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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 QUARTER ENDED MARCH 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
FOR THE QUARTER ENDED MARCH 29, 1997 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>
(508) 292-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 6, 1997, there were issued and outstanding 34,155,994 shares of
common stock of the registrant.
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PICTURETEL CORPORATION
FORM 10-Q
INDEX
PART I. -- CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
March 29, 1997 and December 31, 1996........................................... 3
Consolidated Statements of Income
Three months ended March 29, 1997 and March 30, 1996........................... 4
Consolidated Statements of Cash Flows
Three months ended March 29, 1997 and March 30, 1996........................... 5
Notes to Consolidated Financial Statements..................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 7-9
</TABLE>
PART II. -- OTHER INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Legal Proceedings.............................................................. 10
Item 6. Exhibits and Reports on Form 8-K............................................... 10
Signatures............................................................................... 11
</TABLE>
2
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PICTURETEL CORPORATION
CONSOLIDATED BALANCE SHEETS
($000'S)
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 35,397 $ 62,957
Marketable securities.............................................. 54,489 38,918
Accounts receivable less allowance for doubtful accounts of $2,972
and $3,284...................................................... 139,335 147,350
Inventories, net (Note 2).......................................... 57,391 43,320
Deferred taxes, net................................................ 6,152 5,950
Other current assets............................................... 14,754 5,506
-------- --------
Total current assets....................................... 307,518 304,001
Marketable securities.............................................. -- 9,118
Deferred taxes, net................................................ 5,088 5,088
Property and equipment, net........................................ 43,229 44,217
Capitalized software costs, net (Note 3)........................... 7,626 6,832
Other assets....................................................... 6,620 6,791
-------- --------
Total assets............................................... $ 370,081 $376,047
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings.............................................. $ 299 $ 519
Accounts payable................................................... 45,915 53,329
Accrued compensation and benefits.................................. 8,379 8,906
Accrued expenses................................................... 22,409 17,897
Current portion of capital lease obligations....................... 3,095 3,294
Deferred revenue................................................... 18,768 19,110
-------- --------
Total current liabilities.................................. 98,865 103,055
Long-term borrowings............................................... 4,558 9,242
Capital lease obligations.......................................... 4,019 4,692
STOCKHOLDERS' EQUITY:
Preference stock, $.01 par value; 15,000,000 shares authorized;
none issued..................................................... -- --
Common stock, $.01 par value; 80,000,000 shares authorized;
34,153,421 and 34,036,186 shares issued and outstanding at March
29, 1997 and December 31, 1996, respectively.................... 342 341
Additional paid-in capital......................................... 198,203 196,249
Retained earnings.................................................. 65,270 62,195
Cumulative translation adjustment.................................. (1,689) (615)
Unrealized gain on marketable securities, net...................... 513 888
-------- --------
Total stockholders' equity................................. 262,639 259,058
-------- --------
Total liabilities and stockholders' equity................. $ 370,081 $376,047
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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PICTURETEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
($000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
MARCH 29, MARCH 30,
1997 1996
--------- ---------
<S> <C> <C>
Revenues............................................................. $ 118,222 $ 105,001
Cost of sales........................................................ 62,368 54,109
-------- --------
Gross margin......................................................... 55,854 50,892
Operating expenses:
Selling, general and administrative............................. 33,328 27,738
Research and development........................................ 19,457 13,924
-------- --------
Total operating expenses................................... 52,785 41,662
-------- --------
Income from operations............................................... 3,069 9,230
Interest income, net................................................. 938 1,077
Other income, net.................................................... 723 677
-------- --------
Income before taxes.................................................. 4,730 10,984
Provision for income taxes........................................... 1,655 3,515
-------- --------
Net income........................................................... $ 3,075 $ 7,469
======== ========
Net income per common and common equivalent share.................... $ 0.09 $ 0.21
======== ========
Weighted average common and common equivalent shares outstanding..... 35,562 36,115
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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PICTURETEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000'S)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 29, MARCH 30,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 3,075 $ 7,469
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization...................................... 6,277 4,545
Deferred taxes, net................................................ (202) 152
Other non-cash items............................................... -- (195)
Changes in operating assets and liabilities:
Accounts receivable.............................................. 8,015 (5,622)
Inventories...................................................... (14,071) 539
Other assets..................................................... (9,400) (4,838)
Accounts payable................................................. (7,414) 4,075
Accrued compensation and benefits and accrued expenses........... 2,600 6,625
Income taxes, net................................................ 1,385 242
Deferred revenue................................................. (342) (3,309)
------- -------
Net cash provided by (used in) operating activities..................... (10,077) 9,683
------- -------
Cash flows from investing activities:
Purchase of marketable securities.................................. (10,253) (11,321)
Proceeds from marketable securities................................ 3,425 9,770
Additions to property and equipment................................ (3,760) (10,077)
Capitalized software costs......................................... (1,840) (1,348)
Purchase of other assets........................................... (148) --
------- -------
Net cash used in investing activities................................... (12,576) (12,976)
Cash flows from financing activities:
Change in short-term borrowings.................................... (220) (16)
Payments on long-term borrowings................................... (4,684) (2,535)
Principal payments under capital lease obligations................. (872) (721)
Proceeds from exercise of stock options............................ 368 3,538
Proceeds from stock purchase plan.................................. 1,099 883
------- -------
Net cash provided by (used in) financing activities..................... (4,309) 1,149
Effect of exchange rate changes on cash................................. (598) 204
------- -------
Net decrease in cash and cash equivalents............................... (27,560) (1,940)
Cash and cash equivalents at beginning of period........................ 62,957 39,476
------- -------
Cash and cash equivalents at end of period.............................. $35,397 $37,536
======= =======
Supplemental cash flow information:
Interest paid...................................................... $ 290 $ 158
Income taxes paid.................................................. $ 890 $ 584
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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PICTURETEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) MANAGEMENT'S REPRESENTATION
As permitted by the rules of the Securities and Exchange Commission
applicable to Quarterly Reports on Form 10-Q, these notes are condensed and do
not contain all the disclosures required by generally accepted accounting
principles. Reference should be made to the consolidated financial statements
and related notes included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, as filed with the Securities and Exchange
Commission on March 28, 1997.
In the opinion of the management of PictureTel Corporation, the
accompanying consolidated financial statements contain all adjustments
(consisting of only normal, recurring adjustments) necessary to present fairly
the Company's financial position at March 29, 1997 and the results of operations
and changes in cash flows for the three months ended March 29, 1997.
The results disclosed in the Consolidated Statements of Income for the
three months ended March 29, 1997 are not necessarily indicative of the results
to be expected for the full year.
(2) INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Purchased Parts............................... $ 8,118 $ 6,409
Work in Process............................... 2,859 2,018
Finished Goods................................ 46,414 34,893
------- -------
$57,391 $43,320
======= =======
</TABLE>
(3) CAPITALIZED SOFTWARE COSTS
Amortization of software costs totaled $1,046,000 and $801,000 for the
quarters ended March 29, 1997 and March 30, 1996, respectively.
(4) LITIGATION
In December 1993, PictureTel was sued by Datapoint Corporation in the
United States District Court for the Northern District of Texas. Datapoint
alleges that certain of the Company's products infringe patent rights allegedly
owned by Datapoint. The complaint seeks approximately $51 million in damages for
alleged past infringement and an injunction against alleged future infringement.
The Company believes that it has meritorious defenses to the allegations of the
complaint, and is vigorously defending against the lawsuit.
In the fall of 1995, the Court appointed a Special Master to consider the
Company's motion for summary judgment of non-infringement. The Special Master
recommended that the motion for summary judgment be denied. On September 16,
1996, the Court adopted the Special Master's claim construction of the Datapoint
patents and denied PictureTel's summary judgment motion. A trial date has been
set for October 6, 1997. The parties are completing discovery.
In the event the Company is found to be infringing a valid patent or
patents, the Company could be required to pay damages for past infringement and
cease the sale of products incorporating the infringing feature (or be required
to take a license and pay royalties with respect to such patents). While there
can be no assurance that the Company will prevail, the Company believes that it
is unlikely that the outcome of the lawsuit would have a material adverse effect
on the business or the financial position, results of operations and cash flows
of the Company.
(5) SUBSEQUENT EVENT
On April 15, 1997, the Company entered into an agreement and plan of merger
to acquire MultiLink, Inc. Under the terms of the agreement, each share of
MultiLink common stock will be exchanged for .56 of a share of PictureTel Common
Stock. Outstanding options to purchase MultiLink stock will be converted at the
exchange ratio into PictureTel options. The merger is intended to be accounted
for as a pooling of interests, and the consummation is subject to satisfaction
of closing conditions.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of revenues for certain items in the Company's Statement of Income for each
period:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 29, MARCH 30,
1997 1996
--------- ---------
<S> <C> <C>
Revenues.......................................... 100% 100%
Cost of sales..................................... 52.8 51.5
Gross margin...................................... 47.2 48.5
Selling, general and administrative............... 28.2 26.4
Research and development.......................... 16.4 13.3
Total operating expenses.......................... 44.6 39.7
Income from operations............................ 2.6 8.8
Interest income, net.............................. 0.8 1.0
Other income, net................................. 0.6 0.6
Income before taxes............................... 4.0 10.4
Provision for income taxes........................ 1.4 3.3
Net income........................................ 2.6 7.1
</TABLE>
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 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, 1996. Subsequent to the end of the first quarter, the Company
entered into an agreement to acquire MultiLink Inc., a leading supplier of
multipoint audioconferencing systems. As with acquisitions generally, there are
risks in the assimilation of the operations, technologies and products of the
MultiLink business.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 29, 1997 COMPARED TO THREE MONTHS ENDED MARCH 30, 1996
REVENUES. The Company's revenues increased $13,221,000, or 13%, in the
three month period ended March 29, 1997 compared to the comparable period in
1996. 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 group systems, as
well as a shift in distribution channel mix with approximately 85% of product
revenue now coming from the indirect channels compared with 76% for the
comparable period in 1996. Videoconferencing system sales accounted for
approximately 83% of the Company's revenues for both the three month period
ended March 29, 1997 and the comparable period in 1996. Sales of group and
desktop videoconferencing products accounted for 74% and 9%, respectively, of
revenues for the three month period ended March 29, 1997, compared with 64% and
19%, respectively, for the comparable period in 1996. Personal desktop product
revenue declined during the three month period ended March 29, 1997 from the
comparable period in 1996 due to the unexpected slowdown in the desktop
videoconferencing market, as well as a shift in sales from the higher margin
products to the lower margin products. In addition, sales of bridge products
accounted for approximately 8% of the Company's revenues for both the three
month period ended March 29, 1997 and the comparable period in 1996. The balance
of the revenues for the three month period ended March 29, 1997 and the
comparable period in 1996 were primarily from maintenance services,
licensing/development agreements and the sales of stand-alone codecs and video
modems. The Company's revenues were lower than expected for the three month
period ended March 29, 1997 due to lower than expected volume in desktop
7
<PAGE> 8
videoconferencing unit sales and a change in the mix of group system sales,
with the lower margin compact systems selling rather than the larger group
systems, which have a higher margin.
The Company's revenues from sales to foreign markets were approximately
$57,909,000 for the three month period ended March 29, 1997 compared to
approximately $50,610,000 for the comparable period in 1996 representing 49% and
48%, 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 $4,962,000 or 10%, in
the three month period ended March 29, 1997 compared to the comparable period in
1996. Gross margin as a percentage of revenues was 47% for the three month
period ended March 29, 1997 compared to 48% for the comparable period in 1996.
Gross margin as a percentage of revenues decreased as a result of a change in
the mix of group systems sales, a reduction in the average selling price of
videoconferencing systems and the increased percentage of volume through the
indirect channels. The latter two trends are expected to continue and may impact
future gross margins.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $5,590,000 or 20% from the comparable period in 1996 and
increased as a percentage of revenues to 28% from 26%. The dollar increase in
spending resulted primarily from the worldwide marketing focus associated with
expanding indirect channels and from 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. The Company will monitor expenses in relation to revenue and will take
action to reduce the ratio of expenses to revenue for the remainder of the year.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$5,533,000, or 40% for the three month period ended March 29, 1997 from the
comparable period in 1996 and were 16% and 13%, respectively, for the three
month period ended March 29, 1997 and the comparable period in 1996. Research
and development expenditures, prior to the capitalization of software costs,
were $21,298,000 for the three month period ended March 29, 1997 and $15,309,000
for the comparable period in 1996 or 18% 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 will monitor expenses in relation to
revenue and will take action to reduce the ratio of expenses to revenue for the
remainder of the year. The Company capitalized software costs of $1,840,000 for
the three month period ended March 29, 1997 and $1,348,000 for the comparable
period in 1996 representing 9% of aggregate research and development
expenditures, respectively.
OPERATING INCOME. Operating income as a percentage of revenues decreased
70% from 9% to 3% as a result of the foregoing factors.
NET INTEREST INCOME (EXPENSE). Net interest income decreased to $938,000
for the three month period ended March 29, 1997 from $1,077,000 for the
comparable period in 1996. The decrease was primarily the result of lower
average marketable securities portfolio balances and the shift to short-term
maturities which have lower yields.
OTHER INCOME, NET. Other income, net of $723,000 for the three month
period ended March 29, 1997 consists primarily of net gains on foreign currency
transactions and net gains on sales of securities. Other income (expense) of
$677,000 for the comparable period in 1996 consists primarily of net gains on
sales of securities.
INCOME TAXES. The Company's effective tax rate for the three month period
ended March 29, 1997 and the comparable period in 1996 was 35% and 32%,
respectively. The rate for the three month period ended March 29, 1997 was equal
to the federal statutory rate primarily due to the benefits of the research and
development credits and the Company's foreign sales corporation offset by state
and foreign taxes.
8
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LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1997 the Company had $35,397,000 in cash and cash equivalents
and $54,489,000 in short-term marketable securities. During the three month
period ended March 29, 1997 the Company used $10,077,000 in cash from operating
activities. The primary use of cash during the three month period ended March
29, 1997 was to fund the net growth in inventory. The increase in inventory
resulted from an unexpected revenue shortfall for the three month period ended
March 29, 1997.
The Company has available for borrowing up to $40,000,000 under its
revolving credit agreement and approximately $4,400,000 available under local
foreign guaranteed lines of credit to certain of its foreign subsidiaries. At
March 29, 1997 there was $4,558,000 in debt and $18,243,000 in standby letters
of credit outstanding under the revolving credit agreement and $299,000
outstanding under the foreign lines of credit. At March 29, 1997, the Company
had $7,114,000 outstanding under various leasing lines.
The Company believes that funds from operations, equipment lease financing,
available 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.
NEWLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("SFAS 128"), "Earnings per Share," which is effective for fiscal years
ending after December 15, 1997, including interim periods. SFAS 128 requires the
presentation of basic and diluted earning per share (EPS). Basic EPS, which
replaces primary EPS, excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS under the existing rules. SFAS 128 requires
restatement of all prior-period earnings per share data presented after the
effective date. The Company will adopt SFAS 128 in 1997 and has not yet
determined the impact of adoption.
9
<PAGE> 10
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
In December 1993, PictureTel was sued by Datapoint Corporation in the
United States District Court for the Northern District of Texas. Datapoint
alleges that certain of the Company's products infringe patent rights allegedly
owned by Datapoint. The complaint seeks approximately $51 million in damages for
alleged past infringement and an injunction against alleged future infringement.
The Company believes that it has meritorious defenses to the allegations of the
complaint, and is vigorously defending against the lawsuit.
In the fall of 1995, the Court appointed a Special Master to consider the
Company's motion for summary judgment of non-infringement. The Special Master
recommended that the motion for summary judgment be denied. On September 16,
1996, the Court adopted the Special Master's claim construction of the Datapoint
patents and denied PictureTel's summary judgment motion. A trial date has been
set for October 6, 1997. The parties are completing discovery.
In the event the Company is found to be infringing a valid patent or
patents, the Company could be required to pay damages for past infringement and
cease the sale of products incorporating the infringing feature (or be required
to take a license and pay royalties with respect to such patents). While there
can be no assurance that the Company will prevail, the Company believes that it
is unlikely that the outcome of the lawsuit would have a material adverse effect
on the business or the financial position, results of operations and cash flows
of the Company.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
10.10 Agreement between PictureTel Corporation and David Grainger dated August 10,
1994 (filed herewith)
10.13.1 Separation agreement between PictureTel Corporation and Khoa Nguyen dated
September 13, 1996 (filed herewith)
10.14.1 Amendment No. 1 to Lease for 100 Minuteman, dated as of July 10, 1996 (filed
herewith)
10.14.2 Amendment No. 2 to Lease for 100 Minuteman, dated as of August 19, 1996 (filed
herewith)
10.15.1 Amendment No. 1 to Lease with Andover Mills Realty Partnership, dated as of
October 10, 1995 (filed herewith)
10.15.2 Amendment dated as of May 28, 1996 to Lease with Andover Mills Realty
Partnership (filed herewith)
11 Calculation of Earnings per Share (filed herewith)
21.1 Subsidiaries of the Company (filed herewith)
</TABLE>
(b) Reports on Form 8-K
None
10
<PAGE> 11
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 13, 1997
11
<PAGE> 1
EXHIBIT 10.10
August 10, 1994
Mr. David Grainger
336 Lexington Road
Concord, MA 01742
Dear David:
PictureTel Corporation is pleased to offer you an opportunity to join our
Company as Vice President of World Wide Services reporting directly to me. You
will be compensated for this position at the semi-monthly rate of $6666.67.
(This is equivalent to $160,000 annually based on 24 pay periods.) In this
position you will be eligible to participate in the Management Incentive Program
with a bonus of 0-40% (contingent upon Company and individual performance.) You
will also receive a sign-on bonus in the amount of $30,000 in 1994, payable
within 30 days of your start date, and $20,000 payable in June, 1995.
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 presented for recommendation will be for 30,000 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 date on which the Stock Option Committee
of the Board of Directors approves the option.
Hiring bonus payments are considered forfeit and fully refundable to the Company
if you voluntarily terminate your employment within one year of receipt.
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 daycare and
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 premium for the disability and life insurance are paid 100%
by PictureTel.
Finally, we offer a 401(k) Plan and a Tuition Reimbursement Program. You will be
entitled to vacation, holiday and sick days according to PictureTel policy.
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.
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. Orientation is normally scheduled for 8:30
A.M. on Mondays.
I understand you are available to begin your employment with PictureTel on
September 6, 1994, and I look forward to you joining our team. 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 and Inventions Agreement. Return all
documents
<PAGE> 2
according to the instruction sheet enclosed in this offer package. Feel free to
call if you have any questions.
Very Truly Yours,
/s/ Norman E. Gaut
Norman E. Gaut
President and CEO
ACCEPTED: /s/ David W. Grainger
---------------------------
Date: 8/14/94
---------------------------
Anticipated start Date:
-------------
<PAGE> 1
EXHIBIT 10.13.1
September 13, 1996
Mr. Khoa Nguyen
11200 Morning Glory Trail
Austin, TX 78750
Dear Khoa:
In accordance with earlier discussions, you are hereby formally
notified that as of August 30, 1996 your employment with PictureTel Corporation
("Company") terminated ("Termination Date"). Your termination has been
determined to be for reasons other than cause, death, or disability for purposes
of the Severance Pay and Severance Period as defined below. You rejected the
Company's separation offers dated August 7 and September 3, 1996. Those offers
are hereby rescinded and withdrawn.
As you are aware, your employment with the Company and your Proprietary
Information and Inventions Agreement dated December 22, 1992 ("Confidentiality
Agreement") obligate you, among other things, not to disclose or use any
confidential or proprietary information of the Company ("Confidential
Information") acquired as a result of your employment with the Company. By way
of illustration, but not limitation, Confidential Information includes trade
secrets, processes, formulae, data and know-how, improvements, inventions,
techniques, marketing plans, strategies, forecasts, customer lists, and employee
lists, except to the extent it is publicly known from sources who have neither
misappropriated such information nor breached any obligation of confidentiality
to the Company. Further, such information, knowledge and know-how possessed by
you prior to your entering employment with the Company shall be excluded from
Confidential Information.
You hereby confirm that you have complied with the provisions of the
Proprietary Information and Inventions Agreement dated December 22, 1992.
In addition to the confidentiality provisions, the Confidentiality
Agreement provides that for a period of one year after termination, you will not
directly or indirectly solicit or cause others to solicit Company employees for
competitive employment. Further, it provides that you will return to the Company
all documents and data of any nature pertaining to your work and take no copies
of Confidential Information with you upon your departure.
The complete terms and conditions of your separation are set forth in
this letter.
1. Effective as of the Termination Date, you will cease to hold the
position of Vice President, Chief Technology Officer and you will resign as an
Officer of the Company. As you know the Company delayed the announcement of your
departure because I believed you would sign the earlier separation offers. The
announcement will now be made promptly.
2. From and after the Termination Date, you will continue to receive
your current bi-weekly base salary of $7,500.00 (equal to $195,000.00 annualized
at twenty-six (26) pay periods per year) ("Severance Pay") for a consecutive
twelve (12) month period ("Severance Period"). Further, your accrued and unused
vacation hours as of the Termination Date will be paid in a lump sum as soon as
possible following the Termination Date. You have already received the first
payment in September.
3. With respect to the stock options granted to you under the
PictureTel Corporation Equity Incentive Plan, all vesting will cease as of the
Termination Date and the rights to exercise those option shares vested as of the
Termination Date will terminate three (3) months after such Termination Date.
4. All outstanding claims for business expenses incurred should be
submitted to me as soon as possible. You will immediately return all Company
office keys, access cards, credit cards and other Company property in your
possession to Larry Bornstein.
5. The Company is hereby exercising its rightful claim to any Company
telephony equipment currently installed in your Austin home and will expect the
return of such equipment as soon as practical following the Termination Date.
Please contact Larry Bornstein to arrange for the return of the equipment to the
Company.
<PAGE> 2
6. The Promissory Note executed by you (and spouse) dated September 21,
1993 ("Note") obligates you (and spouse) to pay the Company the principal sum of
$300,000 (as reduced by $50,000, $25,000 on each of the first two anniversaries
of the Note) upon the Maturity Date. The Maturity Date is so defined in the Note
to include, among other things, the date your employment with the Company ceases
for any reason. Therefore, pursuant to the terms of the Note, you must pay to
the order of the Company the then reduced principal sum of $250,000 on the
Termination Date. Failure to pay the principal amount on or about August 30,
1996 will be an Event of Default as defined in the covenants of the Note.
However, the Company will allow you to repay the above due amount within thirty
(30) days of the date of this letter without triggering the Event of Default.
7. Effective as of the Termination Date, your participation and
eligibility for life, disability and accident insurance benefits under Company
plans will cease. You may continue your participation in the Company's medical
and dental plans for up to a total of eighteen (18) months pursuant to your
rights under the Consolidated Budget Reconciliation Act ("COBRA") or until you
become eligible for coverage under another plan, whichever is less. During the
month immediately following the Termination Date, you will receive the materials
and information necessary to enroll in the COBRA coverage. If you elect to
continue coverage pursuant to your COBRA rights, you will be responsible for
paying the full cost of the coverage.
8. Effective as of the Termination Date, your participation in
PictureTel 401(k) Retirement Plan will cease. During the month following the
Termination Date, you will receive detail information relative to the
distribution of your current fund balances.
9. Your termination does not impair or otherwise limit your rights
following the Termination Date to indemnification under the terms of the
Indemnity Agreement between you and the Company dated January 4 1993, the
Company's articles of incorporation or its bylaws.
To acknowledge receipt hereof, kindly sign the original and a copy of
this letter where indicated and return the copy to me immediately. If you have
any questions regarding the this letter, please feel free to call either me or
Larry Bornstein.
Sincerely,
PICTURETEL CORPORATION
/s/ Norman Gaut
- - --------------------------------------
Acknowledged:
----------------
Norman Gaut Khoa Nguyen
President, Chief Executive Officer Date:
-----------------
<PAGE> 1
EXHIBIT 10.14.1
AMENDMENT #1 TO LEASE
(100 MINUTEMAN)
1. PARTIES.
This Amendment, dated as of July 10, 1996, is between 100 Minuteman
Limited Partnership ("Landlord") and PictureTel Corporation ("Tenant").
2. RECITALS.
2.1. Landlord and Tenant have entered into a Lease, dated October 10,
1995, for improved property located at 100 Minuteman Drive, Andover, MA. This
Lease, together with all amendments thereto, collectively is called the "Lease."
Unless otherwise defined, terms used herein have the same meanings as those used
in the Lease.
2.2 Landlord and Tenant wish to amend the Lease. To accomplish this,
for good and valuable consideration, the receipt and sufficiency of which is
acknowledged, the parties agree and the Lease is amended as follows:
3. AMENDMENTS.
3.1 The size and configuration of the land leased by Tenant as part of
the Premises and upon which the Building is located has been (or shortly will
be) changed. Accordingly, Exhibit "A" (Project Site Plan) and Exhibit "B" (Legal
Description of Premises) are deleted, and Exhibit "A" and Exhibit "B,"
respectively, attached hereto and incorporated by this reference, are
substituted therefor.
3.2 The Commencement Date under the Lease is agreed to be July 1,
1996.
3.3 In Section 1.3 of the Lease, the phrase "and parking and
associated improvements for the 1776 Premises in accordance with easements to be
granted to 1776 Limited Partnership (the "1776 Easements")" is deleted, and the
following is substituted therefor:
", drainage, utilities and services (including cabling), and
associated improvements in accordance with easements that are
or may be granted for adjacent properties,"
3.4 Tenant's Cancellation Option is terminated and is null and
void, and Section 4(b) of the Lease is deleted and null and void.
3.5 The first sentence of Section 4(a) and the entire Section 4(c)
of the Lease are deleted and null and void, and the following is substituted for
the first sentence of Section 4(a):
"(a) This Lease is effective as of the date first set forth
above, and the term begins on the first Occupancy Date for a
Phase and ends on September 1, 2014, unless terminated earlier
or extended in accordance with this Lease."
3.6 The address to which rent should be paid and notices delivered
to Landlord is changed to "The Plaza at Continental Park, Suite 5252, 2101
Rosecrans Avenue, El Segundo, California 90245-4709."
3.7 In Section 6.4 of the Lease, Tenant's right to contest Taxes
with the appropriate governmental authorities is subject to the terms of the
pre-existing agreement entered into by Landlord and Digital Equipment
Corporation with respect to the tax fiscal years ending June 30, 1995 and June
30, 1996.
<PAGE> 2
3.8 [INTENTIONALLY OMITTED]
3.9 The phrase "located in Massachusetts" is deleted from Section
18.5(b) on page 40 of the Lease.
3.10 Notwithstanding anything to the contrary, Tenant agrees that
the Subordination, Non-Disturbance and Attornment Agreement attached as Exhibit
"JJ", and incorporated herein by this reference complies with all of the
requirements of Section 19.1 of the Lease, and on Landlord's request Tenant will
execute and deliver that document (or if requested a document that materially
substantially conforms thereto or to Exhibit "J").
3.11 Tenant acknowledges having received from Landlord a copy of
the Mortgage Loan Commitment, dated as of May 9, 1996, pursuant to which AEGON
committed to fund to Landlord a $15 Million permanent mortgage loan (the "AEGON
Loan") to be secured by the Premises, among other security. Tenant agrees that
the AEGON Loan and Landlord's existing mortgage loan from Mellon Bank (the
"Mellon Loan") are permitted financings that comply with the terms of Sections
19.4(a) and (b) of the Lease and are not "Unpermitted Financing" as defined in
that Section.
3.12 Each loan obtained from time to time by Landlord in compliance
with the Lease which is secured by the Letter of Credit (other than the Mellon
Loan) sometimes is referred to as the "Letter of Credit Loan." The lender of the
initial Letter of Credit Loan is intended to be The Bank of Nova Scotia for an
amount of approximately $9.5 Million. Notwithstanding Section 24.17, on the
repayment of the Mellon Loan, the release of the Letter of Credit by Mellon Bank
and Landlord's obtaining the Letter of Credit Loan, the terms of the Letter of
Credit will be changed as follows:
(a) The initial face amount of the Letter of Credit will
be reduced to $9.5 Million.
(b) The beneficiary of the Letter of Credit will be
issued (or reissued) in favor of the lender from time to time of the Letter of
Credit Loan.
(c) Until and unless the Letter of Credit is drawn upon,
starting as of the applicable date in Section 24.17(b) of the Lease, the face
amount of the Letter of Credit shall be reduced in an amount equal to the annual
principal reduction that would result from a direct reduction loan amortization
schedule, assuming an interest rate equal to the interest rate used to calculate
principal amortization under the Letter of Credit Loan (such schedule to be
provided by the lender of the Letter of Credit Loan), which will have the effect
of reducing the Letter of Credit to zero over the initial Lease term, as such
term may be extended pursuant to Section 4(c) of the Lease. In addition, the
phrase "twenty (20) days" in the last sentence of Section 24.17(b) is deleted
and "thirty (30) days" is substituted therefor.
(d) The aggregate term of the Letter of Credit will be
extended so that it expires at the scheduled expiration date of the initial
Lease term.
(e) Exhibit "M" to the Lease and the first paragraph of
Section 24.17(f) of the Lease will be deemed deleted and null and void, and
Exhibit "M" attached hereto and incorporated herein by this reference, and the
first paragraph of Section 24.17(f) as set forth below, respectively, will be
deemed substituted into the Lease:
"(f) In addition to the other circumstances set
forth in this Lease pursuant to which the beneficiary
of the Letter of Credit may draw thereunder,
beneficiary may draw under the Letter of Credit in
accordance with the terms of Exhibit `M' or terms
substantially similar thereto."
~6~
<PAGE> 3
4. NO OTHER CHANGES.
Except as set forth above, the Lease remains unchanged and in full
force and effect.
IN WITNESS WHEREOF, intending to be legally bound, the parties have
executed this Amendment as of the date in Article 1 above.
100 MINUTEMAN LIMITED PARTNERSHIP
By: Niuna-Minuteman, Inc., its general partner
By:
Martin Spagat, Vice President
Authorized Signature
PICTURETEL CORPORATION
By:
Name:
Title:
Authorized Signature
By:
Name:
Title:
Authorized Signature
~7~
<PAGE> 4
EXHIBIT "DD"
BASE RENT DURING EXTENSION OPTIONS
This Exhibit will become effective only when and if one of the
Signature Events occurs.
If one of the Signature Events occurs, the annual base rent for each
year of each Extension Option will be the greater of: the scheduled annual base
rent under the Lease for the year immediately preceding the applicable Extension
Option term (without giving effect to any abatements or reductions in that
rent); or the "Fair Rental Value" of the Premises determined as follows
separately for each Extension Option:
(a) If Landlord and Tenant can't agree on the annual base rent
for each Lease Year of the applicable Extension Option term at least eight (8)
months before the beginning of that Extension Option term, then unless otherwise
agreed in writing by Landlord and Tenant, Landlord and Tenant will try to agree
in writing on a single appraiser at least seven (7) months before the beginning
of that Extension Option term. If Landlord and Tenant can't agree on a single
appraiser within this time period, then Landlord and Tenant each will appoint,
in writing, one appraiser not later than six (6) months before the beginning of
the that Extension Option term. Within fifteen (15) days after their
appointment, the two appointed appraisers will appoint a third appraiser. If the
two appraisers can't agree, a third appraiser will be appointed by the American
Institute of Real Estate Appraisers (or if this organization refuses to act or
no longer exists, then by an organization deemed by Landlord to be reasonably
equivalent) not later than five (5) months before the beginning of that
Extension Option term. If either Landlord or Tenant fails to appoint its
appraiser within the prescribed time period, the single appraiser appointed will
determine the Fair Rental Value. If both parties fail to appoint appraisers
within the prescribed time periods, then the first appraiser validly appointed
by a party will determine the Fair Rental Value. Appraisers must have at least
five (5) years' experience in the appraisal of office property in the area in
which the Premises is located and be members of professional organizations such
as the American Institute of Real Estate Appraisers or the equivalent.
Landlord and Tenant will instruct the appraiser(s) to complete
and submit their determination of the Fair Rental Value not later than four (4)
months before the beginning of that Extension Option term.
(b) For purposes of this Lease, the term "Fair Rental Value"
means: the annual net base rent that a ready and willing tenant would pay for
the Premises during each year of that Extension Option term to a ready and
willing landlord of the Premises, assuming that a market-rate construction
allowance was granted to such tenant and taking into account free parking and
other economic benefits of this Lease in determining that rent, and assuming
that the Premises was exposed for lease on the open market for a reasonable
period of time, could be used for any lawful use and was improved to its
then-existing level. If only a single appraiser is appointed as described above,
then that appraiser will determine the Fair Rental Value. Otherwise, the Fair
Rental Value will be the arithmetic average of the two (2) of the three (3)
appraisals which are closest in amount, and the third appraisal will be
disregarded.
(c) If for some reason the Fair Rental Value is not determined
before the beginning of that Extension Option period, then Tenant will pay to
Landlord base rent at the scheduled rate most recently payable until the Fair
Rental Value is determined. When the Fair Rental Value is determined, Landlord
will notify Tenant, and Tenant will pay to Landlord, within thirty (30) days
after receipt of such notice, any difference between the base rent actually paid
by Tenant to Landlord and the new base rent determined hereunder (if the new
base rent is higher).
~8~
<PAGE> 5
EXHIBIT "M"
The Bank of Nova Scotia, as beneficiary under the Letter of Credit, may
draw under the Letter of Credit from time to time on one or more occasions on
the occurrence of an "Event of Default" as defined in that certain Loan
Agreement, and any amendments thereto, between Landlord and The Bank of Nova
Scotia.
~9~
<PAGE> 1
EXHIBIT 10.14.2
AMENDMENT #2 TO LEASE
(100 MINUTEMAN)
1. PARTIES.
This Amendment, dated as of August 19, 1996, is between 100 Minuteman
Limited Partnership ("Landlord") and PictureTel Corporation ("Tenant").
2. RECITALS.
2.1. Landlord and Tenant have entered into a Lease, dated October 10,
1995, for improved property located at 100 Minuteman Drive, Andover, MA. This
Lease, together with all amendments thereto, collectively is called the "Lease."
Unless otherwise defined, terms used herein have the same meanings as those used
in the Lease.
2.2 Landlord and Tenant wish to amend the Lease. To accomplish this,
for good and valuable consideration, the receipt and sufficiency of which is
acknowledged, the parties agree and the Lease is amended as follows:
3. AMENDMENTS.
3.1 Section 10(c) of the Lease is deleted.
3.2 In Section 17(c) of the Lease, the phrase "MUTATIS MUTANDIS,"
is added after the phrase "Section 16.1," in the sixth line thereof, and in the
last sentence thereof, the phrase ", Taxes and Operating Costs" is deleted.
3.3 In Section 24.1, the phrase "tenancy at sufferance" is
substituted for the phrase "tenancy at will" in the eighth line from the end of
that Section.
3.4 Exhibit "L" to the Lease, which is a copy of a $10 Million
Promissory Note, dated July 10, 1996, executed by Landlord in favor of Tenant
and attached to Amendment #1 to Lease (the "Existing Note"), is deleted and is
replaced by Exhibit "L" attached hereto and incorporated herein by this
reference. The original of the Existing Note, which Landlord executed and
delivered to Tenant pursuant to the provisions of the Lease, is hereby deemed
amended to conform to Exhibit "L" hereto. Landlord will execute and deliver to
Tenant a new $9.5 Million Promissory Note on the terms of Exhibit "L" hereto
(the "New Note"), and upon such delivery Tenant will surrender the original of
the Existing Note to Landlord and the Existing Note will be deemed cancelled and
terminated.
3.5 In Section 3 of Addendum #3 to the Lease, the phrase "any of
Landlord's" is substituted for the phrase "Landlord or any of its" in the fifth
and sixth lines thereof.
3.6 In Addendum #3 to the Lease, the phrase "and still is in full
force and effect" is added after the words "validly elected" in the second line
of Section 4(c) and the fifth line of Section 5(a).
3.7 In Section 1(b)(iii) of Addendum #5 to the Lease, the word
"this" is added before the word "Addendum" in the second line thereof.
3.8 In Section 1(b) on Page 2 of Addendum #5 to the Lease, "(b)"
is changed to "(c)" at the beginning of the paragraph, and the phrase "the
exercise of its rights hereunder or" in the eighth and ninth lines thereof is
deleted.
3.9 In Section 5(a) of Addendum #5 to the Lease, the phrase "the
exercise of Tenant's rights hereunder or" is deleted.
3.10 In Section 5(b) of Addendum #5 to the Lease, the phrase "and
is still in full force and effect" is added after the word "elected" in the
second line thereof.
~10~
<PAGE> 2
3.11 In Section 7 of Addendum #5 to the Lease, the phrase "or the
Lease expires or terminates" is added after the phrase "rest of the Lease" in
the second line thereof, and at the end of that Section the phrase "or from the
date that Tenant validly elects the No-sale Election until the end of the 18th
Lease Year." is substituted for the phrase "or if Tenant has validly elected the
No-sale Election."
~11~
<PAGE> 3
4. NO OTHER CHANGES.
Except as set forth above, the Lease remains unchanged and in full
force and effect.
IN WITNESS WHEREOF, intending to be legally bound, the parties have
executed this Amendment as of the date in Article 1 above.
100 MINUTEMAN LIMITED PARTNERSHIP PICTURETEL CORPORATION
By: Niuna-Minuteman, Inc., its general partner By:
Name:
Title:
By: Authorized Signature
--------------------------------------
John Kusmiersky, President
By:
Name:
Title:
Authorized Signature
~12~
<PAGE> 1
EXHIBIT 10.15.1
AMENDMENT # 1 TO LEASE
1. PARTIES.
This Amendment dated as of October 10, 1995, is between Andover Mills
Realty Limited Partnership ("Landlord") and PictureTel Corporation
("Tenant").
2. RECITALS.
2.1 Landlord and Tenant entered into a Lease, dated February 10,
1994 (as amended, the "Lease"), for space in the project known
as Brickstone Square in Andover, Massachusetts. Unless
otherwise defined, terms used in the Amendment have the same
meanings as those used in the Lease.
2.2 Tenant wishes to terminate its rights under the Lease to lease
additional space in the Building and to modify its rights to
extend the term of the Lease. To accomplish these and certain
other matters, for a good valuable consideration, the receipt
and sufficiency of which is acknowledged, the parties agree
and the Lease is amended as follows:
3. AMENDMENTS.
3.1 Articles 27 and 28 of the Lease (which are incorporated into
Addendum #1 to the Lease) are deleted and of no force and
effect.
3.2 Addendum #2 to the Lease is deleted and Addendum #2 attached
hereto and incorporated herein by this reference is
substituted in its place.
Except as set forth above, the Lease remains unchanged and in full
force and effect.
IN WITNESS WHEREOF, intending to be legally bound, the parties have executed
this Amendment as of the date first set forth above.
"LANDLORD"
ANDOVER MILLS REALTY LIMITED
PARTNERSHIP, a Massachusetts
limited partnership
WITNESS:________________________________ By: Niuna-Andover, Inc., a
Name Printed: Martin Spagat Massachusetts corporation,
a general partner
By: ____________________________
John Kusmiersky, President
"TENANT"
~13~
<PAGE> 2
PICTURETEL CORPORATION, a Delaware
corporation
WITNESS:________________________________ By: ____________________________
Name Printed: William D. Krasnow Name: Lawrence M. Bornstein
Title: Vice President
Authorized Signature
WITNESS:________________________________ By: ____________________________
Name Printed: Thomas M. Zimmer Name: Les B. Strauss
Title: Secretary
Authorized Signature
ADDENDUM #2
EXTENSION OPTIONS
This Addendum in incorporated into the Lease.
1. Landlord grants to Tenant six (6) options (the "Options") to extend the
Lease term for additional terms of one (1) year each on the same terms
and conditions as this Lease, except that there will be no further
right to extend and except as set forth below. The Options can be
exercised only by Tenant delivering unconditional written notice of
exercise to Landlord at least nine (9) months before the expiration of
the then-current term. If for ANY REASON Landlord does not actually
receive this unconditional written notice of exercise when required,
the Option will lapse and be void and there will be no further right to
extend the Lease term. If Tenant does not validly exercise all
preceding Options (if any), all subsequent Options will lapse and
become null and void. The Options are personal to the Tenant originally
named in this Lease and may not be exercised by or for anyone else
(except for assignees permitted under Section 18.5 (c)). The rights
granted pursuant to this Addendum and the ability to exercise the
Options also are subject to the terms of Section 18.5 (d). The Options
are granted to and may be exercised by Tenant on the express condition
that, at the time of the exercise and at all times before the beginning
of the Option period, Tenant is not in default (and has not committed
acts which would constitute a default with the passage of time or the
giving of notice). TIME IS ABSOLUTELY OF THE ESSENCE.
2. For purposes of identification in this Addendum, the Premises are
divided into four separate areas (the "Areas") as shown in Exhibit
"2AAA" attached to this Addendum, consisting of Area A (36,392 square
feet of rentable area) and Area B (29,894 square feet of rentable area)
on the second floor of the Building, and Area C (36,392 square feet of
rentable area) and Area D (29,894 square feet of rentable area) on the
third floor of the Building. Notwithstanding Section 1 above, each time
Tenant validly exercises an Option to extend the Lease terms it also
may elect NOT to extend the Lease term with respect to one or more of
the Areas. Tenant may elect to exercise the right only if
~14~
<PAGE> 3
Tenant unconditionally designates the Areas(s) that Tenant does NOT
wish to include as part of the Lease extension in a valid Option
exercise notice. Each such designation will be irrevocable and each
Area so designated is called a "Terminated Area."
3. If and only if an Area is designated as a Terminated Area as part of a
valid Option exercise notice as described in Section 2 above, then as
of the date that the Lease extension term for that Option begins:
(a) The Lease will be deemed to have terminated and expired with
respect to that Terminated Area and Tenant shall have vacated
and surrendered possession of that Terminated Area in the
manner and in the condition required by the Lease as if the
Lease had otherwise expired in accordance with its terms, and
the Premises no longer include that Terminated Area.
(b) The base rent payable by Tenant, Tenant's Percentage and the
parking spaces allocated to Tenant under the Lease shall be
reduced in proportion to the reduction in the rentable area of
the Premises resulting from the deletion of that Terminated
Area from the Premises.
4. Subject to Section 3 (b) above, the annual base rent for each Lease
Year of each Option period will be as set forth in Exhibit "D" attached
to the Lease.
~15~
<PAGE> 1
EXHIBIT 10.15.2
AMENDMENT TO LEASE
1. PARTIES.
This Amendment dated as of May 28, 1996, is between Andover Mills
Realty Limited Partnership ("Landlord") and PictureTel Corporation
("Tenant").
2. RECITALS.
2.1 Landlord and Tenant have entered into a Lease, dated February
10, 1994, as amended, for space at Brickstone Square in
Andover, Massachusetts (the "Lease"). Unless otherwise
defined, terms used in the Amendment have the same meanings as
those used in the Lease.
2.2 Tenant wants to lease space on the fourth (4th) floor of the
Building (the "New Space"), which is depicted in Exhibit "BBB"
attached hereto and incorporated herein by this reference, and
is agreed to contain 29,979 square feet of rentable area. To
accomplish these and other matters, for Ten and NO/100 dollars
($10.00) and other good valuable consideration, the receipt
and sufficiency of which is acknowledged, the parties agree
and the Lease is amended as follows, notwithstanding in the
Lease anything to the contrary:
3. AMENDMENTS.
3.1 "New Space Term" means the period starting on June 1, 1996,
and ending on the earliest of: June 30, 1999; the termination
of the Lease in accordance with its terms; or the termination
of the Lease with respect to the New Space in accordance with
the terms of this Amendment. Provided that all existing leases
of any portion of the New Space have terminated and all
existing tenants have vacated and surrendered possession of
those areas, Tenant may have access to the New Space before
the beginning of the "New Space Term" for the purpose of
performing Tenant Improvements. Beginning as of the date of
the first such entry by Tenant or its contractors or
personnel, all of the terms of the Lease will apply with
respect to the New Space and such entry and activities
thereon, except for Tenant's obligation to pay base rent,
Taxes and Operating Costs, which will begin as of the
beginning of the New Space Term as described below.
During the New Space Term: Tenant will lease, and the Premises
subject to the Lease will deemed to include, the New Space;
the base rent payable for the New Space will be $7.50 per
annum per square foot of agreed rentable area in the New Space
(i.e., $224,842.50 per annum), payable monthly in the same
manner and at the same times as the base rent for the rest of
the Premises; and Tenant will pay 3.19% of Taxes and Operating
Costs (and its pro rata share of Building Operating Costs
based on the rentable area of the New Space per Section 7.3 of
the Lease) allocable to the New Space Term without any
reference to or credit or
~16~
<PAGE> 2
deduction for "Base Year Taxes" or "Base Year Operating
Costs," in addition to its share of Taxes and Operating Costs
for the rest of the Premises.
3.2 Provided Tenant is not then in default (and has not committed
acts or omissions which with the giving of notice or the
passage to time would constitute a default), Tenant may
terminate the Lease with respect to the New Space effective as
of September 1, 1997, or October 1, 1997, or November 1, 1997,
in each case on at least four (4) months' prior written notice
to Landlord.
3.3 On or before the termination date of the Lease with respect to
the New Space, Tenant will vacate and surrender the New Space,
remove all of its personal property, repair any damage caused
by Tenant to the New Space and return the New Space to a
condition at least as good as the condition it was in as of
the date hereof.
3.4 Except as specifically set forth in this Section 3.4, Landlord
will not be required to pay for or perform any work to or for
the benefit of the New Space, and any required work and any
certificates of occupancy or other approval required for
occupancy of the New Space (if any) shall be Tenant's sole
responsibility and cost, and Tenant will indemnify, defend and
hold Landlord and its Affiliates harmless from all costs,
claims, liabilities and obligations (including, without
limitation, attorney's fees and costs) in connections with
obtaining or failing to obtain such certificates or other
approvals and for any acts or omissions by Tenant or its
contractors or subcontractors in connection with such work.
Within thirty (30) days after Tenant takes occupancy of the
New Space and pays its first month's rent for the New Space,
Landlord will pay to Tenant $29,979 as a tenant allowance for
work to be performed by Tenant in and for the New Space.
3.5 The parties confirm that the Amendment between Tenant and
Landlord as of October 19, 1995, pursuant to which Tenant now
leases a portion of the New Space, was extended through May
31, 1996, when it will expire and be completely superseded by
this Amendment.
4. NO OTHER CHANGES.
The Lease is in full force and effect, and except as set forth above
the Lease remains unchanged.
IN WITNESS WHEREOF, intending to be legally bound, the parties have executed
this Amendment under seal as of the date first set forth above.
PICTURETEL CORPORATION
WITNESS: _____________________________ By: ______________________________
Name Printed: Norman E. Gaut Name: Lawrence M. Bornstein
~17~
<PAGE> 3
Title: Vice President
Authorized Signatory
ANDOVER MILLS REALTY LIMITED
PARTNERSHIP, a Massachusetts
limited partnership
WITNESS: _____________________________ By: Niuna-Andover, Inc.,
Name Printed: Carolyn Grover a general partner
By: ______________________________
Name: Martin Spagat
Title: Vice President
Authorized Signatory
~18~
<PAGE> 1
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
March 29, March 30,
1997 1996
--------- ---------
(In thousands, except per share amounts)
<S> <C> <C>
CALCULATION OF EARNINGS PER SHARE:
PRIMARY:
Weighted average common shares outstanding during the period.................. 34,068 32,816
Dilutive effect of stock options using the treasury stock method.............. 1,494 3,299
--------------------------------
Total common equivalent shares............................................ 35,562 36,115
--------------------------------
Net income.................................................................... $ 3,075 $ 7,469
Net income per share.......................................................... $ 0.09 $ 0.21
FULLY DILUTED:(1)
Weighted average common shares outstanding during the period.................. 34,068 32,816
Diluted effect of stock options using the treasury stock method............... 1,494 3,299
--------------------------------
Total common equivalent shares............................................ 35,562 36,115
--------------------------------
Net income.................................................................... $ 3,075 $ 7,469
Net income per share.......................................................... $ 0.09 $ 0.21
</TABLE>
- - -------------
(1) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by Footnote 2 to Paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
STATE OR OTHER JURISDICTION OF
NAME OF SUBSIDIARY INCORPORATION OR ORGANIZATION
PictureTel Securities Corporation Massachusetts
PictureTel International Corporation Delaware
PictureTel Technology Corporation Delaware
PictureTel Service Corporation Delaware
PicTel Videoconferencing Systems Corporation Delaware
PictureTel Australia Pty. Ltd. Australia
PictureTel International Ltda. Brazil
PictureTel GmbH Germany
PictureTel Italy S.r.l. Italy
PictureTel Japan, KK. Japan
PictureTel Mexico S.A. de C.V. Mexico
PictureTel Service Ltd. Pte. Singapore
PictureTel Scandinavia AB Sweden
PictureTel (Schweiz) AG Switzerland
PictureTel UK Limited United Kingdom
PictureTel FSC, Ltd. United States Virgin Islands
All the subsidiaries are wholly owned (except for directors' qualifying
shares in certain countries), either directly or indirectly, by the company and
may do business under their own name as well as the name PictureTel Corporation
~19~
<TABLE> <S> <C>
<ARTICLE> 5 <LEGEND>
This schedule contains summary financial information extracted from PictureTel's
Balance Sheet & Income Statement for the period ended March 29, 1997 and is
qualified in its entirety by reference to such 10Q filing.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-29-1997
<EXCHANGE-RATE> 1
<CASH> 35,397
<SECURITIES> 54,489
<RECEIVABLES> 142,307
<ALLOWANCES> (2,972)
<INVENTORY> 57,391
<CURRENT-ASSETS> 307,518
<PP&E> 106,925
<DEPRECIATION> (63,696)
<TOTAL-ASSETS> 370,081
<CURRENT-LIABILITIES> 98,865
<BONDS> 0
0
0
<COMMON> 342
<OTHER-SE> 262,297
<TOTAL-LIABILITY-AND-EQUITY> 370,081
<SALES> 118,222
<TOTAL-REVENUES> 118,222
<CGS> 62,368
<TOTAL-COSTS> 62,368
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 938
<INCOME-PRETAX> 4,730
<INCOME-TAX> 1,655
<INCOME-CONTINUING> 3,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,075
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
