<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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 FISCAL YEAR ENDED JUNE 29, 1996
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 JUNE 29, 1996
COMMISSION FILE NUMBER 1-9434
PICTURETEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 04-2835972
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 MINUTEMAN ROAD, ANDOVER, MA. 01810
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER:
508-292-5000
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 9, 1996, there were 33,452,000 issued and outstanding shares
of common stock of the registrant.
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PICTURETEL CORPORATION
FORM 10-Q
INDEX
<TABLE>
PART I. CONSOLIDATED FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
June 29,1996 and December 31, 1995............................... 3
Consolidated Statements of Income
Three and six months ended June 29, 1996 and July 1, 1995........ 4
Consolidated Statements of Cash Flows
Six months ended June 29, 1996 and July 1, 1995.................. 5
Notes to Consolidated Financial Statements (Unaudited)............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 7-9
<CAPTION>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. Not Applicable
Item 2. Changes in Securities.............................................. Not Applicable
Item 3. Defaults Upon Senior Securities.................................... Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders................ 10
Item 5. Other Information.................................................. 10
Item 6. Exhibits and Reports on Form 8-K................................... 10
Signatures.................................................................. 11
</TABLE>
2
<PAGE> 3
<TABLE>
PICTURETEL CORPORATION
CONSOLIDATED BALANCE SHEETS
($000'S)
<CAPTION>
JUNE 29, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 45,490 $ 39,476
Marketable securities.............................................. 15,478 20,463
Accounts receivable less allowance for doubtful accounts of $1,813
and $1,791...................................................... 113,311 97,735
Inventories (Note 2)............................................... 36,390 43,791
Deferred taxes, net................................................ 6,561 6,665
Other current assets............................................... 7,311 5,781
-------- --------
Total current assets............................................ 224,541 213,911
Marketable securities.............................................. 36,273 34,084
Deferred taxes, net................................................ 6,000 6,000
Property and equipment, net........................................ 35,711 22,515
Capitalized software costs, net (Note 3)........................... 6,127 5,073
Other assets....................................................... 6,955 6,558
-------- --------
Total assets............................................... $315,607 $288,141
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.............................................. $ 527 $ 557
Accounts payable................................................... 26,759 25,639
Accrued compensation and benefits.................................. 7,654 9,881
Accrued expenses................................................... 20,836 16,646
Current portion of capital lease obligations....................... 2,172 2,283
Deferred revenue................................................... 18,442 19,509
-------- --------
Total current liabilities....................................... 76,390 74,515
Long-term borrowings................................................. 10,015 12,226
Capital lease obligations............................................ 1,411 578
Stockholders' equity:
Preference stock, $.01 par value; 15,000,000 shares authorized;
none issued
Common stock, $.01 par value; 80,000,000 shares authorized;
33,358,597 and 32,723,744 shares issued and outstanding at June
29, 1996 and December 31, 1995, respectively.................... 334 328
Additional paid-in capital......................................... 184,014 173,379
Retained earnings.................................................. 43,379 27,422
Cumulative translation adjustment.................................. (355) (531)
Unrealized gain on marketable securities, net...................... 419 224
-------- --------
Total stockholders' equity...................................... 227,791 200,822
-------- --------
Total liabilities and stockholders' equity................. $315,607 $288,141
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
<TABLE>
PICTURETEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
($000'S EXCEPT PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- ---------------------
JUNE 29, JULY 1, JUNE 29, JULY 1,
1996 1995 1996 1995
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues......................................... $116,082 $80,489 $221,083 $154,645
Cost of sales.................................... 60,343 39,450 114,452 75,808
-------- ------- -------- --------
Gross margin..................................... 55,739 41,039 106,631 78,837
Operating expenses:
Selling, general and administrative............ 31,076 24,500 58,815 48,447
Research and development....................... 14,041 11,178 27,965 21,571
-------- ------- -------- --------
Total operating expenses............... 45,117 35,678 86,780 70,018
-------- ------- -------- --------
Income from operations........................... 10,622 5,361 19,851 8,819
Interest income, net............................. 1,103 700 2,179 1,317
Other income (expense), net...................... 1,136 (209) 1,814 66
-------- ------- -------- --------
Income before taxes.............................. 12,861 5,852 23,844 10,202
Provision for income taxes....................... 4,373 1,697 7,887 2,959
-------- ------- -------- --------
Net income....................................... $ 8,488 $ 4,155 $ 15,957 $ 7,243
======== ======= ======== ========
Net income per common and common equivalent
share.......................................... $ 0.24 $ 0.12 $ 0.44 $ 0.21
======== ======= ======== ========
Weighted average common and common equivalent
shares outstanding............................. 36,053 34,860 36,087 34,212
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
PICTURETEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000'S)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
JUNE 29, JULY 1,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 15,957 $ 7,243
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization...................................... 9,418 9,345
Other non-cash items............................................... (346) (59)
Changes in operating assets and liabilities:
Accounts receivable................................................ (15,576) (9,642)
Inventories........................................................ 7,399 (7,773)
Other assets....................................................... (907) (6,653)
Accounts payable................................................... 1,120 4,279
Accrued compensation and benefits and accrued expenses............. 2,086 12,427
Income taxes, net.................................................. 4,862 (696)
Deferred revenue................................................... (1,067) 1,523
-------- --------
Net cash provided by operating activities............................ 22,946 9,994
Cash flows from investing activities:
Purchase of marketable securities.................................. (11,167) (24,839)
Proceeds from marketable securities................................ 14,314 31,373
Additions to property and equipment................................ (18,659) (8,373)
Capitalized software costs......................................... (2,767) (1,532)
Purchase of intangible assets...................................... (3,000) --
-------- --------
Net cash used in investing activities................................ (21,279) (3,371)
Cash flows from financing activities:
Change in short-term borrowings.................................... (30) 2,223
Payments on long-term borrowings................................... (2,211) --
Principal payments under capital lease obligations................. (1,414) (1,990)
Proceeds from exercise of stock options............................ 6,659 10,169
Proceeds from stock purchase plan.................................. 883 --
-------- --------
Net cash provided by financing activities............................ 3,887 10,402
Effect of exchange rate changes on cash.............................. 460 (851)
-------- --------
Net increase in cash and cash equivalents............................ 6,014 16,174
Cash and cash equivalents at beginning of period..................... 39,476 24,347
-------- --------
Cash and cash equivalents at end of period........................... $ 45,490 $ 40,521
======== ========
Interest paid........................................................ $ 296 $ 371
======== ========
Income taxes paid.................................................... $ 954 $ 2,249
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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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, 1995.
2. INVENTORIES
<TABLE>
Inventories consist of the following (in thousands):
<CAPTION>
JUNE 29, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
Purchased Parts............................................. $ 9,061 $11,492
Work in Process............................................. 2,098 3,252
Finished Goods.............................................. 25,231 29,047
------- -------
$36,390 $43,791
======= =======
</TABLE>
3. CAPITALIZED SOFTWARE COSTS
Amortization of software costs totaled $911,000 and $778,000 for the
quarters ended June 29, 1996 and July 1, 1995, respectively and $1,712,000 and
$1,691,000 for the six months ended June 29, 1996 and July 1, 1995,
respectively.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This section includes certain forward-looking statements about the
Company's business and new products, sales and expenses, effective tax rate and
operating and capital requirements. Any such statements are subject to risks
that could cause the actual results or needs to vary materially. These risks are
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's Report on Form 10-K for the year ended
December 31, 1995.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 29, 1996 COMPARED TO THREE MONTHS ENDED JULY 1, 1995
REVENUES. The Company's revenues increased $35,593,000 or 44%, in the
three month period ended June 29, 1996 from the comparable period in 1995. 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, especially in the personal desktop products, as well as a shift
in distribution channel mix with approximately 74% of revenue now coming from
the indirect channels. Videoconferencing system sales accounted for
approximately 83% of the Company's revenues for the three month period ended
June 29, 1996 and 80% for the comparable period in 1995. Sales of group and
desktop videoconferencing products accounted for 67% and 16%, respectively, of
revenues for the three month period ended June 29, 1996 compared with 64% and
16%, respectively, for the comparable period in 1995. In addition, sales of
bridge products accounted for approximately 8% of the Company's revenues for the
three month period ended June 29, 1996 compared to approximately 7% for the
comparable period in 1995. The balance of the revenues in 1996 and 1995 were
primarily from maintenance services, licensing/development agreements and the
sales of stand-alone codecs and video modems.
The Company's revenues from sales to foreign markets were approximately
$51,724,000 in the three month period ended June 29, 1996 compared to
approximately $33,617,000 for the comparable period in 1995 representing 45% and
42%, 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 $14,700,000 or 36%, in
the three month period ended June 29, 1996 compared to the comparable period in
1995. Gross margin as a percentage of revenues was 48% for the three month
period ended June 29, 1996 compared with 51% for the comparable period in 1995.
Gross margin as a percentage of revenues decreased as a result of the increased
percentage of volume through the indirect channels and a reduction in the
average selling price of videoconferencing systems. These two trends are
expected to continue and may impact future gross margins.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $6,576,000 or 27% from the comparable period in 1995 and
decreased as a percentage of revenues to 27% from 30%. The dollar increase in
spending resulted primarily from the worldwide marketing focus associated with
expanding indirect channels and 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
$2,863,000 or 26% in the three month period ended June 29, 1996 from the
comparable period in 1995 and were 12% and 14%, respectively, of revenues for
the three month period ended June 29, 1996 and the comparable period in 1995.
Research and development expenditures, prior to the capitalization of software
costs, were $15,423,000 in the three month period ended June 29, 1996 and
$11,828,000 in the comparable period in 1995 or 13% and 15% 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
7
<PAGE> 8
Company capitalized software costs of $1,418,000 in the three month period ended
June 29, 1996 and $650,000 in the comparable period in 1995 representing 10% and
6% of research and development expenditures, respectively.
OPERATING INCOME. Although gross margin as a percentage of sales has not
increased over the comparable period in 1995, operating income as a percentage
of sales increased 37% due to a decline in operating expenses as a percentage of
sales.
NET INTEREST INCOME. Net interest income increased to $1,103,000 in the
three month period ended June 29, 1996 from $700,000 in the comparable period in
1995. The increase was primarily the result of higher portfolio balances and
lower interest expense.
OTHER INCOME (EXPENSE). Other income (expense) of $1,136,000 in the three
month period ended June 29, 1996 consists primarily of net gains on sales of
securities. Other income (expense) of $209,000 in the comparable period in 1995
consists primarily of net losses on foreign currency transactions.
INCOME TAXES. The Company's effective tax rate for the three month period
ended June 29, 1996 and July 1, 1995 was 34% and 29% respectively. The Company's
effective tax rate for the three month period ended June 29, 1996 was lower than
the federal statutory rate primarily due to state tax credits, foreign tax rates
and foreign losses not tax benefited.
SIX MONTHS ENDED JUNE 29, 1996 COMPARED TO SIX MONTHS ENDED JULY 1, 1995
REVENUES. The Company's revenues increased $66,438,000, or 43%, in the
six-month period ended June 29, 1996 from the comparable period in 1995. 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 with approximately
75% of revenue now coming from the indirect channels. Videoconferencing system
sales accounted for approximately 83% of the Company's revenues for the six
month period ended June 29, 1996 compared to approximately 82% for the
comparable period in 1995. Sales of group and desktop videoconferencing products
accounted for 66% and 17%, respectively, of revenues for the six month period
ended June 29, 1996 compared with 68% and 14%, respectively for the comparable
period in 1995. In addition, sales of bridge products accounted for
approximately 8% of the Company's revenues for the six month period ended June
29, 1996 compared to approximately 7% for the comparable period in 1995. The
balance of the revenues in 1996 and 1995 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
$102,334,000 in the six month period ended June 29, 1996 compared to
approximately $65,124,000 in the comparable period in 1995 representing 46% and
42%, 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 $27,794,000 or 35%, in
the six month period ended June 29, 1996 from the comparable period in 1995.
Gross margin as a percentage of revenues decreased to 48% in the six month
period ended June 29, 1996 from 51% in the comparable period in 1995. The
decrease in gross margin as a percentage of revenues was primarily the result of
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 $10,368,000, or 21%, in the six month period ended June 29,
1996 from the comparable period in 1995 and were 27% and 31%, 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.
8
<PAGE> 9
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$6,394,000 or 30%, in the six month period ended June 29, 1996 from the
comparable period in 1995 and were 13% and 14%, respectively, of revenues for
the six month period ended June 29, 1996 and for the comparable period in 1995.
Research and development expenditures, prior to the capitalization of software
costs, were $30,731,000 in the six month period ended June 29, 1996 and
$23,102,000 for the comparable period in 1995 or 14% and 15% 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 $2,766,000 in the six month period ended June 29, 1996 and $1,532,000
for the comparable period in 1995 representing 10% and 7% of research and
development expenditures, respectively.
OPERATING INCOME. Although gross margin as a percentage of sales has not
increased over the comparable period in 1995, operating income as a percentage
of sales increased 58% due to a decline in operating expenses as a percentage of
sales.
NET INTEREST INCOME (EXPENSE). Net interest income increased to $2,179,000
in the six month period ended June 29, 1996 from $1,317,000 for the comparable
period in 1995. The increase was primarily the result of higher interest earning
portfolio balances throughout the six month period ended June 29, 1996.
OTHER INCOME (EXPENSE). Other income (expense) for the six month period
ended June 29, 1996 consists primarily of gains on the sales of securities and,
to a lesser extent, net gains on foreign currency transactions. Other income
(expense) for the six month period ended July 1, 1995 consists primarily of net
gains on foreign currency transactions.
INCOME TAXES. The Company's effective tax rate for the six months ended
June 29, 1996 and July 1, 1995 was 33% and 29%, respectively. The Company's
effective tax rate in 1996 is lower than the federal statutory rate primarily
due to the combined effects of 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 June 29, 1996 the Company had $45,490,000 in cash and cash equivalents,
$15,478,000 in short-term marketable securities and $36,273,000 in long-term
marketable securities. During the six month period ended June 29, 1996 the
Company generated $22,946,000 in net cash from operating activities. The primary
use of cash during the six month period ended June 29, 1996 was to fund the
growth in working capital items such as accounts receivable, as well as
additions to property and equipment. Capital expenditures for 1996 are projected
to be approximately $30,000,000 including leasehold improvements related to the
newly leased property for the Company's corporate office and manufacturing
facilities, of which $18,659,000 was spent in the first six months.
The Company has available for borrowing up to $17,000,000 under its
revolving credit agreement and approximately $4,341,000 available under local
foreign guaranteed lines of credit to certain of its foreign subsidiaries. At
June 29, 1996 there was $10,015,000 outstanding under the revolving credit
agreement and $527,000 outstanding under the foreign lines of credit. At June
29, 1996, the Company had $3,583,000 outstanding and $9,366,000 available to be
borrowed under various leasing lines.
The Company believes that funds from operations, equipment lease financing,
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.
9
<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 17,
1996. The Stockholders of the Company elected members of the Board of Directors,
approved an amendment to the 1992 Non-Employee Directors' Plan to increase the
number of shares of common stock available for delivery under the Plan from
280,000 to 430,000, and approved the grant of options to non-employee members of
the Board of Directors to purchase 20,000 shares of the Company's common stock
on August 1, 1996 and thereafter for the annual grant of options on August 1 of
each year to purchase 5,000 shares, and ratified the selection of Coopers &
Lybrand L.L.P. as the Company's auditors for fiscal year 1996. 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.............................................. 29,375,352 149,766
Robert T. Knight............................................ 29,375,514 149,604
Vinod Khosla................................................ 29,372,112 153,006
David Levi.................................................. 29,376,604 148,514
James R. Swartz............................................. 29,373,212 151,906
</TABLE>
<TABLE>
Other Matters Considered:
<CAPTION>
BROKER
AFFIRMATIVE NEGATIVE ABSTAINED NON-
VOTES VOTES VOTES VOTES
---------- --------- ------- -------
<S> <C> <C> <C> <C>
Approval of the amendment to the 1992 Non-Employee
Directors' Plan..................................... 24,195,451 4,863,848 174,579 291,240
Selection of Coopers & Lybrand L.L.P. as auditors..... 29,371,286 60,122 93,710 --
</TABLE>
ITEM 5 -- OTHER INFORMATION
The Board of Directors voted in July, 1996 to enlarge the Board of
Directors from five to six members. The Board has elected Mr. Enzo Torresi to
serve as the sixth member of the Board, effective August 1, 1996. Mr. Torresi,
51, is Chairman of Power Computing Corporation, the first company to license
from Apple Computer Inc. the technology to produce MacIntosh-compatible personal
computers. Previously Mr. Torresi founded and served as chairman and chief
executive officer of NetFRAME Systems, Inc., a manufacturer of fault-tolerant
clustered network servers. Prior to that, he was vice-chairman of the board and
senior vice president of sales and marketing at Businessland Corporation, an
international computer reseller, which he co-founded in 1992.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Agreement between PictureTel Corporation and William L. Avery
dated June 15, 1995.
10.2 Agreement between PictureTel Corporation and Rick H. Faulk
dated June 26, 1995.
10.3 Amended 1992 Non-employee Directors' Stock Option Plan.
(b) Reports on Form 8-K
None
10
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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 13, 1996.
11
<PAGE> 1
EXHIBIT 10.1
June 15, 1995
Mr. William L. Avery
17864 SW Pheasant Lane
Aloha, OR 97006
Dear Bill:
PictureTel Corporation is pleased to offer you an opportunity to join our
Company as the Vice President, Networks Systems Division. In this capacity you
will be working for me, but you will be initially assigned to work with Khoa
Nguyen to define, segment, and focus our networks business and strategy into a
discrete business division.
The compensation in the offered position will contain two elements: an
annual base salary and an annual bonus opportunity under PictureTel's Management
Incentive Plan. The base salary for the position will be paid at the
semi-monthly rate of $6,250. (this the equivalent of $150,000. annually based on
24 pay periods in the year). At the level of the offered position a full
performance review is scheduled in the quarter immediately following the close
of the fiscal year.
The payment of a bonus under the Management Incentive Plan is predicated on
the Company's achievement of the annual revenue and profitability objectives
established at the start of the fiscal year and your performance in meeting your
Individual Goals for the year. The bonus opportunity will be 0% - 40% of base
salary (pro-rata for service in 1995), for full performance but may range up to
80% of base salary (pro-rata for service in 1995) for performance in excess of
the plan. The bonus, if any, is determined and paid in the first quarter
following the close of the fiscal year.
The Company will pay you a sign-on bonus in the amount of $50,000. The
sign-on bonus will be payable as follows: $25,000. within thirty (30) days of
your employment start date: $10,000. on or about January 1, 1996; and $15,000.
on or about July 1, 1996. In addition, we will recommend to the Compensation
Committee of the Board of Directors your participation in PictureTel's Equity
Incentive Plan. The option recommendation presented will be for 40,000 shares.
These shares will vest over a four year period, with the first twenty-five (25)
percent of the aggregate number of shares vesting one (1) year following the
date the option grant was approved and six and one quarter (6.25) percent of the
aggregate number of shares vesting each quarter thereafter. The option price
will be determined by the Compensation Committee on the day your option grant is
approved and will be no less than the closing price as quoted on the National
Market System of NASDAQ on that date. Vesting is conditional on your continued
full-time employment with the company. Certain other restrictions may apply to
your option grant as set forth in the Equity Incentive Plan.
PictureTel will assist you in your relocation to the Boston area. Details
will be specified at a later date, including the movement of your household
goods and temporary living depending on the available of your Stowe property.
If you are involuntarily terminated by the Company for any reason other
than for cause, you would be entitled to receive a continuation of your then
current base salary for a period of six (6) months. If at the end of the six (6)
months you are still unemployed, the Company will consider extending the
continuation of your base salary month to month for a maximum of six (6) months.
You will be responsible for providing monthly verification of your employment
status in order to be eligible for the added salary continuation. For purposes
of this letter, 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 result in material harm to PictureTel.
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 the
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 daycare and
unreimbursed medical expenses is available at your election, also through
payroll deductions.
<PAGE> 2
In addition, PictureTel provides long-term disability, accidental death and
dismemberment, and life insurance coverage (life benefit equal to two (2) times
your annual salary). The premiums for the disability and life insurance are paid
one hundred (100) percent by PictureTel.
Finally, we offer a 401(k) Retirement Plan and a Tuition Reimbursement
Program. You will be entitled to paid vacation, holiday and sick days in
accordance with PictureTel Policy.
This offer is contingent on your providing proof of eligibility for
employment. On your first day of employment, please bring with you either: (a) a
valid U.S. Passport, or (b) a birth certificate and a driver's license, or (c)
an original Social Security card and a driver's license. Orientation is normally
scheduled for 8:30 a.m. on Mondays.
Please indicate your acceptance of this offer and your anticipated start
date by completing and signing the enclosed copy of this letter, the PictureTel
Application for Employment, and the Proprietary Information Agreement. Return
all documents to Larry Bornstein as soon as practical.
If you have any questions regarding this offer, please do not hesitate to
call Larry or me. We look forward to your joining and being an important member
of our team.
Sincerely,
/s/ NORMAN GAUT
-----------------------------------
Norman Gaut
President, Chief Executive Officer,
and
Chairman of the Board
ACCEPTED: /s/ WILLIAM L. AVERY Date:
------------------------- -------------------------------
SS#: ________________________ Anticipated Start Date: _______________________
<PAGE> 1
EXHIBIT 10.2
June 26, 1995
Mr. Rick H. Faulk
11 Fairway Drive
Andover, MA 01810
Dear Rick:
PictureTel Corporation is pleased to offer you an opportunity to join our
Company as the Vice President, Marketing reporting to me.
The compensation in the offered position will contain two elements: an
annual base salary and an annual bonus opportunity under PictureTel's Management
Incentive Plan. The base salary for the position will be paid at the
semi-monthly rate of $5,833.33 (this the equivalent of $140,000. annually based
on 24 pay periods in the year). At the level of the offered position a full
performance review is scheduled in the quarter immediately following the close
of the fiscal year.
The payment of a bonus under the Management Incentive Plan is predicated on
the Company's achievement of the annual revenue and profitability objectives
established at the start of the fiscal year and your performance in meeting your
Individual Goals for the year. The bonus opportunity will be 0% -- 40% of base
salary (pro-rata for service in 1995), for full performance but may range up to
80% of base salary (pro-rata for service in 1995) for performance in excess of
the plan. The bonus, if any, is determined and paid in the first quarter
following the close of the fiscal year.
The Company will pay you a sign-on bonus in the amount of $10,000. This
sign-on bonus will be payable within thirty (30) days of your employment start
date.
In addition, we will recommend to the Compensation Committee of the Board
of Directors your participation in PictureTel's Equity Incentive Plan. The
option recommendation presented will be for 35,000 shares. These shares will
vest over a four year period, with the first twenty-five (25) percent of the
aggregate number of shares vesting one (1) year following the date the option
grant was approved and six and one quarter (6.25) percent of the aggregate
number of shares vesting each quarter thereafter. The option price will be
determined by the Compensation Committee on the day your option grant is
approved and will be no less than the closing price as quoted on the National
Market System of NASDAQ on that date. Vesting is conditional on your continued
full-time employment with the company. Certain other restrictions may apply to
your option grant as set forth in the Equity Incentive Plan.
If you are involuntarily terminated by the Company for any reason other
than for cause, you would be entitled to receive a continuation of your then
current base salary for a period of six (6) months. If at the end of the six (6)
months you are still unemployed, the Company will consider extending the
continuation of your base salary month to month for a maximum of six (6) months.
You will be responsible for providing monthly verification of your employment
status in order to be eligible for the added salary continuation. For purposes
of this letter, 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 result in material harm to PictureTel.
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 the
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 daycare and
unreimbursed medical expenses is available at your election, also through
payroll deductions.
In addition, PictureTel provides long-term disability, accidental death and
dismemberment, and life insurance coverage (life benefit equal to two (2) times
your annual salary). The premiums for the disability and life insurance are paid
one hundred (100) percent by PictureTel.
<PAGE> 2
Finally, we offer a 401(k) Retirement Plan and a Tuition Reimbursement
Program. You will be entitled to paid vacation, holiday and sick days in
accordance with PictureTel Policy.
This offer is contingent on your providing proof of eligibility for
employment. On your first day of employment, please bring with you either: (a) a
valid U.S. Passport, or (b) a birth certificate and a driver's license, or (c)
an original Social Security card and a driver's license. Orientation is normally
scheduled for 8:30 a.m. on Mondays.
Please indicate your acceptance of this offer and your anticipated start
date by completing and signing the enclosed copy of this letter, the PictureTel
Application for Employment, and the Proprietary Information Agreement. Return
all documents to Larry Bornstein as soon as practical.
If you have any questions regarding this offer, please do not hesitate to
call Larry or me. We look forward to your joining and being an important member
of our team.
Sincerely,
/s/ NORMAN GAUT
---------------------------------------
Norman Gaut
President, Chief Executive Officer, and
Chairman of the Board
ACCEPTED: /s/ RICK H. FAULK Date:
--------------------------- ----------------------------------
SS#: ___________________________ Anticipated Start Date: ____________________
<PAGE> 1
EXHIBIT 10.3
PICTURETEL CORPORATION
AMENDED 1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. Purpose. The purpose of this 1992 Non-Employee Directors' Stock Option
Plan (the "Plan") is to advance the interests of PictureTel Corporation (the
"Company") by enhancing the ability of the Company to attract and retain
non-employee directors who are in a position to make significant contributions
to the success of the Company and to reward directors for such contributions
through ownership of shares of the Company's Common Stock (the "Stock").
2. Administration. The Plan shall be administered by a committee (the
"Committee") of the Board of Directors (the "Board") of the Company designated
by the Board for that purpose. Unless and until a Committee is appointed, the
Plan shall be administered by the entire Board, and references in the Plan to
the "Committee" shall be deemed references to the Board. The Committee shall
have authority, not inconsistent with the express provisions of the Plan (a) to
issue options granted in accordance with the formula set forth in this Plan to
Eligible Directors as defined below; (b) to prescribe the form or forms of
instruments evidencing awards and any other instruments required under the Plan
and to change such forms from time to time; (c) to adopt, amend and rescind
rules and regulations for the administration of the Plan; and (d) to interpret
the Plan and to decide any questions and settle all controversies and disputes
that may arise in connection with the Plan. Such determinations of the Committee
shall be conclusive and shall bind all parties.
3. Eligibility of Directors for Stock Options. Directors of the Company
who are not employees of or consultants to the Company or any subsidiary of the
Company shall be eligible to participate in the Plan ("Eligible Directors").
4. Automatic Grant of Options; Exercise Price; Option Term. On the date an
individual is first elected as a Director of the Company, such director, if an
Eligible Director, shall be automatically granted an option to purchase 20,000
shares of Common Stock of the Company (subject to adjustment as provided in
Sections 5 and 10) (the "Initial Grant"). Formerly, the Initial Grant was 40,000
shares (after giving effect to the two-for-one stock split in November, 1995).
On August 1, 1996, an Eligible Director who has served as a Director for
more than two years prior to such date, shall be automatically granted an option
to purchase 20,000 shares of Common Stock of the Company, so long as such
individual is serving as a Director on the August 1, 1996 date.
On August 1 of each year, commencing August 1, 1997, an Eligible Director
shall automatically be granted an option to purchase 5,000 shares of Common
Stock of the Company (subject to adjustment as provided in Sections 5 and 10),
so long as such individual is serving as a Director on the applicable August 1
date, provided, however, that no such annual option shall be granted to an
Eligible Director who first became an Eligible Director of the Company within
less than six months prior to August 1 of said year.
All option grants shall be at an exercise price equal to the Fair Market
Value of the Common Stock on the effective date of the grant. All options shall
expire ten years after the effective date of the grant.
Options shall be non-incentive options or, if subsequently permitted by the
Internal Revenue Code of 1986, as amended, incentive or other options entitled
to special tax treatment.
5. Number of Shares. The number of shares of Stock of the Company which
may be issued upon the exercise of Options granted under the Plan, including
shares forfeited pursuant to Section 7, shall not exceed 430,000 in the
aggregate (options for 160,000 shares in the aggregate having been granted prior
to April 10, 1996, after giving effect to the two-for-one stock split in
November, 1995), subject to increase under Section 10, which increases and
appropriate adjustments as a result thereof shall be made by the Committee,
whose determination shall be binding on all persons.
6. Stock to be Delivered. Shares of Stock to be delivered pursuant to an
Option granted under this Plan may constitute an original issue of authorized
Stock or may consist of previously issued Stock acquired by the
<PAGE> 2
Company, as shall be determined by the Board. The Board and the proper officers
of the Company shall take any appropriate action required for such delivery. No
fractional shares shall be delivered under the Plan.
The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan (a) until all conditions of the Option have been satisfied, (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 NASDAQ or any other stock exchange, until the shares to be
delivered have been listed or authorized to be listed on NASDAQ or such other
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 Options, 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 Option is exercised by the Eligible Director'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.
7. Exercisability; Exercise; Payment of Exercise Price. All Options
granted under the Plan shall become exercisable 25% after one year from the
effective date of the grant and 6 1/4% after the end of each quarter thereafter
so that the Options are 100% exercisable four years from the effective date of
the grant.
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 as provided below for the
number of shares for which the Option is exercised.
The exercise price of 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) through the delivery of shares of Stock which
have been outstanding for at least six months and which have a Fair Market Value
on the last business day preceding the date of exercise equal to the exercise
price, or (3) by delivery of a promissory note of the Option holder to the
Company, with a maturity of five years (or earlier termination of service as a
director), interest at prime (or the equivalent) announced by Bank of Boston on
the exercise date and on such other terms as are customary for notes accepted
under other stock plans of the Company (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 (4) 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 (5) by any combination of the permissible forms of
payment.
To the extent shares of Stock covered under an Option are not delivered
because the Option lapses or is terminated, such forfeited shares may be
regranted in another Option within the limits set forth in Section 5.
8. Termination of Options.
a. If an Eligible Director ceases to be a director by reason of death or
total and permanent disability (as determined by the Committee), the following
will apply:
All Options held by the Eligible Director that are not exercisable on the
thirtieth day after termination of the Eligible Director's status as a director
will terminate as of such date. All Options that are exercisable as of said
thirtieth day will continue to be exercisable until the earlier of (1) the first
anniversary of the date on which the Eligible Director's status as a director
ended or (2) the date on which the Option would have terminated had the Eligible
Director remained a director. If the Eligible Director has died or is totally or
permanently disabled, the Option may be exercised within such limits by the
Eligible Director's legal representative.
b. If an Eligible Director's service with the Company terminates for any
reason other than death or incapacity as provided above, all options held by the
director that are not then exercisable shall terminate. Options that are
exercisable on the date of such termination (other than termination upon a
removal for cause,
<PAGE> 3
in which event all Options shall immediately terminate) shall continue to be
exercisable until the earlier of (1) three months thereafter or (2) the date on
which the Option would have terminated had the director remained an Eligible
Director, and after completion of that period, such Options shall terminate to
the extent not previously exercised, expired or terminated.
c. Certain Corporate Transactions. 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 sale or transfer of substantially all the Company's assets
or a dissolution or liquidation of the Company (a "covered transaction"), all
outstanding Options under the Plan will terminate as of the effective date of
the covered transaction, provided that each such outstanding Option not
otherwise exercisable shall become immediately exercisable in full 20 days prior
to the effective date thereof.
9. General Provisions
a. Documentation of Options. Options 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 an Eligible Director and
the Company, or certificates, letters or similar instruments, which need not be
executed by an Eligible Director but acceptance of which will evidence agreement
to the terms thereof.
b. Rights as a Stockholder. An option holder shall not have the rights of
a stockholder with respect to Options under the Plan except as to Stock actually
received by him or her under the Plan.
c. Tax Withholding. The Eligible Director or other appropriate person
shall 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 Eligible
Director 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.
d. Nontransferability of Options. No Option may be transferred other than
by will or by the laws of descent and distribution, and during a director's
lifetime an Option may be exercised only by the director (or, in the event of
the director's incapacity, the person or persons legally appointed to act on the
director's behalf).
10. 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 5 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 Options then outstanding or subsequently granted, exercise
prices relating to Options and any other provision of Options 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 by the Committee that adjustments are
appropriate to avoid distortion in the operation of the Plan.
11. 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 by the appropriate equivalent closing
price if the Stock is then listed on any stock exchange); or, if on any such a
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.
<PAGE> 4
12. Effective Date and Term. This Plan has an effective date of October
23, 1992, having been adopted by the Board of Directors on October 14, 1992 and
approved by the vote of stockholders at the Annual Meeting on June 10, 1993.
Options granted under the Plan prior to the date of such stockholder approval on
June 10, 1993 became effective on the effective date of grant. No Options may be
awarded under this Plan after October 1, 2002, but the Plan shall continue
thereafter while previously awarded Options remain subject to the Plan.
13. Effect of Termination, and Amendment. Neither adoption of the Plan nor
the grant of Options to an Eligible Director shall confer upon any person any
right to continued status as a director with the Company or any subsidiary or
affect in any way the right of the Company or subsidiary to terminate a director
relationship at any time or shall affect the Company's right to grant to such
director options or other stock awards that are not subject to the Plan, to
issue to such director stock as a bonus or otherwise, or to adopt other plans or
arrangements under which stock may be issued to directors. The Committee may at
any time terminate the Plan as to any further grants of Options. The Committee
may at any time or times amend the Plan for any purpose which may at the time be
permitted by law, but in no event (except to comply with the provisions of the
Internal Revenue Code, the Employee Retirement Income Security Act or the rules
thereunder) more than once in any six-month period.
The amendments adopted by the Board of Directors on April 10, 1996 shall
become effective on April 10, 1996, provided they are approved by vote of the
stockholders at the 1996 Annual Meeting.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
PICTURETEL'S BALANCE SHEET AND INCOME STATEMENTS FOR THE PERIOD ENDED 6/29/96
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 6/29/96 10-Q FILING.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-29-1996
<EXCHANGE-RATE> 1
<CASH> 45,490
<SECURITIES> 15,478
<RECEIVABLES> 113,311
<ALLOWANCES> (1,813)
<INVENTORY> 36,390
<CURRENT-ASSETS> 224,541
<PP&E> 86,995
<DEPRECIATION> (51,284)
<TOTAL-ASSETS> 315,607
<CURRENT-LIABILITIES> 76,390
<BONDS> 0
<COMMON> 334
0
0
<OTHER-SE> 227,457
<TOTAL-LIABILITY-AND-EQUITY> 315,607
<SALES> 221,083
<TOTAL-REVENUES> 221,083
<CGS> 114,452
<TOTAL-COSTS> 114,452
<OTHER-EXPENSES> 86,780
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,844
<INCOME-TAX> 7,887
<INCOME-CONTINUING> 15,957
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,957
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
