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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1998
Commission file number 0-20008
VTEL CORPORATION
A Delaware Corporation IRS Employer ID No. 74-2415696
108 Wild Basin Road
Austin, Texas 78746
(512) 437-2700
Securities registered pursuant to section 12 (b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filings pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. ( ).
The aggregate market value of 21,215,873 shares of the registrant's Common Stock
held by nonaffiliates on September 18, 1998 was approximately $84,863,492. For
purposes of this computation all officers, directors and 5% beneficial owners of
the registrant are deemed to be affiliates. Such determination should not be
deemed an admission that such officers, directors and beneficial owners are, in
fact, affiliates of the registrant.
At October 8, 1998 there were 23,282,700 shares of the registrant's Common
Stock, $.01 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to stockholders in
connection with the 1998 Annual Meeting are incorporated by reference into Part
III.
A list of all Exhibits to this Annual Report on Form 10-K is located at
pages 52 through 56.
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PART I.
ITEM 1. BUSINESS
GENERAL
VTEL Corporation ("VTEL" or the "Company") designs, manufactures,
markets and supports digital visual communication systems. The Company's product
line is based on the latest microprocessor technology, a unique integration of
hardware and software that provides features which are far beyond traditional
video and audio conferencing. The use of open PC architecture and standard
Microsoft(R) operating systems allows users to bring virtually any kind of data
into a meeting or training environment. These new digital visual communications
systems allow access and sharing of any information available on the World Wide
Web, data that resides on an organization's Local Area Network or Intranet, or
local PC files and software applications. The Company's systems are built upon a
system platform that is based on industry-standard, PC-compatible open hardware
and software architecture. The PC-architecture also provides a natural pathway
to connect the Company's digital visual communication systems to either Internet
Protocol (IP) networks or traditional telephone networks on a call by call basis
through simple software commands. The Company's network management software uses
industry standard protocols to allow large digital visual communications
networks to be operated in the same manner currently used in traditional data
networks, thereby leveraging the rapidly expanding network infrastructures being
deployed in organizations throughout the world. The Company offers a wide range
of global professional services to assist customers in designing, installing,
operating and supporting organizational digital visual communications networks
wordwide.
The cornerstone of the Company's business strategy is to identify
end-user customer markets that can most benefit from the advanced functionality
of the Company's multi-media digital visual communication systems and to focus a
substantial portion of its sales and marketing efforts on these targeted
markets. Consistent with this strategy, the Company has targeted the
manufacturing, education, government, health care, and financial institution
market segments and certain portions of the general business market. VTEL
primarily distributes its systems through third-party resellers which include
major telecommunications providers and distributors such as Ameritech, Anixter,
GTE, MCI, Norstan, PacBell, SBC, Sprint, US West and other value-added
resellers. The Company has built an extensive marketing and sales organization
to support its third-party resellers. This organization provides marketing
programs; field support personnel including sales managers, system engineers,
and business development managers; and personnel with industry expertise to
implement the Company's targeted market strategy. Since the Company's inception,
it has sold over 28,000 group digital visual communication systems.
In November 1995, the Company completed the acquisition of certain
assets and a specified work force of the Integrated Communications Systems Group
("ICS") of Peirce-Phelps, Inc. (the "ICS Transaction"). As part of
Peirce-Phelps, ICS was a value-added reseller of systems manufactured by several
videoconferencing manufacturers, including the Company, and also provided
integration, installation and maintenance services to certain of the end-users
of these manufacturers. The completion of the acquisition allowed the Company to
significantly enhance its ability to support the Company's resellers' abilities
to offer systems integration, installation and end-user support to the ultimate
purchaser of the Company's products, thereby allowing the resellers to more
effectively provide an essential part of the services that are integral to the
purchase of the Company's products.
On May 23, 1997, shareholders of VTEL and Compression Labs,
Incorporated, a Delaware corporation ("CLI"), approved the merger (the "Merger")
of VTEL-Sub, Inc., a Delaware corporation and direct wholly-owned subsidiary of
VTEL ("Merger Sub"), with and into CLI, pursuant to an Agreement and Plan of
Merger and Reorganization (the "Merger Agreement"), with CLI becoming a direct
wholly-owned subsidiary of VTEL. As a result of the Merger, (a) the outstanding
shares of CLI's Common Stock, par value $.001 per share ("CLI Common Stock"),
were converted into the right to receive 0.46 shares of Common Stock of VTEL,
par value $.01 per share ("VTEL Common Stock"), per share of CLI Common Stock
converted (or cash in lieu of fractional shares otherwise deliverable in respect
thereof), and (b) the outstanding shares of CLI Series C Preferred Stock, par
value $.001 per share ("CLI Preferred Stock"), were converted into the right to
receive 3.15 shares of VTEL
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Common Stock per share of CLI Preferred Stock converted (or cash in lieu of
fractional shares otherwise deliverable in respect thereof). The CLI shares were
exchanged for a total of 8,424,741 shares of VTEL Common Stock. The acquisition
was accounted for as a pooling of interests.
The Merger was completed for the following reasons, among others:
1. The Merger permits VTEL to broaden and diversify its product lines with
complementary technology, creating additional opportunities for overall
growth and reducing the risk of dependence on individual products.
2. The economies of scale that can be realized by the combined companies in
development, administration, marketing and sales and the improvement in
product gross margins that may also be realized by the combined companies.
Historically, VTEL's gross profit margins have been significantly higher
than CLI's, and a material portion of the combined companies revenues may
shift to higher margin products.
3. VTEL's experienced management team and product development organization, in
combination with key CLI managers, will provide a stronger management team
with greater depth and experience to lead the combined company.
The synergy created as a result of the Merger was first demonstrated
with the introduction of StandardsPlus Video, the next generation of video
quality that is based on industry standards, but vastly improves the image
quality through innovation and software coding techniques. StandardsPlus Video
improves video quality in terms of motion handling and image clarity while
maintaining interoperability with standards-based systems.
The Company's executive offices are located at 108 Wild Basin Road,
Austin, Texas 78746, and its telephone number is (512) 437-2700.
INDUSTRY BACKGROUND
Digital visual communications systems enable users at remote locations
to meet and share information face-to-face. A wide range of business or
professional meetings, education and training classes, and technical or medical
consultations make use of this innovative technology to reduce operating costs,
improve customer services, reduce cycle times, or improve intra- or
inter-company communications. A videoconference entails the transmission of
video, audio and data signals between two or more locations over a network
connection. Video, audio and data conferencing involves a large amount of
digital information. In order to transmit this information over digital
networks, the video, audio and data signals must be digitized and compressed
without substantially reducing the information content. Improved compression
algorithms reduce transmission costs by allowing more information to be sent
over lower capacity digital networks. Improved quality and lower costs of
videoconferencing systems and network services have made videoconferencing
applications more attractive to a broader group of users worldwide. Also
contributing to the wider use of videoconferencing is the increased availability
of switched digital telephone service and the use of Internet Protocol networks,
allowing a videoconference to be initiated with nearly the ease of a normal
telephone call.
The major change occurring in the industry today involves the
evolutionary migration of telecommunications networks from circuit-switched
technology (like traditional telephone lines) to packet-switched technology
(Internet Protocol networks). The Company is ideally positioned to take
advantage of this change because its underlying product technology is built upon
an open PC architecture. The Company can accommodate and support customer
migration to Internet Protocol networks through simple software upgrades to
existing products.
Videoconferencing systems are also becoming simpler to use. Current
videoconferencing systems can be configured as "set-top" appliances or
"roll-about" room systems that can be used without the need for trained
operators or special room requirements. In general, the videoconferencing market
can be grouped into four complementary categories: personal conferencing,
set-top conferencing, workgroup conferencing, and group conferencing. The
personal conferencing market is targeted at the individual. As such, solutions
are typically priced in the $1,000 to $6,000 range. The set-top conferencing
market is targeted at groups of two to three individuals. Systems in this market
range from $4,000 to $9,000. The workgroup conferencing market is targeted at
the project teams or executive offices
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that require collaborative data and software interaction. Solutions in this
market range from $6,000 to $15,000. The group conferencing market is targeted
at larger groups, typically eight or more individuals. Application uses vary
greatly from boardrooms to large classrooms. These group systems are priced at
$10,000 and above.
Another factor contributing to the growth of videoconferencing is the
continuing emergence of international industry standards designed to allow
interoperability of videoconferencing systems manufactured by different vendors.
The International Telecommunications Union ("ITU-T") sets international
standards used by the industry. The Company has been a leader in promoting
standards across the industry and delivers standards-based products to its
customers.
While technological advances and market receptivity have increased the
use of videoconferencing, traditional audio and video videoconferencing alone
lacks the functionality and effectiveness of face-to-face meetings in many
applications. The Company believes that, for certain applications, users are
seeking conferencing features, in addition to audio and video, that allow for
the exchange of information and interaction through a variety of media. For
example, engineers can communicate and solve problems more effectively by
supplementing the videoconference with shared media, such as graphics with
annotations, computer programs, document exchanges and whiteboards, which
results in a better replication of the impact and effectiveness of a
face-to-face meeting. VTEL has taken a leadership position in this exact form of
high-value digital visual communication technology due to its open PC platform
and flexible architecture.
CORPORATE STRATEGY
The Company's primary focus is on high-value digital visual
communication systems which provide high functionality tailored to the needs of
markets targeted by the Company. This results in a range of offerings from the
desktop to the boardroom. The following are the components of the Company's
corporate strategy:
PRODUCT DIFFERENTIATION. The Company's strategy is to differentiate its
products from the products marketed by its competitors. Key elements of this
strategy are as follows:
Open Architecture. The Company's principal digital visual communication
systems are built upon a system platform which integrates video, audio and data
compression technologies in a PC-compatible open hardware and software
architecture. This open architecture allows the Company to accelerate the
development process through the use of commonly available, low-cost hardware and
software components and the incorporation of third-party technological
developments. The Company's PC-based system platforms are field-upgradable and
easily accommodate software upgrades, thereby extending the useful life of the
customer's investment and providing the Company with incremental revenues
through these upgrade sales.
Centralized Management and Administration. Using the industry standard
Simple Network Management Protocol "SNMP", VTEL is able to centrally manage and
administer large, distributed digital visual communication networks. The
Company's SmartVideoNet Manager product provides advanced functionality for
management in the videoconferencing industry. It leverages the industry standard
SNMP for statistics, controls, and alerts. These functions allow for centralized
problem determination and resolution, thereby eliminating the requirement for
on-site expert personnel to support the system. An additional benefit of
SmartVideoNet Manager is the ability to establish video calls from a centralized
console with no local user intervention. Using this, meeting participants simply
arrive at the conference room or classroom and the video call is already in
session waiting for their participation.
Consistent Operating Platform. An important characteristic of each
product in the family is the consistent use of standard Microsoft operating
systems (Windows 95(R), Windows 98(R), Windows NT(R)). This consistency combines
the PC-microprocessor architecture with a recognized software platform and
provides a familiar look and feel for the user throughout the product family
architecture. Windows operating systems support a wide variety of software and
hardware applications that can be integrated into a videoconference as
stand-alone features or as shared applications by digital visual communication
users through the Company's collaboration capability.
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Multi-media Functionality. The Company's digital visual communication
systems provide a wide range of functions that enable users to exchange
information and interact through a variety of media and, as such, more closely
replicate the impact and effectiveness of face-to-face meetings. These
functions, referred to by the Company as digital visual communication
technology, combine video and audio, document exchange, shared whiteboard, and
computer application sharing. The Company strives to make this functionality
easily accessible to the user. The Company's Pen Pal GraphicsTM and AppsViewTM
user interfaces are designed to make the Company's group systems easy to use.
AppsViewTM, which was introduced in early 1995 and is now fully integrated into
all of the Company's products, is a customizable user interface that runs on a
Microsoft Windows(R) operating system. AppsViewTM integrates all application
functions under a set of software-defined icons which can be customized by the
user to meet specific needs. This same user interface is used across the entire
product family for consistency, commonality, and ease of use.
Standards Compliance. The Company believes the continued adoption and
implementation of industry standards for interoperability are critical to the
continued growth of the videoconferencing market. All of the Company's digital
visual communication systems and multipoint products comply with the leading
ITU-T standards for videoconferencing. The Company's platforms also comply with
an extensive array of additional communications and computer industry standards,
both formal and de facto (such as ISA, PCI, Intel x86, SNMP, and Microsoft
Windows(R)), involving video, audio, graphics, communications, computers,
peripherals, and network management. The Company has been an active participant
on the relevant ITU-T committees and intends to continue to promote both
acceptance of the standards by all vendors and formal compliance testing to
assure interoperability.
Network Integration Capabilities. The PC-based open architecture design
of the Company's products provides a natural pathway to connect the Company's
digital visual communication systems onto local area networks (LANs) and wide
area networks (WANs), thereby leveraging the rapidly expanding network
infrastructures being deployed in organizations throughout the world. The
Company believes that not only will such networks continue to expand globally,
but the capability to centrally manage large internationally dispersed networks
will become a requirement for the successful establishment of such networks. The
Company believes that development of network integration and network management
capabilities will be an important success factor to the Company's strategy.
Service and Systems Integration Capabilities. The Company determined
that it would be advantageous to establish the capacity to offer installation,
integration and support services to resellers of its products, which could be
resold by the resellers to the ultimate purchasers of the Company's products. By
enhancing the Company's resellers' abilities to offer systems integration,
installation and end-user support to the ultimate purchasers of the Company's
products, the Company believes that it would enhance its resellers' ability to
sell the Company's digital visual communication systems as well as generate
additional revenues to the Company from the sales of such services to the
Company's resellers.
In November 1995, the Company completed the ICS Transaction (see
"Business - General"). The completion of the ICS Transaction allows the Company
to significantly enhance its ability to support the Company's resellers'
abilities to offer systems integration, installation and end-user support to the
ultimate purchaser of the Company's products, thereby allowing the resellers to
more effectively provide an essential part of the services that are integral to
the purchase of the Company's products.
TARGETED MARKETS. The cornerstone of the Company's business strategy is
to identify end-user customer markets that can most benefit from the advanced
functionality of the Company's multi-media digital visual communication systems,
and to focus a substantial portion of its sales and marketing efforts on these
targeted markets. Consistent with this strategy, the Company has targeted the
manufacturing, education, government, health care, financial institution markets
and certain portions of the general business market. The Company intends to
focus its product strategy in the targeted markets in which the Company is
currently the leader and in other markets in which the Company believes it has
the highest potential for increasing its market share.
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PRODUCT LINE MANAGEMENT. In 1997, the Company added increased emphasis
to the lifecycle management of key platforms and services. As such, Strategic
Business Units (SBUs) were defined for Personal and Workgroup Systems,
Networking Systems, Enterprise Systems, and Professional Services. These SBUs
are responsible for product management, marketing, and development.
Additionally, the SBUs have product line profit and balance sheet
responsibility.
DISTRIBUTION STRATEGY. The Company primarily relies on third parties
worldwide to sell, install and support its digital visual communication systems
in an effort to leverage the sales forces of the resellers which provide
telecommunications and support services to potential purchasers of digital
visual communication systems. The Company has established relationships with
many of the leading telecommunications providers in the United States, including
Ameritech, GTE, MCI, Norstan, PacBell, Southwestern Bell, Sprint, and US West.
Consistent with its focus on its targeted market segments, the Company works
with a number of value added resellers ("VARs") that specialize in specific
applications, geographic areas and markets such as education, health care,
project management and government procurement. The Company has built an
extensive marketing and sales organization to support its third-party resellers.
This organization provides marketing programs; field support personnel including
sales managers, system engineers and business development managers; and
personnel with industry expertise to implement the Company's targeted market
strategy.
VTEL also sells products directly to certain end-user customers,
generally large global end user customers which have sophisticated global
digital visual communication networks and require and demand much more
involvement of the Company to support the sale, installation and maintenance of
the network.
PRODUCTS
The Company offers a complete line of interoperable multi-media digital
visual communication systems. The Company differentiates its systems from
competitive products by a high level of advanced functionality, such as
presentation graphics and access to PC-based software and hardware peripherals.
Because VTEL systems are based on open PC-architecture, and most functionality
is contained in software, many system upgrades are accomplished via software,
enabling customers to protect their investment in the Company's Systems. VTEL
systems may be configured with LAN connections so that data and presentations
may be created at an individual PC workstation, stored on the LAN and retrieved
by the digital visual communication system for presentation or transfer to the
remote location during a videoconference.
Videoconferences can range from simple point-to-point connections
between two locations of a single organization to connections between multiple
locations of multiple organizations in several countries. The Company's primary
digital visual communication systems are based upon one of two architectures,
either its SmartStation Architecture (SSA) for personal and workgroup digital
visual communication or its Enterprise Series Architecture (ESA) for group
conferencing.
ENTERPRISE SERIES ARCHITECTURE PLATFORM. VTEL's Enterprise Series
ArchitectureTM ("ESA(TM)") is the hardware and software platform for a family of
products designed to meet the needs of large and small groups. The ESA platform
is a PC-based, open architecture digital visual communication system configured
around an Intel Pentium(TM) PC chassis containing the ESA video-audio processing
boardset. The ESA system contains, in addition to the standard internal disk
drive and 3.5 inch floppy drive, a CD-ROM drive as well as an expansion chassis
which contains all the audio and video input/output ports. The ESA platform
utilizes the Microsoft Windows(R) operating system as its software platform and
incorporates the AppsView(TM) software user interface and control system.
Through AppsViewTM, the user controls all conference functions with on-screen
software icons which may be customized for each user or application. The ESA
platform contains open PC card slots for application-specific peripherals.
The ESA platform supports industry standards for video, audio, and data
compression and is interoperable with any other system supporting the H.320
standard. The platform operates over digital communication bandwidths
transmitting at data rates from 56 Kbps to T1 or E1 rates in point-to-point and
multipoint conferences. ESA connections can be made over public dial-up digital
networks or private digital dedicated facilities. During 1999, ESA connectivity
will be expanded to include Internet Protocol networks.
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Configurations of the ESA(TM) platform include the Company's Team
Conferencing(TM) and Leadership Conferencing(TM) Systems. The Team Conferencing
or "TC" systems are single or dual monitor systems built on the ESA platform and
designed to provide mid-range products for users seeking high quality video and
audio and digital visual communication capability in a small to mid-sized group
setting. Data rates from 56 Kbps to 512 Kbps are provided. The systems provide
higher performance PC-based functionality through the use of the Intel
Pentium(TM) microprocessor, inclusion of a CD-ROM drive, the Microsoft
Windows(TM) operating system and the AppsView(TM) user interface. Product
features include LAN connectivity, Internet access, both document and computer
conferencing, 30 frame per second video and capability of including software
applications designed for Microsoft Windows(TM) as part of the videoconference.
The TC systems have suggested list prices of $21,495 to $46,995.
The Leadership Conferencing LC5000 system is the flagship model of the
ESA(TM) platform. The LC5000 provides for high-speed data rates up to T1 or E1
and delivers extremely sharp, smooth video. A document stand with VTEL's
SmartView software allows users to utilize printed material as easily as using
an overhead projector. LC5000 configurations vary in price from $53,995 to
$57,995.
WG500. The WG500 is a series of workgroup digital visual communication
systems targeted at the project team or executive office where the ability to
share and interactively create a work product is required. As such, it is
designed to utilize industry leading collaborative multi-media tools such as
Microsoft NetMeeting(TM). Based on a high performance, multi-media PC platform,
the WG500 fills the price-point and functionality gap between the personal
desktop conferencing market and the large group conferencing market. The WG500
has suggested list prices of $9,995 to $14,995.
SETTOP 250. The SETTOP 250 is the first business-class, set-top
videoconferencing system in the industry priced under $5,000. Combining
ease-of-use with high-quality features, the SETTOP 250 is the best solution for
enterprise users who require entry-level group conferencing with
industry-standard voice and video. The SETTOP 250 includes an intuitive user
interface, an easy, color-coded installation process, and comes in both 128 Kbps
and 384 Kbps models.
SMARTSTATION. The SmartStation(TM) converts a Windows-based PC into a
videoconferencing system for personal use. Incorporating the performance of the
ESA(TM) products with its high-quality audio and video, the SmartStation(TM)
allows users to collaborate while still leveraging the power and versatility of
their desktop PC. In one easy-to-install package, SmartStation(TM) includes
VTEL's AppsView(TM) graphical conference control interface for consistent
operation across all of VTEL's digital visual communication solutions.
SmartStation(TM) supports data rates up to 384 Kbps for high-quality desktop
conferencing and supports the T.120 standard for data collaboration by
integrating Microsoft NetMeeting 2.0(TM).
SMARTVIDEONET MANAGER(TM). SmartVideoNet Manager(TM) software is a tool
designed to help customers simplify the administration of video networks and
reduce the operating costs. Based on the Windows NT platform and utilizing the
SNMP communications protocol, SmartVideoNet Manager(TM) leverages the PC-based
architecture of the Company's systems to allow customers to use their existing
Intranet to provide continuous monitoring of their video network. SmartVideoNet
Manager(TM) allows administrators to remotely control, configure, diagnose and
troubleshoot VTEL systems, all from their PC console on their desk.
NETWORK EQUIPMENT. VTEL carries an extensive line of equipment to
optimize connectivity in a variety of network environments. In order to
maximize communication effectiveness, many customers choose to purchase
multipoint control units to link multiple users into a single meeting. The
SmartLink Multimedia Conference Server(TM) ("MCS(TM)") is the hub of a
videoconferencing meeting, allowing interactive communications with up to 48
participants. The SmartLink MCS(TM) provides translation capabilities for a
number of line rates and video and audio algorithms to ensure maximum
flexibility. Additionally, the SmartLink MCS(TM) is manageable through
SmartVideoNet Manager(TM). SmartLink MCS(TM) configurations range in price from
$19,900 to over $150,000 for advanced configurations. VTEL's MCU-II product
line supports up to 20 participants and has a list price of $49,995 for a
four-port configuration.
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PRODUCT DEVELOPMENT
The Company's product development strategy is to design and develop
core systems capabilities and leverage the availability of hardware peripherals
and application software from third parties and to efficiently integrate such
third party resources into its systems. To the extent that market needs cannot
be met by available third party resources, the Company may undertake the
development of such resources. The following represent development efforts that
have been undertaken by the Company:
SOFTWARE SYSTEM PLATFORM. The SmartStation(TM) Architecture and ESA(TM)
platforms are the Company's proprietary software architectures. The
characteristics of the Company's products are developed and implemented
primarily through software, facilitating upgrades for users and the rapid
incorporation of new technologies. Upgrades are modular in nature, allowing
additional licensed program products to be added incrementally to the user's
basic system. The Company's software products are developed primarily in "C", a
commonly-used, high-level programming language, to provide future portability to
other hardware platforms. Development resources are being applied to the
creation of new system software and program products for increased functionality
and flexibility of the platform.
USER INTERFACE. The Company has developed a Microsoft Windows(TM)-based
user interface called AppsView(TM). The feature is software driven and provides
a customized menu of application icons that the user creates. This user
interface runs on the Microsoft Windows(TM) operating systems and is OLE-2
compatible. AppsView(TM) is now available on all of the Company's primary
digital visual communication systems.
PERSONAL DIGITAL VISUAL COMMUNICATION SYSTEMS. Increased performance of
semiconductor processors specifically designed for video and image processing
allow for the cost-effective design and packaging of small group digital visual
communication systems and high functionality personal desktop systems which are
compatible with small and large group digital visual communication systems. The
Company recently introduced the SmartStation(TM) digital visual communication
cardset which was developed utilizing the capability of the Company's digital
visual communication software ported to a suitable hardware platform. The
principal hardware-related resource commitment in the development process is the
effort to find and test boardset candidates for suitability for the Company's
software.
AUDIO COMPRESSION/ECHO CANCELLATION. Audio quality is an important
element in any video conference. At lower transmission rates, the amount of
bandwidth allocated to audio decreases, thereby requiring audio compression
algorithms to maintain acceptable audio quality. The Company produces its own
proprietary, integrated echo canceller to improve audio quality. The Company
offers audio compression capability at allocated bandwidths of 8, 12, 32 and 74
Kbps through audio subsystems.
VIDEO/IMAGE COMPRESSION. Both the Company's H.320 standard-based video
compression algorithm and its proprietary algorithm are products of compression
research started in 1988. The Company's continuing video compression development
activity is focused on the refinement of both algorithms for higher resolution
video capabilities and the integration of that technology. Shortly following the
merger with CLI, VTEL announced StandardsPlus(TM) Video which provides improved
video quality using industry standards. Significant video quality improvements
using industry technology standards was achieved via a collaborative development
effort between VTEL engineers in Austin and San Jose.
SMARTVIDEONET MANAGER(TM). In the summer of 1997, VTEL introduced the
industry's first standards-based management and administration platform for
distributed digital visual communication networks. Using the SNMP standard,
SmartVideoNet Manager(TM) allows VTEL customers to centrally control their
digital visual communication network for functions such as problem
determination, problem resolution, call setup and conference statistics. Using
this management framework, conference support can be provided centrally with no
requirement for local user intervention, even for networks with hundreds of
digital visual communication system endpoints.
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SALES AND MARKETING
VTEL believes that a well-positioned distribution channel is critical
to marketing success. The Company primarily relies on third parties to sell,
install and support its digital visual communication systems in an effort to
leverage the sales forces of the resellers which are already providing
telecommunications and systems integration services to potential purchasers of
digital visual communication systems. The Company believes that its early
commitment to indirect distribution has resulted in a relatively comprehensive,
well-trained group of resellers, many of which are leading telecommunications
providers in their respective countries. All of its major resellers maintain
demonstration networks, with trained sales and support personnel motivated by
quotas and commissions for marketing the Company's products. The use of
resellers is expected to continue to account for a large percentage of the
Company's revenues in the foreseeable future.
Consistent with its focus on its targeted market segments, the Company
works with a number of VARs that specialize in specific applications, geographic
areas and markets such as education, health care, project management and
government procurement. Typically, the Company's agreements with its resellers
and VARs involve non-exclusive arrangements which may be canceled by either
party at will and contain no minimum purchase requirements on the part of the
resellers.
VTEL also sells products directly to certain end-user customers,
generally large global end user customers which have sophisticated global
digital visual communication networks and require much more involvement of the
Company to support the sale, installation and maintenance of the network.
PRODUCT SUPPORT AND EXPANSION OF SUPPORT CAPABILITIES
Currently, end-user support and installation of the Company's products
are provided by resellers and VARs, by Dictaphone in the United States,
Fujitsu-Bell Atlantic and ICL Sorbus (a wholly-owned subsidiary Fujitsu-Bell
Atlantic) in most foreign markets as third-party service providers or directly
by the Company in order to provide a comprehensive service offering for its
worldwide customer base. The Company trains the service employees of Dictaphone,
Fujitsu/Bell Atlantic and ICL Sorbus and VTEL's resellers on diagnostics and
service of its products. Dictaphone, Fujitsu/Bell Atlantic and ICL Sorbus and
the reseller service network are supported by trained technicians at the
Company's Technical Assistance Center.
In 1995, the Company determined that it would be advantageous to
establish the capacity to offer installation, integration and support services
to resellers of its products, which could be resold by the resellers to the
ultimate purchasers of the Company's products. By enhancing the Company's
resellers' abilities to offer systems integration, installation and end-user
support to the ultimate purchasers of the Company's products, the Company
believes that it enhances its resellers' ability to sell the Company's digital
visual communication systems as well as generate additional revenues to the
Company from the sales of such services to the Company's resellers.
In November 1995, the Company completed the ICS Transaction (see
"Business - General"). The completion of the acquisition allowed the Company to
significantly enhance its ability to support the Company's resellers' abilities
to offer systems integration, installation and end-user support to the ultimate
purchaser of the Company's products, thereby allowing the resellers to more
effectively provide an essential part of the services that are integral to the
purchase of the Company's products.
The Company completed the ICS Transaction with the payment of $10.7
million in cash, which includes $0.14 million of transaction expenses, and the
issuance of 260,000 shares of the Company's unregistered Common Stock. The
Company also assumed certain ICS liabilities (see Note 3 to the Consolidated
Financial Statements).
9
<PAGE> 10
COMPETITION
The videoconferencing industry is highly competitive. The Company
believes that the principal competitive factors in the industry are product
architecture, ease of use, video and audio quality, functionality, service and
support, market visibility, and price. The Company faces competition from a
number of companies that market communications systems for videoconferencing.
Currently in the United States, PictureTel Corporation, Sony Corporation, Nippon
Electric Corporation, Polycom Corporation, and Tandberg, among others, are
marketing roll-about group videoconferencing systems and multipoint control
units. Internationally, videoconferencing systems are available from, among
others, British Telecommunications plc., PictureTel Corporation, Sony
Corporation, Nippon Electric Corporation, Mitsubishi, Ltd., Fujitsu, Ltd.,
Panasonic Ltd., Polycom Corporation, and Tandberg. Intel Corporation also
entered the low-end work group system market in mid 1997.
Certain of the Company's competitors have devoted significant resources
to the development and marketing of person-to-person visual communications
products, such as desktop videoconferencing systems, set-top systems, and
software-based internet/intranet visual communications systems, which may help
to increase awareness in the value of visual communications products while also
resulting in increased competition. Microsoft has introduced visual components
to its NetMeeting Release 2.0(TM) product, PictureTel has announced its intent
to deliver a client/server architected brand of desktop videoconferencing, and
Intel has delivered a minimal set of video and audio extensions in the MMX
enhancements to its Pentium microprocessors. The Company intends to continue
its focus on large-, small-, and work-group digital visual communication
systems, in addition to gateways and other products, where the Company believes
it can add significant value through software, user interfaces, integrated
environments, and applications designed to meet the needs of its targeted
markets.
The Company's competitors and many of its potential competitors are
more established, benefit from greater market recognition, and have greater
financial, technological, production, and marketing resources than the Company.
It is possible for these factors to have an adverse impact on the Company's
competitive position.
MANUFACTURING
The Company's manufacturing operations consist of integration and
testing of subsystems and assemblies. The Company's manufacturing strategy is to
contract work to established vendors, with the Company fulfilling the quality
and materials management functions. Substantially all of the integrated
circuits, subsystems and assemblies used in the Company's products are made to
Company specifications by third parties under contract. The Company establishes
the relationship with the component vendors, qualifies the vendors and arranges
for shipment to the Company or directly to the vendor responsible for the next
level of integration. Systems must pass several levels of testing, including
testing with current-release software, prior to shipment. The Company's
manufacturing quality system was certified in December 1994 as meeting the
standards of ISO 9002 as set by the International Standards Organization. The
Company has passed subsequent audits with no corrective action needed.
The Company relies on outside vendors for supplying substantially all
of its electronic components, subsystems and assemblies. Although the Company
uses standard parts and components for its products that are generally available
from multiple vendors, certain components are currently available only from sole
sources and embody such parties' proprietary technology. The Company depends
upon its suppliers to deliver products which are free from defects, competitive
in functionality and price and consistent with the Company's specifications and
delivery schedules. The failure of a supplier to provide such products could
delay or interrupt the Company's manufacture and delivery of products and
thereby adversely affect the Company's business and operating results. The
Company endeavors to mitigate the potential adverse effect of supply
interruptions by carefully qualifying vendors on the basis of quality and
dependability and by maintaining adequate inventories of certain components.
However, there can be no assurance that such components will be readily
available when needed. Similarly, excessive rework costs associated with
defective components or process errors could adversely affect the Company's
business and operating results. The Company does not have contracts with many of
its suppliers ensuring continued availability of key components.
The Company attempts to forecast orders and to purchase certain long
lead-time components in advance of receipt of purchase orders from customers to
enable the Company to provide timely deliveries to customers when
10
<PAGE> 11
customer orders are received. In addition, the Company from time to time enters
into development arrangements with other third parties to develop and
incorporate new features and functions into the Company's products. As such, the
Company is dependent upon these third parties to fulfill their respective
obligations under these development arrangements, and failure of these third
parties to do so could have a material adverse effect on the Company's results
of operations.
PATENTS AND TRADEMARKS
The Company has 13 patents issued by the United States Patent and
Trademark Office and 11 patent applications pending related to the Company's
technology.
There can be no assurance that the pending patents will be issued or
that issued patents can be defended successfully. However, the Company does not
consider patent protection crucial to its success. The Company believes that,
due to the rapid pace of technological change in the videoconferencing industry,
legal protection for its products are less significant than factors such as the
Company's use of an open architecture, the success of the Company's distribution
strategy, the Company's ongoing product innovation and the knowledge, ability
and experience of the Company's employees.
The Company has been issued two trademarks and two service marks by the
United States Patent and Trademark Office covering the "VTEL" mark and the
Company's logo as well as trademarks and service marks issued by certain foreign
countries and entities. Applications for other trademarks are currently pending
both in the United States and abroad.
EMPLOYEES
At July 31, 1998, the Company employed 740 full-time employees as
follows:
<TABLE>
<CAPTION>
NUMBER OF
FUNCTION EMPLOYEES
<S> <C>
Sales and marketing 256
Research and development 158
Service, support and
systems integration 148
Manufacturing 78
Finance and administration 100
-----------------
Total 740
=================
</TABLE>
The Company's continued success will depend, in large part, on its
ability to attract and retain trained and qualified personnel who are in great
demand throughout the industry. None of the Company's employees is represented
by a labor union. The Company believes that its employee relations are good.
The Company's development, management of its growth and other
activities depend on the efforts of key management and technical employees.
Competition for such personnel is intense. The Company uses incentives,
including competitive compensation and stock option plans, to attract and retain
well-qualified employees. There can be no assurance, however, that the Company
will continue to attract and retain personnel with the requisite capabilities
and experience. The loss of one or more of the Company's key management or
technical personnel also could materially and adversely affect the Company. The
Company generally does not have employment agreements with its key management
personnel or technical employees. The Company's future success is also dependent
upon its ability to effectively attract, retain, train, motivate and manage its
employees. Failure to do so could have a material adverse effect on the
Company's business and operating results.
11
<PAGE> 12
EXECUTIVE OFFICERS
The Company's executive officers are as follows:
JERRY S. BENSON, JR., age 42, is currently Chief Executive Officer and
President. He joined the Company in May 1997 as President and Chief Operating
Officer and assumed his current position in September 1998. Prior to joining
VTEL, Mr. Benson spent 10 years at NEC Technologies, Inc., the last two years as
President and Chief Operating Officer. Mr. Benson also served in the Office of
the Chairman and on the Board of Directors of NEC Technologies. He also served
as a director on the Board of Directors of Packard Bell. Prior to his role as
President and Chief Operating Officer at NEC Technologies, Mr. Benson held a
number of significant operational and general management roles at NEC
Technologies. These included general management positions in several NEC groups,
divisions and strategic business units. Before NEC, he held marketing and sales
management positions at Wyse, Amdek, and Ericsson.
RODNEY S. BOND, age 54, joined the Company in May 1990 as Chief
Financial Officer, Vice President Finance and Assistant Secretary and Treasurer.
He has served as Secretary of the Company since February 1993. From 1989 until
he joined the Company, he served as Managing Director of Sherman Partners, a
Dallas-based private investment and consulting firm. From September 1985 to
October 1988, Mr. Bond served as Chief Financial Officer and Executive Vice
President of Advanced Business Communications, Inc., a telecommunications
equipment manufacturer.
CHARLES M. DENTON, age 58, joined the Company in May 1993 as the Area
Vice President of Sales for the Eastern Area of the United States based in
Washington D. C. In July 1996, he was named Vice President Indirect Sales
responsible for channel strategy and operations based in Austin, Texas. In July
1997, Mr. Denton was named to the position of Vice President - North American
Sales where he was responsible for the overall sales operations including
indirect channels as well as direct sales. In August 1998, he was named to his
current position of Vice President - Global Sales Development where he is
responsible for channel development, training, vertical marketing, lead
generation and sales support operations. Mr. Denton has held various Sales
Management positions with Ascend Communications, PictureTel and Motorola.
DENNIS M. EGAN, age 47, joined the Company in November 1995 as Vice
President - Service. From January 1993 to November 1995, Mr. Egan served as
Senior Vice President of Peirce-Phelps, Inc. From June 1985 to January 1993, Mr.
Egan was Vice President and General Manager of the Integrated Communications
Systems Group of Peirce-Phelps. Mr. Egan's pre-1985 experience includes 13 years
serving in various sales and management positions with Peirce-Phelps.
VINAY GOEL, age 32, joined the Company in July 1998 as Vice President
and General Manager for the Personal and Workgroup Systems strategic business
unit. Immediately prior to joining VTEL, Mr. Goel spent two years as the Vice
President and General Manager at Microwave Systems Corporation focused on the
digital television and and internet phone markets. Before Microwave, he held
marketing positions at General Instruments, Intel and Oracle.
FRANK S. KAPLAN, age 43, joined the Company in September 1995 as Vice
President - International Sales and Marketing. In August 1998, Mr. Kaplan was
named to the position of Vice President - Worldwide Sales. Prior to joining
VTEL, Mr. Kaplan spent seven years at Compression Labs, Inc., the last two years
as Regional Vice President - Sales for Asia Pacific and Latin America. Mr.
Kaplan's previous experience includes working for AT&T for seven years in
various sales positions, the last two years as District Sales Manager in San
Francisco, California.
12
<PAGE> 13
STEVE F. KEILEN, age 39, joined the Company in July 1998 as Vice
President and General Manager of Enterprise Systems Strategic Business Unit.
Prior to joining VTEL, Mr. Keilen served as the Director for Systems Marketing
North America at Compaq Computer Corporation and was Director of Desktop
Marketing and Product Management at Digital Equipment Corporation prior to the
merger of these two companies. He previously held management positions at
Digital Equipment Corporation and Hewlett-Packard Company.
F.H. (DICK) MOELLER, age 53, joined the Company in October 1989 and is
currently Chairman of the Board of Directors. From 1989 to September 1998, Mr.
Moeller was also President and Chief Executive Officer of the Company. From May
1982 to October 1989, Mr. Moeller served as the founder and President of
ProfitMaster Computer Systems, Inc., a computer software firm specializing in
real-time financial management systems for retail point-of-sale applications.
Prior to founding such firm, Mr. Moeller spent 12 years with Texas Instruments,
Inc. during which he held a variety of management positions, most recently
serving as Advanced Systems Manager of its Computer Systems Division. Mr.
Moeller also serves as General Partner of SSM Ventures.
LY-HUONG T. PHAM, age 40, joined the Company in October 1997 as Chief
Technology Officer and Vice President of Research and Development. From May 1992
to October 1997, Ms. Pham served in numerous senior management positions at
Apple Computer, most recently serving as senior director, Operating Systems
Technologies. Prior to Apple, Ms. Pham spent 12 years at Wang Laboratories where
she held a variety of technical and senior management positions.
BARRY RUMAC, age 57, joined the Company in June 1995 as Director of
Investor Relations. In May 1998, he was named to the position of Vice President
of Corporate Communications. Before joining the Company, Mr. Rumac was
responsible for advertising at Dell Computer Corporation.
MICHAEL J. STEIGERWALD, age 39, joined the Company in June 1998 as Vice
President and General Manager of the Professional Services strategic business
unit, based in King of Prussia, Pennsylvania. Prior to joining the Company, Mr.
Steigerwald held the position of Vice President at Newbridge Networks, where he
lead the Global Service and Support organization responsible for the company's
ViVID Internetworking Products business unit. For thirteen years prior to his
experience with Newbridge Networks, Mr. Steigerwald held several services
management positions at Ungermann-Bass Networks, an early pioneer in the LAN
industry, with his last position being that of Vice President, Worldwide
Customer Care.
BOB R. SWEM, age 61, joined the Company in September 1992 as Vice
President - Manufacturing. From June 1981 to July 1992, Mr. Swem held various
positions with the Austin Division of Tandem Computers, Inc., ranging from
Manager of Manufacturing to Director of Operations.
STEPHEN L. VON RUMP, age 40, joined the Company as Chief Marketing
Officer in September 1998. Mr. Von Rump spent the last eight years at MCI
Corporation most recently as Vice President, Enterprise Services Marketing.
JUDY A. WALLACE, age 47, joined the Company in March 1997 as Vice
President - Human Resources. Prior to joining the Company, Ms. Wallace was the
Director of Human Resources with Falcon Seaboard Holdings L.P. She previously
spent five years at Enron Corp. as Human Resource Manager and 11 years at
Weatherford International as Human Resource Supervisor.
ITEM 2. PROPERTIES
The Company's headquarters, product development, and sales and
marketing facility occupies approximately 139,000 square feet in Austin, Texas
under a lease which expires in March 2013. The Company believes that these
facilities are adequate to meet its current requirements, and that suitable
additional space will be available, as needed, to accommodate further physical
expansion of corporate and development operations and for additional sales and
marketing offices. The Company occupies approximately 70,000 square feet of a
facility that is situated in a light industrial area in Austin, Texas where the
Company's manufacturing, training and spare parts depot are located. The
13
<PAGE> 14
Company's manufacturing facilities and equipment are currently utilized
generally on a one shift per day basis. Should additional manufacturing capacity
be needed during the next year, the Company believes that it could provide the
necessary manufacturing capacity through the addition of work shifts or
subcontractors and additional warehouse space.
The Company occupies 52,500 square feet in Sunnyvale, California. The
lease expires in April 2008. The Company has a research and development,
technical assistance and service and support group in its Sunnyvale location.
The Company's Professional Services group occupies a facility of approximately
41,000 square feet in the Philadelphia, Pennsylvania vicinity which is leased
through June 2006.
ITEM 3. LEGAL PROCEEDINGS
CLI is currently engaged in several legal proceedings relating to
matters arising prior to the Merger. There can be no assurance that CLI's legal
proceedings can be resolved favorably to CLI or VTEL. Such legal proceedings, if
continued for an extended period of time, could have an adverse effect upon
CLI's working capital and management's ability to concentrate on its business.
An unfavorable outcome in any one or several such legal proceedings could have a
material adverse effect on CLI and hence, VTEL.
In a complaint filed on December 20, 1993 in the United States District
Court in Dallas, Texas, Datapoint Corporation ("Datapoint") alleged that CLI had
infringed two United States patents owned by Datapoint relating to video
conferencing networks. The complaint sought a judgment of infringement, monetary
damages, injunctive relief and attorneys' fees. CLI responded to the complaint
by denying the material allegations of the complaint and asserting affirmative
defenses. In July 1998, the United States District Court dismissed the civil
action filed by Datapoint.
In June 1997, Keytech, S.A. ("Keytech") filed suit against CLI in the
United States District Court in Tampa, Florida. Keytech was a distributor of
satellite encoder and decoder products manufactured by a division of CLI which
was sold by CLI in June 1996. Keytech has asserted that the equipment sold was
defective and did not conform to contract specifications and express and implied
warranties. Keytech has asserted damages in excess of $20 million based on its
allegations of breach of contract, breach of warranties and fraud. CLI has filed
an answer denying liability and has asserted cross-claims against Keytech for
amounts due and unpaid for equipment sold by CLI to Keytech.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
14
<PAGE> 15
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Since April 7, 1992, the Company's Common Stock has been traded in the
NASDAQ-National Market System under the symbol "VTEL". The following table sets
forth the range of high and low closing prices for each fiscal quarter of 1996,
1997 and 1998:
<TABLE>
<CAPTION>
CALENDAR YEAR FISCAL YEAR FISCAL YEAR
1996 1997 1998
HIGH LOW HIGH LOW HIGH LOW
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $17.250 $ 8.813 $10.625 $ 6.625 $ 8.875 $ 5.438
2nd Quarter $12.625 $ 9.500 $11.000 $ 8.250 $ 8.438 $ 5.625
3rd Quarter $ -- $ -- $ 8.625 $ 4.875 $ 7.688 $ 5.250
4th Quarter $ -- $ -- $ 7.125 $ 5.500 $ 7.063 $ 4.750
</TABLE>
In May 1996, the Company changed its fiscal year end from December 31
to July 31. Therefore, the above quarterly information for 1996 reflects the
first two calendar quarters of the year and the information relating to the
remainder of calendar 1996 is included in the fiscal 1997 quarters (the first
fiscal quarter beginning on August 1, 1996), except for July 1996 which had a
low stock price of $6.375 and a high stock price of $9.6875.
The Company has not paid cash dividends on its Common Stock and
presently intends to continue a policy of retaining earnings for reinvestment in
its business.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth consolidated financial data for VTEL as
of the dates and for the periods indicated. All such data reflects the Merger
with CLI on May 23, 1997, which was accounted for as a pooling of interests. The
consolidated operations data for the year ended December 31, 1995, the seven
months ended July 31, 1996, and the years ended July 31, 1997 and 1998 has been
derived from the audited consolidated financial statements of VTEL included
elsewhere herein. The consolidated operations data for the year ended December
31, 1993 and 1994 has been derived from the audited consolidated financial
statements of VTEL not included herein.
The consolidated balance sheet data as of July 31, 1997 and 1998 has
been derived from the audited consolidated financial statements of VTEL included
elsewhere herein. The consolidated balance sheet data as of December 31, 1993,
1994 and 1995 and July 31, 1996 has been derived from the audited consolidated
financial statements of VTEL not included herein.
The consolidated financial data as of July 31, 1995 and for the seven
months then ended have been derived from the unaudited consolidated financial
statements of VTEL not included herein. The unaudited consolidated financial
data include all adjustments, consisting of normal recurring adjustments, which
VTEL considers necessary for a fair presentation of its financial position as of
such dates and the results of operations and cash flows for such periods. The
selected financial data should be read in conjunction with the consolidated
financial statements of VTEL and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
15
<PAGE> 16
THE RESTATEMENT OF THE CONSOLIDATED FINANCIAL INFORMATION COMBINES THE
FINANCIAL INFORMATION OF VTEL AND CLI GIVING RETROACTIVE EFFECT TO THE MERGER AS
IF THE TWO COMPANIES HAD OPERATED AS A SINGLE COMPANY FOR ALL PERIODS PRESENTED.
HOWEVER, THE TWO COMPANIES OPERATED INDEPENDENTLY PRIOR TO THE MERGER THAT WAS
CONSUMMATED IN MAY 1997 AND THE HISTORICAL CHANGES AND TRENDS IN THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THESE TWO COMPANIES RESULTED FROM
INDEPENDENT ACTIVITIES.
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS SEVEN MONTHS FOR THE YEARS
ENDED ENDED ENDED
DECEMBER 31, JULY 31, JULY 31,
1993 1994 1995 1995 1996 1997 1998
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 126,547 $ 169,189 $ 191,074 $ 98,079 $ 96,962 $ 191,023 $ 179,684
Gross margin 39,089 66,380 66,843 39,971 35,980 74,702 84,957
Net income (loss) from
continuing operations (21,518) (4,816) (17,301) (4,335) (18,507) (44,271) 2,779
Net income (loss) (12,817) 169 (53,843) (3,811) (18,507) (52,054) 2,779
Net income (loss) per share
from continuing operations (1.51) (0.27) (0.90) (0.24) (0.87) (2.10) 0.12
Net income (loss) per share (0.90) 0.01 (2.81) (0.21) (0.87) (2.45) 0.12
BALANCE SHEET DATA:
Working capital $ 85,335 $ 85,088 $ 93,330 $ 76,023 $ 77,091 $ 39,528 $ 41,503
Total assets 170,469 178,086 223,061 182,082 175,092 131,135 129,289
Long-term liabilities 1,020 494 985 1,278 -- -- 3,848
Stockholders' equity 117,595 124,185 139,512 126,739 122,238 76,765 81,258
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE COMPANY
On May 23, 1997, shareholders of VTEL and CLI approved the Merger of
VTEL-Sub, Inc., a Delaware corporation and direct wholly-owned subsidiary of
VTEL ("Merger Sub"), with and into CLI, pursuant to an Agreement and Plan of
Merger and Reorganization (the "Merger Agreement"), with CLI becoming a direct
wholly-owned subsidiary of VTEL. As a result of the Merger, (i) the outstanding
shares of CLI's Common Stock, par value $.001 per share ("CLI Common Stock"),
were converted into the right to receive 0.46 shares of Common Stock of VTEL,
par value $.01 per share ("VTEL Common Stock"), per share of CLI Common Stock
converted (or cash in lieu of fractional shares otherwise deliverable in respect
thereof), and (ii) the outstanding shares of CLI Series C Preferred Stock, par
value $.001 per share ("CLI Preferred Stock"), were converted into the right to
receive 3.15 shares of VTEL Common Stock per share of CLI Preferred Stock
converted (or cash in lieu of fractional shares otherwise deliverable in respect
thereof). The CLI shares were exchanged for a total of 8,424,741 shares of VTEL
Common Stock. The acquisition was accounted for as a pooling of interests and
accordingly, the consolidated financial information has been restated for all
periods to include the accounts of both VTEL and CLI.
The restatement of the consolidated financial information combines the
financial information of VTEL and CLI giving retroactive effect to the Merger as
if the two companies had operated as a single company for all periods presented.
However, the two companies operated independently prior to the Merger that was
consummated in May 1997 and the historical changes and trends in the financial
condition and results of operations of these two companies resulted from
independent activities. Nonetheless, the following Management's Discussion and
Analysis of Financial Condition and Results of Operations attempts to relate the
activities which resulted in the changes in financial condition and results of
operations of the combined company, taking into consideration that a trend or
change in the historical results of the combined entity was caused by many
events related to each individual company operating independently as
competitors. The financial information presented on a historical restated basis
16
<PAGE> 17
is not indicative of the financial condition and results of operations that may
have been achieved in the past or will be achieved in the future had the
companies operated as a single entity for the periods presented. The following
discussion of the consolidated operations and financial condition of the Company
should be read in conjunction with the Company's consolidated financial
statements and related notes thereto included elsewhere herein.
In May 1996, the Company changed its fiscal year end from December 31
to July 31. The accompanying financial information includes the results of
operations and cash flows for the seven month transition period ended July 31,
1996 with comparative presentation of the unaudited results for the seven months
ended July 31, 1995. Results of operations for the seven month periods ended
July 31, 1996 and 1995 are not necessarily indicative of the operating results
which would be expected for a full year.
RESULT OF OPERATIONS
The following table sets forth for the fiscal periods indicated the
percentage of revenues represented by certain items in the Company's
consolidated statement of operations:
<TABLE>
<CAPTION>
FOR THE FOR THE SEVEN FOR THE
YEAR ENDED MONTHS ENDED YEARS ENDED
DECEMBER 31, JULY 31, JULY 31,
1995 1995 1996 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin 35.0 40.8 37.1 39.1 47.3
Selling, general and 32.7 32.0 40.1 34.2 36.1
administrative
Research and development 11.1 12.1 16.8 12.8 11.1
Total operating expenses 44.4 45.0 58.0 62.9 46.8
Other income, net 0.4 0.2 1.8 0.6 1.1
Net income (loss) from continuing
operations (9.1) (4.4) (19.1) (23.2) 1.6
Net income (loss) (28.2)% (3.9)% (19.1)% (27.3)% 1.6%
</TABLE>
FOR THE YEARS ENDED DECEMBER 31, 1995 AND JULY 31, 1997 AND 1998 AND THE SEVEN
MONTHS ENDED JULY 31, 1995 AND 1996.
Revenues
The following table summarizes the Company's group digital visual
communication and multipoint control unit sales activity:
<TABLE>
<CAPTION>
FOR THE FOR THE SEVEN FOR THE
YEAR ENDED MONTHS ENDED YEARS ENDED
DECEMBER 31, JULY 31, JULY 31,
1995 1995 1996 1997 1998
(Unaudited)
<S> <C> <C> <C> <C> <C>
Large-group digital visual
communication systems 3,607 1,903 1,654 3,595 3,518
Small-group digital visual
communication systems 334 201 69 690 632
Multipoint control units 223 113 81 213 140
----- ----- ----- ----- -----
Total units 4,164 2,217 1,804 4,498 4,290
===== ===== ===== ===== =====
</TABLE>
17
<PAGE> 18
Consolidated revenues decreased from $191.1 million in fiscal 1995 to
$191.0 million in fiscal 1997 and to $180.0 million in fiscal 1998. Consolidated
revenues decreased from $98.1 million for the seven months ended July 31, 1995
to $97.0 million for the seven months ended July 31, 1996.
Revenues for the year ended December 31, 1995 included amounts
generated from the broadcast products division which was sold by the Company's
wholly-owned subsidiary, CLI, in June 1996. Revenues for the year ended July 31,
1997 were consistent with revenues for the year ended December 31, 1995 due to
an increase in revenues generated by sales of digital visual communications
systems and professional services which replaced the decline in revenues as a
result of the sale of the broadcast products division.
Revenues for the year ended July 31, 1998 decreased in comparison with
revenues for the year ended July 31, 1997 due to Merger transition issues.
During the year ended July 31, 1998, the Company combined the sales forces of
VTEL and CLI, migrated to a single product platform by eliminating the former
CLI platform, and combined the management and operations of the two companies
into a single organization. The Company has completed all Merger transition
activities and is operating effectively as a single organization. The Company
expects to be able to continue to improve operational efficiency and to increase
revenues in the future.
Revenues decreased from the seven months ended July 31, 1995 to the
seven months ended July 31, 1996 as a result of a trend of decreasing digital
visual communication product revenues by the Company's wholly-owned subsidiary,
CLI. The decrease in revenue was due to product transition issues and the
distraction of the attention of CLI's management in an attempt to diversify the
broadcast products division that ultimately was sold in June 1996.
The Company has experienced a trend of revenue growth in consolidated
service and other revenues as a result of an increase in service and systems
integration revenues generated from the assets acquired in the ICS Transaction
in November 1995 (see Note 3 to the Consolidated Financial Statements) and an
increase in the installed base of digital visual communication products
resulting in a larger revenue base for services.
International sales as a percentage of total consolidated product
revenues were 23%, 26% and 24% for the years ended December 31, 1995 and July
31, 1997 and 1998 and were 22% and 21% for the seven months ended July 31, 1995
and 1996. While the Company has been able to penetrate foreign markets such as
Europe, China, the Far East and Latin America, the decline in international
revenue as a percentage of total revenue during fiscal 1998 is the result of the
economic downturn ongoing in the Far East.
One of the Company's initiatives is to grow revenues from non-U.S.
markets. Non-U.S. operations are subject to certain risks inherent in conducting
business abroad including price and currency exchange fluctuations and
restrictive government actions. The Company believes its foreign currency
exposure to be relatively low as foreign sales are predominantly in U.S.
dollars. The Company utilizes currency hedging programs that utilize foreign
currency forward contracts on a limited basis and reviews the credit worthiness
of its customers to mitigate foreign currency exchange and credit risk. There
can be no assurance that the Company's foreign currency hedging program will
effectively hedge foreign currency exchange risk.
While the Company strives for consistent revenue growth, there can be
no assurance that consistent revenue growth or profitability can be achieved.
Consistent with many companies in the technology industry, the Company's
business model is characterized by a very high degree of operating leverage. The
Company's expense levels are based, in part, on its expectations as to future
revenue levels, which are difficult to predict partly due to the Company's
strategy of distributing its products primarily through resellers. Because
expense levels are based on the Company's expectations as to future revenues,
the Company's expense base is relatively fixed in the short term. If revenue
levels are below expectations, operating results may be materially and adversely
affected and net income is likely to be disproportionately adversely affected.
In addition, the Company's quarterly and annual results may fluctuate as a
result of many factors, including price reductions, delays in the introduction
of new products, delays in purchase decisions due to new product announcements
by the Company or its competitors, cancellations or delays of orders,
interruptions or delays in supplies of key components, changes in reseller base,
customer base, business or product mix and seasonal patterns and other shifts of
capital spending by customers. There can be no assurance that the Company will
be able to increase or even maintain its current level of revenues on a
quarterly or annual basis in the future.
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<PAGE> 19
Gross margin
Gross margins were 35%, 39% and 47% for the years ended December 31,
1995 and July 31, 1997 and 1998 and were 41% and 37% for the seven months ended
July 31, 1995 and 1996.
The Company's gross margin trend has been positively affected by
changes in the Company's sales mix to higher margin products with more features
and lower per unit manufacturing costs realized by the distribution of
relatively fixed manufacturing overhead costs. This trend has been offset by the
impact of lower average selling prices and a higher proportion of service and
systems integration revenues, which generally carry a lower gross margin than
the Company's digital visual communication products. The gross margin for the
year ended December 31, 1995 reflects an $11.0 million charge taken in November
1995 by the Company's subsidiary, CLI, to reduce the carrying amount of certain
assets, primarily inventory and capitalized software related to a restructuring
of its digital videoconferencing products division. During fiscal 1998, the
products that were previously developed by the Company's wholly-owned
subsidiary, CLI, represented a smaller proportion of total product revenue due
to the transition of the Company's combined product offering to the Company's
ESA-based products. The products of the Company's wholly-owned subsidiary, CLI,
generally have a lower gross margin than the ESA-based products. During the year
ended July 31, 1997 the Company's restated combined revenues consisted of a
higher proportion of revenues from CLI, which resulted in a lower gross margin
on a combined basis. The higher proportion of product revenues from the ESA
platform products resulted in a higher blended gross margin for the year ended
July 31, 1998.
Gross margins declined from the seven months ended July 31, 1995 to the
seven months ended July 31, 1996 as service and integration revenues became a
larger proportion of total revenues during the seven months ended July 31, 1996
due to incremental revenues generated by the Company's systems integration and
service operations which were acquired in November 1995. The Company's systems
integration and service operations carry a lower gross margin percentage than
its product revenues such that the Company's overall gross margin is lower.
Although the systems integration and service revenues related to assets acquired
in connection with the ICS Transaction generally carry a lower gross margin, the
systems integration and service activities also generally carry lower operating
expenses than the Company's other revenue sources.
The Company expects gross margin pressures due to price competitiveness
in the industry, shifts in the product sales mix and anticipated offerings of
new products, which may carry a lower gross margin. The Company expects that
overall price competitiveness in the industry will continue to become more
intense as users of digital visual communication systems attempt to balance
performance, functionality and cost. The Company's gross margin is subject to
fluctuation based on pricing, production costs and sales mix.
Selling, general and administrative
Selling, general and administrative expenses of $64.8 million in fiscal
1998 decreased by 1% from $65.4 million in fiscal 1997, which increased by 5%
from $62.5 million in fiscal 1995. Selling, general and administrative expenses
were 33%, 34% and 36% of revenues for the years ended December 31, 1995 and July
31, 1997 and 1998.
Selling, general and administrative expenses increased from the year
ended December 31, 1995 to the year ended July 31, 1997 despite consistent
revenues during these periods. The increase in selling, general and
administrative expenses is due to the incremental selling, general and
administrative expenses associated with the Company's Professional Services
Group which was acquired in connection with the ICS Transaction in November
1995. The selling, general and administrative expenses incurred by the
Professional Services Group resulted in an increase of nearly 100% in
professional services revenues from the year ended December 31, 1995 to the year
ended July 31, 1997.
Selling, general and administrative expenses increased from the year
ended July 31, 1997 to the year ended July 31, 1998 despite a decline in
revenues during these periods. The increase was due to investments made by the
19
<PAGE> 20
Company during the year ended July 31, 1998 related to marketing and branding
campaigns which were designed to provide brand awareness for VTEL's products and
to establish VTEL as an industry leader in digital visual communications.
Additionally, Merger transition issues related to the combination of the sales
forces of VTEL and CLI contributed to an increase in selling, general and
administrative expenses without a proportionate increase in revenues. The
Company has completed all Merger transition activities and its sales force is
operating effectively as a single organization. Therefore, the Company expects
to be able to generate higher revenue productivity in the future from the
combined sales force.
Selling, general and administrative expenses increased from $31.4
million for the seven months ended July 31, 1995 to $38.8 million for the seven
months ended July 31, 1996, an increase of 24%. Selling, general and
administrative expenses were 32% and 40% of revenues for the seven months ended
July 31, 1995 and 1996. Selling, general and administrative expenses increased
from the seven months ended July 31, 1995 to the seven months ended July 31,
1996 due to the incremental selling, general and administrative expenses
associated with the Professional Services Group acquired in connection with the
ICS Transaction in November 1995 and a $1.7 million charge taken by the
Company's wholly-owned subsidiary, CLI, during the seven months ended July 31,
1996 to restructure its videoconferencing business. The charges related
primarily to severance and related costs associated with headcount reductions.
Research and development expense
Research and development expenses of $19.9 million in fiscal 1998
decreased by 19% from $24.5 million in fiscal 1997, which increased by 15% from
$21.3 million in 1995. Research and development expenses were 11%, 13% and 11%
of revenues for the years ended December 31, 1995 and July 31, 1997 and 1998.
The increase in research and development expenses from the year ended December
31, 1995 to the year ended July 31, 1997 is the result of higher software
development costs capitalized during the year ended December 31, 1995.
Subsequent to December 31, 1995, the Company's wholly-owned subsidiary, CLI,
reduced its development emphasis on projects which required software
capitalization resulting in a reduction of capitalized software development
costs during the year ended July 31, 1997. Merger-related expenses recorded
during the year ended July 31, 1997 included a $3.2 million charge for the
write-off of capitalized research and development cost incurred by CLI for
products that were discontinued subsequent to the Merger.
The decrease in research and development expenses from the year ended
July 31, 1997 to the year ended July 31, 1998 reflects the efficiencies realized
by combining the research and development efforts of VTEL and CLI subsequent to
the Merger. The Company migrated to a single product platform by eliminating
CLI's product platform. The research and development capabilities of both
companies were then focused on a single platform such that Company could make a
larger investment in its ESA(TM) platform while reducing the overall research
and development expenses of the combined companies. Additionally, during the
year ended July 31, 1998, the Company capitalized $0.98 million of software
development costs related to new product developments resulting in a reduction
in research and development expenses recorded during the year.
Research and development expenses increased from $11.9 million for the
seven months ended July 31, 1995 to $16.3 million for the seven months ended
July 31, 1996, an increase of 37%. Research and development expenses were 12%
and 17% of revenues for the seven months ended July 31, 1995 and 1996. Research
and development expenses increased from the seven months ended July 31, 1995 to
the seven months ended July 31, 1996 as a result of the Company's efforts to
develop its Leadership Conferencing(TM) and Team Conferencing(TM) systems which
were introduced at the end of calendar 1995 and the beginning of calendar 1996,
respectively. Research and development expenses also increased as a result of
the reassignment of Company research and development personnel who had been
involved with the Intel joint development projects in 1995 to the Company's
other projects (see Note 9 to the Company's Consolidated Financial Statements).
Additionally, research and development expenses increased as a result of the
Company's wholly-owned subsidiary, CLI, shifting its development efforts from
software development to hardware development during the seven months ended July
31, 1996, which resulted in less capitalization of development costs related to
software development.
20
<PAGE> 21
The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards and frequent product
introductions. New products are generally characterized by increased
functionality and better picture quality at lower bandwidths and at reduced
prices. The introduction of products, by either the Company or its competitors,
embodying new technology and the emergence of new industry standards may render
existing products obsolete and unmarketable. The Company's ability to
successfully develop and introduce on a timely basis new and enhanced products
that embody new technology, anticipate and incorporate evolving industry
standards and achieve levels of functionality and prices acceptable to the
market will be a significant factor in the Company's ability to grow and to
remain competitive. Although the percentage of revenues invested by the Company
in research and development may vary from period to period, the Company is
committed to investing in its research and development programs.
Merger and other expense
Merger and other expense decreased from $29.4 million in fiscal 1997 to
a $1.5 million credit to income in fiscal 1998. Merger and other expenses of
$29.4 million recorded during fiscal 1997 consisted of transaction expenses of
$5.7 million and restructuring and other expenses of $23.7 million. Management
determined that, based on favorable events that occurred during fiscal 1998 a
reversal of certain Merger and other accruals totaling $1.5 million should be
recorded.
Interest income and expense
Interest income was $1.8 million, $2.7 million and $1.2 million for the
years ended December 31, 1995 and July 31, 1997 and 1998 and was $0.7 million
and $1.9 million for the seven months ended July 31, 1995 and 1996. Changes in
interest income are based on interest rates earned on invested cash and cash
balances available for investment. In October 1995, the Company completed a
secondary offering which generated net proceeds of approximately $57.0 million.
The increase in the cash balances of the Company resulted in the increases in
interest income for the seven months ended July 31, 1996 and the year ended July
31, 1997. Similarly in October 1996, the Company's wholly-owned subsidiary, CLI,
completed a private placement of preferred stock which generated net proceeds of
approximately $7.0 million. The resulting increase in cash balances caused
interest income for fiscal 1997 to be higher as compared with the previous
periods presented. The decrease in the interest income during fiscal 1998 is the
result of the reduced cash balances due to Merger related expenditures incurred.
Interest expense was $1.1 million, $1.6 million and nil for the years
ended December 31, 1995 and July 31, 1997 and 1998 and was $0.7 million and $0.4
million for the seven months ended July 31, 1995 and 1996. Interest expense
relates almost entirely to the Company's wholly-owned subsidiary, CLI, which
relied on lines of credit to fund working capital and capital investment
requirements. Interest expense increased from the year ended December 31, 1995
to the year ended July 31, 1997 as a result of higher average borrowings at
higher interest rates during the year ended July 31, 1997. The Company incurred
less interest expense during the seven months ended July 31, 1996 in comparison
with the seven months ended July 31, 1995 as a result of a decrease in average
borrowings during the seven months ended July 31, 1996. No interest expense was
incurred during fiscal 1998 as the Company repaid all outstanding debt prior to
July 31, 1997.
Income taxes
The Company has experienced substantial changes in ownership as defined
by the Internal Revenue Code. These changes result in annual limitations of the
amount of net operating loss carryforward generated prior to each change which
can be utilized to offset future taxable income. As a result of the ownership
change at CLI at the date of the Merger, a portion of CLI's net operating loss
carryforward generated prior to the Merger will never be available to offset
future taxable income due to the effect of the annual limitation and the
expiration of the related net operating losses. Therefore, the unavailable
portion of the net operating loss carryforward is not considered in determining
the deferred tax asset at July 31, 1998.
At July 31, 1998, the Company had total domestic net operating loss
carryforwards of $85.7 million ($26.6 million and $59.1 million for VTEL and
CLI, respectively). The portions of these carryforwards available for
utilization during fiscal 1999 (in consideration of the annual limitations) are
$52.7 million. Additional net operating
21
<PAGE> 22
losses created prior to the changes in control of $2,574 become available in
each subsequent year and accumulate if not used until such net operating losses
expire.
Due to the uncertainty surrounding the timing of realizing the benefits
of its favorable tax attributes in future tax returns, the Company has placed a
full valuation allowance against its net deferred tax asset. Accordingly, no
deferred taxes have been recorded for the year ended December 31, 1995, for the
seven months ended July 31, 1996 and for the years ended July 31, 1997 and 1998.
Discontinued operations
In November 1995, the Company's wholly-owned subsidiary, CLI, adopted a
plan to discontinue operations of its broadcast products division and focus its
efforts and resources in developing and marketing videoconferencing products.
CLI subsequently developed a restructuring plan for its videoconferencing
products division which resulted in adjustments that were recorded during the
year ended December 31, 1995 related to the carrying amounts of certain assets,
primarily inventories, capitalized software development costs and accounts
receivable. During the seven months ended July 31, 1996, CLI also reduced its
workforce and identified a number of offices that would be closed. Severance and
other expenses totaling approximately $1.7 million associated with these actions
are reflected in the result of operations for the seven months ended July 31,
1996.
In June 1996, CLI completed the sale of certain assets of its broadcast
products division. During the year ended July 31, 1997, CLI revised the amount
of loss associated with disposing of the broadcast products division and
recorded an additional charge of $7.8 million, primarily due to additional
at-risk receivables that were subsequently identified (see Note 6 to the
Consolidated Financial Statements).
Net income (loss)
The Company generated net losses from continuing operations of $17.3
and $44.3 million for the years ended December 31, 1995 and July 31, 1997 and
$4.3 million and $18.5 million for the seven months ended July 31, 1995 and
1996. In fiscal 1998, the Company recorded net income from continuing operations
of $2.8 million. The net loss incurred during the year ended December 31, 1995
reflects charges taken by CLI related to settlement of litigation and
restructuring charges. A larger net loss was incurred for the year ended July
31, 1997 due to charges of $29.4 million taken related to the Merger (see Note 1
to the Consolidated Financial Statements). The Company generated net income
during fiscal 1998 as a result of a reduction of operating expenses which was
greater than the decline in revenues and several nonrecurring events. The
reduction of operating expenses was due to operating efficiencies gained by
combining VTEL and CLI after the Merger, including the elimination of duplicate
costs and focusing combined company resources on a single product platform and
operating plan. Additionally, the Company generated income of approximately $1.3
million (net of expenses) from a planned non-recurring real estate transaction
which eliminated duplicate corporate headquarter facilities. During the year
ended July 31, 1998, the Company capitalized approximately $0.8 million of
internal costs associated with the implementation of the Oracle(R) Enterprise
Resource Planning System and $0.98 million of software development costs. Due to
the favorable resolution of certain Merger-related issues during the year ended
July 31, 1998, the Company was able to record a net credit to income of
approximately $1.5 million due to the reversal of certain Merger and other
accruals that were recorded as of July 31, 1997. As management had anticipated
the additional income increase and operating expense reductions, the Company was
able to take advantage of these benefits by investing in discretionary marketing
and branding campaigns to provide brand awareness for VTEL's products and to
establish VTEL as an industry leader in digital visual communications.
The increase in net losses incurred from the seven months ended July
31, 1995 to the seven months ended July 31, 1996 is the result of independent
charges taken by both VTEL and its wholly-owned subsidiary, CLI, related to
restructuring activities and the effect of CLI's decision to discontinue
operations relating to its broadcast products division in November 1995.
22
<PAGE> 23
Other factors affecting results of operations
The Company's future results of operations and financial condition
could be impacted by the following factors, among others: trends in the
videoconferencing market segment, introduction of new products by competitors,
increased competition due to the entrance of other companies into the
videoconferencing market segment - especially more established companies with
greater resources than those of the Company, delay in the introduction of higher
performance products, market acceptance of new products introduced by the
Company, price competition, interruption of the supply of low-cost products from
third-party manufacturers, changes in general economic conditions in any of the
countries in which the Company does business, adverse legal disputes and delays
in purchases relating to federal government procurement.
There can be no assurance that the present and potential customers of
the Company will continue their current buying patterns without regard to the
Merger, and any significant delay or reduction in orders could have an adverse
effect on the near-term business and results of operations of the combined
company.
Generally, the shares issued by the Company to consummate the Merger
are freely tradable, subject to certain resale restrictions for affiliates
pursuant to Rules 144 or 145 under the Securities Act. An aggregate of
approximately 1.1 million of the shares issued in the Merger are beneficially
owned by affiliates of CLI and therefore, subject to resale restrictions.
However, the Company provided certain registration rights to the holders of such
shares. The sale of a significant number of the foregoing shares could cause
substantial fluctuations in the price of the Company's Common Stock over short
time periods.
Due to the factors noted above and elsewhere in Management's Discussion
and Analysis of Financial Condition and Results of Operations, the Company's
past earnings and stock price have been, and future earnings and stock price
potentially may be, subject to significant volatility, particularly on a
quarterly basis. Past financial performance should not be considered a reliable
indicator of future performance and investors are cautioned in using historical
trends to anticipate results or trends in future periods. Any shortfall in
revenue or earnings from the levels anticipated by securities analysts could
have an immediate and significant effect on the trading price of the Company's
Common Stock in any given period. Also, the Company participates in a highly
dynamic industry which often contributes to the volatility of the Company's
Common Stock price.
Further, this Annual Report on Form 10-K contains forward-looking
statements, within the meaning of the Private Securities Litigation Reform Act
of 1995, that relate to future results or events and are based on the Company's
current expectations. There are many factors that affect the Company's business
and results of operations, all of which involve risks and uncertainties that
could cause actual results to differ materially from those reflected in those
forward-looking statements, including the risks discussed above and elsewhere
herein.
Share repurchase program
During the seven months ended July 31, 1996, the Company adopted a
share repurchase program pursuant to which the Company repurchased shares of its
Common Stock in the open market. During fiscal 1997, the Company purchased
455,200 shares of its Common Stock for approximately $3.7 million. All of the
repurchased shares were reissued during fiscal 1997 to fulfill requirements for
the Company's Common Stock. In February 1997, the Company terminated the stock
repurchase program.
In August 1998, the Company announced its plan to repurchase up to
2,000,000 shares of VTEL Common Stock. As of October 12, 1998, the Company had
repurchased approximately 465,000 shares of its Common Stock for approximately
$2.0 million. The repurchased shares will be used to fulfill requirements for
the Company's stock including stock option exercises or stock issuances under
business combination transactions.
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<PAGE> 24
Liquidity and capital resources
At July 31, 1998, the Company had working capital of $41.5 million,
including $29.7 million in cash, cash equivalents and short-term investments.
Cash provided by operating activities was $8.8 million for the year ended
December 31, 1995. Cash used by operating activities was $15.2 million for the
year ended July 31, 1997. Cash provided by operating activities was $19.6
million for the year ended July 31, 1998. Cash used by operating activities was
$1.0 million and $11.1 million for the seven months ended July 31, 1995 and
1996. Changes in cash from operating activities are primarily the result of the
net losses or income generated by the Company and changes in working capital,
primarily increases and decreases in accounts receivable, inventories and
accounts payable.
Cash used in investing activities was $77.9 million for the year ended
December 31, 1995 as compared to cash provided by investing activities of $23.3
million for the year ended July 31, 1997. Cash used in investing activities
during the 1995 period was the result of increased capital expenditures for
property and equipment used to support the growth in the Company's operations,
primarily sales and marketing and product development efforts, and the
investment of the cash proceeds from the Company's secondary offering in
November 1995 which netted approximately $57.0 million less the cash used of
approximately $10.7 million to purchase the systems integration and service
operations in connection with the ICS Transaction. During fiscal 1997, cash
provided by investing activities was primarily due to the net sale of
investments to finance the Company's operations during the period, which
included large cash requirements associated with the Merger. Cash used in
investing activities was $10.6 million for the year ended July 31, 1998 and was
primarily the result of expenditures related to leasehold improvements in Austin
and Sunnyvale, the implementation of the Oracle(R) Enterprise Resource Planning
System and purchases of equipment.
Cash used in investing activities was $16.4 million for the seven
months ended July 31, 1995 compared with cash provided by investing activities
of $1.2 million for the seven months ended July 31, 1996. Cash used in investing
activities was primarily the result of capital expenditures. Capital
expenditures were $11.0 million and $11.1 million for the seven months ended
July 31, 1995 and 1996. Cash provided by investing activities during the seven
months ended July 31, 1996 included the proceeds from the sale of assets related
to discontinued operations of the Company's wholly-owned subsidiary, CLI.
Cash provided by financing activities was $69.2 million for the year
ended December 31, 1995 as compared to cash used by financing activities of $5.1
million for the year ended July 31, 1997 and cash provided by financing
activities of $1.6 million for the year ended July 31, 1998. Cash used in
financing activities during fiscal 1997 was primarily the result of the purchase
of treasury stock by the Company and the repayment of debt by the Company's
wholly-owned subsidiary, CLI, offset by the sale of preferred stock by CLI
during the year ended July 31, 1997. Cash provided by financing activities for
the year ended July 31, 1998 relates to the issuance of stock under the
Company's stock option and stock purchase plans (see Note 8 to the Company's
Consolidated Financial Statements).
Cash provided by financing was $4.9 million for the seven months ended
July 31, 1995 compared to cash used in financing activities of $3.9 million for
the seven months ended July 31, 1996. Cash provided by financing activities
during the seven months ended July 31, 1995 was related to the sale of stock by
the Company's wholly-owned subsidiary, CLI, which netted approximately $4.9
million. Cash used in financing activities during the seven months ended July
31, 1996 was related to the reduction in borrowings of approximately $4.4
million from cash generated from the sale of the broadcast products division in
June 1996 by CLI.
The Company has a $25.0 million revolving line of credit available with
a banking syndicate. The Company has issued a letter of credit totaling $1.2
million under its revolving line of credit as a lease deposit on one of its
facilities. No amounts have been drawn under the syndicated line of credit. The
Company's principal sources of liquidity at July 31, 1998 consist of $29.7
million of cash, cash equivalents and short-term investments and amounts
available under the Company's revolving line of credit.
24
<PAGE> 25
Impact of Year 2000
Many computer systems experience problems handling dates beyond the
year 1999. Therefore, some computer hardware and software will need to be
modified prior to the Year 2000 in order to remain functional. The Company
believes that its products are Year 2000 compliant. While the Company is not
currently aware of any Year 2000 compliance issues with its products, no
assurances can be made that problems will not arise such as customer problems
with other software programs, operating systems or hardware that disrupt their
use of the Company's products. There can be no assurances that such disruption
would not negatively impact costs and revenues in future years.
The Company has been assured by the vendor of its Enterprise Resource
Planning System that the system is Year 2000 compliant. The Company began
assessing Year 2000 issues and Year 2000 testing of its significant management
information systems during fiscal 1998.
The Company presently believes that with modifications to existing
software and conversions to new software, the Year 2000 issue can be mitigated.
It is not anticipated that there will be a significant increase in costs as much
of the Year 2000 activities will be a continuation of the on-going process to
improve all the Company's systems. The Company has not estimated the total costs
of Year 2000 compliance and related contingency planning as Year 2000 compliance
assessments are still in process. However, the company does not anticipate that
Year 2000 issues will result in material incremental costs to the Company. The
Company plans to complete the Year 2000 project during fiscal 1999. However, if
such modifications and conversions are not made, or are not completed in a
timely manner, the Year 2000 issue could have a material impact on the
operations of the Company. Specific factors that might cause a material impact
include, but are not limited to, availability and cost of personnel trained in
this area, the ability to locate and correct all relevant computer codes,
failure by third parties to timely convert their systems, and similar
uncertainties.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 will require the
Company to report, in addition to net income, comprehensive income and its
components including, as applicable, foreign currency items and unrealized gains
and losses on certain investments in debt and equity securities. The Company is
required to adopt SFAS No. 130 for its fiscal year ended July 31, 1999. The
Company expects that the adoption of SFAS No. 130 will not have a material
impact on its financial position or its results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for reporting information about a company's operating segments. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Under SFAS No. 131, operating segments are
to be determined consistent with the way management organizes and evaluates
financial information internally for making operating decisions and assessing
performance. The Company is required to adopt SFAS No. 131 for its fiscal year
ended July 31, 1999. The Company expects that the adoption of SFAS No. 131 will
not have a material impact on its financial position or its results of
operations.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 requires the recognition
of all derivatives as either assets or liabilities in the statement of financial
position and the measurement of those instruments at fair value. The Company is
required to adopt this standard in the first quarter of fiscal 2000. The Company
expects that the adoption of SFAS No. 133 will not have a material impact on its
financial position or its results of operations.
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<PAGE> 26
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SoP) 97-2, "Software Revenue Recognition," which
provides guidance for recognizing revenue on software sales such that certain
amounts are deferred for future obligations such as software upgrades and
product support. The Company will adopt SOP 97-2 effective August 1, 1998. The
Company does not expect that the new pronouncement will have a material impact
on its financial position or results of operations.
In March 1998, the Accounting Standards Executive Committee of the
American institute of Certified Public Accountants, issued Statement of Position
98-1 (SoP 98-1), "Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use," which requires the capitalization of certain
internal costs related to the implementation of computer software obtained for
internal use. In consideration of the Company's implementation of the Oracle
Enterprise Resource Planning Software System, the Company early adopted SoP 98-1
during fiscal 1998. In accordance with SoP 98-1, the Company capitalized $0.8
million of internal costs associated with the implementation of the Oracle
Enterprise Resource Planning Software System during the year ended July 31,
1998.
* * *
26
<PAGE> 27
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants 28
Independent Auditors' Report 29
Financial Statements:
Consolidated Balance Sheet as of July 31, 1997 and 1998 30
Consolidated Statement of Operations for the year ended December 31, 1995,
the seven months ended July 31, 1995 (unaudited) and 1996, and the
years ended July 31, 1997 and 1998 31
Consolidated Statement of Changes in Stockholders' Equity for the year
ended December 31, 1995, the seven months ended July 31, 1996 and the
years ended July 31, 1997 and 1998 32
Consolidated Statement of Cash Flows for the year ended December 31, 1995,
the seven months ended July 31, 1995 (unaudited) and 1996, and the
years ended July 31, 1997 and 1998 33
Notes to Consolidated Financial Statements 34
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts 58
Schedules other than those listed above have been omitted since they are
either not required, not applicable or the information is otherwise
included
</TABLE>
27
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of VTEL Corporation
In our opinion, based upon our audits and the report of other auditors,
the consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of VTEL Corporation and
its subsidiaries at July 31, 1997 and 1998, and the results of their operations
and their cash flows for the year ended December 31, 1995, for the seven months
ended July 31, 1996, and for each of the two years in the period ended July 31,
1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Compression Labs,
Incorporated, which statements reflect total revenues of $112,979,000 for the
year ended December 31, 1995. Those statements were audited by other auditors
whose report thereon has been furnished to us, and our opinion expressed herein,
insofar as it related to the amounts included for Compression Labs,
Incorporated, is based solely on the report of the other auditors. We conducted
our audits of the consolidated financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Austin, Texas
September 22, 1998
28
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
of Compression Labs, Incorporated
We have audited the consolidated statements of operations, changes in
stockholders' equity and of cash flows of Compression Labs, Incorporated and
subsidiaries for the year ended December 31, 1995 (not presented herein). In
connection with our audits of the aforementioned consolidated financial
statements, we have also audited the financial statement schedule. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements of Compression
Labs, Incorporated referred to above present fairly, in all material respects,
the results of their operations and their cash flows for the year ended December
31, 1995, in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth herein.
KPMG Peat Marwick LLP
Mountain View, California
March 13, 1996
29
<PAGE> 30
VTEL CORPORATION
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 31,
1997 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 4,757 $ 15,191
Short-term investments 20,299 14,484
Accounts receivable, net of allowance for doubtful
accounts of $10,722 and $9,447 at July 31, 1997 and 1998 43,707 40,527
Inventories 22,244 12,951
Prepaid expenses and other current assets 2,891 2,533
--------- ---------
Total current assets 93,898 85,686
Property and equipment, net 21,660 28,106
Intangible assets, net 12,768 11,812
Other assets 2,809 3,685
--------- ---------
$ 131,135 $ 129,289
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 25,699 $ 22,600
Accrued merger and other expenses 9,704 1,741
Accrued compensation and benefits 4,552 5,258
Other accrued liabilities 3,070 2,791
Deferred revenue 11,345 11,793
--------- ---------
Total current liabilities 54,370 44,183
Long-term liabilities -- 3,848
--------- ---------
Total liabilities 54,370 48,031
--------- ---------
Commitments and contingencies (Note 11) -- --
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 authorized;
none issued or outstanding -- --
Common stock, $.01 par value; 40,000,000 authorized;
22,873,000 and 23,227,000 issued and outstanding
at July 31, 1997 and 1998 229 232
Additional paid-in capital 254,880 256,594
Accumulated deficit (178,234) (175,455)
Cumulative translation adjustment 5 (37)
Unearned compensation (115) (76)
--------- ---------
Total stockholders' equity 76,765 81,258
--------- ---------
$ 131,135 $ 129,289
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
30
<PAGE> 31
VTEL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE SEVEN FOR THE YEARS
ENDED MONTHS ENDED ENDED
DECEMBER 31 JULY 31, JULY 31,
1995 1995 1996 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Products $ 169,455 $ 89,207 $ 74,098 $ 150,791 $ 134,775
Services and other 21,619 8,872 22,864 40,232 44,909
--------- --------- --------- --------- ---------
191,074 98,079 96,962 191,023 179,684
--------- --------- --------- --------- ---------
COST OF SALES:
Products 109,653 52,523 44,390 87,231 65,811
Services and other 14,578 5,585 16,592 29,090 28,916
--------- --------- --------- --------- ---------
124,231 58,108 60,982 116,321 94,727
--------- --------- --------- --------- ---------
Gross margin 66,843 39,971 35,980 74,702 84,957
--------- --------- --------- --------- ---------
Selling, general and administrative 62,511 31,397 38,842 65,399 64,802
Research and development 21,283 11,878 16,274 24,460 19,892
Merger and other 897 897 553 29,397 (1,536)
Amortization of intangible assets 80 -- 560 960 960
--------- --------- --------- --------- ---------
Total operating expenses 84,771 44,172 56,229 120,216 84,118
--------- --------- --------- --------- ---------
Income (loss) from operations (17,928) (4,201) (20,249) (45,514) 839
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income 1,802 699 1,901 2,736 1,242
Interest expense (1,142) (655) (424) (1,582) (27)
Other 54 164 265 77 762
--------- --------- --------- --------- ---------
714 208 1,742 1,231 1,977
--------- --------- --------- --------- ---------
Net income (loss) from continuing operations
before benefit (provision) for income taxes (17,214) (3,993) (18,507) (44,283) 2,816
Benefit (provision) for income taxes (87) (342) -- 12 (37)
--------- --------- --------- --------- ---------
Net income (loss) from continuing operations (17,301) (4,335) (18,507) (44,271) 2,779
--------- --------- --------- --------- ---------
DISCONTINUED OPERATIONS:
Net income (loss) from discontinued operations (1,941) 524 -- (7,783) --
Loss on disposal (34,601) -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) from discontinued operations (36,542) 524 -- (7,783) --
--------- --------- --------- --------- ---------
Net income (loss) $ (53,843) $ (3,811) $ (18,507) $ (52,054) $ 2,779
========= ========= ========= ========= =========
COMPUTATION OF NET INCOME (LOSS) PER SHARE:
Net income (loss) from continuing operations $ (17,301) $ (4,335) $ (18,507) $ (44,271) $ 2,779
Deemed preferred stock dividend related to
conversion discount -- -- -- (2,527) --
--------- --------- --------- --------- ---------
Adjusted net income (loss) from continuing operations (17,301) (4,335) (18,507) (46,798) 2,779
Net income (loss) from discontinued operations (36,542) 524 -- (7,783) --
--------- --------- --------- --------- ---------
Net income (loss) applicable to common stock $ (53,843) $ (3,811) $ (18,507) $ (54,581) $ 2,779
========= ========= ========= ========= =========
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations $ (0.90) $ (0.24) $ (0.87) $ (2.10) $ 0.12
Income (loss) from discontinued operations (1.91) 0.03 -- (0.35) --
--------- --------- --------- --------- ---------
Net income (loss) per share $ (2.81) $ (0.21) $ (0.87) $ (2.45) $ 0.12
========= ========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 19,131 17,821 21,393 22,255 23,057
========= ========= ========= ========= =========
Diluted 19,131 17,821 21,393 22,255 23,458
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
31
<PAGE> 32
VTEL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ADDITIONAL TOTAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT OTHER EQUITY
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 16,759 $ 168 $ 175,235 $ (51,363) $ 145 $ 124,185
Proceeds from sale of stock 3,312 33 61,927 -- -- 61,960
Proceeds from stock issued
under employee plans 546 5 3,220 -- -- 3,225
Exercise of stock warrants 15 -- 249 -- -- 249
Stock issued for acquired
assets (Note 3) 260 3 3,721 -- -- 3,724
Amortization of unearned
compensation -- -- -- -- 21 21
Foreign currency translation
adjustment -- -- -- -- (9) (9)
Net loss -- -- -- (53,843) -- (53,843)
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1995 20,892 209 244,352 (105,206) 157 139,512
Proceeds from stock issued
under employee plans 178 2 1,237 -- -- 1,239
Proceeds from exercise
of stock warrants 428 4 (4) -- -- --
Foreign currency translation
adjustment -- -- -- -- (6) (6)
Net loss -- -- -- (18,507) -- (18,507)
--------- --------- --------- --------- --------- ---------
BALANCE AT JULY 31, 1996 21,498 215 245,585 (123,713) 151 122,238
Proceeds from sale of stock 1,258 13 7,703 -- -- 7,716
Proceeds from stock issued
under employee plans 572 1 2,503 -- -- 2,504
Purchase and issuance of
treasury stock (455) -- (1,275) (2,467) -- (3,742)
Unearned compensation -- -- 364 -- (364) --
Amortization of unearned
compensation -- -- -- -- 249 249
Foreign currency translation
adjustment -- -- -- -- (146) (146)
Net loss -- -- -- (52,054) -- (52,054)
--------- --------- --------- --------- --------- ---------
BALANCE AT JULY 31, 1997 22,873 229 254,880 (178,234) (110) 76,765
Proceeds from stock issued
under employee plans 344 3 1,473 -- -- 1,476
Common stock and warrants
issued for acquisition 10 -- 153 -- -- 153
Unearned compensation -- -- 88 -- (88) --
Amortization of unearned
compensation -- -- -- -- 127 127
Foreign currency translation
adjustment -- -- -- -- (42) (42)
Net income -- -- -- 2,779 -- 2,779
--------- --------- --------- --------- --------- ---------
BALANCE AT JULY 31, 1998 23,227 $ 232 $ 256,594 $(175,455) $ (113) $ 81,258
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
32
<PAGE> 33
VTEL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE SEVEN FOR THE YEARS
ENDED MONTHS ENDED ENDED
DECEMBER 31, JULY 31, JULY 31,
1995 1995 1996 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (53,843) $ (3,811) $ (18,507) $ (52,054) $ 2,779
Adjustments to reconcile net income (loss)
to net cash from operations:
Depreciation and amortization 20,898 7,858 8,294 12,667 8,870
Provision for doubtful accounts 40 8 18 4,145 (119)
Amortization of unearned compensation 21 11 -- 249 127
Amortization of deferred gain (100) (57) (56) -- --
Foreign currency translation gain (loss) 40 (83) (216) (3) 112
(Increase) decrease in accounts receivable (4,007) (15,651) 10,324 106 3,299
(Increase) decrease in inventories 9,647 (725) (7,367) 7,064 10,758
(Increase) decrease in prepaid expenses
and other current assets 2,107 (76) 2,522 (492) 358
Increase (decrease) in accounts payable 7,430 263 (11,216) 5,005 (3,099)
Increase (decrease) in accrued expenses 16,156 3,973 (14,562) 6,535 (5,505)
(Decrease) in research and
development advance (190) (190) -- (5) --
Increase (decrease) in deferred revenues (912) (1,098) (1,378) 2,195 2,172
Increase (decrease) in accrued expenses,
discontinued operations 11,503 8,614 21,016 (657) --
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities 8,790 (964) (11,128) (15,245) 19,752
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (707,280) (65,148) (241,994) (391,628) (247,223)
Sales and maturities of short-term investments 664,545 68,327 253,671 419,636 253,038
Purchases of property and equipment (16,759) (11,027) (11,139) (18,781) (15,835)
Sales of property and equipment 1,775 1,054 1,307 11,208 260
Cash paid for acquired assets (Note 3) (10,684) -- -- -- --
(Increase) decrease in capitalized software (9,371) (2,958) (681) 3,561 (984)
(Increase) decrease in other assets (103) (6,662) 69 (745) 104
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities (77,877) (16,414) 1,233 23,251 (10,640)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock 65,434 6,255 1,014 8,044 1,476
Purchase of treasury stock -- -- -- (3,742) --
Proceeds from the sale of treasury stock -- -- -- 1,275 --
Principal payments under capital lease obligations (844) (436) (549) -- --
(Payments) borrowings under line of credit
agreements 2,993 (2,801) (2,766) -- --
Collateralized borrowings (payments) 1,597 1,850 (1,589) -- --
Repayment of short-term debt -- -- -- (10,656) --
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities 69,180 4,868 (3,890) (5,079) 1,476
---------- ---------- ---------- ---------- ----------
Effect of translation exchange rates on cash (49) 125 210 (143) (154)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and equivalents 44 (12,385) (13,575) 2,784 10,434
Cash and equivalents at beginning of period 15,504 15,504 15,548 1,973 4,757
---------- ---------- ---------- ---------- ----------
Cash and equivalents at end of period $ 15,548 $ 3,119 $ 1,973 $ 4,757 $ 15,191
========== ========== ========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 74 $ 27 $ -- $ -- $ --
========== ========== ========== ========== ==========
Interest paid $ 1,142 $ 655 $ 424 $ 1,582 $ --
========== ========== ========== ========== ==========
Stock issued for acquired assets (Note 3) $ 3,724 $ -- $ -- $ -- $ 153
========== ========== ========== ========== ==========
Note payable issued for acquired asset $ -- $ -- $ -- $ -- $ 837
========== ========== ========== ========== ==========
Stock issued in lieu of repayment of research
and development advance $ -- $ -- $ -- $ 901 $ --
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
33
<PAGE> 34
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
1. THE COMPANY
VTEL Corporation ("VTEL" or the "Company") designs, manufactures,
markets, services and supports integrated, multi-media digital visual
communication systems which operate over private and switched digital
communication networks. VTEL distributes its systems to a domestic and
international marketplace through a reseller network and directly to end-user
customers.
On May 23, 1997, shareholders of VTEL and Compression Labs,
Incorporated, a Delaware corporation ("CLI"), approved the merger (the "Merger")
of VTEL-Sub, Inc., a Delaware corporation and direct wholly-owned subsidiary of
VTEL ("Merger Sub"), with and into CLI, pursuant to an Agreement and Plan of
Merger and Reorganization (the "Merger Agreement"), with CLI becoming a direct
wholly-owned subsidiary of VTEL. As a result of the Merger, (a) the outstanding
shares of CLI's Common Stock were converted into the right to receive 0.46
shares of Common Stock of VTEL for each share of CLI Common Stock converted (or
cash in lieu of fractional shares otherwise deliverable in respect thereof), and
(b) the outstanding shares of CLI Series C Preferred Stock were converted into
the right to receive 3.15 shares of VTEL Common Stock for each share of CLI
Preferred Stock converted (or cash in lieu of fractional shares otherwise
deliverable in respect thereof). The CLI shares were exchanged for a total of
8,424,741 shares of VTEL Common Stock.
The acquisition was accounted for as a pooling of interests and
accordingly, the consolidated financial statements have been restated for all
periods to include the accounts of CLI. Revenues, net income (loss) from
continuing operations and net income (loss) of the separate companies for the
periods preceding the acquisition were as follows:
<TABLE>
<CAPTION>
VTEL CLI TOTAL
--------- --------- ---------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Revenues $ 78,095 $ 112,979 $ 191,074
Net income (loss) from continuing
operations 3,739 (21,040) (17,301)
Net income (loss) 3,739 (57,582) (53,843)
SEVEN MONTHS ENDED JULY 31, 1996
Revenues $ 50,109 $ 46,853 $ 96,962
Net loss from continuing operations (9,899) (8,608) (18,507)
Net loss (9,899) (8,608) (18,507)
YEAR ENDED JULY 31, 1997 *
Revenues $ 124,438 $ 66,585 $ 191,023
Net loss from continuing operations ** 556 (44,827) (44,271)
Net loss (508) (51,546) (52,054)
</TABLE>
* Information for CLI is through the date of the Merger, May 23, 1997.
** Includes loss of $29,397 related to the merger.
34
<PAGE> 35
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
In connection with the Merger, the Company recorded merger and other
expenses of $29,397 during the year ended July 31, 1997 as follows:
<TABLE>
<S> <C>
TRANSACTION EXPENSES:
Investment banking fees $ 2,391
Legal and accounting fees 1,600
Other 1,663
----------
5,654
----------
RESTRUCTURING AND OTHER:
Asset impairments 12,469
Reserve for contingent liabilities 5,271
Severance and termination benefits 3,457
Other 2,546
----------
23,743
----------
Total $ 29,397
==========
</TABLE>
Changes to accrued merger and other and the reserve for asset
impairments during the year ended July 31, 1998 were as follows:
<TABLE>
<CAPTION>
BALANCE
AT PAID IN TRANSFERRED WRITTEN-OFF REVERSED IN BALANCE AT
JULY 31, FISCAL IN FISCAL IN FISCAL FISCAL JULY 31,
1997 1998 1998 1998 1998 1998
--------- --------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Asset impairments $ 5,617 $ -- $ 1,000 $ (6,235)(1) $ -- $ 382
========= ========= ========= ========= ========= =========
ACCRUED MERGER AND OTHER
EXPENSES:
Reserve for contingent liabilities $ 6,662 $ (2,556) $ (1,086) $ -- $ (1,536)(2) $ 1,484
Severance and termination
Benefits 2,414 (2,243) 86 -- -- 257
Other 628 (628) -- -- -- --
--------- --------- --------- --------- --------- ---------
$ 9,704 $ (5,427) $ (1,000) $ -- $ (1,536) $ 1,741
========= ========= ========= ========= ========= =========
</TABLE>
(1) Represents final write-down of assets acquired in the Merger.
(2) Based on favorable events which occurred during fiscal 1998, the
Company recorded a credit to income of $1.5 million related to the
reversal of certain Merger and other accruals.
35
<PAGE> 36
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and include the accounts of VTEL's
wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. Preparation of the consolidated
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The more significant
estimates made by management include the provision for doubtful accounts
receivable, inventory write-downs for potentially excess or obsolete inventory,
warranty reserves, the valuation allowance for the gross deferred tax asset,
contingency reserves and the amortization period for intangible assets. Actual
amounts could differ from the estimates made. Management periodically evaluates
estimates used in the preparation of the financial statements for continued
reasonableness. Appropriate adjustments, if any, to the estimates used are made
prospectively based upon such periodic evaluation.
In May 1996, VTEL changed its fiscal year end from December 31 to July
31. The accompanying consolidated financial statements include the results of
operations and cash flows for the seven-month transition period ended July 31,
1996 with comparative presentation of the unaudited results for the seven months
ended July 31, 1995.
Revenue Recognition
Product revenues, recorded net of discounts, are recognized at the time
a product is shipped or services are performed and the Company has no
significant further obligations to the customer. Customer prepayments are
deferred until product shipment has occurred or services have been rendered and
there are no significant further obligations to the customer. Service revenues
are recognized at the time the services are rendered and the Company has no
significant further obligations to the customer. Revenues for extended warranty
contracts are recorded over the contract period. The Company records an
allowance to reduce sales revenue by an amount which reflects management's
estimate of potential future sales returns, exchanges, customer stock rotations
or price protection discounts.
Warranty Costs
The Company generally warrants its products against hardware defects
for one year from the date of installation but not to exceed fifteen months from
date of shipment. A warranty is provided for software defects for ninety days
from the date of installation. The Company provides currently for the estimated
costs which may be incurred in the future under the warranty program.
Software Development Costs
Costs incurred in connection with the development of software products
are accounted for in accordance with Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased or Otherwise Marketed." Costs incurred prior to the establishment of
technological feasibility are charged to research and development expense.
Amortization of capitalized software begins upon initial product shipment.
Software development costs are amortized (a) over the estimated life of the
related product (generally thirty-six months), using the straight-line method or
(b) based on the ratio of current revenues from the related products to total
estimated revenues for such products, whichever is greater.
36
<PAGE> 37
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
The Company capitalized internal software development costs of $9,276,
$1,622 and $984 for the years ended December 31, 1995 and July 31, 1997 and
1998, respectively, and $2,957 and $563 for the seven months ended July 31, 1995
and 1996. Amortization of such costs was $17,411, $1,827 and $50 for the years
ended December 31, 1995 and July 31, 1997 and 1998, respectively, and $1,996 and
$947 for the seven months ended July 31, 1995 and 1996, respectively. In
connection with the Merger, the Company recorded an impairment charge of $3,218
related to capitalized software development costs during the year ended July 31,
1997 due to the elimination of the product line to which the capitalized
software development costs related.
Cash and Equivalents
Cash and equivalents include cash and investments in liquid money
market accounts.
Short-term Investments
Short-term investments are carried at market value, which approximates
cost, at the balance sheet date. Short-term investments consist of funds
primarily invested in mortgage-backed securities guaranteed by the U.S.
government, government securities and commercial paper. Investment securities
generally have maturities of less than one year.
The Company accounts for investment securities under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115
requires investment securities to be classified as held-to-maturity, trading or
available-for-sale based on the characteristics of the securities and the
activity in the investment portfolio. At July 31, 1997 and 1998, all investment
securities are classified as available-for-sale. No unrealized gains or losses
have been recorded as a separate component of equity for the current period or
prior year as market values approximate cost due to the short-term nature of the
investments.
Inventories
Inventories are stated at the lower of cost (determined under the
first-in, first-out method) or market. Cost includes the acquisition of
purchased components, parts and sub-assemblies, labor and overhead.
Property and Equipment
Property and equipment is recorded at cost. Internal support equipment
consists of certain demonstration and development systems manufactured by the
Company and is recorded at manufactured cost. Depreciation and amortization are
provided using the straight-line method over the estimated economic lives of the
assets, ranging from two to ten years, or over the lease term of the respective
assets, as applicable. Repair and maintenance costs are expensed as incurred.
37
<PAGE> 38
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
Intangible Assets
During the year ended December 31, 1995, VTEL acquired certain assets
and a service and support infrastructure related to an operating group of
another company (see Note 3). The estimated value of the intangible assets is
being amortized over a period of 15 years, which is the period over which the
Company expects to be able to continue to effectively utilize the service and
support infrastructure to support its resellers in the offering of broader
services to users of digital visual communication equipment. In accordance with
Accounting Principles Board Opinion ("APB") No. 17, "Intangible Assets," the
Company periodically evaluates the amortization period associated with the
acquired intangible assets based upon anticipated periods of future benefit,
including factors such as loss of employees with key or unique knowledge, the
Company's ability to continue to successfully utilize the specialized
integration and process knowledge to provide integration and support services,
and other relevant factors which could require revision of the estimate of the
amortization period. Appropriate adjustments, if any, to the amortization period
will be made prospectively based upon such periodic evaluation.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are
measured using the local currency as the functional currency. Accordingly,
assets and liabilities of the subsidiaries are translated at current rates of
exchange at the balance sheet date. The resultant gains or losses from
translation are included in a separate component of stockholders' equity. Income
and expense from the subsidiaries are translated using monthly average exchange
rates.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting
for Income Taxes," which requires the liability method of accounting for income
taxes. Under the liability method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
Net Income (Loss) Per Share
During the fiscal year ended July 31, 1998, the Company adopted SFAS
No. 128, "Earnings Per Share." Under SFAS No. 128, basic earnings per share is
based on the weighted effect of all common shares issued and outstanding, and is
calculated by dividing net income available to common stockholders by the
weighted average shares of common stock outstanding during the period. Diluted
earnings per share is calculated by dividing net income available to common
stockholders by the weighted average number of common shares used in the basic
earnings per share calculation plus the number of common shares that would be
issued assuming conversion of all potentially dilutive shares outstanding. All
historical earnings per share data have been restated to conform to the current
year presentation.
38
<PAGE> 39
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
The calculation of the number of weighted average shares outstanding
for basic and dilutive earnings (loss) per share for each of the periods
presented is as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE SEVEN FOR THE
YEAR ENDED MONTHS ENDED YEARS ENDED
DECEMBER 31, JULY 31, JULY 31,
1995 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average shares
Outstanding - basic 19,131 17,821 21,393 22,255 23,057
--------- --------- --------- --------- ---------
EFFECT OF DILUTIVE SECURITIES:
Stock options -- -- -- -- 400
Warrants to purchase common stock -- -- -- -- 1
--------- --------- --------- --------- ---------
Dilutive potential common shares -- -- -- -- 401
--------- --------- --------- --------- ---------
Weighted average shares
Outstanding - diluted 19,131 17,821 21,393 22,255 23,458
========= ========= ========= ========= =========
Antidilutive securities 3,880 4,001 4,435 3,648 1,764
========= ========= ========= ========= =========
</TABLE>
Net loss applicable to common stock for the year ended July 31, 1997 is
computed by increasing the net loss from continuing operations by $2,527 which
represents a deemed dividend related to the 20% conversion discount on Series C
Preferred Stock measured at the date of original issuance.
Concentration of Credit Risk
The Company sells its products to various companies across several
industries, including third-party resellers. The Company performs ongoing credit
evaluations of its customers and maintains reserves for potential credit losses.
The Company requires advanced payments or secured transactions when deemed
necessary.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, including
cash and equivalents, short-term investments and short-term trade receivables
and payables, approximates fair value. The carrying amount of short-term
investments approximates fair value because of the short maturity and nature of
these instruments. The Company places its cash in investment quality financial
instruments and limits the amount invested in any one institution or in any type
of instrument. The Company has not experienced any significant losses on its
investments.
Long-lived Assets
The Company evaluates its long-lived assets and intangibles based on
guidance provided by SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 established
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used for long-lived assets and certain identifiable intangibles to be disposed
of.
39
<PAGE> 40
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
Employee Stock Plans
The Company determines the fair value of grants of stock, stock options
and other equity instruments issued to employees in accordance with SFAS No.
123, "Accounting and Disclosure of Stock-Based Compensation." SFAS No. 123
encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options, and other equity instruments to employees
based on their estimated fair market value on the date of grant. The Company has
opted to continue to apply the existing accounting rules contained in APB No.
25, "Accounting for Stock Issued to Employees." As such, SFAS No. 123 has had no
effect on the Company's financial position or results of operations.
The Company records unearned compensation related to stock options that
are issued at exercise prices which are below the fair market value of the
underlying stock on the measurement date. Such unearned compensation is
amortized ratably over the vesting period of the related stock options.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 will require the
Company to report, in addition to net income, comprehensive income and its
components including, as applicable, foreign currency items and unrealized gains
and losses on certain investments in debt and equity securities. The Company is
required to adopt SFAS No. 130 for its fiscal year ended July 31, 1999. The
Company expects that the adoption of SFAS No. 130 will not have a material
impact on it financial position or its results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for reporting information about a company's operating segments. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Under SFAS No. 131, operating segments are
to be determined consistent with the way management organizes and evaluates
financial information internally for making operating decisions and assessing
performance. The Company is required to adopt SFAS No. 131 for its fiscal year
ended July 31, 1999. The Company expects that the adoption of SFAS No. 131 will
not have a material impact on it financial position or its results of
operations.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 requires the recognition
of all derivatives as either assets or liabilities in the statement of financial
position and the measurement of those instruments at fair value. The Company is
required to adopt this standard in the first quarter of fiscal 2000. The Company
expects that the adoption of SFAS No. 133 will not have a material impact on it
financial position or its results of operations.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SoP) 97-2, "Software Revenue Recognition," which
provides guidance for recognizing revenue on software sales such that certain
amounts are deferred for future obligations such as software upgrades and
product support. The Company will adopt SOP 97-2 effective August 1, 1998. The
Company does not expect that the new pronouncement will have a material impact
on its financial position or results of operations.
40
<PAGE> 41
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
In March 1998, the Accounting Standards Executive Committee of the
American institute of Certified Public Accountants, issued Statement of Position
98-1 (SoP 98-1), "Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use," which requires the capitalization of certain
internal costs related to the implementation of computer software obtained for
internal use. In consideration of the Company's implementation of the Oracle
Enterprise Resource Planning Software System, the Company early adopted SoP 98-1
during fiscal 1998. In accordance with SoP 98-1, the Company capitalized $808 of
internal costs associated with the implementation of the Oracle Enterprise
Resource Planning Software System during the year ended July 31, 1998.
Reclassifications
Certain amounts related to the year ended July 31, 1997 have been
reclassified to conform to the current year presentation.
3. PURCHASE TRANSACTIONS
In November 1995, VTEL purchased certain assets and a service and
support infrastructure related to the Integrated Communications Systems Group of
another company (the "ICS Transaction"). The transaction resulted in VTEL
acquiring certain tangible assets primarily consisting of inventories, prepaid
expenses and fixed assets and assuming certain deferred revenues related to
extended warranty service contracts. The acquired service and support
infrastructure includes a trained workforce possessing specialized systems
integration and process knowledge. The transaction will allow VTEL to enhance
its ability to support its resellers' abilities to offer systems integration,
installation and end-user support to the ultimate purchaser of its products,
thereby allowing the resellers to more effectively provide an essential part of
the services that are integral to the purchase of the Company's products.
VTEL completed the ICS Transaction with the payment of $10,684 in cash,
which includes $142 of transaction expenses, and the issuance of 260,000 shares
of VTEL's unregistered Common Stock with an estimated market value at the time
of the transaction of $3,723. The transaction was accounted for under the
purchase method pursuant to which VTEL determined that approximately $14,400 of
the purchase price related to intangible assets which are primarily represented
by the service and support infrastructure. Amortization of the intangible asset
was $80, $560, $960, $960 for the year ended December 31, 1995, the seven months
ended July 31, 1996 and the years ended July 31, 1997 and 1998, respectively.
As part of the Company's initiative to expand its international
presence, the Company consummated the acquisition of certain of the assets of
the videoconferencing division of one of its German resellers effective July 1,
1998. The consideration paid by the Company consisted of restricted stock,
warrants, a note payable, and the assumption of certain payables and other
liabilities. Subsequent to July 31, 1998, the Company completed the acquisition
of one of its French resellers through a stock for stock transaction. The
consideration paid by the Company consisted of restricted stock. The total
consideration paid for both acquisitions was less than $3 million.
41
<PAGE> 42
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JULY 31,
1997 1998
<S> <C> <C>
Raw materials $ 9,493 $ 5,938
Work-in-process 4,143 517
Finished goods 7,490 5,833
Finished goods held for
Evaluation and rental
Agreements 1,118 663
--------- ---------
$ 22,244 $ 12,951
========= =========
</TABLE>
Finished goods held for evaluation and under rental agreements consists
of completed digital visual communication systems used for demonstration and
evaluation purposes, which are generally sold during the next year.
5. PROPERTY AND EQUIPMENT
Property and equipment is composed of the following:
<TABLE>
<CAPTION>
JULY 31,
1997 1998
<S> <C> <C>
Furniture, machinery and equipment $ 28,803 $ 30,045
Internal support equipment 10,991 12,513
Customer service assets 11,752 15,263
Leasehold improvements 2,872 6,686
--------- ---------
54,418 64,507
Less accumulated depreciation (32,758) (36,401)
--------- ---------
$ 21,660 $ 28,106
========= =========
</TABLE>
Depreciation and amortization expense relating to property and
equipment was approximately $20,818, $8,379, $12,991 and $7,910 for the year
ended December 31, 1995, the seven months ended July 31, 1996, and the years
ended July 31, 1997 and 1998, respectively.
42
<PAGE> 43
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
6. DISCONTINUED OPERATIONS
During November 1995, CLI adopted a strategic plan to discontinue
operations of its broadcast products division. This division generally
manufactured and sold broadcast video products to commercial end-users. The
results for the division have been accounted for as discontinued operations in
accordance with APB No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," and the accompanying
consolidated financial statements have been presented to reflect the
discontinuation of the division.
On June 27, 1996, CLI completed the sale of certain assets of its
broadcast products division to another company in exchange for $12,500 in cash
and the assumption of $2,000 in liabilities. The purchaser assumed past warranty
obligations associated with the product family covered by the sale. With the
exception of the accounts receivable, CLI disposed of the remaining assets of
the division to a separate buyer. During the year ended July 31, 1997, the
Company recorded a provision for probable losses to fully reserve the remaining
accounts receivable of the discontinued operations that were considered to be
uncollectible. Such provision is reflected in the accompanying consolidated
statement of operations in the net loss from discontinued operations.
Revenues from the discontinued division were approximately $36,974 for
the year ended December 31, 1995 and $11,201 for the seven months ended July 31,
1996. No revenues from discontinued operations were recorded during the years
ended July 31, 1997 and 1998.
7. LINES OF CREDIT
On December 4, 1997, the Company executed a credit agreement with a
banking syndicate which established a $25,000 revolving line of credit. Under
the line of credit, the Company may borrow up to 80% of eligible accounts
receivable. The credit agreement also provides that the Company may request the
issuance of letters of credit up to a maximum of $10,000 and foreign exchange
contracts up to a maximum of $10,000. Each of the aforementioned provisions are
subject to certain limitations.
Any amounts outstanding under the credit agreement will bear interest
at the prime rate (8.5 % at July 31, 1998) or, at the option of the Company,
LIBOR plus a range of basis points (7.1% to 7.6% at July 31, 1998) based on the
number of profitable quarters the Company has achieved at the time of the credit
advance (LIBOR) option. All such advances and accrued interest under the credit
agreement will be payable on the maturity date of December 3, 1999 unless the
Company converts the revolving advances to a two-year term loan, which will bear
interest at the prime rate or the LIBOR option rate and will be payable in equal
monthly installments. The Company pays an annual commitment fee of 0.2% on its
unused line of credit.
Any amounts outstanding under the credit agreement will be secured by
the Company's inventory and accounts receivable. The credit agreement requires
the Company to maintain certain financial ratios and other covenants. The
Company has issued a letter of credit totaling $1,200 under the line of credit
as a lease deposit on one of its facilities. At July 31, 1998, the Company had
no amounts drawn under the credit line.
43
<PAGE> 44
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
8. STOCKHOLDERS' EQUITY
General
In October 1995, VTEL completed a secondary offering of its Common
Stock which consisted of the sale of 3,000,000 shares of VTEL's Common Stock
generating net proceeds to VTEL of approximately $57,000.
In June 1995, Intel purchased 51,898 shares of VTEL's common stock for
approximately $396 pursuant to an agreement, since terminated, which enabled
Intel to maintain its percentage ownership interest in VTEL. In October 1995,
Intel delivered notice of its intent to exercise its warrant to purchase
1,199,124 shares of VTEL's Common Stock at an exercise price of $11.50 per share
under an agreement which modified the provisions of the common stock and Warrant
Purchase Agreement (the "Stock Agreement") between VTEL and Intel. Pursuant to
the modified agreement, Intel agreed to sell to VTEL concurrently with the
exercise of the warrant, and VTEL agreed to purchase from Intel, 771,464 shares
of VTEL's Common Stock at a price of $17.875, the closing price of VTEL's Common
Stock on the day immediately preceding the date in which Intel delivered notice
of its intent to exercise the warrant. During the seven months ended July 31,
1996, VTEL completed the warrant exercise and related stock redemption
transaction such that Intel increased its ownership of VTEL's Common Stock by
427,660 shares. The modified agreement also resulted in Intel agreeing to
terminate certain of its rights specified in the Investor Rights Agreement
between the Company and Intel. VTEL registered the shares acquired by Intel as
provided under the Stock Agreement. In May 1997, VTEL issued 155,040 shares of
Common Stock, at the fair market value, to Intel in lieu of repayment of the
remaining $901 advance under the Development Agreement (see Note 9 to the
Consolidated Financial Statements) that was unused at that time.
In November 1995, VTEL issued 260,769 shares of its unregistered Common
Stock in connection with the ICS Transaction (see Note 3).
Share Repurchase Program
During the seven months ended July 31, 1996, VTEL adopted a share
repurchase program pursuant to which VTEL repurchased shares of its Common Stock
in the open market. During the year ended July 31, 1997, VTEL repurchased
455,200 shares of its Common Stock for approximately $3,700. In February 1997,
VTEL terminated the stock repurchase program. All repurchased shares were issued
from time to time prior to the CLI Merger in May 1997. VTEL applies the cost
method of accounting for its treasury stock.
In August 1998, the Company announced its plan to repurchase up to
2,000,000 shares of VTEL Common Stock. As of October 12, 1998, the Company had
repurchased approximately 465,000 shares of its common stock for approximately
$2,000.
CLI Redeemable Convertible Preferred Stock
On October 25, 1996, CLI completed a private placement of 350,000
shares of Class C Preferred Stock and stock warrants for the purchase of 375,000
shares of CLI Common Stock for approximately $7,000, before certain issuance
costs, pursuant to a purchase agreement with an institutional investor. The
preferred stock was exchanged for 1,102,500 shares of VTEL Common Stock and both
the number and exercise price of the warrants were converted into warrants for
the purchase of VTEL Common Stock based on the exchange ratio of 0.46 in
connection with the Merger. The converted warrants, totaling 172,500 VTEL
shares, have an exercise price of $12.39 and expire in October 2001.
44
<PAGE> 45
TION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
Stock and Stock Option Plans
VTEL has three stock option plans, the 1989 Stock Option Plan (the
"1989 Plan"), the 1996 Stock Option Plan (the "1996 Plan") and the 1992 Director
Stock Option Plan (the "1992 Plan"). The 1989 Plan and the 1996 Plan both
provide for the issuance of non-qualified and incentive stock options to key
employees, directors and consultants of the Company. Stock options are generally
granted at the estimated fair market value at the time of grant, and the options
vest ratably over 48 months and are generally exercisable for a period of ten
years beginning with date of grant. The 1992 Plan provides for the issuance of
stock options to nonemployee directors at the estimated fair market value at the
time of grant. Such options vest ratably over 36 months and are exercisable for
a period of ten years beginning with the date of the grant.
CLI had employee and director stock option plans prior to the merger
with VTEL. On May 23, 1997, all options outstanding under these plans were
converted into options for Common Stock of VTEL. Both the number of shares
subject to option and the per share exercise price under each option were
adjusted by the exchange ratio of 0.46.
The Company applies APB No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost is
recognized for its stock option plans unless options are issued at exercise
prices which are below the market price on the measurement date. Had
compensation cost for the Company's stock option plans been determined based on
the fair market value at the grant dates for awards under those plans consistent
with the method provided by SFAS No. 123, the Company's net loss and net loss
per share would have been reflected by the following pro forma amounts for the
seven months ended July 31, 1996 and the years ended July 31, 1997 and 1998:
<TABLE>
<CAPTION>
FOR THE SEVEN FOR THE YEARS
MONTHS ENDED ENDED
JULY 31, JULY 31,
1996 1997 1998
<S> <C> <C> <C>
Net income (loss) As reported $ (18,507) $ (52,054) $ 2,779
Pro forma $ (20,638) $ (55,276) $ (1,589)
Basic and diluted net income (loss)
per common share As reported $ (.87) $ (2.45) $ 0.12
Pro forma $ (.96) $ (2.60) $ (0.07)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option- pricing model with the following
weighted-average assumptions used for grants during the seven months ended July
31, 1996 and the years ended July 31, 1997 and 1998:
<TABLE>
<CAPTION>
FOR THE SEVEN
MONTHS ENDED FOR THE YEARS ENDED
JULY 31, JULY 31,
1996 1997 1998
<S> <C> <C> <C>
Dividend yield -- -- --
Expected volatility 84.83% 92.31% 63.12%
Risk-free rate of return 6.56% 5.90% 5.52%
Expected life 4.94 years 5.12 years 5.65 years
</TABLE>
45
<PAGE> 46
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
The following table summarizes activity under all Plans for the year
ended December 31, 1995, the seven months ended July 31, 1996 and the years
ended July 31, 1997 and 1998. This information includes stock options relating
to CLI's stock option plans. Both the number of shares and the per share
exercise price have been adjusted by the exchange ratio of 0.46.
<TABLE>
<CAPTION>
1995 1996 1997 1998
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE (000'S) PRICE
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at the
beginning of the year 1,638 $ 3.97 1,879 $ 8.80 2,187 $ 9.40 3,648 9.42
Converted from CLI -- -- -- -- 1,798 17.43 -- --
Granted 701 17.37 449 10.99 2,098 6.44 896 6.43
Exercised (371) 3.66 (77) 3.13 (324) 3.14 (186) 4.00
Canceled (89) 8.88 (64) 10.39 (2,111) 14.58 (420) 7.55
--------- --------- --------- --------- --------- --------- --------- ---------
Outstanding at the
end of the year 1,879 $ 8.80 2,187 $ 9.40 3,648 $ 9.42 3,938 $ 8.65
========= ========= ========= ========= ========= ========= ========= =========
Options exercisable at
year end 1,851 $ 8.74 2,165 $ 9.40 3,402 $ 9.20 3,710 $ 8.42
========= ========= ========= ========= ========= ========= ========= =========
Weighted average fair
value of options granted
during the year $ 12.07 $ 7.77 $ 3.42 $ 4.12
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED-AVERAGE
NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
RANGE OF OUTSTANDING AT CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE AT EXERCISE PRICE
EXERCISE PRICES JULY 31, 1998 JULY 31, 1998
<S> <C> <C> <C> <C> <C> <C> <C>
$0.30 - $5.75 710,094 6.59 years $ 3.92 710,094 $ 3.92
5.78 - 6.11 201,994 9.09 6.02 187,326 6.02
6.13 - 6.13 1,368,837 8.87 6.13 1,354,169 6.13
6.19 - 7.88 646,012 8.38 7.00 636,345 7.00
8.06 - 42.66 1,010,979 6.04 16.96 822,282 17.72
================= ============ ======== ======== ========= ===========
$0.30 - $42.66 3,937,916 7.66 years $ 8.65 3,710,216 $ 8.42
================= ============ ======== ======== ========= ===========
</TABLE>
Generally, options are exercisable immediately upon grant. However,
stock issued upon exercise of a stock option is subject to repurchase by the
Company at the exercise price until the option vesting period has elapsed. At
July 31, 1998, options to purchase 1,852,530 shares were vested. At July 31,
1998, no unvested options had been exercised.
46
<PAGE> 47
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
Employee Stock Purchase Plan
On April 29, 1993, VTEL adopted an Employee Stock Purchase Plan
("Employee Plan") which enables all employees to acquire VTEL stock under the
plan. The Employee Plan authorizes the issuance of up to 950,000 shares of
VTEL's Common Stock. The Employee Plan allows participants to purchase shares of
the Company's Common Stock at a price equal to the lesser of (a) 85% of the fair
market value of the Common Stock on the date of the grant of the option or (b)
85% of the fair market value of the Common Stock at the time of exercise. Shares
of Common Stock issued under the Employee Plan totaled 66,087, 37,121, 105,549
and 158,073 respectively, for the year ended December 31, 1995, the seven months
ended July 31, 1996 and the years ended July 31, 1997 and 1998.
The fair value of the employees' purchase rights was estimated using
the Black-Scholes model with the following assumptions for the seven months
ended July 31, 1996 and the years ended July 31, 1997 and 1998:
<TABLE>
<CAPTION>
FOR THE SEVEN FOR THE FOR THE
MONTHS ENDED YEAR ENDED YEAR ENDED
JULY 31, 1996 JULY 31, 1997 JULY 31, 1998
SECTION 16 SECTION 16 SECTION 16
OFFICERS OTHERS OFFICERS OTHERS OFFICERS OTHERS
<S> <C> <C> <C> <C> <C> <C>
Dividend yield -- -- -- -- -- --
Expected volatility 95.78% 90.29% 82.89% 79.83% 52.10% 51.68%
Risk-free rate of return 5.18% 5.12% 5.31% 5.23% 5.40% 5.34%
Expected life (in years) .50 .25 .50 .25 .50 .25
Weighted-average fair value of
purchase rights granted $3.13 $2.30 $2.54 $2.11 $1.96 $1.66
</TABLE>
9. DEVELOPMENT AND LICENSE AGREEMENT
On October 22, 1993, VTEL entered into a Development and License
Agreement (the "Development Agreement") with Intel Corporation ("Intel"),
pursuant to which the companies agreed to engage in a series of development
efforts with respect to video compression software as well as other video
technology such as processes and designs. The agreement contains certain
provisions for licensing agreements and royalties between the two companies for
the use of the technology developed under the agreement.
The initial term of the Development Agreement has renewed until
December 31, 1999 and will continue to automatically renew thereafter for
successive terms of one year unless written notice is given by either party six
months prior to the expiration of the initial term or any successor term.
VTEL was advanced $3,000 under the agreement to be used for the initial
reimbursements of research and development costs incurred by VTEL in performing
the work specified in the Development Agreement. During the years ended December
31, 1995 and July 31, 1997, the Company reduced gross research and development
expenses by approximately $190 and $5, respectively, for reimbursable research
and development costs under the terms of the Development Agreement. No
reductions of research and development expenses were recorded during the seven
months ended July 31, 1996 and the year ended July 31, 1998 as a result of the
Development Agreement. In May 1997, VTEL issued 155,040 shares of Common Stock,
at the fair market value, to Intel in lieu of repayment of the remaining $901
advance that was unused at that time. As of July 31, 1998, the Company had no
research and development activities in process or planned related to the
Development Agreement.
47
<PAGE> 48
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
10. FEDERAL INCOME TAXES
Under the provisions of SFAS No. 109, the components of the net
deferred tax amount are as follows:
<TABLE>
<CAPTION>
JULY 31,
1997 1998
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 23,198 $ 29,140
Research and development credit carryforwards 3,376 3,458
Minimum tax credit carryforwards 110 110
Inventory and warranty provisions 3,562 1,246
Charitable contributions -- 22
Compensation accruals 1,932 635
Depreciation 2,698 630
Deferred revenue 703 1,796
Accrued expenses 2,385 841
Accounts receivable 3,996 3,163
Other 281 558
---------- ----------
Gross deferred tax asset 42,241 41,599
---------- ----------
DEFERRED TAX LIABILITIES:
Capitalized software -- (274)
---------- ----------
Gross deferred tax liability -- (274)
---------- ----------
Valuation allowance (42,241) (41,325)
---------- ----------
Net deferred tax asset $ -- $ --
========== ==========
</TABLE>
The Company's net operating loss carryforwards expire in varying
amounts from 1999 through 2013. Research and development tax credit
carryforwards expire in varying amounts from 1998 through 2013. Minimum tax
credit carryforwards do not expire and carry forward indefinitely. Net operating
losses related to the Company's foreign subsidiary (totaling $5,033) are
available to offset future foreign taxable income.
The Company has experienced substantial changes in ownership as defined
by the Internal Revenue Code. These changes result in annual limitations of the
amount of net operating loss carryforward generated prior to each change which
can be utilized to offset future taxable income. As a result of the ownership
change at CLI at the date of the Merger, a portion of CLI's net operating loss
carryforward generated prior to the Merger will never be available to offset
future taxable income due to the effect of the annual limitation and the
expiration of the related net operating losses. Therefore, the unavailable
portion of the net operating loss carryforward is not considered in determining
the deferred tax asset at July 31, 1998.
At July 31, 1998, the Company had total domestic net operating loss
carryforwards of $85,705 ($26,592 and $59,113 for VTEL and CLI, respectively).
The portions of these carryforwards available for utilization during fiscal 1999
(in consideration of the annual limitations) are $52,660. Additional net
operating losses created prior to the changes in control of $2,574 become
available in each subsequent year and accumulate if not used until such net
operating losses expire.
48
<PAGE> 49
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
Due to the uncertainty surrounding the timing of realizing the benefits
of its favorable tax attributes in future tax returns, the Company has placed a
valuation allowance against its net deferred tax asset. Accordingly, no deferred
taxes have been recorded for the year ended December 31, 1995, for the seven
months ended July 31, 1996 and for the years ended July 31, 1997 and 1998.
The tax provisions reflected in the accompanying consolidated financial
statements is due primarily to federal alternative minimum taxes and state
income taxes.
11. COMMITMENTS AND CONTINGENCIES
Lease Commitments
VTEL leases furniture and equipment, manufacturing facilities and
office space under noncancelable leases which expire at various dates through
2013. Certain leases obligate VTEL to pay property taxes, maintenance and repair
costs.
Future minimum lease payments under all operating leases as of July 31, 1998
were as follows:
<TABLE>
<S> <C>
FISCAL YEAR ENDING:
1999 $ 7,430
2000 7,082
2001 6,771
2002 6,592
2003 6,315
Thereafter 21,377
--------
$ 55,567
========
</TABLE>
Total rent expense under all operating leases for the years ended
December 31, 1995, for the seven months ended July 31, 1996, and for the years
ended July 31, 1997 and 1998 was $6,188, $4,713, $4,601 and $4,301 respectively.
During the year ended July 31, 1998, the Company completed the planned
elimination of duplicate headquarter facilities by terminating the lease for the
former CLI headquarters. The landlord paid the Company a $1,800 termination fee
which is recorded (net of termination expenses) as Other Income in the
accompanying Statement of Operations.
In connection with the acquisition of certain of the assets of the
videoconferencing division of one of its German resellers, (see Note 3), the
Company entered into a five year licensing agreement pursuant to which the
Company will pay a license fee equal to 4% of the revenues generated by the
acquired assets with a minimum annual fee of $281 to $393 and a maximum annual
fee of $786.
49
<PAGE> 50
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
Contingencies
CLI is currently engaged in several legal proceedings relating to
matters arising prior to the Merger. There can be no assurance that CLI's legal
proceedings can be resolved favorably to CLI or VTEL. Such legal proceedings, if
continued for an extended period of time, could have an adverse effect upon
CLI's working capital and management's ability to concentrate on its business.
The Company has recorded an estimate of the costs to defend and discharge the
claims. Such amount is included in the charges recorded as contingent
liabilities (see Note 1 to the Consolidated Financial Statements). In the
opinion of management, such reserves should be sufficient to discharge the
liabilities, if any. However, an unfavorable outcome in any one or several such
legal proceedings could have a material adverse effect on CLI and hence, VTEL.
In a complaint filed on December 20, 1993 in the United States District
Court in Dallas, Texas, Datapoint Corporation ("Datapoint") alleged that CLI had
infringed two United States patents owned by Datapoint relating to video
conferencing networks. The complaint sought a judgment of infringement, monetary
damages, injunctive relief and attorneys' fees. CLI responded to the complaint
by denying the material allegations of the complaint and asserting affirmative
defenses. In July 1998, the United States District Court dismissed the civil
action filed by Datapoint.
In June 1997, Keytech, S.A. ("Keytech") filed suit against CLI in the
United States District Court in Tampa, Florida. Keytech was a distributor of
satellite encoder and decoder products manufactured by a division of CLI which
CLI sold in June 1996. Keytech has asserted that the equipment sold was
defective and did not conform to contract specifications and express and implied
warranties. Keytech has asserted damages in excess of $20 million based on its
allegations of breach of contract, breach of warranties and fraud. CLI has filed
an answer denying liability and has asserted cross-claims against Keytech for
amounts due and unpaid for equipment sold by CLI to Keytech.
12. GEOGRAPHIC INFORMATION
The Company operates in one industry. Transfers between geographic
areas are recorded at cost plus a markup. Information about the Company's
operations in different geographic areas is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JULY 31, 1998
UNITED STATES EUROPE AND ELIMINATIONS CONSOLIDATED
OTHER
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 163,264 $ 16,420 $ -- $ 179,684
Transfer between geographic areas 9,616 -- (9,616) --
--------- --------- --------- ---------
Total sales $ 172,880 $ 16,420 $ (9,616) $ 179,684
========= ========= ========= =========
Net income (loss) from continuing operations $ 2,155 $ 530 $ 94 $ 2,779
========= ========= ========= =========
Net income (loss) $ 2,155 $ 530 $ 94 $ 2,779
========= ========= ========= =========
Identifiable assets $ 132,914 $ 9,871 $ (13,496) $ 129,289
========= ========= ========= =========
</TABLE>
50
<PAGE> 51
VTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data unless otherwise noted)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JULY 31, 1997
UNITED STATES EUROPE AND ELIMINATIONS CONSOLIDATED
OTHER
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 180,811 $ 10,212 $ -- $ 191,023
Transfer between geographic areas 12,612 -- (12,612) --
---------- ---------- ---------- ----------
Total sales $ 193,423 $ 10,212 $ (12,612) $ 191,023
========== ========== ========== ==========
Net loss from continuing operations $ (40,942) $ (3,144) $ (185) $ (44,271)
========== ========== ========== ==========
Net loss $ (48,725) $ (3,144) $ (185) $ (52,054)
========== ========== ========== ==========
Identifiable assets $ 139,051 $ 8,008 $ (15,924) $ 131,135
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE SEVEN MONTHS ENDED
JULY 31, 1996
UNITED STATES EUROPE AND ELIMINATIONS CONSOLIDATED
OTHER
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 93,728 $ 3,234 $ -- $ 96,962
Transfer between geographic areas 2,383 -- (2,383) --
---------- ---------- ---------- ----------
Total sales $ 96,111 $ 3,234 $ (2,383) $ 96,962
========== ========== ========== ==========
Net loss $ (16,721) $ (1,834) $ 48 $ (18,507)
========== ========== ========== ==========
Identifiable assets $ 179,799 $ 3,131 $ (7,838) $ 175,092
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1995
UNITED STATES EUROPE AND ELIMINATIONS CONSOLIDATED
OTHER
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 184,471 $ 6,603 $ -- $ 191,074
Transfer between geographic areas 3,475 -- (3,475) --
---------- ---------- ---------- ----------
Total sales $ 187,946 $ 6,603 $ (3,475) $ 191,074
========== ========== ========== ==========
Net loss from continuing operations $ (16,912) $ (520) $ 131 $ (17,301)
========== ========== ========== ==========
Net loss $ (53,454) $ (520) $ 131 $ (53,843)
========== ========== ========== ==========
Identifiable assets $ 219,616 $ 3,445 $ -- $ 223,061
========== ========== ========== ==========
</TABLE>
* * *
51
<PAGE> 52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
In accordance with paragraph G(3) of the General Instructions to the
Annual Report on Form 10-K, the information contained under the captions
"Election of Directors" will be filed with the Company's Definitive Proxy
Statement pursuant to Regulation 14A on or before November 28, 1998.
ITEM 11. EXECUTIVE COMPENSATION
In accordance with paragraph G(3) of the General Instructions to the
Annual Report on Form 10-K, the information contained under the caption
"Executive Compensation" will be filed with the Company's Definitive Proxy
Statement pursuant to Regulation 14A on or before November 28, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In accordance with paragraph G(3) of the General Instructions to the
Annual Report on Form 10-K, the information contained under the caption
"Security Ownership of Certain Beneficial Owners and Management" will be filed
with the Company's Definitive Proxy Statement pursuant to Regulation 14A on or
before November 28, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with paragraph G(3) of the General Instructions to the
Annual Report on Form 10-K, the information contained under the caption "Certain
Relationships and Transactions" will be filed with the Company's Definitive
Proxy Statement pursuant to the regulation 14A on or before November 28, 1998.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
(a)(1) The financial statements filed as part of this Report at Item 8 are
listed in the Index to Financial Statements and Financial Statement
Schedules on page 27 of this Report.
(a)(2) The financial statement schedule filed as part of this Report at Item 8
is listed in the Index to Financial Statements and Financial Statement
Schedules on page 27 of this Report.
(a)(3) The following exhibits are filed with this Annual Report on Form 10-K:
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
2.1 - Agreement and Plan of Merger and Reorganization dated as of
January 6, 1997 by and among VTEL, VTEL-Sub, Inc. and CLI
(incorporated by reference to the Exhibit 99.1 of VTEL's Report
on Form 8-K dated January 6, 1997).
52
<PAGE> 53
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
3.1 - Fourth Amended Restated Certificate of Incorporation
(incorporated by reference the Exhibit 3.1 to the Company's
quarterly report form 10-Q for the period ended June 30, 1993.)
3.2 - Amendment to Fourth Amended and Restated Certificate of
Incorporation, as filed on May 27, 1997 with the Secretary of
State of Delaware (incorporated by reference the Exhibit 3.1 to
the Company's Annual Report on form 10-K for the period ended
July 31, 1997.)
3.3 - Bylaws of the Company as adopted by the Board of Directors of
the Company effective as of June 11, 1989 (incorporated by
reference to Exhibit 3.3 to the Company's Registration Statement
on Form S-1, File No. 33-45876, as amended).
3.4 - Amendment to Bylaws of the Company as adopted by the Board of
Directors of the Company effective as of April 28, 1992
(incorporated by reference to Exhibit 19.1 to the Company's
Quarterly Report on Form 10-Q for the three months ended March
31, 1992).
3.5 - Amendment to the Bylaws of the Company as adopted by the Board
of Directors of the Company effective as of July 10, 1996
(incorporated by reference to Exhibit 4.5 to the Company's
Current Report on Form 8-K dated July 10, 1996).
4.1 - Specimen Certificate for the Common Stock (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-1, File No. 33-45876, as amended).
4.2 - Rights Agreement dated as of July 10, 1996 between VTEL
Corporation and First National Bank of Boston, which includes the
form of Certificate of Designations for Designating Series A
Preferred Stock, $.01 par value, the form of Rights Certificate,
and the Summary of Rights to Purchase Series A Preferred Stock
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated July 10, 1996).
10.1 - License Agreement, dated as of November 7, 1990, between
Universite de Sherbrooke, as Licenser, and the Company, as
Licensee (incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-1, File No. 33-45876,
as amended).
10.2 - VideoTelecom Corp. 1989 Stock Option Plan, as amended
(incorporated by reference to Exhibit 4.1 to the Company's
Registration on Form S-8, File No. 33-51822).
10.3 - Form of VideoTelecom Corp. Nonqualified Stock Option Agreement
(incorporated by reference to Exhibit 10.16 to the Company's
Registration Statement on Form S-1, File No. 33-45876, as
amended).
53
<PAGE> 54
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
10.4 - Form of VideoTelecom Corp. Incentive Stock Option Agreement
(incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1, File No. 33-45876, as
amended).
10.5 - Distributor Agreement dated January 8, 1990, between US WEST
Communications Services, Inc. and the Company (incorporated by
reference to Exhibit 10.18 to the Company's Registration
Statement on Form S-1, File No. 33-45876, as amended).
10.6 - Purchase Agreement effective October 1, 1990, between GTE
Service Corporation and the Company, as amended July 1, 1991
(incorporated by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-1, File No. 33-45876, as
amended).
10.7 - Distribution Agreement, made and entered into November 1, 1991,
by and between Microsoft Corporation and the Company
(incorporated by reference to Exhibit 10.22 to the Company's
Registration Statement on Form S-1, File No. 33-45876, as
amended).
10.8 - VideoTelecom Corp. 1992 Director Stock Option Plan (incorporated
by reference to Exhibit 4.1 to the Company's Registration on Form
S-8, File No. 33-51822).
10.9 - VideoTelecom Corp. Employee Stock Purchase Plan (incorporated by
reference to Exhibit 4.1 to the Company's Registration on Form
S-8, File No. 33-51822).
10.10 - Lease agreement, executed by Waterford HP, Ltd. on June 14,
1994, as Landlord, and the Company, as Tenant, together with
First Amendment of Lease Agreement between Waterford HP, Ltd., as
Landlord, and the Company, as Tenant, dated November 2, 1994,
Second Amendment of Lease Agreement between Waterford HP, Ltd.,
as Landlord, and the Company, as Tenant, dated February 1, 1995,
and Net Profits Agreement, executed between Waterford HP, Ltd. on
June 14, 1994 and the Company (incorporated by reference to
Exhibit 10.17 to the Company's 1994 Annual Report on Form 10-K).
10.11 - Subscription Agreement dated June 14, 1995 by and between VTEL
Corporation, Accord Video Telecommunications, Ltd., Nizanim Fund
(1993) Ltd., the "Star Entities", Manakin Investments BV, Messrs.
Gideon Rosenfeld and Sigi Gavish, and Eduardo Shoval
(incorporated by reference to Exhibit 10.19 to the Company's 1995
Annual Report on Form 10-K. The schedules referred to in the
agreement have been omitted but will be furnished to the
Securities and Exchange Commission upon request).
10.12 - Amendment to the VideoTelecom Corp. 1989 Stock Option Plan and
the 1992 Director Stock Option Plan (the terms of which are
incorporated by reference to the Company's 1996 Definitive Proxy
Statement).
54
<PAGE> 55
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
10.13 - The VTEL Corporation 1996 Stock Option Plan (the terms of which
are incorporated by reference to the Company's 1995 Definitive
Proxy Statement).
10.14 - Amendment to the VTEL Corporation 1996 Stock Option Plan (the
terms of which are incorporated by reference to the Company's
Joint Proxy Statement filed on April 24, 1997).
10.15 - Compression Labs, Incorporated 1980 Stock Option Plan - the ISO
Plan (incorporated by reference to the Annual Report on Form 10-K
of Compression Labs, Inc. for the year ended December 31, 1994).
10.16 - Revised forms of Incentive Stock Option and Early Exercise
Stock Purchase Agreement used in connection with the issuance and
exercise of options under the ISO Plan (incorporated by reference
to the Registration Statement on Form S-8 of Compression Labs,
Inc. filed on June 6, 1994).
10.17 - Consulting and separation agreement between Compression Labs,
Incorporated and John E. Tyson dated February 16, 1996
(incorporated by reference to the Annual Report on Form 10-K of
Compression Labs, Inc. for the year ended December 31, 1995).
10.18 - Lease Agreement, dated January 30, 1998, between 2800
Industrial, Inc., Lessor and VTEL Corporation, Lessee
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the three months ended April
30, 1998).
10.19 - First Amendment, dated March 11, 1998, to Lease Agreement dated
January 30, 1998, between 2800 Industrial, Inc., Lessor and VTEL
Corporation, Lessee (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the three months
ended April 30, 1998).
10.20 - Loan and Security Agreement, dated December 4, 1997, between
Silicon Valley Bank and Texas Commerce Bank National Association,
as Creditors, and the Company, as Borrower.
55
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
<S> <C>
10.21 - Change-in-Control Agreements with members of senior management
of the Company.
10.21 (a) Jerry S. Benson, Jr.
10.21 (b) Rodney S. Bond
10.21 (c) Charles M. Denton
10.21 (d) Dennis M. Egan
10.21 (e) Vinay Goel
10.21 (f) Frank S. Kaplan
10.21 (g) Steve F. Keilen
10.21 (h) F.H. (Dick) Moeller
10.21 (i) Ly-Huong T. Pham
10.21 (j) Barry Rumac
10.21 (k) Michael J. Steigerwald
10.21 (l) Bob R. Swem
10.21 (m) Stephen L. Von Rump
10.21 (n) Judy A. Wallace
21.1 - List of Subsidiaries
23.1 - Consent of PricewaterhouseCoopers LLP.
23.2 - Consent of KPMG Peat Marwick LLP.
27.1 - Financial Data Schedule (filed electronically only)
</TABLE>
- ---------------
(b) Reports on Form 8-K:
None
(c) See subitem 14(a)(3) above.
(d) See subitem 14(a)(2) above.
56
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VTEL Corporation
By /s/ Rodney S. Bond
----------------------------------
Rodney S. Bond
CHIEF FINANCIAL OFFICER,
VICE PRESIDENT-FINANCE, TREASURER
AND SECRETARY
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jerry S. Benson, Jr. Chief Executive Officer, President and October 22, 1998
- -------------------------------------- Director (Principal Executive Officer) --------------------------
Jerry S. Benson, Jr.
/s/ Rodney S. Bond Chief Financial Officer, October 22, 1998
- -------------------------------------- Vice President- Finance, --------------------------
Rodney S. Bond Treasurer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Arthur G. Anderson Director October 22, 1998
- -------------------------------------- --------------------------
Arthur G. Anderson
/s/ Eric L. Jones Director October 22, 1998
- -------------------------------------- --------------------------
Eric L. Jones
/s/ Max Hopper Director October 22, 1998
- -------------------------------------- --------------------------
Max Hopper
/s/ Gordon Matthews Director October 22, 1998
- -------------------------------------- --------------------------
Gordon Matthews
/s/ F.H. (Dick) Moeller Chairman of the Board October 22, 1998
- -------------------------------------- --------------------------
F.H. (Dick) Moeller
/s/ Dick Snyder Director October 22, 1998
- -------------------------------------- --------------------------
Dick Snyder
/s/ T. Gary Trimm Director October 22, 1998
- -------------------------------------- --------------------------
T. Gary Trimm
</TABLE>
57
<PAGE> 58
VTEL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROVISION FOR WRITE-OFF OF
BALANCE AT DOUBTFUL UNCOLLECTIBLE BALANCE AT
BEGINNING ACCOUNTS ACCOUNTS END OF
OF PERIOD RECEIVABLE RECEIVABLE YEAR
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Accounts receivable -
Allowances for
Doubtful accounts
Year ended December 31, 1995 $ 2,137 $ 11,389 $ (3,313) $ 10,213
Seven months ended July 31, 1996 10,213 (132) (2,206) 7,875
Year ended July 31, 1997 7,875 6,086 (3,239) 10,722
Year ended July 31, 1998 10,722 (119) (1,156) 9,447
</TABLE>
58
<PAGE> 59
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
<S> <C>
2.1 - Agreement and Plan of Merger and Reorganization dated as of
January 6, 1997 by and among VTEL, VTEL-Sub, Inc. and CLI
(incorporated by reference to the Exhibit 99.1 of VTEL's Report
on Form 8-K dated January 6, 1997).
3.1 - Fourth Amended Restated Certificate of Incorporation
(incorporated by reference the Exhibit 3.1 to the Company's
quarterly report form 10-Q for the period ended June 30, 1993.)
3.2 - Amendment to Fourth Amended and Restated Certificate of
Incorporation, as filed on May 27, 1997 with the Secretary of
State of Delaware (incorporated by reference the Exhibit 3.1 to
the Company's Annual Report on form 10-K for the period ended
July 31, 1997.)
3.3 - Bylaws of the Company as adopted by the Board of Directors of
the Company effective as of June 11, 1989 (incorporated by
reference to Exhibit 3.3 to the Company's Registration Statement
on Form S-1, File No. 33-45876, as amended).
3.4 - Amendment to Bylaws of the Company as adopted by the Board of
Directors of the Company effective as of April 28, 1992
(incorporated by reference to Exhibit 19.1 to the Company's
Quarterly Report on Form 10-Q for the three months ended March
31, 1992).
3.5 - Amendment to the Bylaws of the Company as adopted by the Board
of Directors of the Company effective as of July 10, 1996
(incorporated by reference to Exhibit 4.5 to the Company's
Current Report on Form 8-K dated July 10, 1996).
4.1 - Specimen Certificate for the Common Stock (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-1, File No. 33-45876, as amended).
4.2 - Rights Agreement dated as of July 10, 1996 between VTEL
Corporation and First National Bank of Boston, which includes the
form of Certificate of Designations for Designating Series A
Preferred Stock, $.01 par value, the form of Rights Certificate,
and the Summary of Rights to Purchase Series A Preferred Stock
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated July 10, 1996).
10.1 - License Agreement, dated as of November 7, 1990, between
Universite de Sherbrooke, as Licenser, and the Company, as
Licensee (incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-1, File No. 33-45876,
as amended).
10.2 - VideoTelecom Corp. 1989 Stock Option Plan, as amended
(incorporated by reference to Exhibit 4.1 to the Company's
Registration on Form S-8, File No. 33-51822).
10.3 - Form of VideoTelecom Corp. Nonqualified Stock Option Agreement
(incorporated by reference to Exhibit 10.16 to the Company's
Registration Statement on Form S-1, File No. 33-45876, as
amended).
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
<S> <C>
10.4 - Form of VideoTelecom Corp. Incentive Stock Option Agreement
(incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1, File No. 33-45876, as
amended).
10.5 - Distributor Agreement dated January 8, 1990, between US WEST
Communications Services, Inc. and the Company (incorporated by
reference to Exhibit 10.18 to the Company's Registration
Statement on Form S-1, File No. 33-45876, as amended).
10.6 - Purchase Agreement effective October 1, 1990, between GTE
Service Corporation and the Company, as amended July 1, 1991
(incorporated by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-1, File No. 33-45876, as
amended).
10.7 - Distribution Agreement, made and entered into November 1, 1991,
by and between Microsoft Corporation and the Company
(incorporated by reference to Exhibit 10.22 to the Company's
Registration Statement on Form S-1, File No. 33-45876, as
amended).
10.8 - VideoTelecom Corp. 1992 Director Stock Option Plan (incorporated
by reference to Exhibit 4.1 to the Company's Registration on Form
S-8, File No. 33-51822).
10.9 - VideoTelecom Corp. Employee Stock Purchase Plan (incorporated by
reference to Exhibit 4.1 to the Company's Registration on Form
S-8, File No. 33-51822).
10.10 - Lease agreement, executed by Waterford HP, Ltd. on June 14,
1994, as Landlord, and the Company, as Tenant, together with
First Amendment of Lease Agreement between Waterford HP, Ltd., as
Landlord, and the Company, as Tenant, dated November 2, 1994,
Second Amendment of Lease Agreement between Waterford HP, Ltd.,
as Landlord, and the Company, as Tenant, dated February 1, 1995,
and Net Profits Agreement, executed between Waterford HP, Ltd. on
June 14, 1994 and the Company (incorporated by reference to
Exhibit 10.17 to the Company's 1994 Annual Report on Form 10-K).
10.11 - Subscription Agreement dated June 14, 1995 by and between VTEL
Corporation, Accord Video Telecommunications, Ltd., Nizanim Fund
(1993) Ltd., the "Star Entities", Manakin Investments BV, Messrs.
Gideon Rosenfeld and Sigi Gavish, and Eduardo Shoval
(incorporated by reference to Exhibit 10.19 to the Company's 1995
Annual Report on Form 10-K. The schedules referred to in the
agreement have been omitted but will be furnished to the
Securities and Exchange Commission upon request).
10.12 - Amendment to the VideoTelecom Corp. 1989 Stock Option Plan and
the 1992 Director Stock Option Plan (the terms of which are
incorporated by reference to the Company's 1996 Definitive Proxy
Statement).
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
<S> <C>
10.13 - The VTEL Corporation 1996 Stock Option Plan (the terms of which
are incorporated by reference to the Company's 1995 Definitive
Proxy Statement).
10.14 - Amendment to the VTEL Corporation 1996 Stock Option Plan (the
terms of which are incorporated by reference to the Company's
Joint Proxy Statement filed on April 24, 1997).
10.15 - Compression Labs, Incorporated 1980 Stock Option Plan - the ISO
Plan (incorporated by reference to the Annual Report on Form 10-K
of Compression Labs, Inc. for the year ended December 31, 1994).
10.16 - Revised forms of Incentive Stock Option and Early Exercise
Stock Purchase Agreement used in connection with the issuance and
exercise of options under the ISO Plan (incorporated by reference
to the Registration Statement on Form S-8 of Compression Labs,
Inc. filed on June 6, 1994).
10.17 - Consulting and separation agreement between Compression Labs,
Incorporated and John E. Tyson dated February 16, 1996
(incorporated by reference to the Annual Report on Form 10-K of
Compression Labs, Inc. for the year ended December 31, 1995).
10.18 - Lease Agreement, dated January 30, 1998, between 2800
Industrial, Inc., Lessor and VTEL Corporation, Lessee
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the three months ended April
30, 1998).
10.19 - First Amendment, dated March 11, 1998, to Lease Agreement dated
January 30, 1998, between 2800 Industrial, Inc., Lessor and VTEL
Corporation, Lessee (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the three months
ended April 30, 1998).
10.20 - Loan and Security Agreement, dated December 4, 1997, between
Silicon Valley Bank and Texas Commerce Bank National Association,
as Creditors, and the Company, as Borrower.
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
<S> <C>
10.21 - Change-in-Control Agreements with members of senior management
of the Company.
10.21 (a) Jerry S. Benson, Jr.
10.21 (b) Rodney S. Bond
10.21 (c) Charles M. Denton
10.21 (d) Dennis M. Egan
10.21 (e) Vinay Goel
10.21 (f) Frank S. Kaplan
10.21 (g) Steve F. Keilen
10.21 (h) F.H. (Dick) Moeller
10.21 (i) Ly-Huong T. Pham
10.21 (j) Barry Rumac
10.21 (k) Michael J. Steigerwald
10.21 (l) Bob R. Swem
10.21 (m) Stephen L. Von Rump
10.21 (n) Judy A. Wallace
21.1 - List of Subsidiaries
23.1 - Consent of PricewaterhouseCoopers LLP.
23.2 - Consent of KPMG Peat Marwick LLP.
27.1 - Financial Data Schedule (filed electronically only)
</TABLE>
<PAGE> 1
EXHIBIT 10.20
LOAN AND SECURITY AGREEMENT
BY AND AMONG
SILICON VALLEY BANK,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
AND
VTEL CORPORATION
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TABLE OF CONTENTS
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R E C I T A L S 1
AGREEMENT 1
1. DEFINITIONS AND CONSTRUCTION 1
1.1 Definitions. 1
1.2 Accounting and Other Terms. 10
2. LOAN AND TERMS OF PAYMENT 10
2.1 Credit Extensions. 10
2.1.1 Advances. 10
2.1.2 Letters of Credit. 11
2.1.3 Foreign Exchange Contract; Foreign Exchange Settlements. 12
2.1.4 Commitment to Make Term Loan. 14
2.2 Overadvances. 14
2.3 Interest Rates, Payments, and Calculations. 14
2.4 Crediting Payments. 17
2.5 Fees. 17
2.6 Additional Costs. 18
2.7 Term. 18
3. CONDITIONS OF LOANS 19
3.1 Conditions Precedent to Initial Credit Extension. 19
3.2 Conditions Precedent to all Credit Extensions. 19
4. CREATION OF SECURITY INTEREST 20
4.1 Grant of Security Interest. 20
4.2 Delivery of Additional Documentation Required. 20
4.3 Right to Inspect. 20
4.4 Single Loan. 21
5. REPRESENTATIONS AND WARRANTIES 21
5.1 Due Organization and Qualification. 21
5.2 Due Authorization; No Conflict. 21
5.3 No Prior Encumbrances. 21
5.4 Bona Fide Eligible Accounts. 21
5.5 Merchantable Inventory. 21
5.6 Name; Location of Chief Executive Office. 21
5.7 Litigation. 22
5.8 No Material Adverse Change in Financial Statements. 22
5.9 Solvency. 22
5.10 Regulatory Compliance. 22
5.11 Environmental Condition. 22
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5.12 Taxes. 23
5.13 Subsidiaries. 23
5.14 Government Consents. 23
5.15 Full Disclosure. 23
6. AFFIRMATIVE COVENANTS 23
6.1 Good Standing. 23
6.2 Government Compliance. 23
6.3 Financial Statements, Reports, Certificates. 23
6.4 Inventory; Returns. 24
6.5 Taxes. 24
6.6 Insurance. 25
6.7 Quick Ratio. 25
6.8 Debt-Tangible Net Worth Ratio. 25
6.9 Tangible Net Worth. 25
6.10 Profitability. 25
6.11 Debt-Service Coverage. 26
6.12 Further Assurances. 26
7. NEGATIVE COVENANTS 26
7.1 Dispositions. 26
7.2 Changes in Business, Ownership, Management, or Chief
Executive Office. 27
7.3 Mergers or Acquisitions. 27
7.4 Indebtedness. 27
7.5 Encumbrances. 27
7.6 Distributions. 27
7.7 Investments. 27
7.8 Transactions with Affiliates. 27
7.9 Subordinated Debt. 28
7.10 Inventory. 28
7.11 Compliance. 28
8. EVENTS OF DEFAULT 28
8.1 Payment Default. 28
8.2 Covenant Default. 28
8.3 Material Adverse Change. 29
8.4 Attachment. 29
8.5 Insolvency. 30
8.6 Other Agreements. 30
8.7 Subordinated Debt. 30
8.8 Judgments. 30
8.9 Misrepresentations. 30
9. SERVICING AGENT'S AND LENDERS' RIGHTS AND
REMEDIES 30
9.1 Rights and Remedies. 30
9.2 Power of Attorney. 31
9.3 Accounts Collection. 32
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9.4 Lenders' Expenses. 32
9.5 Lenders' Liability for Collateral. 32
9.6 Remedies Cumulative. 33
9.7 Demand; Protest. 33
10. NOTICES 33
11. CHOICE OF LAW AND VENUE 34
12. PARTICIPATION 34
12.1 Participation Interest. 34
12.2 No Obligation. 34
13. THE SERVICING AGENT 34
13.1 Appointment, Powers and Immunities. 34
13.2 Representations and Warranties: No Responsibility for Inspection. 35
13.3 Reliance by Servicing Agent. 36
13.4 Delegation of Duties. 36
13.5 Right to Indemnity. 37
13.6 Resignation and Appointment of Successor Servicing Agent. 37
13.7 Conflicts. 37
13.8 No Obligations of Borrower. 37
13.9 Amendments in Writing; Integration. 38
14. GENERAL PROVISIONS 39
14.1 Successors and Assigns. 39
14.2 INDEMNIFICATION. 39
14.3 Time of Essence. 39
14.4 Severability of Provisions. 39
14.5 Counterparts. 39
14.6 Survival. 39
14.7 Confidentiality. 39
14.8 WAIVER OF JURY TRIAL. 40
14.9 NOTICE OF FINAL AGREEMENT. 40
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LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT ("Agreement") is entered into as of
December 4, 1997, by and among SILICON VALLEY BANK, a California-chartered bank
on its own behalf ("SVB"), with its principal place of business at 3003 Tasman
Drive, Santa Clara, California 95054 and with a loan production office located
at 9442 Capital of Texas Highway North, Arboretum Plaza One, Suite 130, Austin,
Texas 78759, TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking
association ("TCB") with an address of 712 Main Street, Houston, Texas 77002
and an office at 700 Lavaca, P.O. Box 550, Austin, Texas 78789-0001 (each of
SVB in its capacity as a lender, but not as an agent, and TCB individually a
"Lender" and collectively "Lenders"), VTEL CORPORATION, a Delaware corporation
("Borrower"), with its principal place of business at 108 Wild Basin Road,
Austin, Texas 78746 and SVB, as Servicing Agent for the Lenders ("Servicing
Agent").
R E C I T A L S
Borrower wishes to obtain credit from time to time from Lenders, and
Lenders desire to extend credit to Borrower. This Agreement sets forth the
terms on which Lenders will advance credit to Borrower, and Borrower will repay
the amounts owing to Lenders.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of
the foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, or any Person that controls or is
controlled by or is under common control with such Person (whether by contract,
ownership of voting securities or otherwise).
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"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's assets
or liabilities, the Collateral, business operations or financial condition; and
all computer programs, or tape files, and the equipment, containing such
information.
"Borrowing Base" means an amount equal to eighty percent (80%) of
Eligible Accounts, as determined with reference to the most recent Borrowing
Base Certificate delivered by Borrower.
"Business Day" means (i) any day that is not a Saturday, Sunday, or
other day on which banks in the State of Texas or the State of California are
authorized or required to close, and (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest on
any U.S. Dollar Advance which bears interest by reference to an interbank
offering rate and any Advance made in a currency other than U.S. Dollars, any
day which is a Business Day described in clause (i) and which is also a day on
which commercial banks are open for international business (including dealings
in the currency in which such Advance is denominated) in the location of the
relevant interbank market and the place where such funds are to be paid or made
available.
"Closing Date" means the date of this Agreement.
"Code" means the Uniform Commercial Code as in effect in the State of
Texas from time to time.
"Collateral" means the property described on Exhibit A attached
hereto.
"Commitment" means, with respect to each Lender and with respect to
each credit facility hereunder, the amounts set forth in the Schedule and
"Commitments" means, with respect to each Lender or each facility hereunder, as
the case may be, all such amounts collectively, as each may be amended from
time to time.
"Commitment Percentage" means, as to any Lender, for any credit
facility hereunder, the percentage equivalent of such Lender's Commitment for
such facility divided by the aggregate amount of all Commitments under such
facility.
"Committed Revolving Line" means a credit extension of up to
Twenty-Five Million and No/100 Dollars ($25,000,000.00).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed (otherwise than for collection or deposit in the ordinary
course of business), co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determined amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
as determined by such Person in good faith; provided, however, that such amount
shall not in any event exceed the maximum amount of the obligations under the
guarantee or other support arrangement.
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"Credit Extension" means each Advance, Letter of Credit (including all
issued but undrawn and drawn but unreimbursed Letters of Credit), Term Loan,
Exchange Contract, Foreign Exchange Reserve or any other extension of credit by
Lenders for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement which according to GAAP would be
considered current liabilities, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Debt Service Coverage Ratio" means, as to Borrower and its
Subsidiaries on a consolidated basis and for any period, the ratio of (a) Net
Income after taxes for such period, plus (b) the aggregate amount which was
deducted for such period in determining Net Income in respect of interest,
depreciation and amortization, to the total of (x) the current portion of
long-term debt determined in accordance with GAAP plus (y) interest expenses
related thereto.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrower's
representations and warranties to Servicing Agent and Lenders set forth in
Section 5.4; provided, that standards of eligibility may be fixed and revised
from time to time by Servicing Agent in its reasonable judgement upon
notification thereof to Borrower in accordance with the provisions hereof.
Unless otherwise agreed to by Servicing Agent, on behalf of all Lenders, in
writing, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed twenty-five percent
(25%) of all Accounts, to the extent such obligations exceed the aforementioned
percentage, except as approved in writing by Servicing Agent and all Lenders;
(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts;
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(e) Accounts with respect to which the account debtor is (a) the
United States government or any department, agency, or instrumentality thereof,
or (b) a state or local governmental entity or any department, agency, or
instrumentality thereof which requires compliance with such state's or local
governmental entity's laws with respect to the assignment of claims or accounts
receivable in order for Servicing Agent to obtain a valid, perfected, first-
priority security interest in such account; provided, however, upon compliance
with such laws and the valid assignment of such account, such account shall be
an Eligible Account;
(f) Accounts which are the subject of any dispute or which could
reasonably be deemed to result in set-off but only to the extent of the amount
in dispute or subject to set-off;
(g) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional sometimes referred to as "contra" accounts;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Servicing Agent
believes, in its sole discretion, that there may be a basis for dispute (but
only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(j) Accounts the collection of which Servicing Agent in good faith
reasonably determines after reasonable inquiry to be doubtful by reason of the
account debtor's financial condition.
"Eligible Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and
by an insurer satisfactory to Servicing Agent less the amount of any
deductible(s) which may be or become owing thereon; or (2) supported by one or
more letters of credit either advised or negotiated through Servicing Agent or
in favor of Servicing Agent as beneficiary, in an amount and of a tenor, and
issued by a financial institution, acceptable to Servicing Agent; or (3) that
Lenders approve on a case-by-case basis.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
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"Foreign Accounts" means Accounts with respect to which the account
debtor does not have its principal place of business in the United States.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"Guarantor" means any present or future guarantor of the Obligations.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including, without limitation,
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any Person or entity under any provision of the United States Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products intended
for sale or lease or to be furnished under a contract of service, of every kind
and description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"Investment" means any beneficial ownership (including stock,
partnership interest or other securities) of any Person, or any loan, advance
or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lenders' Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred by the Servicing Agent, SVB,
and TCB, or any one or more of them in connection with the preparation,
negotiation, administration, and enforcement of the Loan Documents; and
Servicing Agent's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, (including fees and expenses of
appeal or review, or those incurred in any Insolvency Proceeding) whether or
not suit is brought; provided, however, the fees and expenses of Servicing
Agent's or any Lender's attorneys incurred in connection with the preparation
and negotiation of the Loan Documents and the initial closing hereunder shall
be limited to Twenty Thousand and No/100 Dollars ($20,000.00).
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"Letter of Credit" means a letter of credit or similar undertaking
issued by Issuing Lender pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth in Section 2.1.2.
"LIBOR Supplement" means the LIBOR Supplement to Agreement by and
among Lenders, Borrower and Servicing Agent dated as of the date hereof.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes that may be executed by Borrower in favor of Servicing Agent or any
Lender pursuant to this Agreement, and any other present or future agreement
entered into by and among Borrower and/or for the benefit of all of the Lenders
in connection with this Agreement, all as amended, extended or restated from
time to time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maximum Lawful Rate" means the maximum rate of interest and the term
"Maximum Lawful Amount" means the maximum amount of interest that are
permissible under applicable state or federal law for the type of loan
evidenced by the Loan Documents. If the Maximum Lawful Rate is increased by
statute or other governmental action subsequent to the date of this Agreement,
then the new Maximum Lawful Rate shall be applicable to the payments provided
for hereunder from the effective date thereof, unless otherwise prohibited by
applicable law.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper.
"Net Income" means, as to Borrower and its Subsidiaries on a
consolidated basis and for any period, the net income (or loss) after tax for
such period without giving effect to any extraordinary gain or gains or loss or
losses on the sale of non-current assets owned by Borrower and its
Subsidiaries, as determined in accordance with GAAP. For purposes of the
foregoing sentence and notwithstanding anything herein to the contrary,
non-current assets shall not include, in any event, long term notes or
receivables.
"Obligations" means all debt, principal, interest, Lenders' Expenses
and other amounts owed to Lenders or Servicing Agent by Borrower pursuant to
this Agreement or any other Loan Document, whether absolute or contingent, due
or to become due, now existing or hereafter arising, including any interest
that accrues after the commencement of an Insolvency Proceeding and including
any debt, liability, or obligation owing from Borrower to others that all of
the Lenders or Servicing Agent may have obtained by assignment or otherwise.
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"Other Obligor" shall mean any entity or individual, including without
limitation any Guarantor, who (i) is obligated to pay any Credit Extension, or
(ii) otherwise is or becomes obligated to pay any Credit Extension (for
example, as cosigner or guarantor), or (iii) has pledged property as security
for payment of any Credit Extension.
"Payment Date" means the fifteenth (15th) calendar day of each month
commencing on the first such date after the Closing Date and ending on the
Revolving Maturity Date or, if Borrower elects to convert the Advances into the
Term Loan, the Term Loan Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Lenders or Servicing
Agent (but not SVB or TCB individually in its capacity as a lender) arising
under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business;
(e) Indebtedness secured by Permitted Liens;
(f) Capital lease obligations incurred in the ordinary course of
business;
(g) Letters of Credit entered into in the ordinary course of
business;
(h) Research and development funding advanced by third parties;
(i) Indebtedness incurred pursuant to a Receivables Purchase
Agreement between Borrower and RBC Trade Finance (USA) Inc. ("RBC") aggregating
in excess of not more than Ten Million and No/100 Dollars ($10,000,000.00) in
connection with the RBC facility ("RBC Indebtedness"); and
(j) Extensions of any of items (a) through (h) above, provided
that with respect to the items set forth in (b) through (h) above, the
principal amount thereof is not increased or the terms thereof are not modified
to impose more burdensome terms upon Borrower.
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"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any State or any agency or
instrumentality thereof maturing within one (1) year from the date of
acquisition thereof, (ii) commercial paper maturing no more than two (2) years
from the date of creation thereof and currently having the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (iii) certificates of deposit maturing no more than two (2)
years from the date of investment therein issued by SVB or TCB and (iv)
Investments consistent with Borrower's January 18, 1996 Cash Portfolio
Investment Policy;
(c) Other Investments aggregating in excess of not more than One
Million and No/100 Dollars ($1,000,000.00) at any one time; and
(d) Investments by Borrower in any Subsidiary of Borrower.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are maintained on
Borrower's Books in accordance with GAAP;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or Indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such Equipment at the time
of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such Equipment;
(d) Liens incidental to the conduct of business or the ownership
of properties and assets (including warehousemen's and attorneys' liens and
statutory landlords' liens) and deposits, pledges or Liens to secure the
performance of bids, tenders or trade contracts, or to secure statutory
obligations, surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided in each case, the obligation secured is not
overdue or, if overdue, (i) is being contested in good faith by appropriate
actions or proceedings, (ii) adequate reserves therefor have been set-up on the
financial statements of Borrower in accordance with GAAP and (iii) such Liens
shall not cause interference in any material respect with the ordinary conduct
of the business of Borrower;
(e) Presently existing Liens granted and created pursuant to the
terms of the RBC Indebtedness; and
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(f) Liens incurred in connection with the extension, renewal or
refinancing of the Indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, quoted in
The Wall Street Journal, under the section "Money Rates" as the "Prime Rate",
which may rate not be the lowest, best or most favorable rate of interest which
SVB, TCB, or any other Lender may charge on loans to its customers. In the
event that more than one prime rate is quoted in The Wall Street Journal, the
highest quoted prime rate will be used as the Prime Rate. If The Wall Street
Journal ceases publication or if it ceases quoting or publishing the "prime
rate", Servicing Agent on behalf of Lenders will choose a new reference or
index which is based upon comparable information (that is, an average of
leading money center banks' prime rates).
"Quick Assets" means, as of any applicable date, the consolidated
cash, cash equivalents, accounts receivable, and investments with maturities
not to exceed two (2) years, of Borrower, all as determined in accordance with
GAAP.
"Requisite Lenders" means, at any time, Lenders then holding at least
sixty-six and two-thirds percent (66 _%) of the then aggregate unpaid principal
amount of all Advances then outstanding or, if no Advances are then
outstanding, Lenders then having at least sixty-six and two-thirds percent (66
_%) of the aggregate Commitments; provided, that in the event there shall be
only two Lenders, both of such Lenders.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Assistant Treasurer of Borrower.
"Revolving Maturity Date" means December 3, 1999.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Servicing Agent" means SVB, not in its individual capacity, but
solely in its capacity as agent for certain loan servicing functions, on behalf
of and for the benefit of Lenders, and any successor agent, all as may be
requested by the Lenders, unanimously, from time to time.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Lenders and Servicing Agent on
terms acceptable to Requisite Lenders and Servicing Agent (and identified as
being such by Borrower and the Requisite Lenders).
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"Subsidiary" means with respect to any Person, any corporation,
partnership, company, association, joint venture, or any other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date, the consolidated
total assets of Borrower and its Subsidiaries minus, without duplication, (i)
the sum of any amounts attributable to (a) goodwill, (b) intangible items such
as unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses, except prepaid
expenses, and (c) all reserves not already deducted from assets, and (ii) Total
Liabilities.
"Term Loan" means a credit extension of up to Twenty-Five Million and
No/100 Dollars ($25,000,000.00), made pursuant to Section 2.1.4.
"Term Loan Maturity Date" means December 2, 2001.
"Total Liabilities" means as of any applicable date, any date as of
which the amount thereof shall be determined, all obligations that should, in
accordance with GAAP, be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness, but specifically
excluding Subordinated Debt.
1.2 Accounting and Other Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations and determinations made hereunder shall be made in accordance with
GAAP. When used herein, the term "financial statements" shall include the
notes and schedules thereto. The terms "including" and "includes" shall always
be read as meaning "including (or includes) without limitation", when used
herein or in any other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions. In accordance with the terms hereof,
Borrower promises to pay to Servicing Agent for the account of each Lender, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Servicing Agent and Lenders to Borrower
hereunder. Borrower shall also pay interest on the unpaid principal amount of
such Advances at rates and at times in accordance with the terms hereof.
2.1.1 Advances. (a) Subject to and upon the terms and
conditions of this Agreement, and in reliance upon the representations and
warranties of Borrower set forth herein, each Lender severally agrees to make
its Commitment Percentage of Advances to Borrower up to the amount of the
Committed Revolving Line; provided that the aggregate outstanding amount shall
not exceed at any one time (i) the lesser of the Committed Revolving Line and
the Borrowing Base, minus (ii) the then outstanding principal balance of all
Credit Extensions; provided, that Credit Extensions to Borrower under the
Committed Revolving Line of up to and including Seven Million Five Hundred
Thousand and No/100 Dollars ($7,500,000.00) shall be made at any time and from
time to time without reference to the Borrowing Base. Subject to the terms and
conditions of this Agreement, amounts borrowed pursuant to this Section 2.1.1
may be repaid and reborrowed at any time during the term of this Agreement.
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(b) Subject to Borrower's conversion option as set forth in
Section 2.1.4, the Committed Revolving Line shall terminate on the Revolving
Maturity Date, at which time all Advances under this Section 2.1.1 and other
amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
(c) To evidence the Credit Extensions, Borrower shall execute
and deliver to each Lender a note ("Revolving Note") in the form of Exhibit E
attached hereto.
2.1.2 Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement, from the date hereof through the Business Day immediately prior to
the Revolving Maturity Date, Lenders agree to issue or cause to be issued
Letters of Credit for the account of Borrower in an aggregate outstanding face
amount not to exceed (i) the lesser of the Committed Revolving Line and the
Borrowing Base minus (ii) the then outstanding principal balance of all Credit
Extensions; provided that the face amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve) shall not in any event exceed Ten Million and No/100 Dollars
($10,000,000.00) in the aggregate at any time; provided further that Credit
Extensions to Borrower under the Committed Revolving Line of up to and
including Seven Million Five Hundred Thousand and No/100 Dollars
($7,500,000.00) shall be made at any time and from time to time without
reference to the Borrowing Base. For purposes of this Agreement, the amount
outstanding under a Letter of Credit shall include the face amount of such
Letter of Credit, whether such Letter of Credit is issued but undrawn or drawn
but unreimbursed, and any Letter of Credit Reserve relating thereto. Each
Letter of Credit shall have an expiry date no later than the Revolving Maturity
Date. All Letters of Credit shall be, in form and substance, acceptable to
the Lender issuing the Letter of Credit (the "Issuing Lender") and the other
Lenders and shall be subject to the terms and conditions of the Issuing
Lender's form of standard application and letter of credit agreement, which
shall provide, in addition to an administrative fee of not more than
one-sixteenth of one percent (0.0625%) of the face amount of the Letter of
Credit payable to Issuing Lender only, for a Letter of Credit fee of not more
than four-tenths of one percent (0.40%) of the face amount of the Letter of
Credit payable to Servicing Agent, on behalf of the Issuing Lender and the
other Lenders, as more fully set forth in such Letter of Credit Agreement.
Each Lender agrees that, in paying any drawing under a Letter of Credit, the
Issuing Lender shall not have any responsibility to obtain any document (other
than any document expressly required by the Letter of Credit) or to ascertain
or inquire as to the validity or accuracy of any such document or the authority
of the Person executing or delivering any such document. NEITHER THE ISSUING
LENDER NOR ANY OF ITS AFFILIATES, CORRESPONDENTS, PARTICIPANTS OR ASSIGNEES,
NOR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS OR EMPLOYEES, SHALL BE LIABLE
TO ANY OTHER LENDER FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN UNLESS SUCH
ACTION OR OMISSION CONSTITUTES GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
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(b) The obligation of Borrower to immediately reimburse
the Issuing Lender for drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement, the letter of credit agreement and such
Letters of Credit, under all circumstances whatsoever. BORROWER SHALL
INDEMNIFY, DEFEND, PROTECT, AND HOLD SERVICING AGENT AND EACH LENDER HARMLESS
FROM ANY AND ALL LOSS, COST, EXPENSE OR LIABILITY, INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES, ARISING OUT OF OR IN CONNECTION WITH
ANY LETTERS OF CREDIT, OTHER THAN SUCH LOSSES, COSTS, EXPENSES OR LIABILITIES
BASED UPON OR ARISING OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
SERVICING AGENT OR SUCH LENDER.
(c) Borrower may request that Issuing Lender issue a
Letter of Credit payable in a currency other than United States Dollars. If a
demand for payment is made under any such Letter of Credit, the Issuing Lender
shall notify Lenders and Lenders shall treat such demand as an Advance to
Borrower of the equivalent of the amount thereof (plus cable charges) in United
States currency at the then prevailing rate of exchange in Austin, Texas for
sales of that other currency for cable transfer to the country of which it is
the currency.
(d) Upon the issuance by any Lender of any Letter of
Credit payable in a currency other than United States Dollars, such Lender
shall create a reserve under the Committed Revolving Line for Letters of Credit
("Letter of Credit Reserve") against fluctuations in currency exchange rates,
in an amount equal to ten percent (10%) of the face amount of such Letter of
Credit. The amount of such reserve may be amended by Lender from time to time
to account for fluctuations in the exchange rate. The availability of funds
under the Committed Revolving Line shall be reduced by the amount of such
reserve for so long as such Letter of Credit remains outstanding.
2.1.3 Foreign Exchange Contract; Foreign Exchange
Settlements.
(a) Subject to the terms of this Agreement, Borrower may
enter into foreign exchange contracts not to exceed in any event Ten Million
and No/100 Dollars ($10,000,000.00) in the aggregate at any time ("Contract
Limit"), pursuant to which Lenders shall sell to or purchase from Borrower
foreign currency on a spot or future basis ("Exchange Contracts"). Borrower
shall not request any Exchange Contracts at any time it is out of compliance
with any of the provisions of this Agreement. All Exchange Contracts must
provide for delivery of settlement on or before the Revolving Maturity Date.
The amount available under the Committed Revolving Line at any time shall be
reduced by the following amounts ("Foreign Exchange Reserve") on any given day
(the "Determination Date"): (i) on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed more than two Business Days
after the Determination Date, ten percent (10%) of the gross amount of the
Exchange Contracts; plus (ii) on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed within two Business Days after
the Determination Date, one hundred percent (100%) of the gross amount of the
Exchange Contracts.
(b) Lender may, in its discretion, terminate the Exchange
Contracts at any time (a) that an Event of Default occurs and is continuing or
(b) that there is not sufficient availability under the Committed Revolving
Line and Borrower does not have
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available funds in its bank account to satisfy the Foreign Exchange Reserve.
If Lender terminates the Exchange Contracts, and without limitation of any
applicable indemnities, Borrower agrees to reimburse Lender for any and all
fees, costs and expenses relating thereto or arising in connection therewith.
(c) Borrower shall not permit the total gross amount of
all Exchange Contracts on which delivery is to be effected and settlement
allowed on any one (1) Business Day to be more than Two Million and No/100
Dollars ($2,000,000.00) ("Settlement Limit") nor shall Borrower permit the
total gross amount of all Exchange Contracts to which Borrower is a party,
outstanding at any one time, to exceed the lesser of the (i) Contract Limit and
(ii) lesser of (A) the Committed Revolving Line minus all outstanding Credit
Extensions and (B) the Borrowing Base minus all outstanding Credit Extensions.
Notwithstanding the above, however, the amount which may be settled on any one
(1) Business Day may be increased above the Settlement Limit up to, but in no
event to exceed, the amount of the Contract Limit under either of the following
circumstances:
(i) if there is sufficient availability under the
Committed Revolving Line in the amount of the Foreign Exchange
Reserve as of each Determination Date, provided that Servicing
Agent or Lenders in advance shall reserve the full amount of
the Foreign Exchange Reserve against the Committed Revolving
Line; or
(ii) if there is insufficient availability under
the Committed Revolving Line, as to settlements on any one (1)
Business Day, provided that Servicing Agent or Lenders, in
their sole discretion, may: (A) verify good funds overseas
prior to crediting Borrower's deposit account with Lender (in
the case of Borrower's sale of foreign currency); or (B) debit
Borrower's deposit account with Lender prior to delivering
foreign currency overseas (in the case of Borrower's purchase
of foreign currency).
(d) In the case of Borrower's purchase of foreign
currency, Borrower in advance shall instruct Servicing Agent or Lenders upon
settlement either to treat the settlement amount as an Advance under the
Committed Revolving Line, or to debit Borrower's account for the amount
settled.
(e) Borrower shall execute all standard form applications
and agreements of Lender in connection with the Exchange Contracts and, without
limiting any of the terms of such applications and agreements, Borrower will
pay all standard fees and charges of Lender in connection with the Exchange
Contracts.
(f) WITHOUT LIMITING ANY OF THE OTHER TERMS OF THIS
AGREEMENT OR ANY SUCH STANDARD FORM APPLICATIONS AND AGREEMENT OF LENDERS OR
SERVICING AGENT, BORROWER AGREES TO INDEMNIFY LENDERS AND SERVICING AGENT AND
HOLD THEM HARMLESS, FROM AND AGAINST ANY AND ALL CLAIMS, DEBTS, LIABILITIES,
DEMANDS, OBLIGATIONS, ACTIONS, COSTS AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, ATTORNEYS' FEES OF COUNSEL OF LENDERS' CHOICE), OF EVERY NATURE AND
DESCRIPTION WHICH IT MAY SUSTAIN OR INCUR, BASED UPON, ARISING OUT OF, OR IN
ANY WAY RELATING
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TO ANY OF THE EXCHANGE CONTRACTS OR ANY TRANSACTIONS RELATING THERETO OR
CONTEMPLATED THEREBY OTHER THAN SUCH LOSSES, COSTS, EXPENSES OR LIABILITIES
BASED UPON OR ARISING OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
SERVICING AGENT OR SUCH LENDER.
2.1.4 Commitment to Make Term Loan.
(a) Provided that no Event of Default has occurred and is
continuing, or would occur upon conversion of the Advances into the Term Loan,
and upon payment in full of all accrued interest on all Advances then
outstanding, Borrower may elect to convert, on the Revolving Maturity Date, the
entire outstanding principal balance of the Advances into a term loan ("Term
Loan") subject to the terms and conditions of this Section 2.1.4. The
effective date of such conversion shall be the Revolving Maturity Date, after
which Lenders shall have no further obligation to make any Credit Extensions to
Borrower. Borrower shall notify Servicing Agent in writing at least thirty
(30) days prior to the Revolving Maturity Date of its election to convert the
principal amount of the Advances into a Term Loan. If Borrower elects to
convert the Advances into a Term Loan on the Revolving Maturity Date, the Term
Loan shall be payable as set forth below. The Term Loan and all repayments of
principal with respect thereto shall be evidenced by notations made by the
Servicing Agent in its books and records regarding the date, amount and
maturity of the Term Loan, and the amount of each payment of principal made by
Borrower with respect thereto; provided, the failure by the Servicing Agent to
make such notation shall not limit or otherwise affect the obligations of
Borrower with respect to repayments of principal or payments of interest on the
Term Loan. The aggregate unpaid amount of the Term Loan set forth in the books
and records of the Lenders shall, in the absence of manifest error, be
presumptive evidence of the principal amount owing and unpaid under the Term
Loan.
(b) The Term Loan shall bear interest at a rate equal to
the Prime Rate or the rate specified in the LIBOR Supplement, subject to
Section 2.3(b). All amounts due under the Term Loan shall be due and payable
on the Term Loan Maturity Date. Commencing on the first Payment Date after the
Revolving Maturity Date, Borrower shall pay, in addition to payment of all
accrued and unpaid interest on the Term Loan, monthly installments of
outstanding principal equal to 1/24th of the original principal amount of the
Term Loan.
(c) The Term Loan shall be evidenced by a term note in
favor of each Lender in the form of Exhibit F attached hereto ("Term Note").
2.2 Overadvances. If, at any time or for any reason, the amount
of Obligations owed by Borrower pursuant to Section 2.1.1, 2.1.2 and 2.1.3 of
this Agreement is greater than $7,500,000.00 and is greater than the lesser of
(i) the Committed Revolving Line and (ii) the Borrowing Base, Borrower shall
immediately pay to Servicing Agent, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) LIBOR Option/Interest Rate. Except as set forth in Section
2.3(b), any and all Advances and amounts due under the Term Loan shall bear
interest, on the average daily balance thereof, at a per annum rate equal to,
at Borrower's option and subject to the terms hereof, the Prime Rate or the
rate specified in the LIBOR Supplement.
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(b) Default Rate. All Obligations shall bear interest, from and
after the occurrence of an Event of Default, at the "Default Interest Rate."
The Default Interest Rate shall be the interest rate applicable immediately
prior to the occurrence of the Event of Default plus five (5) percentage points
but in no event more than the Maximum Lawful Rate or at a rate that would cause
the total interest contracted for, charged or received by Lenders to exceed the
Maximum Lawful Amount.
(c) Payments. Interest hereunder shall be due and payable on each
Payment Date. Any interest not paid when due shall be compounded by becoming a
part of the Obligations, and such interest shall thereafter accrue interest at
the rate then applicable hereunder.
(d) Computation.
(i) Changes. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder
shall be increased or decreased effective as of 12:01 a.m. on the day
the Prime Rate is changed, by an amount equal to such change in the
Prime Rate.
(ii) Spreading of Interest. Because of the possibility of
irregular periodic balances of principal, the fluctuating nature of
the interest rate, or premature payment, the total interest that will
accrue under this Agreement cannot be determined in advance. Lenders
do not intend to contract for, charge or receive more than the Maximum
Lawful Rate or Maximum Lawful Amount permitted by applicable state or
federal law, and to prevent such an occurrence Lenders and Servicing
Agent and Borrower agree that all amounts of interest, whenever
contracted for, charged or received by Lenders or Servicing Agent,
with respect to the loan of money evidenced by the Loan Documents,
shall be spread, prorated or allocated over the full period of time
the Obligations are unpaid, including the period of any renewal or
extension thereof. If the maturity of the Obligations is accelerated
for any reason whether as a result of a lawsuit or an Event of Default
or otherwise prior to the full stated term, the total amount of
interest contracted for, charged or received to the time of such
demand shall be spread, prorated or allocated along with any interest
thereafter accruing over the full period of time that the Obligations
thereafter remain unpaid for the purpose of determining if such
interest exceeds the Maximum Lawful Amount.
(iii) Excess Interest. At maturity (whether by
acceleration or otherwise) or on earlier final payment of the
Obligations, Lenders shall compute the total amount of interest that
has been contracted for, charged or received by Lenders or payable by
Borrower hereunder and compare such amount to the Maximum Lawful
Amount that could have been contracted for, charged or received by
Lenders. If such computation reflects that the total amount of
interest that has been contracted for, charged or received by Lenders
or payable by Borrower exceeds the Maximum Lawful Amount, then Lenders
shall apply such excess to the reduction of the principal balance and
not to the payment of interest; or if such excess interest exceeds the
unpaid principal balance, such excess shall be refunded to Borrower.
This provision
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concerning the crediting or refund of excess interest shall control
and take precedence over all other agreements between Borrower and
Lenders so that under no circumstances shall the total interest
contracted for, charged or received by Lenders exceed the Maximum
Lawful Amount.
(iv) Daily Computation of Interest. To the extent
permitted by applicable law, the Lenders at their option may either
(i) calculate the per diem interest rate or amount based on the actual
number of days in the year (365 or 366, as the case may be), and
charge that per diem interest rate or amount each day, or (ii)
calculate the per diem interest rate or amount as if each year has
only 360 days, and charge that per diem interest rate or amount each
day for the actual number of days of the year (365 or 366 as the case
may be). If the Loan Documents call for monthly payments, the Lenders
at their option may determine the payment amount based on the
assumption that each year has only 360 days and each month has 30
days. In no event shall Lenders compute the interest in a manner that
would cause Lenders to contract for, charge or receive interest that
would exceed the Maximum Lawful Rate or the Maximum Lawful Amount.
The foregoing notwithstanding, all Lenders shall calculate per diem
interest in the same manner at all times, and in no event shall the
method of daily computation of interest vary between or among any of
the Lenders.
(v) Revolving Loan Accounts and Usury Ceiling. In no
event shall Chapter 346 of the Texas Finance Code, as supplemented by
the Texas Credit Title ("Texas Finance Code") (which regulates certain
revolving loan accounts and revolving tri-party accounts) apply to
this Agreement or Borrower's payment obligations hereunder. To the
extent that Chapter 303 of the Texas Finance Code, is applicable to
this Agreement, the "weekly ceiling" specified in such Chapter 303 is
the applicable ceiling; provided that, if any applicable law permits
greater interest, the law permitting the greatest interest shall
apply.
(e) Borrowing Procedures. Whenever Borrower desires a Credit
Extension, Borrower will notify Servicing Agent by facsimile transmission or
telephone no later than 1:00 p.m. Central time, one (1) Business Day before the
Business Day on which a Prime Rate Credit Extension is to be made and 2:00 p.m.
Central Time on the Business Day that is three (3) Business Days prior to the
Business Day a LIBOR Rate Credit Extension is to be made. Servicing Agent
shall promptly deliver such notice to the Lenders. Each such notification
shall be promptly confirmed by a Payment/Advance Form in substantially the form
of Exhibit B hereto or a LIBOR Rate Advance Form as attached to the LIBOR
Supplement. Servicing Agent is authorized to make Advances under this
Agreement or under the LIBOR Supplement, based upon instructions received from
a Responsible Officer or a designee of a Responsible Officer, or without
instructions if in Servicing Agent's discretion such Advances are necessary to
meet Obligations which have become due and remain unpaid. Servicing Agent and
Lenders shall be entitled to rely on any telephonic notice given by a person
whom Servicing Agent or Lenders reasonably believe to be a Responsible Officer
or a designee thereof, and BORROWER SHALL INDEMNIFY AND HOLD SERVICING AGENT
AND THE LENDERS HARMLESS FROM AND AGAINST ANY DAMAGES OR LOSS SUFFERED BY
SERVICING AGENT OR EITHER LENDER AS A RESULT OF SUCH RELIANCE OTHER THAN SUCH
LOSSES, COSTS, EXPENSES OR LIABILITIES BASED UPON OR ARISING OUT OF THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE SERVICING AGENT OR SUCH LENDER.
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2.4 Crediting Payments. Prior to the occurrence of an Event of
Default, Servicing Agent shall credit a wire transfer of funds, check or other
item of payment paid by Borrower to Servicing Agent to such deposit account or
Obligation as Borrower specifies. After the occurrence of an Event of Default,
the receipt by Servicing Agent of any wire transfer of funds, check, or other
item of payment, whether directed to Borrower's deposit account with Servicing
Agent or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is
honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Servicing Agent
after 2:00 p.m. Central time shall be deemed to have been received by Servicing
Agent as of the opening of business on the immediately following Business Day.
Whenever any payment to Servicing Agent under the Loan Documents would
otherwise be due (except by reason of acceleration) on a date that is not a
Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable
for the period of such extension.
2.5 Fees. Borrower shall pay to Servicing Agent the following:
(a) Facility Fee. On the fifteenth day of March, June, September,
and December of each year after the date hereof through the Revolving Maturity
Date, a fee equal to one-fifth of one percent (.20%) ("Fee") of the Committed
Revolving Line minus the average daily balance of all outstanding Advances for
the preceding fiscal quarter (i.e., Borrower's quarters ending in January,
April, July, and October); provided the amount of such fee shall be decreased
by One Thousand One Hundred Twenty-Five and No/100 Dollars ($1,125.00) for each
fiscal quarter from the date hereof through the Revolving Maturity Date to
properly reflect Borrower's current credit with SVB of Nine Thousand and No/100
Dollars ($9,000.00). Servicing Agent shall apportion the Fee between Lenders
to account for SVB's prior receipt of the foregoing monies from Borrower to
insure that each Lender receives its full 0.20% fee. If the Revolving Maturity
Date is not the last day of a fiscal quarter of Borrower, Borrower's first and
final payment under this Section 2.5(a) shall be prorated accordingly.
(b) Financial Examination and Appraisal Fees. If the aggregate
sum of Advances has exceeded Seven Million Five Hundred Thousand and No/100
Dollars ($7,500,000.00), or if an Event of Default has occurred, each Lender's
customary fees and out-of-pocket expenses for Lenders' audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Servicing Agent or its
agents or any Lender; provided, however, that the fees for the Lenders' audits
of Borrower's Accounts prior to the occurrence of an Event of Default shall not
exceed Two Thousand and No/100 Dollars ($2,000.00) per annum without the prior
approval of Borrower. Provided further, if no Event of Default exists, all
such audits conducted by Lenders at Borrower's expense shall be performed by
one (1) audit team and shall not be conducted more often than once each year.
(c) Lenders' Expenses. Upon demand from Servicing Agent,
including, without limitation, upon the date hereof, all Lenders' Expenses
incurred through the date hereof, including reasonable attorneys' fees and
expenses (subject to the limitation set forth in Section 2.5(b) above), and,
after the date hereof, all Lenders' Expenses, including reasonable attorneys'
fees and expenses, as and when they become due.
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2.6 Additional Costs. In case any law, regulation, treaty or
official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Servicing Agent or any Lender to any tax with respect
to payments of principal or interest or any other amounts payable hereunder by
Borrower or otherwise with respect to the transactions contemplated hereby
(except for taxes on the overall net income of Servicing Agent or such Lender
imposed by the United States of America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Servicing Agent or any Lender;
or
(c) imposes upon Servicing Agent or any Lender any other condition
with respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Servicing
Agent or such Lender, reduce the income receivable by Servicing Agent or such
Lender or impose any expense upon Servicing Agent or such Lender with respect
to the Obligations, Servicing Agent or such Lender shall notify Borrower
thereof. Borrower agrees to pay to Servicing Agent or such Lender the amount
of such increase in cost, reduction in income or additional expense as and when
such cost, reduction or expense is incurred or determined, upon presentation by
Servicing Agent or such Lender of a statement of the amount and setting forth
Servicing Agent's or such Lender's calculation thereof, all in reasonable
detail, provided, however, that notwithstanding anything herein to the
contrary, (a) Borrower shall not be the only borrower of such Lender that is
singled out from a group of similarly situated borrowers of such Lender subject
to this type of provision and requested to pay such amounts and (b) Borrower
shall not be liable for any such costs incurred by such Lender prior to the
date of the notice given hereunder.
2.7 Term. Except as otherwise set forth herein, this Agreement
shall become effective on the Closing Date and, subject to Section 14.6, shall
continue in full force and effect for a term ending on the Revolving Maturity
Date or, if Borrower elects to convert the Advances into a Term Loan pursuant
to Section 2.1.4, the Term Loan Maturity Date. Notwithstanding the foregoing,
pursuant to and subject to Section 9.1 below, Lenders shall have the right to
terminate their obligation to make Credit Extensions under this Agreement
immediately upon the occurrence and during the continuance of an Event of
Default with notice thereof to Borrower' provided however, if the Event of
Default is an Insolvency Default, then the obligation to make Credit Extensions
shall automatically terminate without notice of any kind. Notwithstanding
termination of this Agreement, Servicing Agent's lien on the Collateral shall
remain in effect for so long as any Obligations are outstanding. Borrower
shall have the right to terminate this Agreement without premium or penalty
with notice to Servicing Agent if there are no outstanding Obligations owing to
Servicing Agent or any Lender.
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3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. The
obligation of Lenders to make the initial Credit Extension is subject to the
condition precedent that Lenders shall have received, in form and substance
satisfactory to Lenders, the following:
(a) this Agreement and the Revolving Notes, all duly executed by
Borrower;
(b) a certificate of the Secretary of Borrower with respect to
certificate of incorporation, by-laws, incumbency and resolutions authorizing
the execution and delivery of this Agreement and all other Loan Documents to be
executed by Borrower;
(c) UCC-1 financing statements covering the Collateral and in
favor of Servicing Agent on behalf of and for the benefit of Lenders and UCC-3
termination statements or assignments in favor of Servicing Agent on behalf of
and for the benefit of the Lenders from each Person that has a security
interest in the Collateral or any part thereof;
(d) insurance certificate;
(e) payment of the fees and Lenders' Expenses then due specified
in Section 2.5 hereof;
(f) Certificate of Foreign Qualification (if applicable);
(g) the LIBOR Supplement; and
(h) such other documents, and completion of such other matters, as
Lenders may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation
of Lenders to make each Credit Extension, including the initial Credit
Extension, is further subject to the following conditions:
(a) timely receipt by Servicing Agent of the Payment/Advance Form
or the LIBOR Rate Advance Form as provided in Section 2.1;
(b) satisfaction of the terms and conditions contained in the
LIBOR Supplement;
(c) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form or the LIBOR Rate Advance Form and on the effective
date of each Credit Extension as though made at and as of each such date, and
no Event of Default shall have occurred and be continuing, or would result from
such Credit Extension;
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(d) receipt by Servicing Agent of a Subordination of Lien from
each and every Person who leases real property to Borrower and at which
location Borrower maintains Inventory with a value of Two Million Five Hundred
Thousand and No/100 Dollars ($2,500,000.00) or greater (but in any event at
Borrower's locations in Austin, Texas, King of Prussia, Pennsylvania, and San
Jose, California), or evidence satisfactory to Servicing Agent in its sole and
absolute discretion of the waiver of such landlord's liens from such Person or
Persons, upon the outstanding principal amount of all Advances exceeding Seven
Million Five Hundred Thousand and No/100 Dollars ($7,500,000.00); and
(e) receipt by Servicing Agent upon (i) Servicing Agent's request
and (ii) the approval of the holder of a Permitted Lien in such Foreign
Accounts, if any, which approval shall be in such holder's sole discretion, of
UCC-1 financing statements covering the Foreign Accounts and in favor of
Servicing Agent on behalf of and for the benefit of Lenders; provided, that
Lenders agree and acknowledge that Servicing Agent's Lien in any Foreign
Accounts shall be junior and subordinate to any Permitted Lien therein and
Servicing Agent agrees to execute such documentation as may be required, if
any, to evidence such subordination. Upon the occurrence of (i) and (ii)
above, such Foreign Accounts shall constitute part of the Collateral. Borrower
agrees to cooperate and use commercially reasonable efforts to obtain the
foregoing approval from such holder of a Permitted Lien.
The making of each Credit Extension shall be deemed to be a
representation and warranty by Borrower on the date of such Credit Extension as
to the accuracy of the facts referred to in Section 3.2(c).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to
Servicing Agent on behalf of and for the benefit of Lenders a continuing
security interest in all presently existing and hereafter acquired or arising
Collateral and all proceeds thereof, in order to secure prompt payment of any
and all Obligations and in order to secure prompt performance by Borrower of
each of its covenants and duties under the Loan Documents. Except as set forth
in the Schedule, such security interest constitutes a valid, first priority
security interest in the presently existing Collateral, and will constitute a
valid, first priority security interest in Collateral acquired after the date
hereof. Notwithstanding termination of this Agreement, Servicing Agent's Lien
on the Collateral shall remain in effect for so long as any Obligations are
outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall
from time to time execute and deliver to Servicing Agent, at the request of
Servicing Agent or any Lender, all Negotiable Collateral, all financing
statements and other documents that Servicing Agent or any Lender may
reasonably request, in form satisfactory to Requisite Lenders, to perfect and
continue perfected Servicing Agent's security interests in the Collateral and
in order to fully consummate all of the transactions contemplated under the
Loan Documents.
4.3 Right to Inspect. Upon the occurrence and during the
continuance of an Event of Default, any Lender (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's
Books and to make copies thereof and to check, test, and appraise the
Collateral in order to verify Borrower's financial condition or the amount,
condition of, or any other matter relating to, the Collateral.
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<PAGE> 25
4.4 Single Loan. All of the Obligations of Borrower to Servicing
Agent or Lenders arising under or in connection with this Agreement, or any of
the Loan Documents, shall constitute one general obligation of Borrower and
shall be secured by all of the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws
of its state of incorporation and qualified and licensed to do business in, and
is in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified, except for states as to
which failure to so qualify would not have a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or By-laws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens, except for Permitted Liens.
Except as disclosed in the Schedule, Borrower has not acquired any part of the
Collateral from an assignor outside the ordinary course of such assignor's
business.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona
fide existing obligations. The service or property giving rise to such
Eligible Accounts has been performed or delivered to the account debtor or to
the account debtor's agent for immediate shipment to and unconditional
acceptance by the account debtor. Borrower has not received notice of actual
or imminent Insolvency Proceeding of any account debtor whose accounts are
included in any Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as disclosed
in the Schedule, Borrower has not done business and will not without at least
thirty (30) days prior written notice to Servicing Agent do business under any
name other than that specified on the signature page hereof or in the Schedule.
The chief executive office of Borrower is located at the address indicated in
Section 10 hereof.
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5.7 Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision could result in damages or costs to Borrower of One
Million and No/100 Dollars ($1,000,000.00) or more or have a Material Adverse
Effect.
5.8 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Servicing Agent or any Lender fairly present
in all material respects Borrower's consolidated financial condition as of the
date thereof and Borrower's consolidated results of operations for the period
then ended. There has not been a material adverse change in the consolidated
financial condition of Borrower since the date of the most recent of such
financial statements submitted to Lenders or Servicing Agent on or about the
Closing Date.
5.9 Solvency. Borrower is solvent and able to pay its debts
(including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met
the minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower's
failure to comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could have a Material Adverse Effect. Borrower is
not an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940. Borrower is
not engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulations G, T and U of the Board of Governors of the
Federal Reserve System). Borrower has complied with all the provisions of the
Federal Fair Labor Standards Act, the noncompliance with which would cause a
Material Adverse Effect. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien, resulting in a Material Adverse
Effect, arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the release, or other
disposition of hazardous waste or hazardous substances into the environment.
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5.12 Taxes. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed on a timely basis except where
failure to do so would not reasonably be expected to result in a Material
Adverse Effect, and has paid, or has made adequate provision for the payment
of, all taxes reflected therein in accordance with GAAP.
5.13 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 Government Consents. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations
or filings with, and given all notices to, all governmental authorities that
are necessary for the continued operation of Borrower's business as currently
conducted, the failure of which to obtain would have a Material Adverse Effect
on Borrower's financial condition, operations or business.
5.15 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Servicing Agent or any Lender contains any untrue statement of a fact or omits
to state a fact necessary in order to make the statements contained in such
certificates or statements not misleading, except which would not result in a
Material Adverse Effect.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Lenders may have any Commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain in force, to the
extent consistent with prudent management of Borrower's business, all licenses,
approvals and agreements, the loss of which could have a Material Adverse
Effect. Notwithstanding the foregoing, (a) Borrower may dissolve a Subsidiary
so long as the assets of the Subsidiary remain with Borrower or a wholly-owned
Subsidiary of Borrower; and (b) any wholly-owned Subsidiary of Borrower may
merge or consolidate with another wholly-owned Subsidiary of Borrower; and (c)
any wholly-owned Subsidiary of Borrower may merge or consolidate with Borrower
so long as Borrower is the surviving corporation.
6.2 Government Compliance. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA. Borrower shall comply, and
shall cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect.
6.3 Financial Statements, Reports, Certificates. Borrower shall
deliver to Servicing Agent and the Lenders: (a) as soon as available, but in
any event within forty-five (45) days after the end of each of the first three
fiscal quarters of Borrower, a company prepared consolidated balance sheet and
income statement covering Borrower's consolidated operations during such
period, in a form and certified by an officer of Borrower reasonably acceptable
to Servicing Agent and Requisite Lenders; (b) as soon as available, but in any
event within ninety (90) days after the end of Borrower's fiscal year, audited
consolidated financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to
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Servicing Agent and Requisite Lenders; (c) within five (5) days of filing,
copies of all statements, reports and notices sent or made available generally
by Borrower to its security holders or to any holders of Subordinated Debt and
all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission; (d) immediately upon receipt of notice thereof, a report of any
legal actions pending or threatened against Borrower or any Subsidiary that
could reasonably be expected to result in damages or costs to Borrower or any
Subsidiary of One Million and No/100 Dollars ($1,000,000.00) or more; and (e)
such budgets, sales projections, operating plans or other financial information
as Servicing Agent or Requisite Lenders may reasonably request from time to
time.
If at any time the outstanding Credit Extensions are greater than
Seven Million Five Hundred Thousand and No/100 Dollars ($7,500,000.00), then
within twenty (20) days after the last day of each such month, Borrower shall
deliver to Servicing Agent and Requisite Lenders a Borrowing Base Certificate
signed by a Responsible Officer in substantially the form of Exhibit C hereto,
together with aged listings of accounts receivable and accounts payable.
Within forty-five (45) days after the last day of each of the first
three fiscal quarters of Borrower, Borrower shall deliver to Servicing Agent
and Requisite Lenders with the quarterly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of
Exhibit D hereto.
The Requisite Lenders by and through their appointed examiner, shall
have a right to audit Borrower's Accounts. Such audits shall be at Borrower's
expense and may be conducted not more often than once every twelve months if
Advances under the Committed Revolving Line have exceeded Seven Million Five
Hundred Thousand and No/100 Dollars ($7,500,000.00). Provided further, such
audits shall be at Borrower's expense and may be conducted at any time if an
Event of Default has occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good
and marketable condition, free from all material defects other than those which
would not result in a Material Adverse Effect or for which adequate reserves
have been provided for in accordance with GAAP. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower so long as in
accordance with GAAP. Borrower shall promptly notify Servicing Agent of all
returns and recoveries and of all disputes and claims, where the return,
recovery, dispute or claim involves more than One Million and No/100 Dollars
($1,000,000.00).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary
to make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Servicing Agent, on demand if an Event of Default has
occurred and is continuing, appropriate certificates attesting to the payment
or deposit thereof (provided that Borrower shall confirm such payment in
connection with any compliance certificates regularly submitted hereunder); and
Borrower will make, and
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will cause each Subsidiary to make, timely payment or deposit of all material
tax payments and withholding taxes required of it by applicable laws,
including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon request
if an Event of Default has occurred and is continuing, furnish Servicing Agent
with proof satisfactory to Servicing Agent and Lenders indicating that Borrower
or a Subsidiary has made such payments or deposits; provided that Borrower or a
Subsidiary need not make any payment if the amount or validity of such payment
does not result in a Material Adverse Effect or is (i) contested in good faith
by appropriate proceedings and (ii) is reserved against (to the extent required
by GAAP) by Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Servicing
Agent and Requisite Lenders. All such policies of insurance shall contain a
lenders loss payable endorsement, in a form satisfactory to Servicing Agent and
Requisite Lenders, showing Servicing Agent as an additional loss payee thereof
and all liability insurance policies shall specify that the insurer must give
at least fifteen (15) days notice to Servicing Agent before canceling its
policy for any reason. At Servicing Agent's request, Borrower shall deliver
to Servicing Agent certified copies of such policies of insurance and evidence
of the payments of all premiums therefor. All proceeds payable under any such
policy shall, at the option of Servicing Agent, be payable to Servicing Agent
to be applied on account of the Obligations, unless the proceeds are payable
for any damage or loss other than to Inventory.
6.7 Quick Ratio. Borrower shall maintain, as of the last day of
each fiscal quarter, a ratio of Quick Assets to Current Liabilities less
deferred maintenance revenue of at least 1.50 to 1.0.
6.8 Debt-Tangible Net Worth Ratio. Borrower shall maintain, as of
the last day of each fiscal quarter, a ratio of Total Liabilities less deferred
maintenance revenue to Tangible Net Worth plus Subordinated Debt of not more
than 1.0 to 1.0.
6.9 Tangible Net Worth. Borrower shall maintain, as of the last
day of each fiscal quarter, a Tangible Net Worth of not less than Fifty-Six
Million One Hundred Eighty-Eight Thousand and No/100 Dollars ($56,188,000.00),
plus fifty percent (50%) of all year-to-date Net Income (without regard to net
losses).
6.10 Profitability. Borrower shall have a positive Net Income as
of the last day of each fiscal quarter for the first four fiscal quarters after
the date of this Agreement; provided, Borrower may have an aggregate loss of up
to Four Million and No/100 Dollars ($4,000,000.00)
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during such four fiscal quarter period so long as Borrower does not have a loss
for two consecutive quarters. For the fifth through eighth fiscal quarters
after the date hereof, Borrower may have a quarterly loss so long as such loss
does not exceed the following amounts for the corresponding quarter:
<TABLE>
<CAPTION>
Quarter Ending Maximum Quarterly Loss
-------------- ----------------------
<S> <C>
January 31, 1999 $ 2,000,000.00
April 30, 1999 $ 1,500,000.00
July 31, 1999 $ 500,000.00
October 31, 1999 $ 1.00
</TABLE>
6.11 Debt-Service Coverage. The covenant set forth in this Section
6.11 shall apply only if Borrower elects to convert the Advances into a Term
Loan pursuant to Section 2.1.4. As of the last day of the first fiscal quarter
immediately succeeding the Revolving Maturity Date and continuing on the last
day of each succeeding fiscal quarter through the Term Loan Maturity Date,
Borrower shall have a Debt Service Coverage Ratio of no less than 1.50 to 1.0;
provided, and notwithstanding anything herein to the contrary, (i) for the
first fiscal quarter after the Revolving Maturity Date, Debt Service Coverage
shall be based on Borrower's Net Income plus the aggregate amount which was
deducted for such period in respect of interest, depreciation and amortization,
on an annualized basis for the preceding six month period, (ii) for the second
fiscal quarter after the Revolving Maturity Date, Debt Service Coverage shall
be based on Borrower's Net Income plus the aggregate amount which was deducted
for such period in respect of interest, depreciation, and amortization, on an
annualized basis for the preceding nine month period and (iii) for the third
calendar quarter after the Revolving Maturity Date and each successive fiscal
quarter through the Term Loan Maturity Date, Debt Service Coverage shall be
based on Borrower's Net Income plus the aggregate amount which was deducted for
such period in respect of interest, depreciation and amortization, on an
annualized basis for the preceding twelve month period.
6.12 Further Assurances. At any time and from time to time,
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Servicing Agent or Requisite
Lenders to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Lenders may have any commitment to make any
Credit Extensions, Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than Transfers:
(i) of inventory in the ordinary course of business, (ii) of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or
its Subsidiaries in the ordinary course of business; (iii) that constitute
payment of normal and usual operating expenses in the ordinary course of
business; or (iv) of worn-out or obsolete Equipment; or (v) to RBC of Accounts
with respect to which the account debtor does not have its principal place of
business in the United States.
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7.2 Changes in Business, Ownership, Management, or Chief
Executive Office. Engage in any business, or permit any of its Subsidiaries to
engage in any business, other than the businesses currently engaged in by
Borrower and any business substantially similar or related thereto (or
incidental thereto). Borrower will not, without at least thirty (30) days
prior written notification to Servicing Agent, relocate its chief executive
office or add or relocate any business location where Borrower maintains
Inventory with a value equal to or greater than Two Million Five Hundred
Thousand and No/100 Dollars (2,500,000.00)
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any
of its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person if (i) an
Event of Default has occurred and is continuing or would exist after giving
effect to such action or (ii) in connection with such action and if such action
is consummated prior to December 4, 1998, the total of Indebtedness incurred by
Borrower and cash paid by Borrower in connection therewith totals more than
Five Million and No/100 Dollars ($5,000,000.00) or (iii) in connection with
such action and if such action is consummated prior to December 4, 1999, the
total of Indebtedness incurred by Borrower and cash paid by Borrower in
connection therewith totals more than an amount equal to ten percent (10%) of
Borrower's then Tangible Net Worth as of the date of the consummation of such
action.
7.4 Indebtedness. Subject to Section 7.3, create, incur, assume or
be or remain liable with respect to any Indebtedness, or permit any Subsidiary
so to do, other than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any
Lien with respect to any of the Collateral, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock of Borrower in excess of Six Million and No/100 Dollars
($6,000,000.00) in any fiscal year.
7.7 Investments. Directly or indirectly acquire or own, or make
any Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter
into or permit to exist any material transaction (exclusive of any employment
arrangements with the officers of Borrower and exclusive of any of Borrower's
benefit or compensation programs for officers and directors) with any Affiliate
of Borrower except for transactions that are in the ordinary course of
Borrower's business, upon fair and reasonable terms that are no less favorable
to Borrower than would be obtained in an arm's length transaction with a
nonaffiliated Person.
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7.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except to the extent such payment is allowed under any Subordination Agreement
entered into with Servicing Agent and Lenders of such Subordinated Debt, or
amend any provision contained in any documentation relating to the Subordinated
Debt if such amendment would adversely affect the interests of Lenders.
7.10 Inventory. Store the Inventory with a bailee, warehouseman,
or similar party unless Servicing Agent has received a pledge of any warehouse
receipt covering such Inventory. Except for Inventory sold in the ordinary
course of business and except for such other locations as Servicing Agent may
approve in writing, Borrower shall keep the Inventory only at the locations set
forth in the Schedule and such other locations of which Borrower gives
Servicing Agent prior written notice and as to which Borrower signs and files a
financing statement where needed to perfect Servicing Agent's security
interest.
7.11 Compliance. Become an "investment company" or a company
controlled by an "investment company", within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for
such purpose; fail to meet the minimum funding requirements of ERISA; permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Servicing Agent's Lien on
the Collateral; or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, within five (5)
calendar days of when due, any of the Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Sections
6.3, 6.6, 6.7, 6.8, 6.9, 6.10 or 6.11 violates any of the covenants contained
in Article 7 of this Agreement; provided however, Borrower shall have the
following specific grace periods: (i) with respect to Form 10-Q reports to be
provided under Section 6.3 above, five (5) days grace, (ii) with respect to
Form 10-K reports to be provided under Section 6.3 above, fifteen (15) days
grace, and (iii) with respect to proof of insurance or insurance policies
required to be provided under Section 6.6 above, fifteen (15) days grace, or
(b) If Borrower fails or neglects to perform, keep, or observe any
other material term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower, Lenders and Servicing Agent related to this
Agreement and as to any default under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure such default within
thirty (30) days after the occurrence thereof (provided that no Credit
Extensions will be required to be made during such cure period).
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8.3 Material Adverse Change. If there (i) occurs a Material
Adverse Effect, or (ii) is a material impairment of the value or priority of
Servicing Agent's security interest in the Collateral.
8.4 Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any trustee, receiver or person acting in a
similar capacity and such attachment, seizure, writ or distress warrant or levy
has not been removed, discharged or rescinded within thirty (30) days, or if
Borrower is enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs, or if a
judgment or other claim becomes a lien or encumbrance upon any material portion
of Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, and the same is not paid
within thirty (30) days after Borrower receives notice thereof, provided that
none of the foregoing shall constitute an Event of Default where such action or
event is stayed or an adequate bond has been posted pending a good faith
contest by Borrower (provided that no Credit Extensions will be required to be
made during such cure period).
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8.5 Insolvency. If an Insolvency Proceeding is commenced by
Borrower or if an Insolvency Proceeding is commenced against Borrower (in
either case, an "Insolvency Default") and such Insolvency Proceeding commenced
against Borrower is not dismissed or stayed within forty-five (45) days
(provided that no Advances or Credit Extensions will be made prior to the
dismissal of such Insolvency Proceeding).
8.6 Other Agreements. If there is a default in any agreement to
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of Five Million and No/100
Dollars ($5,000,000.00) or that could have a Material Adverse Effect.
8.7 Subordinated Debt. Borrower or any Subsidiary makes any
payment in respect of Subordinated Debt, except as permitted by Section 7.9
above.
8.8 Judgments. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least Eight Million
and No/100 Dollars ($8,000,000.00) shall be rendered against Borrower and shall
remain unsatisfied and unstayed for a period of thirty (30) days (provided that
no Credit Extensions will be made prior to the satisfaction or stay of such
judgment).
8.9 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty, representation,
statement or report set forth herein or made to Servicing Agent or any Lender
by Borrower or any officer or director of Borrower pursuant to this Agreement.
9. SERVICING AGENT'S AND LENDERS' RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Servicing Agent may, at its election, or
shall, upon request of the Requisite Lenders, without notice of its election
and without demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5 all Obligations shall become immediately due and payable without any action
by Servicing Agent or Lenders);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
or among Borrower or Servicing Agent or any Lender;
(c) With the continuation of an Event of Default for sixty (60)
days or more, settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Servicing Agent, on
behalf of the Requisite Lenders, reasonably considers advisable;
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(d) Without notice to or demand upon Borrower, make such payments
and do such acts as Servicing Agent or Requisite Lenders consider necessary or
reasonable to protect Servicing Agent's security interest in the Collateral.
Borrower agrees to assemble the Collateral if Servicing Agent, on behalf of the
Requisite Lenders so requires, and to make the Collateral available to
Servicing Agent or Requisite Lenders as Servicing Agent or Requisite Lenders
may designate. Borrower authorizes Servicing Agent, on behalf of each Lender,
to enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or lien which in Requisite Lenders'
determination appears to be prior or superior to its security interest and to
pay all expenses incurred in connection therewith. With respect to any of
Borrower's premises, Borrower hereby grants Servicing Agent, on behalf of and
for the benefit of Lenders, a license to enter such premises and to occupy the
same, without charge for up to one hundred twenty (120) days in order to
exercise any of Lenders' rights or remedies provided herein, at law, in equity
or otherwise, provided if Lenders cannot, after diligent attempts, enter and
occupy such premises within the foregoing 120 day period, Lenders shall have
such an additional reasonable period of time to do the same;
(e) Without notice to Borrower, set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by any
Lender or Servicing Agent, or (ii) indebtedness at any time owing to or for the
credit or the account of Borrower held by any Lender or Servicing Agent;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Servicing Agent is hereby granted a non-exclusive,
royalty-free license or other right, solely pursuant to the provisions of this
Section 9.1, to use, without charge, Borrower's labels, patents, copyrights,
mask works, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and, in connection with Servicing Agent's
exercise of its rights under this Section 9.1, Borrower's rights under all
licenses and all franchise agreements shall inure to Servicing Agent's benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Servicing
Agent determines is commercially reasonable, and apply the proceeds thereof to
the Obligations in whatever manner or order it deems appropriate;
(h) Servicing Agent or any Lender may credit bid and purchase at
any public sale, or at any private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the Collateral
as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and
during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Servicing Agent on behalf of and for the benefit of Lenders (and any
of Servicing Agent's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Servicing Agent's security interest in the Accounts;
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(b) endorse Borrower's name on any checks or other forms of payment or security
that may come into Servicing Agent's or Lenders' possession relating to the
Collateral or any part thereof; (c) sign Borrower's name on any invoice or bill
of lading relating to any Account, drafts against account debtors, schedules
and assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance relating to the Collateral or any
part thereof; (e) settle and adjust disputes and claims respecting the Accounts
directly with account debtors, for amounts and upon terms which Servicing Agent
or Lenders determines to be reasonable; and (f) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; and provided Servicing Agent may exercise such power of
attorney to sign the name of Borrower on any of the documents described in
Section 4.2 regardless of whether an Event of Default has occurred. The
appointment of Servicing Agent as Borrower's attorney in fact, and each and
every one of Servicing Agent's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully repaid
and performed and Lenders' obligation to provide Credit Extensions hereunder is
terminated.
9.3 Accounts Collection. Upon the occurrence and during the
continuance of an Event of Default, Servicing Agent may notify any Person owing
funds to Borrower of Servicing Agent's security interest in such funds and
verify the amount of such Account. Borrower shall collect all amounts owing to
Borrower on behalf of Servicing Agent, receive in trust all payments as
Servicing Agent's and Lenders' trustee, and if requested or required by
Servicing Agent, or Requisite Lenders, immediately deliver such payments to
Servicing Agent in their original form as received from the account debtor,
with proper endorsements for deposit.
9.4 Lenders' Expenses. If Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Servicing Agent or the
Requisite Lenders may do any or all of the following: (a) make payment of the
same or any part thereof; (b) set up such reserves under the Committed
Revolving Line as Servicing Agent or the Requisite Lenders deems necessary to
protect Lenders from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type discussed in Section 6.6 of this
Agreement, and take any action with respect to such policies as the Requisite
Lenders deem prudent. Any amounts so paid or deposited by Servicing Agent or
the Requisite Lenders shall constitute Lenders' Expenses, shall be immediately
due and payable, and shall bear interest at the then applicable rate
hereinabove provided, and shall be secured by the Collateral. Any payments
made by any Lender or Servicing Agent shall not constitute an agreement by such
Lender or Servicing Agent to make similar payments in the future or a waiver by
such Lender or Servicing Agent of any Event of Default under this Agreement.
9.5 Lenders' Liability for Collateral. So long as Lenders comply
with reasonable banking practices, neither Lender shall in any way or manner be
liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss
or damage thereto occurring or arising in any manner or fashion from any cause;
(c) any diminution in the value thereof; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other person whomsoever
other than such losses, costs, expenses or liabilities based upon or arising
out of the gross negligence or willful misconduct of the Servicing Agent or
such Lender. All risk of loss, damage or destruction of the Collateral shall
be borne by Borrower.
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9.6 Remedies Cumulative. Lenders' rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Lenders shall have all other rights and remedies, not expressly set forth
herein, and as provided under the Code, by law, or in equity. No exercise by
Lenders of one right or remedy shall be deemed an election, and no waiver by
Lenders of any Event of Default on Borrower's part shall be deemed a continuing
waiver. No delay by Lenders shall constitute a waiver, election, or
acquiescence by it. No waiver by Lenders shall be effective unless made in a
written document signed on behalf of Lenders and Servicing Agent and then shall
be effective only in the specific instance and for the specific purpose for
which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, notice of intent to accelerate, notice of acceleration,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Lenders or Servicing Agent on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements
and other informational documents which may be sent by first-class mail,
postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by facsimile to Borrower or Lenders or Servicing Agent, as the
case may be, at its addresses set forth below:
If to Borrower: VTEL Corporation
108 Wild Basin Road
Austin, Texas 78746
Attn: Dianne Johnson,
Assistant Treasurer
Fax: 512/314-2862
If to Servicing Agent: Silicon Valley Bank
9442 Capital of Texas Highway North,
Suite 130
Austin, Texas 78759
Attn: Mr. J. Doug Mangum,
Senior Vice President
Fax: 512/343-4344
If to SVB: Silicon Valley Bank
9442 Capital of Texas Highway North,
Suite 130
Austin, Texas 78759
Attn: Mr. J. Doug Mangum,
Senior Vice President
Fax: 512/343-4344
If to TCB: Texas Commerce Bank National Association
700 Lavaca
Austin, Texas 78701
Attn: Mr. Ralph T. Beasley,
Vice President
Fax: 512/479-2211
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The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. NOTICES TO ONE LENDER SHALL NOT BE DEEMED NOTICE TO ANY OTHER LENDER.
11. CHOICE OF LAW AND VENUE
THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW AS IF PERFORMED ENTIRELY WITHIN THE STATE OF TEXAS BY TEXAS
RESIDENTS. EACH OF BORROWER, SERVICING AGENT AND LENDERS HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF
TRAVIS, STATE OF TEXAS.
12. Participation
12.1 Participation Interest. Any Lender may at any time sell to
one or more commercial banks or other Persons not Affiliates of Borrower
("Participant") participating interests in any Credit Extensions, the
Commitment of such Lender and the other interests of such Lender ("Original
Lender") hereunder and under the other Loan Documents; provided, however, that
(i) the Original Lender's obligations under this Agreement shall remain
unchanged, (ii) the Original Lender shall remain solely responsible for the
performance of such obligations, (iii) Borrower shall continue to deal solely
and directly with the Original Lender in connection with the Original Lender's
rights and obligations under the Agreement and the other Loan Documents, and
(iv) no Lender shall transfer or grant any participating interest under which
the Participant shall have rights to approve any amendment to, or any consent
or waiver with respect to, this Agreement or any other Loan Document.
12.2 No Obligation. Neither Lender shall have any obligation,
implied or express, to assign, delegate, sell, offer to sell, purchase, offer
to purchase or otherwise transfer in any way to any other party hereunder or
any third party any participating interest hereunder or any or all of the
Advances, the Commitments or the other rights and obligations of such Lender
hereunder.
13. THE SERVICING AGENT
13.1 Appointment, Powers and Immunities.
13.1.1 Each Lender hereby appoints SVB as Servicing Agent
hereunder and under the other Loan Documents and each Lender hereby irrevocably
authorizes Servicing Agent to act hereunder and thereunder as Servicing Agent
of such Lender. Servicing Agent agrees to act as such upon the express
conditions contained in this Section 13. In performing its functions and
duties under this Agreement and under the other Loan Documents, Servicing Agent
shall act solely as Servicing Agent of Lenders and does not assume and shall
not be deemed to have assumed any obligation towards or relationship of agency
or trust with or for Borrower.
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13.1.2 Each Lender irrevocably authorizes Servicing Agent to
take such actions on such Lender's behalf and to exercise such powers hereunder
as are specifically delegated to Servicing Agent by the terms hereof, together
with such powers as are reasonably incidental thereto. Servicing Agent shall
have only those duties which are specified in this Agreement and it may perform
such duties by or through its agents, representatives or employees. In
performing its duties hereunder on behalf of Lenders, Servicing Agent shall
exercise the same care which it would exercise in dealing with loans made for
its own account, but it shall not be responsible to any Lender for the
execution, effectiveness, genuineness, validity, enforceability, collectability
or sufficiency of all or any of the Loan Documents, or for any representations,
warranties, recitals or statements made herein or therein or made in any
written or oral statement or in any financial or other statements, instruments,
reports, certificates or any other documents furnished or delivered in
connection herewith or therewith by Servicing Agent to any Lender or by or on
behalf of Borrower to Servicing Agent or any Lender, or be required to
ascertain or inquire as to the performance or observances of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Advances of amounts drawn under the
Letters of Credit. Servicing Agent shall not be responsible for insuring the
Collateral or for the payment of any taxes, assessments, charges or any other
charges or liens of any nature whatsoever upon the Collateral or otherwise for
the maintenance of the Collateral, except in the event Servicing Agent enters
into possession of a part or all of the Collateral, in which event Servicing
Agent shall preserve the part in its possession. Unless the officers of
Servicing Agent acting in their capacity as officers of Servicing Agent on
Borrower's account have actual knowledge thereof or have been notified in
writing thereof by Lenders, Servicing Agent shall not be required to ascertain
or inquire as to the existence or possible existence of any Event of Default.
Neither Servicing Agent nor any of its officers, directors, employees,
representatives or agents shall be liable to Lenders for any action taken or
omitted hereunder or under any of the other Loan Documents or in connection
herewith or therewith unless caused by its or their gross negligence or willful
misconduct. No provision of this Agreement or of any other Loan Document shall
be deemed to impose any duty or obligation on Servicing Agent to perform any
act or to exercise any power in any jurisdiction in which it shall be illegal,
or shall be deemed to impose any duty or obligation on Servicing Agent to
perform any act or exercise any right or power if such performance or exercise
(i) would subject Servicing Agent to a tax in a jurisdiction where it is not
then subject to a tax or (ii) would require Servicing Agent to qualify to do
business in any jurisdiction where it presently is not so qualified. Without
prejudice to the generality of the foregoing, no Lender shall have any right of
action whatsoever against Servicing Agent as a result of Servicing Agent acting
or (where so instructed) refraining from acting under this Agreement or under
any of the other Loan Documents in accordance with the instructions of Lenders.
Servicing Agent shall be entitled to refrain from exercising any power,
discretion or authority vested in it under this Agreement unless and until it
has obtained written instructions of Requisite Lenders. The agency hereby
created shall in no way impair or affect any of the rights and powers of, or
impose any duties or obligations upon Servicing Agent in its individual
capacity.
13.2 Representations and Warranties: No Responsibility for
Inspection. Each Lender represents and warrants that it has made its own
independent investigation of the financial condition and affairs of Borrower in
connection with the making of the Advances and issuance of the Letters of
Credit hereunder and has made and shall continue to make its own appraisal of
the creditworthiness of Borrower. Servicing Agent shall have no duty or
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responsibility either initially or on a continuing basis to make any such
investigation or any such appraisal on behalf of Lenders or to provide any
Lender with any credit or other information (other than information obtained
under the provisions of this Agreement which Servicing Agent shall make
available to each Lender upon request by such Lender) with respect thereto
whether coming into its possession before the date hereof or any times or times
thereafter and shall further have no responsibility with respect to the
accuracy of or the completeness of the information provided to Lenders. With
respect to its participation in the Advances and the Letters of Credit
hereunder, Servicing Agent shall have the same rights and powers hereunder as
any other Lender and may exercise the same rights and powers as though it were
not performing the duties and functions delegated to it hereunder and the term
"Lender" or "Lenders" or any similar term shall unless the context clearly
indicates otherwise include Servicing Agent in its individual capacity.
Servicing Agent and each of its affiliates may accept deposits from, lend money
to and generally engage in any kind of business with Borrower as if it were not
Servicing Agent.
13.3 Reliance by Servicing Agent.
13.3.1 Servicing Agent may consult, and any opinion or legal
advice of such counsel who are not employees of Servicing Agent or Borrower or
any Affiliate of Borrower shall be full and complete authorization and
protection in respect of any action taken or suffered by Servicing Agent
hereunder or under any other Loan Documents in accordance therewith. Servicing
Agent shall have the right at any time to seek instructions concerning the
administration of the Collateral from any court of competent jurisdiction.
13.3.2 Servicing Agent may rely, and shall be fully
protected in acting, upon any resolution, statement, certificate, instrument,
opinion, report, notice, request, consent, order, bond or other paper or
document that it has no reason to believe to be other than genuine and to have
been signed or presented by the proper party or parties or, in the case of
cables, telecopies and telexes, to have been sent by the proper party or
parties. In the absence of its gross negligence or willful misconduct,
Servicing Agent may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any certificates or
opinions furnished to Servicing Agent and conforming to the requirements of
this Agreement or any of the other Loan Documents.
13.3.3 Servicing Agent shall not be under any obligation to
exercise any of the rights or powers granted to Servicing Agent by this
Agreement and the other Loan Documents at the request or direction of Lenders
unless Servicing Agent shall have been provided by Lenders adequate security
and indemnity against the costs, expenses and liabilities that may be incurred
by it in compliance with such request or direction.
13.4 Delegation of Duties. Servicing Agent may execute any of
the powers hereof and perform any duty hereunder either directly or by or
through its agents or attorneys-in-fact. Servicing Agent shall be entitled to
advice of counsel concerning all matters pertaining to such powers and duties.
Servicing Agent shall not be responsible for the negligence or misconduct of
any agents or attorneys-in-fact selected by it without gross negligence or
willful misconduct on the part of Servicing Agent.
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13.5 Right to Indemnity. EACH OF LENDERS SEVERALLY, BUT NOT
JOINTLY, AGREES (A) TO INDEMNIFY AND HOLD SERVICING AGENT (AND ANY PERSON
ACTING ON BEHALF OF SERVICING AGENT) HARMLESS FROM AND AGAINST AND (B) PROMPTLY
ON RECEIPT BY EACH LENDER OF SERVICING AGENT'S STATEMENT, TO REIMBURSE
SERVICING AGENT, ACCORDING TO SUCH LENDER'S PRO RATA SHARE OF THE AGGREGATE
COMMITMENTS, TO THE EXTENT SERVICING AGENT SHALL NOT OTHERWISE HAVE BEEN
REIMBURSED BY BORROWER ON ACCOUNT OF AND FOR, ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES (INCLUDING, WITHOUT LIMITATION, THE FEES AND DISBURSEMENTS OF COUNSEL
AND OTHER ADVISORS) OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WITH
RESPECT TO SERVICING AGENT'S PERFORMANCE OF ITS DUTIES UNDER THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS; PROVIDED, HOWEVER, THAT NO LENDER SHALL BE LIABLE FOR
THE PAYMENT TO SERVICING AGENT OF ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR
DISBURSEMENTS RESULTING SOLELY FROM SERVICING AGENT'S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT. SUCH REIMBURSEMENT SHALL NOT IN ANY RESPECT RELEASE
BORROWER FROM ANY LIABILITY OR OBLIGATION. IN ANY INDEMNITY FURNISHED TO
SERVICING AGENT FOR ANY PURPOSE SHALL, IN THE OPINION OF SERVICING AGENT, BE
INSUFFICIENT OR BECOME IMPAIRED, SERVICING AGENT MAY CALL FOR ADDITIONAL
INDEMNITY AND CEASE, OR NOT COMMENCE, TO DO THE ACTS INDEMNIFIED AGAINST UNTIL
SUCH ADDITIONAL INDEMNITY IS FURNISHED.
13.6 Resignation and Appointment of Successor Servicing Agent.
Servicing Agent may resign at any time by giving thirty (30) days prior written
notice thereof to Lenders and Borrower: provided, however, that the retiring
Servicing Agent shall continue to serve until a successor Servicing Agent shall
have been selected and approved pursuant to this Section 13.6. Upon any such
notice, Servicing Agent shall have the right to appoint a successor Servicing
Agent; provided, however, that if such successor shall not be a signatory to
this Agreement, such appointment shall be subject to the consent of Requisite
Lenders. At any time other than during the existence of an Event of Default,
in each case, such appointment shall be subject to the prior consent of
Borrower. Upon the acceptance of any appointment as an Servicing Agent
hereunder by a successor Servicing Agent, such successor Servicing Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Servicing Agent, and the retiring Servicing Agent
shall be discharged from its duties and obligations under this Agreement.
After any retiring Servicing Agent's resignation hereunder as Servicing Agent,
the provisions of this Section 13 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Servicing Agent under this
Agreement.
13.7 Conflicts. SVB and its affiliates may accept deposits from,
lend money to, act as trustee under indentures of, act as merchant banker in
any transaction for, and generally engage in any kind of business with,
Borrower and any person who may do business with or own securities of Borrower,
all as if SVB were not Servicing Agent and without any duty to account therefor
to Lenders or to disclose to Lenders confidential information which SVB may
receive from Borrower in connection with such other activity or business.
13.8 No Obligations of Borrower. Nothing contained in this Section
13 shall be deemed to impose upon Borrower any obligation in respect of the due
and punctual performance by Servicing Agent of its obligations to Lenders under
any provision of this Agreement, and Borrower shall have no liability to
Servicing Agent or any Lender in respect of
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any failure by Servicing Agent or any Lender to perform any of their respective
obligations to each other under this Agreement. Without limiting the
generality of the foregoing sentence, where any provision of this Agreement
relating to the payment of any amounts due and owing under the Loan Documents
provides that such payments shall be made by Borrower to Servicing Agent for
the account of Lenders, Borrower's obligations to Lenders in respect of such
payments shall be deemed to be satisfied upon the making of such payments to
Servicing Agent in the manner provided by this Agreement.
13.9 Amendments in Writing; Integration. This Agreement cannot be
amended or terminated nor may any provision be waived except by a writing
signed by the Requisite Lenders, Servicing Agent and Borrower. Any such
waiver shall be effective only in the specific instance and for the specific
purpose for which given. Notwithstanding the foregoing, no waiver, amendment
or consent shall, unless in writing and signed by all Lenders, Servicing Agent
and Borrower, do any of the following:
13.9.1 increase or extend the Commitment of any Lender (or
reinstate any Commitment terminated pursuant to this Agreement) or subject any
Lender to any additional obligations;
13.9.2 postpone or delay any date fixed for any payment of
principal, interest, fees or other amounts due to the Lenders (or any of them)
hereunder or under any Loan Document;
13.9.3 reduce the principal of, or the rate of interest
specified herein on any Loan, or of any fees or other amounts payable hereunder
or under any Loan Document;
13.9.4 change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Advances which shall be required for
the Lenders or any of them to take any action hereunder;
13.9.5 amend the definition of Borrowing Base or Eligible
Accounts;
13.9.6 amend this Section 13.9 or any other provision herein
requiring the consent or other action of all Lenders; or
13.9.7 discharge any Guarantor of the Obligations, or release
all or substantially all of any Collateral for the Obligations except as
otherwise may be provided in the Loan Documents or except where the consent of
the Requisite Lenders only is specifically provided for;
and, provided, further, that no amendment, waiver or consent shall, unless in
writing and signed by Servicing Agent in addition to the Requisite Lenders, as
the case may be, affect the rights or duties of Servicing Agent under this
Agreement or any other Loan Document.
As between Borrower, on the one hand, the Lenders and Servicing Agent
on the other hand, all prior agreements, understandings, representations,
warranties, and negotiations between the parties hereto with respect to the
subject matter of this Agreement, if any, are merged into this Agreement and
the Loan Documents.
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14. GENERAL PROVISIONS
14.1 Successors and Assigns. This Agreement shall bind and inure
to the benefit of the respective successors and permitted assigns of each of
the parties; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by Borrower without each Lender's prior written
consent, which consent may be granted or withheld in Lender's sole discretion.
14.2 INDEMNIFICATION. BORROWER SHALL, INDEMNIFY, DEFEND, PROTECT
AND HOLD HARMLESS SERVICING AGENT AND EACH LENDER AND EACH'S RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS AGAINST: (A) ALL OBLIGATIONS,
DEMANDS, CLAIMS, AND LIABILITIES CLAIMED OR ASSERTED BY ANY OTHER PARTY IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS; AND (B)
ALL LOSSES OR LENDER'S EXPENSES INCLUDING WITHOUT LIMITATION REASONABLE
ATTORNEYS' FEES AND EXPENSES, IN ANY WAY SUFFERED, INCURRED, OR PAID BY
SERVICING AGENT OR LENDER AS A RESULT OF OR IN ANY WAY ARISING OUT OF,
FOLLOWING, OR CONSEQUENTIAL TO TRANSACTIONS BY AND AMONG LENDERS, SERVICING
AGENT AND BORROWER WHETHER UNDER THE LOAN DOCUMENTS, OR OTHERWISE INCLUDING
LENDER'S OR SERVICING AGENT'S NEGLIGENCE BUT EXCLUDING LOSSES CAUSED BY
SERVICING AGENT OR LENDER'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
14.3 Time of Essence. Time is of the essence for the performance
of all obligations set forth in this Agreement.
14.4 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision. If any
term, provision, covenant, or condition of this Agreement is held by a court of
competent jurisdiction to be invalid, void, or unenforceable, the remainder of
the provisions shall remain in full force and effect and shall in no way be
affected, impaired, or invalidated and this Agreement shall be construed as if
such invalid, void or unenforceable provision had never been contained herein.
14.5 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
14.6 Survival. All covenants, representations and warranties made
in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify
Lenders and Servicing Agent with respect to the expenses, damages, losses,
costs and liabilities described in Section 14.2 shall survive until all
applicable statute of limitations periods with respect to actions that may be
brought against Lenders or Servicing Agent have run.
14.7 Confidentiality. In handling any confidential information of
Borrower, Servicing Agent and each Lender shall exercise the same degree of
care that it exercises with respect to its own proprietary information of the
same types to maintain the confidentiality of any non-public information
thereby received or received pursuant to this Agreement, except that
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disclosure of such information may be made (i) to the Subsidiaries or
Affiliates of Servicing Agent and each Lender in connection with their present
or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the loans, provided that they have
entered into a comparable confidentiality agreement in favor of Borrower and
have delivered a copy to Borrower, (iii) as required by law, regulation, rule
or order, subpoena, judicial order or similar order, (iv) as may be required
in connection with the examination, audit or similar investigation of Servicing
Agent or Lender, and (v) as Servicing Agent or Lender may deem appropriate in
connection with the exercise of any remedies hereunder. Confidential
information hereunder shall not include information that either: (a) is in the
public domain or in the knowledge or possession of Servicing Agent or Lender
when disclosed to Servicing Agent or Lender, provided Servicing Agent or Lender
does not have actual knowledge that such third party is prohibited from
disclosing such information, or becomes part of the public domain after
disclosure to Servicing Agent or Lender through no fault of Servicing Agent or
Lender; or (b) is disclosed to Servicing Agent or Lender by a third party,
provided Servicing Agent or Lender does not have actual knowledge that such
third party is prohibited from disclosing such information.
14.8 WAIVER OF JURY TRIAL. SERVICING AGENT, LENDERS AND BORROWER
EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH
PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
14.9 NOTICE OF FINAL AGREEMENT. THIS AGREEMENT AND THE LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
40
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
VTEL CORPORATION
By:
----------------------------------------
Rodney S. Bond, Chief Financial Officer
SILICON VALLEY BANK,
AS SERVICING AGENT AND AS A LENDER
By:
----------------------------------------
J. Douglas Mangum, Senior Vice President
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By:
----------------------------------------
Ralph T. Beasley, Vice President
<PAGE> 46
SCHEDULE TO VTEL LOAN AND SECURITY AGREEMENT
COMMITTED REVOLVING LINE:
<TABLE>
<CAPTION>
Lender Commitment Commitment Percentage
- ---------------------- --------------- ---------------------
<S> <C> <C>
Silicon Valley Bank $ 12,500,000.00 50%
Texas Commerce Bank $ 12,500,000.00 50%
National Association
</TABLE>
TERM LOAN:
<TABLE>
<CAPTION>
Lender Commitment Commitment Percentage
- ---------------------- --------------- ---------------------
<S> <C> <C>
Silicon Valley Bank $ 12,500,000.00 50%
Texas Commerce Bank $ 12,500,000.00 50%
National Association
</TABLE>
<PAGE> 47
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(b) All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor, as
well as all merchandise returned to or reclaimed by Borrower and Borrower's
Books relating to any of the foregoing; and
(c) Any and all claims, rights and interests in any of the above
and all substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not be deemed to
include any accounts with respect to which the account debtor does not have its
principal place of business in the United States.
<PAGE> 48
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 1:00 P.M., C.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
----------------
FAX#: (408) TIME:
---------------- ----------------
FROM: VTEL Corporation
------------------------
BORROWER'S NAME
FROM:
------------------------
AUTHORIZED SIGNER'S NAME
------------------------
AUTHORIZED SIGNATURE
PHONE:
------------------------
FROM ACCOUNT # TO ACCOUNT #
------------------------ ------------------------
<TABLE>
<CAPTION>
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
<S> <C>
PRINCIPAL INCREASE (ADVANCE) $
--------
PRINCIPAL PAYMENT (ONLY) $
--------
INTEREST PAYMENT (ONLY) $
--------
PRINCIPAL AND INTEREST (PAYMENT) $
--------
OTHER INSTRUCTIONS:
-------------
</TABLE>
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as
of the date of the telephone request for and Advance confirmed by this Advance
Request; provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date.
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment
transfer/loan advance on the advance designated account and is known to me.
--------------------
Authorized Requester
Authorized Signature (Bank)
Phone #
--------------------
<PAGE> 49
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: VTEL Corporation Lenders: Silicon Valley Bank
Texas Commerce Bank
National Association
Commitment Amount: $25,000,000.00
ACCOUNTS RECEIVABLE
<TABLE>
<S> <C>
. Accounts Receivable Book Value as of $
------------- -------------------
. Additions (please explain on reverse) $
-------------------
. TOTAL ACCOUNTS RECEIVABLE $
-------------------
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
. Amounts over 90 days due $
-------------------
. Balance of 50% over 90 day accounts $
-------------------
. Concentration Limits $
-------------------
. Foreign Accounts other than Eligible Foreign Accounts $
-------------------
. Governmental Accounts $
-------------------
. Offset or Disputed Accounts $
-------------------
. Consignment/Contra Accounts $
-------------------
. Intercompany/Employee Accounts $
-------------------
. Other (please explain on reverse) $
-------------------
. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
-------------------
. Eligible Accounts (#3 minus #13) $
-------------------
. LOAN VALUE OF ACCOUNTS (80% of #14) $
-------------------
BALANCES
. Maximum Loan Amount $ 25,000,000.00
-------------------
. Total Funds Available (Lesser of #16 or #15) $
-------------------
. Aggregate outstanding Advances $
-------------------
. Present balance owing on Letter of Credit not to
exceed $10,000,000.00 $
-------------------
. Foreign Exchange Reserve not to exceed $10,000,000.00 $
-------------------
. RESERVE POSITION (#17 minus (#18 plus #19 plus #20))
-------------------
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete
and correct, and that the information reflected in this Borrowing Base
Certificate complies with the representations and warranties set forth in the
Loan and Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
BANK USE ONLY
RECEIVED BY:
--------------------
DATE:
---------------------------
REVIEWED BY:
--------------------
COMPLIANCE STATUS: YES / NO
By:
-----------------
Authorized Signer
<PAGE> 50
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
FROM: VTEL CORPORATION
The undersigned authorized officer of VTEL Corporation hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement by and among Lenders, Servicing Agent and Borrower (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
___________________ with all required covenants except as noted below; and
(ii)Borrower has made and has caused each Subsidiary to make due and timely
payment or deposit of all material federal, state, and local taxes,
assessments, or contributions required by law; and (iii) all representations
and warranties of Borrower stated in the Agreement are true and correct in all
material respects as of the date hereof. Attached herewith are the required
documents supporting the above certification. The Officer further certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
expressly acknowledges that no borrowings may be requested by the Borrower at
any time or date of determination that Borrower is not in compliance with any
of the terms of the Agreement, and that such compliance is determined not just
at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------------------- -------------------------- --------
<S> <C> <C>
*Quarterly financial statements Quarterly within 45 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
10Q nad 10K Within 5 days after filing
with the SEC Yes No
*A/R & A/P Agings Monthly within 20 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- -------------------------------- --------------- ----------------- ---------
<S> <C> <C> <C>
Maintain on a Quarterly Basis:
Minimum Quick Ratio 1.50:1.0 _____:1.0 Yes No
Minimum Debt Service 1.50:1.0 _____:1.0 Yes No
Minimum Tangible Net Worth $ 56,188,000.00 $_____________ Yes No
plus 50% of
Annual Net Income
Maximum Debt/Tangible
Net Worth 1.0:1.0 _____:1.0 Yes No
**Profitability $______________ $_____________ Yes No
***Minimum Debt Service Coverage 1.50:1.0 _____:1.0
</TABLE>
* Not required if amount outstanding under Committed Revolving Line is equal
to or less than $7,500,000.00.
** See Section 6.10 of Loan and Security Agreement for quarterly loss
allowances.
*** Only applicable if Advances under Committed Revolving Line converted to
Term Loan.
BANK USE ONLY
RECEIVED BY:
--------------------
DATE:
---------------------------
REVIEWED BY:
--------------------
COMPLIANCE STATUS: YES / NO
COMMENTS REGARDING EXCEPTIONS:
Sincerely,
Date:
---------------------- --------------
SIGNATURE
----------------------
TITLE
<PAGE> 51
EXHIBIT E
FORM OF REVOLVING NOTE
$12,500,000 December _____, 1997
FOR VALUE RECEIVED, the undersigned, VTEL Corporation, a Delaware
corporation ("Borrower"), promises to pay to the order of [Name of Lender]
("Bank"), at the offices of Silicon Valley Bank, as Servicing Agent (together
with any successor as provided in the Loan Agreement (defined below) the
"Servicing Agent") at _____________________, in lawful money of the United
States of America, the aggregate unpaid principal amount of all advances
("Advances") made by Bank to Borrower under the terms of this Note, up to a
maximum principal amount of Twelve Million Five-Hundred Thousand and No/100
Dollars ($12,500,000.00). Borrower shall pay interest on the aggregate unpaid
principal amount of such Advances, and payments of principal on the Committed
Revolving Line, at the rates, in the amounts and in accordance with the terms
of the Loan and Security Agreement and the LIBOR Supplement to Agreement, each
of the foregoing by and among Borrower, Bank, [name of Lender] and Servicing
Agent and of even date herewith, as amended from time to time (the "Loan
Agreement" and the "LIBOR Supplement" respectively). The entire principal
amount and all accrued and unpaid interest shall be due and payable on the
Revolving Maturity Date. Capitalized terms used but not defined herein shall
have the meaning given such term in the Loan Agreement.
Borrower irrevocably waives the right to direct the application of any
and all payments at any time hereafter received by Servicing Agent or Bank from
or on behalf of Borrower, and Borrower irrevocably agrees that Servicing Agent
and Bank shall have the continuing exclusive right to apply any such and all
such payments against the then due and owing obligations of Borrower as
Servicing Agent or Bank may deem advisable in accordance with the terms of the
Loan Agreement. In the absence of a specific determination by Servicing Agent
or Bank with respect thereto, all payments shall be applied in the following
order: (a) then due and payable fees and expenses; (b) then due and payable
interest payments; and (c) then due and payable principal payments and optional
prepayments.
Servicing Agent is hereby authorized by Borrower to endorse on
Servicing Agent's books and records each Advance made by Bank under this Note
and the amount of each payment or prepayment of principal of such Advance
received by Servicing Agent; it being understood, however, that failure to make
any such endorsement (or any errors in notation) shall not affect the
obligations of Borrower with respect to Advances made hereunder, and payments
of principal by Borrower shall be credited to Borrower notwithstanding the
failure to make a notation (or any errors in notation) thereof on such books
and records.
Borrower promises to pay Servicing Agent all reasonable out-of-pocket
costs and expenses of collection of this Note and to pay all reasonable
attorneys' fees incurred in such collection on in any suit or action to collect
this Note or in any appeal thereof. Borrower and each surety, guarantor,
endorser and other party liable for payment of any sums of money payable on
this Note jointly and severally waives presentment, demand for payment,
protest, notice of protest, notice of dishonor, notice of nonpayment, and any
and all other notices and demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note, as well as any applicable
statute of limitations. No delay by Servicing Agent in exercising any power or
right hereunder shall operate as a waiver of any power or right. Time is of
the essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which, together
with the LIBOR Supplement, shall govern the rights and obligations of Borrower
with respect to all obligations hereunder.
Notwithstanding anything to the contrary contained herein, no
provisions of this Note shall require the payment or permit the collection of
interest in excess of the Maximum Lawful Amount. If any excess of interest in
such respect is herein provided for, or shall be adjudicated to be so provided,
in this Note or otherwise in connection with the transaction evidenced by the
Loan Agreement, the provisions of this paragraph shall govern and prevail, and
neither Borrower nor the sureties, guarantors, successors or assigns of
Borrower shall be obligated to pay the excess amount of such interest, or any
other excess sum paid for the use, forbearance or detention of sums loaned
pursuant hereto. If for any reason interest in excess of the Maximum Lawful
Amount shall be deemed charged, required or permitted by any court of competent
jurisdiction, any such excess shall be applied as a payment and reduction of
the principal of indebtedness evidenced by this Note; and, if the principal
amount hereof has been paid in full, any remaining excess shall forthwith be
paid to Borrower.
<PAGE> 52
THIS NOTE SHALL BE DEEMED TO BE MADE UNDER, AND SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY, THE LAWS OF THE STATE OF TEXAS, EXCLUDING ITS
CONFLICTS OF LAWS PRINCIPLES.
VTEL CORPORATION
By:
-------------------------
Name:
-----------------------
Title:
----------------------
<PAGE> 53
EXHIBIT F
FORM OF TERM NOTE
$12,500,000 December ___, 1997
FOR VALUE RECEIVED, the undersigned, VTEL Corporation, a Delaware
corporation ("Borrower"), promises to pay to the order of [Name of Lender]
("Bank"), at the offices of Silicon Valley Bank, as Servicing Agent (together
with any successor as provided in the Loan Agreement (defined below) the
"Servicing Agent") at ___________________, in lawful money of the United States
of America, [the aggregate unpaid principal amount of the Term Loan made by
Bank to Borrower up to a maximum principal amount of Twelve Million Five
Hundred Thousand and No/100 Dollars ($12,500,000.00)]. Borrower shall pay
interest on the aggregate unpaid principal amount of the Term Loan, and
payments of principal on the Term Loan, at the rates, in the amounts and in
accordance with the terms of the Loan and Security Agreement by and among
Borrower, Bank, [Name of Lender] and Servicing Agent of even date herewith, as
amended from time to time ("Loan Agreement"). The entire principal amount and
all accrued and unpaid interest shall be due and payable on the Term Loan
Maturity Date. Capitalized terms used but not defined herein shall have the
meaning given such term in the Loan Agreement.
Borrower irrevocably waives the right to direct the application of any
and all payments at any time hereafter received by Servicing Agent or Bank from
or on behalf of Borrower, and Borrower irrevocably agrees that Servicing Agent
and Bank shall have the continuing exclusive right to apply any such and all
such payments against the then due and owing obligations of Borrower as
Servicing agent or Bank may deem advisable in accordance with the terms of the
Loan Agreement. In the absence of a specific determination by Servicing Agent
or Bank with respect thereto, all payments shall be applied in the following
order: (a) then due and payable fees and expenses; (b) then due and payable
interest payments; and (c) then due and payable principal payments and optional
prepayments.
Borrower promises to pay Servicing Agent all reasonable out-of-pocket
costs and expenses of collection of this Note and to pay all reasonable
attorneys' fees incurred in such collection on in any suit or action to collect
this Note or in any appeal thereof. Borrower and each surety, guarantor,
endorser and other party liable for payment of any sums of money payable on
this Note jointly and severally waives presentment, demand for payment,
protest, notice of protest, notice of dishonor, notice of nonpayment, and any
and all other notices and demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note, as well as any applicable
statute of limitations. No delay by Bank in exercising any power or right
hereunder shall operate as a waiver of any power or right. Time is of the
essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern
the rights and obligations of Borrower with respect to all obligations
hereunder.
Notwithstanding anything to the contrary contained herein, no
provisions of this Note shall require the payment or permit the collection of
interest in excess of the Maximum Lawful Amount. If any excess of interest in
such respect is herein provided for, or shall be adjudicated to be so provided,
in this Note or otherwise in connection with the transaction evidenced by the
Loan Agreement, the provisions of this paragraph shall govern and prevail, and
neither Borrower nor the sureties, guarantors, successors or assigns of
Borrower shall be obligated to pay the excess amount of such interest, or any
other excess sum paid for the use, forbearance or detention of sums loaned
pursuant hereto. If for any reason interest in excess of the Maximum Lawful
Amount shall be deemed charged, required or permitted by any court of competent
jurisdiction, any such excess shall be applied as a payment and reduction of
the principal of indebtedness evidenced by this Note; and, if the principal
amount hereof has been paid in full, any remaining excess shall forthwith be
paid to Borrower.
This Note shall be deemed to be made under, and shall be construed in
accordance with and governed by, the laws of the State of Texas, excluding its
conflicts of laws principles.
VTEL CORPORATION
By:
-------------------------
Name:
-----------------------
Title:
----------------------
<PAGE> 1
EXHIBIT 10.21(a)
September 9, 1998
Mr. Jerry S. Benson, Jr.
President and COO
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Dear Jerry,
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 2.5 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 6 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,
Dick Moeller
Chairman & CEO
VTEL Corporation
<PAGE> 11
September 9, 1998
Page 11
Agreed to this ____ day of ____________, 1998.
______________________________
Jerry S. Benson, Jr.
<PAGE> 1
EXHIBIT 10.21(b)
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
<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 1.8
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
<PAGE> 7
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.
<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.
- ------------------------------
Rodney S. Bond
<PAGE> 1
EXHIBIT 10.21(c)
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
<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
Agreed to this ____ day of ____________, 1998.
- -----------------------------
Charles Denton
<PAGE> 1
EXHIBIT 10.21(d)
September 9, 1998
Mr. Dennis Egan
Vice President Service
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Dear Dennis,
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
Agreed to this ____ day of ____________, 1998.
- ------------------------------
Dennis Egan
<PAGE> 1
EXHIBIT 10.21(e)
September 9, 1998
Mr. Vinay Goel
Vice President & General Manager
Personal & Workgroup Systems
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Dear Vinay,
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.
<PAGE> 2
September 9, 1998
Page 2
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 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.
<PAGE> 5
September 9, 1998
Page 5
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.
(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
<PAGE> 6
September 9, 1998
Page 6
amount equal to your base salary at the rate in effect at the commencement of
any such period 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 so employed, determined by annualizing any compensation
(other than nonrecurring items) includible in your gross income for
any partial calendar year or (3)
<PAGE> 7
September 9, 1998
Page 7
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
<PAGE> 8
September 9, 1998
Page 8
auditors in accordance with the principles of sections 280G(d) (3)
and (4) of the Code.
(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
<PAGE> 9
September 9, 1998
Page 9
you at such time a good faith estimate of the Adjusted Severance
Payment (the "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
<PAGE> 10
September 9, 1998
Page 10
have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
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
<PAGE> 11
September 9, 1998
Page 11
VTEL Corporation
Agreed to this ____ day of ____________, 1998.
- ------------------------------
Vinay Goel
<PAGE> 1
EXHIBIT 10.21(f)
September 9, 1998
Mr. Frank Kaplan
Vice President Global Sales
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Dear Frank,
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 1.8
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 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
Agreed to this ____ day of ____________, 1998.
- ------------------------------
Frank Kaplan
<PAGE> 1
EXHIBIT 10.21(g)
September 9, 1998
Mr. Steven Keilen
Vice President & General Manager
Enterprise Systems
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Dear Steven,
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.
<PAGE> 2
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 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.
<PAGE> 5
September 9, 1998
Page 5
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.
(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
<PAGE> 6
September 9, 1998
Page 6
amount equal to your base salary at the rate in effect at the commencement of
any such period 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 so employed, determined by annualizing any compensation
(other than nonrecurring items) includible in your gross income for
any partial calendar year or (3)
<PAGE> 7
September 9, 1998
Page 7
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.
<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
<PAGE> 9
September 9, 1998
Page 9
you at such time a good faith estimate of the Adjusted Severance
Payment (the "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
Agreed to this ____ day of ____________, 1998.
- ------------------------------
Steven Keilen
<PAGE> 1
EXHIBIT 10.21(h)
September 9, 1998
Mr. Dick Moeller.
Chairman and CEO
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Dear Dick,
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 2.9
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 6 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 & COO
VTEL Corporation
Agreed to this ____ day of ____________, 1998.
- ------------------------------
Dick Moeller
<PAGE> 1
EXHIBIT 10.21(i)
September 9, 1998
Ms. Ly-Huong Pham
Chief Technology Officer &
Vice President, Engineering & Technology
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Dear Ly,
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
<PAGE> 2
September 9, 1998
Page 2
have been a Change in Control of the Company, as set forth below. For purposes
of this 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,
<PAGE> 5
September 9, 1998
Page 5
any circumstance constituting Good Reason hereunder. A Change in Control of
the Company shall not, by itself, constitute Good Reason.
(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
<PAGE> 6
September 9, 1998
Page 6
amount equal to your base salary at the rate in effect at the commencement of
any such period 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 so employed, determined by
annualizing any compensation (other than nonrecurring items) includible
in your gross income for any partial calendar year or
<PAGE> 7
September 9, 1998
Page 7
(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
<PAGE> 8
September 9, 1998
Page 8
auditors in accordance with the principles of sections 280G(d) (3) and
(4) of the Code.
(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
<PAGE> 9
September 9, 1998
Page 9
you at such time a good faith estimate of the Adjusted Severance Payment
(the "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
<PAGE> 10
September 9, 1998
Page 10
have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
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.
- -----------------------------
Ly-Huong Pham
<PAGE> 1
EXHIBIT 10.21(j)
September 9, 1998
Mr. Barry Rumac
Vice President Corporate Communications
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Dear Barry,
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.
- ------------------------------
Barry Rumac
<PAGE> 1
EXHIBIT 10.21(k)
September 9, 1998
Mr. Michael Steigerwald
Vice President & General Manager
Professional Services
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Dear Michael,
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
<PAGE> 2
September 9, 1998
Page 2
have been a Change in Control of the Company, as set forth below. For purposes
of this 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,
<PAGE> 5
September 9, 1998
Page 5
any circumstance constituting Good Reason hereunder. A Change in Control of the
Company shall not, by itself, constitute Good Reason.
(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
<PAGE> 6
September 9, 1998
Page 6
amount equal to your base salary at the rate in effect at the commencement of
any such period 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 so employed, determined by
annualizing any compensation (other than nonrecurring items) includible
in your gross income for any partial calendar year or (3)
<PAGE> 7
September 9, 1998
Page 7
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
<PAGE> 8
September 9, 1998
Page 8
auditors in accordance with the principles of sections 280G(d) (3) and
(4) of the Code.
(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
<PAGE> 9
September 9, 1998
Page 9
to you at such time a good faith estimate of the Adjusted Severance
Payment (the "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
<PAGE> 10
September 9, 1998
Page 10
have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
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.
- ------------------------------
Michael Steigerwald
<PAGE> 1
EXHIBIT 10.21(l)
September 9, 1998
Mr. Bob Swem
Vice President Operations
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Dear Bob,
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 1.8
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 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
Agreed to this ____ day of ____________, 1998.
- ------------------------------
Bob Swem
<PAGE> 1
EXHIBIT 10.21(m)
September 9, 1998
Mr. Stephen L. Von Rump
Chief Marketing Officer
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Dear Stephen,
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 1.8
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 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.
- ------------------------------
Stephen L. Von Rump
<PAGE> 1
EXHIBIT 10.21(n)
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
<PAGE> 1
EXHIBIT 21.1
VTEL CORPORATION
LIST OF SUBSIDIARIES
SUBSIDIARY LOCATION OF INCORPORATION
Compression Labs, Incorporated Delaware
VTEL-ICS, Incorporated Delaware
VTEL Australia Ltd. Pty. Australia
CLI Belgium Belgium
CLI Europe Ltd. United Kingdom
VTEL Europe Ltd. United Kingdom
VTEL Germany GmbH Germany
VTEL Brazil LTDA Brazil
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-65464, 33-65472 and 33-65478) of VTEL
Corporation of our report dated September 22, 1998 appearing in this Annual
Report on Form 10-K.
PricewaterhouseCoopers LLP
Austin, Texas
October 22, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
(Nos. 33-65464, 33-65472 and 33-65478) on Form S-8 of VTEL Corporation of our
report dated March 13, 1996, relating to the consolidated statements of
operations, stockholders' equity, and cash flows of Compression Labs,
Incorporated for the year ended December 31, 1995, and the related financial
statement schedule, which report appears in the July 31, 1998, annual report on
Form 10-K of VTEL Corporation.
KMPG Peat Marwick LLP
Mountain View, California
October 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VTEL
CORPORATION'S BALANCE SHEET AS OF JULY 31, 1998 AND INCOME STATEMENT FOR THE
YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL PERIOD ENDING JULY 1, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 15,191,000
<SECURITIES> 14,484,000
<RECEIVABLES> 49,974,000
<ALLOWANCES> (9,447,000)
<INVENTORY> 12,951,000
<CURRENT-ASSETS> 85,686,000
<PP&E> 64,507,000
<DEPRECIATION> (36,401,000)
<TOTAL-ASSETS> 129,289,000
<CURRENT-LIABILITIES> 44,183,000
<BONDS> 0
0
0
<COMMON> 256,826,000
<OTHER-SE> (175,568,000)
<TOTAL-LIABILITY-AND-EQUITY> 129,289,000
<SALES> 179,684,000
<TOTAL-REVENUES> 179,684,000
<CGS> (94,727,000)
<TOTAL-COSTS> (84,118,000)
<OTHER-EXPENSES> 2,004,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (27,000)
<INCOME-PRETAX> 2,816,000
<INCOME-TAX> (37,000)
<INCOME-CONTINUING> 2,779,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,779,000
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
