-----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, BRRDBLo4bOLWbUSQP+9Mt+nYJ0aq5f2JZ/kLW+VYd5+2KTpL9ySlGaiZ1EPxY63F ySUuOQ+s4J4cuNtAQS0aFw== 0000950135-96-003550.txt : 19960814 0000950135-96-003550.hdr.sgml : 19960814 ACCESSION NUMBER: 0000950135-96-003550 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19960813 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: 1934 Act SEC FILE NUMBER: 001-09434 FILM NUMBER: 96610219 BUSINESS ADDRESS: STREET 1: 222 ROSEWOOD DR CITY: DANVERS STATE: MA ZIP: 01923 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 PICTURETEL 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 FOR THE FISCAL YEAR ENDED JUNE 29, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ________________ FOR THE QUARTER ENDED JUNE 29, 1996 COMMISSION FILE NUMBER 1-9434 PICTURETEL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) 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: 508-292-5000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practical date. As of August 9, 1996, there were 33,452,000 issued and outstanding shares of common stock of the registrant. ================================================================================ 2 PICTURETEL CORPORATION FORM 10-Q INDEX PART I. CONSOLIDATED FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheets June 29,1996 and December 31, 1995............................... 3 Consolidated Statements of Income Three and six months ended June 29, 1996 and July 1, 1995........ 4 Consolidated Statements of Cash Flows Six months ended June 29, 1996 and July 1, 1995.................. 5 Notes to Consolidated Financial Statements (Unaudited)............. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 7-9
PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................. Not Applicable Item 2. Changes in Securities.............................................. Not Applicable Item 3. Defaults Upon Senior Securities.................................... Not Applicable Item 4. Submission of Matters to a Vote of Security Holders................ 10 Item 5. Other Information.................................................. 10 Item 6. Exhibits and Reports on Form 8-K................................... 10 Signatures.................................................................. 11
2 3 PICTURETEL CORPORATION CONSOLIDATED BALANCE SHEETS ($000'S)
JUNE 29, DECEMBER 31, 1996 1995 -------- ------------ ASSETS Current assets: Cash and cash equivalents.......................................... $ 45,490 $ 39,476 Marketable securities.............................................. 15,478 20,463 Accounts receivable less allowance for doubtful accounts of $1,813 and $1,791...................................................... 113,311 97,735 Inventories (Note 2)............................................... 36,390 43,791 Deferred taxes, net................................................ 6,561 6,665 Other current assets............................................... 7,311 5,781 -------- -------- Total current assets............................................ 224,541 213,911 Marketable securities.............................................. 36,273 34,084 Deferred taxes, net................................................ 6,000 6,000 Property and equipment, net........................................ 35,711 22,515 Capitalized software costs, net (Note 3)........................... 6,127 5,073 Other assets....................................................... 6,955 6,558 -------- -------- Total assets............................................... $315,607 $288,141 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings.............................................. $ 527 $ 557 Accounts payable................................................... 26,759 25,639 Accrued compensation and benefits.................................. 7,654 9,881 Accrued expenses................................................... 20,836 16,646 Current portion of capital lease obligations....................... 2,172 2,283 Deferred revenue................................................... 18,442 19,509 -------- -------- Total current liabilities....................................... 76,390 74,515 Long-term borrowings................................................. 10,015 12,226 Capital lease obligations............................................ 1,411 578 Stockholders' equity: Preference stock, $.01 par value; 15,000,000 shares authorized; none issued Common stock, $.01 par value; 80,000,000 shares authorized; 33,358,597 and 32,723,744 shares issued and outstanding at June 29, 1996 and December 31, 1995, respectively.................... 334 328 Additional paid-in capital......................................... 184,014 173,379 Retained earnings.................................................. 43,379 27,422 Cumulative translation adjustment.................................. (355) (531) Unrealized gain on marketable securities, net...................... 419 224 -------- -------- Total stockholders' equity...................................... 227,791 200,822 -------- -------- Total liabilities and stockholders' equity................. $315,607 $288,141 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 PICTURETEL CORPORATION CONSOLIDATED STATEMENTS OF INCOME ($000'S EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED -------------------- --------------------- JUNE 29, JULY 1, JUNE 29, JULY 1, 1996 1995 1996 1995 -------- ------- -------- -------- Revenues......................................... $116,082 $80,489 $221,083 $154,645 Cost of sales.................................... 60,343 39,450 114,452 75,808 -------- ------- -------- -------- Gross margin..................................... 55,739 41,039 106,631 78,837 Operating expenses: Selling, general and administrative............ 31,076 24,500 58,815 48,447 Research and development....................... 14,041 11,178 27,965 21,571 -------- ------- -------- -------- Total operating expenses............... 45,117 35,678 86,780 70,018 -------- ------- -------- -------- Income from operations........................... 10,622 5,361 19,851 8,819 Interest income, net............................. 1,103 700 2,179 1,317 Other income (expense), net...................... 1,136 (209) 1,814 66 -------- ------- -------- -------- Income before taxes.............................. 12,861 5,852 23,844 10,202 Provision for income taxes....................... 4,373 1,697 7,887 2,959 -------- ------- -------- -------- Net income....................................... $ 8,488 $ 4,155 $ 15,957 $ 7,243 ======== ======= ======== ======== Net income per common and common equivalent share.......................................... $ 0.24 $ 0.12 $ 0.44 $ 0.21 ======== ======= ======== ======== Weighted average common and common equivalent shares outstanding............................. 36,053 34,860 36,087 34,212 ======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 5 PICTURETEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS ($000'S)
SIX MONTHS ENDED ----------------------- JUNE 29, JULY 1, 1996 1995 -------- -------- Cash flows from operating activities: Net income......................................................... $ 15,957 $ 7,243 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization...................................... 9,418 9,345 Other non-cash items............................................... (346) (59) Changes in operating assets and liabilities: Accounts receivable................................................ (15,576) (9,642) Inventories........................................................ 7,399 (7,773) Other assets....................................................... (907) (6,653) Accounts payable................................................... 1,120 4,279 Accrued compensation and benefits and accrued expenses............. 2,086 12,427 Income taxes, net.................................................. 4,862 (696) Deferred revenue................................................... (1,067) 1,523 -------- -------- Net cash provided by operating activities............................ 22,946 9,994 Cash flows from investing activities: Purchase of marketable securities.................................. (11,167) (24,839) Proceeds from marketable securities................................ 14,314 31,373 Additions to property and equipment................................ (18,659) (8,373) Capitalized software costs......................................... (2,767) (1,532) Purchase of intangible assets...................................... (3,000) -- -------- -------- Net cash used in investing activities................................ (21,279) (3,371) Cash flows from financing activities: Change in short-term borrowings.................................... (30) 2,223 Payments on long-term borrowings................................... (2,211) -- Principal payments under capital lease obligations................. (1,414) (1,990) Proceeds from exercise of stock options............................ 6,659 10,169 Proceeds from stock purchase plan.................................. 883 -- -------- -------- Net cash provided by financing activities............................ 3,887 10,402 Effect of exchange rate changes on cash.............................. 460 (851) -------- -------- Net increase in cash and cash equivalents............................ 6,014 16,174 Cash and cash equivalents at beginning of period..................... 39,476 24,347 -------- -------- Cash and cash equivalents at end of period........................... $ 45,490 $ 40,521 ======== ======== Interest paid........................................................ $ 296 $ 371 ======== ======== Income taxes paid.................................................... $ 954 $ 2,249 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 5 6 PICTURETEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. MANAGEMENT'S REPRESENTATION The information furnished has been prepared from the accounts without audit. In the opinion of management, the accompanying financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly the consolidated financial statements. The financial disclosures herein should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 2. INVENTORIES Inventories consist of the following (in thousands):
JUNE 29, DECEMBER 31, 1996 1995 -------- ------------ Purchased Parts............................................. $ 9,061 $11,492 Work in Process............................................. 2,098 3,252 Finished Goods.............................................. 25,231 29,047 ------- ------- $36,390 $43,791 ======= =======
3. CAPITALIZED SOFTWARE COSTS Amortization of software costs totaled $911,000 and $778,000 for the quarters ended June 29, 1996 and July 1, 1995, respectively and $1,712,000 and $1,691,000 for the six months ended June 29, 1996 and July 1, 1995, respectively. 6 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This section includes certain forward-looking statements about the Company's business and new products, sales and expenses, effective tax rate and operating and capital requirements. Any such statements are subject to risks that could cause the actual results or needs to vary materially. These risks are discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Report on Form 10-K for the year ended December 31, 1995. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 29, 1996 COMPARED TO THREE MONTHS ENDED JULY 1, 1995 REVENUES. The Company's revenues increased $35,593,000 or 44%, in the three month period ended June 29, 1996 from the comparable period in 1995. The increase in revenue was primarily a result of increased videoconferencing system unit shipments. This growth was partially offset by a reduction in the average selling price of videoconferencing systems resulting from a shift towards lower priced models, especially in the personal desktop products, as well as a shift in distribution channel mix with approximately 74% of revenue now coming from the indirect channels. Videoconferencing system sales accounted for approximately 83% of the Company's revenues for the three month period ended June 29, 1996 and 80% for the comparable period in 1995. Sales of group and desktop videoconferencing products accounted for 67% and 16%, respectively, of revenues for the three month period ended June 29, 1996 compared with 64% and 16%, respectively, for the comparable period in 1995. In addition, sales of bridge products accounted for approximately 8% of the Company's revenues for the three month period ended June 29, 1996 compared to approximately 7% for the comparable period in 1995. The balance of the revenues in 1996 and 1995 were primarily from maintenance services, licensing/development agreements and the sales of stand-alone codecs and video modems. The Company's revenues from sales to foreign markets were approximately $51,724,000 in the three month period ended June 29, 1996 compared to approximately $33,617,000 for the comparable period in 1995 representing 45% and 42%, respectively, of total revenues. The Company expects that international revenues will continue to account for a significant portion of total revenues. GROSS MARGIN. The Company's gross margin increased $14,700,000 or 36%, in the three month period ended June 29, 1996 compared to the comparable period in 1995. Gross margin as a percentage of revenues was 48% for the three month period ended June 29, 1996 compared with 51% for the comparable period in 1995. Gross margin as a percentage of revenues decreased as a result of the increased percentage of volume through the indirect channels and a reduction in the average selling price of videoconferencing systems. These two trends are expected to continue and may impact future gross margins. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased $6,576,000 or 27% from the comparable period in 1995 and decreased as a percentage of revenues to 27% from 30%. The dollar increase in spending resulted primarily from the worldwide marketing focus associated with expanding indirect channels and new product launches, as well as increased commission expense. In addition, the Company has provided additional sales, general and administrative personnel in order to support the Company's overall growth. RESEARCH AND DEVELOPMENT. Research and development expenses increased $2,863,000 or 26% in the three month period ended June 29, 1996 from the comparable period in 1995 and were 12% and 14%, respectively, of revenues for the three month period ended June 29, 1996 and the comparable period in 1995. Research and development expenditures, prior to the capitalization of software costs, were $15,423,000 in the three month period ended June 29, 1996 and $11,828,000 in the comparable period in 1995 or 13% and 15% of revenues, respectively. The dollar increase in expenditures primarily reflects the Company's continuing investment in new product and software development for existing and future videoconferencing products. The 7 8 Company capitalized software costs of $1,418,000 in the three month period ended June 29, 1996 and $650,000 in the comparable period in 1995 representing 10% and 6% of research and development expenditures, respectively. OPERATING INCOME. Although gross margin as a percentage of sales has not increased over the comparable period in 1995, operating income as a percentage of sales increased 37% due to a decline in operating expenses as a percentage of sales. NET INTEREST INCOME. Net interest income increased to $1,103,000 in the three month period ended June 29, 1996 from $700,000 in the comparable period in 1995. The increase was primarily the result of higher portfolio balances and lower interest expense. OTHER INCOME (EXPENSE). Other income (expense) of $1,136,000 in the three month period ended June 29, 1996 consists primarily of net gains on sales of securities. Other income (expense) of $209,000 in the comparable period in 1995 consists primarily of net losses on foreign currency transactions. INCOME TAXES. The Company's effective tax rate for the three month period ended June 29, 1996 and July 1, 1995 was 34% and 29% respectively. The Company's effective tax rate for the three month period ended June 29, 1996 was lower than the federal statutory rate primarily due to state tax credits, foreign tax rates and foreign losses not tax benefited. SIX MONTHS ENDED JUNE 29, 1996 COMPARED TO SIX MONTHS ENDED JULY 1, 1995 REVENUES. The Company's revenues increased $66,438,000, or 43%, in the six-month period ended June 29, 1996 from the comparable period in 1995. The increase in revenue was primarily a result of increased videoconferencing system unit shipments. This growth was partially offset by a reduction in the average selling price of videoconferencing systems resulting from a shift towards lower priced models, as well as a shift in distribution channel mix with approximately 75% of revenue now coming from the indirect channels. Videoconferencing system sales accounted for approximately 83% of the Company's revenues for the six month period ended June 29, 1996 compared to approximately 82% for the comparable period in 1995. Sales of group and desktop videoconferencing products accounted for 66% and 17%, respectively, of revenues for the six month period ended June 29, 1996 compared with 68% and 14%, respectively for the comparable period in 1995. In addition, sales of bridge products accounted for approximately 8% of the Company's revenues for the six month period ended June 29, 1996 compared to approximately 7% for the comparable period in 1995. The balance of the revenues in 1996 and 1995 were primarily from maintenance services, licensing agreements and the sales of stand-alone codecs and video modems. The Company's revenues from sales to foreign markets were approximately $102,334,000 in the six month period ended June 29, 1996 compared to approximately $65,124,000 in the comparable period in 1995 representing 46% and 42%, respectively, of total revenues. The Company expects that international revenues will continue to account for a significant portion of total revenues. GROSS MARGIN. The Company's gross margin increased $27,794,000 or 35%, in the six month period ended June 29, 1996 from the comparable period in 1995. Gross margin as a percentage of revenues decreased to 48% in the six month period ended June 29, 1996 from 51% in the comparable period in 1995. The decrease in gross margin as a percentage of revenues was primarily the result of a higher percentage of revenues coming from the Company's lower-margin videoconferencing system products and an increased percentage of volume through indirect channels. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased $10,368,000, or 21%, in the six month period ended June 29, 1996 from the comparable period in 1995 and were 27% and 31%, respectively, of total revenues. The dollar increase in spending resulted primarily from the expansion of indirect distribution channels, worldwide marketing programs associated with new product launches, as well as increased commission expense. In addition, the Company has provided additional sales, general and administrative personnel in order to support the Company's overall growth. 8 9 RESEARCH AND DEVELOPMENT. Research and development expenses increased $6,394,000 or 30%, in the six month period ended June 29, 1996 from the comparable period in 1995 and were 13% and 14%, respectively, of revenues for the six month period ended June 29, 1996 and for the comparable period in 1995. Research and development expenditures, prior to the capitalization of software costs, were $30,731,000 in the six month period ended June 29, 1996 and $23,102,000 for the comparable period in 1995 or 14% and 15% of revenues, respectively. The dollar increase in expenditures primarily reflects the Company's continuing investment in new product and software development for existing and future videoconferencing products. The Company capitalized software costs of $2,766,000 in the six month period ended June 29, 1996 and $1,532,000 for the comparable period in 1995 representing 10% and 7% of research and development expenditures, respectively. OPERATING INCOME. Although gross margin as a percentage of sales has not increased over the comparable period in 1995, operating income as a percentage of sales increased 58% due to a decline in operating expenses as a percentage of sales. NET INTEREST INCOME (EXPENSE). Net interest income increased to $2,179,000 in the six month period ended June 29, 1996 from $1,317,000 for the comparable period in 1995. The increase was primarily the result of higher interest earning portfolio balances throughout the six month period ended June 29, 1996. OTHER INCOME (EXPENSE). Other income (expense) for the six month period ended June 29, 1996 consists primarily of gains on the sales of securities and, to a lesser extent, net gains on foreign currency transactions. Other income (expense) for the six month period ended July 1, 1995 consists primarily of net gains on foreign currency transactions. INCOME TAXES. The Company's effective tax rate for the six months ended June 29, 1996 and July 1, 1995 was 33% and 29%, respectively. The Company's effective tax rate in 1996 is lower than the federal statutory rate primarily due to the combined effects of lower foreign tax rates and the utilization of foreign net operating loss tax credit carry forwards, offset by the effect of state income taxes. LIQUIDITY AND CAPITAL RESOURCES At June 29, 1996 the Company had $45,490,000 in cash and cash equivalents, $15,478,000 in short-term marketable securities and $36,273,000 in long-term marketable securities. During the six month period ended June 29, 1996 the Company generated $22,946,000 in net cash from operating activities. The primary use of cash during the six month period ended June 29, 1996 was to fund the growth in working capital items such as accounts receivable, as well as additions to property and equipment. Capital expenditures for 1996 are projected to be approximately $30,000,000 including leasehold improvements related to the newly leased property for the Company's corporate office and manufacturing facilities, of which $18,659,000 was spent in the first six months. The Company has available for borrowing up to $17,000,000 under its revolving credit agreement and approximately $4,341,000 available under local foreign guaranteed lines of credit to certain of its foreign subsidiaries. At June 29, 1996 there was $10,015,000 outstanding under the revolving credit agreement and $527,000 outstanding under the foreign lines of credit. At June 29, 1996, the Company had $3,583,000 outstanding and $9,366,000 available to be borrowed under various leasing lines. The Company believes that funds from operations, equipment lease financing, borrowings under its various credit agreements and existing cash, cash equivalents and marketable securities will be sufficient to meet the Company's foreseeable operating and capital requirements. 9 10 PART II -- OTHER INFORMATION ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders of the Company was held on June 17, 1996. The Stockholders of the Company elected members of the Board of Directors, approved an amendment to the 1992 Non-Employee Directors' Plan to increase the number of shares of common stock available for delivery under the Plan from 280,000 to 430,000, and approved the grant of options to non-employee members of the Board of Directors to purchase 20,000 shares of the Company's common stock on August 1, 1996 and thereafter for the annual grant of options on August 1 of each year to purchase 5,000 shares, and ratified the selection of Coopers & Lybrand L.L.P. as the Company's auditors for fiscal year 1996. The number of affirmative, negative, abstained votes and broker non-votes cast with respect to each of the matters voted on were as follows: The tabulation of votes for the nominees for directors were as follows: COMMON STOCK
FOR WITHHELD ---------- -------- Norman E. Gaut.............................................. 29,375,352 149,766 Robert T. Knight............................................ 29,375,514 149,604 Vinod Khosla................................................ 29,372,112 153,006 David Levi.................................................. 29,376,604 148,514 James R. Swartz............................................. 29,373,212 151,906
Other Matters Considered:
BROKER AFFIRMATIVE NEGATIVE ABSTAINED NON- VOTES VOTES VOTES VOTES ---------- --------- ------- ------- Approval of the amendment to the 1992 Non-Employee Directors' Plan..................................... 24,195,451 4,863,848 174,579 291,240 Selection of Coopers & Lybrand L.L.P. as auditors..... 29,371,286 60,122 93,710 --
ITEM 5 -- OTHER INFORMATION The Board of Directors voted in July, 1996 to enlarge the Board of Directors from five to six members. The Board has elected Mr. Enzo Torresi to serve as the sixth member of the Board, effective August 1, 1996. Mr. Torresi, 51, is Chairman of Power Computing Corporation, the first company to license from Apple Computer Inc. the technology to produce MacIntosh-compatible personal computers. Previously Mr. Torresi founded and served as chairman and chief executive officer of NetFRAME Systems, Inc., a manufacturer of fault-tolerant clustered network servers. Prior to that, he was vice-chairman of the board and senior vice president of sales and marketing at Businessland Corporation, an international computer reseller, which he co-founded in 1992. ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Agreement between PictureTel Corporation and William L. Avery dated June 15, 1995. 10.2 Agreement between PictureTel Corporation and Rick H. Faulk dated June 26, 1995. 10.3 Amended 1992 Non-employee Directors' Stock Option Plan. (b) Reports on Form 8-K None 10 11 SIGNATURE Pursuant to the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PICTURETEL CORPORATION /S/ LES B. STRAUSS -------------------------------------- Les B. Strauss Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) August 13, 1996. 11 EX-10.1 2 AGREEMENT WITH PICTURETEL AND WILLIAM L. AVERY 1 EXHIBIT 10.1 June 15, 1995 Mr. William L. Avery 17864 SW Pheasant Lane Aloha, OR 97006 Dear Bill: PictureTel Corporation is pleased to offer you an opportunity to join our Company as the Vice President, Networks Systems Division. In this capacity you will be working for me, but you will be initially assigned to work with Khoa Nguyen to define, segment, and focus our networks business and strategy into a discrete business division. The compensation in the offered position will contain two elements: an annual base salary and an annual bonus opportunity under PictureTel's Management Incentive Plan. The base salary for the position will be paid at the semi-monthly rate of $6,250. (this the equivalent of $150,000. annually based on 24 pay periods in the year). At the level of the offered position a full performance review is scheduled in the quarter immediately following the close of the fiscal year. The payment of a bonus under the Management Incentive Plan is predicated on the Company's achievement of the annual revenue and profitability objectives established at the start of the fiscal year and your performance in meeting your Individual Goals for the year. The bonus opportunity will be 0% - 40% of base salary (pro-rata for service in 1995), for full performance but may range up to 80% of base salary (pro-rata for service in 1995) for performance in excess of the plan. The bonus, if any, is determined and paid in the first quarter following the close of the fiscal year. The Company will pay you a sign-on bonus in the amount of $50,000. The sign-on bonus will be payable as follows: $25,000. within thirty (30) days of your employment start date: $10,000. on or about January 1, 1996; and $15,000. on or about July 1, 1996. In addition, we will recommend to the Compensation Committee of the Board of Directors your participation in PictureTel's Equity Incentive Plan. The option recommendation presented will be for 40,000 shares. These shares will vest over a four year period, with the first twenty-five (25) percent of the aggregate number of shares vesting one (1) year following the date the option grant was approved and six and one quarter (6.25) percent of the aggregate number of shares vesting each quarter thereafter. The option price will be determined by the Compensation Committee on the day your option grant is approved and will be no less than the closing price as quoted on the National Market System of NASDAQ on that date. Vesting is conditional on your continued full-time employment with the company. Certain other restrictions may apply to your option grant as set forth in the Equity Incentive Plan. PictureTel will assist you in your relocation to the Boston area. Details will be specified at a later date, including the movement of your household goods and temporary living depending on the available of your Stowe property. If you are involuntarily terminated by the Company for any reason other than for cause, you would be entitled to receive a continuation of your then current base salary for a period of six (6) months. If at the end of the six (6) months you are still unemployed, the Company will consider extending the continuation of your base salary month to month for a maximum of six (6) months. You will be responsible for providing monthly verification of your employment status in order to be eligible for the added salary continuation. For purposes of this letter, cause shall be defined as and be limited to conviction of a felony or willful misconduct or gross negligence in the performance of duties which result in material harm to PictureTel. As an employee of PictureTel you will be entitled to participate in our medical insurance benefit programs. We offer two options: (1) a competitive medical and dental plan through John Hancock Insurance, or (2) membership in the Harvard Community Health Plan, a Health Maintenance Organization. You will be responsible for a portion of the premium cost, with payment arranged through payroll deductions. A Section 125 reimbursement plan to help with daycare and unreimbursed medical expenses is available at your election, also through payroll deductions. 2 In addition, PictureTel provides long-term disability, accidental death and dismemberment, and life insurance coverage (life benefit equal to two (2) times your annual salary). The premiums for the disability and life insurance are paid one hundred (100) percent by PictureTel. Finally, we offer a 401(k) Retirement Plan and a Tuition Reimbursement Program. You will be entitled to paid vacation, holiday and sick days in accordance with PictureTel Policy. This offer is contingent on your providing proof of eligibility for employment. On your first day of employment, please bring with you either: (a) a valid U.S. Passport, or (b) a birth certificate and a driver's license, or (c) an original Social Security card and a driver's license. Orientation is normally scheduled for 8:30 a.m. on Mondays. Please indicate your acceptance of this offer and your anticipated start date by completing and signing the enclosed copy of this letter, the PictureTel Application for Employment, and the Proprietary Information Agreement. Return all documents to Larry Bornstein as soon as practical. If you have any questions regarding this offer, please do not hesitate to call Larry or me. We look forward to your joining and being an important member of our team. Sincerely, /s/ NORMAN GAUT ----------------------------------- Norman Gaut President, Chief Executive Officer, and Chairman of the Board ACCEPTED: /s/ WILLIAM L. AVERY Date: ------------------------- ------------------------------- SS#: ________________________ Anticipated Start Date: _______________________ EX-10.2 3 AGREEMENT WITH PICTURETEL AND RICK FAULK 1 EXHIBIT 10.2 June 26, 1995 Mr. Rick H. Faulk 11 Fairway Drive Andover, MA 01810 Dear Rick: PictureTel Corporation is pleased to offer you an opportunity to join our Company as the Vice President, Marketing reporting to me. The compensation in the offered position will contain two elements: an annual base salary and an annual bonus opportunity under PictureTel's Management Incentive Plan. The base salary for the position will be paid at the semi-monthly rate of $5,833.33 (this the equivalent of $140,000. annually based on 24 pay periods in the year). At the level of the offered position a full performance review is scheduled in the quarter immediately following the close of the fiscal year. The payment of a bonus under the Management Incentive Plan is predicated on the Company's achievement of the annual revenue and profitability objectives established at the start of the fiscal year and your performance in meeting your Individual Goals for the year. The bonus opportunity will be 0% -- 40% of base salary (pro-rata for service in 1995), for full performance but may range up to 80% of base salary (pro-rata for service in 1995) for performance in excess of the plan. The bonus, if any, is determined and paid in the first quarter following the close of the fiscal year. The Company will pay you a sign-on bonus in the amount of $10,000. This sign-on bonus will be payable within thirty (30) days of your employment start date. In addition, we will recommend to the Compensation Committee of the Board of Directors your participation in PictureTel's Equity Incentive Plan. The option recommendation presented will be for 35,000 shares. These shares will vest over a four year period, with the first twenty-five (25) percent of the aggregate number of shares vesting one (1) year following the date the option grant was approved and six and one quarter (6.25) percent of the aggregate number of shares vesting each quarter thereafter. The option price will be determined by the Compensation Committee on the day your option grant is approved and will be no less than the closing price as quoted on the National Market System of NASDAQ on that date. Vesting is conditional on your continued full-time employment with the company. Certain other restrictions may apply to your option grant as set forth in the Equity Incentive Plan. If you are involuntarily terminated by the Company for any reason other than for cause, you would be entitled to receive a continuation of your then current base salary for a period of six (6) months. If at the end of the six (6) months you are still unemployed, the Company will consider extending the continuation of your base salary month to month for a maximum of six (6) months. You will be responsible for providing monthly verification of your employment status in order to be eligible for the added salary continuation. For purposes of this letter, cause shall be defined as and be limited to conviction of a felony or willful misconduct or gross negligence in the performance of duties which result in material harm to PictureTel. As an employee of PictureTel you will be entitled to participate in our medical insurance benefit programs. We offer two options: (1) a competitive medical and dental plan through John Hancock Insurance, or (2) membership in the Harvard Community Health Plan, a Health Maintenance Organization. You will be responsible for a portion of the premium cost, with payment arranged through payroll deductions. A Section 125 reimbursement plan to help with daycare and unreimbursed medical expenses is available at your election, also through payroll deductions. In addition, PictureTel provides long-term disability, accidental death and dismemberment, and life insurance coverage (life benefit equal to two (2) times your annual salary). The premiums for the disability and life insurance are paid one hundred (100) percent by PictureTel. 2 Finally, we offer a 401(k) Retirement Plan and a Tuition Reimbursement Program. You will be entitled to paid vacation, holiday and sick days in accordance with PictureTel Policy. This offer is contingent on your providing proof of eligibility for employment. On your first day of employment, please bring with you either: (a) a valid U.S. Passport, or (b) a birth certificate and a driver's license, or (c) an original Social Security card and a driver's license. Orientation is normally scheduled for 8:30 a.m. on Mondays. Please indicate your acceptance of this offer and your anticipated start date by completing and signing the enclosed copy of this letter, the PictureTel Application for Employment, and the Proprietary Information Agreement. Return all documents to Larry Bornstein as soon as practical. If you have any questions regarding this offer, please do not hesitate to call Larry or me. We look forward to your joining and being an important member of our team. Sincerely, /s/ NORMAN GAUT --------------------------------------- Norman Gaut President, Chief Executive Officer, and Chairman of the Board ACCEPTED: /s/ RICK H. FAULK Date: --------------------------- ---------------------------------- SS#: ___________________________ Anticipated Start Date: ____________________ EX-10.3 4 STOCK OPTION PLAN 1 EXHIBIT 10.3 PICTURETEL CORPORATION AMENDED 1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN 1. Purpose. The purpose of this 1992 Non-Employee Directors' Stock Option Plan (the "Plan") is to advance the interests of PictureTel Corporation (the "Company") by enhancing the ability of the Company to attract and retain non-employee directors who are in a position to make significant contributions to the success of the Company and to reward directors for such contributions through ownership of shares of the Company's Common Stock (the "Stock"). 2. Administration. The Plan shall be administered by a committee (the "Committee") of the Board of Directors (the "Board") of the Company designated by the Board for that purpose. Unless and until a Committee is appointed, the Plan shall be administered by the entire Board, and references in the Plan to the "Committee" shall be deemed references to the Board. The Committee shall have authority, not inconsistent with the express provisions of the Plan (a) to issue options granted in accordance with the formula set forth in this Plan to Eligible Directors as defined below; (b) to prescribe the form or forms of instruments evidencing awards and any other instruments required under the Plan and to change such forms from time to time; (c) to adopt, amend and rescind rules and regulations for the administration of the Plan; and (d) to interpret the Plan and to decide any questions and settle all controversies and disputes that may arise in connection with the Plan. Such determinations of the Committee shall be conclusive and shall bind all parties. 3. Eligibility of Directors for Stock Options. Directors of the Company who are not employees of or consultants to the Company or any subsidiary of the Company shall be eligible to participate in the Plan ("Eligible Directors"). 4. Automatic Grant of Options; Exercise Price; Option Term. On the date an individual is first elected as a Director of the Company, such director, if an Eligible Director, shall be automatically granted an option to purchase 20,000 shares of Common Stock of the Company (subject to adjustment as provided in Sections 5 and 10) (the "Initial Grant"). Formerly, the Initial Grant was 40,000 shares (after giving effect to the two-for-one stock split in November, 1995). On August 1, 1996, an Eligible Director who has served as a Director for more than two years prior to such date, shall be automatically granted an option to purchase 20,000 shares of Common Stock of the Company, so long as such individual is serving as a Director on the August 1, 1996 date. On August 1 of each year, commencing August 1, 1997, an Eligible Director shall automatically be granted an option to purchase 5,000 shares of Common Stock of the Company (subject to adjustment as provided in Sections 5 and 10), so long as such individual is serving as a Director on the applicable August 1 date, provided, however, that no such annual option shall be granted to an Eligible Director who first became an Eligible Director of the Company within less than six months prior to August 1 of said year. All option grants shall be at an exercise price equal to the Fair Market Value of the Common Stock on the effective date of the grant. All options shall expire ten years after the effective date of the grant. Options shall be non-incentive options or, if subsequently permitted by the Internal Revenue Code of 1986, as amended, incentive or other options entitled to special tax treatment. 5. Number of Shares. The number of shares of Stock of the Company which may be issued upon the exercise of Options granted under the Plan, including shares forfeited pursuant to Section 7, shall not exceed 430,000 in the aggregate (options for 160,000 shares in the aggregate having been granted prior to April 10, 1996, after giving effect to the two-for-one stock split in November, 1995), subject to increase under Section 10, which increases and appropriate adjustments as a result thereof shall be made by the Committee, whose determination shall be binding on all persons. 6. Stock to be Delivered. Shares of Stock to be delivered pursuant to an Option granted under this Plan may constitute an original issue of authorized Stock or may consist of previously issued Stock acquired by the 2 Company, as shall be determined by the Board. The Board and the proper officers of the Company shall take any appropriate action required for such delivery. No fractional shares shall be delivered under the Plan. The Company will not be obligated to deliver any shares of Stock pursuant to the Plan (a) until all conditions of the Option have been satisfied, (b) until, in the opinion of the Company's counsel, all applicable federal and state laws and regulation have been complied with, (c) if the outstanding Stock is at the time listed on NASDAQ or any other stock exchange, until the shares to be delivered have been listed or authorized to be listed on NASDAQ or such other exchange upon official notice of notice of issuance, and (d) until all other legal matters in connection with the issuance and delivery of such shares have been approved by the Company's counsel. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Options, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act and may require that the certificates evidencing such Stock bear an appropriate legend restricting transfer. If an Option is exercised by the Eligible Director's legal representative, the Company will be under no obligation to deliver Stock pursuant to such exercise until the Company is satisfied as to the authority of such representative. 7. Exercisability; Exercise; Payment of Exercise Price. All Options granted under the Plan shall become exercisable 25% after one year from the effective date of the grant and 6 1/4% after the end of each quarter thereafter so that the Options are 100% exercisable four years from the effective date of the grant. Any exercise of an Option must be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by (1) any documents required by the Committee and (2) payment in full as provided below for the number of shares for which the Option is exercised. The exercise price of Stock purchased on exercise of an Option must be paid for as follows: (1) in cash or by check (acceptable to the Company in accordance with guidelines established for this purpose), bank draft or money order payable to the order of the Company or (2) through the delivery of shares of Stock which have been outstanding for at least six months and which have a Fair Market Value on the last business day preceding the date of exercise equal to the exercise price, or (3) by delivery of a promissory note of the Option holder to the Company, with a maturity of five years (or earlier termination of service as a director), interest at prime (or the equivalent) announced by Bank of Boston on the exercise date and on such other terms as are customary for notes accepted under other stock plans of the Company (provided that, if the Stock delivered upon exercise of the Option is an original issue of authorized Stock, at least so much of the exercise price as represents the par value of such Stock must be paid in cash), or (4) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the exercise price, or (5) by any combination of the permissible forms of payment. To the extent shares of Stock covered under an Option are not delivered because the Option lapses or is terminated, such forfeited shares may be regranted in another Option within the limits set forth in Section 5. 8. Termination of Options. a. If an Eligible Director ceases to be a director by reason of death or total and permanent disability (as determined by the Committee), the following will apply: All Options held by the Eligible Director that are not exercisable on the thirtieth day after termination of the Eligible Director's status as a director will terminate as of such date. All Options that are exercisable as of said thirtieth day will continue to be exercisable until the earlier of (1) the first anniversary of the date on which the Eligible Director's status as a director ended or (2) the date on which the Option would have terminated had the Eligible Director remained a director. If the Eligible Director has died or is totally or permanently disabled, the Option may be exercised within such limits by the Eligible Director's legal representative. b. If an Eligible Director's service with the Company terminates for any reason other than death or incapacity as provided above, all options held by the director that are not then exercisable shall terminate. Options that are exercisable on the date of such termination (other than termination upon a removal for cause, 3 in which event all Options shall immediately terminate) shall continue to be exercisable until the earlier of (1) three months thereafter or (2) the date on which the Option would have terminated had the director remained an Eligible Director, and after completion of that period, such Options shall terminate to the extent not previously exercised, expired or terminated. c. Certain Corporate Transactions. In the event of a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company's outstanding Stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of substantially all the Company's assets or a dissolution or liquidation of the Company (a "covered transaction"), all outstanding Options under the Plan will terminate as of the effective date of the covered transaction, provided that each such outstanding Option not otherwise exercisable shall become immediately exercisable in full 20 days prior to the effective date thereof. 9. General Provisions a. Documentation of Options. Options will be evidenced by written instruments prescribed by the Committee from time to time. Such instruments may be in the form of agreements, to be executed by both an Eligible Director and the Company, or certificates, letters or similar instruments, which need not be executed by an Eligible Director but acceptance of which will evidence agreement to the terms thereof. b. Rights as a Stockholder. An option holder shall not have the rights of a stockholder with respect to Options under the Plan except as to Stock actually received by him or her under the Plan. c. Tax Withholding. The Eligible Director or other appropriate person shall remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Stock. If and to the extent that such withholding is required, the Committee may permit the Eligible Director such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Stock having a value calculated to satisfy the withholding requirement. d. Nontransferability of Options. No Option may be transferred other than by will or by the laws of descent and distribution, and during a director's lifetime an Option may be exercised only by the director (or, in the event of the director's incapacity, the person or persons legally appointed to act on the director's behalf). 10. Adjustments in the Event of Certain Transactions. a. In the event of a stock dividend, stock split or combination of shares, recapitalization or other change in the Company's capitalization, or other distribution to common stockholders other than normal cash dividends, the Committee will make any appropriate adjustments to the maximum number of shares that may be delivered under the Plan under Section 5 above. b. In any event referred to in paragraph (a), the Committee will also make any appropriate adjustments to the number and kind of shares of stock or securities subject to Options then outstanding or subsequently granted, exercise prices relating to Options and any other provision of Options affected by such change. The Committee may also make such adjustments to take into account material changes in law or in accounting practices or principles, mergers, consolidations, acquisitions, dispositions or similar corporate transactions, or any other event, if it is determined by the Committee that adjustments are appropriate to avoid distortion in the operation of the Plan. 11. Fair Market Value. For purposes of the Plan, Fair Market Value of a share of Stock on any date will be the average of the bid and asked prices in the over-the-counter market with respect to such Stock, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System or such other similar system then in use (or by the appropriate equivalent closing price if the Stock is then listed on any stock exchange); or, if on any such a date such Stock is not quoted by any such organization, the average of the closing bid and asked prices with respect to such Stock, as furnished by a professional market maker making a market in such Stock selected by the Committee; or if such prices are not available, the fair market value of such Stock as of such date as determined in good faith by the Committee. 4 12. Effective Date and Term. This Plan has an effective date of October 23, 1992, having been adopted by the Board of Directors on October 14, 1992 and approved by the vote of stockholders at the Annual Meeting on June 10, 1993. Options granted under the Plan prior to the date of such stockholder approval on June 10, 1993 became effective on the effective date of grant. No Options may be awarded under this Plan after October 1, 2002, but the Plan shall continue thereafter while previously awarded Options remain subject to the Plan. 13. Effect of Termination, and Amendment. Neither adoption of the Plan nor the grant of Options to an Eligible Director shall confer upon any person any right to continued status as a director with the Company or any subsidiary or affect in any way the right of the Company or subsidiary to terminate a director relationship at any time or shall affect the Company's right to grant to such director options or other stock awards that are not subject to the Plan, to issue to such director stock as a bonus or otherwise, or to adopt other plans or arrangements under which stock may be issued to directors. The Committee may at any time terminate the Plan as to any further grants of Options. The Committee may at any time or times amend the Plan for any purpose which may at the time be permitted by law, but in no event (except to comply with the provisions of the Internal Revenue Code, the Employee Retirement Income Security Act or the rules thereunder) more than once in any six-month period. The amendments adopted by the Board of Directors on April 10, 1996 shall become effective on April 10, 1996, provided they are approved by vote of the stockholders at the 1996 Annual Meeting. EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PICTURETEL'S BALANCE SHEET AND INCOME STATEMENTS FOR THE PERIOD ENDED 6/29/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 6/29/96 10-Q FILING. 1,000 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-29-1996 1 45,490 15,478 113,311 (1,813) 36,390 224,541 86,995 (51,284) 315,607 76,390 0 334 0 0 227,457 315,607 221,083 221,083 114,452 114,452 86,780 0 0 23,844 7,887 15,957 0 0 0 15,957 0.44 0.44
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