan which are subject to 
repurchase are excluded from shares issued in the computation of net loss per 
share as their effect is antidilutive.


<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-START>                             APR-01-1997
<PERIOD-END>                               JUN-30-1997
<CASH>                                          14,905
<SECURITIES>                                     5,003
<RECEIVABLES>                                    5,683
<ALLOWANCES>                                       442
<INVENTORY>                                      8,197
<CURRENT-ASSETS>                                34,396
<PP&E>                                           8,074
<DEPRECIATION>                                   4,617
<TOTAL-ASSETS>                                  38,220
<CURRENT-LIABILITIES>                            7,797
<BONDS>                                              0
                                0
                                          0
<COMMON>                                            10
<OTHER-SE>                                      30,413
<TOTAL-LIABILITY-AND-EQUITY>                    38,220
<SALES>                                         11,500
<TOTAL-REVENUES>                                11,500
<CGS>                                            6,148
<TOTAL-COSTS>                                    6,148
<OTHER-EXPENSES>                                 5,964
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                  (612)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                              (612)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     (612)
<EPS-PRIMARY>                                    (.03)
<EPS-DILUTED>                                    (.03)
        

</TABLE>


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