<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 April 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 April 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 May 5, 1995 there were issued and outstanding 15,720,838 shares of common
stock of the registrant.
<PAGE> 2
<TABLE>
PICTURETEL CORPORATION
Consolidated Balance Sheets
($000's)
<CAPTION>
April 1, December 31,
1995 1994
(Unaudited) (Audited)
----------- ------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents...................... $25,044 $24,347
Marketable securities.......................... 52,970 50,354
Accounts receivable less allowances
of $1,694 and $1,785.......................... 67,864 65,155
Inventories (Note 2)........................... 34,872 31,679
Deferred taxes, net............................ 4,996 5,131
Other current assets........................... 2,507 2,704
-------- --------
Total current assets....................... 188,253 179,370
-------- --------
Marketable securities.......................... 2,531 3,226
Deferred taxes, net............................ 3,272 3,272
Property and equipment, net.................... 20,266 19,417
Capitalized software costs, net (Note 3)....... 4,132 4,163
Other assets................................... 7,570 7,251
-------- --------
Total assets............................... $226,024 $216,699
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings.......................... $8,514 $ 6,969
Accounts payable............................... 16,315 18,335
Accrued compensation and benefits.............. 6,671 6,357
Accrued expenses............................... 14,867 10,677
Income taxes................................... 164 922
Current portion of capital lease obligations... 3,049 3,483
Deferred revenue............................... 14,868 13,705
-------- --------
Total current liabilities.................. 64,448 60,448
Capital lease obligations...................... 2,194 2,860
Other long-term liabilities.................... 78 155
Stockholders' Equity:
Preference stock, $.01 par value; 15,000,000
shares authorized; none issued................. - -
Common stock, $.01 par value; 80,000,000 shares
authorized; 15,552,602 and 15,358,900 shares
issued and outstanding April 1, 1995
and December 31, 1994, respectively............ 155 153
Additional paid-in capital......................... 148,928 146,153
Retained earnings.................................. 10,884 7,796
Cumulative translation adjustment.................. (164) (452)
Unrealized loss on marketable securities, net...... (499) (414)
-------- --------
Total stockholders' equity..................... 159,304 153,236
-------- --------
Total liabilities and stockholders' equity..... $226,024 $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)
<CAPTION>
Three Months Ended
------------------
April 1, April 2,
1995 1994
-------- --------
<S> <C> <C>
Revenues............................. $74,156 $53,748
Cost of sales........................ 36,358 27,270
------- -------
Gross margin......................... 37,798 26,478
Operating expenses:
Selling, general
and administrative.............. 23,947 17,968
Research and development........... 10,393 8,142
------- -------
Total operating expenses........... 34,340 26,110
------- -------
Income from operations............... 3,458 368
Interest income, net................. 617 494
Other income (expense), net.......... 275 82
------- -------
Income before taxes.................. 4,350 944
Provision for income taxes........... 1,262 330
------- -------
Net income........................... $3,088 $614
======= =======
Net income per share:
Primary............................ $0.19 $0.04
======= =======
Fully diluted...................... $0.18 $0.04
======= =======
Weighted average shares outstanding:
Primary............................ 16,601 15,615
======= =======
Fully diluted...................... 17,089 15,615
======= =======
</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>
Three Months Ended
-------------------
April 1, April 2,
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................... $3,088 $ 614
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Depreciation and amortization.................. 4,886 3,968
Deferred taxes, net............................ - (150)
Gain on sales of assets........................ - (88)
(Gain) loss on foreign currency
transactions, net............................ (269) 28
Other non-cash items........................... - 25
Changes in operating assets and liabilities:
Accounts receivable............................ (1,511) (1,437)
Inventories.................................... (2,843) (4,159)
Other assets................................... (130) (1,124)
Accounts payable............................... (2,132) 469
Accrued compensation and benefits and
accrued expenses.............................. 4,288 218
Income taxes, net.............................. (803) (1,357)
Deferred revenue............................... 1,078 197
------- -------
Net cash provided by (used in)
operating activities.......................... 5,652 (2,796)
Cash flows from investing activities:
Purchase of marketable securities.............. (6,385) (7,159)
Proceeds from sale of marketable securities.... 4,085 19,170
Additions to property and equipment............ (4,007) (3,478)
Additions to capitalized software costs........ (882) (864)
------- -------
Net cash provided by (used in)
investing activities.......................... (7,189) 7,669
Cash flows from financing activities:
Change in short-term borrowings................. 993 1,593
Proceeds from exercise of options
and warrants.................................. 2,777 66
Principal payments under
capital lease obligations.................... (1,100) (1,303)
------- -------
Net cash provided by financing activities........ 2,670 356
Effect of exchange rate changes on cash.......... (436) (588)
------- -------
Net increase in cash and cash equivalents........ 697 4,641
Cash and cash equivalents at
beginning of period............................ 24,347 6,921
------- -------
Cash and cash equivalents at end of period....... $25,044 $11,562
======= =======
Interest paid.................................... $129 $217
==== ====
Income taxes paid................................ $1,090 $1,920
====== ======
</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>
April 1, December 31,
1995 1994
-------- ------------
<S> <C> <C>
Purchased Parts $ 9,937 $ 7,208
Work in Process 2,534 2,464
Finished Goods 22,401 22,007
------- -------
$34,872 $31,679
======= =======
</TABLE>
3. Capitalized Software Costs
--------------------------
Amortization of software costs totaled $913,000 and $1,020,000
for the quarters ended April 1, 1995 and April 2, 1994,
respectively.
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
- ---------------------
THREE MONTHS ENDED APRIL 1, 1995 COMPARED TO THREE MONTHS ENDED
APRIL 2, 1994
REVENUES. The Company's revenues increased $20,408,000, or 38%, in the
three-month period ended April 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 84% of the Company's
revenues for the three month period ended April 1, 1995 and for the comparable
period in 1994. In addition, sales of bridge products accounted for
approximately 6% of the Company's revenues for the three month period ended
April 1, 1995 compared to approximately 7% for the comparable period in 1994.
The balance of the revenues in 1995 and 1994 were primarily from maintenance
services and the sales of stand-alone codecs and video modems.
The Company's revenues from sales to foreign markets were approximately
$31,507,000 in the three month period ended April 1, 1995 compared to
approximately $22,232,000 in the comparable period in 1994 representing 42% and
41%, 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 $11,320,000 or 43%,
in the three month period ended April 1, 1995 from the comparable period in
1994. Gross margin as a percentage of revenues increased to 51% in the three
month period ended April 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 continued product material cost reductions and decreasing overhead
costs 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 $5,979,000, or 33%, in the three month period ended
April 1, 1995 from the comparable period in 1994 and were 32% 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 $2,251,000, or 28%, in the three month period ended April 1, 1995
from the comparable period in 1994 and were 14% and 15%, respectively, of
revenues for the three month period ended April 1, 1995 and for the comparable
period in 1994. Research and development expenditures, prior to the
capitalization of software costs, were $11,275,000 in the three month period
ended April 1, 1995 and $9,006,000 for the comparable period in 1994 or 15% and
17% 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 $882,000 in the three month period ended April 1,
1995 and $864,000 for the comparable period in 1994 representing 8% and 10% of
research and development expenditures, respectively.
NET INTEREST INCOME (EXPENSE). Net interest income increased to
$617,000 in the three month period ended April 1, 1995 from $494,000 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 April 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 April 1, 1995 consists primarily of net gains on foreign currency
transactions. Other income (expense) for the three month period ended
April 2, 1994 consists primarily of realized gains from the sales of assets.
INCOME TAXES. The Company's effective tax rate for the quarters ended
April 1, 1995 and April 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 April 1, 1995, the Company had $25,044,000 in cash and cash equivalents,
$52,970,000 in short-term marketable securities and $2,531,000 in long-term
marketable securities. During the three month period ended April 1, 1995 the
Company generated $6,316,000 in net cash from operating activities. The
primary use of cash during the three month period ended April 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 $4,007,000.
The Company has available for borrowing up to $12,000,000 under its
revolving credit agreement and approximately $3,470,000 available under local
foreign guaranteed lines of credit to certain of its foreign subsidiaries. At
April 1, 1995 there was $7,946,000 outstanding under the revolving credit
agreement and $568,000 outstanding under the foreign lines of credit. The
Company had $5,243,000 outstanding and $4,331,000 available to be borrowed
under various leasing lines at April 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> 8
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
10.1 Amendment dated January 15, 1995 to the employment agreement
between PictureTel Corporation and Norman E. Gaut dated July 29,
1988, previously filed as exhibit 10.12, (filed herewith).
10.2 Agreement between PictureTel Corporation and Les Strauss as amended
through January 15, 1995 (filed herewith).
10.3 Agreement between PictureTel Corporation and Khoa Nguyen as amended
through March 6, 1995 (filed herewith).
10.4 Agreement between PictureTel Corporation and Domenic J. LaCava as
amended through January 17, 1995 (filed herewith).
10.5 Agreement between PictureTel Corporation and Lawrence Bornstein as
amended through January 16, 1995 (filed herewith).
(b) Reports on Form 8-K
None
<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)
May 15, 1995
<PAGE> 1
EXHIBIT 10.1
[LOGO]
PICTURETEL
December 14, 1994
Dr. Norman E. Gaut
25 Marrett Street
Lexington, MA 02173
Dear Norman:
I am pleased to report to you that the Compensation Committee of the Board of
Directors approved an amendment to the severance pay provision contained in
your employment agreement.
The current language provides that in the event of a termination without cause,
you could receive twelve (12) months of your then current base salary. For
eighteen (18) months following any termination of employment you agree not to
compete (as defined) and the Company agrees that in the event the Company
precludes you from taking a job that would be competitive in the Company's view,
you will use your best efforts to obtain non-competitive employment and the
Company will pay you the difference between your annual salary prior to
termination and the annual salary that would be payable to you under such
non-competitive employment.
The severance pay provision in your agreement is hereby immediately amended so
as to read in its entirety:
"In the event that you are involuntarily terminated for any reason other than
cause, you shall receive your then current base salary for a period of
twenty-four (24) consecutive months following such termination. For the purpose
of the agreement, cause shall be defined as and be limited to conviction of a
felony or willful misconduct or gross negligence in the performance of duties
which results in material harm to PictureTel."
Please acknowledge your receipt and understanding of this letter by signing and
returning the enclosed copy to Larry Bornstein at your earliest convenience.
On behalf of the Compensation of the Board of Directors,
/s/ Les Strauss
Les Strauss
Secretary,
Board of Directors
Acknowledged: /s/ Norman E. Gaut Date: 15 Jan. 1995
--------------------- ------------------------
The Tower at Northwoods, 222 Rosewood Drive, Danvers, MA 01923
- Telephone: 508-762-5000 - Fax: 508-762-5244
<PAGE> 1
EXHIBIT 10.2
[LOGO]
PICTURETEL
December 14, 1994
Mr. Les Strauss
29 D Skinner's Path
Marblehead, MA 01945
Dear Les:
I am pleased to report to you that the Compensation Committee of the Board of
Directors approved an amendment to the severance pay provision contained in
your letter of employment (or agreement).
The current language provides that in the event of a termination without cause,
you could receive six (6) months base salary paid in three equal lump sum
payments (30, 60, and 90 days following termination) and up to an additional
six (6) months base salary continuance so long as you remained unemployed.
Cause being defined as and limited to conviction of a felony or willful
misconduct or gross negligence in the performance of duties which results in
material harm to PictureTel.
The severance pay provision in your letter of employment (or agreement) is
hereby immediately amended so as to read in its entirety:
"In the event that you are involuntarily terminated for any reason other than
cause, you shall receive your then current base salary for a period of twelve
(12) consecutive months following such termination. For the purpose of this
letter (or agreement), cause shall be defined as and be limited to conviction
of a felony or willful misconduct or gross negligence in the performance of
duties which results in material harm to PictureTel."
Please acknowlege your receipt and understanding of this letter by singing and
returning the enclosed copy to Larry Bornstein at your earliest convenience.
Sincerely,
/s/ Norman Gaut
Norman Gaut
President,
Chief Executive Officer, and
Chairman of the Board
Acknowledged: /s/ Les Strauss
----------------------
Date: Jan. 15, 1995
------------------------------
The Tower at Northwoods, 222 Rosewood Drive, Danvers, MA 01923
- Telephone: 508-762-5000 - Fax: 508-762-5244
<PAGE> 2
[LOGO]
PICTURETEL
9 February 1990
Mr. Les Strauss
One Devonshire Street
Apt. #3708
Boston, MA 02109
Dear Les,
I am pleased to offer you the position of Vice President of Finance and
Administration and Chief Financial Officer. You would report to the President
and manage the functions of Accounting, Finance, Contracts, Treasury and MIS.
The starting salary would be $125,000 per annum with an additional
bonus based on performance. The criteria for the bonus is given in an
accompanying memo. In recognition of the transition costs to this new
position, you will be guaranteed for your first year of employment 50% of the
Target Bonus as defined in the same memo and a $5000 signing bonus.
You would be granted 75,000 non-qualified options to buy PictureTel
shares at a price of $5.50. The vesting period for these shares would be 6.25%
per quarter measured from your starting date.
If you are terminated by the Company without cause, then you would be
entitled to receive three lump sum payments which in total are equal to
one-half of your then annualized pre-bonus compensation to be paid in three
equal lump-sum payments 30, 60 and 90 days after your formal termination date.
In addition, if you are unemployed at the end of the six months immediately
following termination, then PictureTel will pay you one twelfth of the same
annualized pre-bonus compensation each month until you begin other employment
or for six months, whichever is less. For the purpose of this letter cause
shall be defined as limited to conviction of a felony, willful misconduct or
gross negligence in the performance of duties which results in material harm to
PictureTel.
If the Company changes ownership, defined per section 7.4 of the
PictureTel Equity Incentive Plan, then options which would normally vest over
the twelve months following change of ownership would vest immediately.
You will be reviewed once per year and, if appropriate, your base
salary will be adjusted for meritorious performance.
As an employee of PictureTel you will be entitled to participate in our
insurance benefit programs. We offer two options: 1. a competitive medical
plan through Prudential Insurance, or 2. membership in Harvard Community Health
Plan, a health maintenance organization. In either case, PictureTel would
contribute toward the monthly cost of such coverage an amount equal to 75% of
the applicable Prudential premium.
PictureTel Corporation
One Corporation Way
Peabody, Massachusetts 01960
(508) 977-9500
fax (508) 977-9481
<PAGE> 3
Page 2
You will be responsible for the rest of the cost with payment arranged
through payroll deductions. In addition, PictureTel provides dental coverage,
long term disability, accidental death and dismemberment, and life insurance
coverage (life benefit equal to twice your annual salary). The premiums for the
dental, disability and life insurance are paid 100% by PictureTel. We also
offer a 401K Plan and a Tuition Reimbursement program.
Finally, as a senior officer of the Company, you will be entitled to
three weeks of vacation plus holiday and sick days according to PictureTel
policy. If you work significantly more hours than would normally be expected of
an officer at your level of responsibility then, at the discretion of the
president, compensatory time off can be taken.
We look forward to your joining our team, and to a long and successful
relationship. Please indicate your acceptance of this offer and your
anticipated start date by completing and signing the enclosed copy of this
letter and returning it to me. Please also review and return to me the enclosed
copy of our standard Noncompetition Agreement. This agreement supersedes all
others dated previous to this document.
Sincerely,
/s/ Norman E. Gaut
Norman E. Gaut
President and CEO
NEG/jdc
Enclosure
ACCEPTED: /s/ Les Strauss
------------------------------------
Date: 3/5/90 S.S.# ###-##-####
------------ --------------------
Anticipated Start Date: 3/5/90
----------------------
<PAGE> 1
EXHIBIT 10.3
[LOGO]
PICTURETEL
December 14, 1994
Mr. Khoa Nguyen
32 Blue Ridge Road
North Andover, MA 01845
Dear Khoa:
I am pleased to report to you that the Compensation Committee of the Board of
Directors approved an amendment to the severance pay provision contained in
your letter of employment (or agreement).
The current language provides that in the event of a termination without cause,
you could receive six (6) months base salary continuance and up to an
additional six (6) months base salary continuance so long as you remained
unemployed. Cause being defined as and limited to conviction of a felony or
willful misconduct or gross negligence in the performance of duties which
results in material harm to PictureTel.
The severance pay provision in your letter of employment (or agreement) is
hereby immediately amended so as to read in its entirety:
"In the event that you are involuntarily terminated for any reason other than
cause, you shall receive your then current base salary for a period of twelve
(12) consecutive months following such termination. For the purpose of this
letter (or agreement), cause shall be defined as and be limited to conviction
of a felony or willful misconduct or gross negligence in the performance of
duties which results in material harm to PictureTel."
Please acknowledge your receipt and understanding of this letter by signing and
returning the enclosed copy to Larry Bornstein at your earliest convenience.
Sincerely,
/s/ Norman Gaut
Norman Gaut
President,
Chief Executive Officer, and
Chairman of the Board
Acknowledge: /s/ Khoa D. Nguyen
-------------------
Date: March 06, 1995
--------------
The Tower at Northwoods, 222 Rosewood Drive, Danvers, MA 01923
- Telephone: 508-762-5000 - Fax: 508-762-5244
<PAGE> 2
[LOGO]
PICTURETEL
December 22, 1992
Mr. Khoa Nguyen
11200 Morning Glory Trail
Austin, Texas 78750-1926
Dear Khoa,
I am pleased to offer you the position of Senior Vice President, Engineering of
PictureTel Corporation. You would report to the President and manage all
functions related to research, development and engineering for the Corporation.
As a senior manager of the Corporation, you will be a member of the Corporate
Management Committee representing the Engineering group.
The starting salary will be $170,000 per annum with an additional bonus based
on performance. The criteria for the bonus will be determined in January by the
Compensation Committee of the Board of Directors. At target, your bonus will be
40% of your base salary. In addition, PictureTel will also pay you a signing
bonus of $50,000 to be paid not later than the last week of January 1993.
If you are terminated by the Company without cause, then you would be entitled
to receive a continuation of your base pay for six months. If after six months,
you have found no permanent employment, your pay will continue at the same rate
minus any earned income you derive from any source other than PictureTel for
another six months or until you are employed more than one-half time, whichever
comes first. For the purpose of this letter, cause shall be defined as and
limited to conviction of a felony or willful misconduct or gross negligence in
the performance of duties which results in material harm to PictureTel.
You will be granted 110,000 options to buy PictureTel shares equal to the
closing price quoted on the National Association of Securities Dealers Automated
National Market System on the day your option is approved by the Compensation
Committee of the Board of Directors. The vesting period for these shares is
four years with 25% of the total number vesting after one year from date of
grant, then 6.25% vesting each quarter thereafter until the full option grant
is vested. This option will expire ten years from date of grant.
If the Company changes ownership, defined per section 7.4 of the PictureTel
Equity Incentive Plan, then options which would normally vest the twelve months
following change of ownership would vest immediately.
If during the first nine months of employment, you do not desire to move your
family to the Boston area, PictureTel will pay up to $1,500 per month toward
the rental of a suitable dwelling for your personal use. In order to move your
family from the Austin to the Boston area, PictureTel will pay up to $30,000
toward the verifiable costs of such a move. Further, in order to help in the
relocation to Boston, PictureTel will loan you, interest free, up to $300,000
toward the purchase of a house in the local area. The loan will be a demand
loan payable the earlier of five (5) years from date of grant or upon leaving
employment with the Company. The date of grant will start on the purchase date
of the dwelling which date will not extend beyond December 31, 1993. At your
option you will be able to pay down the loan at anytime using bonus or stock
The Tower at Northwoods, 222 Rosewood Drive, Danvers, MA 01923
- Telephone: 508-762-5000 - Fax: 508-762-5244
<PAGE> 3
appreciation. While you are employed, $25,000 of the home loan will be
forgiven on each anniversary date of your employment for three years starting
on the first anniversary of your dwelling purchase. A total of $75,000 could
be forgiven over the course of the loan. All taxes resulting from imputed
interest by any taxing authority will be your responsibility.
As an employee of PictureTel, you will be entitled to participate in our
insurance benefit programs. We offer two options: 1. a competitive medical
plan through John Hancock Preferred Health Plan, or 2. membership in Harvard
Community Health Plan, a health maintenance organization. In either case,
PictureTel would contribute toward the monthly cost of such coverage per
Company policy. You will be responsible for the rest of the cost with payment
arranged through payroll deductions.
In addition to the above, PictureTel provides dental coverage, long term
disability, accidental death and dismemberment, and life insurance coverage
(life benefit equal to twice your annual salary). The premiums for the dental,
disability and life insurance are paid by PictureTel in accordance with policy.
We also offer a 401K Plan and a Tuition Reimbursement Program.
Finally, you will be entitled to vacation, holidy and sick days according to
PictureTel Policy.
We would expect your fist day on the PictureTel payroll to be December 29,
1992. We would expect your first day on the job in the Boston area to be on or
around January 11, 1993.
We look forward to your joining our team, and to a long and successful
relationship. Please indicate your acceptance of this offer and the
verification of your start date by completing and signing the enclosed copy of
this letter and returning it to me. Please also review and return to me the
enclosed copy of our standard Confidential/Proprietary Agreement.
Sincerely,
/s/ Norman E. Gaut
Norman E. Gaut
President and CEO
NEG/jdc
Enclosure
ACCEPTED: /s/ Khoa D. Nguyen
------------------
Date: December 22, 1992 SS# ###-##-####
----------------- -----------
Anticipated Start Date: On or around Jan. 11, 1993
--------------------------
<PAGE> 1
EXHIBIT 10.4
[LOGO]
PICTURETEL
December 14, 1994
Mr. Domenic J. LaCava
38 Francis Drive
Reading MA 01867
Dear Dom:
I am pleased to report to you that the Compensation Committee of the Board of
Directors approved an amendment to the severance pay provision contained in
your letter of employment (or agreement).
The current language provides that in the event of a termination without cause,
you could receive six (6) months base salary continuance and up to an
additional six (6) months base salary continuance so long as you remained
unemployed. Cause being defined as and limited to conviction of a felony or
willful misconduct or gross negligence in the performance of duties which
results in material harm to PictureTel.
The severance pay provision in your letter of employment (or agreement) is
hereby immediately amended so as to read in its entirety:
"In the event that you are involuntarily terminated for any reason other than
cause, you shall receive your then current base salary for a period of twelve
(12) consecutive months following such termination. For the purpose of this
letter (or agreement), cause shall be defined as and be limited to conviction
of a felony or willful misconduct or gross negligence in the performance of
duties which results in material harm to PictureTel."
Please acknowledge your receipt and understanding of this letter by signing and
returning the enclosed copy to Larry Bornstein at your earliest convenience.
Sincerely,
/s/ Norman Gaut
Norman Gaut
President,
Chief Executive Officer, and
Chairman of the Board
Acknowledge: /s/ Domenic J. LaCava
----------------------------------
Date: 1/17/95
-----------------------------------------
The Tower at Northwoods, 222 Rosewood Drive, Danvers, MA 01923
- Telephone: 508-762-5000 - Fax: 508-762-5244
<PAGE> 2
[LOGO]
PICTURETEL
December 6, 1993
Mr. Domenic J. LaCava
38 Francis Drive
Reading, MA 01867
Dear Dom:
I am pleased to offer you the position of Senior Vice President of the Desktop
Business Group. You will report to me and manage the Desktop Business Group.
I expect you to begin your employment with PictureTel on December 13, 1993.
The starting salary is $170,000 annually. Thereafter, you will be eligible to
participate in our Executive Bonus Plan with a target of 40% of your annual
compensation based on achievement of overall company performance goals for
profit and revenues established annually by the Board, and specific objectives
which will be jointly defined no later than sixty days following your joining
PictureTel. In addition, the Company will pay you a signing bonus of $20,000.
This bonus will be payable $10,000 on signing and $10,000 after six months of
the first day of your employment.
In addition to your salary, we will recommend to the Compensation Committee of
the Board of Directors your participation in PictureTel's Stock Option Plan.
The option, WHICH WILL BE RECOMMENDED TO THE COMPENSATION COMMITTEE OF THE
BOARD, will be for 50,000 shares. These shares will vest over a four year
period, with the first twenty-five percent of the shares vesting after one year
from the date your option is approved and the remaining shares vesting 6.25%
quarterly thereafter. Vesting is conditional on your remaining a full-time
employee. Additionally, certain other restrictions may apply as detailed in
the Equity Incentive Plan. The option price will be determined by the closing
price as quoted on the National Market System of NASDAQ on the day on which the
Compensation Committee of the Board of Directors approves the option.
If you are terminated by the Company without cause, then you will be entitled
to a continuation of your base salary for six months minus any moneys you owe
the Company at the time of your termination. In addition, if you are
unemployed at the end of the six months immediately following termination, then
PictureTel will pay you one twelfth of the same annualized pre-bonus
compensation each month, minus any moneys earned from consulting or other
temporary activities, until you begin other full employment, or for six months,
whichever is less. For the purpose of this letter, cause shall be defined as
limited to conviction of a felony, willful misconduct or gross negligence in
the performance of duties which results in material harm to PictureTel.
You will be reviewed annually at fiscal year end by me and, if appropriate,
your base salary will be adjusted for meritorious performance.
The Tower at Northwoods, 222 Rosewood Drive, Danvers, MA 01923
- Telephone: 508-762-5000 - Fax: 508-762-5244
<PAGE> 3
As an employee of PictureTel you will be entitled to participate in our medical
insurance benefit programs. We offer two options: 1. a competitive medical
and dental plan through John Hancock Insurance, or 2. membership in Harvard
Community Health Plan, a health maintenance organization. You will be
responsible for a portion of the premium cost, with payment arranged through
payroll deductions. A Section 125 reimbursement plan to help with
unreimbursed medical expenses is available, also through payroll deduction.
In addition, PictureTel provides long term disability, accidental death and
dismemberment, and life insurance coverage (life benefit equal to twice your
annual salary). The premiums for the disability and life insurance are paid
100% by PictureTel. We also offer a 401K Plan and a Tuition Reimbursement
program.
Finally, as a senior officer of the Company, you will be entitled to three
weeks of vacation plus holiday and sick days according to PictureTel policy.
This offer is contingent on your providing proof of eligibility for employment.
On your first day of employment, please bring with you a) a valid U.S.
Passport, or b) a birth certificate and driver's license, or c) an original
Social Security card and driver's license.
I look forward to your joining our team, and to a long and successful
relationship. Please indicate your acceptance of this offer and if you agree
with the anticipated start date by completing and signing the enclosed copy of
this letter, the PictureTel Application for Employment, and the Proprietary
Information and Inventions Agreement, returning all documents to me. Feel free
to call if you have any questions.
Sincerely,
/s/ Norman Gaut
Norman E. Gaut
President and CEO
ACCEPTED: /s/ Domenic J. LaCava
----------------------
Date: 12/10/93 S.S.# ###-##-####
----------------- -------------
Anticipated Start Date: 12/13/93
------------
<PAGE> 1
EXHIBIT 10.5
[LOGO]
PICTURETEL
December 14, 1994
Mr. Lawrence Bornstein
37 Cider Mill Road
Sudbury, MA 01776
Dear Larry:
I am pleased to report to you that the Compensation Committee of the Board of
Directors approved an amendment to the severance pay provision contained in
your letter of employment (or agreement).
The current language provides that in the event of a termination without cause,
you could receive six (6) months base salary continuance and up to an
additional six (6) months base salary continuance so long as you remained
unemployed. Cause being defined as and limited to conviction of a felony or
willful misconduct or gross negligence in the performance of duties which
results in material harm to PictureTel.
The severance pay provision in your letter of employment (or agreement) is
hereby immediately amended so as to read in its entirety:
"In the event that you are involuntarily terminated for any reason other than
cause, you shall receive your then current base salary for a period or twelve
(12) consecutive months following such termination. For the purpose of this
letter (or agreement), cause shall be defined as and be limited to conviction
of a felony or willful misconduct or gross negligence in the performace of
duties which results in material harm to PictureTel."
Please acknowledge your receipt and understanding of this letter by signing and
returning the enclosed copy to Larry Bornstein at your earliest convenience.
Sincerely,
/s/ NORMAN GAUT
Norman Gaut
President,
Chief Executive Officer, and
Chairman of the Board
Acknowledge: /s/ Norman Gaut
------------------------
Date: 1/16/95
-------------------------------
The Tower at Northwoods, 222 Rosewood Drive, Danvers, MA 01923
- Telephone: 508-762-5000 - Fax: 508-762-5244
<PAGE> 2
[LOGO]
PICTURETEL
November 11, 1993
Mr. Lawrence Bornstein
37 Cider Mill Road
Sudbury, MA 01776
Dear Larry:
I am pleased to offer you the position of V.P., Human Resources. You will
report to me and manage the Human Resources Department. I expect you to begin
your employment with PictureTel on or about January 4, 1994.
The starting salary is $145,000 annually. Thereafter, you will be eligible to
participate in our Executive Bonus Plan with a target of 40% (maximum 80%) of
your annual compensation based on achievement of overall company performance
goals for profit and revenues established annually by the Board, and specific
objectives which will be jointly defined no later than sixty days following
your joining PictureTel. In addition, the Company will pay you a signing bonus
of $5,000. This bonus will be payable within 30 days of the first day of your
employment.
If, during the first two years of your employment with PictureTel, you decide
to move closer to PictureTel headquarters, PictureTel will reimburse you the
out of pocket expenses for the physical move of your belongings, not to exceed
$15,000.
In addition to your salary, we will recommend to the Compensation Committee of
the Board of Directors your participation in PictureTel's Stock Option Plan.
The option, WHICH WILL BE RECOMMENDED TO THE COMPENSATION COMMITTEE OF THE
BOARD, will be for 40,000 shares. These shares will vest over a four year
period, with the first twenty-five percent of the shares vesting after one year
from the date your option is approved and the remaining shares vesting 6.25%
quarterly thereafter. Vesting is conditional on your remaining a full-time
employee. Additionally, certain other restrictions may apply as detailed in the
Equity Incentive Plan. The option price will be determined by the closing price
as quoted on the National Market System of NASDAQ on the day on which the
Compensation Committee of the Board of Directors approves the option.
If you are terminated by the Company without cause, then you will be entitled
to a continuation of your base salary for six months minus any moneys you owe
the Comapny at the time of your termination. In addition, if you are unemployed
at the end of the six months immediately following termination, then PictureTel
will pay you one twelfth of the same annualized pre-bonus compensation each
month, minus any moneys earned from consulting or other temporpary activities,
until you begin other full employment, or for six months, whichever is less.
For the purpose of this letter, cause shall be defined as limited to conviction
of a felony, willful misconduct or gross negligence in the performance of
duties which results in material harm to PictureTel.
The Tower at Northwoods, 222 Rosewood Drive, Danvers, MA 01923
- Telephone: 508-762-5000 - Fax: 508-762-5244
<PAGE> 3
You will be reviewed annually at fiscal year end by me and, if appropriate,
your base salary will be adjusted for meritorious performance.
As an employee of PictureTel you will be entitled to participate in our medical
insurance benefit programs. We offer two options: 1. a competitive medical and
dental plan through John Hancock Insurance, or 2. membership in Harvard
Community Health Plan, a health maintenance organization. You will be
responsible for a portion of the premium cost, with payment arranged through
payroll deductions. A Section 125 reimbursement plan to help with unreimbursed
medical expenses is available, also through payroll deduction.
In addition, PictureTel provides long term disability, accidental death and
dismemberment, and life insurance coverage (life benefit equal to twice your
annual salary). The premiums for the disability and life insurance are paid
100% by PictureTel. We also offer a 401K Plan and a Tuition Reimbursement
program.
Finally, as a senior officer of the Company, you will be entitled to three
weeks of vacation plus holiday and sick days according to PictureTel policy.
This offer is contingent on your providing proof of eligibility for employment.
On your first day of employment, please bring with you a) a valid U.S.
Passport, or b) a birth certificate and driver's license, or c) an original
Social Security card and driver's license.
I look forward to your joining our team, and to a long and successful
relationship. Please indicate your acceptance of this offer and if you agree
with the anticipated start date by completing and signing the enclosed copy of
this letter, the PictureTel Application for Employment, and the Proprietary
Information and Inventions Agreement, returning all documents to me. Feel free
to call if you have any questions.
Sincerely,
/s/ Norman E. Gaut
Norman E. Gaut
President and CEO
ACCEPTED: /s/ Lawrence N. Bornstein
-----------------------------------------
Date: December 8, 1993
---------------------------------------------
S.S. ###-##-####
----------------------------------------------
Anticipated Start Date: on or about January 3, 1994
---------------------------
<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 APRIL 1, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH APRIL 1, 1995 10-Q FILING.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> APR-01-1995
<EXCHANGE-RATE> 1
<CASH> 25,044
<SECURITIES> 55,501
<RECEIVABLES> 69,558
<ALLOWANCES> (1,694)
<INVENTORY> 34,872
<CURRENT-ASSETS> 7,503
<PP&E> 55,974
<DEPRECIATION> (35,708)
<TOTAL-ASSETS> 226,024
<CURRENT-LIABILITIES> 64,448
<BONDS> 0
<COMMON> 155
0
0
<OTHER-SE> 159,149
<TOTAL-LIABILITY-AND-EQUITY> 226,024
<SALES> 74,156
<TOTAL-REVENUES> 74,156
<CGS> 36,358
<TOTAL-COSTS> 36,358
<OTHER-EXPENSES> 34,340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,350
<INCOME-TAX> 1,262
<INCOME-CONTINUING> 3,088
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,088
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.18
</TABLE>
