10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 1999 Commission file number 000-25475

LATITUDE COMMUNICATIONS, INC.

Delaware	94-3177392
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2121 Tasman Drive, Santa Clara, CA 95054
(Address of principal executive offices, including zip code)

(408) 988-7200
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

     As of November 5, 1999, there were 18,858,376 shares of the registrant’s Common Stock outstanding.

INDEX

PART I.    FINANCIAL INFORMATION

Item 1.     Financial Statements.

LATITUDE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

	September 30, 1999		December 31, 1998
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$   8,775		$   3,982
Short-term marketable securities	25,164		–
Trade accounts receivable, net	5,822		5,627
Inventory	749		688
Prepaids and other assets	1,196		420
Total current assets	41,706		10,717
Property and equipment, net	1,985		1,017
Long-term marketable securities	6,287		–
Deposits and other long-term assets	195		136
Total assets	$ 50,173		$ 11,870
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$      557		$      805
Accrued expenses	3,015		2,089
Deferred revenue	4,447		2,794
Current portion of long-term debt	514		559
Total current liabilities	8,533		6,247
Long-term debt	431		838
Total liabilities	8,964		7,085
Stockholders’ equity:
Preferred stock	–		12
Common stock	19		4
Additional paid-in capital	55,721		21,362
Notes receivable from common stockholders	(110	)	(165	)
Deferred stock compensation	(2,076	)	(2,103	)
Accumulated other comprehensive loss	(126	)	–
Accumulated deficit	(12,219	)	(14,325	)
Total stockholders’ equity	41,209		4,785
Total liabilities and stockholders’ equity	$ 50,173		$ 11,870

The accompanying notes are an integral part of these condensed consolidated financial statements.

LATITUDE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	1999		1998		1999		1998
Revenue:
Product	$   6,312		$   4,270		$ 16,515		$ 11,825
Service	2,400		1,282		6,351		2,989
Total revenue	8,712		5,552		22,866		14,814
Cost of revenue:
Product	1,046		879		2,842		2,154
Service	1,324		747		3,285		2,037
Total cost of revenue	2,370		1,626		6,127		4,191
Gross profit	6,342		3,926		16,739		10,623
Operating expenses:
Research and development	1,021		625		2,896		1,830
Marketing and sales	3,811		2,564		10,138		6,916
General and administrative	641		412		1,575		1,223
Amortization of deferred stock compensation	183		66		600		165
Total operating expenses	5,656		3,667		15,209		10,134
Income from operations	686		259		1,530		489
Interest income (expense), net	475		(13	)	713		(34	)
Income before provision for income taxes	1,161		246		2,243		455
Provision for income tax	(67	)	(10	)	(137	)	(20	)
Net income	$   1,094		$      236		$   2,106		$      435
Other comprehensive, net of tax
Unrealized gain (loss) on securities	25		–		(126	)	–
Comprehensive income	$   1,119		$      236		$   1,980		$      435
Net income per share–basic	$     0.06		$     0.07		$     0.18		$     0.13
Shares used in per share calculation–basic	18,590		3,323		11,498		3,243
Net income per share–diluted	$     0.05		$     0.01		$     0.11		$     0.03
Shares used in per share calculation–diluted	20,051		16,251		18,382		16,103

The accompanying notes are an integral part of these condensed consolidated financial statements.

LATITUDE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

	Nine Months Ended September 30,
	1999		1998
Cash flows from operating activities:
Net income	$   2,106		$    435
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization	589		475
Provision for excess and obsolete inventory	145		16
Amortization of deferred stock compensation	600		165
Changes in operating assets and liabilities	1,154		(202	)
Net cash provided by operating activities	4,594		889
Cash flows from investing activities:
Purchases of property and equipment	(1,557	)	(536	)
Purchases of available for sale securities	(40,920	)	–
Maturities of available for sale securities	9,343		–
Other	(59	)	(58	)
Net cash used in investing activities	(33,193	)	(594	)
Cash flows from financing activities:
Proceeds from issuance ofnotes payable	–		349
Payment of notes payable	(452	)	(381	)
Proceeds from issuance of common stock –
Initial Public Offering, net	33,780		–
Other	64		21
Net cash provided by (used in) financing activities	33,392		(11	)
Net increase in cash and cash equivalents	4,793		284
Cash and cash equivalents, beginning of period	3,982		3,578
Cash and cash equivalents, end of the period	$   8,775		$ 3,862

The accompanying notes are an integral part of these condensed consolidated financial statements.

LATITUDE COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – The Company and Basis of Presentation

     Latitude Communications, Inc. (the “Company”) is a leading provider of integrated voice and data conferencing solutions for geographically dispersed organizations. The Company develops, markets and supports its MeetingPlace system, which allows companies to conduct voice and data conferences which emulate face-to-face meetings, or what we call virtual meetings, and extend real-time decision making processes irrespective of the geographic location of participants. With MeetingPlace, participants can schedule and attend a meeting, share and edit documents, and capture and retrieve meeting content. MeetingPlace is designed to be an enterprise-wide resource and to leverage existing technologies such as telephones, cellular phones and personal computers.

     The accompanying unaudited condensed consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. The balance sheet at December 31, 1998 was derived from audited financial statements, however, it does not include all disclosures required by generally accepted accounting principles. The financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes thereto contained in the Company's Prospectus dated May 6, 1999.

Note 2 – Inventory

	September 30, 1999	December 31, 1998
	(Unaudited)
Raw materials	$589	$359
Work in process	–	36
Finished goods	160	293
	$749	$688

Note 3 – Recent Accounting Pronouncements

     In December 1998, AcSEC released Statement of Position 98-9, or SOP 98-9, Modification of SOP 97-2, "Software Revenue Recognition," with Respect to Certain Transactions. SOP 98-9 amends SOP 97-2 to require that an entity recognize revenue for multiple element arrangements by means of the "residual method" when (1) there is vendor-specific objective evidence ("VSOE") of the fair values of all the undelivered elements that are not accounted for by means of long-term contract accounting, (2) VSOE of fair value does not exist for one or more of the delivered elements, and (3) all revenue recognition criteria of SOP 97-2 (other than the requirement for VSOE of the fair value of each delivered element) are satisfied. The provisions of SOP 98-9 that extend the deferral of certain paragraphs of SOP 97-2 became effective December 15, 1998. These paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions that are entered into in fiscal years beginning after March 15, 1999. Retroactive application is prohibited. The Company is evaluating the requirements of SOP 98-9 and the effects, if any, on the Company's current revenue recognition policies.

     In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, or SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of hedging relationship that exists. In July 1999, the FASB issued SFAS 137 “Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of SFAS 133.” SFAS 137 defers the effective date of SFAS 133 to fiscal quarters and years beginning after June 15, 2000. The Company does not currently hold derivative instruments or engage in hedging activities.

Note 4 – Net Income Per Share

     Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of vested common shares outstanding for the period. Diluted net income per share is computed giving effect to all dilutive potential common shares, including options, warrants and preferred stock.

     A reconciliation of the numerator and denominator of basic and diluted EPS is provided as follows (in thousands, except per share amounts).

	Three Months Ended September 30,		Nine Months Ended September 30,
	1999	1998	1999	1998
	(Unaudited)
Net income per share, basic and diluted:
Numerator for net income, basic and diluted	$  1,094	$     236	$  2,106	$     435
Denominator for basic net income per share:
Weighted average vested common shares outstanding	18,590	3,323	11,498	3,243
Net income per share basic	$    0.06	$    0.07	$    0.18	$    0.13
Denominator for diluted earnings per share:
Weighted average vested common shares outstanding	18,590	3,323	11,498	3,243
Effect of dilutive securities:
Nonvested common shares	205	422	251	521
Common stock options	1,217	563	1,026	409
Warrants	39	107	78	94
Convertible preferred stock	–	11,836	5,529	11,836
Weighted average common and common equivalent shares	20,051	16,251	18,382	16,103
Net income per share diluted	$    0.05	$    0.01	$    0.11	$    0.03

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or forecasted. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled “Factors That May Affect Future Results” and those appearing elsewhere in this Form 10-Q. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. The Company assumes no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

Overview

     We are a leading provider of integrated voice and data conferencing solutions for geographically dispersed organizations. We develop, market and support our MeetingPlace system, which allows companies to conduct virtual meetings and extend real-time decision making processes irrespective of the geographic location of participants. With MeetingPlace, participants can schedule and attend a meeting, view, share and edit documents, and capture and retrieve meeting content. MeetingPlace is designed to be an enterprise-wide resource and to leverage existing technologies such as telephones, cellular phones and personal computers.

     We generate revenue from sales of our MeetingPlace products and from service revenue. Revenue derived from product sales constituted 84%, 82% and 78% of our total revenue in 1996, 1997 and 1998 and 72% in the first nine months of 1999. Product revenue is generally recognized upon shipment. We calculate an allowance for returns based on historical rates. During 1998, three systems totaling $386,000 were returned and charged to this allowance. There were no system returns in the first nine months of 1999. Service revenue includes revenue from implementation and integration services, system management services, warranty coverage and customer support. Revenue from implementation and system integration services is recognized as the services are performed, while revenue from system management services, warranty coverage and customer support is recognized ratably over the period of the contract.

     We sell our MeetingPlace products primarily through our direct sales force and, to a lesser extent, through indirect distribution channels. The majority of our revenue is derived from Fortune 1000 companies, many of which initially purchase MeetingPlace servers and later expand deployment of our products as they require additional capacity for voice and data conferencing. In 1997, we expanded into international markets by opening a sales office in the United Kingdom and establishing distributor relationships in Hong Kong and Singapore, and in 1998, we established a distributor relationship in Australia. While we intend to increase sales through indirect channels and internationally, we cannot assure you that we will be successful. In 1998, we expanded the breadth of our support services by establishing a consulting services group to provide expanded implementation services, system management services and customized project consulting.

     Total cost of revenue consists of component and materials costs, direct labor costs, warranty costs, royalties and overhead related to manufacturing of our products, as well as materials, travel and labor costs related to personnel engaged in our service operations. Product gross margin is impacted by the proportion of product revenue derived from software sales, which typically carry higher margins than hardware sales, and from indirect distribution channels, which typically carry lower margins than direct sales. Service gross margin is impacted by the mix of services we provide, which have different levels of profitability, and the efficiency with which we provide full care support and other services to our customers.

Results Of Operations

     The following table lists, for the periods indicated, the percentage of total revenue of each line item from our condensed consolidated statement of operations to total revenues:

	Three Months Ended September 30,				Nine Months Ended September 30,
	1999		1998		1999		1998
Revenue:
Product	72	.5%	76	.9%	72	.2%	79	.8%
Service	27	.5%	23	.1%	27	.8%	20	.2%
Total revenue	100	.0%	100	.0%	100	.0%	100	.0%
Cost of revenue:
Product	12	.0%	15	.8%	12	.4%	14	.5%
Service	15	.2%	13	.5%	14	.4%	13	.8%
Total cost of revenue	27	.2%	29	.3%	26	.8%	28	.3%
Gross profit	72	.8%	70	.7%	73	.2%	71	.7%
Operating expenses:
Research and development	11	.7%	11	.2%	12	.7%	12	.4%
Marketing and sales	43	.7%	46	.2%	44	.3%	46	.7%
General and administrative	7	.4%	7	.4%	6	.9%	8	.2%
Amortization of deferred stock
compensation	2	.1%	1	.2%	2	.6%	1	.1%
Total operating expenses	64	.9%	66	.0%	66	.5%	68	.4%
Income from operations	7	.9%	4	.7%	6	.7%	3	.3%
Interest income (expense), net	5	.4%	(0	.3)%	3	.1%	(0	.2)%
Income before provision for income tax	13	.3%	4	.4%	9	.8%	3	.1%
Provision for income tax	0	.7%	0	.1%	0	.6%	0	.2%
Net income	12	.6%	4	.3%	9	.2%	2	.9%

   Product Revenue

     Product revenue was $6.3 million and $16.5 million for the third quarter and first nine months of 1999, respectively, which represented increases of 48% and 40% when compared to corresponding periods of 1998. The increases were due primarily to increased sales of our MeetingPlace products domestically to new customers, increased sales of additional products and features to existing customers, and, to a lesser extent, increased international sales. International sales represented approximately 11% and 15% of product revenue in the three months ended September 30, 1999 and 1998 and approximately 8% and 9% of product revenue in the nine months ended September 30, 1999 and 1998.

   Service Revenue

     Service revenue was $2.4 million and $6.4 million for the third quarter and first nine months of 1999, respectively, which represented increases of 87% and 113% when compared to corresponding periods of 1998. The increases were attributable primarily to growth in our customer base during these periods, which led to increased sales of full care support services, as well as the introduction of additional consulting services such as managed services and expanded implementation and integration services.

   Total Cost of Revenue

     Total cost of revenue was $2.4 million and $6.1 million for the third quarter and first nine months of 1999, respectively, which represented increases of 46% and 46% when compared to corresponding periods of 1998. The increase in total cost of revenue was attributable primarily to increased sales of our MeetingPlace products and related services, as well as the increased size of our services staff and the costs of providing services to support an increasingly geographically dispersed customer base. Resulting gross profit was $6.3 million and $16.7 million for the third quarter and first nine months of 1999, respectively, as compared to $3.9 million and $10.6 million in corresponding periods of 1998. Gross margin was 73% as a percentage of revenue, for both the third quarter and first nine months of 1999, as compared to 71% and 72% for the corresponding periods of 1998.

     Product gross margin increased slightly to 83% as a percentage of product revenue for both the third quarter and first nine months of 1999 as compared to 79% and 82% for the corresponding periods of 1998. We expect that product gross margin may decrease in the future due in part to potential pricing pressure and an expected increase in the proportion of revenue derived from indirect distribution channels.

     Service gross margin was 45% and 48% as a percentage of revenue for the third quarter and first nine months of 1999, respectively, as compared to 42% and 32% for the corresponding periods of 1998. We expect that service gross margin may decline in the future as a result of the addition of support personnel, potential pricing pressure and an increase in the mix of lower margin service offerings.

   Research and Development Expenses

     Research and development expenses consist primarily of compensation and related costs for research and development personnel, facilities expenses for testing space and equipment and royalty payments. Research and development expenses were $1.0 million and $2.9 million for the third quarter and first nine months of 1999, respectively, which represented increases of 63% and 58% when compared to corresponding periods in 1998. As a percentage of total revenues, research and development expenses rose from 11% in the third quarter of 1998 to 12% in the third quarter of 1999 and from 12% to 13% in the first nine months of 1998 to the first nine months of 1999. The increase was attributable primarily to the addition of personnel in our research and development organization associated with product development. We expect to continue to make substantial investments in research and development and anticipate that research expenses will continue to increase in absolute dollars.

   Marketing and Sales Expenses

     Marketing and sales expenses consist primarily of promotional expenditures and compensation and related costs for marketing and sales personnel. Marketing and sales expenses were $3.8 million and $10.1 million for the third quarter and first nine months of 1999, respectively, which represented increases of 49% and 47% when compared to corresponding periods in 1998. As a percentage of total revenues, marketing and sales expenses declined from 46% in the third quarter of 1998 to 44% in the third quarter of 1999 and from 47% to 44% in the first nine months of 1998 to the first nine months of 1999. The decrease in marketing and sales expenses as a percentage of revenue was due primarily to increased revenue. The increases in absolute dollars of $1.2 million for the third quarter and $3.2 million for the first nine months, reflected the addition of personnel in our sales and marketing organizations, as well as costs associated with increased selling efforts to develop market awareness of our products and services.

   General and Administrative Expenses

     General and administrative expenses consist primarily of personnel expenses, legal and accounting expenses and other general corporate expenses. General and administrative expenses were $641,000 and $1.6 million for the third quarter and first nine months of 1999, respectively, which represented increases of 56% and 29% when compared to corresponding periods in 1998. As a percentage of total revenues, general and administrative expenses were constant at 7% in the third quarter of 1998 and 1999 and decreased from 8% to 7% in the first nine months of 1998 to the first nine months of 1999. The increase in absolute dollars was attributable primarily to the addition of personnel in our general and administrative organization and expenses in connection with being a public company. The decrease as a percentage of total revenues is due primarily to greater efficiencies of scale. We expect general and administrative expenses to increase in absolute dollars as we add personnel and incur additional costs related to the anticipated growth of our business and operation as a public company.

   Amortization of Deferred Stock Compensation

     In connection with the completion of our initial public offering in May 1999, options granted in the last quarter of 1997, 1998 and the first quarter of 1999 have been considered to be compensatory. Total deferred stock compensation associated with these options as of September 30, 1999 amounted to $3.0 million, of which $2,000, $299,000 and $600,000 had been amortized to expense in 1997, 1998 and the first nine months of 1999. These amounts are being amortized based on the vesting period of these options, most of which are over 48 months. Of the total deferred stock compensation, $183,000 was amortized in the third quarter of 1999. We expect amortization of approximately $781,000 in 1999, $726,000 in 2000, $724,000 in 2001 and $444,000 in 2002 related to the options presently outstanding.

   Interest Income (Expense), Net

     Interest income, net of interest expense, was $475,000 and $713,000 for the third quarter and first nine months of 1999, respectively, compared to interest expense, net of interest income, of $13,000 and $34,000 for the corresponding periods in 1998. Interest expense was related to obligations under capital leases and equipment loans. The increase in net interest income was attributable primarily to interest income earned on higher cash and marketable securities average balances in the third quarter of 1999, primarily from net proceeds from our initial public offering in May 1999.

   Income Taxes

     For the quarter ended September 30, 1999, the provision for income tax was $67,000, compared to $10,000 in the quarter ended September 30, 1998. For the first nine months of 1999, the provision for income tax was $137,000, compared to $20,000 in the first nine months of 1998. Our effective tax rate was approximately 6% for the third quarter and first nine months of 1999 and approximately 4% for the same periods in 1998. These rates were lower than the statutory U.S. federal rate due primarily to the utilization of net operating loss carryforwards.

Management Changes

     During the quarter ended September 30, 1999 and since that time, we have had several changes in the executive officers of the corporation.

     Effective July 1999, Stephen S. Pao was appointed to the newly created position of vice president, product management. Mr. Pao had previously served as our director of product marketing from April 1997 to July 1999 and as a product manager from November 1994 to April 1997. Before Latitude, Mr. Pao was a product manager at Visioneer, Inc. from September 1993 to October 1994 and Oracle Corporation from August 1990 to September 1993. Mr. Pao holds a B.S. degree in electrical sciences and engineering and a M.S. degree in electrical engineering and computer science from the Massachusetts Institute of Technology.

     Effective September 1999, R. Dixon Speas, Jr. was appointed to the newly created position of vice president, worldwide sales and support. From March 1989 to September 1999, Mr. Speas served in various management positions with Aspect Telecommunications Corporation, a provider of call center systems, most recently vice president, Asia Pacific and Latin America. From November 1978 to March 1989, Mr. Speas was employed with ROLM Corporation in a series of positions in manufacturing and then customer support. Prior to ROLM, Mr. Speas was employed by Ernst & Ernst as an auditor and consultant. Mr. Speas holds a B.S. degree in industrial engineering, an M.S. degree in operations research from Stanford University and an M.B.A degree from the Stanford Graduate School of Business.

     Effective October 1999, Glenn A. Eaton resigned as vice president, international to pursue other interests. Mr. Speas will serve as acting vice president, international until this position is filled permanently.

     Effective October 1999, Roberta H. Gray resigned as vice president, marketing to pursue other interests. Also effective in October 1999, Robert D. Tate was appointed to the position of vice president, marketing. From August 1994 to May 1999, Mr. Tate served in various management positions with Vantive Corporation, a customer relationship management software company, including vice president, channel marketing from July 1998 to May 1999, vice president, field marketing from January 1997 to June 1998 and vice president, corporate marketing from April 1995 to May 1996. Prior to Vantive, Mr. Tate held various marketing management positions at Aspect from January 1989 to August 1994. Mr. Tate holds a B.S. degree from the University of Southern California and an M.B.A degree from the Fuqua School of Business, Duke University.

Liquidity and Capital Resources

     In May 1999, we completed an initial public offering of common stock, resulting in net proceeds to us of approximately $33.8 million. As of September 30, 1999, we had $40.2 million of cash, cash equivalents and investments, which represented 80.2% of total assets.

     Cash provided by operating activities was $4.6 million in the first nine months of 1999, compared to $889,000 in the same period of 1998. Cash provided by operating activities in 1999 was due to net income plus adjustments for non-cash items and an increase in deferred revenue.

     Cash used in investing activities in the first nine months of 1999 was $33.2 million, which consisted primarily of the purchase of marketable securities of $40.9 million and purchase of property and equipment of $1.6 million, partially offset by maturities of marketable securities. For the first nine months in 1998, cash used in investing activities of $594,000 consisted primarily of the purchase of property and equipment.

     Cash provided by financing activities in the first nine months of 1999 of $33.4 million consisted primarily of proceeds from our initial public stock offering. For the first nine months of 1998, cash used by financing activities of $11,000 primarily consisted of payments on obligations under capital leases and notes payable of $381,000, partially offset by the proceeds from issuance of notes payable.

     We believe that our current cash, cash equivalents and marketable securities will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months.

Year 2000 Readiness Disclosure

     Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. As a result, software that records only the last two digits of the calendar year may not be able to distinguish between twentieth and twenty-first century dates. This may result in software failures or the creation of erroneous results.

     We have conducted the first phases of a Year 2000 readiness review for the current versions of our products. The review includes assessment, implementation activities such as remediation, upgrading and replacement of product versions, validation testing, and contingency planning. We continue to respond to customer questions about prior versions of our products on a case-by-case basis.

     We have completed all phases of this plan for the current versions of our products. As a result, all current versions of our products are "Year 2000 Compliant," as defined below, when configured and used in accordance with the related documentation, and provided that the underlying operating system of the host machine and any other software used with or in the host machine or our products are also Year 2000 Compliant. We have not tested our products on all platforms or all versions of operating systems that we currently support.

     We have defined "Year 2000 Compliant" as the ability to:

• correctly handle date information needed for the December 31, 1999 to January 1, 2000 date change;
• function according to the product documentation provided for this date change, without changes in operation resulting from the advent of a new century, assuming correct configuration;
• where appropriate, respond to two-digit date input in a disclosed, defined, and predetermined manner to unambiguously indicate the century referred to;
• if the date elements in interfaces and data storage specify the century, store and provide output of unambiguous date information; and recognize the year 2000 as a leap year.

     We have tested software obtained from third parties, including licensed software, shareware, and freeware, that is incorporated into our products, and we are seeking assurances from our vendors that licensed software is Year 2000 Compliant. Despite testing by us and by current and potential clients, and assurances from developers of products incorporated into our products, our products may contain undetected errors or defects associated with Year 2000 date functions. Known or unknown errors or defects in our products could result in delay or loss of revenue, diversion of development resources, damage to our reputation, or increased service and warranty costs, any of which could materially adversely affect our business, operating results or financial condition. Some commentators have predicted significant litigation regarding Year 2000 compliance issues, and we are aware of these types of lawsuits against other software vendors. Because of the unprecedented nature of Year 2000 litigation, it is uncertain whether or to what extent we may be affected by it.

     Our internal systems include both our information technology, or IT, and non-IT systems. We have completed assessment of our material internal IT and non-IT systems, including both our own software products and third-party software and hardware technology. To the extent that we are not able to test the technology provided by third-party vendors, we are seeking assurances from vendors that their systems are Year 2000 Compliant. We are not currently aware of any material operational issues or costs associated with preparing our internal IT and non-IT systems for the Year 2000. However, we may experience material unanticipated problems and costs caused by undetected errors or defects in the technology used in our internal IT and non-IT systems.

     We currently have information concerning the Year 2000 compliance status of some but not all of our customers. If our current or future customers fail to achieve Year 2000 compliance or if they divert technology expenditures, especially technology expenditures that were reserved for conferencing products, to address Year 2000 compliance problems, our business could suffer.

     To date, we have incurred expenses of approximately $65,000 for Year 2000 compliance activities. We will incur additional costs related to the Year 2000 plan for administrative personnel to manage the project, outside contractor assistance, technical support for our products, product engineering and customer satisfaction. We estimate that these additional costs will total less than $100,000. However, we may experience material problems and costs with Year 2000 compliance not currently identified in our Year 2000 plan that could adversely affect our business, results of operations, and financial condition. Finally, we are also subject to external forces that might generally affect industry and commerce, such as utility or transportation company Year 2000 compliance failures and related service interruptions.

Impact of Recently Issued Accounting Standards

     In December 1998, AcSEC released Statement of Position 98-9, or SOP 98-9, Modification of SOP 97-2, "Software Revenue Recognition," with Respect to Certain Transactions. SOP 98-9 amends SOP 97-2 to require that an entity recognize revenue for multiple element arrangements by means of the "residual method" when (1) there is vendor-specific objective evidence of the fair values of all the undelivered elements that are not accounted for by means of long-term contract accounting, (2) vendor-specific objective evidence of fair value does not exist for one or more of the delivered elements, and (3) all revenue recognition criteria of SOP 97-2, other than the requirement for vendor-specific objective evidence of the fair value of each delivered element, are satisfied. The provisions of SOP 98-9 that extend the deferral of the second sentence of paragraphs 10, 37, 41 and 57 of SOP 97-2 became effective December 15, 1998. These paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions that are entered into in fiscal years beginning after March 15, 1999. Retroactive application is prohibited. We are evaluating the requirements of SOP 98-9 and the effects, if any, on our current revenue recognition policies.

     In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of hedging relationship that exists. In July 1999, the FASB issued SFAS 137 “Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of SFAS 133.” SFAS 137 defers the effective date of SFAS 133 to fiscal quarters and years beginning after June 15, 2000. We do not currently hold derivative instruments or engage in hedging activities.

Factors That May Affect Future Results

     In addition to the other information in this report, the following factors should be considered carefully in evaluating the Company’s business and prospects:

     Our future profitability is uncertain due to our limited operating history. We have a limited operating history and cannot assure you that our revenue will continue to grow or that we will maintain profitability in the future. Our financial statements must be considered in light of the risks and uncertainties encountered by companies in the early stages of development. We rely substantially on sales of our MeetingPlace products, which have limited market acceptance.

     In addition, we are unable to predict our future product development, sales and marketing, and administrative expenses. To the extent that these expenses increase, we will need to increase revenue to sustain profitability. Our ability to increase revenue and sustain profitability also depends on the other risk factors described in this section.

     Our operating results may fluctuate significantly. Our operating results are difficult to predict. Our future quarterly operating results may fluctuate and may not meet the expectations of securities analysts or investors. If this occurs, the price of our common stock would likely decline. The factors that may cause fluctuations of our operating results include the following:

• changes in our mix of revenues generated from product sales and services;
• changes by existing customers in their levels of purchases of our products and services;
• changes in our mix of sales channels through which our products and services are sold; and
• changes in our mix of domestic and international sales.

     Orders at the beginning of each quarter typically do not equal expected revenue for that quarter. In addition, a significant portion of our orders is received in the last month of each fiscal quarter. If we fail to ship products by the end of a quarter in which the order is received, or if our prospective customers delay their orders or delivery schedules until the following quarter, we may fail to meet our revenue objectives.

     Our market is highly competitive. Because of intense market competition, we may not be successful. Currently, our principal competitors include:

• major telecommunications carriers that operate service bureaus for voice conferencing, such as AT&T Corp., MCI Worldcom, Inc. and Sprint Corporation;
• private branch exchange, or PBX, vendors that sell systems with voice conferencing capabilities, such as Lucent Technologies Inc. and Nortel Networks; and
• smaller start-up companies that offer web-based voice and data conferencing products.

     Many of these companies have longer operating histories, stronger brand names and significantly greater financial, technical, marketing and other resources than we do. These companies also may have existing relationships with many of our prospective customers. In addition, these companies may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirements.

     In addition, we expect competition to persist and intensify in the future, which could adversely affect our ability to increase sales, penetrate new markets and maintain average selling prices. In the future, we may experience competition from potential competitors that include:

• networking companies, such as Cisco Systems, Inc., 3Com Corporation, Lucent Technologies Inc. and Nortel Networks that are focusing on enabling the transmission of voice over the Internet and that may offer voice and data conferencing functionality; and
• collaborative software providers, such as Microsoft Corporation and Lotus Development Corporation, that are focusing on data conferencing products and that may in the future incorporate voice conferencing functionality into their products.

     Our market is in an early stage of development, and our products may not be adopted. If the market for our integrated voice and data conferencing products fails to grow or grows more slowly than we anticipate, we may not be able to increase revenues or remain profitable. The market for integrated real-time voice and data conferencing is relatively new and rapidly evolving. Our ability to remain profitable depends in large part on the widespread adoption by end users of real-time voice and data conferencing.

     We will have to devote substantial resources to educate prospective customers about the uses and benefits of our products. In addition, businesses that have invested substantial resources in other conferencing products may be reluctant or slow to adopt our products, which might replace or compete with their existing systems. Our efforts to educate potential customers may not result in our products achieving market acceptance.

     Rapid technological changes could cause our products to become obsolete or require us to redesign our products. The market in which we compete is characterized by rapid technological change, frequent new product introductions, changes in customer requirements and emerging industry standards. In particular, we expect that the growth of the Internet and Internet-based telephony applications, as well as general technology trends such as migrations to new operating systems, will require us to adapt our product to remain competitive. This adaptation could be costly and time-consuming. Our products could become obsolete and unmarketable if products using new technologies are introduced and new industry standards emerge. For example, the widespread acceptance of competing technologies, such as video conferencing and the transmission of voice over the Internet, could diminish demand for our current products. As a result, the life cycle of our products is difficult to estimate.

     To be successful, we will need to develop and introduce new products and product enhancements that respond to technological changes or evolving industry standards, such as the transmission of voice over the Internet, in a timely manner and on a cost effective basis. We cannot assure you that we will successfully develop these types of products and product enhancements or that our products will achieve broad market acceptance.

     Our sales cycle is lengthy and unpredictable. Any delay in sales of our products could cause our quarterly revenue and operating results to fluctuate. The typical sales cycle of our products is lengthy, generally between six to nine months, unpredictable, and involves significant investment decisions by prospective customers, as well as our education of potential customers regarding the use and benefits of our products. Furthermore, many of our prospective customers have neither budgeted expenses for voice and data conferencing systems nor have personnel specifically dedicated to procurement and implementation of these conferencing systems. As a result, our customers spend a substantial amount of time before purchasing our products in performing internal reviews and obtaining capital expenditure approvals. We cannot be certain that this cycle will not lengthen in the future. The emerging and evolving nature of the real-time voice and data conferencing market may lead to confusion in the market, which may cause prospective customers to postpone their purchase decisions. In addition, general concerns regarding Year 2000 compliance may further delay purchase decisions by prospective customers.

     If we fail to expand our sales and distribution channels, our business could suffer. If we are unable to expand our sales and distribution channels, we may not be able to increase revenue or achieve market acceptance of our MeetingPlace product. We have recently expanded our direct sales force and plan to recruit additional sales personnel. New sales personnel will require training and take time to achieve full productivity, and there is strong competition for qualified sales personnel in our business. In addition, we believe that our future success is dependent upon establishing successful relationships with a variety of distribution partners. To date, we have entered into agreements with only a small number of these distribution partners. We cannot be certain that we will be able to reach agreement with additional distribution partners on a timely basis or at all, or that these distribution partners will devote adequate resources to selling our products. Furthermore, if our distribution partners fail to adequately market or support our products, the reputation of our products in the market may suffer. In addition, we will need to manage potential conflicts between our direct sales force and third-party reselling efforts.

     Our ability to expand into international markets is uncertain. We intend to continue to expand our operations into new international markets. In addition to general risks associated with international expansion, such as foreign currency fluctuations and political and economic instability, we face the following risks and uncertainties any of which could prevent us from selling our products in a particular country or harm our business operations once we have established operations in that country:

• the difficulties and costs of localizing products for foreign markets, including the development of multilingual capabilities in our MeetingPlace system;
• the need to modify our products to comply with local telecommunications certification requirements in each country; and
• our lack of a direct sales presence in other countries, our need to establish relationships with distribution partners to sell our products in these markets and our reliance on the capabilities and performance of these distribution partners.

     If we fail to integrate our products with third-party technology, our sales could suffer. Our products are designed to integrate with our customers' data and voice networks, as well as with enterprise applications such as browsers and collaborative software applications. If we are unable to integrate our products with these networks and systems, sales of our products could suffer.

     In addition, we may be required to engage in costly and time-consuming redesigns of our products because of technology enhancements or upgrades of these systems. We may not be able to redesign our products or be certain that any of these redesigns will achieve market acceptance. In addition, we will need to continually modify our products as newer versions of the enterprise applications with which our products integrate are introduced. Our ability to do so largely depends on our ability to gain access to the advanced programming interfaces for these applications, and we cannot assure you that we will have access to necessary advanced programming interfaces in the future.

     We may experience difficulties managing our expected growth. Our recent growth has strained, and we expect that any future growth will continue to strain, our management systems and resources, which could hinder our ability to continue to grow in the future. We may also experience difficulties meeting the demand for our products and services. If we are unable to provide training and support for our products, the implementation process will be longer and customer satisfaction may be lower.

     We may not be able to install management information and control systems in an efficient and timely manner, and our current or planned personnel, systems, procedures and controls may not be adequate to support our future operations. Competition for qualified personnel in the San Francisco Bay area, as well as other markets in which we recruit, is extremely intense and characterized by rapidly increasing salaries, which may increase our operating expenses or hinder our ability to recruit qualified candidates.

     Our business could suffer if we lose the services of our current management team. Our future success depends on the ability of our management to operate effectively, both individually and as a group. If we were to lose the services of any of these key employees we may encounter difficulties finding qualified personnel to replace them. Recently, we have had three individuals join and two individuals leave the management team.

     The loss of our right to use technology licensed to us by third parties could harm our business. We license technology that is incorporated into our products from third parties, including digital signal processing algorithms and the MeetingPlace server's operating system and relational database. Any interruption in the supply or support of any licensed software could disrupt our operations and delay our sales, unless and until we can replace the functionality provided by this licensed software. Because our products incorporate software developed and maintained by third parties, we depend on these third parties to deliver and support reliable products, enhance their current products, develop new products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes.

     Any interruption in supply of components from outside manufacturers and suppliers could hinder our ability to ship products in a timely manner. We rely on third parties to obtain most of the components of the MeetingPlace server and integrate them with other standard components, such as the central processing unit and disk drives. If these third parties are no longer able to supply and assemble these components or are unable to do so in a timely manner, we may experience delays in shipping our products and have to invest resources in finding an alternative manufacturer or manufacture our products internally.

     In addition, we obtain key hardware components, including the processors and digital signal processing devices used in the MeetingPlace server, from sole source suppliers. In the past, we have experienced problems in obtaining some of these components in a timely manner from these sources, and we cannot be certain that we will be able to continue to obtain an adequate supply of these components in a timely manner or, if necessary, from alternative sources. If we are unable to obtain sufficient quantities of components or to locate alternative sources of supply, we may experience delays in shipping our products and incur additional costs to find an alternative manufacturer or manufacture our products internally.

     Our products may suffer from defects, errors or breaches of security. Software and hardware products as complex as ours are likely to contain undetected errors or defects, especially when first introduced or when new versions are released. Any errors or defects that are discovered after commercial release could result in loss of revenue or delay in market acceptance, diversion of development resources, damage to our customer relationships or reputation or increased service and warranty cost. Our products may not be free from errors or defects after commercial shipments have begun, and we are aware of instances in which some of our customers have experienced product failures or errors.

     Many of our customers conduct confidential conferences, and transmit confidential data, using MeetingPlace. Concerns over the security of information sent over the Internet and the privacy of its users may inhibit the market acceptance of our products. In addition, unauthorized users in the past have gained, and in the future may be able to gain, access to our customers' MeetingPlace systems. Any compromise of security could deter people from using MeetingPlace and could harm our reputation and business and result in claims against us.

     We may be unable to adequately protect our proprietary rights, and we may be subject to infringement claims. Unauthorized parties may copy aspects of our products and obtain and use information that we regard as proprietary, which could cause our business to suffer. Furthermore, the laws of many foreign countries do not protect our intellectual property rights to the same extent as the laws of the United States.

     In the future, we may be subject to legal proceedings and claims for alleged infringement of third party proprietary rights. Any of these claims, even if not meritorious, could result in costly litigation, divert management's attention and resources, or require us to enter into royalty or license agreements which are not advantageous to us. Parties making these claims may be able to obtain injunctive or other equitable relief, which could prevent us from selling our products.

     Dell Computer Corporation has registered the "Latitude" mark for computers in the United States and in other countries. Dell's United States trademark registration and Canadian application have blocked our ability to register the "Latitude Communications" and "Latitude" with logo marks in the United States and the "Latitude Communications" mark in Canada. Since we believe that we have priority of trade name usage in the United States, we have petitioned to cancel Dell's United States registration and opposed its Canadian application. The outcome of these proceedings is uncertain. If Dell's registration for the "Latitude" mark is not canceled or if we are unable to obtain consent from Dell for our registration of our marks, we may not be able to register our marks and would have to rely solely on common law protection for these marks. We cannot assure you that we will be free from challenges of or obstacles to our use or registration of our marks.

     We are subject to government regulation, and our failure to comply with these regulations could harm our business. Our products are subject to a wide variety of safety, emissions and compatibility regulations imposed by governmental authorities in the United States or in other countries in which we sell our products. If we are unable to obtain necessary approvals or maintain compliance with the regulations of any particular jurisdiction, we may be prohibited from selling our products in that territory. In addition, to sell our products in many international markets, we are required to obtain certifications that are specific to the local telephony infrastructure.

     We may be subject to claims related to Year 2000 issues, and Year 2000 concerns could adversely affect our revenues. Many currently installed computer systems are not capable of distinguishing 21st century dates from 20th century dates. As a result, beginning on January 1, 2000, computer systems and software used by many companies and organizations in a wide variety of industries, including technology, transportation, utilities, finance and telecommunications, will produce erroneous results or fail unless they have been modified or upgraded to process date information correctly. Year 2000 compliance efforts may involve significant time and expense, and uncorrected problems could materially adversely affect our business, financial condition and operating results. We may face claims based on Year 2000 issues arising from the integration of multiple products within an overall system. We may also experience reduced sales of our products as potential customers reduce their budgets for voice and data conferencing products due to increased expenditures on their own Year 2000 compliance efforts. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Readiness Disclosure."

     Our stock price may be volatile. We expect that the market price of our common stock will fluctuate as a result of variations in our quarterly operating results. These fluctuations may be exaggerated if the trading volume of our common stock is low. In addition, due to the technology-intensive and emerging nature of our business, the market price of our common stock may rise and fall in response to:

• announcements of technological or competitive developments;
• acquisitions or strategic alliances by us or our competitors; or
• the gain or loss by us of significant orders.

     Our executive officers and directors and their affiliates own a large percentage of our voting stock and could control the voting power of the common stock. Our executive officers and directors and their affiliates beneficially own, in the aggregate, a large percentage of our outstanding common stock. As a result, these stockholders are able to exercise control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may delay, deter or prevent transactions that would result in the change of control, which in turn could reduce the market price of our common stock.

     Future sales of our common stock may depress our stock price. Sales of a substantial number of shares of common stock in the public market could materially adversely affect the market price of our common stock. All of the 3,125,000 shares issued in the initial public offering in May 1999 are freely tradable. Upon the expiration on November 3, 1999 of arrangements between our stockholders and Latitude or the underwriters in which our stockholders have agreed not to sell or dispose of their Latitude common stock, the remaining 15,666,365 shares of common stock outstanding at September 30, 1999 became eligible for sale in the public market. Of these shares, 11,682,572 shares are subject to volume limitations under federal securities laws.

     If our stockholders sell substantial amounts of common stock, including shares issued upon the exercise of outstanding options and warrants, in the public market, the market price of our common stock could fall.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk.

     Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We place our investments with high credit quality issuers and, by policy, limit the amount of credit exposure to any one issuer. The portfolio includes only marketable securities with maturities of three to 24 months and with active secondary or resale markets to ensure portfolio liquidity. We have no investments denominated in foreign country currencies and therefore are not subject to foreign currency risk on such investments.

     Currently, the majority of our sales and expenses are denominated in U.S. dollars and, as a result, we have not experienced significant foreign exchange gains and losses to date. While we do expect to effect some transactions in foreign currencies in the next 12 months, we do not anticipate that foreign exchange gains and losses will be significant. We have not engaged in foreign currency hedging activities to date.

PART II.   OTHER INFORMATION

Item 1.      Legal Proceedings – Not Applicable.

Item 2.      Changes in Securities and Use of Proceeds.

     On May 6, 1999, in connection with the Company’s initial public offering, a Registration Statement on Form S-1 (No. 333-72935) was declared effective by the Securities and Exchange Commission, pursuant to which 3,125,000 shares of the Company’s Common Stock were offered and sold for the account of the Company at a price of $12.00 per share, generating gross offering proceeds of $37.5 million. The managing underwriters were Credit Suisse First Boston Corporation, Hambrecht & Quist LLC and Dain Rauscher Wessels. After deducting approximately $2.6 million in underwriting discounts and $1.1 million in other related expenses, the net proceeds of the offering were approximately $33.8 million. The Company has not yet used any of the funds from the initial public offering, and the $33.8 million has been invested in investment grade, interest bearing securities. The Company intends to use such remaining proceeds for capital expenditures, including the acquisition of redundant computer and communication systems, and for general corporate purposes, including working capital to fund increased accounts receivable and inventory levels.

Item 3.      Defaults Upon Senior Securities - Not Applicable.

Item 4.      Submission of Matters to a Vote of Security Holders – Not Applicable.

Item 5.      Other Information – Not Applicable.

Item 6.      Exhibits and Reports on Form 8-K.

            (a)      Exhibits:

                        10.5* - 1999 Directors’ Stock Option Plan and form of stock option agreement

                        27.1 - Financial Data Schedule

            (b)      Reports on Form 8-K - None

* - Revised version correcting certain typographical errors in original filed version.

SIGNATURE

     Pursuant to the requirements of 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.

Latitude Communications, Inc.
  
  
  
  
By:     /s/     RICK M. MCCONNELL
________________________________________________
Rick M. McConnell
Vice President of Finance and Administration and
Chief Financial Officer (Principal Financial and Accounting Officer)

Date: November 12, 1999

EXHIBIT INDEX

10.5 - 1999 Directors’ Stock Option Plan and form of stock option agreement

27.1 - Financial Data Schedule

* - Revised version correcting certain typographical errors in original filed version.

EX-10.5

                          LATITUDE COMMUNICATIONS, INC.

                        1999 DIRECTORS' STOCK OPTION PLAN

         1. PURPOSE OF THE PLAN.  The purposes of this  Directors'  Stock Option
Plan are to attract  and  retain the best  available  personnel  for  service as
Directors  of the  Company,  to  provide  additional  incentive  to the  Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.

                  All options  granted  hereunder  shall be  nonstatutory  stock
options.

         2. DEFINITIONS. As used herein, the following definitions shall apply:

                  (a) "BOARD" means the Board of Directors of the Company.

                  (b) "CHANGE OF CONTROL"  means a sale of all or  substantially
all of the Company's  assets, or any merger or consolidation of the Company with
or into another  corporation  other than a merger or  consolidation in which the
holders  of  more  than  50% of the  shares  of  capital  stock  of the  Company
outstanding  immediately  prior to such transaction  continue to hold (either by
the voting  securities  remaining  outstanding or by their being  converted into
voting  securities  of the  surviving  entity) more than 50% of the total voting
power  represented  by the voting  securities of the Company,  or such surviving
entity, outstanding immediately after such transaction.

                  (c)  "CODE"  means  the  Internal  Revenue  Code of  1986,  as
amended.

                  (d) "COMMON STOCK" means the Common Stock of the Company.

                  (e) "COMPANY" means Latitude Communications,  Inc., a Delaware
corporation.

                  (f) "CONTINUOUS STATUS AS A DIRECTOR" means the absence of any
interruption or termination of service as a Director.

                  (g) "CORPORATE TRANSACTION" means a dissolution or liquidation
of the Company, a sale of all or substantially all of the Company's assets, or a
merger,  consolidation  or other capital  reorganization  of the Company with or
into another corporation.

                  (h) "DIRECTOR" means a member of the Board.

                  (i)  "EMPOLYEE"  means any  person,  including  any officer or
Director,  employed by the Company or any Parent or  Subsidiary  of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.



                  (j)  "EFFECTIVE  DATE"  means  the later of the date the Board
approves this Plan or the effective date of the  Registration  Statement on Form
S-1 for the initial public offering of the Company's Common Stock.

                  (k) "EXCHANGE ACT" means the Securities  Exchange Act of 1934,
as amended.

                  (l)  "OPTION"  means a stock  option  granted  pursuant to the
Plan. All options shall be  nonstatutory  stock options (i.e.,  options that are
not  intended to qualify as incentive  stock  options  under  Section 422 of the
Code).

                  (m)  "OPTIONED  STOCK"  means the Common  Stock  subject to an
Option.

                  (n)  "OPTIONEE"  means an Outside  Director  who  receives  an
Option.

                  (o)  "OUTSIDE  DIRECTOR"  means  a  Director  who  is  not  an
Employee.

                  (p)  "PARENT"  means a "parent  corporation,"  whether  now or
hereafter existing, as defined in Section 424(e) of the Code.

                  (q) "PLAN" means this 1999 Director' Stock Option Plan.

                  (r) "SHARE" means a share of the Common Stock,  as adjusted in
accordance with Section 11 of the Plan.

                  (s) "SUBSIDIARY" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.

         3. STOCK SUBJECT TO THE PLAN.  Subject to the  provisions of Section 11
of the Plan,  the maximum  aggregate  number of Shares which may be optioned and
sold under the Plan is 250,000  Shares of Common Stock (the "POOL").  The Shares
may be authorized, but unissued, or reacquired Common Stock.

         If an  Option  should  expire or become  unexercisable  for any  reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan has been terminated,  become available for future
grant under the Plan. In addition,  any Shares of Common Stock that are retained
by the Company upon exercise of an Option in order to satisfy the exercise price
for such Option,  or any  withholding  taxes due with respect to such  exercise,
shall be  treated as not issued and shall  continue  to be  available  under the
Plan. If Shares that were  acquired upon exercise of an Option are  subsequently
repurchased  by the  Company,  such Shares shall not in any event be returned to
the Plan and shall not become available for future grant under the Plan.

         4.       ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.

                  (a)  ADMINISTRATOR.  Except as otherwise  required herein, the
Plan shall be administered by the Board.



                  (b)  PROCEDURE  FOR  GRANTS.  All grants of Options  hereunder
shall be automatic and nondiscretionary and shall be made strictly in accordance
with the following provisions:

                           (i)  No person shall have any discretion to

select which  Outside  Directors  shall be granted  Options or to determine  the
number of Shares to be covered by Options granted to Outside Directors.

                           (ii) Each Outside Director shall be automatically

granted an Option to purchase  20,000 Shares (the "FIRST OPTION") on the date on
which such person first becomes an Outside Director, whether through election by
the stockholders of the Company or appointment by the Board to fill a vacancy.

                           (iii) Each Outside Director shall thereafter be

automatically granted an Option to purchase 5,000 Shares (a "SUBSEQUENT OPTION")
on the date of each Annual  Meeting of the  Company's  stockholders  immediately
following which such Outside Director is serving on the Board, provided that, on
such date,  he or she shall have served on the Board for at least six (6) months
prior to the date of such Annual Meeting.

                           (iv)     Notwithstanding the provisions of

subsections  (ii) and (iii)  hereof,  in the event that a grant  would cause the
number  of Shares  subject  to  outstanding  Options  plus the  number of Shares
previously purchased upon exercise of Options to exceed the Pool, then each such

 automatic  grant shall be for that number of Shares  determined by dividing the
total number of Shares  remaining  available  for grant by the number of Outside
Directors  receiving an Option on the automatic  grant date.  Any further grants
shall then be deferred  until such time,  if any, as  additional  Shares  become
available  for  grant  under the Plan  through  action  of the  stockholders  to
increase  the  number of Shares  which may be issued  under the Plan or  through
cancellation or expiration of Options previously granted hereunder.

                           (v)      Notwithstanding the provisions of

subsections  (ii) and  (iii)  hereof,  any grant of an Option  made  before  the
Company has obtained stockholder approval of the Plan in accordance with Section
17 hereof shall be conditioned upon obtaining such  stockholder  approval of the
Plan in accordance with Section 17 hereof.

                           (vi) The terms of each First Option granted hereunder

shall be as follows:

                                    (1)     the First Option shall be

exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Section 9 below;

                                    (2)     the exercise price per Share shall

100% of the fair  market  value  per  Share  on the  date of grant of the  First
Option, determined in accordance with Section 8 hereof; and

                                    (3)     the First Option shall become

exercisable in installments  cumulatively as to 25% of the Shares subject to the
First Option on each of the first, second, third and fourth anniversaries of the
date of grant of the Option.



                           (vii) The terms of each Subsequent Option granted

hereunder shall be as follows:

                                    (1)     the Subsequent Option shall be

exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Section 9 below;

                                    (2)     the exercise price per Share shall

be 100% of the  fair  market  value  per  Share  on the  date  of  grant  of the
Subsequent Option, determined in accordance with Section 8 hereof; and

                                    (3)     the Subsequent Option shall become

exercisable in  installments of fifty percent (50%) of the Shares subject to the
Subsequent  Option on the day before each of the first and second  anniversaries
of the date of grant of the Subsequent Option.

                  (c)  POWERS  OF  THE  BOARD.  Subject  to the  provisions  and
restrictions of the Plan, the Board shall have the authority, in its discretion:
(i) to determine,  upon review of relevant  information  and in accordance  with
Section  8(b) of the Plan,  the fair market value of the Common  Stock;  (ii) to
determine the exercise price per Share of Options to be granted,  which exercise
price shall be  determined in  accordance  with Section 8 of the Plan;  (iii) to
interpret the Plan;  (iv) to prescribe,  amend and rescind rules and regulations
relating to the Plan;  (v) to  authorize  any person to execute on behalf of the
Company any instrument  required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.

                  (d) EFFECT OF BOARD'S DECISION. All decisions,  determinations
and interpretations of the Board shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.

                  (e)  SUSPENSION  OR  TERMINATION  OF  OPTION.   If  the  Chief
Executive  Officer or his or her designee  reasonably  believes that an Optionee
has  committed an act of  misconduct,  such  officer may suspend the  Optionee's
right to exercise any option pending a determination by the Board (excluding the
Outside  Director  accused  of such  misconduct).  If the Board  (excluding  the
Outside  Director  accused  of  such  misconduct)  determines  an  Optionee  has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation
owed to the Company,  breach of fiduciary  duty or  deliberate  disregard of the
Company  rules  resulting  in loss,  damage or injury to the  Company,  or if an
Optionee  makes an  unauthorized  disclosure  of any  Company  trade  secret  or
confidential   information,   engages  in  any   conduct   constituting   unfair
competition,  induces any Company customer to breach a contract with the Company
or induces any  principal  for whom the Company acts as agent to terminate  such
agency  relationship,  neither  the  Optionee  nor his or her  estate  shall  be
entitled to exercise any Option whatsoever.  In making such  determination,  the
Board of Directors  (excluding the Outside  Director accused of such misconduct)
shall act  fairly  and shall  give the  Optionee  an  opportunity  to appear and
present  evidence  on  Optionee's  behalf  at a  hearing  before  the Board or a
committee of the Board.

         5. ELIGIBILITY.  Options may be granted only to Outside Directors.  All
Options shall be automatically granted in accordance with the terms set forth in



Section 4(b) above.  An Outside  Director who has been granted an Option may, if
he or she is otherwise  eligible,  be granted an additional Option or Options in
accordance with such provisions.

                  The Plan shall not  confer  upon any  Optionee  any right with
respect to  continuation  of service as a Director or  nomination  to serve as a
Director,  nor shall it  interfere in any way with any rights which the Director
or the Company may have to terminate his or her directorship at any time.

         6. EFFECTIVE DATE; TERM OF PLAN; The Plan shall become effective on the
Effective  Date and shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 13 of the Plan.

         7. TERM OF  OPTIONS.  The term of each  Option  shall be ten (10) years
from the date of grant thereof unless an Option  terminates  sooner  pursuant to
Section 9 below.

         8. EXERCISE PRICE AND CONSIDERATION.

                  (a)  EXERCISE  PRICE.  The per  Share  exercise  price for the
Shares to be issued  pursuant to exercise of an Option shall be 100% of the fair
market value per Share on the date of grant of the Option.

                  (b)  FAIR  MARKET  VALUE.  The  fair  market  value  shall  be
determined by the Board;  provided however that in the event the Common Stock is
traded on the Nasdaq  National  Market or listed on a stock  exchange,  the fair
market  value per  Share  shall be the  closing  sales  price on such  system or
exchange  on the date of grant of the Option  (or,  in the event that the Common
Stock is not traded on such date, on the immediately preceding trading date), as
reported  in THE WALL  STREE  JOURNAL,  or if there is a public  market  for the
Common Stock but the Common Stock is not traded on the Nasdaq National Market or
listed on a stock exchange, the fair market value per Share shall be the mean of
the bid and asked prices of the Common Stock in the  over-the-counter  market on
the  date of  grant,  as  reported  in THE  WALL  STREET  JOURNAL(or,  if not so
reported,  as  otherwise  reported by the  National  Association  of  Securities
Dealers Automated Quotation ("Nasdaq") System).

                  (c) FORM OF  CONSIDERATION.  The  consideration to be paid for
the Shares to be issued upon  exercise of an Option  shall  consist  entirely of
cash, check, other Shares of Common Stock having a fair market value on the date
of surrender equal to the aggregate exercise price of the Shares as to which the
Option shall be exercised (which, if acquired from the Company,  shall have been
held for at least six  months),  or any  combination  of such methods of payment
and/or any other  consideration or method of payment as shall be permitted under
applicable corporate law.

         9.       EXERCISE OF OPTION.

                  (a)  PROCEDURE  FOR  EXERCISE;  RIGHTS AS A  STOCKHOLDER.  Any
Option granted  hereunder shall be exercisable at such times as are set forth in
Section 4(b) above;  provided however that no Options shall be exercisable prior
to stockholder approval of the Plan in accordance with Section 17 below has been
obtained.



                      An Option may not be exercised for a fraction of a

Share.

                           An Option shall be deemed to be exercised when

written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person  entitled to exercise  the Option and full
payment for the Shares with  respect to which the Option is  exercised  has been
received by the  Company.  Full  payment may  consist of any  consideration  and
method of payment  allowable under Section 8(c) of the Plan.  Until the issuance
(as evidenced by the appropriate  entry on the books of the Company or of a duly
authorized  transfer agent of the Company) of the stock  certificate  evidencing
such  Shares,  no right to vote or receive  dividends  or any other  rights as a
stockholder shall exist with respect to the Optioned Stock,  notwithstanding the
exercise of the Option. A share certificate for the number of Shares so acquired
shall be issued to the  Optionee as soon as  practicable  after  exercise of the
Option.  No adjustment  will be made for a dividend or other right for which the
record  date is prior to the date the stock  certificate  is  issued,  except as
provided in Section 11 of the Plan.

              Exercise of an Option in any manner shall result in a

decrease in the number of Shares which  thereafter  may be  available,  both for
purposes of the Plan and for sale under the  Option,  by the number of Shares as
to which the Option is exercised.  \ (b)  TERMINATION OF CONTINUOUS  STATUS AS A
DIRECTOR.  If an Outside Director ceases to serve as a Director,  he or she may,
but only  within  ninety  (90)  days  after  the date he or she  ceases  to be a
Director of the Company, exercise his or her Option to the extent that he or she
was entitled to exercise it at the date of such termination. Notwithstanding the
foregoing,  in no event may the Option be exercised  after its term set forth in
Section 7 has expired. To the extent that such Outside Director was not entitled
to exercise an Option at the date of such termination, or does not exercise such
Option  (to the  extent he or she was  entitled  to  exercise)  within  the time
specified  above,  the Option  shall  terminate  and the Shares  underlying  the
unexercised portion of the Option shall revert to the Plan.

                  (c)  DISABILITY  OF  OPTIONEE.  Notwithstanding  Section  9(b)
above,  in the event a Director  is unable to  continue  his or her service as a
Director  with  the  Company  as a  result  of his or her  total  and  permanent
disability (as defined in Section 22(e)(3) of the Code), he or she may, but only
within twelve (12) months from the date of such termination, exercise his or her
Option to the extent he or she was  entitled  to exercise it at the date of such
termination.  Notwithstanding  the  foregoing,  in no event  may the  Option  be
exercised after its term set forth in Section 7 has expired.  To the extent that
he or she was not entitled to exercise the Option at the date of termination, or
if he or she does not exercise such Option (to the extent he or she was entitled
to exercise) within the time specified above, the Option shall terminate and the
Shares  underlying  the  unexercised  portion of the Option  shall revert to the
Plan.

                  (d)  DEATH  OF  OPTIONEE.  In the  event  of the  death  of an
Optionee:  (A)  During  the term of the Option who is, at the time of his or her
death, a Director of the Company and who shall have been in Continuous Status as
a Director  since the date of grant of the Option,  or (B)three (3) months after
the termination of Continuous Status as a Director, the Option may be exercised,
at any time  within  twelve  (12)  months  following  the date of death,  by the
Optionee's estate or by a person who acquired the right to exercise the Option



by bequest or inheritance,  but only to the extent of the right to exercise that
had  accrued  at the date of death or the date of  termination,  as  applicable.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired.  To the extent that an Optionee was not
entitled to exercise the Option at the date of death or  termination or if he or
she does not  exercise  such  Option  (to the extent he or she was  entitled  to
exercise)  within the time specified  above,  the Option shall terminate and the
Shares  underlying  the  unexercised  portion of the Option  shall revert to the
Plan.

         10. NONTRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned,  hypothecated,  transferred or disposed of in any manner other than by
will or by the laws of  descent  or  distribution  or  pursuant  to a  qualified
domestic relations order (as defined by the Code or the rules  thereunder).  The
designation of a beneficiary  by an Optionee does not constitute a transfer.  An
Option may be exercised  during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.

         11.      ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE
TRANSACTIONS.

                  (a)  ADJUSTMENT.   Subject  to  any  required  action  by  the
stockholders  of the Company,  the number of shares of Common  Stock  covered by
each  outstanding  Option,  the  number of  Shares of Common  Stock set forth in
Sections  4(b)(ii)  and (iii)  above,  and the number of Shares of Common  Stock
which  have  been  authorized  for  issuance  under  the Plan but as to which no
Options  have yet been  granted  or which  have been  returned  to the Plan upon
cancellation  or  expiration  of an  Option,  as well as the  price per Share of
Common Stock covered by each such outstanding  Option,  shall be proportionately
adjusted for any  increase or decrease in the number of issued  Shares of Common
Stock  resulting  from a stock  split,  reverse  stock  split,  stock  dividend,
combination or  reclassification  of the Common Stock (including any such change
in the number of Shares of Common Stock effected in connection  with a change in
domicile  of the  Company)  or any other  increase  or decrease in the number of
issued Shares of Common Stock effected  without receipt of  consideration by the
Company;  provided however that conversion of any convertible  securities of the
Company  shall  not be  deemed  to  have  been  ("effected  without  receipt  of
consideration.") Such adjustment shall be made by the Board, whose determination
in that  respect  shall be final,  binding and  conclusive.  Except as expressly
provided herein,  no issuance by the Company of shares of stock of any class, or
securities  convertible into shares of stock of any class,  shall affect, and no
adjustment by reason  thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.

                  (b) CORPORATE TRANSACTIONS; CHANGE OF CONTROL; In the event of
a  Corporate  Transaction,  each  outstanding  Option  shall  be  assumed  or an
equivalent option shall be substituted by the successor  corporation or a Parent
or Subsidiary of such successor  corporation,  unless the successor  corporation
does not agree to assume the  outstanding  Options or to  substitute  equivalent
options,  in which case the Options shall terminate upon the consummation of the
transaction;  provided  however  that in the event of a Change of Control,  each
Optionee  shall  have the right to  exercise  his or her Option as to all of the
Optioned Stock,  including  Shares as to which the Option would not otherwise be
exercisable, immediately prior to the consummation of such transaction.



                  For  purposes  of this  Section  11(b),  an  Option  shall  be
considered assumed, without limitation, if, at the time of issuance of the stock
or other  consideration  upon such  Corporate  Transaction or Change of Control,
each  Optionee  would be entitled to receive upon exercise of an Option the same
number  and kind of shares  of stock or the same  amount  of  property,  cash or
securities  as the  Optionee  would  have  been  entitled  to  receive  upon the
occurrence of such  transaction if the Optionee had been,  immediately  prior to
such transaction,  the holder of the number of Shares of Common Stock covered by
the Option at such time (after giving effect to any adjustments in the number of
Shares  covered by the Option as  provided  for in this  Section  11);  provided
however that if such  consideration  received in the  transaction was not solely
common stock of the successor  corporation or its Parent, the Administrator may,
with the consent of the successor corporation,  provide for the consideration to
be  received  upon  exercise  of the  Option  to be solely  common  stock of the
successor  corporation  or its Parent  equal to the Fair Market Value of the per
Share consideration received by holders of Common Stock in the transaction.

                  (c) CERTAIN DISTRIBUTIONS. In the event of any distribution to
the  Company's  stockholders  of  securities of any other entity or other assets
(other than dividends  payable in cash or stock of the Company)  without receipt
of  consideration  by the Company,  the  Administrator  may, in its  discretion,
appropriately  adjust  the  price  per Share of  Common  Stock  covered  by each
outstanding Option to reflect the effect of such distribution.

         12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes,  be the date  determined  in accordance  with Section 4(b) hereof.
Notice of the  determination  shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.

         13.      AMENDMENT AND TERMINATION OF THE PLAN.

                  (a)  AMENDMENT  AND  TERMINATION.   The  Board  may  amend  or
terminate  the Plan  from  time to time in such  respects  as the Board may deem
advisable;  provided that, to the extent  necessary and desirable to comply with
the legal  requirements  relating to the  administration  of stock  option plans
under  applicable U.S. state corporate laws, U.S.  federal and applicable  state
securities  laws, the Code, any stock exchange or Nasdaq rules or regulations to
which the Company may be subject and the applicable laws of any other country or
jurisdiction  where  Options are granted  under the Plan,  as such laws,  rules,
regulations and requirements shall be in place from time to time (the"APPLICABLE
LAWS").  The Company shall obtain approval of the stockholders of the Company to
Plan  amendments  to the  extent  and in the  manner  required  by  such  law or
regulation.

                  (b) EFFECT OF AMENDMENT OR TERMINATION.  Any such amendment or
termination  of the Plan that would impair the rights of any Optionee  shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed  otherwise  between the Optionee and the Board,  which agreement
must be in writing and signed by the Optionee and the Company.



         14.  CONDIITONS  UPON  ISSUANCE  OF SHARES.  Notwithstanding  any other
provision of the Plan or any agreement  entered into by the Company  pursuant to
the Plan,  the Company shall not be  obligated,  and shall have no liability for
failure,  to issue or deliver any Shares under the Plan unless such  issuance or
delivery  would  comply  with the  Applicable  Laws.  Such  compliance  shall be
determined by the Company in consultation with its legal counsel.

                  As a condition to the  exercise of an Option,  the Company may
require the person  exercising  such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without  any  present  intention  to sell or  distribute  such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.

         15. RESERVATION OF SHARES.  The Company,  during the term of this Plan,
will at all times reserve and keep  available  such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

         16.  OPTION  AGREEMENT.  Options  shall be evidenced by written  option
agreements in such form as the Board shall approve.

         17.  STOCKHOLDER   APPROVAL.   If  required  by  the  Applicable  Laws,
continuance of the Plan shall be subject to approval by the  stockholders of the
Company.  Such  stockholder  approval shall be obtained in the manner and to the
degree required under the Applicable Laws.



                          LATITUDE COMMUNICATIONS, INC.

                        1999 DIRECTORS' STOCK OPTION PLAN

                          NOTICE OF STOCK OPTION GRANT


"OPTIONEE"
"OPTIONEE ADDRESS 1"
"OPTIONEE ADDRESS 2"

         You have been  granted an option to purchase  Common  Stock of Latitude
Communications, Inc. (the "Company") as follows:




                                                          


         Date of Grant                                        "GRANT DATE"

         Vesting Commencement Date                            "VESTING START DATE"

         Exercise Price per Share                             "EXERCISE PRICE"

         Total Number of Shares Granted                       "SHARES GRANTED"

         Total Exercise Price                                 "TOTAL EXERCISE PRICE"

         Expiration Date                                      "EXPIRATION DATE"

         Vesting Schedule                                     This Option may be exercised, in whole
                                                              or in part, in accordance with the following
                                                              schedule:  "VESTING SCHEDULE"

         Termination Period                                   This Option may be exercised for 90 days
                                                              after termination of Optionee's Continuous Status
                                                              as a Director, or such longer period as may be
                                                              applicable upon death or Disability of Optionee as
                                                              provided in the Plan, but in no event later than
                                                              the Expiration Date as provided above.






         By your  signature and the  signature of the  Company's  representative
below,  you and the Company agree that this option is granted under and governed
by the terms and  conditions  of the 1999  Directors'  Stock Option Plan and the
Nonstatutory  Stock Option Agreement,  all of which are attached and made a part
of this document.

OPTIONEE:                                  LATITUDE COMMUNICATIONS, INC.

                                               ----------------------
- ----------------------
Signature

                                          Title:

- ----------------------
 Print Name                                    ----------------------



                          LATITUDE COMMUNICATIONS, INC.

                       NONSTATUTORY STOCK OPTION AGREEMENT

         1. GRANT OF OPTION. The Board of Directors of the Company hereby grants
to the Optionee  named in the Notice of Stock Option Grant attached as Part I of
this Agreement (the  "OPTIONEE"),  an option (the 'OPTION") to purchase a number
of Shares,  as set forth in the Notice of Stock  Option  Grant,  at the exercise
price per share set forth in the Notice of Stock  Option  Grant  (the  "EXERCISE
PRICE"), subject to the terms and conditions of the 1999 Directors' Stock Option
Plan (the "PLAN"), which is incorporated herein by reference. (Capitalized terms
not defined herein shall have the meanings  ascribed to such terms in the Plan.)
In the event of a conflict  between the terms and conditions of the Plan and the
terms and conditions of this Nonstatutory Stock Option Agreement,  the terms and
conditions of the Plan shall prevail.

         2.       EXERCISE OF OPTION.

                  (a) RIGHT TO EXERCISE.  This Option is exercisable  during its
term in  accordance  with the  Vesting  Schedule  set out in the Notice of Stock
Option Grant and the  applicable  provisions  of the Plan and this  Nonstatutory
Stock Option Agreement.  In the event of Optionee's  death,  disability or other
termination   of  Optionee's   employment  or   consulting   relationship,   the
exercisability  of the Option is governed by the  applicable  provisions  of the
Plan and this Nonstatutory Stock Option Agreement.

                  (b) METHOD OF EXERCIES. This Option is exercisable by delivery
of an  exercise  notice,  in the  form  attached  as  EXHIBIT  A (the  "EXERCISE
NOTICE"),  which shall state the election to exercise the Option,  the number of
Shares  in  respect  of which  the  Option is being  exercised  (the  "EXERCISED
SHARES"),  and such other  representations  and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
signed by the Optionee and shall be delivered in person or by certified  mail to
the  Secretary of the  Company.  The Exercise  Notice  shall be  accompanied  by
payment of the aggregate Exercise Price as to all Exercised Shares.  This Option
shall be deemed to be  exercised  upon  receipt  by the  Company  of such  fully
executed  Exercise  Notice  accompanied by such aggregate  Exercise  Price. \ No
Shares  shall be issued  pursuant to the  exercise  of this  Option  unless such
issuance  and exercise  complies  with all  relevant  provisions  of law and the
requirements  of any stock  exchange or quotation  service upon which the Shares
are then listed. Assuming such compliance, for income tax purposes the Exercised
Shares shall be considered transferred to the Optionee on the date the Option is
exercised with respect to such Exercised Shares.

         3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:

                  (a)      cash;

                  (b)      check;



                  (c) delivery of a properly  executed  exercise notice together
with  such  other   documentation  as  the  Administrator  and  the  broker,  if
applicable,  shall  require to effect an exercise of the Option and  delivery to
the Company of the sale or loan proceeds required to pay the exercise price; or

                  (d)  surrender of other Shares which (i) in the case of Shares
acquired  upon  exercise of an option,  have been owned by the Optionee for more
than six (6) months on the date of surrender,  and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate  Exercise Price of the Exercised
Shares.

         4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner  otherwise than by will or by the laws of descent or  distribution or
pursuant  to a  domestic  relations  order (as  defined by the Code or the rules
thereunder)  and may be exercised  during the  lifetime of Optionee  only by the
Optionee or a transferee  permitted by Section 10 of the Plan.  The terms of the
Plan and this  Nonstatutory  Stock  Option  Agreement  shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.

         5. TERM OF OPTION.  This Option may be  exercised  only within the term
set out in the Notice of Stock Option  Grant,  and may be exercised  during such
term only in accordance with the Plan and the terms of this  Nonstatutory  Stock
Option Agreement.

         6. TAX  CONSEQUENCES.  Set forth  below is a brief  summary  of certain
federal and California tax consequences relating to this Option under the law in
effect as of the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE,  AND THE
TAX LAWS AND REGULATIONS  ARE SUBJECT TO CHANGE.  OPTIONEE SHOULD CONSULT HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

                  (a) EXERCISING THE OPTION.  Since this Option does not qualify
as an incentive  stock option  under  Section 422 of the Code,  the Optionee may
incur regular  federal and California  income tax liability  upon exercise.  The
Optionee  will be treated as having  received  compensation  income  (taxable at
ordinary income tax rates) equal to the excess, if any, of the fair market value
of the Exercised  Shares on the date of exercise over their  aggregate  Exercise
Price.

                  (b)  DISPOSITION  OF SHARES.  If the Optionee holds the Option
Shares for more than one year,  gain realized on  disposition of the Shares will
be treated as  long-term  capital  gain for  federal and  California  income tax
purposes.  The long-term  capital gain will be taxed for federal  income tax and
alternative minimum tax purposes as a maximum rate of 28% if the Shares are held
more  than one year but less  than 18 months  after  exercise  and at 20% if the
Shares are held more than 18 months after exercise.



         By your  signature and the  signature of the  Company's  representative
below,  you and the Company agree that this Option is granted under and governed
by the terms  and  conditions  of the Plan and this  Nonstatutory  Stock  Option
Agreement.  Optionee has reviewed  the Plan and this  Nonstatutory  Stock Option
Agreement  in their  entirety,  has had an  opportunity  to obtain the advice of
counsel prior to executing this  Nonstatutory  Stock Option  Agreement and fully
understands all provisions of the Plan and Nonstatutory  Stock Option Agreement.
Optionee hereby agrees to accept as binding,  conclusive and final all decisions
or  interpretations of the Administrator upon any questions relating to the Plan
and Nonstatutory Stock Option Agreement.

                          LATITUDE COMMUNICATIONS, INC.

                                            By:

                                                ------------------------

"OPTIONEE"

                                            Title:

                                                   ---------------------




                                CONSENT OF SPOUSE

         The  undersigned  spouse of Optionee  has read and hereby  approves the
terms and conditions of the Plan and this  Nonstatutory  Stock Option Agreement.
In  consideration  of the  Company's  granting  his or her  spouse  the right to
purchase  Shares as set  forth in the Plan and this  Nonstatutory  Stock  Option
Agreement,  the undersigned  hereby agrees to be irrevocably  bound by the terms
and  conditions  of the Plan and this  Nonstatutory  Stock Option  Agreement and
further agrees that any community  property  interest shall be similarly  bound.
The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for
the  undersigned  with respect to any  amendment or exercise of rights under the
Plan or this Nonstatutory Stock Option Agreement.

                                                  ------------------------------
                                                  Spouse of Optionee

                                    EXHIBIT A

                               NOTICE OF EXERCISE

To:               LATITUDE COMMUNICATIONS, INC.

Attn:             Stock Option Administrator

Subject:          NOTICE OF INTENTION TO EXERCISE STOCK OPTION

         This is official  notice that the undersigned  ("OPTIONEE")  intends to
exercise   Optionee's   option  to  purchase   __________   shares  of  Latitude
Communications,  Inc.  Common Stock,  under and pursuant to the  Company's  1999
Directors' Stock Option Plan and the  Nonstatutory  Stock Option Agreement dated
_______________, as follows:

         Grant Number:

                                                  ------------------------------

         Date of Purchase:

                                                  ------------------------------

         Number of Shares:

                                                  ------------------------------

         Purchase Price:

                                                  ------------------------------

         Method of Payment of

                                                  ------------------------------

         Purchase Price:

                                                  -----------------------------

         Social Security No.:

                                                  ------------------------------



         The shares should be issued as follows:

                                                  ------------------------------

                  Name:

                                                  ------------------------------

                  Address:

                                                  ------------------------------

                  Signed:

                                                  ------------------------------

                  Date:

                                                  ------------------------------

EX-27.1

 

<ARTICLE>                                           5
<MULTIPLIER>                                        1000


                                                   
<PERIOD-TYPE>                                       9-MOS
<FISCAL-YEAR-END>                                   DEC-31-1999
<PERIOD-START>                                      JAN-01-1999
<PERIOD-END>                                        SEP-30-1999
<CASH>                                                                  8775
<SECURITIES>                                                           25164
<RECEIVABLES>                                                           6060
<ALLOWANCES>                                                             238
<INVENTORY>                                                              749
<CURRENT-ASSETS>                                                       41706
<PP&E>                                                                  4921
<DEPRECIATION>                                                          2936
<TOTAL-ASSETS>                                                         50173
<CURRENT-LIABILITIES>                                                   8533
<BONDS>                                                                    0
<PREFERRED-MANDATORY>                                                      0
<PREFERRED>                                                                0
<COMMON>                                                                  19
<OTHER-SE>                                                             41190
<TOTAL-LIABILITY-AND-EQUITY>                                           50173
<SALES>                                                                22866
<TOTAL-REVENUES>                                                       22866
<CGS>                                                                   2842
<TOTAL-COSTS>                                                           6127
<OTHER-EXPENSES>                                                       15209
<LOSS-PROVISION>                                                           3
<INTEREST-EXPENSE>                                                       131
<INCOME-PRETAX>                                                         2243
<INCOME-TAX>                                                             137
<INCOME-CONTINUING>                                                        0
<DISCONTINUED>                                                             0
<EXTRAORDINARY>                                                            0
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<NET-INCOME>                                                            2106
<EPS-BASIC>                                                             0.18
<EPS-DILUTED>                                                           0.11