Change in Control Agreement - VTEL Corp. and Rodney S. Bond
September 9, 1998
Mr. Rodney S. Bond.
Chief Financial Officer
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Dear Rod,
VTEL Corporation (the "Company") considers it essential to the best
interests of its stockholders to foster the continuous employment of key
management personnel. In this connection, should the Company receive a proposal
from a third party, whether solicited by the Company or unsolicited, concerning
a possible business combination with, or the acquisition of a substantial share
of the equity or voting securities of, the Company, the Board of Directors of
the Company (the "Board") has determined that it is imperative that it and the
Company be able to rely upon your continued services without concern that you
might be distracted by the personal uncertainties and risks that such a proposal
might otherwise entail.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including yourself, to their assigned
duties without distraction in the face of potentially disturbing circumstances
that could arise out of a proposal for a change in control of the Company. The
Board has also determined that it is in the best interest of the Company and its
stockholders to ensure your continued availability to the Company and its
subsidiaries in the event of a "potential change in control" (as defined in
Section 2 hereof).
In order to induce you to remain in the employ of the Company and its
subsidiaries and in consideration of your agreement set forth in Section 2(ii)
hereof, the Company agrees that you shall receive the severance benefits set
forth in this letter agreement ("Agreement") in the event your employment with
the Company and its subsidiaries is terminated subsequent to a Change in Control
(as defined in Section 2 hereof) under the circumstances described below.
1. Term of Agreement. This Agreement shall commence on the date
hereof and shall continue in effect through December 31, 2000; provided,
however, that commencing on January 1, 2001 and each January 1 thereafter, the
term of this agreement shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company shall
have given notice that it does not wish to extend this Agreement; provided,
further, that, notwithstanding any such notice by the Company not to extend, if
a Change in Control shall have occurred during the original or extended term of
this Agreement, this Agreement shall continue in effect for a period of
twenty-four (24) months beyond the expiration of the term in effect immediately
before such Change in Control.
2. Change in Control. (i) No benefits shall be payable hereunder
unless there shall have been a Change in Control of the Company, as set forth
below. For purposes of this
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September 9, 1998
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Agreement, a "Change in Control" of the Company shall mean a change in control
of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company is then
subject to such reporting requirement; provided that, without limitation, such a
Change in Control shall be deemed to have occurred if (A) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 40% or more of the
combined voting power of the Company's then outstanding securities; or (B)
during any period of two consecutive years (not including any period prior to
the execution of this Agreement), individuals who at the beginning of such
period constitute the Board and any new director, whose election to the Board or
nomination for election to the Board by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority of the Board; (C) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 60% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, except that a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 40% of the combined voting
power of the Company's then outstanding securities shall not constitute a change
in control of the Company; or (D) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
(ii) For purposes of this Agreement, a "potential change
in control of the Company" shall be deemed to have occurred if (A) the Company
enters into an agreement, the consummation of which would result in the
occurrence of a Change in Control; (B) any person (including the Company)
publicly announces an intention to take or to consider taking actions which if
consummated would constitute a Change in Control; (C) any person becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 25.0% or more of the combined voting power of the Company's then
outstanding securities; or (D) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a potential change in control of the Company has
occurred. You agree that, subject to the terms and conditions of this Agreement,
in the event of a potential change in control of the Company occurring after the
date hereof, you will not voluntarily terminate your employment with the Company
and its subsidiaries for a period of nine (9) months from the occurrence of such
potential change in control of the Company. If more than one potential change in
control occurs during the term of this Agreement, the provision of the preceding
sentence shall be applicable to each potential change in control occurring prior
to the occurrence of a Change in Control.
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September 9, 1998
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3. Termination Following Change in Control. If any of the events
described in Section 2(i) hereof constituting a Change in Control shall have
occurred, you shall be entitled to the benefits provided in Section 4(iv) hereof
upon the subsequent termination of your employment with the Company and its
subsidiaries during the term of this Agreement unless such termination is (A)
because of your death or Retirement, (B) by the Company or any of its
subsidiaries for Disability or Cause or (C) by you other than for Good Reason.
(i) Disability; Retirement. For purposes of this
Agreement, "Disability" shall mean permanent and total disability as such term
is defined under Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"). Any question as to the existence of your Disability upon
which you and the Company cannot agree shall be determined by a qualified
independent physician selected by you (or, if you are unable to make such
selection, such selection shall be made by any adult member of your immediate
family), and approved by the Company. The determination of such physician made
in writing to the Company and to you shall be final and conclusive for all
purposes of this Agreement. For purposes of this Agreement, "Retirement" shall
mean your voluntary termination of employment with the Company in accordance
with the Company's retirement policy (excluding early retirement) generally
applicable to its salaried employees or in accordance with any retirement
arrangement established with your consent with respect to you.
(ii) Cause. For purposes of this Agreement, "Cause" shall
mean your willful breach of duty in the course of your employment, or your
habitual neglect of your employment duties or your continued incapacity to
perform them. For purposes of this Section 3(ii), no act, or failure to act, on
your part shall be deemed "willful" unless done, or omitted to be done by you
not in good faith and without reasonable belief that your action or omission was
in the best interest of the Company and its subsidiaries. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of conduct set forth above in this Section
3(ii) and specifying the particulars thereof in detail.
(iii) Good Reason. You shall be entitled to terminate your
employment for Good Reason. For the purpose of this Agreement, "Good Reason"
shall mean the occurrence, without your express written consent, of any of the
following circumstances unless, in the case of paragraphs (A), (E), (F), (G), or
(H) such circumstances are fully corrected prior to the Date of Termination (as
defined in Section 3(v)) specified in the Notice of Termination (as defined in
Section 3(iv)) given in respect thereof:
(A) a substantial diminution in the nature or status of
your responsibilities from those in effect immediately prior to the
Change in Control;
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September 9, 1998
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(B) a reduction by the Company or any of its subsidiaries
in your annual base salary as in effect on the date hereof or as the
same may be increased from time to time;
(C) a requirement from the Company or any of its
subsidiaries for you to be based anywhere outside a radius of 50 miles
from the executive office in which you are located prior to the Change
in Control except for required travel on the business of the Company
and its subsidiaries to an extent substantially consistent with your
present business travel obligations;
(D) the failure by the Company to pay to you any portion
of an installment of deferred compensation under any deferred
compensation program of the Company within seven (7) days of the date
such compensation is due;
(E) the failure by the Company or any of its subsidiaries
to continue in effect any compensation plan in which you participate
prior to the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made
in such plan in connection with the Change in Control, or the failure
by the Company or any of its subsidiaries to continue your
participation therein on the same basis, both in terms of the amount of
benefits provided and the level of your participation relative to other
participants, as existed at the time of the Change in Control;
(F) the failure by the Company or any of its subsidiaries
to continue to provide you with benefits at least as favorable to those
enjoyed by you under the employee benefit and welfare plans of the
Company and its subsidiaries, including, without limitation, the
pension, life insurance, medical, health and accident, disability,
deferred compensation and savings plans in which you were participating
at the time of the Change in Control, the taking of any action by the
Company or any of its subsidiaries which would directly or indirectly
materially reduce any of such benefits or deprive you of any material
fringe benefit enjoyed by you at the time of the Change in Control, or
the failure by the Company or any of its subsidiaries to provide you
with the number of paid vacation days to which you are entitled at the
time of the Change in Control;
(G) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 5 hereof; or
(H) any purported termination of your employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(iv) below (and, if applicable, the
requirements of Section 3(ii) above); for purposes of this Agreement,
no such purported termination shall be effective.
Your continued employment shall not constitute consent to, or a waiver of rights
with respect to, any circumstance constituting Good Reason hereunder. A Change
in Control of the Company shall not, by itself, constitute Good Reason.
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September 9, 1998
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(iv) Notice of Termination. Any purported termination of
your employment by the Company and its subsidiaries or by you shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of your
employment under the provision so indicated.
(v) Date of Termination, Etc. "Date of Termination" shall
mean (A) if your employment is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that you shall not have returned to the
full-time performance of your duties during such thirty (30) day period), and
(B) if your employment is terminated pursuant to Section 3(ii) or (iii) above or
for any other reason (other than Disability), the date specified in the Notice
of Termination (which, in the case of a termination pursuant to Section 3(ii)
above shall not be less than thirty (30) days, and in the case of a termination
pursuant to Section 3(iii) above shall not be less than thirty (30) nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given); provided that, if within thirty (30) days after any Notice of
Termination is given the party receiving such Notice of Termination notifies the
other party that a dispute exists concerning the grounds for termination, the
Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or the time for appeal therefrom
having expired and no appeal having been perfected); provided further that the
Date of Termination shall be extended by a notice of dispute only if such notice
is given in good faith and the party giving such notice pursues the resolution
of such dispute with reasonable diligence. Notwithstanding the pendency of any
such dispute, the Company and its subsidiaries will continue to pay you your
full compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, base salary) and continue you as a participant
in all compensation, benefit and insurance plans in which you were participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 3(v). Amounts paid under this
Section 3(v) are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
4. Compensation Upon Termination or During Disability. Following
a Change in Control of the Company, as defined by Section 2(i), upon termination
of your employment or during a period of Disability you shall be entitled to the
following benefits, provided that such period of Disability or Date of
Termination occurs during the term of this Agreement;
(i) During any period that you fail to perform your
full-time duties with the Company and its subsidiaries as a result of your
Disability, you shall continue to receive an amount equal to your base salary at
the rate in effect at the commencement of any such period
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September 9, 1998
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through the Date of Termination for Disability, together with all amounts
payable to you under the disability plans and/or policies of the Company and its
subsidiaries. Thereafter, your benefits shall be determined in accordance with
the insurance programs of the Company and its subsidiaries then in effect.
(ii) If your employment shall be terminated by the Company
or any of its subsidiaries for Cause or by you other than for Good Reason, the
Company (or one of its subsidiaries, if applicable) shall pay you your full base
salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given and shall pay any amounts to be paid to you pursuant to
any other compensation plans, programs or employment agreements then in effect,
and the Company shall have no further obligations to you under this Agreement.
(iii) If your employment shall be terminated by reason of
your death or Retirement, your benefits shall be determined in accordance with
the retirement and the insurance programs of the Company and its subsidiaries
then in effect.
(iv) If your employment by the Company and its
subsidiaries shall be terminated by (a) the Company and its subsidiaries other
than for Cause, your death, Retirement, or Disability or (b) by you for Good
Reason, then you shall be entitled to the benefits provided below:
(A) The Company (or one of its subsidiaries, if
applicable) shall pay you your full base salary through the Date of
Termination at the rate in effect at the time the Notice of Termination
is given, no later than the fifth day following the Date of
Termination, plus all other amounts to which you are entitled under any
compensation plan of the Company applicable to you, at the time such
payments are due;
(B) The Company shall pay as severance pay to you a
severance payment (the "Unadjusted Severance Payment") equal to 1.8
times your "Base Amount" as such term is defined under section 280G(b)
(3) of the Code. Your Base Amount shall be determined in accordance
with temporary or final regulations promulgated under section 280G of
the Code in effect, if any. In the absence of such regulations, if you
were not employed by the Company (or any corporation affiliated with
the Company (an "Affiliate") within the meaning of section 1504 of the
Code or a predecessor of the Company) during the entire five calendar
years (the "Base Period") preceding the calendar year in which a change
in control of the Company occurred, your average annual compensation
for the purposes of such determination shall be the lesser of (1) the
average of your annual compensation for the complete calendar years
during the Base Period during which you were so employed or (2) the
average of your annual compensation for both complete and partial
calendar years during the Base Period during which you were
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September 9, 1998
Page 7
so employed, determined by annualizing any compensation (other than
nonrecurring items) includible in your gross income for any partial
calendar year or (3) the annual average of your total compensation for
the Base Period during which you were so employed, determined by
dividing such total compensation by the number of whole and fractional
years included in the Base Period. Compensation payable to you by the
Company or any Affiliate or predecessor of the Company shall include
every type and form of compensation includible in your gross income in
respect of your employment by the Company or any Affiliate or
predecessor of the Company, including compensation income recognized as
a result of your exercise of stock options or sale of the stock so
acquired, except to the extent otherwise provided in temporary or final
regulations promulgated under section 280G of the Code. For purposes of
this Section 4(iv) a "change in control of the Company" shall have the
meaning set forth in section 280G of the Code and any temporary or
final regulations promulgated thereunder.
(C) The Company shall accelerate vesting of options, both
qualified and non-qualified, based on the number of years of continuous
employment at the time of termination. Vesting of outstanding options
will be accelerated 3 months for each year of employment at the
Company. Compensation income recognized by you as a result of your
exercise of such stock options or sale of the stock so acquired shall
be included in deriving the limitations set forth in Section 4(iv)(D),
if such benefits, in the opinion of tax counsel referred to in Section
4(iv)(D), constitute "parachute payments" within the meaning of section
280G of the Code.
(D) The Unadjusted Severance Payment shall not be reduced
by the amount of any other payment or the value of any benefit received
or to be received by you in connection with your termination of
employment or contingent upon a change in control of the Company
(whether payable pursuant to the terms of this Agreement or any other
agreement, plan or arrangement with the Company or an Affiliate,
predecessor or successor of the Company or any person whose actions
result in a change in control of the Company or an Affiliate of such
person) unless (1) in the opinion of tax counsel selected by the
Company's independent auditors and reasonably acceptable to you, such
other payment or benefit constitutes a "parachute payment" within the
meaning of section 280G(b) (2) of the Code, and (2) in the opinion of
such tax counsel, the Unadjusted Severance Payment plus all other
payments or benefits which constitute "parachute payments" within the
meaning of section 280G(b) (2) of the Code would result in a portion of
the Unadjusted Severance Payment being subject to the excise tax under
section 4999 of the Code. In such event, the amount of the Unadjusted
Severance Payment shall be reduced by the minimum amount necessary such
that no portion thereof will be subject to the excise tax under section
4999 of the Code. The Unadjusted Severance Payment, as reduced, if at
all, pursuant to the provisions of this paragraph shall be referred to
as the Adjusted Severance Payment. In determining whether the
Unadjusted Severance Payment shall be reduced under this paragraph, (i)
there shall not be included in the computation any payment if you shall
have effectively waived your receipt or enjoyment of such payment or
benefit, and (ii) the value of any non-cash benefit or any deferred
cash payment shall be determined by the Company's independent auditors
in accordance with the principles of sections 280G(d) (3) and (4) of
the Code.
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September 9, 1998
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(E) Except to the extent that the payment thereof would
subject any payment hereunder to the excise tax under section 4999 of
the Code:
(1) The Company shall also pay to you all legal
fees and expenses incurred by you as a result of such termination
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement); and
(2) For a twelve (12) month period after
termination of your employment, the Company shall arrange, at your
expense, to provide you with life, disability, accident and health
insurance benefits substantially similar to those which you are
receiving or entitled to receive immediately prior to the Notice of
Termination. Benefits otherwise receivable by you pursuant to this
Section 4 (iv) (D) (2) shall be reduced to the extent comparable
benefits are actually received by you during the twenty-four (24) month
period following your termination, and any such benefits actually
received by you shall be reported to the Company.
(F) If it is established pursuant to a final
determination of a court or an Internal Revenue Service proceeding
that, notwithstanding the good faith of you and the Company in applying
the terms of this Section 4 (iv), the aggregate "parachute payments"
paid to or for your benefit are in an amount that would result in any
portion of such "parachute payments" being subject to the excise tax
under section 4999 of the Code, then you shall have an obligation to
pay the Company upon demand an amount equal to the sum of (1) the
excess of the aggregate "parachute payments" paid to or for your
benefit over the aggregate "parachute payments" that would have been
paid to or for your benefit without any portion of such "parachute
payments" being subject to the excise tax under section 4999 of the
Code; and (2) interest on the amount set forth in clause (1) of this
sentence at the applicable Federal rate (as defined in section 1274(d)
of the Code) from the date of your receipt of such excess until the
date of such payment.
(G) You shall not be required to mitigate the amount of
any payment provided for in this Section 4 by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided
for in this Section 4 be reduced by any compensation earned by you as
the result of employment by another employer or by retirement benefits
after the Date of Termination, or otherwise except as specifically
provided in this Section 4.
(H) The Company shall pay you the Unadjusted Severance
Payment in a lump sum no later than the fifth day following the Date of
Termination; provided, however, that if the Company in good faith
believes that the Unadjusted Severance Payment shall be reduced under
the provisions of Section 4 (iv) (C) hereof, the Company shall pay to
you at such time a good faith estimate of the Adjusted Severance
Payment (the
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September 9, 1998
Page 9
"Estimated Adjusted Severance Payment", the computation of which shall
be given to you in writing together with a written explanation of the
basis for making such adjustment) which amount shall in no event be
less than 50% of the Unadjusted Severance Payment. The Company shall,
within 60 days of the Date of Termination, either pay to you the
balance of the Unadjusted Severance Payment together with interest
thereon at the applicable Federal rate (as defined in section 1274(d)
of the Code) or deliver to you a copy of the opinion of the tax counsel
referred to in Section 4(iv)(C) hereof establishing the amount of the
Adjusted Severance Payment. If the Adjusted Severance Payment exceeds
the Estimated Adjusted Severance Payment, the difference shall be paid
to you at such time together with interest thereon at the applicable
Federal rate (as defined in section 1274(d) of the Code).
5. Successors; Binding Agreement.
(i) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company
to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this
Agreement and shall entitle you to compensation from the Company in the
same amount and on the same terms as you would be entitled hereunder if
you had terminated your employment for Good Reason following a Change
in Control, except that for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the
Date of Termination. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any such successor to its
business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
If you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to your devisee, legatee or other designee or, if
there is no such designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Chief
Executive Officer with a copy to the Chief Financial Officer, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
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September 9, 1998
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7. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior to
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under Section 4 shall survive the expiration of the
term of this Agreement.
8. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
Jerry S. Benson, Jr.
President and COO
VTEL Corporation
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September 9, 1998
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Agreed to this ____ day of ____________, 1998.
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Rodney S. Bond