-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DeG+WGxOogjQepGgROEdak0AN1hHirLuAGmBb0xkzZkAKRKW2Dq4VHAid/2qHPSU JT15IKJAHF6GjkK0icCdiA== 0000950135-98-003208.txt : 19980514 0000950135-98-003208.hdr.sgml : 19980514 ACCESSION NUMBER: 0000950135-98-003208 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980329 FILED AS OF DATE: 19980513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PICTURETEL CORP CENTRAL INDEX KEY: 0000755095 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 042835972 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09434 FILM NUMBER: 98618390 BUSINESS ADDRESS: STREET 1: 100 MINUTEMAN RD CITY: ANDOVER STATE: MA ZIP: 01810 BUSINESS PHONE: 5087625000 MAIL ADDRESS: STREET 1: 222 ROSEWOOD DR CITY: DANVERS STATE: MA ZIP: 01923 FORMER COMPANY: FORMER CONFORMED NAME: PICTEL CORP DATE OF NAME CHANGE: 19870505 10-Q 1 PICTURTEL CORPORATION 1 ================================================================================ 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 (AMENDED) FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1998 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, 1998 COMMISSION FILE NUMBER 1-9434 PICTURETEL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 04-2835972 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 100 MINUTEMAN ROAD, ANDOVER, MA. 01810 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: 978-292-5000 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 May 5, 1998, there were issued and outstanding 38,313,321 shares of common stock of the registrant. ================================================================================ 2 PICTURETEL CORPORATION FORM 10-Q INDEX PART I. CONSOLIDATED FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheets March 29, 1998 and December 31, 1997....................................................... 2 Consolidated Statements of Operations Three months ended March 29, 1998 and March 29, 1997....................................... 3 Consolidated Statements of Cash Flows Three months ended March 29, 1998 and March 29, 1997....................................... 4 Notes to Consolidated Financial Statements................................................... 5-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................... 10-16 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................................................ 17 Item 6. Exhibits and Reports on Form 8-K............................................................. 18 Signatures.............................................................................................. 19
1 3 PICTURETEL CORPORATION CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
MARCH 29, DECEMBER 31, 1998 1997 --------- ------------ ASSETS Current assets: Cash and cash equivalents................................. $ 38,913 $ 49,859 Marketable securities..................................... 43,546 32,152 Accounts receivable less allowance for doubtful accounts of $7,573 and $6,315 in 1998 and 1997, respectively.... 101,545 108,729 Inventories, net (Note 3)................................. 43,074 44,901 Deferred taxes, net....................................... 16,499 15,615 Other current assets...................................... 7,995 6,803 -------- -------- Total current assets.............................. 251,572 258,059 Deferred taxes, net....................................... 16,106 16,106 Property and equipment, net............................... 68,421 69,103 Capitalized software costs, net........................... 3,387 2,368 Other assets.............................................. 9,514 9,415 -------- -------- Total assets...................................... $349,000 $355,051 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings (Note 7)............................ $ 934 $ 186 Accounts payable.......................................... 27,750 30,169 Accrued compensation and benefits......................... 10,871 10,551 Accrued expenses.......................................... 36,572 37,207 Current portion of capital lease obligations.............. 3,665 3,426 Deferred revenue.......................................... 22,106 23,547 -------- -------- Total current liabilities......................... 101,898 105,086 Capital lease obligations................................. 21,343 22,000 Commitments and contingencies (Notes 6 and 7)............... Stockholders' equity: Preference stock, $.01 par value; 15,000,000 shares authorized; none issued................................... -- -- Common stock, $.01 par value; 80,000,000 shares authorized; 38,271,702 and 38,040,363 shares issued and outstanding in 1998 and 1997, respectively............................... 382 380 Additional paid-in capital.................................. 205,742 204,242 Retained earnings........................................... 23,260 25,425 Cumulative translation adjustment........................... (3,621) (2,077) Unrealized loss on marketable securities, net............... (4) (5) -------- -------- Total stockholders' equity........................ 225,759 227,965 -------- -------- Total liabilities and stockholders' equity........ $349,000 $355,051 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 2 4 PICTURETEL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED ----------------------- MARCH 29, MARCH 29, 1998 1997 --------- ---------- (RESTATED) Revenues: Product revenues.......................................... $ 86,940 $110,398 Service revenues.......................................... 14,105 11,537 -------- -------- Total revenues.................................... $101,045 $121,935 Cost of revenues: Product cost of revenues.................................. 43,348 54,072 Service cost of revenues.................................. 11,810 9,126 -------- -------- Total cost of revenues............................ 55,158 63,198 -------- -------- Gross margin................................................ 45,887 58,737 Operating expenses: Selling, general and administrative....................... 32,810 36,265 Research and development.................................. 16,899 20,934 -------- -------- Total operating expenses.......................... 49,709 57,199 -------- -------- Income (loss) from operations............................... (3,822) 1,538 Interest income, net........................................ 448 891 Other income, net........................................... 325 404 -------- -------- Income (loss) before income tax expense (benefit)........... (3,049) 2,833 Income tax expense (benefit)................................ (884) 822 -------- -------- Net income (loss)........................................... $ (2,165) $ 2,011 ======== ======== Net income (loss) per common share -- basic:................ $ (0.06) $ 0.05 ======== ======== Net income (loss) per common share -- diluted:.............. $ (0.06) $ 0.05 ======== ======== Weighted average shares outstanding -- basic:............... 38,092 37,265 ======== ======== Weighted average shares outstanding -- diluted:............. 38,092 39,178 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 3 5 PICTURETEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED ----------------------- MARCH 29, MARCH 29, 1998 1997 --------- ---------- (RESTATED) Cash flows from operating activities: Net income (loss)......................................... $ (2,165) $ 2,011 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization.......................... 5,741 6,809 Other non-cash items................................... 616 (833) Changes in operating assets and liabilities: Accounts receivable.................................... 7,184 8,008 Inventories............................................ 327 (15,457) Other current assets................................... (1,192) (9,441) Accounts payable....................................... (2,419) (6,484) Accrued compensation and benefits and accrued expenses.............................................. (315) 4,467 Deferred revenue....................................... (1,441) 626 -------- -------- Net cash provided by (used in) operating activities......... 6,336 (10,294) Cash flows from investing activities: Purchase of marketable securities......................... (36,615) (10,253) Proceeds from marketable securities....................... 25,221 3,425 Additions to property and equipment....................... (4,620) (5,076) Capitalized software costs................................ (1,457) (1,840) Purchase of other assets.................................. (99) (345) -------- -------- Net cash used in investing activities....................... (17,570) (14,089) Cash flows from financing activities: Net proceeds from foreign lines of credit................. 748 3,003 Payments on long-term borrowings.......................... -- (4,684) Principal payments under capital lease obligations........ (418) (1,269) Proceeds from exercise of stock options................... 624 397 Proceeds from stock purchase plan......................... 878 1,587 -------- -------- Net cash provided by (used in) financing activities......... 1,832 (966) Adjustment to conform fiscal year of MultiLink.............. -- 394 Effect of exchange rate changes on cash..................... (1,544) (1,075) -------- -------- Net decrease in cash and cash equivalents................... (10,946) (26,030) Cash and cash equivalents at beginning of period............ 49,859 63,333 -------- -------- Cash and cash equivalents at end of period.................. $ 38,913 $ 37,303 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 6 PICTURETEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 1997, as filed with the Securities and Exchange Commission on March 31, 1998. In the opinion of the management of PictureTel Corporation, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal, recurring adjustments, except as discussed in Note 2 to Notes to Consolidated Financial Statements) necessary to present fairly the Company's financial position at March 29, 1998 and the results of operations and changes in cash flows for the three months ended March 29, 1998. The results disclosed in the Consolidated Balance Sheets at March 29,1998 and the Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the three months ended March 29, 1998 are not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As a result of the ongoing evaluation of the business and future spending levels, the financial statements include significant estimates of the net realizable value of accounts receivable, inventory and capitalized software as well as the future tax benefit of deferred tax assets and the amount of certain contingent liabilities. Actual results could differ from those estimates. The financial statements and footnotes included in this Form 10-Q reflect the restatement of financial results described in Note 2 to Notes to Consolidated Financial Statements. 2. RESTATEMENT OF FINANCIAL STATEMENTS On September 19, 1997, after the Company's reexamination (with assistance from its outside auditors) of leasing and other indirect channel transactions, the Company announced that it would reverse revenue related to certain of these transactions and, as a result, the Company intended to restate its financial statements for the third and fourth quarters of 1996 and the first quarter of 1997. On November 13, 1997, after completion of its reexamination, the Company announced that it would also restate the second quarter of 1997. The restatements were required to reverse product sales recorded which contained rights of return, contingent liabilities, payment contingencies, payment uncertainties or product sales for which delivery did not occur at the end of the period. The restatements were also required to record such product sales in the period in which the rights of return lapsed, contingencies or uncertainties were resolved, or delivery was completed. Certain transactions which were reversed have not been re-recorded as revenues in later periods. The financial statements and related notes to consolidated financial statements set forth in this Form 10-Q reflect the restatements that were made on Form 10-Q/A for the three month period ended March 29, 1997 as filed with 5 7 PICTURETEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the Securities and Exchange Commission on January 13, 1998. A summary of the impact of the restatements for the three months ended March 29, 1997 is as follows:
THREE MONTHS ENDED MARCH 29, 1997 ---------------------- PREVIOUSLY AS REPORTED RESTATED ---------- -------- ($000'S) Revenues............................................... $123,618 $121,935 Gross margin........................................... 59,267 58,737 Income before taxes.................................... 3,764 2,833 Income tax expense..................................... 1,270 822 Net income............................................. 2,494 2,011 Net income per common and common equivalent share...... $ 0.06 $ 0.05 Total assets........................................... $388,911 $384,852 Total liabilities...................................... $116,480 $117,067 Total stockholders' equity............................. $272,431 $267,785
3. INVENTORIES Inventories consist of the following (in thousands):
MARCH 29, DECEMBER 31, 1998 1997 --------- ------------ Purchased Parts...................................... $ 4,110 $ 2,983 Work in Process...................................... 3,398 2,128 Finished Goods....................................... 35,566 39,790 ------- ------- $43,074 $44,901 ======= =======
4. EARNINGS PER SHARE The following table reconciles the numerator and the denominators of the basic and diluted EPS computations shown on the Consolidated Statements of Operations (in thousands, except per share data):
FOR THE THREE MONTHS ENDED MARCH 29, --------------------- 1998 1997 ------- ---------- (RESTATED) BASIC EPS COMPUTATION: Numerator: Net income (loss)..................................... ($2,165) $ 2,011 ======= ======= Denominator: Weighted average common shares outstanding............ 38,092 37,265 Basic EPS............................................... $ (0.06) $ 0.05 ======= =======
6 8 PICTURETEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 29, --------------------- 1998 1997 ------- ---------- (RESTATED) DILUTED EPS COMPUTATION: Numerator: Net income (loss)..................................... ($2,165) $ 2,011 ======= ======= Denominator: Weighted average common shares outstanding............ 38,092 37,265 Stock options......................................... -- 1,913 ------- ------- Total Shares.......................................... 38,092 39,178 ======= ======= Diluted EPS............................................. $ (0.06) $ 0.05 ======= =======
Options to purchase shares of the Company's common stock at March 29, 1998 were outstanding during the year but were not included in the computation of diluted EPS because they were antidilutive due to the net loss sustained in the three month period ended March 29, 1998. 5. COMPREHENSIVE INCOME (LOSS) In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." This statement requires that changes in comprehensive income be shown in a financial statement that is displayed with the same prominence as other financial statements. The statement is effective for fiscal years beginning after December 15, 1997. The Company adopted the interim reporting requirements in the first quarter of fiscal year 1998 and will adopt the annual reporting requirements in the fourth quarter of fiscal year 1998. Total comprehensive loss for the period ended March 29, 1998 was $3,710,000 and total comprehensive income for the comparable period in 1997 was $561,000. The components of other comprehensive income are foreign currency translation adjustments and unrealized gains and losses on marketable securities. 6. LITIGATION A. Datapoint Litigation In December 1993, PictureTel was sued by Datapoint Corporation in the United States District Court for the Northern District of Texas. Datapoint alleged that certain of PictureTel's products infringed patent rights allegedly owned by Datapoint. Datapoint had been joined as plaintiff by John Frassanito and David Monroe, two individuals who claimed to have rights to Datapoint's patents. The plaintiffs sought approximately $100-190 million in damages for alleged past infringement and an injunction against alleged future infringement. On April 9, 1998, a jury returned a verdict in favor of PictureTel finding that PictureTel did not infringe the Datapoint patents and that the Datapoint patent claims raised against PictureTel were invalid. On April 29, 1998 Datapoint filed an appeal. The Company plans to file a cross-appeal. B. Shareholder Litigation Since September 23, 1997, seven class action shareholders' complaints have been filed against the Company, Norman E. Gaut, Chairman of the Board and former Chief Executive Officer, and Les Strauss, the former Vice President and Chief Financial Officer, in the United States District Court for the District of Massachusetts. The plaintiffs, who brought these actions on behalf of themselves and others similarly situated, are: (1) Faith Egli, Civil Action No. 97-12135-DPW; (2) Jerome H. Lipman, IRA, Civil Action No. 97-12238-DPW; (3) Daniel Frucher, Civil Action No. 97-12310-DPW; (4) Edmond J. Proulx and 7 9 PICTURETEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) James Harris, Civil Action No. 97-12345-DPW; (5) Marvin Barab and Thomas J. Curley, Civil Action No. 97-12338-DPW; (6) Mark Szen and Nancy Szen, Civil Action No. 97-12439-DPW; and (7) Michael D. Kugler, Civil Action No. 97-12537 PBS. These plaintiffs filed a consolidated complaint on February 11, 1998, encaptioned In re PictureTel Corporation Securities Litigation, Civil Action No. 97-12135-DPW. The original Complaints were filed following the Company's announcement on September 19, 1997 that it would restate its financial results for the first quarter of fiscal 1997 and the last two quarters of fiscal 1996 and were amended when the Company announced that it would also restate the second fiscal quarter of 1997 on November 13, 1997. The consolidated Complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and Rule 10b-5, promulgated thereunder, during the period from October 17, 1996 through November 13, 1997, through the alleged preparation and dissemination of materially false and misleading financial statements which artificially inflated the prices of PictureTel common stock. The consolidated Complaint seeks to recover an unspecified amount of damages, including attorneys' and experts' fees and expenses. The Company is currently investigating the allegations in the consolidated Complaint and will respond to the allegations in a timely fashion when responses become due. No discovery has occurred and the Company expresses no opinion as to the likely outcome. C. NV Holdings, Inc. On February 13, 1998, NV Holdings, Inc., filed a complaint in the State District Court for Dallas county, Texas, NV Holdings, Inc. v. PictureTel Corporation, Cause No. DF 98-01404 alleging against PictureTel tortious interference with both business advantage and existing contracts, as well as business disparagement and slander. While the plaintiff has listed no specific damages they are seeking an injunction and $20,000,000 in punitive damages. The Company believes that it has meritorious defenses to the allegations of the complaint filed against it and is vigorously defending against the lawsuit and pursuing recovery under the following actions filed by the Company. The Company has filed two separate actions against parties that are believed, by the Company, to be related to NV Holdings, Inc.: (1) (PictureTel Corporation v. NV Technologies, Inc. d/b/a NuVision Technologies, Inc., et al, Civil Action No. 98-337A, filed February 17, 1998, for False Advertising and Unfair Business Practices). On February 23, 1998, the court issued a preliminary injunction against NuVision Technologies, Inc., and all persons acting in concert, participation or combination with them, prohibiting them from continuing to publish a certain advertisement that the Company alleges is false and misleading. As of March 9, 1998, the advertisement in question had continued to be published and the Company is aggressively pursuing its legal remedies; and (2) (PictureTel Corporation v. NV Technologies d/b/a NuVision Technologies, Inc., Civil action No. 98-166-C, filed January 23, 1998, for Breach of Contract), seeking the repayment of approximately $4,000,000 from NuVision Technologies, Inc. Limited discovery has begun with regard to the enforcement of the preliminary injunction, however, the Company expresses no opinion as to the likely outcome of any of these matters. 7. DEBT The Company has available 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, 1998, there were no borrowed amounts outstanding under the revolving credit agreement and $29,100,000 in standby letters of credit outstanding under the revolving credit agreement. There was $934,000 outstanding under the foreign lines of credit. At March 29, 1998, the Company had $25,008,000 outstanding under various leasing lines including the obligation for the lease of the facility at 50 Minuteman Road in Andover which was $20,659,000 at March 29, 1998. 8 10 PICTURETEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The revolving credit agreement is secured by cash and marketable securities and contains certain financial covenants, including the maintenance of certain ratios including total liabilities to tangible net worth and minimum net income (loss) requirements. The Company was in compliance with all covenants for the quarter ending March 29, 1998. 9 11 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 Operations for each period:
THREE MONTHS ENDED ----------------------- MARCH 29, MARCH 29, 1998 1997 --------- ---------- (RESTATED) Revenues............................................... 100.0% 100.0% Cost of revenues....................................... 54.6 51.8 Gross margin........................................... 45.4 48.2 Selling, general and administrative.................... 32.5 29.7 Research and development............................... 16.7 17.2 Total operating expenses............................... 49.2 46.9 Income (loss) from operations.......................... (3.8) 1.3 Interest income, net................................... 0.5 0.7 Other income, net...................................... 0.3 0.3 Income (loss) before taxes............................. (3.0) 2.3 Income tax expense (benefit)........................... (0.9) 0.7 Net income (loss)...................................... (2.1) 1.6
FORWARD-LOOKING STATEMENTS This document includes forward-looking statements about the Company's business, revenues and expenses, effective tax rate, and operating and capital requirements. Forward-looking statements made or incorporated by reference herein are not guarantees of future performance. In addition, forward-looking statements may be included in various other PictureTel documents to be issued in the future and in various oral statements by PictureTel representatives to security analysts and investors from time to time. Any forward-looking statements are subject to risks that could cause the actual results to vary materially. Such risks are discussed below ("Risk Factors Which May Affect Future Results") and in related portions of this document. BUSINESS DEVELOPMENTS On September 19, 1997, after the Company's reexamination (with assistance from its outside auditors) of leasing and other indirect channel transactions, the Company announced that it would reverse revenue related to certain of these transactions and, as a result, the Company intended to restate its financial statements for the third and fourth quarters of 1996 and the first quarter of 1997. On November 13, 1997, after completion of its reexamination, the Company announced that it would also restate the second quarter of 1997. The restatements were required to reverse product sales recorded which contained rights of return, contingent liabilities, payment contingencies, payment uncertainties, or product sales for which delivery did not occur at the end of the period. The restatements were also required to record such product sales in the period in which the rights of return lapsed, contingencies or uncertainties were resolved, or delivery was completed, if at all. Certain transactions which were reversed have not been re-recorded as revenues in later periods. The financial statements and related notes to consolidated financial statements set forth in this Form 10-Q reflect the restatements that were made on Form 10-Q/A for the three month period ended March 29, 1997 as filed with the Securities and Exchange Commission on January 13, 1998. RESULTS OF OPERATIONS Three Months Ended March 29, 1998 Compared to Three Months Ended March 29, 1997 REVENUES. The Company's revenues decreased $20,890,000, or 17%, in the three month period ended March 29, 1998 compared to the comparable period in 1997. The decrease in revenue was primarily a result of 10 12 lower unit volumes and the reduction in the average selling price of videoconferencing systems compared with the comparable period in 1997. Sales of group and desktop videoconferencing products accounted for 69% and 7%, respectively, of revenues for the three month period ended March 29, 1998, compared with 70% and 9%, respectively, for the comparable period in 1997. Personal desktop product revenue declined during the three month period ended March 29, 1998 from the comparable period in 1997 due to the lower unit volumes and the reduction in average selling prices. In addition, sales of bridge products accounted for approximately 10% and 11% of the Company's revenues for the three month period ended March 29, 1998 and the comparable period in 1997, respectively. Revenues from service and maintenance agreements increased $2,568,000 or 22% for the period ended March 29, 1998 compared with the comparable period in 1997. Service revenues totaled 14% and 10% of total revenues for the period ended March 29, 1998 and the comparable period in 1997, respectively. The Company's revenues from sales to foreign markets were approximately $48,113,000 for the three month period ended March 29, 1998 compared to approximately $57,909,000 for the comparable period in 1997 representing 48% and 47% of total revenues, respectively. The decrease in international revenues is a result of lower unit volumes and the reduction in average selling prices. The Company expects that international revenues will continue to account for a significant portion of total revenues. GROSS MARGIN. The Company's gross margin decreased $12,850,000 or 22%, in the three month period ended March 29, 1998 compared to the comparable period in 1997. Gross margin as a percentage of revenues was 45% for the three month period ended March 29, 1998 compared to 48% for the comparable period in 1997. Gross margin as a percentage of revenues decreased as a result of a reduction in the average selling price of videoconferencing systems, lower unit volumes and a change in the mix of sales of videoconferencing products and service and maintenance agreements. The reduced average selling prices are expected to continue and may impact future gross margins. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses decreased $3,455,000 or 10% from the comparable period in 1997 but increased as a percentage of revenues to 33% from 30%. The dollar decrease in spending resulted primarily from efforts to reduce the Company's cost structure which began during in the last two quarters of fiscal 1997. RESEARCH AND DEVELOPMENT. Research and development expenses decreased $4,035,000, or 19% for the three month period ended March 29, 1998 from the comparable period in 1997 and were 17% of revenues for both the three month period ended March 29, 1998 and the comparable period in 1997. Research and development expenditures, prior to the capitalization of software costs, were $18,356,000 for the three month period ended March 29, 1998 and $22,774,000 for the comparable period in 1997 or 18% and 19% of revenues, respectively. The Company capitalized software costs of $1,457,000 for the three month period ended March 29, 1998 and $1,840,000 for the comparable period in 1997 representing 8% of aggregate research and development expenditures for both the three month period ended March 29, 1998 and the comparable period in 1997. The Company reduced the level of research and development investment during the first quarter of fiscal 1998 from the comparable period in 1997 and continues to evaluate the scope and direction of various programs. There can be no assurance that management's initiatives to focus its efforts on the costs of research and development will be successful or that any technologies will be ultimately successfully commercialized. OPERATING INCOME (LOSS). Operating income (loss) as a percentage of revenues decreased from income of 1% of revenues for the period ended March 29, 1997 to a loss of 4% of revenues for the period ended March 29, 1998. The operating loss was impacted primarily by the lower revenue and lower gross margin as discussed above. NET INTEREST INCOME. Net interest income decreased to $448,000 for the three month period ended March 29, 1998 from $891,000 for the comparable period in 1997. The decrease was primarily the result of higher interest expense resulting from capital lease obligations and lower average marketable securities balances. OTHER INCOME, NET. Other income, net of $325,000 and $404,000 for the three month period ended March 29, 1998 and the comparable period in 1997, respectively, consists primarily of net gains on foreign currency transactions and net gains on sales of securities. 11 13 INCOME TAXES. The Company's effective tax rate for the three month period ended March 29, 1998 and the comparable period in 1997 was 29%. The effective tax rate for the three month period ended March 29, 1998 rate differs from the federal statutory rate due to state and foreign taxes offset by research and development tax credits and an increase to the valuation allowance related to certain current and prior year tax credits and net operating losses whose benefits are uncertain. The effective tax rate for the three month period ended March 29, 1997 was lower than the federal statutory rate primarily due to the benefits of the research and development credits, the foreign sales corporation and a decrease in the valuation allowance. At March 29, 1998, the realization of the net deferred tax asset is dependent on generating sufficient taxable income in future periods. The amount of the deferred tax asset considered realizable could be significantly or completely reduced. Although realization is not assured, management believes it is more likely than not that the net deferred tax asset will be realized. The valuation allowance primarily offsets the deferred benefit of certain federal and state tax credit carryforwards whose benefit is uncertain. The Company will continue to assess the valuation of the deferred tax asset each quarter. LIQUIDITY AND CAPITAL RESOURCES At March 29, 1998 the Company had $38,913,000 in cash and cash equivalents and $43,546,000 in short-term marketable securities. During the three month period ended March 29, 1998 the Company generated $6,336,000 in cash from operating activities. The primary source of cash during the three month period ended March 29, 1998 was the collection of accounts receivable. The Company has available 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, 1998, there were no borrowed amounts outstanding under the revolving credit agreement and $29,100,000 in standby letters of credit outstanding under the revolving credit agreement. There was $934,000 outstanding under the foreign lines of credit. At March 29, 1998, the Company had $25,008,000 outstanding under various leasing lines including the obligation for the lease of the facility at 50 Minuteman Road in Andover which was $20,659,000 at March 29, 1998. The revolving credit agreement is secured by cash and marketable securities and contains certain financial covenants, including the maintenance of certain ratios including total liabilities to tangible net worth and minimum net income (loss) requirements. The Company was in compliance with all covenants for the quarter ending March 29, 1998. 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 near term operating and capital requirements. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," which changes the way public companies report information about their operating segments. SFAS No. 131, which is based on the management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report entity-wide disclosures about products and services, major customers, and material geographic locations in which the entity holds assets and reports revenues. The Company will adopt SFAS No. 131 for its fiscal year ending December 31, 1998. The Company is currently evaluating the effects of this change on its reporting of segment and geographic information but does not expect the statement to have a material impact on its financial position or results of operations as the statement requires only additional disclosure. In January 1997, the Securities and Exchange Commission issued Financial Reporting Release No. 48 which expands the disclosure requirements for certain derivative and other financial instruments. The Company adopted the enhanced accounting policy disclosure requirements in the fourth quarter of the fiscal year ending December 31, 1997. The Company will begin furnishing the qualitative and quantitative disclosures of market risk in the second quarter of the fiscal year ending December 31, 1998 and expects to adopt the tabular presentation. 12 14 RISK FACTORS WHICH MAY AFFECT FUTURE RESULTS The following risk factors relating to the business of PictureTel and certain forward looking statements contained herein, should be considered by current and prospective investors of PictureTel Common Stock. These factors should be considered in conjunction with other information contained in this document and the documents incorporated by reference. NEW PRODUCTS, COST REDUCTIONS, TECHNOLOGICAL CHANGE, AND EVOLVING MARKETS. The Company is engaged in an industry that is still emerging as a result of extensive research and development efforts which continue to bring to market new, more technologically advanced products introduced on an accelerated basis. Simultaneously, the larger telecommunications market is in a heightened competitive state due to deregulation throughout the world. In order to maintain its market share leadership role in this fast-paced emerging market, the Company must introduce significant innovative, technologically leading and competitively leading new products. There is no assurance that such new products will be introduced by the Company, or if introduced, be accepted by its customers. In addition to products operating in an ISDN environment, new technologies and networks for delivering videoconferencing and data collaboration services, such as the Internet and corporate intranets or LANs, have opened new delivery mediums and opportunities for videoconferencing. Industry standards for such new technologies are still being developed and in the meantime, there has been a slowdown in the growth of the general market for videoconferencing products due to customer uncertainty There can be no assurance that the Company will be successful in obtaining cost reductions or in developing and marketing suitable new products with attractive margins for these new technologies and networks that are competitive and accepted by the marketplace. The possible transition, migration and/or convergence of technologies is difficult to predict and could have profound implications for the industry. Furthermore there can be no assurance that some existing products could be rendered obsolete due to the changing technology. COMPETITION. In its established businesses of group systems and desktop systems, the Company competes with a number of larger corporations, such as Sony and Intel, which have greater financial and marketing resources than the Company. In the developing businesses of videoconferencing over networks such as the Internet and LANs, and compact systems, a number of new companies have begun to offer competitive products. In addition, alliances between companies which compete with the Company and companies which develop and market network products as well as mergers among competitors are intensifying competition in the marketplace. This increased competition, together with a slowdown in the growth of the general market for videoconferencing products, have led and may continue to lead to increases in the defection or dilution of PictureTel's distribution channel partners to competitors, decreases in average selling prices and margins in both group and desktop videoconferencing systems or a lower Company segment market share for newer products and services in the emerging areas of network-based videoconferencing products and services. In some cases, PictureTel competes with its channel partners for various services which increases the complexity of channel management. In addition, other companies such as Microsoft or Intel may respectively offer network videoconferencing software solutions or incorporate standard algorithms into processor chips free of additional charge which may reduce the value PictureTel technology provides to the market, especially in its lower end products. Some of PictureTel's competitors have introduced a new sales model consisting of leasing all videoconferencing equipment and videoconferencing services on a monthly basis. In addition, future prices the Company is able to obtain for its products and services may further decrease from historical levels as a result of new product introductions by others, price competition, technological change, or otherwise. These factors may impact the Company's growth and operating results. MANUFACTURING. Some key subassemblies and products are currently available only from one vendor and some vendors are smaller companies with limited financial resources that could prove to be inadequate. In some cases components are sourced from only one vendor, even where multiple sources are available, to maintain quality control and enhance the working relationship with the vendor. In addition, the Company from time to time enters into development arrangements with other third parties to develop and incorporate new features and functions into the Company's products. Failure of these third parties to fulfill their respective obligations under these development arrangements could have a material adverse effect on the Company's results of operations. The Company's business could be adversely affected by delays or interruptions in 13 15 delivery, and poor quality of supplies, subassemblies or products from such key vendors. Additionally, the Company designs and procures certain circuits, components and subassemblies from non-videoconferencing divisions of PictureTel's competitors such as Sony. Failure to obtain adequate supplies or having to redesign and source supplies from another manufacturer may take substantial time and expense which could impact product shipments and could materially and adversely affect the Company's business, financial condition or results of operations. PRODUCT PROTECTION AND INTELLECTUAL PROPERTY. PictureTel's success depends in part on its proprietary technology. PictureTel attempts to protect its proprietary technology through patents, copyrights, trademarks, trade secrets and license agreements. In absence of broad patent protection (which is not likely), and despite PictureTel's reliance upon its proprietary confidential information, competitors of PictureTel have been able to use algorithms or other features similar to those used by PictureTel to design and manufacture products that are directly competitive with PictureTel's products. The Company believes that due to the rapid pace of technological change in the videoconferencing industry, legal protection for its products is less significant than factors such as the Company's use, implementation and enhancement of standards-based open architecture and the Company's ongoing efforts in product innovation. Although PictureTel does not believe that its products infringe the proprietary rights of any third parties, third parties have asserted infringement and other claims against PictureTel from time to time, and there can be no assurance that third parties will not assert such claims against PictureTel in the future or that such claims will not be successful. PictureTel could incur substantial costs and diversion of management resources with respect to the defense of any claims relating to proprietary rights which could have a material adverse effect on PictureTel business, financial condition or result of operations. (See "Litigation" for details regarding current intellectual property litigation.) RECENT HISTORY OF LOSSES. PictureTel reported a 5% decrease in revenues for 1997 as compared to revenues for 1996 and a decrease in net income from $32,172,000 net income in 1996 to $39,398,000 net loss in 1997. These results have been adjusted for the restatement announced in the third quarter of 1997 for the financial results for the first and second quarters of 1997 and the third and fourth quarters of 1996. PictureTel recorded significant other charges in 1997 to bring expenses into line with its lower level of revenues and a lower expected rate of growth. The decrease in revenues continued in the first quarter of 1998, and the Company reported a net loss of $2,165,000 for the three months ended March 29, 1998. Revenues and prospects for growth have been impacted by the decline in the average selling price for many PictureTel products, a decline in the profitability of the industry, and by a slowdown in the general market for videoconferencing products, in part resulting from the perceived uncertainty of customers as to how the existing products of the Company and its competitors will fit in with expected new multimedia videoconferencing products utilizing the Internet and LAN systems. Continued lower operating results may impact covenants the Company has agreed to with banks in its revolving credit agreement. There can be no assurance that PictureTel can return to the level of profit in relation to net sales experienced in years prior to 1997. POTENTIAL FLUCTUATIONS OF QUARTERLY OPERATING RESULTS. The majority of the Company's revenues in each quarter result from orders booked in that quarter and a substantial portion of the Company's orders and shipments typically occur during the last weeks of each quarter so that forecasting of revenue and product mix is both complex and difficult. Unanticipated variations in the timing of receipt of customer orders in any quarter may produce significant fluctuations in quarterly revenues. As a result, a shortfall in revenue compared to internal expectations may not evidence itself until late in the quarter and any resulting impact on earnings may not be determinable until some weeks after the end of the quarter. The Company's ability to maintain or increase net revenues depend upon its ability to increase unit volume sales. There can be no assurance that the Company will increase unit sales volumes. Other factors which may cause operational results to fluctuate include the timing of new product announcements and introductions by the Company and its competitors; market acceptance of new or enhanced versions of the Company's products; changes in the product mix of sales; changes in the relative proportions of sales among distribution channels or among customers within each distribution channel; changes in manufacturing costs; and general economic factors such as the recent decline of currency values in the Asian markets. 14 16 VOLATILITY OF STOCK PRICE. As is frequently the case with the share price of high technology companies, the market price of PictureTel's stock has been, and may continue to be, volatile. Factors such as quarterly fluctuations in results of operations, increased competition, the introduction of new products by PictureTel and by its competitors, changes in the mix of sales channels, the timing of significant customer orders, and macroeconomic conditions generally, may have a significant adverse effect on the market price of PictureTel's stock in any given period. In addition, the stock market has, from time to time, experienced extreme price and volume fluctuations, which have particularly affected the market price for many high-technology companies and which, on occasion, have appeared to be unrelated to the operating performance of such companies. DEPENDENCE ON KEY PERSONNEL. In February, 1998, Bruce Bond succeeded Dr. Norman Gaut as Chief Executive Officer. There can be no assurance that the transition from Dr. Gaut to Mr. Bond will be successful. PictureTel depends on a limited number of key management personnel, including Mr. Bond; Mr. David Grainger, Group Vice President of Field Operations; Mr. David Goselin, Vice President, Operations; Mr. Stephen Chambers, Vice President, Marketing; Mr. Lawrence Bornstein, Vice President, Human Resources; Mr. Richard Goldman, Vice President and Chief Financial Officer; and Dr. Gaut (as acting Vice President of Engineering). There has been considerable change in the PictureTel management team since late 1996, and the loss of the services of one or more of PictureTel's key personnel or the inability to attract, retain, motivate and manage additional key personnel could have a material adverse effect on the business or operating results of PictureTel. In addition, in recent months, the Company has experienced an increase in voluntary employee attrition from engineering and other departments. There is no assurance, given the competitive nature of the current job market, that PictureTel will be able to adequately fill the open positions. INTERNAL ACCOUNTING CONTROLS. On September 19, 1997, after the Company's reexamination (with assistance from its outside auditors) of leasing and other indirect channel transactions, the Company announced that it would reverse revenue related to certain of these transactions and, as a result, the Company announced that it intended to restate its financial statements for the third and fourth quarters of 1996 and the first quarter of 1997. On November 13, 1997, after completion of its reexamination, the Company announced it would also restate the second quarter of 1997. The restatements were required to reverse product sales recorded which contained rights of return, contingent liabilities, payment contingencies, payment uncertainties, or product sales for which delivery did not occur until the end of the period. The restatements were also required to record such product sales in the period in which the rights of return lapsed, contingencies or uncertainties were resolved, or delivery was completed. Certain transactions which were reversed have not been re-recorded as revenues in later periods. The Company has taken actions including personnel changes, new procedures and greater oversight by the Audit Committee of the Board of Directors. The Company believes these actions will strengthen its internal controls so that the practices which led to the Company's restated financial reporting in the earlier periods will not reoccur. However, there can be no assurance that these actions by the Company will be sufficient. YEAR 2000 COMPLIANCE. PictureTel has formed an internal Year 2000 compliance team to evaluate its internal information systems purchased from PictureTel's suppliers. PictureTel's internal team is in the process of completing the inventory of all internal applications and infrastructure to determine Year 2000 compliance. PictureTel will require its suppliers to resolve any compliance failures and ensure a detailed implementation plan for its products in order to achieve Year 2000 compliance in a timely manner. Since Year 2000 compliance of products used by PictureTel depends upon the supplier's cooperation, unresolved failures remain a possibility. In the event PictureTel does not achieve full Year 2000 compliance in its internal information systems prior to December 31, 1999, PictureTel could experience disruption, delays and use of incorrect data which could have a material adverse impact on its operations. PictureTel has tested its products for Year 2000 compliance and has determined that most PictureTel products have either successfully passed Year 2000 compliance testing or have been deemed Year 2000 not-applicable by virtue of the fact that they do not process dates in any manner. As of May 7, 1998 only one of PictureTel's currently offered products have failed compliance testing. PictureTel has developed a plan to achieve Year 2000 compliance testing for these products by June 1, 1998 by planning to make a software 15 17 update available to its customers which will enable the products to achieve compliance. A small number of PictureTel's installed base products do not pass Year 2000 compliance testing. For these non-compliant older versions of PictureTel products, PictureTel has generated simple workarounds that are planned to be made available to customers which will allow the systems to operate with full functionality. PictureTel has determined that only one product does not pass Year 2000 compliance tests and no workaround has yet been found. In the event PictureTel's customers or future customers find PictureTel's solutions to any outstanding Year 2000 compliance issues unacceptable, such customers may attempt to make warranty claims or cease purchasing non-compliant products. These events would affect the Company's ability to meet its revenue goals and increase costs associated with the products. 16 18 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS (a) Datapoint Litigation In December 1993, PictureTel was sued by Datapoint Corporation in the United States District Court for the Northern District of Texas. Datapoint alleged that certain of PictureTel's products infringed patent rights allegedly owned by Datapoint. Datapoint had been joined as plaintiff by John Frassanito and David Monroe, two individuals who claimed to have rights to Datapoint's patents. The plaintiffs sought approximately $100-190 million in damages for alleged past infringement and an injunction against alleged future infringement. On April 9, 1998, a jury returned a verdict in favor of PictureTel finding that PictureTel did not infringe the Datapoint patents and that the Datapoint patent claims raised against PictureTel were invalid. On April 29, 1998 Datapoint filed an appeal. The Company plans to file a cross-appeal. (b) Shareholder Litigation Since September 23, 1997, seven class action shareholders' complaints have been filed against the Company, Norman E. Gaut, Chairman of the Board and former Executive Officer, and Les Strauss, the former Vice President and Chief Financial Officer, in the United States District Court for the District of Massachusetts. The plaintiffs, who brought these actions on behalf of themselves and others similarly situated, are: (1) Faith Egli, Civil Action No. 97-12135-DPW; (2) Jerome H. Lipman, IRA, Civil Action No. 97-12238-DPW; (3) Daniel Frucher, Civil Action No. 97-12310-DPW; (4) Edmond J. Proulx and James Harris, Civil Action No. 97-12345-DPW; (5) Marvin Barab and Thomas J. Curley, Civil Action No. 97-12338-DPW; (6) Mark Szen and Nancy Szen, Civil Action No. 97-12439-DPW; and (7) Michael D. Kugler, Civil Action No. 97-12537 PBS. These plaintiffs filed a consolidated complaint on February 11, 1998, encaptioned In re PictureTel Corporation Securities Litigation, Civil Action No. 97-12135-DPW. The original Complaints were filed following the Company's announcement on September 19, 1997 that it would restate its financial results for the first quarter of fiscal 1997 and the last two quarters of fiscal 1996 and were amended when the Company announced that it would also restate the second fiscal quarter of 1997 on November 13, 1997. The consolidated Complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and Rule 10b-5, promulgated thereunder, during the period from October 17, 1996 through November 13, 1997, through the alleged preparation and dissemination of materially false and misleading financial statements which artificially inflated the prices of PictureTel common stock. The consolidated Complaint seeks to recover an unspecified amount of damages, including attorneys' and experts' fees and expenses. The Company is currently investigating the allegations in the consolidated Complaint and will respond to the allegations in a timely fashion when responses become due. No discovery has occurred and the Company expresses no opinion as to the likely outcome. (c) NV Holdings, Inc. On February 13, 1998, NV Holdings, Inc., filed a complaint in the State District Court for Dallas county, Texas, NV Holdings, Inc. v. PictureTel Corporation, Cause No. DF 98-01404 alleging against PictureTel tortious interference with both business advantage and existing contracts, as well as business disparagement and slander. While the plaintiff has listed no specific damages they are seeking an injunction and $20,000,000 in punitive damages. The Company believes that it has meritorious defenses to the allegations of the complaint filed against it, and is vigorously defending against the lawsuit and pursuing recovery under the following actions filed by the Company. The Company has filed two separate actions against parties that are believed, by the Company, to be related to NV Holdings, Inc.: (1) (PictureTel Corporation v. NV Technologies, Inc. d/b/a NuVision Technologies, Inc., et al, Civil Action No. 98-337A, filed February 17, 1998, for False Advertising and Unfair Business Practices). On February 23, 1998, the court issued a preliminary injunction against NuVision Technologies, Inc., and all persons acting in concert, participation or combination with them, prohibiting them from continuing to publish a certain advertisement that the Company alleges is false and misleading. As of March 9, 1998, the advertisement in question had continued to 17 19 be published and the Company is aggressively pursuing its legal remedies; and (2) (PictureTel Corporation v. NV Technologies d/b/a NuVision Technologies, Inc., Civil action No. 98-166-C, filed January 23, 1998, for Breach of Contract), seeking the repayment of approximately $4,000,000 from NuVision Technologies, Inc. Limited discovery has begun with regard to the enforcement of the preliminary injunction, however, the Company expresses no opinion as to the likely outcome of any of these matters. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Employment agreement between PictureTel Corporation and Bruce Bond dated March 1, 1998. 10.2 Change in control agreement between PictureTel Corporation and Bruce Bond dated February 25, 1998. 10.3 Option granted to Bruce Bond effective January 31, 1998. 27.1 Financial Data Schedule for the period ended March 29, 1998 as required by Item 601(c) of Regulation S-K 27.2 Financial Data Schedule for the period ended March 29, 1997 as required by Item 601 (c) of Regulation S-K 27.3 Financial Data Schedule for the period ended March 29, 1996 as required by Item 601 (c) of Regulation S-K (b) Reports on Form 8-K 1. On February 11, 1998, the Company filed a report on Form 8-K to announce the appointment of Bruce R. Bond as President and Chief Executive Officer. 18 20 SIGNATURE Pursuant to the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized. PICTURETEL CORPORATION /s/ RICHARD B. GOLDMAN -------------------------------------- Richard B. Goldman Vice President and Chief Financial Officer, (Principal Financial and Accounting Officer) May 13, 1998. 19 EX-10.1 2 EMPLOYMENT AGREEMENT 1 Exhibit 10.1 January 28, 1998 Mr. Bruce Bond 90 Narrows Road Bedford Hills, NY 10507 Dear Bruce: On behalf of the Board of Directors of PictureTel Corporation (the "Company"), I am very pleased to offer you an opportunity to immediately join our Company as the President and Chief Executive Officer. After a transition period covering the time between the date you commence your duties as President and Chief Executive Officer to the date of the Annual Meeting of the Company's shareholders, the Board of Directors will vote to have you assume the additional responsibilities as Chairman of the Board of Directors. The cash 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 bi-weekly rate of $19,230.77 (this the equivalent of $500,000. annually based on 26 pay periods in the year). The offered base salary will be the minimum paid while employed with the Company. As President and Chief Executive Officer, a full performance and compensation review is done by the Compensation Committee of the Board during 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% - 100% of base salary for full performance in meeting the objectives for the year. The bonus, if any, is determined and paid in the first quarter following the close of the fiscal year. The Company will enter into a separate agreement ("Promissory Note") to grant you a personal loan in an amount of $750,000 to retire your loan obligations with your current employer ("Principal"). Such loan shall have a four (4) year term and shall be granted at an interest rate equal to the Prime Rate as quoted in the Wall Street Journal on the date the Promissory Note is executed. The Promissory Note shall provide for the forgiveness of the Principal in equal parts over the term of the loan on each anniversary date of the Promissory Note provided you are employed on such date. Such forgiveness shall be grossed-up to cover the taxes arising from the forgiveness but the taxes arising from the imputed interest will be your responsibility. 2 In addition, we will recommend to the Compensation Committee of the Board of Directors that you be granted an option to purchase 1,500,000 shares of the Common Stock of the Company ("Option"). The Option 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 is approved and six and one quarter (6.25) percent of the aggregate number of shares vesting each quarter thereafter. The purchase price of the Option 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 shall be conditional on your continued full-time employment with the company. All other conditions applicable to the Option shall be set forth in a Stock Option Agreement representing the Option and such Stock Option Agreement shall be delivered immediately following the day the Option is approved. The Company will provide you with full relocation assistance from Bedford Hills, New York to the Andover, Massachusetts area. Such assistance will include the utilization of a third party directed purchase bid on your current residence. The Company will reimburse you for reasonable and actual duplicate expenses incurred in maintaining dual residences until the third party transaction is concluded . It will also include, but not be limited to, such things as the packing and shipment of your household goods, the real estate commissions on your current property, the closing costs associated with the purchase of a new residence, and one month's base salary to cover miscellaneous expenses incurred during your relocation. As appropriate, taxable expenses will be grossed - up. In the event that you voluntarily terminate your employment within eighteen (18) months of hire, the relocation expenses paid up to the termination date shall be subject to repayment to the Company pro-rata for your service with the company. In the event that 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 twenty-four (24) months. 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. Further, the Company will enter into a separate Change in Control Agreement ("CIC Agreement") which will provide you with certain benefits in the event of a termination due to a change in control. The CIC Agreement will include certain triggering events and provide, but not be limited to, severance equal to the sum of (i) your then current base salary, plus (ii) the highest bonus paid in the three years preceding the triggering events, paid over a thirty-six (36) month period. The full acceleration of all unvested stock options in the event of a change in control is specifically covered in PictureTel's Equity Incentive Plan and will not be included in the CIC Agreement. The CIC Agreement will be executed concurrently with your acceptance of our employment offer. As an employee of the Company you will be entitled to participate in our medical insurance benefit programs. We offer two options: (1) a competitive medical and dental plan through Allmerica Health Insurance, or (2) membership in the Harvard - - Pilgrim 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 non-reimbursed medical expenses is available at your election, also through payroll deductions. In addition, the Company 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 the Company. Finally, we offer a 401(k) Retirement Plan and a Tuition Reimbursement Program. You will be entitled to paid holiday and sick days in accordance with Company Policy. As a senior executive of the Company, you shall be eligible for vacation consistent with business and personal needs. 3 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. 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. The Company's Indemnification Agreement will be executed upon your arrival at PictureTel. Please return all signed 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, Norman Gaut Chairman of the Board ACCEPTED: _____________________________ Date: ________________ SS#: ________________ Anticipated Start Date: ________________ EX-10.2 3 CHANGE IN CONTROL AGREEMENT 1 Exhibit 10.2 CHIEF EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT THIS AGREEMENT dated February 25, 1998 is made by and between PictureTel Corporation, a Delaware Corporation, (the "Company") and Mr. Bruce Bond, 90 Narrows Road, Bedford Hills, NY 10507 ("Executive"). WHEREAS the Company considers it essential to the best interests of the Company, its shareholders, and its employees generally to foster the continuous employment of the Executive; and WHEREAS the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control (as defined in the last Section hereof) exists and that such possibility, and the resultant uncertainty, may result in the departure or distraction of the Executive to the detriment of the Company and its shareholders; and WHEREAS the Board has determined that appropriate steps should be taken to encourage the continued attention and dedication of the Executive to his assigned duties without distraction in the face of potentially disrupting circumstances arising from the possibility of a Change in Control; NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained and other good and valuable consideration, the Company and the Executive hereby agree as follows: 1.0 DEFINED TERMS. The definition of capitalized terms used in this Agreement is provided in the last Section hereof. 2.0 TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall continue in effect through February 28, 2001; provided, however, that commencing on March 1, 1999 and each March 1st thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than December 31st preceding that March 1st, the Company or the Executive shall have given notice not to extend this Agreement or a Change in Control shall have occurred prior to such December 31st; provided, however, if a Change in Control shall have occurred during the term of this Agreement, this Agreement shall continue in effect for a period of not less than thirty-six (36) months beyond the date such Change in Control occurred. 3.0 COMPANY'S COVENANTS SUMMARIZED. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4.0 hereof, the Company agrees, under the conditions described herein, to pay the Executive the "Severance Payments" described in Section 6.1 hereof and the other payments and benefits described herein in the event the Executive's employment with the Company is terminated following a Change in Control and during the term of this Agreement. No amount or benefit shall be payable under this Agreement unless there shall have been (or, under the terms hereof, there shall be deemed to have been) a termination of the Executive's employment with the Company following a Change in Control. This Agreement shall not be construed as creating an express or implied contract of employment prior to the date of a Change in Control and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 4.0 THE EXECUTIVE'S COVENANTS. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the term of this Agreement, the Executive will remain in the employ of the Company until the earliest of (A) a date which is six (6) months from the date of such Potential Change of Control, (B) the date of a Change in Control, (C) the date of termination by the Executive of the Executive's employment for Good Reason (determined by treating the Potential Change in Control as a Change in Control in applying the definition of Good Reason), by reason of death or Disability, or (D) the termination by the Company of the Executive's employment for any reason. 5.0 COMPENSATION OTHER THAN SEVERANCE PAYMENTS. 5.1 Following a Change in Control during the term of this Agreement, during any period that the Executive fails to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive's full salary to the Executive at the rate 2 in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period, until the Executive's employment is terminated by the Company for Disability. 5.2 If the Executive's employment shall be terminated for any reason following a Change in Control during the term of this Agreement, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Company prior to the Date of Termination. 5.3 If the Executive's employment shall be terminated for any reason following a Change in Control during the term of this Agreement, the Company shall pay the Executive's normal post-termination compensation and benefits to the Executive as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements; provided however, that the Severance Payments under Section 6.0 of this Agreement shall be the only severance paid following a Change in Control during the term of this Agreement. 6.0 SEVERANCE PAYMENTS. 6.1 Subject to Section 6.2 hereof, the Company shall pay the Executive the payments described in this Section 6.1 ("Severance Payments") upon the termination of the Executive's employment following a Change in Control during the term of this Agreement, in addition to the payments and benefits described in Section 5.0 hereof, unless such termination is (A) by the Company for Cause, (B) by reason of Death or Disability, or (C) by the Executive without Good Reason. The Executive's employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason if the Executive's employment is terminated prior to a Change in Control without Cause at the direction (or action which constitutes a direction) of a Person who has entered into an agreement with the Company the consummation of which will constitute a Change in Control or if the Executive terminates his employment with Good Reason prior to a Change in Control (determined by treating a Potential Change in Control as a Change in Control in applying the definition of Good Reason) if the circumstance or event which constitutes Good Reason occurs at the direction (or action which constitutes a direction) of such Person. (i) Subsequent to the Date of Termination, the Company shall make cash severance payments to the Executive over a thirty-six (36) month period in substantially equal bi-weekly installments, in an amount equal to three (3) times the sum of (a) the higher of the Executive's annual base salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control, and (b) the higher of the highest annual bonus paid to the Executive in the three years preceding the year in which the Date of Termination occurs or paid in the three years preceding the year in which the Change in Control occurs. (ii) For a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide the Executive with medical and dental insurance benefits substantially similar to those which the Executive is receiving on the same premium cost share basis immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason). Benefits otherwise receivable by the Executive pursuant to this Section 6.1(ii) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). If the benefits provided to the Executive under this Section 6.1(ii) shall result in a decrease, pursuant to Section 6.2, in the Change in Control Payments and these Section 6.1(ii) benefits are thereafter reduced pursuant to the immediately preceding sentence because of the receipt of comparable benefits, the Company shall, at the time of such reduction, pay to the Executive the lesser of (a) the amount of the decrease made in the Severance Payments pursuant to Section 6.2, or (b) the maximum amount which can be paid to the Executive without being, or causing any other payment to be, nondeductible by reason of section 28OG of the Code. 3 6.2 Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control or the termination of the Executive' s employment (whether or not received pursuant to the terms of this Agreement) (all such payments and benefits, including but not limited to the Severance Payments, being hereinafter called the "Total Payments") would be subject in whole or in part to the Excise Tax, then the Severance Payments shall be reduced to the extent, but only to the extent, necessary so that no portion of the Total Payments is subject to the Excise Tax; provided, that no such reduction shall be effected unless the net amount of the Total Payments after such reduction in the Severance Payments and after deduction of the net amount of federal, state and local income taxes on such reduced Total Payments would be greater than the excess of (A) the net amount of the Total Payments without such reduction in the Severance Payments but after deduction of the net amount of federal, state and local income taxes (other than the Excise Tax) on such unreduced Total Payments, over (B) the Excise Tax to which the Total Payments are subject. The determination as to whether a reduction in Severance Payments is to be made under this Section 6.2 and, if so, the amount of any such reduction shall be made by the Company's auditors or by such other firm of certified public accountants, benefits consulting firm or legal counsel as the Board may designate prior to the Change in Control. The Company shall provide the executive with its calculations of the amounts referred to in this Section 6.2 and such supporting materials as are reasonably necessary for the Executive to evaluate the Company's calculations. 6.3 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of a termination which entitles the Executive to the Severance Payments (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 7.0 TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE. 7.1 NOTICE OF TERMINATION. After a Change in Control and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10.0 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership (excluding the Executive, if a Director) of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 DATE OF TERMINATION. "Date of Termination", with respect to any purported termination of the Executive's employment after a Change in Control during the term of this Agreement, shall mean: (A) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (B) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 4 7.3 DISPUTE CONCERNING TERMINATION. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties, by arbitrator's award, or, to the extent permitted by Section 14.0, by a final judgment, order or decree of a court of competent jurisdiction on the arbitrator's award (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. 7.4 COMPENSATION DURING DISPUTE. If a purported termination occurs following a Change in Control and during the term of this Agreement and such termination is disputed in accordance with Section 7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement. 8.0 NO MITIGATION. The Company agrees that, if the Executive's employment by the Company is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6.0 or Section 7.4. Further, the amount of any payment or benefit provided for in Section 6.0 (other than Section 6.1(ii)) or Section 7.4 shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. 9.0 SUCCESSORS; BINDING AGREEMENT. 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and / or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. In any event this agreement shall be binding upon the Company and any successors or assignee. 9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 10.0 NOTICES. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered in hand or when delivered or mailed by United States certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: 5 To the Company: PictureTel Corporation 100 Minuteman Road Andover, Massachusetts 01810 Attention: General Counsel To the Executive: Mr. Bruce Bond 90 Narrows Road Bedford Hills, NY 10507 11.0 MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Massachusetts and the Agreement shall be an instrument under seal. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under Sections 6.0, 7.0, 8.0 and 14.0 shall survive the expiration of the term of this Agreement. 12.0 VALIDITY. The invalidity or unenforceability or any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. In addition, if any provision of this Agreement is held invalid or unenforceable by a court of competent jurisdiction, then such provision shall be deemed modified to the extent necessary to enable such provision to be valid and enforceable. 13.0 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14.0 SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive for benefits under this Agreement shall be directed to the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board then shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement in such arbitration or by a proceeding in the federal court in Boston or the Massachusetts state court in Essex County. 15.0 DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings indicated below: (A) "Base Amount" shall have the meaning defined in section 28OG(b)(3) of the Code. (B) "Beneficial Owner" shall have the meaning defined in Rule 13d-3 under the Exchange Act. (C) "Board" shall mean the Board of Directors of the Company. 6 (D) "Cause" for termination by the Company of the Executive's employment, after any Change in Control, shall mean: (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1) for thirty (30) days after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Executive's part shall be deemed "Willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. (E) A "Change in Control", shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing twenty-five (25) percent or more of the combined voting power of the Company's then outstanding securities; or (ii) during any period of not more than two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in clause (i), (ii) or (iii) of this Section 15(E)) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (a) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) sixty (60) percent or more of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (b) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires twenty-five (25) percent or more of the combined voting power of the Company's then outstanding securities; or (iv) he shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. (F) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (G) "Company" shall mean PictureTel Corporation and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise (except in determining, under Section 15(E) hereof, whether or not any Change in Control of the Company has occurred in connection with such succession). (H) "Date of Termination" shall have the meaning stated in Section 7.2 hereof. 7 (I) "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. (J) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (K) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. (L) "Executive" shall mean the individual named in the first paragraph of this Agreement. (M) "Good Reason" for termination by the Executive of the Executive's employment shall mean: (i) during the period commencing thirty days after the Change in Control and terminating six (6) months after the Change in Control, a good faith determination by the Executive that, as a result of the Change in Control, the Executive is unable to discharge his duties effectively, or (ii) he occurrence (without the Executive's express written consent) of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (a), (e), (f), or (g), below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (a) the assignment to the Executive of any duties inconsistent with the Executive's status as a senior executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control; (b) a reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (c) the relocation of the Company's principal executive offices to a location more than thirty (30) miles] from the location of such offices immediately prior to the Change in Control or the Company's requiring the Executive to be based anywhere other than the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations; (d) the failure, not corrected within five (5) days after written notice thereof to the Company, by the Company, without the Executive's consent, to pay to the Executive any portion of the Executive's current compensation, or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (e) the failure, not corrected within five (5) days after written notice thereof to the Company, by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive's total compensation, including but not limited to the Company's Equity Incentive Plan and Employee Stock Purchase Plan or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, as existed at the time of the Change in Control; 8 (f) the failure, not corrected within five (5) days after written notice thereof to the Company, by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating at the time of the Change in Control (other than changes required by law), the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect at the time of the Change in Control; or (g) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (N) "Notice of Termination" shall have the meaning stated in Section 7.1 hereof. (O) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include: (i) the Company, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or (iii) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (P) "Potential Change in Control', shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (Q) "Severance Payments" shall mean those payments described in Section 6.1 hereof. (R) "Total Payments" shall mean those payments described in Section 6.2 hereof. PictureTel Corporation By: Executive: ------------------------------------ ------------------------- Norman Gaut Bruce Bond Chairman of the Board of Directors EX-10.3 4 OPTION GRANTED TO BRUCE BOND 1 Exhibit 10.3 PICTURETEL CORPORATION NON-STATUTORY STOCK OPTION AGREEMENT 1. GRANT OF OPTION. PictureTel Corporation, a Delaware corporation (the "Company"), hereby grants to Bruce Bond (the "Executive"), an option to purchase an aggregate of 1,500,000 shares of authorized but not issued Common Stock of the Company, $.01 par value ("Common Stock") (hereinafter referred to as the "Option"), at a price of $6.937 per share, purchasable as set forth in and subject to the terms and conditions of this Stock Option Agreement (the "Agreement"). The Option is intended to be a non-statutory stock option. The date of grant of this Option is January 31, 1998 (hereinafter referred to as the "Grant Date") and the date ending twelve (12) months thereafter and each subsequent three (3) month period thereafter is hereinafter referred to as "First Exercise Date", "Second Exercise Date", "Third Exercise Date", etc. In granting this Option, the Committee has determined that the Option will advance the interests of PictureTel Corporation by enhancing its ability to (a) attract and retain an executive who is in a position to make significant contributions to the success of the Company and its subsidiaries and (b) encourage this executive to take into account the long-term interests of the Company through ownership of shares of the Company's common stock ("Stock"). 2. EXERCISE OF OPTION AND PROVISIONS FOR TERMINATION. (a) EXERCISE SCHEDULE. Except as otherwise provided in this Agreement, this Option may be exercised during the period ending ten (10) years after the Grant Date (hereinafter the "Expiration Date"), on a cumulative basis as described below, in installments as to not more than the following percentage of the shares covered by this option during the respective installment periods set forth below:
Exercise Period Percentage (Number) of Option --------------- Shares Exercisable ------------------ On and After the Grant Date and Prior to the First Exercise Date None On and After the First Exercise Date and Prior to the Second Exercise Date 25.00% (375,000) On and After the Second Exercise Date and Prior to the Third Exercise Date 31.25% (468,750) On and After the Third Exercise Date and Prior to the Fourth Exercise Date 37.50% (562,500) On and After the Fourth Exercise Date and Prior to the Fifth Exercise Date 43.75% (656,250) On and After the Fifth Exercise Date and Prior to the Sixth Exercise Date 50.00% (750,000) On and After the Sixth Exercise Date and Prior to the Seventh Exercise Date 56.25% (843,750) On and After the Seventh Exercise Date and Prior to the Eighth Exercise Date 62.50% (937,500) On and After the Eighth Exercise Date and Prior to the Ninth Exercise Date 68.75% (1,031,250) On and After the Ninth Exercise Date and Prior to the Tenth Exercise Date 75.00% (1,125,000) On and After the Tenth Exercise Date and Prior to the Eleventh Exercise Date 81.25% (1,218,750) On and After the Eleventh Exercise Date and Prior to the Twelfth Exercise Date 87.50% (1,312,500) On and After the Twelfth Exercise Date and Prior to the Thirteenth Exercise Date 93.75% (1,406,250) On and After the Thirteenth Exercise Date 100.00% (1,500,000)
2 The right of exercise shall be cumulative so that if the Option is not exercised to the maximum extent permissible during any exercise period it shall be exercisable, in whole or in part, with respect to all shares not so purchased at any time prior to the Expiration Date or the earlier termination of this option. This Option may not be exercised at any time after the Expiration Date. (b) EXERCISE PROCEDURE. Subject to the conditions set forth in this Agreement, this option shall be exercised by the Executive's delivery of written notice of exercise to the Company, specifying the Option Grant Date, number of shares to be purchased, and the purchase price to be paid therefor and accompanied by payment in full in accordance with Section 3. below. Such exercise shall be effective upon receipt by the Company of such written notice together with the required payment. The Executive may purchase less than the total number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share or for less than ten whole shares. (c) CONTINUOUS EMPLOYMENT REQUIRED. Except as otherwise provided in this Section 2., this option may not be exercised unless the Executive, at the time he exercises this Option, is, and has been at all times since the Grant Date of this Option, an employee of, or a consultant to, one or more of the Company or a Subsidiary. A "Subsidiary" for purposes of this Option shall be a corporation in which the Company owns directly or indirectly, stock possessing fifty (50) percent of the total combined voting power of all classes of stock. If this Option shall be assumed or a new option substituted therefor in a transaction to which Section 425(a) of the Internal Revenue Code of 1986, as amended (the "Code") applies, employment by such assuming or substituting corporation (hereinafter called the "Successor Corporation") or a Subsidiary thereof (but with the Successor Corporation substituted for the Company) shall be considered for all purposes of this Option to be employment by the Company or a Subsidiary, as the case may be. In the event this Option was granted to a person serving as a consultant to the Company at the Grant Date, such person shall be treated for all purposes of this Option as an employee, and termination of his consultancy (except a termination simultaneous with such person becoming an employee) shall be considered, for all such purposes, as if his employment terminated at the time of termination of his consultancy. (d) VOLUNTARY TERMINATION OF EMPLOYMENT. If the Executive voluntarily ceases to be employed by the Company or Subsidiary, the right to exercise this Option shall terminate three (3) months after such cessation (but in no event after the Expiration Date), provided that this Option shall then be exercisable only to the extent that the Executive was entitled to exercise this option on the date of such cessation. (e) TERMINATION UPON DEATH OR DISABILITY. If the Executive dies or becomes disabled (within the meaning of Section 105(d) (4) of the Code) prior to the Expiration Date, while he is in the employ of the Company or a Subsidiary, this Option shall have the exercise rights thereto accelerated so that for each full year of service with the Company prior thereto, no less than twenty-five (25) percent of the aggregate number of options covered hereby and not yet exercisable shall thereupon become exercisable as of the termination date (not to exceed one hundred (100) percent of the aggregate number of shares); all unexercised options for shares not accelerated under the foregoing formula shall terminate as of the termination day. All options that are exercisable after giving effect to the foregoing will remain exercisable until one year following the date of death or disability of the Executive (but in no event after the Expiration Date) by the Employee or by the person to whom this option is transferred by will or the laws of descent and distribution. Except as otherwise indicated by the context, the term "Executive", as used in this Option, shall be deemed to include the estate of the Executive, or any person who acquires the right to exercise this Option by bequest or inheritance or otherwise by reason of death of the Executive or the Executive's legal guardian in the event of disability. The exercise price of this Option is 100% of the fair market value per share of the Company's Stock in effect on the Grant Date. 3 (f) TERMINATION FOR CAUSE. If the Executive, prior to the Expiration Date, ceases his employment with the Company or a Subsidiary because he is discharged for "Cause" (as defined below), the right to exercise this Option shall be terminated immediately by the Company upon such cessation of employment. "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 determined by the Compensation Committee of the Company, which determination shall be conclusive. (g) INVOLUNTARY TERMINATION-WITHOUT CAUSE. If prior to the Expiration Date, the employment of the Executive is terminated by the Company or Subsidiary without Cause, the right to exercise this Option shall terminate three (3) months after such cessation (but in no event after the Expiration Date), PROVIDED that this Option shall continue to be exercisable during such period to the extent that the Executive was entitled to exercise this Option on the date of such cessation. (h) TERMINATION UPON RETIREMENT. If, prior to the Expiration Date, the Executive, prior to the normal retirement date (as determined by the Committee), retires with the consent of the Company, as determined by the Committee, the Executive shall be entitled to exercise this Option on the same basis, terms and conditions as set forth above in clause (d). (i) LEAVE OF ABSENCE. If the Executive, prior to the Expiration Date, is absent from work under a leave of absence authorized under the Company's then current Human Resources Policies and he does not return to work within the period provided by the terms of such leave of absence, he shall be considered as having voluntarily terminated his employment on such date as provided under the Company's then current Human Resources Policies. However, for the purpose of calculating the Percentage of Option Shares Exercisable under Section 2(a) hereof, the period of the leave of absence shall not be credited and the Executive shall have the right to exercise only that Percentage of Option Shares Exercisable as of the date the leave of absence commenced, subject to the provisions of Section 2.(i). In addition, while the Executive is on a leave of absence, he shall not be entitled to exercise this Option. Upon resuming full status as an employee, the Executive shall be entitled to exercise this Option, but with the period of leave of absence not credited under Section 2.(a), and accordingly, the installment exercise periods in Section 2.(a) shall be appropriately adjusted to give effect thereto. 3. PAYMENT OF PURCHASE PRICE. (a) METHOD OF PAYMENT. Payment of the purchase price for shares purchased upon exercise of this option shall be made by delivery to the Company of cash, certified check, money order, or bank check (as the Company may require), to the order of the Company in an amount equal to the purchase price of such shares, or by delivery to the Company of shares of Common Stock of the Company then owned by the Executive having a fair market value equal in amount to the purchase price of such shares, or by delivery of an unconditional and irrevocable undertaking by a broker to deliver to the Company sufficient funds to pay the exercise price, or by any combination of such methods of payment. No shares of Common Stock may be tendered or used in payment of the purchase price payable upon exercise of this option unless the tendered shares have been held by the Executive for at least six (6) months. (b) VALUATION OF SHARES TENDERED IN PAYMENT OF PURCHASE PRICE. For the purposes hereof, the fair market value of any share of the Company's Common Stock which may be delivered to the Company in exercise of this Option shall be equal to the fair market value on the last business day preceding the date of exercise as determined in good faith by the Committee. 4 (c) DELIVERY OF SHARES TENDERED IN PAYMENT OF PURCHASE PRICE. If the Executive exercises this Option by delivery of shares of Common Stock of the Company, the certificate or certificates representing the shares of Common Stock of the Company to be delivered shall be duly executed in blank by the Executive or shall be accompanied by a stock power duly executed in blank suitable for purposes of transferring such shares to the Company. Fractional shares of Common Stock of the Company will not be accepted in payment of the purchase price shares acquired upon exercise of this Option. 4. DELIVERY OF SHARES. The Company shall, upon payment of the option price for the number of shares purchased and paid for, make prompt delivery of such shares to the Executive, provided that if any law or regulation requires the Company to take any action with respect to such shares before the issuance thereof, then the date of delivery of such shares shall be extended for the period necessary to complete such action. No shares shall be issued and delivered upon exercise of any option unless and until, in the opinion of counsel for the Company, any applicable registration requirements of the Securities Act of 1933, any applicable listing requirements of any national securities exchange on which stock of the same class is then listed, and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery, shall have been fully complied with. 5. NON-TRANSFERABILITY OF OPTION. Except as provided in Section 2.(e), this Option is personal and no rights granted hereunder may be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) nor shall any such rights be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this Option or of such rights contrary to the provisions hereof, or upon the levy of any attachment or similar process upon this option or such rights, this Option and such rights shall, at the election of the Company, become null and void. Notwithstanding the foregoing, a transfer for estate planning purposes may be permitted by the Committee in its discretion. 6. NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in the Option shall be construed as a contract of employment between the Company or Subsidiary and the Executive, or as a right of the Executive to be continued in the employ of the Company or Subsidiary, or as a limitation of the right of the Company or Subsidiary to deal with the Executive, and his hiring, discharge, layoff, compensation, and all other conditions of employment in all respects as though this Option did not exist. However, during the period of the Executive's employment, the Executive shall render diligently and faithfully the services which are assigned from time to time by the Board of Directors of the Company or Subsidiary and shall at no time take any action which directly or indirectly would be inconsistent with the best interests of the foregoing entities. 7. RIGHTS AS A SHAREHOLDER. The Executive shall have no rights as a shareholder with respect to any shares which may be purchased by exercise of this option unless and until a certificate representing such shares is duly issued and delivered to the Executive. Except as otherwise expressly provided in the Option, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 8. 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 shareholders other than normal cash dividends, the Committee will make any appropriate adjustments to (i) the maximum number of shares that may be delivered under this Option, (ii) the exercise price relating to this Option, and (iii) any other provision of this Option affected by such change. 5 (b) In any event referred to in clause (a), 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 this Option. 9. CHANGE IN CONTROL. (a) CHANGE IN CONTROL. As used herein, a Change in Control and related definitions shall have the meanings as set forth in Section 9.(b) below. Immediately prior to the occurrence of a Change in Control, the Option, to the extent not then exercisable, shall automatically become fully exercisable. (b) CHANGE IN CONTROL AND RELATED DEFINITIONS. A "Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (i) any person is or becomes the Beneficial Owner, directly or indirectly, of securities of the company representing twenty-five (25) percent or more of the combined voting power of the Company's then outstanding securities; or (ii) during any period of not more than two consecutive years (not including any period prior to December 31, 1995), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in Clause (i), (ii), or (iii) of Section 9.(b)) whose election by the Board or nomination for election by the shareholders of the Company was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) sixty (60) percent or more of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires twenty-five (25) percent or more of the combined voting power of the Company's then outstanding securities; or (iv) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. A "Person" shall have the meaning given in Section 3 (a) (9) of the Securities Exchange Act of 1934, as modified and used in Sections 13 9D and 14 (d) thereof: however, a Person shall not include (1) the Company, or (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or (3) a corporation or other entity owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company. A "Beneficial Owner" shall have the meaning defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended from time to time. 10. CERTAIN CORPORATE TRANSACTIONS. (a) In the event of a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company's outstanding Stock by a single person or entity or by a group of persons and / or entities acting in concert, or in the event of the complete liquidation of the Company or the sale or transfer of substantially all of the Company's assets (a "Covered Transaction"), all outstanding Options will terminate as of the effective date of the Covered Transaction, provided that at least twenty (20) days prior to the effective date of any such merger, consolidation, liquidation or sale of assets, but subject to clause (b) below, the Committee shall make all outstanding Options exercisable immediately prior to consummation of such Covered Transaction (to the extent that such Options are not exercisable immediately prior to the consummation of the Covered Transaction pursuant to Section 9). 6 (b) With respect to an outstanding Option held by the Executive who, following the Covered Transaction, will be employed by a corporation which is a surviving or acquiring corporation in such transaction or an affiliate of such a corporation, the Committee may, in lieu of the action of the Committee described in clause (a) above or in addition to the Option being exercisable immediately prior to consummation of the Covered Transaction pursuant to Section 9. above, arrange to have such surviving or acquiring corporation or affiliate assume the Option or grant to the Executive a replacement option which, in the judgment of the Committee, is substantially equivalent to the Option. 11. WITHHOLDING TAXES The Company's obligation to deliver shares upon the exercise of this option shall be subject to the Executive 's satisfaction of all applicable federal, state and local income tax withholding requirements. 12. ADMINISTRATION. The Option shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"), all of the members of which Committee must be disinterested persons within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934. Alternately, the Board of Directors of the Company (the "Board") may serve as the Committee so long as a majority of the members of the Board are disinterested persons within the meaning of Rule 16b-3. The Committee shall have the authority, not inconsistent with the express provisions of the Option, to adopt, amend, rescind rules and regulations for the administration of the option, accelerate the time at which all or part of the Option may be exercised, waive any term or condition of the Option, with the consent of the Executive, cancel the Option in whole or in part and grant a new option, and interpret the Option and decide any questions and settle all controversies and disputes that may arise in connection with the Option. Such determinations and actions of the Committee, and all other determinations and actions of the Committee made or taken under authority granted by any provision of the Option, will be conclusive and will bind all parties. A majority of the members of the Committee will constitute a quorum, and all determinations of the Committee must be made by a majority of its members. 13. EMPLOYMENT RIGHTS. This Option does not confer upon the Executive any right to continued employment with the Company or any subsidiary or affect in any way the right of the Company or subsidiary to terminate an employment relationship at any time. Except as specifically provided by the Committee, the loss of existing or potential profit in this Option will not constitute an element of damages in the event of termination of an employment relationship even if the termination is in violation of an obligation of the Company to the Executive. 14. MISCELLANEOUS, (a) The grant of this Option will not affect the Company's right to grant to the Executive options or other awards that are subject to the Company's Equity Incentive Plan or other plans or are not subject to the plans, or to issue to the Executive stock as a bonus or otherwise or adopt other plans or arrangements under which stock may be issued to the Executive. (b) The Committee may at any time or times amend this Option for any purpose which may at the time be permitted by law, provided that (except to the extent expressly required or permitted by this Option) no such amendment may adversely affect the rights of the Executive without the Executive's written consent. (c) All notices under this Option shall be mailed or delivered by hand to the parties at their respective addresses set forth beneath their names below or at such other address as may be designated in writing by either of the parties to one another. 7 (d) This Option shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. (e) This Option may only be accepted by the Executive by executing this Agreement and delivering the Agreement to the Company not later than 5:00 P.M. Boston time, on March 15, 1998, (the "Offer Termination Date"). Any Agreement received after the Offer Termination Date shall be null and void and the grant of this stock option shall be deemed rescinded. Date of Grant: JANUARY 31, 1998 PictureTel Corporation 100 Minuteman Road Andover, MA 01810 By: ________________________ EXECUTIVE'S ACCEPTANCE The undersigned hereby accepts the foregoing option and agrees to the terms and conditions thereof. EXECUTIVE Signature: _______________________ Print Name:_______________________ Address:__________________________ __________________________ EX-27.1 5 FINANCIAL DATA SCHEDULE (MARCH 29, 1998)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PICTURETEL'S BALANCE SHEET AND INCOME STATEMENT FOR THE PERIOD ENDED MARCH 29, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q FILING. 1,000 U.S. DOLLARS 3-MOS DEC-31-1998 JAN-01-1998 MAR-29-1998 1 38,913 43,546 109,118 (7,573) 43,074 251,572 154,085 (85,664) 349,000 101,898 0 0 0 382 225,377 225,759 101,045 101,045 55,158 55,158 0 0 586 (3,049) (884) (2,165) 0 0 0 (2,165) (0.06) (0.06)
EX-27.2 6 FINANCIAL DATA SCHEDULE (MARCH 29, 1997)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PICTURETEL'S BALANCE SHEET AND INCOME STATEMENT FOR THE PERIOD ENDED MARCH 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q FILING. 1,000 U.S. DOLLARS 3-MOS DEC-31-1997 JAN-01-1997 MAR-29-1997 1 37,303 54,489 138,470 (3,241) 66,995 315,709 114,687 (67,252) 384,852 108,490 0 0 0 377 267,408 267,785 121,935 121,935 63,198 63,198 0 0 342 2,833 822 2,011 0 0 0 2,011 0.05 0.05
EX-27.3 7 FINANCIAL DATA SCHEDULE (MARCH 30, 1996)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PICTURETEL'S BALANCE SHEET AND INCOME STATEMENT FOR THE PERIOD ENDED MARCH 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q FILING. 1,000 U.S. DOLLARS 3-MOS DEC-31-1996 JAN-01-1996 MAR-30-1996 1 37,536 13,833 104,581 (1,871) 43,089 215,703 76,294 (47,323) 304,109 81,129 0 0 0 330 212,620 212,950 105,001 105,001 54,109 54,109 0 0 159 10,984 3,515 7,469 0 0 0 7,469 0.21 0.19
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