Change in Control Agreement - VTEL Corp. and Judy A. Wallace
September 9, 1998
Ms. Judy Wallace
Vice President Human Resources
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Dear Judy,
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
<PAGE> 2
September 9, 1998
Page 2
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.
<PAGE> 3
September 9, 1998
Page 3
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;
<PAGE> 4
September 9, 1998
Page 4
(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.
<PAGE> 5
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
<PAGE> 6
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
<PAGE> 7
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.
<PAGE> 8
September 9, 1998
Page 8
(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
<PAGE> 9
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.
<PAGE> 10
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
<PAGE> 11
September 9, 1998
Page 11
Agreed to this ____ day of ____________, 1998.
------------------------------
Judy Wallace