Change in Control Agreement - VTEL Corp. and Charles M. Denton
September 9, 1998
Mr. Charles Denton
Vice President Global Sales Development
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Dear Charles,
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
Page 5
(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
Page 6
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 1.5
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 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
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September 9, 1998
Page 7
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
Page 10
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
Agreed to this ____ day of ____________, 1998.
-----------------------------
Charles Denton