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The Kurzweil Applied Intelligence Alumni Newsletter


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Portions of Kurzweil AI 10-K filed May 1, 1997

Change of Control Agreements

Tom Brew Change of Control Letter

March 24, 1997

Thomas E. Brew, Jr.
72 Ferncroft Road
Waban, Massachusetts 02168

Dear Tom:

This letter will serve to confirm and clarify the terms of your employment agreement dated as of November 1, 1994 and your stock option agreements dated October 19, 1994 and May 13, 1996 with respect to a Change in Control (as that term is defined in the 1995 Non-Employee Stock Option Plan of the Company) occurring while you are an employee of the Company ("the Change in Control.")

The Company will pay you on the effective date of the Change in Control a lump sum equal to one year of your salary as in effect on the effective date of the Change in Control and will provide to you the continuation of benefits as described in the employment agreement for a period of one year after the effective date of the Change in Control.

You will provide to the Company your services as an employee during the 90-day period immediately following the Change in Control at the rate of $1,528 for each business day or any portion of a business day that you render services to new management of the Company (to the extent that they so request) during the 90-day period.

For a period of one year after the effective date of the Change in Control, you will provide new management with informal telephone consulting services. These services will relate to the operations and management of the Company, but shall not be so time-consuming as to prevent or interfere with your seeking or engaging in full-time employment or full-time consulting for a third party.

In the event of the Change in Control, the vesting of your options that are then outstanding will be accelerated so that all shares covered by those options will be or will become exercisable in full immediately prior to the effective date of the Change in Control.

If the foregoing accurately confirms and clarifies the terms of your employment and option agreements, please so indicate by signing and returning a copy of this letter.
Very truly yours,

/s/ David R. A. Steadman --------------------------
David R. A. Steadman
Chairman, Compensation Committee

ACCEPTED AND AGREED:

/s/ Thomas E. Brew, Jr.
--------------------------
Thomas E. Brew, Jr.

Summary of Tom Brew's Employment Agreement from the May 1996 10-K Filing

Chief Executive Officer's Compensation

The Chief Executive Officer's compensation for fiscal 1996 is based on a written employment agreement that was negotiated and entered into between him and the Company in November 1994. The agreement provides for

  1. the payment of a salary of $250,000, $300,000 and $350,000 for the twelve-month periods ending November 1, 1995, 1996 and 1997;
  2. the payment of bonuses of $100,000 and $50,000 for the twelve-month periods ending November 1, 1995 and 1996; and
  3. the granting in 1994 of an option to purchase 250,000 shares of Common Stock and an additional option grant to offset the percentage dilutive effects of the shares expected to be issued in connection with the settlement of stockholder litigation pending against the Company.
The salary in the agreement was determined to be appropriate by the members of the Committee based on the financial and legal difficulties that the Company has experienced, the expertise and responsibility that the position requires; the Chief Executive Officer's management experience in prior employments, particularly with respect to financially troubled companies, and the subjective judgement of the Committee members of a reasonable compensation level.

Tom Doherty Change-in-Control Agreement

CHANGE-IN-CONTROL AGREEMENT

KURZWEIL APPLIED INTELLIGENCE, INC. & THOMAS B. DOHERTY

THIS CHANGE-IN-CONTROL AGREEMENT (this "Agreement") is made as of the 14th day of February 1997 by and between Kurzweil Applied Intelligence, Inc. (hereinafter sometimes referred to as the "Company") and Thomas B. Doherty (hereinafter referred to as "Mr. Doherty").

  1. Consideration. The parties are entering into this Agreement for and in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged.
  2. Background. Mr. Doherty is an executive officer of the Company and as such, his title, responsibilities and status within the Company are dependent in large part upon the continued incumbency of the current management of the Company, including its Board of Directors. The Company wishes to retain the services of Mr. Doherty and therefore wishes to make provision for Mr. Doherty in the event that a Change in Control (as that term is defined in the 1995 Non-Employee Director Stock Option Plan of the Company) occurs.
  3. Change in Control. In the event of a Change of Control while Mr. Doherty is employed by the Company--
    1. The Company shall pay Mr. Doherty in a lump sum $68,000 on the effective date of the Change in Control.
    2. Mr. Doherty shall provide to the Company his services as an employee during the 90-day period immediately following a Change in Control to assist in the transition to new management at the rate of $594 for each business day or any portion of a business day that Mr. Doherty renders services to new management of the Company (to the extent that they so request) during the 90-day period.
    3. For a period of one year after the effective date of a Change in Control, Mr. Doherty will provide new management with informal telephone consulting services, provided however, that such consulting shall not be so time-consuming as to prevent or interfere with Mr. Doherty seeking or engaging in full-time employment or full-time consulting.
    4. The Company shall provide to Mr. Doherty at Company expense until the first anniversary of the effective date of a Change in Control the same health benefits as are made available to other officers of the Company during such period.
  4. Not an Employment Agreement. This Agreement is not and shall not be construed as an agreement by the Company to employ Mr. Doherty for any particular period of time or on any terms and conditions that are not contained herein or in any Other Agreement (as defined below).
  5. Other Agreements. This Agreement is in addition to any other agreements between Kurzweil Applied Intelligence, Inc. and Mr. Doherty (each an "Other Agreement") and shall not be construed or interpreted as superceding or amending any such agreements.
  6. Breach and Termination. This Agreement shall automatically expire and be of no further force or effect on the occurrence of any one or more of the following events:
    1. Mr. Doherty's employment is terminated for any reason prior to a Change in Control, unless such termination was demonstrably in contemplation of a particular Change in Control.
    2. Mr. Doherty breaches any material term or condition of any Other Agreement.
  7. Definition. The "Company" shall mean Kurzweil Applied Intelligence, Inc. (as indicated in the preface to this Agreement) or if Kurzweil Applied Intelligence, Inc. shall cease to be a legal entity, the "Company" shall mean any entity that acquires substantially all of the business or assets of Kurzweil Applied Intelligence, Inc.
  8. Severability. If any provision or part of a provision of this Agreement is finally declared to be invalid by any tribunal of competent jurisdiction, such part shall be deemed automatically adjusted, if possible, to conform to the requirements for validity, but, if such adjustment is not possible, it shall be deemed deleted from this Agreement as though it had never been included herein. In either case, the balance of any such provision and of this Agreement shall remain in full force and effect. Notwithstanding the foregoing, however, no provision shall be severed if it is clearly apparent under the circumstances that either or both of the parties would not have entered into this Agreement without such provision.
  9. Miscellaneous.
    1. This Agreement contains the entire understanding of the parties on the subject matter hereof except as otherwise expressly contemplated herein; shall not be amended except by written agreement of the parties signed by each of them; shall be binding upon and inure to the benefit of the parties and their successors personal representatives and permitted assigns; may be executed in one or more counterparts each of which shall be deemed an original hereof, but all of which shall constitute but one and the same agreement; and because the obligations of Mr. Doherty are personal, shall not be assignable by Mr. Doherty.
    2. The words "herein," "hereof," "hereunder," "hereby," "herewith" and words of similar import when used in this Agreement shall be construed to refer to this Agreement as a whole. The word "including" shall mean including, but not limited to any enumerated items.
    3. Each party and its counsel has reviewed this Agreement. Accordingly, the normal rule of construction that any ambiguities and uncertainties are to be resolved against the party preparing an agreement will not be employed in the interpretation of this Agreement; rather this Agreement shall be construed as if all parties had jointly prepared it.
    4. No representation, affirmation of fact, course of prior dealings, promise or condition in connection herewith not expressly incorporated herein shall be binding on the parties.
    5. The failure to insist upon strict compliance with any term, covenant or condition contained herein shall not be deemed a waiver of such term, nor shall any waiver or relinquishment of any right at any one or more times be deemed a waiver or relinquishment of such right at any other time or times.
    6. The captions of the paragraphs herein are for convenience only and shall not be used to construe or interpret this Agreement.
  10. Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of The Commonwealth of Massachusetts without giving effect to any choice of law or conflict of law provision or rule (whether of The Commonwealth of Massachusetts or of any other jurisdiction) that would cause the application hereto of the laws of any jurisdiction other than The Commonwealth of Massachusetts.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first above written.

Kurzweil Applied Intelligence, Inc.

By: /s/ David R. A. Steadman
------------------------------------
David R. A. Steadman
Chairman, Compensation Committee
/s/ Thomas B. Doherty
------------------------------
Thomas B. Doherty


Mark Flanagan Change of Control Agreement

CHANGE-IN-CONTROL AGREEMENT

KURZWEIL APPLIED INTELLIGENCE, INC. & MARK D. FLANAGAN

THIS CHANGE-IN-CONTROL AGREEMENT (this "Agreement") is made as of the 14th day of February 1997 by and between Kurzweil Applied Intelligence, Inc. (hereinafter sometimes referred to as the "Company") and Mark D. Flanagan (hereinafter referred to as "Mr. Flanagan").

  1. Consideration. The parties are entering into this Agreement for and in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged.
  2. Background. Mr. Flanagan is an executive officer of the Company and as such, his title, responsibilities and status within the Company are dependent in large part upon the continued incumbency of the current management of the Company, including its Board of Directors. The Company wishes to retain the services of Mr. Flanagan and therefore wishes to make provision for Mr. Flanagan in the event that a Change in Control (as that term is defined in the 1995 Non-Employee Director Stock Option Plan of the Company) occurs.
  3. Change in Control. In the event of a Change of Control while Mr. Flanagan is employed by the Company--
    1. The Company shall pay Mr. Flanagan in a lump sum $225,000 on the effective date of the Change in Control.
    2. Mr. Flanagan shall provide to the Company his services as an employee during the 90- day period immediately following a Change in Control to assist in the transition to new management at the rate of $983 for each business day or any portion of a business day that Mr. Flanagan renders services to new management of the Company (to the extent that they so request) during the 90-day period.
    3. For a period of one year after the effective date of a Change in Control, Mr. Flanagan will provide new management with informal telephone consulting services, provided however, that such consulting shall not be so time-consuming as to prevent or interfere with Mr. Flanagan seeking or engaging in full-time employment or full-time consulting.
    4. The Company shall provide to Mr. Flanagan at Company expense until the first anniversary of the effective date of a Change in Control the same health benefits as are made available to other officers of the Company during such period.
  4. Not an Employment Agreement. This Agreement is not and shall not be construed as an agreement by the Company to employ Mr. Flanagan for any particular period of time or on any terms and conditions that are not contained herein or in any Other Agreement (as defined below).
  5. Other Agreements. This Agreement is in addition to any other agreements between Kurzweil Applied Intelligence, Inc. and Mr. Flanagan (each an "Other Agreement") and shall not be construed or interpreted as superceding or amending any such agreements.
  6. Breach and Termination. This Agreement shall automatically expire and be of no further force or effect on the occurrence of any one or more of the following events:
    1. Mr. Flanagan's employment is terminated for any reason prior to a Change in Control, unless such termination was demonstrably in contemplation of a particular Change in Control.
    2. Mr. Flanagan breaches any material term or condition of any Other Agreement.
  7. Definition. The "Company" shall mean Kurzweil Applied Intelligence, Inc. (as indicated in the preface to this Agreement) or if Kurzweil Applied Intelligence, Inc. shall cease to be a legal entity, the "Company" shall mean any entity that acquires substantially all of the business or assets of Kurzweil Applied Intelligence, Inc.
  8. Severability. If any provision or part of a provision of this Agreement is finally declared to be invalid by any tribunal of competent jurisdiction, such part shall be deemed automatically adjusted, if possible, to conform to the requirements for validity, but, if such adjustment is not possible, it shall be deemed deleted from this Agreement as though it had never been included herein. In either case, the balance of any such provision and of this Agreement shall remain in full force and effect. Notwithstanding the foregoing, however, no provision shall be severed if it is clearly apparent under the circumstances that either or both of the parties would not have entered into this Agreement without such provision.
  9. Miscellaneous.
    1. This Agreement contains the entire understanding of the parties on the subject matter hereof except as otherwise expressly contemplated herein; shall not be amended except by written agreement of the parties signed by each of them; shall be binding upon and inure to the benefit of the parties and their successors personal representatives and permitted assigns; may be executed in one or more counterparts each of which shall be deemed an original hereof, but all of which shall constitute but one and the same agreement; and because the obligations of Mr. Flanagan are personal, shall not be assignable by Mr. Flanagan.
    2. The words "herein," "hereof," "hereunder," "hereby," "herewith" and words of similar import when used in this Agreement shall be construed to refer to this Agreement as a whole. The word "including" shall mean including, but not limited to any enumerated items.
    3. Each party and its counsel has reviewed this Agreement. Accordingly, the normal rule of construction that any ambiguities and uncertainties are to be resolved against the party preparing an agreement will not be employed in the interpretation of this Agreement; rather this Agreement shall be construed as if all parties had jointly prepared it.
    4. No representation, affirmation of fact, course of prior dealings, promise or condition in connection herewith not expressly incorporated herein shall be binding on the parties.
    5. The failure to insist upon strict compliance with any term, covenant or condition contained herein shall not be deemed a waiver of such term, nor shall any waiver or relinquishment of any right at any one or more times be deemed a waiver or relinquishment of such right at any other time or times.
    6. The captions of the paragraphs herein are for convenience only and shall not be used to construe or interpret this Agreement.
  10. Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of The Commonwealth of Massachusetts without giving effect to any choice of law or conflict of law provision or rule (whether of The Commonwealth of Massachusetts or of any other jurisdiction) that would cause the application hereto of the laws of any jurisdiction other than The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first above written.

Kurzweil Applied Intelligence, Inc.

By: /s/ David R. A. Steadman
----------------------------------------
David R. A. Steadman
Chairman, Compensation Committee
/s/ Mark D. Flanagan
---------------------------
Mark D. Flanagan

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May 2, 1997