<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of
1934
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JULY 1, 1995
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
For the Quarter ended JULY 1, 1995 Commission File Number 1-9434
------------
PICTURETEL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2835972
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Rosewood Drive, Danvers, MA 01923
------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number: 508-762-5000
------------------------------
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 last 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date.
As of August 10, 1995 there were issued and outstanding 16,088,655 shares of
common stock of the registrant.
<PAGE> 2
<TABLE>
PICTURETEL CORPORATION
Consolidated Balance Sheets
($000's)
<CAPTION>
July 1, December 31,
1995 1994
----------- -----------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................... $ 40,521 $ 24,347
Marketable securities................................... 32,514 50,354
Accounts receivable less allowances of $2,636 and $1,785 76,342 65,155
Inventories (Note 2).................................... 39,889 31,679
Deferred taxes, net..................................... 5,079 5,131
Other current assets.................................... 9,095 2,704
-------- --------
Total current assets................................ 203,440 179,370
Marketable securities................................... 13,915 3,226
Deferred taxes, net..................................... 3,272 3,272
Property and equipment, net............................. 21,433 19,417
Capitalized software costs, net (Note 3)................ 4,005 4,163
Other assets............................................ 7,000 7,251
-------- --------
Total assets........................................ $253,065 $216,699
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings................................... $ 9,930 $ 6,969
Accounts payable........................................ 22,658 18,335
Accrued compensation and benefits....................... 8,810 6,357
Accrued expenses........................................ 20,951 10,677
Income taxes............................................ 287 922
Current portion of capital lease obligations............ 2,712 3,483
Deferred revenue........................................ 15,313 13,705
-------- --------
Total current liabilities........................... 80,661 60,448
Capital lease obligations............................... 1,641 2,860
Other long-term liabilities............................. - 155
Stockholders' equity:
Preference stock, $.01 par value; 15,000,000 shares authorized;
none issued............................................. - -
Common stock, $.01 par value; 80,000,000 shares authorized;
15,952,986 and 15,358,900 shares issued and
outstanding July 1, 1995 and December 31, 1994,
respectively............................................ 159 153
Additional paid-in capital.................................. 156,315 146,153
Retained earnings........................................... 15,039 7,796
Cumulative translation adjustment........................... (431) (452)
Unrealized loss on marketable securities, net............... (319) (414)
-------- --------
Total stockholders' equity.............................. 170,763 153,236
-------- --------
Total liabilities and stockholders' equity.............. $253,065 $216,699
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 3
<TABLE>
PICTURETEL CORPORATION
Unaudited Consolidated Statements of Operations
($000's except per share)
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues....................................... $80,489 $64,011 $154,645 $117,759
Cost of sales.................................. 39,450 32,576 75,808 59,846
------- ------- -------- --------
Gross margin................................... 41,039 31,435 78,837 57,913
Operating expenses:
Selling, general and administrative.......... 24,500 21,451 48,447 39,419
Research and development..................... 11,178 9,477 21,571 17,619
------- ------- -------- --------
Total operating expenses..................... 35,678 30,928 70,018 57,038
------- ------- -------- --------
Income from operations......................... 5,361 507 8,819 875
Interest income, net........................... 700 334 1,317 828
Other income (expense), net.................... (209) 79 66 161
------- ------- -------- --------
Income before taxes............................ 5,852 920 10,202 1,864
Provision for income taxes..................... 1,697 322 2,959 652
------- ------- -------- --------
Net income..................................... $ 4,155 $ 598 $ 7,243 $ 1,212
======= ======= ======== ========
Net income per share:
Primary...................................... $0.24 $0.04 $0.42 $0.08
======= ======= ======== ========
Fully diluted................................ $0.24 $0.04 $0.42 $0.08
======= ======= ======== ========
Weighted average shares outstanding:
Primary...................................... 17,430 15,561 17,106 15,594
======= ======= ======== ========
Fully diluted................................ 17,520 15,561 17,444 15,594
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
<TABLE>
PICTURETEL CORPORATION
Unaudited Consolidated Statements of Cash Flows
($000's)
<CAPTION>
Six Months Ended
July 1, July 2,
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 7,243 $ 1,212
Adjustments to reconcile net income to net cash provided by
(used in) operations:
Depreciation and amortization............................................ 9,345 8,265
Deferred taxes, net...................................................... - 0
Gain on sales of assets.................................................. - (121)
(Gain) loss on foreign currency transactions, net........................ (59) (45)
Other non-cash items..................................................... - 30
Changes in operating assets and liabilities:
Accounts receivable...................................................... (9,642) (14,616)
Inventories.............................................................. (7,773) (3,652)
Other assets............................................................. (6,653) (3,428)
Accounts payable......................................................... 4,279 3,465
Accrued compensation and benefits and
accrued expenses........................................................ 12,427 1,905
Income taxes, net........................................................ (696) (1,228)
Deferred revenue......................................................... 1,523 1,912
-------- --------
Net cash provided by (used in) operating activities........................ 9,994 (6,301)
Cash flows from investing activities:
Purchase of marketable securities........................................ (24,839) (9,450)
Proceeds from sale of marketable securities.............................. 31,373 22,724
Additions to property and equipment...................................... (8,373) (7,018)
Additions to capitalized software costs.................................. (1,532) (1,786)
-------- --------
Net cash provided by (used in) investing activities........................ (3,371) 4,470
Cash flows from financing activities:
Change in short-term borrowings.......................................... 2,223 2,488
Proceeds from exercise of options and warrants........................... 10,169 248
Principal payments under capital lease obligations....................... (1,990) (2,632)
-------- --------
Net cash provided by financing activities.................................. 10,402 104
Effect of exchange rate changes on cash.................................... (851) (1,304)
-------- --------
Net increase in cash and cash equivalents.................................. 16,174 (3,031)
Cash and cash equivalents at beginning of period........................... 24,347 6,921
-------- --------
Cash and cash equivalents at end of period................................. $ 40,521 $ 3,890
======== ========
Interest paid.............................................................. $ 371 $ 447
======== ========
Income taxes paid.......................................................... $ 2,249 $ 1,898
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 5
PICTURETEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Management's Representation
---------------------------
The information furnished has been prepared from the accounts without
audit. In the opinion of management, the accompanying financial statements
contain all adjustments (consisting of normal and recurring accruals) necessary
to present fairly the consolidated financial statements. The financial
disclosures herein should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
2. Inventories
-----------
<TABLE>
Inventories consist of the following (in thousands):
<CAPTION>
July 1, December 31,
1995 1994
---- ----
<S> <C> <C>
Purchased Parts $ 9,166 $ 7,208
Work in Process 2,712 2,464
Finished Goods 28,011 22,007
------- -------
$39,889 $31,679
</TABLE>
3. Capitalized Software Costs
--------------------------
Amortization of software costs totaled $778,000 and $1,020,000 for the
quarters ended July 1, 1995 and July 2, 1994, respectively, and $1,691,000 and
$2,040,000 for the six months ended July 1, 1995 and July 2, 1994,
respectively.
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
- ---------------------
THREE MONTHS ENDED JULY 1, 1995 COMPARED TO THREE MONTHS ENDED JULY 2, 1994
REVENUES. The Company's revenues increased $16,478,000, or 26%, in
the three-month period ended July 1, 1995 from the comparable period in 1994.
The increase in revenue was primarily a result of increased videoconferencing
system unit shipments. This growth was partially offset by a reduction in the
average selling price of videoconferencing systems resulting from a shift
towards lower priced models, as well as a shift in distribution channel mix.
Videoconferencing system sales accounted for approximately 80% of the Company's
revenues for the three month period ended July 1, 1995 and 87% for the
comparable period in 1994. In addition, sales of bridge products accounted for
approximately 7% of the Company's revenues for the three month period ended
July 1, 1995 compared to approximately 5% for the comparable period in 1994.
The balance of the revenues in 1995 and 1994 were primarily from maintenance
services, licensing agreements and the sales of stand-alone codecs and video
modems.
The Company's revenues from sales to foreign markets were
approximately $33,617,000 in the three month period ended July 1, 1995
compared to approximately $29,881,000 in the comparable period in 1994
representing 42% and 47%, respectively, of total revenues. The Company expects
that international revenues will continue to account for a significant portion
of total revenues.
GROSS MARGIN. The Company's gross margin increased $9,604,000 or 31%,
in the three month period ended July 1, 1995 from the comparable period in
1994. Gross margin as a percentage of revenues increased to 51% in the three
month period ended July 1, 1995 from 49% in the comparable period in 1994. The
increase in gross margin as a percentage of revenues was primarily the result
of activity under a recent licensing agreement as well as continued product
material cost reductions and decreasing overhead costs, which is partially
offset by a higher percentage of revenues coming from the Company's
lower-margin videoconferencing system products and an increased percentage of
volume through indirect channels.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased $3,049,000, or 14%, in the three month period
ended July 1, 1995 from the comparable period in 1994 and were 30% and 34%,
respectively, of total revenues. The dollar increase in spending resulted
primarily from the expansion of indirect distribution channels, worldwide
marketing programs associated with new product launches, as well as increased
commission expense. In addition, the Company has provided additional sales,
general and administrative personnel in order to support the Company's overall
growth.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$1,701,000 or 18%, in the three month period ended July 1, 1995 from the
comparable period in 1994 and were 14% and 15%, respectively, of revenues for
the three month period ended July 1, 1995 and for the comparable period in
1994. Research and development expenditures, prior to the capitalization of
software costs, were $11,828,000 in the three month period ended July 1, 1995
and $10,244,000 for the comparable period in 1994 or 15% and 16% of revenues,
respectively. The dollar increase in expenditures primarily reflects the
Company's continuing investment in new product and software development for
existing and future videoconferencing products. The Company capitalized
software costs of $650,000 in the three month period ended July 1, 1995 and
$767,000 for the comparable period in 1994 representing 5% and 7% of research
and development expenditures, respectively.
NET INTEREST INCOME (EXPENSE). Net interest income increased to
$700,000 in the three month period ended July 1, 1995 from $334,000 for the
comparable period in 1994. The increase was primarily the result of higher
interest earning portfolio balances as well as lower capital lease obligations
throughout the three month period ended July 1, 1995.
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
OTHER INCOME (EXPENSE). Other income (expense) for the three month
period ended July 1, 1995 consists primarily of net losses on foreign currency
transactions. Other income (expense) for the three month period ended July 2,
1994 consisted primarily of net gains on foreign currency transactions.
INCOME TAXES. The Company's effective tax rate for the quarters ended
July 1, 1995 and July 2, 1994 was 29% and 35%, respectively. The Company's
effective tax rate in 1995 is lower than the federal statutory rate primarily
due to the combined effects of research and development credits, lower foreign
tax rates and the utilization of foreign net operating loss tax credit carry
forwards, offset by the effect of state income taxes.
SIX MONTHS ENDED JULY 1, 1995 COMPARED TO SIX MONTHS ENDED JULY 2, 1994
REVENUES. The Company's revenues increased $36,886,000, or 31%, in
the six-month period ended July 1, 1995 from the comparable period in 1994.
The increase in revenue was primarily a result of increased videoconferencing
system unit shipments. This growth was partially offset by a reduction in the
average selling price of videoconferencing systems resulting from a shift
towards lower priced models, as well as a shift in distribution channel mix.
Videoconferencing system sales accounted for approximately 82% of the Company's
revenues for the six month period ended July 1, 1995 compared to approximately
85% for the comparable period in 1994. In addition, sales of bridge products
accounted for approximately 7% of the Company's revenues for the six month
period ended July 1, 1995 compared to approximately 6% for the comparable
period in 1994. The balance of the revenues in 1995 and 1994 were primarily
from maintenance services, licensing agreements and the sales of stand-alone
codecs and video modems.
The Company's revenues from sales to foreign markets were
approximately $65,124,000 in the six month period ended July 1, 1995 compared
to approximately $51,113,000 in the comparable period in 1994 representing 42%
and 43%, respectively, of total revenues. The Company expects that
international revenues will continue to account for a significant portion of
total revenues.
GROSS MARGIN. The Company's gross margin increased $20,924,000 or 36%,
in the six month period ended July 1, 1995 from the comparable period in 1994.
Gross margin as a percentage of revenues increased to 51% in the six month
period ended July 1, 1995 from 49% in the comparable period in 1994. The
increase in gross margin as a percentage of revenues was primarily the result
of activity under a recent licensing agreement as well as continued product
material cost reductions and decreasing overhead costs, which is partially
offset by a higher percentage of revenues coming from the Company's
lower-margin videoconferencing system products and an increased percentage of
volume through indirect channels.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased $9,028,000, or 23%, in the six month period
ended July 1, 1995 from the comparable period in 1994 and were 31% and 33%,
respectively, of total revenues. The dollar increase in spending resulted
primarily from the expansion of indirect distribution channels, worldwide
marketing programs associated with new product launches, as well as increased
commission expense. In addition, the Company has provided additional sales,
general and administrative personnel in order to support the Company's overall
growth.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$3,952,000, or 22%, in the six month period ended July 1, 1995 from the
comparable period in 1994 and were 14% and 15%, respectively, of revenues for
the six month period ended July 1, 1995 and for the comparable period in 1994.
Research and development expenditures, prior to the capitalization of software
costs, were $23,102,000 in the six month period ended July 1, 1995 and
$19,251,000 for the comparable period in 1994 or 15% and 16% of revenues,
respectively. The dollar increase in expenditures primarily reflects the
Company's continuing investment in new product and software development for
existing and future videoconferencing products. The Company capitalized
software costs of $1,532,000 in the six month period ended July 1, 1995 and
$1,631,000 for the comparable period in 1994 representing 7% and 8% of research
and development expenditures, respectively.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
NET INTEREST INCOME (EXPENSE). Net interest income increased to
$1,317,000 in the six month period ended July 1, 1995 from $828,000 for the
comparable period in 1994. The increase was primarily the result of higher
interest earning portfolio balances as well as lower capital lease obligations
throughout the six month period ended July 1, 1995.
OTHER INCOME (EXPENSE). Other income (expense) for the six month
period ended July 1, 1995 consists primarily of net gains on foreign currency
transactions. Other income (expense) for the six month period ended July 2,
1994 consists primarily of realized gains from the sales of assets.
INCOME TAXES. The Company's effective tax rate for the six months
ended July 1, 1995 and July 2, 1994 was 29% and 35%, respectively. The
Company's effective tax rate in 1995 is lower than the federal statutory rate
primarily due to the combined effects of research and development credits,
lower foreign tax rates and the utilization of foreign net operating loss tax
credit carry forwards, offset by the effect of state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At July 1, 1995, the Company had $40,521,000 in cash and cash equivalents,
$32,514,000 in short-term marketable securities and $13,915,000 in long-term
marketable securities. During the six month period ended July 1, 1995 the
Company generated $9,994,000 in net cash from operating activities and
$10,169,000 from the exercise of options. The primary use of cash during the
six month period ended July 1, 1995 was to fund the growth in working capital
items such as accounts receivable and inventories, as well as additions to
property and equipment of $8,373,000.
The Company has available for borrowing up to $12,000,000 under its revolving
credit agreement and approximately $3,486,000 available under local foreign
guaranteed lines of credit to certain of its foreign subsidiaries. At July 1,
1995 there was $9,422,000 outstanding under the revolving credit agreement and
$508,000 outstanding under the foreign lines of credit. The Company had
$4,353,000 outstanding and $4,331,000 available to be borrowed under various
leasing lines at July 1, 1995.
The Company believes that funds from operations, equipment lease financings,
borrowings under its various credit agreements and existing cash, cash
equivalents and marketable securities will be sufficient to meet the Company's
foreseeable operating and capital requirements.
<PAGE> 9
SIGNATURE
---------
Pursuant to 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.
PICTURETEL CORPORATION
/s/ Les B. Strauss
--------------------------------------------
Les B. Strauss
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
August 15, 1995
<PAGE> 10
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on June 29, 1995.
The Stockholders of the Company elected members of the Board of Directors,
approved an amendment to the PictureTel Equity Incentive Plan to increase the
number of shares of common stock available for delivery under the Plan from
3,300,000 to 4,500,000 and to limit the number of options that may be granted
to any participant in any fiscal year to 250,000 shares, and ratified the
selection of Coopers & Lybrand L.L.P. as the Company's auditors for fiscal year
1995. The number of affirmative, negative, abstained votes and broker
non-votes cast with respect to each of the matters voted on were as follows:
<TABLE>
The tabulation of votes for the nominees for directors were as follows:
COMMON STOCK
------------
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
Norman E. Gaut 13,586,072 158,206
Robert T. Knight 13,587,752 156,526
Vinod Khosla 13,587,725 156,553
David Levi 13,588,258 156,020
James R. Swartz 13,586,090 158,188
</TABLE>
Other Matters Considered:
<TABLE>
<CAPTION>
AFFIRMATIVE NEGATIVE ABSTAINED BROKER
VOTES VOTES VOTES NON-VOTES
<S> <C> <C> <C> <C>
Approval of the amendment to 6,321,224 3,080,076 67,005 4,275,973
the PictureTel Equity Incentive Plan
Selection of Coopers & Lybrand L.L.P. 13,607,252 95,788 41,238 -----
as auditors
</TABLE>
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit 10.1 PictureTel Equity Incentive Plan as amended through
June 29, 1995 (filed herewith).
(b) Reports on Form 8-K
None.
<PAGE> 1
Exhibit 10.1
PICTURETEL CORPORATION
EQUITY INCENTIVE PLAN
(AS AMENDED THROUGH JUNE 29, 1995)
1. PURPOSE
The purpose of this Equity Incentive Plan (the "Plan") is to advance
the interests of Picturetel Corporation (the "Company") by enhancing its ability
to (a) attract and retain employees who are in a position to make significant
contributions to the success of the Company and its subsidiaries: (b) reward
employees for such contributions: (c) encourage employees to take into account
the long-term interests of the Company through ownership of shares of the
Company's common stock ("Stock"); and (d) attract other persons or entities who
are in a position to make a significant contribution to the success of the
Company.
The Plan is intended to accomplish these goals by enabling the Company
to grant Awards to eligible employees. Awards may be in the form of Options,
Stock Appreciation Rights (as described in Section 6.2), Restricted Stock or
Unrestricted Stock Awards (as described in Section 6.3), Deferred Stock Awards
(as described in Section 6.4), Performance Awards (as described in Section 6.5),
Loans or Supplemental Grants (as described in Section 6.6), or combinations
thereof.
2. ADMINISTRATION
The Plan will be administered by a committee of at least two persons
(the "Committee") appointed by the Board of Directors of the Company (the
"Board"), all of the members of which Committee must be disinterested persons
within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (the
"1934 Act"). Alternatively, the Board may serve as the Committee so long as a
majority of the members of the Board are disinterested persons within the
meaning of Rule 16b-3.
The Committee will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b) determine
the size of each Award, including the number of shares of Stock subject to the
Award; (c) determine the type or types of each Award: (d) determine the terms
and conditions of each Award; (e) waive compliance by a Participant (as defined
below) with any obligations to be performed by the Participant under an Award
and waive any term or condition of an Award; (f) with the consent of the
Participant, cancel an existing Award in whole or in part and grant the
Participant another Award in its place; (g) prescribe the form or forms of
instruments that are required under the Plan, including any written notices and
elections required of Participants, or are deemed appropriate by the Committee,
and change such forms from time to time; (h) adopt, amend and rescind rules and
regulations for the administration of the Plan; and (i) interpret the
1A
<PAGE> 2
Plan and decide any questions and settle all controversies and disputes that may
arise in connection with the Plan. Such determinations and actions of the
Committee, and all other determinations and actions of the Committee made or
taken under authority granted by any provision of the Plan, will be conclusive
and will bind all parties. A majority of the members of the Committee will
constitute a quorum, and all determinations of the Committee must be made by a
majority of its members.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is approved by
the stockholders of the Company. Grants of Awards under the Plan may be made
prior to that date (but after Board adoption of the Plan), subject to such
approval of the Plan.
No Award may be granted under the Plan after November 14, 1999, but
Awards previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 8.6 below, the aggregate
number of shares of Stock that may be delivered under the Plan will be
4,500,000. If any Award requiring exercise by the Participant for delivery of
Stock terminates without having been exercised in full, or if any Award payable
in Stock or cash is satisfied in cash rather than Stock, the number of shares of
Stock as to which such Award was not exercised or for which cash was substituted
will be available for future grants.
Stock delivered under the Plan may be either authorized but unissued
stock or previously issued Stock acquired by the Company and held in treasury.
No fractional shares of stock will be delivered under the Plan.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan will be (i) persons in
the employ of the Company or any of its subsidiaries ("Employees") who, in the
opinion of the Committee, are in a position to make a significant contribution
to the success of the Company or its subsidiaries, and (ii) such other persons
or entities who, in the opinion of the Committee or the Board, are in a position
to make a significant contribution to the success of the Company or its
Subsidiaries ("Participants"). A "subsidiary" for purposes of the Plan will be a
corporation in which the Company owns directly or indirectly, stock possessing
50% or more of the total combined voting power of all classes of stock.
6. TYPES OF AWARDS
6.1 OPTIONS.
(a) Nature of Options. An Option is an Award entitling the
recipient on exercise thereof to purchase Stock at a specified exercise
price.
2A
<PAGE> 3
Both "incentive stock options," as defined in Section 422A of
the Internal Revenue Code of 1986, as amended (the "Code"), and Options
that are not incentive stock options, may be granted under the Plan.
Any Option intended to qualify as an incentive stock option will be
referred to in the Plan as an "ISO." Instruments evidencing ISOs must
contain such provisions as are required under applicable provisions of
the Code. Once an ISO has been granted, no action by the Committee that
would cause the Option to lose its status under the Code as an
incentive stock option will be effective without the consent of the
Option holder.
(b) Exercise Price. The exercise price of an Option will be
determined by the Committee subject to the following:
(1) The exercise price of an Option which is not an
ISO may be either (i) any amount which is not less than 50% of the fair
market value (as defined in Section 8.8) per share of the Stock at the
time the Option is granted or (ii) the par value per share of the
Stock.
(2) The exercise price of an ISO may not be less than
100% (110% in the case of an ISO granted to a ten-percent shareholder)
of the fair market value per share of the Stock at the time the Option
is granted. A "ten-percent shareholder" is any person who at the time
of grant owns directly or indirectly, or is deemed to own by reason of
the attribution rules of section 425(d) of the Code, Stock possessing
more than 10% of the total combined voting power of all classes of
stock of the Company or of any of its subsidiaries.
(3) In no case may the exercise price paid for Stock
which is part of an original issue of authorized Stock be less than the
par value per share of the Stock.
(4) The committee may reduce the exercise price of an
Option at any time after the time of grant with the consent of the
Participant, but the Option will be treated as a new Option granted on
the date of the reduction.
(c) Duration of Options. The latest date on which an Option
may be exercised will be the tenth anniversary (fifth anniversary, in
the case of an ISO granted to a ten-percent shareholder) of the day
immediately preceding the date the Option was granted, or such earlier
date as may have been specified by the Committee at the time the Option
was granted.
(d) Exercise of Options. An option will become exercisable at
such time or times, and on such conditions, as the Committee may
specify. The committee may at any time accelerate the time at which all
or any part of the Option may be exercised.
3A
<PAGE> 4
Any exercise of an Option must be in writing, signed
by the proper person and delivered or mailed to the Company,
accompanied by (1) any documents required by the Committee and (2)
payment in full in accordance with paragraph (e) below or the number of
shares for which the Option is exercised.
(e) Payment for Stock. Stock purchased on exercise of an
Option must be paid for as follows: (1) in cash or by check (acceptable
to the Company in accordance with guidelines established for this
purpose), bank draft or money order payable to the order of the Company
or (2) if so permitted by the instrument evidencing the Option (or in
the case of an Option which is not an ISO, by the Committee at or after
grant of the Option, (i) through the delivery of shares of Stock which
have been outstanding for at least six months (unless the Committee
expressly approves a shorter period) and which have a fair market value
on the last business day preceding the date of exercise equal to the
exercise price, or (ii) by delivery of a promissory note of the Option
holder to the Company, payable on such terms as are specified by the
Committee (provided that, if the Stock delivered upon exercise of the
Option is an original issue of authorized Stock, at least so much of
the exercise price as represents the par value of such Stock must be
paid in cash), or (iii) by delivery of an unconditional and irrevocable
undertaking by a broker to deliver promptly to the Company sufficient
funds to pay the exercise price, or (iv) by any combination of the
permissible forms of payment.
(f) Discretionary Payments. If the market price of shares of
Stock subject to an Option (other than an Option which is in tandem
with a Stock Appreciation Right as described in Section 6.2 below)
exceeds the exercise price of the Option at the time of its exercise,
the Committee may cancel the Option and cause the Company to pay in
cash or in shares of Common Stock (at a price per share equal to the
fair market value per share) to the person exercising the Option an
amount equal to the difference between the fair market value of the
Stock which would have been purchased pursuant to the exercise
(determined on the date the Option is canceled) and the aggregate
exercise price which would have been paid. The Committee may exercise
its discretion to take such action only if it has received a written
request from the person exercising the Option, but such a request will
not be binding on the Committee.
6.2. STOCK APPRECIATION RIGHTS.
(a) Nature of Stock Appreciation Rights. A Stock Appreciation
Right is an Award entitling the recipient on exercise of the Right to
receive an amount, in cash or Stock or a combination thereof (such form
to be determined by the Committee), determined in whole or in part by
reference to appreciation in Stock value.
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In general, a Stock Appreciation Right entitles the
Participant to receive, with respect to each share of Stock as to which
the Right is exercised, the excess of the share's fair market value on
the date of exercise over its fair market value on the date the Right
was granted. However, the Committee may provide at the time of grant
that the amount the recipient is entitled to receive will be adjusted
upward or downward under rules established by the Committee to take
into account the performance of the Stock in comparison with the
performance of other stocks or an index of other stocks.
(b) Grant of Stock of Appreciation Rights. Stock Appreciation
Rights may be granted in tandem with, or independently of, Options
granted under the Plan. A Stock Appreciation Right granted in tandem
with an Option which is not an ISO may be granted either at or after
the time the Option is granted. A Stock Appreciation Right granted in
tandem with an ISO may be granted only at the time the Option is
granted.
(c) Rules Applicable to Tandem Awards. When Stock Appreciation
Rights are granted in tandem with Options, the following will apply:
(1) The Stock Appreciation Right will be exercisable
only at such time or times, and to the extent, that the related Option
is exercisable and will be exercisable in accordance with the procedure
required for exercise of the related Option.
(2) The Stock Appreciation Right will terminate and
no longer be exercisable upon the termination or exercise of the
related Option, except that a Stock Appreciation Right granted with
respect to less than the full number of shares covered by an Option
will not be reduced until the number of shares as to which the related
Option has been exercised or has terminated exceeds the number of
shares not covered by the Stock Appreciation Right.
(3) The Option will terminate and no longer to
exercisable upon the exercise of the related Stock Appreciation Right.
(4) The Stock Appreciation Right will be transferable
only with the related Option.
(5) A Stock Appreciation Right granted in tandem with
an ISO may be exercised only when the market price of the Stock subject
to the Option exceeds the exercise price of such option.
(d) Exercise of Independent Stock Appreciation
Rights. A Stock Appreciation Right not granted in tandem with an Option
will become exercisable at such time or times, and on such conditions,
as the Committee may specify. The Committee may at any time accelerate
the time at which all or any part of the Right may be exercised.
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Any exercise of an independent Stock Appreciation Right must
be in writing, signed by the proper person and delivered or mailed to
the Company, accompanied by any other documents required by the
Committee.
6.3. RESTRICTED AND UNRESTRICTED STOCK.
(a) Nature of Restricted Stock Award. A Restricted Stock Award
entitles the recipient to acquire shares of Stock subject to the
restrictions described in paragraph (d) below ("Restricted Stock") for
a price which may be either (i) any amount which is not less than 50%
of the fair market value of the Stock at the time of purchase or (ii)
the par value per share of the Stock.
(b) Acceptance of Award. A Participant who is granted a
Restricted Stock Award will have no rights with respect to such Award
unless, within 60 days (or such shorter period as the Committee may
specify) following the date of the Award, the Participant accepts the
Award by written instrument delivered or mailed to the Company
accompanied by payment in full of the specified purchase price, if any,
of the shares covered by the Award. Payment may be by certified or bank
check or other instrument acceptable to the Committee.
(c) Rights as a Stockholder. A Participant who receives
Restricted Stock will have all the rights of a stockholder with respect
to the Stock, including voting and dividend rights, subject to the
restrictions described in paragraph (d) below and any other conditions
imposed by the Committee at the time of grant. Unless the Committee
otherwise determines, certificates evidencing shares of Restricted
Stock Restricted Stock will remain in the possession of the Company
until such shares are free of all restrictions under the Plan.
(d) Restrictions. Except as otherwise specifically provided by
the Plan, until these restrictions lapse, Restricted Stock may not be
sold, assigned, transferred, pledged or otherwise encumbered or
disposed of, and if the Participant ceases to be an Employee for any
reason, must be offered to the Company for purchase for the amount of
cash paid for the Stock, or forfeited to the Company if no cash was
paid. The restrictions will lapse at such time or times, and on such
conditions, as the Committee may specify. The Committee may at any time
accelerate the time at which the restrictions on all or any part of the
shares will lapse.
(e) Notice of Election. Any Participant making an election
under Section 83(b) of the Code with respect to Restricted Stock must
provide a copy thereof to the Company within 10 days of the filing of
such election with the Internal Revenue Service.
(f) Other Awards Settled with Restricted Stock. The Committee
may, at the time any Award described in this Section 6 is granted,
provide that any or all the Stock delivered pursuant to the Award will
be Restricted Stock.
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(g) Unrestricted Stock. The Committee may, in its sole
discretion, sell to any Participant shares of Stock free of
restrictions under the Plan for a price which may be either (i) any
amount which is not less than 50% of the fair market value of the Stock
at the time of purchase or (ii) the par value per share of the Stock.
6.4 DEFERRED STOCK.
(a) Nature of Deferred Stock Award. A Deferred Stock Award
entitles the recipient to receive shares of Deferred Stock, which is
Stock to be delivered in the future. Delivery of the Stock will take
place at such time or times, and on such conditions, as the Committee
may specify. The Committee may at any time accelerate the time at which
delivery of all or any part of the Stock will take place.
(b) Other Awards Settled with Deferred Stock. The committee
may at the time any Award described in this Section 6 is granted,
provide that, at the time Stock would otherwise be delivered pursuant
to the Award, the Participant will instead receive an instrument
evidencing the Participant's right to future delivery of Deferred
Stock.
6.5 PERFORMANCE AWARDS; PERFORMANCE GOALS
(a) Nature of Performance Awards. A Performance Award entitles
the recipient to receive, without payment, an amount, in cash or Stock
or a combination thereof (such form to be determined by the Committee),
following the attainment of Performance Goals. Performance Goals may be
related to personal performance, corporate performance, departmental
performance or any other category of performance deemed by the
Committee to be important to the success of the Company. The Committee
will determine the Performance Goals, the period or period during which
performance is to be measured and all other terms and conditions
applicable to the Award.
6.6 LOANS AND SUPPLEMENTAL GRANTS.
(a) Loans. The Company may make a loan to a Participant
('Loan"), either on the date of or after the grant of any Award to the
Participant. A Loan may be made either in connection with the purchase
of Stock under the Award or with the payment of any Federal, state and
local income tax with respect to income recognized as a result of the
Award. The Board will have full authority to decide whether to make a
Loan and to determine the amount, terms and conditions of the Loan,
including the interest rate (which may be zero), whether the Loan is to
be secured or unsecured or with or without recourse against the
borrower, the terms on which the Loan is to be repaid and the
conditions, if any, under which it may be forgiven. However, no Loan
may have a term (including extensions) exceeding ten years in duration.
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(b) Supplemental Grants. In connection with any Award, the
Committee may at the time such Award is made or at a later date,
provide for and grant a cash award to the Participant ("Supplemental
Grant") not to exceed an amount equal to (1) the amount of any federal,
state and local income tax on ordinary income for which the Participant
will be liable with respect to the Award, plus (2) an additional amount
on a grossed-up basis necessary to make the Participant whole after
tax, discharging all the Participant's income tax liabilities arising
from all payments under this Section 6. Any payments under this
subsection (c) will be made at the time the Participant incurs Federal
income tax liability with respect to the Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1 RETIREMENT.
The following will apply if a Participant ceases to be an
Employee by reason of retirement with consent of the Company (a) after
attainment of age 65, (b) prior to attainment of age 65 in the case of
ISOs or (c) prior to attainment of age 65 in the case of all other
Awards only if the Committee so specifies at or prior to such
retirement.
(a) Subject to paragraph (c) below each Option and Stock
Appreciation Right held by the Participant when the Participant's
employment ended will immediately become exercisable in full and will
continue to be exercisable until the earlier of (1) the first
anniversary of the date on which such employment ended or (2) the date
on which the Award would have terminated had the Participant remained
an Employee. If the Participant dies after such Participant's
employment has ended, the Award may be exercised within such limits by
the Participant's executor or administrator or by the person or persons
to whom the Award is transferred by will or the applicable laws descent
and distribution (the Participant's "legal representative").
(b) Subject to paragraph (c) below are each share of
Restricted Stock held by the Participant when the Participant's
employment ended will immediately become free of the restrictions.
(c) If when the Participant's employment ended the exercise of
an Option or Stock Appreciation Right or lapse of restrictions on
Restricted Stock was subject to performance or other conditions (other
than conditions relating to the mere passage of time and continued
employment) which had not been satisfied at such time, the Committee
may remove or modify such conditions or provide that the Participant
will receive the benefit of the Award if and when the conditions are
subsequently satisfied. If the Committee does not take such action,
however, such Award will terminate as of the date on which the
Participant's employment ended.
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(d) Any payment or benefit under a Deferred Stock Award,
Performance Award, or Supplemental Grant to which the Participant has
not become irrevocably entitled will be forfeited and the Award
canceled as of the date on which the Participant's employment ended
unless otherwise provided in the instrument evidencing the Award or
otherwise agreed to by the Committee.
7.2 DEATH AND DISABILITY.
If a Participant ceases to be an Employee by reason of death
or total and permanent disability (as determined by the Committee), the
following will apply:
(a) All Options and Stock Appreciation Rights held by the
Participant that are not exercisable on the thirtieth day after the
termination of the Participant's employment will terminate as of such
date. Any Awards that are so exercisable will continue to be
exercisable until the earlier of (1) the first anniversary of the date
on which the Participant's employment ended or (2) the date on which
the Award would have terminated had the Participant remained an
Employee. If the Participant has died, the Award may be exercised
within such limits by the Participant's legal representative.
(b) All Restricted Stock held by the Participant when the
Participant's employment ended must be transferred to the Company (and,
in the event the certificates representing such Restricted Stock are
held by the Company, such Restricted Stock will be so transferred
without any further action by the Participant) in accordance with
Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award,
Performance Award, or Supplemental Grant to which the Participant has
not become irrevocably entitled will be forfeited and the Award
canceled as of the date on which the Participant's employment ended,
unless otherwise provided in the instrument evidencing the Award or
otherwise agreed to by the Committee.
7.3 OTHER TERMINATION OF EMPLOYMENT
If a Participant ceases to be an Employee for any reason other
than those specified in Sections 7.1 or 7.2 above, the following will
apply:
(a) All Options and Stock Appreciation Rights held by the
Participant that were not exercisable when his or her employment ended
will then terminate. Any Awards that were so exercisable will continue
to be exercisable until the earlier of (1) the date which is three
months after the date on which his or her employment ended and (2) the
date on which the Award would have terminated had the Participant
remained an Employee, unless employment was terminated for cause, in
which event any Awards that were so exercisable shall then terminate.
The Committee may, in its discretion, extend the exercise period beyond
such three-month period.
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(b) All Restricted Stock held by the Participant when the
Participant's employment ended must be transferred to the Company (and,
in the event the certificates representing such Restricted Stock are
held by the Company, such Restricted Stock will be so transferred
without any further action by the Participant) in accordance with
Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award,
Performance Award, or Supplemental Grant to which the Participant has
not become irrevocably entitled will be forfeited and the Award
canceled as of the date of such termination of employment unless
otherwise provided in the instrument evidencing the Award or otherwise
agreed to by the Committee.
For purposes of this Section 7.3, an Employee's employment
will not be considered to have ended (1) in the case of sick leave or
other bona fide leave of absence proved for purposes of the Plan by the
committee, so long as the Employee's right to reemployment is
guaranteed either by statute or by contract, or (2) in the case of a
transfer of employment between the company and a subsidiary or between
subsidiaries, or to the employment of a corporation (or a parent or
subsidiary corporation of such corporation) issuing or assuming an
Award in a transaction to which section 425(a) of the Code applies.
7.4 A CHANGE IN CONTROL PROVISION
As used herein, a Change in Control and related definitions
shall have the meanings as set forth in Section 7.4 C below.
Immediately prior to the occurrence of a Change in Control:
(a) Each Option and Stock Appreciation Right shall
automatically become fully exercisable unless the Committee shall
otherwise expressly provide at the time of grant.
(b) Restrictions and conditions on Restricted Stock, Deferred
Stock, Performance Units and Other Stock-based Awards shall
automatically be deemed waived to the extent, if any, specified
(whether at or after time of grant) by the Committee.
In addition to the foregoing and Sections 6.1(d), 6.2(c) and
(d), 6.3(d) and 6.4(a), the Committee may at any time prior to or after
a Change in Control accelerate the exercisability of any Options and
Stock Appreciation Rights and may waive restrictions, limitations and
conditions on Restricted Stock, Deferred Stock, Performance Units and
Other Stock-based Awards to the extent it shall in its sole discretion
determine.
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7.4 B CERTAIN CORPORATE TRANSACTIONS.
(a) In the event of a consolidation or merger in which the
Company is not the surviving corporation or which results in the
acquisition of substantially all the Company's outstanding Stock by a
single person or entity or by a group of persons and/or entities acting
in concert, or in the event of the complete liquidation of the Company
or the sale or transfer of substantially all of the Company's assets (a
"Covered Transaction"), all outstanding Options will terminate as of
the effective date of the Covered Transaction, provided that at least
twenty (20) days prior to the effective date of any such merger,
consolidation, liquidation or sale of assets, but subject to Paragraphs
(c) and (d) below, the Committee shall make all outstanding Options
exercisable immediately prior to consummation of such Covered
Transaction (to the extent that such Options are not exercisable
immediately prior to the consummation of the Covered Transaction
pursuant to Section 7.4 A).
(b) Subject to Paragraphs (c) and (d) below, the Committee
may, in its sole discretion, prior to the effective date of the Covered
Transaction, (1) remove the restrictions from each outstanding share of
Restricted Stock, (2) cause the Company to make any payment and provide
any benefit under each outstanding Deferred Stock Award, Performance
Award, and Supplemental Grant which would have been made or provided
with the passage of time had the transaction not occurred and the
Participant remained an employee, and (3) forgive all or any portion of
the principal of or interest on a loan.
(c) If an outstanding Option or Other Award is subject to
performance or other conditions (other than conditions relating the
mere passage of time and continued employment) which will not have been
satisfied at the time of the Covered Transaction, the Committee may, in
its sole discretion, remove such conditions. If it does not do so
however, such Option or Other Award will terminate, because the
conditions have not been satisfied, as of the date of the Covered
Transaction notwithstanding Paragraph (a) and (b) above.
(d) With respect to an outstanding Option or Other Award held
by the participant who, following the Covered Transaction, will be
employed by a corporation which is a surviving or acquiring corporation
in such transaction or an affiliate of such a corporation, the
Committee may, in lieu of the action of the Committee described in
Paragraphs (a) or (b) above or in addition to any Option being
exercisable immediately prior to consummation of the Covered
Transaction pursuant to Section 7.4A above, arrange to have such
surviving or acquiring corporation or affiliate assume the Option or
Other Award or grant to the Participant a replacement Option or other
Award which, in the judgment of the Committee, is substantially
equivalent to the Option or Other Award. In the case of an assumed or
substitute Option intended to be an Incentive Stock Option, the
requirements of Section 424 (a) of the Code shall be satisfied except
as otherwise provided by the Committee.
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7.4 C CHANGE IN CONTROL AND RELATED DEFINITIONS.
A "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have
been satisfied:
(a) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 25% or more of
the combined voting power of the Company's then outstanding securities;
or
(b) during any period of not more than two consecutive years
(not including any period prior to October 26, 1994), individuals who
at the beginning of such period constitute the Board and any new
director (other than a director designated by a Person who has entered
into an agreement with the Company to effect a transaction described in
Clause (a), (b), or (c) of Section 7.4 C) whose election by the Board
or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(1) a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or
being converted into voting securities of the surviving entity) 60% or
more of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation, or
(2) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
person acquires 25% or more of the combined voting power of the
Company's then outstanding securities; or
(d) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all the Company's assets.
"Person" shall have the meaning given in Section 3 (a) (9) of
the Securities Exchange Act of 1934, as modified and used in Sections
13 9D and 14 (d) thereof; however, a Person shall not include
(1) the Company,
(2) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or
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(3) a corporation or other entity owned, directly or
indirectly, by the shareholders of the Company in substantially the
same proportions as their ownership of stock of the Company.
"Beneficial Owner" shall have the meaning defined in Rule
13d-3 under the Securities Exchange Act of 1934 as amended from time to
time.
7.5 OTHER TERMINATION EVENTS.
If a Participant, other than an Employee Participant, ceases
to be affiliated with the Company by reason of the termination of the
agreement or other arrangement with the Company pursuant to which such
Participant provides services or products or otherwise is making a
contribution to the Company, then
(a) Unless otherwise provided in the instrument evidencing the
Award granted to the Participant, all Options and Stock Appreciation
Rights held by the Participant that were not exercisable when such
arrangement terminated or expired will then terminate, and any of such
Awards that were so exercisable shall continue to be exercisable until
the earlier of (1) the date which is three months after the date on
which such arrangement terminated or (2) the date on which such Award
would have terminated had the Participant remained affiliated with the
Company pursuant to the agreement or other arrangement. The Committee
may, in its discretion, in the granting instrument or at any later
time, extend the exercise period beyond such three-month period.
(b) Unless otherwise provided in the instrument evidencing the
Award granted to the Participant, all Restricted Stock held by the
Participant when the arrangement with the Participant ended must be
transferred to the Company (and, in the event the certificates
representing such Restricted Stock are held by the Company, such
Restricted Stock will be so transferred without any further action by
the Participant) in accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award,
Performance Award, or Supplemental Grant to which the Participant has
not become irrevocably entitled will be forfeited and the Award
canceled as of the date of such termination unless otherwise provided
in the instrument evidencing the Award or otherwise agreed to be the
Committee.
8. GENERAL PROVISIONS
8.1 DOCUMENTATION OF AWARDS.
Awards will be evidenced by written instruments prescribed by
the Committee from time to time. Such instruments may be in the form of
agreements, to be executed by both the Participant and the Company, or
certificates, letters or
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similar instruments, which need not be executed by the Participant but
acceptance of which will evidence agreement to the terms thereof.
8.2 RIGHTS AS A STOCKHOLDER: DIVIDEND EQUIVALENTS.
Except as specifically provided by the Plan, the receipt of an
Award will not give a Participant rights as a stockholder: the
Participant will obtain such rights, subject to any limitations imposed
by the Plan or the instrument evidencing the Award, upon actual receipt
of Stock. However, the Committee may, on such conditions as it deems
appropriate, provide that a Participant will receive a benefit in lieu
of cash dividends that would have been payable on any or all Stock
subject to the Participant's Award had such Stock been outstanding.
Without limitation, the Committee may provide for payment to the
Participant of amounts representing such dividends, either currently or
in the future, or for the investment of such amounts on behalf of the
Participant.
8.3 CONDITIONS ON DELIVERY OF STOCK.
The Company will not be obligated to deliver any shares of
Stock pursuant to the Plan or to remove restriction from shares
previously delivered under the Plan (a) until all conditions of the
Award have been satisfied or removed. (b) until, in the opinion of the
Company's counsel, all applicable federal and state laws and regulation
have been complied with, (c) if the outstanding Stock is at the time
listed on any stock exchange, until the shares to be delivered have
been listed or authorized to be listed on such exchange upon official
notice of notice of issuance, and (d) until all other legal matters in
connection with the issuance and delivery of such shares have been
approved by the Company's counsel. If the sale of Stock has not been
registered under the Securities Act of 1933, as amended, the Company
may require, as a condition to exercise of the Award, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend
restricting transfer.
If an Award is exercised by the Participant's legal
representative, the Company will be under no obligation to deliver
Stock pursuant to such exercise until the Company is satisfied as to
the authority of such representative.
8.4 TAX WITHHOLDING.
The Company will withhold from any cash payment made pursuant
to an Award an amount sufficient to satisfy all federal, state and
local withholding tax requirements (the "withholding requirements").
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In the case of an Award pursuant to which Stock may be
delivered, the Committee will have the right to require that the
Participant or other appropriate person remit to the Company an amount
sufficient to satisfy the withholding requirements, or make other
arrangements satisfactory to the Committee with regard to such
requirements, prior to the delivery of any Stock. If and to the extent
that such withholding is required, the Committee may permit the
Participant or such other person to elect at such time and in such
manner as the Committee provides to have the Company hold back from the
shares to be delivered, or to deliver to the Company, Stock having a
value calculated to satisfy the withholding requirement.
If at the time an ISO is exercised the Committee determines
that the Company could be liable for withholding requirements with
respect to a disposition of the Stock received upon exercise, the
Committee may require as a condition of exercise that the person
exercising the ISO agree (a) to inform the Company promptly of any
disposition (within the meaning of section 425(c) of the Code) of Stock
received upon exercise, and (b) to give such security as the Committee
deems adequate to meet the potential liability of the Company for the
withholding requirements and to augment such security from time to time
in any amount reasonably deemed necessary by the Committee to preserve
the adequacy of such security.
8.5 NONTRANSFERABILITY OF AWARDS.
No Award (other than an Award in the form of an outright
transfer of cash or unrestricted Stock) may be transferred other than
by will or by the laws of descent and distribution, and during an
employee's lifetime an Award requiring exercise may be exercised only
by the Participant (or in the event of the Participant's incapacity,
the person or persons legally appointed to act on the Participant's
behalf).
8.6 ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.
(a) In the event of a stock dividend, stock split or
combination of shares, recapitalization or other change in the
Company's capitalization, or other distribution to common stockholders
other than normal cash dividends, the Committee will make any
appropriate adjustments to the maximum number of shares that may be
delivered under the Plan under Section 4 above.
(b) In any event referred to in paragraph (a), the Committee
will also make any appropriate adjustments to the number and kind of
shares of stock or securities subject to Awards then outstanding or
subsequently granted, any exercise prices relating to Awards and any
other provision of Awards affected by such change. The Committee may
also make such adjustments to take into account material changes in law
or in accounting practices or principles, mergers, consolidations,
acquisitions, dispositions or similar corporate transactions, or any
other event, if it is determined
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by the Committee that adjustments are appropriate to avoid distortion
in the operation of the Plan.
8.7. EMPLOYMENT RIGHTS.
Neither the adoption of the plan nor the grant of Awards will
confer upon any person any right to continued employment with the
Company or any subsidiary or affect in any way the right of the Company
or subsidiary to terminate an employment relationship at any time.
Except as specifically provided by the Committee in any particular
case, the loss of existing or potential profit in Awards granted under
the Plan will not constitute an element of damages in the event of
termination of an employment relationship even if the termination is in
violation of an obligation of the Company to the Employee.
8.8. FAIR MARKET VALUE.
For purposes of the Plan, fair market value of a share of
Stock on any date will be the average of the bid and asked prices in
the over-the-counter market with respect to such Stock, as reported by
the National Association of Securities Dealers, Inc. Automated
Quotations System or such other similar system then in use; or, if on
any such date such Stock is not quoted by any such organization, the
average of the closing bid and asked prices with respect to such Stock,
as furnished by a professional market maker making a market in such
Stock selected by the Committee; or if such prices are not available,
the fair market value of such Stock as of such date as determined in
good faith by the Committee; or, where necessary in order to achieve
the intended Federal income tax result, the value of a share of Stock
as determined by the Committee in accordance with the applicable
provisions of the Code.
8.9 DEFERRAL OF PAYMENTS.
The Committee may agree at any time, upon request of the
Participant, to defer the date on which any payment under an Award will
be made.
8.10. PAST SERVICES AS CONSIDERATION.
Where a Participant purchases Stock under an Award for a price
equal to the par value of the Stock the Committee may determine that
such price has been satisfied by past services rendered by the
Participant.
9. EFFECT, DISCONTINUANCE, CANCELLATION,
AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a
Participant will affect the Company's right to grant to such
Participant awards that are not subject to
16A
<PAGE> 17
the Plan, to issue to such Participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock be issued to
Employees.
The Committee may at any time discontinue granting Awards
under the Plan. The Board may at any time or times amend the Plan or
any outstanding Award for any purpose which may at the time be
permitted by law, or may at any time terminate the Plan as to any
further grants of Awards, provided that (except to the extent expressly
required or permitted by the Plan) no such amendment will, without the
approval of the stockholders of the Company, (a) increase the maximum
number of shares available under the Plan, (b) change the group of
persons eligible to receive Awards under the Plan, (c) extend the time
within which Awards may be granted, or (d) amend the provisions of this
Section 9, and no amendment or termination of the Plan may adversely
affect the rights of any Participant (without the Participant's
consent) under any Award previously granted.
Revision Date: 6/29/95
17A
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
PICTURETEL'S BALANCE SHEET AND INCOME STATEMENT FOR THE QUARTER ENDED
JULY 1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
JULY 1, 1995 10-Q FILING.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> JUL-01-1995 JUL-02-1994
<EXCHANGE-RATE> 1 1
<CASH> 40,521 3,890
<SECURITIES> 46,429 59,594
<RECEIVABLES> 78,978 63,751
<ALLOWANCES> (2,636) (1,036)
<INVENTORY> 39,889 27,465
<CURRENT-ASSETS> 14,174 10,470
<PP&E> 60,391 46,169
<DEPRECIATION> (38,958) (27,194)
<TOTAL-ASSETS> 253,065 196,321
<CURRENT-LIABILITIES> 80,661 45,142
<BONDS> 0 0
<COMMON> 159 152
0 0
0 0
<OTHER-SE> 170,604 148,014
<TOTAL-LIABILITY-AND-EQUITY> 253,065 196,321
<SALES> 154,645 117,759
<TOTAL-REVENUES> 154,645 117,759
<CGS> 75,808 59,846
<TOTAL-COSTS> 75,808 59,846
<OTHER-EXPENSES> 70,018 57,038
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 10,202 1,864
<INCOME-TAX> 2,959 652
<INCOME-CONTINUING> 7,243 1,212
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,243 1,212
<EPS-PRIMARY> 0.42 0.08
<EPS-DILUTED> 0.42 0.08
</TABLE>
