SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B)
OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
GK INTELLIGENT SYSTEMS, INC.
(Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 84-1079784
(State or Other Jurisdiction (IRS Employer
of Incorporation Identification
or Organization) Number)
2345 BERING DRIVE, #321, HOUSTON, TEXAS 77057
(Address of Principal Executive Offices, including Zip Code)
(713) 669-1361
(Issuer's Telephone Number, including Area Code)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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None None
Securities to be registered under Section 12(g) of the Act:
Common Stock
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(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GK Intelligent Systems, Inc., a Delaware corporation ("Company"), is a
developer and marketer of "intelligent" network performance support via the
Internet and other intranet transmission modalities using a service bureau
model. The specific nature of the intelligent performance support varies based
on the market being addressed. The core of the Company's system is its advanced
SMART PERFORM service driven by CARNOT network technology. CARNOT is the product
of a five-year research and development effort completed by Microelectronics
Computer Corporation ("MCC"). MCC is a consortium of nearly 80 corporations,
public and non-profit agencies and universities. CARNOT is a suite of
technologies which offer the capability to perform conceptual searches of
heterogeneous information on disparate computer systems, data mining, conceptual
searches, network security, and intelligent performance support through the use
of intelligent network "agents". The agents are highly sophisticated and capable
of representing the needs, interests and work requirements of the user. In the
financial services market, for example, CARNOT is being applied to the specific
needs and interests of stock brokers. With CARNOT'S intelligent agents driving
the Company's' SMART PERFORM for the financial sector, stock brokers will
receive "expert" assistance in performing their jobs. With SMART PERFORM'S
intelligent agents working in the background, brokers will receive advanced
guidance in making buy-sell decisions and tracking investments. A second key
technology developed and marketed by the Company is SMART ONESM. SMART ONE is an
advanced technology developed for the Company by AT&T which is capable of
real-time adaptation and customization of training to the individual. With an
artificial intelligence ("AI") based engine, the program can provide instruction
that is tailored to the needs of the individual and can guide the user to the
most appropriate next step. The Company's intelligent training support is based
on its SMART ONE trainer, a prototype template developed in conjunction with
AT&T Global Information Solutions Company ("AT&T GIS"). The SMART ONE trainer
provides individualized skill-oriented instruction, which will permit government
agencies and corporations to provide more effective, timely and efficient
training of employees with respect to applicable work procedures through the use
of interactive multimedia computer software. The Company is presently developing
several applications based on the SMART ONE prototype, including IBM VRPG, a
product associated with a co-venture agreement with IBM.
The Company was incorporated in Delaware on February 26, 1988 under
the name Technicraft Financial, Ltd. In October 1991, its name was changed to
LBM-US, Inc. ("LBM-US"). In July 1994, LBM-US, a public company with no
significant assets, acquired all of the assets of GK Intelligent Systems, Inc.,
a Texas corporation ("GK-Texas"), in exchange for 6,375,000 shares of common
stock of LBM-US. In August 1994, LBM-US changed its name to GK Intelligent
Systems, Inc. GK-Texas was formed in February 1994 to produce and market
multimedia computer-based skill-oriented training and performance support
systems. In September 1994, I-NET Intelligent Systems, Inc., a Delaware
corporation ("I-NET(Delaware)"), contracted with AT&T to develop the SMART ONE
training program template. In February 1994, the intellectual property and all
rights and obligations under the industrial design services agreement were
assigned from I-NET(Delaware) to GK-Texas. In August 1995, the stockholders of
the Company amended and restated its Certificate of Incorporation in its
entirety. The Company's principal place of business is located at 2345 Bering
Drive, Suite 321, Houston, Texas 77057 and its telephone number is (713)
977-3338.
TECHNOLOGY AGREEMENTS
INDUSTRIAL DESIGN SERVICES AGREEMENT
In September 1993, I-NET(Delaware) entered into an industrial design
services agreement with AT&T for the development of a working prototype
computer-based training system to address skills training for the operation of
combustible gas indicators. This prototype combined features of the Company's
proprietary SMART ONE program with tools developed by AT&T to provide a
functional adaptive dynamic user interface capable of capturing and recording
the current performance level of the user, evaluating that performance against
an expert user model, and adjusting the instructional session accordingly. This
prototype was demonstrated at the AT&T Human Interface Technology Center in
Atlanta, Georgia in February 1995 and has not yet been developed into a
commercially available or viable product. However, the Company is currently
developing a second version of this software.
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IBM AGREEMENT
In July 1995, the Company entered into an agreement with IBM to develop
a computer-based training program with respect to IBM's AS400 mini-computer.
This training program is based on the Company's SMART ONE architecture. The
Company combined its SMART ONE technology with existing IBM course materials and
technology to create a multimedia-enabled computer-based training program that
provides a tailored tutorial for development of client/server applications using
the AS400. IBM will publicize the availability of the program and the Company
will be responsible for providing maintenance on the finished project and for
processing orders. After the program generates revenues of $400,000, the Company
will make monthly payments to IBM equal to 35% of the monthly gross revenues
received by the Company. While the term of the agreement expired in June 1996,
both parties are continuing to proceed under the terms of the agreement, and the
Company's strategy is to renew the agreement, although there can be no assurance
of this occurrence.
MCC AGREEMENT
The Company has entered into an agreement with MCC to obtain certain
existing and future MCC technology and consulting services in exchange for
preferred stock in the Company. See "Description of Securities -- Preferred
Stock." Through its relationship with MCC, the Company hopes to gain access to
technology which will serve as the foundation for its future SMART SUPPORT
SYSTEM. An Example of MCC technology which may be available to the Company is
INFOSLEUTH. There can be no assurance that the Company will obtain the rights to
INFOSLEUTH. CARNOT is a system for integrating information located in
heterogeneous, distributed database systems throughout an enterprise or multiple
enterprises. INFOSLEUTH focuses on the challenges of locating, evaluating,
retrieving and merging information in environments such as the Internet, where
new information and new sources of information are constantly being added.
INDUSTRY BACKGROUND
INTELLIGENT NETWORK AGENTS
Intelligent network agents (INA's) provide communication and support
services enabling efficient navigation, retrieval, and integration of
information contained in distributed databases on networks such as the Internet.
These agents incorporate the use of software sub-routines that operate in the
background of a system and perform actions on behalf`of the user. Agents can be
designed to perform autonomous context-sensitive database searches, integrating
the data and returning only usable information.
Intelligent agent technology will dramatically increase the
effectiveness and efficiency of businesses. With instant access to the internal
information used to manage the business, employees will be able to make optimal
decisions based on a clear knowledge of the present state of the business. With
instant access to external information sources on industry trends, competitors,
and foreign and domestic markets, employees will be able to evaluate their
decisions in the context of the broader marketplace.
TRAINING AND EDUCATION
The market for training and education is undergoing a revolutionary
change as new technologies are reshaping the way people learn. The traditional
concept of a classroom setting with one teacher lecturing to a group of students
is gradually being replaced or supplemented, in many instances, with interactive
multimedia tools such as video terminals and computers which can provide each
student with more individualized instruction.
Computer-based multimedia training is becoming more popular as the
benefits become more defined. Companies are beginning to find that the savings
of training staff on-site using advanced technologies are considerable. Even
though the costs to produce a multimedia training program are significant, they
compare favorably to the travel, lost work time and expenses associated with
most training programs.
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Government initiatives and legislation passed over the last few years
are also increasing the demand for additional cost-effective training systems.
Specifically, the Pipeline Safety Act of 1991, which outlines safety concerns
and training requirements for the operation of pipelines transporting gas and
hazardous liquids, could have a very dramatic impact on government and industry
training needs. Government workers and pipeline company employees will need to
be trained under new government standards. Other legislation regarding the
handling and transportation of hazardous materials and worker safety has also
created a large demand for more comprehensive training. Clearly, the market for
technology-based training is large and is continuing to expand. The Company
believes that with its SMART ONE training technology, it is well-positioned to
take advantage of this market opportunity.
BUSINESS STRATEGY
The Company's business strategy is to economically integrate
information, enhance its value to the market place by adding intelligent
capabilities, and make it available at any time and place. To implement its
business plan, the Company is in the process of establishing a national SMART
SUPPORT virtual network. The network will serve as a distribution mechanism for
a national service bureau providing corporate clients with intelligent
performance support. The two principal forms of intelligent performance support
will be the Company's SMART PERFORM service (using intelligent agent technology)
and SMART ONE training.
In the field of intelligent network agent (INA) technology, the Company
is involved in the application and marketing of CARNOT and INFOSLEUTH
intelligent agent technology acquired by license from MCC. The Company's
business strategy is to apply and exploit CARNOT/INFOSLEUTH technology to drive
its SMART SUPPORT NETWORK. The Company will also provide turnkey application
development and implementation services to clients desiring to incorporate INA
technology in their existing line of business applications. In addition, the
Company will provide CARNOT/INFOSLEUTH services to clients through a service
bureau. The Company is currently negotiating value-added reseller ("VAR")
agreements with Cabletron Systems, Inc. to utilize its SPECTRUM software and
with BMC Software, Inc. to utilize its PATROL software, both with a CARNOT
derived overlay, to provide solutions to network management problems common to
most corporate intranets as well as network performance optimization and network
security.
In the training and education marketplace, the Company is involved in
the design, development and production of computer-based, multimedia educational
training and occupation-related performance support software. The software uses
the latest advances in adaptive dynamic interface technology and artificial
intelligence. The Company has identified specific market segments within select
industries and governmental agencies which it believes have an immediate need
for the rapid development and implementation of' personnel training programs.
The Company's business strategy is to create coalitions among various
government agencies, industry leaders and trade associations within each market
segment which would be responsible for determining training priorities, setting
training parameters and determining employee training program content. The
Company's strategy is to manage each such coalition and to provide the
coalitions with an individualized computer-based multimedia training and
occupation-related support platform specifically tailored to their respective
needs.
PRODUCTS
TECHNOLOGY BASE
The Company's products incorporate several important software
technologies such as artificial intelligence, intelligent semantic agents,
conceptual querying, adaptive dynamic interfaces, intelligent tutoring,
object-oriented programming, active and visible graphical interfaces and
databases.
There are two primary components of the Company's SMART SUPPORT SYSTEM:
o The SMART PERFORM performance support system driven by MCC's
advanced CARNOT intelligent agent technology, and
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o THE SMART ONE skillbuilding software (training modules).
These components are described in more detail below.
SMART PERFORM
The SMART PERFORM service is a virtually-networked intelligent
performance support environment. Advancements in networking, multimedia and
expert knowledge programming are combined to provide a new level of
individualized intelligent assistance. Integration of the SMART PERFORM
component into the Company's product inventory will occur in the near future.
The specific nature of the intelligent assistance will be dictated by the market
to be addressed. For example, the Company is currently developing a SMART
PERFORM network performance support service bureau to identify and provide
solutions to existing network problems as well as provide network performance
optimization and network security for corporate intranets.
CARNOT TECHNOLOGY AND SMART PERFORM
The advanced CARNOT technology recently acquired from MCC makes SMART
PERFORM possible. CARNOT technology is the result of a research project started
by MCC in 1990 and completed in 1995.
CARNOT is essentially a "suite" of computer programs. CARNOT has been
designed with the complexity of today's computer systems in mind. Today's
complex computer systems are comprised of different types of hardware and
software, many of which are extremely sophisticated, but are unable to
communicate with each other. This means that accessing and sharing information
across different systems is often impossible. In addition, the amount of
information stored and accessed on computer systems is increasing at virtually
immeasurable rates and is expressed and stored in different ways. These factors
have created an interesting problem for those intent on creating a single
"information superhighway".
How does one find and retrieve information when and where it is needed,
and in a form that is desirable? How can one determine what is actually
available to be known and used? What is involved in integrating, structuring and
managing complex information systems? CARNOT was developed as a solution to
these problems and to others. With the CARNOT technology, it is possible for a
person to seek and obtain specific information in a specific form, such as text,
video, or graphics. The information may be located on different computers in
different places around the world. The context in which the information is
sought may be that of a business presentation to be made, a training program to
be developed, or a marketing plan to be written. CARNOT effectively eliminates
problems related to differences in data format and accessibility. With CARNOT,
the information is accessed, retrieved, and returned to the user in a form
compatible with the user's system.
This is all accomplished with advanced computing technologies such as
"semantic agents." In the computing world, agents are software which has been
designed to perform sophisticated duties often bordering on the "thinking"
capability of humans. Agents in CARNOT, for example, are assigned specific
responsibilities such as accessing and retrieving information, or searching for
trends and similarities among different forms of information. These activities
may be triggered by a user's request, or they may occur without solicitation,
although ultimately serving to benefit the user's needs.
With these capabilities at its disposal, CARNOT can be called upon to
integrate and traverse the Internet as well as other corporate networks,
including its areas of large, complex computer systems, or enterprises. CARNOT
agents can gather, assimilate, and retrieve information in a wide range of
applications. It is currently being used by the National Security Agency, the
Pentagon, Eastman Chemicals, and NCR Corporation, who were among the original
participants in the MCC project.
"SMART SEARCH" (CARNOT) INTELLIGENT SEARCH ENGINE
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While trying to access and retrieve information, information seekers are
faced with the challenge of being presented with too much information of nominal
value. Solving this problem, a derivation of the CARNOT technology, called SMART
SEARCH can be used by information providers to "advertise" the availability of
revenue generating information. In addition, clients can "discover" the
availability of useful information and then "fuse" the information from many
sources. These capabilities are performed autonomously on behalf of the user.
SMART SEARCH is essentially an intelligent search engine which will
represent the next generation of Internet World Wide Web search engines capable
of addressing the needs of moderately skilled and relatively inexperienced
users. Often, these users may need easy solutions involving complex queries
against dynamic, heterogeneous and remote information sources. This will
significantly increase the availability of users who can effectively exploit
valuable information sources while making business decisions.
SMART ONE TRAINER
The Company's SMART SUPPORT SYSTEM applications will be designed to
provide individual users with interactive training and skills support for a wide
variety of products and services. The core of the system is the proprietary
SMART ONE program which can be adapted to a wide variety of training
applications. The first SMART ONE training program, developed for the Company by
AT&T, is a PC-based template which guides the user through a series of lessons
on the proper operation of a specific piece of equipment or machinery. For
instance, a gas inspector can be taught to operate a gas meter through a series
of on-screen instructional videos, graphics and tests. The program will teach
the individual everything from how to turn the machine on to how to analyze a
meter reading. Using a touch screen, mouse, joystick or keyboard, the student
can interact with the training session and actually attempt to perform skills
immediately following a tutorial. With the AI algorithms built into the
programming, the SMART ONE training system can quickly determine how proficient
the user is and then skip unnecessary training programs or suggest additional
training which is already embedded in the system. Because of the program's
ability to assess the individual's skills, this system can be used by experts
who simply need to refresh their knowledge of certain skills, or learn new ones,
but do not need to go through the cumbersome process of relearning skills that
they are already proficient in, as well as by novices.
The SMART ONE trainer delivers a solution that provides skills
development training in addition to the dissemination of knowledge. The system
delivers multimedia-based training that selectively and uniquely adjusts to the
needs of each individual being trained. Utilizing the latest technology, a
multimedia enabled computer emerges as a highly personal and sophisticated
"learning assistant." The training process includes both an initial assessment
as well as a skill-building phase. In the assessment phase, the computer
assesses the unique knowledge and skill level (I.E., strength and deficiencies)
of the individual. Based on this assessment, the computer formulates a totally
unique and personalized learning experience for the individual on a real-time
basis. Strengths are acknowledged and rewarded. Skill and knowledge deficiencies
are resolved "on-the-fly," with the computer-based intelligent tutoring system
tailoring the experience as the individual proceeds. All of the individual's
decisions and actions are recorded so that a complete picture of the person's
skills and knowledge can be demonstrated.
The SMART ONE training software has its development based on an end-user
focused design process whereby training tasks are studied to determine how the
individual learns, thinks, and performs a required task. From this evaluation,
course content descriptions are generated to guide the software development
process.
The training software is capable of tailoring the training modules to
what each student knows, and is capable of tailoring the module to the way each
student likes to learn. The software is able to compare the student's
performance to "expert" performance and adapts itself accordingly. It also
recognizes the student's approach to learning and, when in doubt, asks for the
student's preferences. The software then uses this information so that all users
can learn at their own pace and in their own style.
The SMART ONE training software provides the right amount of support at
the right time by monitoring user performance, user interaction history and
current task constraints. It is able to modify the level of support accordingly,
giving the less skilled user prompts and menus that are not provided to the more
experienced user. This training software
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technology is combined with superior multimedia interfaces to make training and
performance support more useful, effective, timely and fun. The user learns
actively by making choices, and the system responds with a full and varied array
of graphics, animation, video, sound effects and touch interaction that
reinforces correct performance and remedies incorrect performance.
The SMART ONE training program has been designed as a series of training
modules. Each module consists of approximately five multimedia skill building
lessons which can run for as long as 30 minutes each. In general, a complete
training course will consist of approximately 20 training modules. Since each
individual to be trained has a different level of proficiency, the amount of
time spent on each skill can vary from as little as two or three minutes for the
system to quickly verify the proficiency of an expert to as many as 30 minutes
to train someone who has no knowledge of a particularly difficult skill. Hence,
an individual who is new to a skill could spend as many as 50 hours in training
while an expert may only need a few hours to receive complete recertification
training. The economics of this are particularly important to companies and
government organizations which spend millions of dollars annually to send their
staff to training programs or to recertify technical people on certain skills.
These off-site programs also may include a significant amount of redundant
materials and will result in the loss of productivity while the individual is
away from the job.
The SMART SUPPORT SYSTEM has also been designed with the flexibility to
be used on the job to help support certain technical skills and to serve as an
expert resource. A technician working with a gas company, for instance, could
use the system to help him locate a certain valve in a housing complex and then
show him the proper technique and tools necessary to close or open the valve.
Unlike a standard training system, this flexibility makes the SMART SUPPORT
SYSTEM significantly more useful and cost effective because it can be used both
in the classroom setting as well as in the field. The system has also been
designed to work on a variety of computer platforms. The platform can range from
a simple stand-alone 386 or 486 PC-based CD-ROM multimedia workstation to a
local or wide-area network (LAN or WAN) delivery configuration. Initially, the
Company will out-source the production and incorporation of visual and audio
media, while Company personnel will configure the system and incorporate the AI
algorithms.
SALES AND MARKETING
INTELLIGENT NETWORK AGENTS
The rapid growth of information sources in both corporate networks and the
Internet and the increased difficulty in finding and making effective use of
that information has created a significant market opportunity. The Company
believes that SMART PERFORM applications that incorporate CARNOT/INFOSLEUTH INA
technology can take a leadership position.
With CARNOT/INFOSLEUTH, if you have information to share with others, it's
agents will help you to describe the information so it can be found. If you want
to find information, CARNOT/INFOSLEUTH agents will cooperate with each other to
find the information and bring it to you. CARNOT/INFOSLEUTH agents can be
dispatched to continuously filter information, monitor activity, and represent
the client in the network. The more sophisticated, or "smart" these agents are,
the more value they provide and thus can command significant revenue.
The Company intends to market the use OF CARNOT/INFOSLEUTH technology to
information rich/dependent organizations in financial services, high technology
suppliers, network providers, information resellers, and the government.
TRAINING AND EDUCATION
The demand for more cost effective and efficient educational training
systems that use advanced technologies has created a market niche that many
software and computer companies are trying to capitalize on. The Company
believes that its SMART ONE trainer will be well-positioned to be a leading
product in this market.
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As the Company's core interactive training technology, SMART ONE has been
designed to be adapted to a wide variety of educational applications and can
potentially be delivered to a large population base. Since the system can be
used both in the classroom as well as in the field to support certain technical
skills, the extra utility makes it easier for companies to justify the costs
related to implementing SMART ONE training. Initially, the Company will focus on
the first template that it has developed in conjunction with AT&T GIS and will
be marketing its systems in the financial services, medical, manufacturing and
government markets.
These markets, which are driven by regulatory pressures from agencies such
as the Securities and Exchange Commission, Department of Transportation,
Environmental Protection Agency and the Occupational Safety and Health
Administration, should provide the Company with one of the best opportunities to
introduce its products. It particularly applies to government employees who are
involved in inspection and quality control and need to be trained in the proper
operation of certain equipment and systems. Presentations have been made to key
decision makers in Washington affiliated with the Pentagon, Department of
Transportation, and General Services Administration.
In the technology manufacturing marketplace, the Company is now
introducing its first SMART ONE trainer product via a co-venture with IBM. The
pilot project is called IBM Visual Report Program Generator. The VRPG SMART ONE
training product is a derivation of the AT&T SMART ONE prototype based on IBM
specifications and priorities. It is targeted at application development
programmers who work on AS/400 minicomputers purchased from IBM.
An important component to the Company's growth strategy is maintaining
control of the programming content. Companies or organizations interested in
developing a specific training course will contract with the Company to develop
the program and then license the use of the software to train employees. This
strategy has been adopted to assure that certain quality standards are
maintained for all SMART ONE products, to foster a steady and growing revenue
stream from each customer, as well as to assist the company in expanding its
library of training programs and market opportunities.
PRODUCT RESEARCH AND DEVELOPMENT
To date, substantially all of the Company's research and development has
been done by MCC, AT&T GIS and in-house. The Company expects that most of its
products will continue to be developed either internally or jointly with MCC and
strategic corporations such as BMC Software, Inc., Cabletron Systems, Inc., and
MFS Datanet, Inc., although it may on occasion acquire ownership of, or rights
to market, existing programs. To date, the Company's research and development
costs have been approximately $1.2 million.
The Company intends to shift the physical location of it's research and
development to Houston, Texas from Atlanta, Georgia beginning in December, 1996.
Additional research and development support will come through the Company's
membership in MCC in Austin. The Company is also building its own internal
research and development capability to assure future continuity. Finally, a
limited amount of product and marketing research and development is in process
with the fulfillment of the IBM co-venture agreement.
In April, 1995 the Company became a Small Business Affiliate of MCC.
MCC, one of the nation's leading technology development and commercialization
organizations, is a consortium of nearly 80 corporations, public and nonprofit
agencies, and universities. Through shared elements of a technical vision in
information technologies, these organizations are cooperating to gain
competitive business advantage. To further augment it's research and development
capability, the Company has exchanged approximately $5.3 million in preferred
securities in return for existing MCC technology. With this agreement, the
Company has gained access to the technology which will serve as the foundation
for its future SMART SUPPORT NETWORK. The Company has acquired rights to the
CARNOT technology and while the INFOSLEUTH technology has not yet been acquired,
it is the Company's intention to become a member of the INFOSLEUTH project at
MCC and to become a licensee, although the assurance of which cannot be
guaranteed.
COMPETITION
INTELLIGENT NETWORK AGENTS
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The use of intelligent network agents (INA's) in commercial applications
like the Internet's World Wide Web is a relatively new phenomena. The increased
use of INA's has been brought about by the surging use of first generation
Internet search engines that exist in the market. These search engines are
limited to key word searches that often provide much more information than can
be practically used. INA's alleviate this problem by providing more useful
context- sensitive information to the user.
Potential competitors in the area of INA's are companies like Agents,
Inc., an outgrowth of the Massachusetts Institute of Technology's Media Lab;
WebWatcher, created at Carnegie Mellon University, AUTONOMY network agents
created by Cambridge Neurodynamics; and U-Media, created by Empirical Media.
These organizations are in the very early stages of market deployment and enjoy
no unique competitive advantage. The Company believes that rapid market
deployment of its CARNOT technology and applications will lead to early
prominence in the emerging market for network performance support and intranet
security.
TRAINING AND EDUCATION MARKETPLACE
The Company does not have knowledge of other companies developing Al
based multimedia training systems. There are many companies which are developing
interactive multimedia training products which address the same market. Many of
the major software companies have developed some form of educational product
that can be run on PC-based systems. The majority of these products are designed
for mass market appeal with a particular focus on the home market.
Companies such as IBM and Microsoft, however, are involved in developing
training products for the industrial marketplace and for schools and educational
institutions. Other companies which produce educational software products for
both the educational and industrial marketplace include Scholastic, Broderbund
and Softkey International. While none of these companies, to the Company's
knowledge, has any product that can be as personalized or as truly interactive
as the Al-based SMART SUPPORT SYSTEM, new developments in this industry can
occur very rapidly.
A key reason why AI has not been incorporated into training programs to
date has been the high cost of product (software code) reproduction. While the
cost of "cloning" AI software has been a deterrent in the past, AT&T has,
through its extensive experience in developing classified training programs for
the US military, learned how to write the code in a manner which minimizes any
changes. This makes it possible for the AI "engine" which drives the Company's
SMART ONE training to be used with minimal modification in a broad range of
training applications and scenarios.
EMPLOYEES
As of December 1, 1996, the Company had four employees. None of the
Company's employees is covered by a collective bargaining agreement. The Company
believes that its employee relations are good. The Company intends to hire
additional personnel, as needed, in the near future.
ITEM 2. PLAN OF OPERATION
INTRODUCTION
The Company was formed for the purpose of engaging in the design,
development, production, and marketing of AI-based training and performance
support systems for industrial and consumer applications. Since inception, the
Company has been a development stage company. During the first fiscal quarter
ending August 31, 1996, the Company had nominal sales of its IBM VRPG Trainer.
The Company expects to commence significant operations in addition to its
research and development activities in the third and fourth fiscal quarters
ending May 31, 1997.
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PRE-OPERATING ACTIVITIES
The Company's plan of operations entails significant expenditures before
commencement of operations. The most significant of these pre-operating expenses
are payroll and benefits, advertising and the hiring and training of the
Company's technical personnel. It is expected that the Company's personnel will
increase from four as of December 1, 1996, to approximately 15 by commencement
of significant operations.
As a development stage company, the Company has had no significant
revenue to date and has incurred approximately $1.2 million in development
costs. These development costs have been incurred primarily in conjunction with
the SMART ONE development project through AT&T. The Company has been able to
keep its overhead costs relatively low and is presently running at a consumption
rate of approximately $75,000 per month with a majority of that amount related
to salaries. At August 31, 1996, the Company had a working capital deficit of
approximately $597,000. However, in October and November 1996, the Company
raised approximately $1 million through the issuance of Common Stock and
management believes that this capital will be sufficient to fund operations
through the current fiscal year. Until this Company is cash flow positive from
its operations, it will continue to rely on external sources of financing to
meet capital needs.
The Company intends to license its SMART SUPPORT SYSTEM software
programs to various private and public organizations on a fee-per-use basis.
While contract terms will vary based on expected usage and the complexity of the
program that needs to be developed, management's current intent is to charge an
average rate of $1.00 per minute per individual. Hence, an expert who only needs
a few hours of recertification training may incur a lower expenditure while a
novice learning a new job in its entirety could take numerous hours and incur a
higher expenditure. Management believes that the average training per individual
will be about 15 minutes per lesson, and, assuming 100 lessons, an average
training program would probably take about 25 hours and cost about $1,500 per
employee (under current pricing expectations). Management believes that this is
approximately two-thirds less than the current cost of traditional classroom and
computer-based training.
DESIGNATION AS FLAG TECHNOLOGY BY UNITED NATIONS
In October 1996, the SMART ONE trainer and the SMART SUPPORT SYSTEM,
including all of its corporate intranet applications, qualified for designation
as a United Nations "Flagship Technology." The United Nations (UN), acting
through the Global Technology Group (GTG) of the United Nations Development
Program (UNDP), identified the Company's technologies as appropriate to transfer
to 130 least developed countries (LDCs). The mission of the GTG is to (i) foster
latent LDCs' productive capacity through technology transfer, (ii) enhance LDCs'
livelihood systems by harnessing sustainable state of the art technologies from
the Developed Countries, and (iii) create comprehensive means for technology
adaptation in LDCs through enterprise support, including private sector funding.
The GTG uses the UN Flagship Technology Programme (UNFTP) as part of the
implementation of its mission, in which the GTG acts as a catalyst in bringing
together needed technology and entrepreneurs and production facilities in LDCs.
The UNFTP designation has recently become recognized as a legitimizing
force and joins a list of other "sustainability labels" for technology, in the
same manner that underwriter's laboratory ("UL") is recognized as a label for
safety in technology. The Flagship Technology designation generates enthusiasm
and commitment to such values as environmental care, social benefit, and local
sourcing for talent and employment. The UNFTP designation has become a coveted
label for companies seeking private sector financing or IPOs, and enables the
GTG to mediate between the private sector and the needs of less developed
countries. In some cases, the GTG has taken , and will continue to take, an
active role in steering the enterprises participating in the UNFTP.
Dr. Joseph Ben-Dak, Chief of the Global Technology Group of the United
Nations Development Programme, has consented to endeavor to match the Company's
technologies with those countries, and the private sectors within those
countries, which can best utilize the Company's technologies in a mutually
beneficial and rewarding relationship which accomplishes the primary mission of
the GTG. As of the date hereof, it is difficult to determine the extent of any
of the revenues to be derived from these relationships.
10
<PAGE>
OPERATING ACTIVITIES EXPECTED TO COMMENCE IN 1997
TRAINING
The Company intends to license its SMART SUPPORT SYSTEM software
programs to various private and public organizations on a fee-per-use basis.
While contract terms will vary based on expected usage and the complexity of the
program that needs to be developed, management's current intent is to charge an
average rate of $1.00 per minute per individual. Hence, an expert who only needs
a few hours of recertification training may incur a lower expenditure while a
novice learning a new job in its entirety could take numerous hours and incur a
higher expenditure. Management believes that the average training per individual
will be about 15 minutes per lesson, and, assuming 100 lessons, an average
training program would probably take about 25 hours and cost about $1,500 per
employee (under current pricing expectations). Management believes that this is
approximately two-thirds less than the current cost of traditional classroom and
computer-based training.
INTELLIGENT TUTOR FOR USERS OF THE UN COMPUTER
The Company is currently negotiating with the Global Technology Group to
include on UN distributed computers a version of the SMART ONE trainer, which
will be an interactive guide and tutor when a new user " boots up," along with
the Company's own intelligent web browser for use on each computer. The GTG is
in the process of placing a substantial initial order for a notebook computer to
be built to its specifications by a major PC manufacturer. The revenue to the
Company, if any, will depend on the extent of the computers distributed
worldwide by the GTG. The UN plans on selling these computers in the developed
nations at a price sufficient to help subsidize distribution and sales in the
developing nations, which is the stated mission of the Global Technology Group.
UNITED NATIONS AND WORLD TRADE CENTER INTRANETS AND RELATED SERVICE BUREAUS
The Company is also negotiating with the United Nations to provide, in
conjunction with companies such as MFS Datanet, an international network, or
"intranet," for the UN linking all its offices in member nations, as well as
subscribing national government offices and major financial institutions. The
Company would then provide content for the UN Intranet in the form of a
financial modeling service bureau for economic forecasting as well as currency
hedging in the financial sectors of the developing countries. The Company is
currently developing several of its CARNOT applications which will enhance the
performance of existing financial modeling software for these purposes. The
Company is concurrently negotiating with the World Trade Center to upgrade and
enhance the current financial network among the Port Authorities and like
agencies in the world. Little revenue is expected in 1997 from the UN network
but the World Trade Center network could produce revenue in 1997 on a fee basis
as well as an indeterminate amount from the sale of financial modeling data on a
service bureau basis.
NETWORK MANAGEMENT SUPPORT AND NETWORK PERFORMANCE OPTIMIZATION
Substantial revenue to the Company could also be derived from the
provision of Network Performance Support, both over a service bureau utilizing
existing third party software with A CARNOT overlay, as well as resale of
network management software under the provisions of VAR agreements being
negotiated with BMC Software and Cabletron Systems, Inc. Later in 1997, the
Company should have products online which will provide significant network
performance optimization as well. Should this occur, of which there is no
assurance, the Company could generate revenue in 1997, with initial service or
license revenue coming from existing customers of BMC and Cabletron who want the
enhanced services provided by the Company. The Company's strategy is to enter
VAR/Sublicense agreements with both BMC and Cabletron.
INTERNATIONAL NASDAQ INTRANET AND RELATED SERVICE BUREAU
During December 1996, the Company will be negotiating with Nasdaq to
provide an intelligent network with full performance support for a proposed
International Nasdaq. The Company would be providing performance support using
intelligent agents for individual brokers and their firms, and enhanced
financial modeling similar to that to be
11
<PAGE>
provided to financial institutions and governments over certain known and
evolving international intranets. While the revenue from establishing and
maintaining the Nasdaq International Intranet is not yet determined, revenues
could be generated from providing the financial modeling and performance support
services to the financial institutions on such intranet. The Company's strategy
is to charge fees to major financial institutions and brokerage firms for
financial modeling information, broker training and performance support.
RISK ASSESSMENT AND RISK MANAGEMENT
Efficient and effective compliance with the regulatory requirements of
OSHA, EPA and a myriad of other governmental agencies is of great interest and
concern for insurance companies, major corporations and the federal government
itself. Additionally and more importantly, all are concerned with accurately
assessing the risks of occurrence of harmful events or harmful noncompliance and
the extent of the damage caused by the harmful event or the on compliance, and
efficiently allocating prevention and compliance resources based on such risk
analysis. The Company is currently arranging for third party funding for the
development of risk analysis and management applications which will utilize
CARNOT technology to perform these critical functions. The federal government,
already pleased with SMART TRAINER, has expressed great interest in this project
and will probably provide significant revenue, along with the insurance industry
and major corporations. Any revenue will probably occur in periods after 1997.
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases approximately 400 square feet of office space in
Houston, Texas, on a month-to-month basis, at a rate of $925 per month. The
Company is currently negotiating for approximately 4,500 square feet of office
space in Houston, Texas, at an approximate cost of $15 per square foot pursuant
to a five year lease, which it believes will be adequate to meet its current
needs.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 2, 1996, the number and
percentage of outstanding shares of Company Common Stock owned by (i) each
person known to the Company to beneficially own more than 5% of its outstanding
Common Stock, (ii) each director, (iii) each named executive officer, and (iv)
all officers and directors as a group.
NUMBER OF SHARES
NAME AND ADDRESS OF OF COMMON STOCK PERCENTAGE OF
BENEFICIAL OWNER(1) BENEFICIALLY OWNED OWNERSHIP
- ------------------- ------------------ ---------
GK-Texas(2) ......................... 6,375,000 57.8%
Gary F. Kimmons ..................... 8,654,080(3) 66.5%
All officers and directors
as a group (3 persons) .............. 8,834,080 68.2%
- ------------------------
(1) The business address of each principal stockholder is the same as the
address of the Company's principal executive offices.
(2) Mr. Kimmons owns or controls through a family limited partnership of
which he is general partner, all of the capital stock of GK-Texas, and
as such has the sole voting, investment and disposition power over these
shares.
(3) Includes the 6,375,000 shares owned of record by GK-Texas which Mr.
Kimmons beneficially owns through control of GK-Texas.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
12
<PAGE>
The Company's directors and executive officers are:
NAME AGE POSITION
---- --- --------
Gary F. Kimmons 45 Chairman of the Board of Directors and
Chief Executive Officer
Rodney L. Norville 49 Vice President and General Counsel
N. Roderick Grimes 44 Vice President, Sales/Marketing
GARY F. KIMMONS has served as chairman of the board and chief executive
officer of the Company since August 1994. Mr. Kimmons is also a director,
officer and principal shareholder of GK-Texas, I-NET(Delaware) and Gary Anthony,
Inc., a Texas corporation. Mr. Kimmons has extensive experience in the design,
development and implementation of business management and technical training
systems. From 1986 until forming I-NET(Delaware) in July 1993, Mr. Kimmons
operated Gary Anthony, Inc, a privately held corporation specializing in
developing training programs. From 1981 to 1986, Mr. Kimmons was the manager of
human resource development and employee communications at Reading & Bates
Corporation. Mr. Kimmons received a bachelor of science degree in psychology,
anthropology and behavioral science from Rice University in 1973 and a masters
degree in applied industrial psychology and management science from Stevens
Institute of Technology in 1975.
RODNEY L.("ROD") NORVILLE has served as vice president and general
counsel since December 1996. Mr. Norville has been a certified public accountant
since 1971, has had his own legal practice since 1978, and is Board Certified in
Tax Law by the Texas State Board of Legal Specialization. From 1975 to 1980, Mr.
Norville was an assistant professor in the School of Business at Texas Southern
University. Mr. Norville received a bachelor of arts degree in economics and
business administration in 1969 from Rice University, a bachelor of science
degree in accounting in 1970 from Rice University, a master of accounting degree
in 1975 from the Jones Graduate School of Administration at Rice University, and
a juris doctor degree from the University of Houston's Bates College of Law in
1978.
N. RODERICK ("ROD") GRIMES has served as vice president, sales/marketing
of the Company since August 1994. For 20 years prior thereto, Mr. Grimes held
various positions at IBM relating to sales, management and the marketing of
small and intermediate data processing systems and services. At IBM, Mr. Grimes
managed geographic marketing areas with regional centers in Dallas, Minneapolis
and Los Angeles, managed marketing programs of multimedia products and services
in the Latin American region, and was responsible for the management of
marketing programs for the worldwide consulting group. Mr. Grimes is a graduate
of Northwestern University.
The directors of the Company hold office until the next annual meeting
of stockholders of the Company and until their successors in office are elected
and qualified. The Company has not established and does not maintain any
compensation, audit, executive or nominating committees. All officers serve at
the discretion of the Board of Directors.
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(*)
----------------------
NAME AND PRINCIPAL FISCAL
POSITION YEAR SALARY
- ---------------------- ---- ------
Gary F. Kimmons, Chief 1996 $ 167,500
Executive Officer 1995 $ 160,000
1994 $ 24,000
- ----------------------
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<PAGE>
(*) The named executive officer received perquisites or other benefits not
in excess of 10% of the total of reported annual salary and bonus.
In August 1995, Mr. Kimmons entered into a three-year employment
agreement with the Company that automatically renews at the end of the term for
consecutive one-year terms, and which provides for an annual base salary of
$240,000, plus incentives (annual and long-term), retirement benefits, welfare
benefits and fringe benefits customary for the Company's industry. Upon the
termination of the employment agreement by the Company, other than for cause or
disability, (i) the Company shall pay the employee an amount equal to
approximately three times the sum of the annual base salary and the average of
the last three annual incentive bonuses actually paid, and (ii) any such options
owned by Mr. Kimmons shall immediately vest. In addition, in the event that any
payment or distribution by the Company to Mr. Kimmons is determined to be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code,
the Company shall pay to Mr. Kimmons an additional "gross-up payment" to
compensate for such excise tax.
In December 1996, Mr. Norville entered into a three-year employment
agreement with the Company which provides for an annual salary of $120,000, plus
retirement benefits, welfare benefits and fringe benefits customary for the
Company's industry.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Company's acquisition of intellectual property
from GK-Texas, the Company issued GK- Texas 6,375,000 shares of Common Stock.
GK-Texas is controlled by Mr. Kimmons. Mr. Kimmons conveyed the intellectual
property to a predecessor of GK-Texas in July 1993 for nominal consideration.
During the fiscal year ended May 31, 1996, Mr. Kimmons was issued an aggregate
of 279,080 shares of Common Stock for services rendered to the Company valued at
$104,655.
Mr. Grimes acquired 10,000 shares of Common Stock at a purchase price of
$.50 per share in May 1994. Mr. Grimes acquired an additional 20,000 shares of
Common Stock at a purchase price of $.35 per share in January 1996.
Jedson Enterprises, Inc. - Trustee, an entity controlled by Mr.
Norville, acquired 24,000 shares of Common Stock at a purchase price of $.50 per
share in May 1994, 26,000 shares of Common Stock for nominal consideration in
January 1995 and 100,000 shares of Common Stock for nominal consideration in
December 1996.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 15,000,000 shares of Common
Stock, of which 11,020,002 shares of Common Stock are issued and outstanding and
1,368,969 shares are reserved for issuance pursuant to the exercise of
outstanding warrants.
The holders of shares of Common Stock are entitled to one vote per share
on each matter submitted to a vote of stockholders. In the event of liquidation,
holders of Common Stock are entitled to share ratably in the distribution of
assets remaining after payment of liabilities. Holders of Common Stock have no
cumulative voting rights, and, accordingly, the holders of a majority of the
outstanding shares have the ability to elect all of the directors. Holders of
Common Stock have no preemptive or other rights to subscribe for shares. Holders
of Common Stock are entitled to such dividends as may be declared by the Board
of Directors out of funds legally available therefor.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock, $.001 par value per share. The Preferred Stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by stockholders, and may include
voting rights (including the right to vote
14
<PAGE>
as a series on particular matters), preferences as to dividends and liquidation,
conversion, redemption rights and sinking fund provisions.
In February 1996, the Board of Directors created the convertible
redeemable series A preferred stock, stated value $6.00 per share ("Series A
Preferred Stock"), and authorized the issuance of 883,333 shares thereof.
Commencing January 1, 1998, the Series A Preferred Stock: (i) accrues cumulative
cash dividends per share at an annual rate equal to 6%, payable in equal
semi-annual installments; (ii) is redeemable at the option of the Company; and
(iii) is convertible by the holders thereof at an initial conversion price of
$6.00 per share. The Series A Preferred Stock carries a liquidation preference
of $6.00 per share. The holders of the Series A Preferred Stock are entitled to
vote, together with the shares of the Company's Common Stock, on all matters
presented at any annual or special meeting of the stockholders of the Company,
or may act by written consent in same manner as the holders of the Company's
Common Stock. Each holder of Series A Preferred Stock shall be entitled to cast
that number of votes for each share of Preferred Stock held by such holder on
the record date fixed for such meeting or on the effective date of such written
consent, as shall be equal to the number of shares of the Company's Common Stock
into which each of such shares of Preferred Stock is convertible immediately
after the close of business on the appropriate record date. The voting rights of
the holders of the Company's Common Stock will be diluted upon conversion of the
Preferred Stock and the holders of the Preferred Stock will have preferential
dividend and liquidation rights over the holders Common Stock. The issuance of
any additional shares of Preferred Stock could adversely affect the rights of
the holders of Common Stock and, therefore, reduce the value of the Common
Stock. In February 1996, the Company issued all 883,333 shares of its Series A
Preferred Stock to MCC pursuant to the Company's license agreement with MCC
dated November 2, 1995.
WARRANTS
The Company has issued 1,368,969 warrants, with exercise prices ranging
from $1.00 to $2.00 per share, the later of which expire November 2006.
REGISTRATION RIGHTS
The holders of warrants to purchase 868,969 shares of Company common
stock have been granted one right to piggy-back on a firm commitment
underwritten offering of Company securities which right expires August 1, 1997.
The holder of 883,333 shares of Company preferred stock has been granted
one right to demand registration in a secondary offering by means of shelf
registration under Rule 415 of the Securities Act that may be requested by the
holder in January 1998, and unlimited rights to register on a piggyback basis in
a firm commitment underwritten offering of Company securities. The holder's
rights expire two years after the preferred stock has expired.
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock trades under the symbol "GKIS" on the OTC
Electronic Bulletin Board. The market for the Company Common Stock on the OTC
Electronic Bulletin Board is limited, sporadic and highly volatile. The
following table sets forth the high and low bid prices per share of the
Company's Common Stock since trading commenced on the OTC Electronic Bulletin
Board on October 3, 1994, as reported by the OTC Electronic Bulletin Board.
These prices reflect inter-dealer prices, without retail mark-ups, mark-downs or
commissions, and may not necessarily represent actual transactions.
15
<PAGE>
PRICE RANGE
-----------
FISCAL 1995 HIGH LOW
- ----------- ------- -------
Second Quarter
(commencing October 3, 1994) ................... $7-1/2 $7-1/4
Third Quarter .................................. 8 7-5/8
Fourth Quarter ................................. 8-1/8 7-1/2
FISCAL 1996
- -----------
First Quarter .................................. $8-1/4 $7-3/4
Second Quarter ................................. 3-3/4 1-1/4
Third Quarter .................................. 3-1/2 5/8
Fourth Quarter ................................. $1-3/4 $3/8
FISCAL 1997
- -----------
First Quarter .................................. $1-5/8 $1/2
Second Quarter ................................. $2-3/8 $3/4
On December 17, 1996, the last sales price of the Company's Common Stock
as reported by the OTC Electronic Bulletin Board was $2 1/4. The Company
believes that as of December 17 1996, there were over 250 record owners of its
Common Stock.
It is the present policy of the Company not to pay cash dividends and to
retain future earnings to support the Company's growth. Any payment of cash
dividends in the future will be dependent upon the amount of funds legally
available therefor, the Company's earnings, financial condition, capital
requirements and other factors that the Board of Directors may deem relevant.
The Company does not anticipate paying any cash dividends in the foreseeable
future.
ITEM 2. LEGAL PROCEEDINGS
None.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In August 1994, the Company issued 6,375,000 shares of Common Stock to
various individuals at a purchase price of $.05 per share.
From August 1994 through May 1995, the Company issued 383,920 shares of
Common Stock to various individuals at a purchase price of $.50 per share.
From August 1994 through May 1995, the Company issued 250,000 shares of
Common Stock for convertible debt at a price of $1.41 per share.
From June 1995 through May 1996, the Company issued 175,666 shares of
Common Stock to various individuals for services rendered.
From June 1995 through May 1996, the Company issued 246,569 shares of
Common Stock to various individuals at a purchase price of $1 per share.
From June 1995 through May 1996, the Company issued 155,267 shares of
Common Stock to various individuals at a purchase price of $2 per share.
From June 1995 through May 1996, the Company issued 28,800 shares of
Common Stock to various individuals at a purchase price of $2.50 per share.
From June 1995 through May 1996, the Company issued 3,333 shares of
Common Stock to various individuals at a purchase price of $3 per share.
In July 1995, the Company issued 883,333 shares of Preferred Stock to
MCC at a purchase price of $6 per share.
In September 1996, the Company issued 1,140,000 shares of Common Stock
to a limited number of investors at a purchase price of $.875 per share pursuant
to a placement exempt under Rule 504 of Regulation D.
In October and November 1996, the Company issued 472,956 shares of
Common Stock to a limited number of investors at a purchase price of $1.00 per
share pursuant to a placement exempt under Rule 506 of Regulation D.
In each instance described herein, the issuance of shares was exempt
from registration under Section 3(b) or 4(2) of the Act thereof as a transaction
by an issuer not involving any public offering. In each instance, the purchaser
had a pre-existing relationship with the Company or its founder, the offers and
sales were made without any public solicitation, the certificates bear
restrictive legends and appropriate stop transfer instructions have been or will
be given to the transfer agent. No underwriter was involved in the transactions
and no commissions were paid.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Insofar as indemnification by the Company for liabilities arising under
the Act may be permitted to directors, officers and controlling persons of the
Company pursuant to provisions of the Certificate of Incorporation and Bylaws,
or otherwise, the Company has been advised that in the opinion of the SEC, such
indemnification is against public policy and is, therefore, unenforceable. In
the event that a claim for indemnification by such director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding is asserted by such director, officer or controlling person in
connection with the securities being offered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
17
<PAGE>
PART F/S
The financial statements of the Company appearing in this Registration
Statement for the fiscal years ended May 31, 1996 and 1995 have been audited by
the Company's certified public accountants, Alonzo & Wells, L.L.P.
PART III
ITEM 1. EXHIBITS
The following exhibits are to be filed as part of the Registration
Statement:
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
3(i) Certificate of Incorporation of the Company
3(ii) By-laws of the Company
4.1 Common Stock Certificate
4.2 Form of Warrant
10.1 Agreement with Microelectronics Computer Corporation
10.2 Agreement with AT&T
10.3 Gary Kimmons Employment Agreement
10.4 Rodney L. Norville Employment Agreement
10.5 Employee Stock Option Plan
18
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
GK INTELLIGENT SYSTEMS, INC.
By /s/ GARY F. KIMMONS
GARY F. KIMMONS
Dated: December _____, 1996
19
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
(A Developmental Stage Enterprise)
Houston, Texas
COMPARATIVE FINANCIAL STATEMENTS
Three Months Ended August 31, 1996 (Unaudited)
and Year Ended May 31, 1996 (Audited)
and Year Ended May 31, 1995 (Audited)
AUGUST 31, 1996
<PAGE>
GK Intelligent Systems, Inc.
(A Developmental Stage Enterprise)
Table of Contents
August 31, 1996
Page
Accountants' Compilation Report.................................1
Balance Sheet...................................................2
Statement of Operations.........................................3
Statement of Shareholders' Equity...............................4
Statement of Cash Flows.........................................5
Notes to Financial Statements...................................6
<PAGE>
ALONZO & WELLS, LLP
Gilbert R. Alonzo, Jr., CPA CERTIFIED PUBLIC ACCOUNTANTS
C. Neel Wells, CPA
13103 F.M. 1960 WEST, SUITE 200
Telephone (281) 894-4993 HOUSTON, TEXAS 77065
Facsimile (281) 894-4698
ACCOUNTANTS' REPORT
To the Board of Directors
GK Intelligent Systems, Inc.
Houston, Texas
We have compiled the accompanying balance sheet for GK Intelligent Systems, Inc.
(A Developmental Stage Enterprise), a Texas corporation, as of August 31, 1996,
and the related statements of operations, shareholders' equity (deficiency) and
cash flows for the three months then ended, in accordance with standards
established by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying August 31, 1996 financial statements and, accordingly
do not express an opinion or any other form of assurance on them.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company has suffered recurring losses from operations,
which raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 10. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
The financial statements for the years ended May 31, 1996 and 1995 were audited
by us, and we expressed an unqualified opinion subject to the uncertainty of a
going concern as described in the paragraph above and further explained in Note
10 to the financial statements. Our audit reports for the financial statements
for the years ended May 31, 1996 and 1995 were dated August 31, 1996 and
September 12, 1995 respectively, and we have not performed any audit procedures
since the August 31, 1996 report date.
Alonzo & Wells, LLP
December 12, 1996
1
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
(A Development Stage Enterprise)
BALANCE SHEET
August 31, 1996 (Unaudited)
and May 31, 1996 and 1995 (Audited)
ASSETS
<TABLE>
<CAPTION>
August 31, 1996 May 31, 1996 May 31, 1995
(Unaudited) (Audited) (Audited)
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash ..................................... $ 43,084 $ 19,283 $ 15,072
Total Current Assets ................... 43,084 19,283 15,072
----------- ----------- -----------
FIXED ASSETS
Computer Software Costs (Note 2) ......... 6,510,542 6,500,542 988,773
LESS: Accumulated Depreciation/
Amortization ............................ (1,155,779) (871,926) (32,959)
Equipment (Note 3) ....................... 48,447 44,613 3,924
LESS: Accumulated Depreciation ........... (9,491) (7,285) (1,308)
----------- ----------- -----------
Net Fixed Assets ....................... 5,393,719 5,665,944 958,430
----------- ----------- -----------
OTHER ASSETS
Organization Costs (Note 2) .............. 274,863 274,863 274,863
LESS: Accumulated Amortization ........... (88,770) (75,027) (20,405)
----------- ----------- -----------
Net Other Assets ....................... 186,093 199,836 254,458
----------- ----------- -----------
TOTAL ASSETS ........................... $ 5,672,896 $ 5,885,063 $ 1,227,960
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable (Note 8) ................ $ 571,060 $ 563,060 $ 457,704
Leases Payable - Current (Note 6) ........ 14,779 14,779 0
Note Payable - Sterling Bank ............. 0 0 41,465
Loans from Shareholders (Note 9) ......... 53,547 53,547 0
----------- ----------- -----------
Total Current Liabilities .............. 639,386 631,386 499,169
----------- ----------- -----------
LONG TERM COMMITMENTS
Leases Payable - Long Term
(Note 6) ................................ 3,588 3,588 0
----------- ----------- -----------
Total Liabilities ...................... 642,974 634,974 499,169
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Common Stock (Note 5) .................... 9,266 9,114 7,884
(Par value $.001, 15,000,000
authorized, 9,266,114; 9,113,614;
7,883,920 issued, respectively
9,266,114; 9,113,614; 7,883,920
outstanding, respectively
Preferred Stock (Note 5) ................. 883 883 0
(Par value $.001, 10,000,000
authorized, 883,333 (Series A)
issued and outstanding)
Paid In Capital In Excess of Par
Value - Common Stock .................... 1,983,947 1,831,599 338,463
Paid In Capital In Excess of Par
Value - Preferred Stock ................. 5,299,115 5,299,115 0
Convertible Debt (Note 11) ............... 0 0 351,257
Stock Subscribed and Paid
(Note 12) ............................... 0 0 191,576
Stock Warrants (Note 5) .................. 0 0 0
Retained Earnings (Deficit) -
unrestricted ............................ (2,313,288) (1,890,622) (160,389)
----------- ----------- -----------
Total Shareholders' Equity ............. 4,979,922 5,250,089 728,791
----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY .................. $ 5,622,896 $ 5,885,063 $ 1,227,960
=========== =========== ===========
</TABLE>
See Accountants' Report.
The accompanying notes are an integral part of the financial statements
2
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
(A Developmental Stage Enterprise)
STATEMENT OF OPERATIONS
For the three months ended August 31, 1996 (Unaudited), and
the period from August 15, 1994 (date of inception),
to August 31, 1996 (Unaudited), and
For the years ended May 31, 1996 and 1995 (Audited)
<TABLE>
<CAPTION>
(Unaudited)
August 15,
Three Months 1994 Year Ended Year Ended
August 31, 1996 (Inception) to May 31, 1996 May 31, 1995
(Unaudited) August 31, 1996 (Audited) (Audited)
--------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Other Income ................................ $ 908 $ 54,916 $ 34,500 $ 19,508
----------- ----------- ----------- -----------
Total Revenue ............................. 908 54,916 34,500 19,508
OPERATING EXPENSES
Depreciation and Amortization (Notes 2 and 3) 299,801 1,254,040 899,567 54,672
Salaries (Production) ....................... 15,400 198,125 149,225 33,500
Other Professional Fees ..................... 18,000 170,902 152,452 450
Officer Compensation ........................ 56,250 200,947 144,697 0
Legal ....................................... 5,945 120,294 114,349 0
Software Research & Development Services .... 1,890 75,672 73,782 0
Travel ...................................... 5,240 50,870 45,630 0
Sales Expense ............................... 550 1,872 1,322 0
Rent ........................................ 4,200 25,652 21,359 93
Telephone ................................... 2,866 19,883 17,017 0
Insurance ................................... 0 14,330 14,330 0
Meals and Entertainment ..................... 932 13,922 12,490 500
Utilities ................................... 39 8,282 8,243 0
Equipment Rental ............................ 4,278 4,655 0 377
Delivery .................................... 1,669 14,292 12,623 0
Office Supplies and Expense ................. 872 59,691 56,543 2,276
Printing .................................... 3,565 28,530 24,965 0
Licenses & Fees ............................. 85 4,902 4,817 0
Postage ..................................... 0 1,665 1,478 187
Dues and Subscriptions ...................... 0 622 582 40
Donations ................................... 0 500 300 200
Taxes ....................................... 0 2,422 2,409 13
Repairs and Maintenance ..................... 364 1,214 288 562
Bank Charges ................................ 242 615 261 112
----------- ----------- ----------- -----------
Total Operating Expenses .................. 422,189 2,273,900 1,758,730 92,982
----------- ----------- ----------- -----------
NET INCOME (LOSS) FROM OPERATIONS ............. (421,281) (2,218,984) (1,724,230) (73,474)
OTHER INCOME AND EXPENSE (NET)
Interest Income ............................. 0 0 0 0
Interest Expense ............................ 1,385 7,388 6,003 0
----------- ----------- ----------- -----------
Net Income (Loss) from Other Income ....... (1,385) (7,388) (6,003) 0
----------- ----------- ----------- -----------
NET INCOME (LOSS) BEFORE INCOME TAXES ......... (422,666) (2,226,372) (1,730,233) (73,474)
INCOME TAXES (Note 4) ......................... 0 0 0 0
----------- ----------- ----------- -----------
NET INCOME (LOSS) ............................. $ (422,666) $(2,226,372) $(1,730,233) $ (73,474)
=========== =========== =========== ===========
Earnings (Loss) Per Share (Note 5) ............ ($0.046) ($0.244) ($0.190) ($0.009)
=========== =========== =========== ===========
</TABLE>
See Accountants' Report.
The accompanying notes are an integral part of the financial statements
3
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
(A Developmental Stage Enterprise)
STATEMENT OF SHAREHOLDERS' EQUITY
For the three months ended August 31, 1996 (Unaudited), and
the period from August 15, 1994 (date of inception),
to August 31, 1996 (Unaudited), and
For the years ended May 31, 1996 and 1995 (Audited)
<TABLE>
<CAPTION>
Deficit
Additional Additional Accumulated
Paid In Paid In During The
Common Preferred Capital Capital Development
Stock Stock Common Preferred Stage
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance June 1, 1994 ...... 254 0 67,153 0 (86,915)
July 14, 1994 - Reacquire
44,000 shares Common
Stock at $.001 per share . (4) 0 0 0 0
August 15, 1995 - Reacquire
2,250,000 shares Common
Stock at $.001 ........... (225) 0 0 0 0
August 15, 1994 - Three
and 1/2 for one share
split 250,000 shares
to 875,000 shares Common
Stock at $.001 per share . 850 0 0 0 0
August 18, 1994 - Issued
6,375,000 shares Common
Stock at $.05 per share .. 6,375 0 338,463 0 0
Various Dates - Issue
383,920 shares Common
Stock at $.50 ............ 384 0 191,576 0 0
Issue 250,000 shares
for Convertible Debt
Common Stock at $1.41 .... 250 0 351,257 0 0
Net Loss for the period
ended May 31, 1995 ....... 0 0 0 0 (73,474)
----------- ----------- ----------- ----------- -----------
BALANCE AT MAY 31,
1995 (AUDITED) ........... 7,884 0 948,449 0 (160,389)
----------- ----------- ----------- ----------- -----------
July 13, 1995 - Issued
883,333 shares
Preferred Stock
(Par value $.001)
for $6.00 ................ 0 883 0 5,299,115 0
Various Dates (June 1995
through May, 1996)
Common Stock at
average $.72 ............. 1,230 0 883,150 0 0
Net Loss for the
Period ended May 31,
1996 0 0 0 0 (1,730,233)
----------- ----------- ----------- ----------- -----------
BALANCE AT MAY 31,
1996 (AUDITED) ........... 9,114 883 1,831,599 5,299,115 (1,890,622)
----------- ----------- ----------- ----------- -----------
Various Dates -
(June 1, 1996
through August 31,
1996) Common Stock
at average $1.00 ......... 152 0 152,348 0 0
Net loss for the
Period ended
August 31, 1996 .......... 0 0 0 0 (422,666)
----------- ----------- ----------- ----------- -----------
BALANCE AT
AUGUST 31, 1996
(UNAUDITED) .............. $ 9,266 $ 883 $ 1,983,945 $ 5,299,115 ($2,313,288)
=========== =========== =========== =========== ===========
</TABLE>
See Accountants' Report.
The accompanying notes are an integral part of the financial statements
4
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
(A Developmental Stage Enterprise)
STATEMENT OF CASH FLOWS
For the three months ended August 31, 1996 (Unaudited), and
the period from August 15, 1994 (date of inception),
to August 31, 1996 (Unaudited), and
For the years ended May 31, 1996 and 1995 (Audited)
<TABLE>
<CAPTION>
(Unaudited)
August 15,
(Unaudited) 1994 (Audited) (Audited)
3 Months Ended (Inception) to Year Ended Year Ended
August 31, 1996 August 31, 1996 May 31, 1996 May 31, 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) ..................................... ($ 422,666) ($2,226,373) ($1,730,233) ($ 73,474)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and Amortization ....................... 299,801 1,254,040 899,567 54,672
Forgiveness of Debt Income .......................... 0 (19,508) 0 (19,508)
Increase (decrease) in accounts payable ............. 8,000 113,356 105,356 0
Increase (decrease) in leases payable current portion 0 (26,686) (26,686) 0
Increase (decrease) in loans from shareholders ...... 0 53,547 53,547 0
----------- ----------- ----------- -----------
Total Adjustments ..................................... 307,801 1,374,749 1,031,784 35,164
----------- ----------- ----------- -----------
Net Cash Provided By (Used In) Operating Activities ..... (114,865) (851,624) (698,449) (38,310)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of equipment .................... (3,835) (854,380) (40,689) (809,856)
Payments for organization costs ....................... 0 0 0 0
Payments for purchase of software rights .............. (10,000) (5,521,769) (5,511,769) 0
----------- ----------- ----------- -----------
Net Cash Provided By (Used In) Investing Activities ..... (13,835) (6,376,149) (5,552,458) (809,856)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term lease financing ............... 0 3,588 3,588 0
Capital contributions from shareholders ............... 0 6,214 0 6,214
Net line of credit financing .......................... 0 41,465 0 41,465
Proceeds from issuance of common stock ................ 152,500 1,919,592 951,533 815,559
Proceeds from issuance of preferred stock ............. 0 5,299,998 5,299,998 0
----------- ----------- ----------- -----------
Net Cash Provided By (Used In) Financing Activities ..... 152,500 7,270,857 6,255,119 863,238
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents .. 23,800 43,084 4,212 15,072
Cash and cash equivalents, beginning of period ........ 19,284 0 15,072 0
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period .............. $ 43,084 $ 43,084 $ 19,284 $ 15,072
=========== =========== =========== ===========
</TABLE>
See Accountants' Report.
The accompanying notes are an integral part of the financial statements
5
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
(A Developmental Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
August 31, 1996 (Unaudited) and updated
May 31, 1996 and 1995 (Audited)
NOTE 1 - ORGANIZATION
GK Intelligent Systems, Inc. ("the Company") is a developmental stage enterprise
which engages in the development and marketing of "intelligent" network
performance support via the Internet and other intranet transmission modalities.
The core of the Company's system is its advanced SMART PERFORM service driven by
CARNOT network technology. A second technology developed and marketed by the
Company is SMART ONE, an advanced training technology capable of real-time
adaptation and customization of training to the individual. The Company has
developed and is presently marketing the computer software products to a list of
major corporations through its offices in Houston, Texas and Atlanta, Georgia.
The Company was formed in 1988 in Delaware as Technicraft Financial, Ltd., and
subsequently changed its name to LBM-US, Inc. ("LBM"). LBM became the U.S.
parent of a Canadian subsidiary, Les Bateaux de Mer Ltee, which, after incurring
losses for several years, was placed into receivership on November 22, 1993, by
the Royal Bank of Canada, its major creditor. As a result, LBM divested itself
of this subsidiary on July 18, 1994 by redeeming the shares it had issued to the
former shareholders of the subsidiary in exchange for the shares it owned in the
subsidiary. This Canadian subsidiary had no activity from the subsidiary's year
end on October 31, 1993, until the divestiture.
Effective August 15, 1994, LBM-US, Inc. acquired all the assets of a Texas
corporation, GK Intelligent Systems, Inc. (formed February 23, 1994 in Texas as
I-NET Intelligent Systems, Inc.), in exchange for 6,375,000 shares of LBM's
common stock. Immediately prior to the acquisition of the Texas corporation's
assets, LBM authorized a stock split of three and a one-half shares to one,
increasing its remaining existing outstanding shares from 250,000 to 875,000. On
August 18, 1994, LBM changed its name to GK Intelligent Systems, Inc.
The Company's only activity subsequent to its divestiture of the Canadian
subsidiary and prior to the acquisition of the Texas corporation's assets,
included in these statements, consisted of forgiveness of indebtedness in the
amount of $19,508 and the payment of professional fees and costs in the amount
of $6,214 on its behalf by a shareholder.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The Company presents its financial statements in U. S. dollars on the accrual
basis of accounting in accordance with generally accepted accounting principles.
See Accountants' Report.
The accompanying notes are an integral part of the financial statements
6
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
(A Developmental Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
August 31, 1996 (Unaudited) and updated
May 31, 1996 and 1995 (Audited)
COMPUTER SOFTWARE COSTS. The predecessor Texas corporation expensed its software
development costs as research and development expenses until technological
feasibility was established with a detailed program design. Thereafter, all
software production costs were capitalized and reported at the lower of
unamortized software cost or net realizable value.
Because the predecessor Texas corporation's prime vendor, AT&T Global
Information Solutions, had already completed the basic program design to
establish technological feasibility for the training software product, the Texas
corporation had capitalized all software development costs incurred through the
date of the acquisition of assets by the Company. As a result, these statements
also include, as part of the Company's capitalized software costs, the results
of operations for the Texas company since its inception, February 23, 1994,
through the date of the asset acquisition. The Company recorded the value of the
software assets acquired from the predecessor Texas corporation at the
predecessor's recorded capitalized costs and continued to capitalize its own
software development costs until a working prototype was demonstrated in
February, 1995.
After the completion of the working prototype, all subsequent research and
development costs have been expensed as incurred. Capitalized costs are
depreciated based on current and future revenue with an annual minimum equal to
the straight-line amortization over the remaining estimated economic life of the
software, currently estimated to be sixty months.
Included as capitalized asset in the August 31, 1996 Balance Sheet is:
Software Costs (MCC) $ 5,429,998
Software Costs Developed 1,080,544
Accumulated Depreciation/Amortization (1,155,779)
------------
Net Computer Software Costs $ 5,354,763
============
Included in the Statement of Operations for the year ended August 31, 1996
(Unaudited), and the period from August 15, 1994 (date of inception), to August
31, 1996 (Unaudited), respectively:
Depreciation/Amortization Expense $ 283,853 $ 1,155,779
========== ===========
ORGANIZATIONAL COSTS. Certain legal fees and other expenses of raising capital
have been capitalized as organizational costs, and are amortized using the
straight-line method over sixty months.
See Accountants' Report.
The accompanying notes are an integral part of the financial statements
7
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
(A Developmental Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
August 31, 1996 (Unaudited) and updated
May 31, 1996 and 1995 (Audited)
Included as a capitalized asset in the August 31, 1996 (Unaudited) Balance Sheet
is:
Organizational Costs $ 274,863
Accumulated Amortization (88,770)
----------
Net Organizational Costs $ 186,093
==========
Included in the Statement of Operations for the year ended August 31, 1996
(Unaudited), and the period from August 15, 1994 (date of inception), to August
31, 1996 (Unaudited), respectively:
Amortization Expense $ 13,743 $ 88,770
=========== ========
NOTE 3 - PROPERTY AND EQUIPMENT
The costs of property and equipment are charged against income over their
estimated useful lives using the straight-line method of depreciation. For tax
purposes, these assets are depreciated using MACRS method of depreciation over
their guideline lives.
The company acquired computers through a capital lease plan from AT & T Capital
Group. The acquistion value of the computers, $27,553, has been capitalized and
is being depreciated over the useful life of the equipment. (See Lease
Commitments - Note 6)
Maintenance and repairs are charged to expense as paid; betterments are
capitalized. Upon retirement or sale, the costs of assets disposed of and
related accumulated depreciation are removed from the accounts; any resulting
gain or loss is credited or charged to income. Any gain or loss on the trade or
exchange of assets is used to adjust the cost of the replacement assets.
Included as Equipment in the August 31, 1996 (Unaudited) Balance Sheet is:
Computer Equipment $ 48,447
=========
Included in the Statement of Operations for the year ended August 31, 1996
(Unaudited), and the period from August 15, 1994 (date of inception), to August
31, 1996 (Unaudited), respectively:
Depreciation Expense $ 2,205 $ 9,491
======== =======
See Accountants' Report.
The accompanying notes are an integral part of the financial statements
8
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
(A Developmental Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
August 31, 1996 (Unaudited) and updated
May 31, 1996 and 1995 (Audited)
NOTE 4 - INCOME TAXES
The Company has no taxable income to date; therefore, no provisions for federal
or state income taxes have been made. The deficit accumulated during the
development stage is generally available to offset income in future years. The
potential future benefit of the loss from operations available for carryforward
to offset taxable income in future years is $73,474 from the year ended May 31,
1995 (Audited), $1,730,233 from the year ended May 31, 1996 (Audited), and
$422,666 from the three months ended August 31, 1996 (Unaudited). The loss
carryforward, if not used, will expire in 15 years. The company's actual use of
the loss carryforward over future periods cannot be determined at this financial
statement date. The potential future benefit of the loss carryforward has not
been recognized in these financial statements.
NOTE 5 - CAPITAL STRUCTURE
COMMON STOCK. Per the company's security registrar, the Company has issued
9,266,114 of its 15,000,000 authorized $.001 par value common shares, of which
the predecessor Texas corporation and the Company's president hold and control
6,554,080 shares. The Company's president and his family partnership own all of
the outstanding shares of the predecessor Texas corporation. The following is a
list of issued stock and stock warrants considered to be common stock
equivalents at balance sheet date with its associated par value:
<TABLE>
<CAPTION>
No. Of Par
Description Shares Value
=========== ========== ======
<S> <C> <C>
Shareholders of record at August 15, 1994 (free trading) ............. 875,000 $ 875
Street Name (free trading) ........................................... 412,137 412
Acquisition of assets (restricted) ................................... 6,375,000 6,375
Shares issued subsequent to August 15, 1994 (restricted) ............. 1,603,977 1,604
---------- ------
Common Stock Issued and Outstanding at August 31, 1996 ............ 9,266,114 $9,266
========== ======
The following list of stock warrants are outstanding at the balance sheet date
August 31, 1996 (Unaudited):
Stock Warrants Issued (Granted 7/31/95; Expiration 7/31/2000) ........ 465,000
Stock Warrants Issued (Granted 12/01/95; Expiration 12/01/97) ........ 404,003
----------
See Accountants' Report.
The accompanying notes are an integral part of the financial statements
</TABLE>
9
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
(A Developmental Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
August 31, 1996 (Unaudited) and updated
May 31, 1996 and 1995 (Audited)
<TABLE>
<CAPTION>
<S> <C> <C>
Total Stock Warrants Issued .......................... 869,003
----------
Total Common Stock and Stock Warrants ................................ 10,135,117
==========
</TABLE>
Common Stock Warrants are considered common stock equivalents at all times.
These security arrangements have no present cash yield and the value of the
right to obtain common stock dictates the warrant's value. In accordance with
treatment provided for by generally accepted accounting principles, these stock
warrants are not included in the computation of the primary earnings per share
noted on the Statement of Operations, as their addition as a common stock
equivalent would prove to be antidilutive because the loss is spread over more
shares, thereby reducing the loss per share. The note concerning the stock
warrants is provided as additional information of the underlying capital
structure as of the balance sheet date. (See Note 6)
PREFERRED STOCK. The Company amended its charter to authorize 10,000,000 shares
of preferred stock with a par value of $.001 which may be issued in one or more
series and may include voting rights, preferences as to dividends and
liquidation, conversion rights and sinking fund provisions, all as the Board of
Directors may approve without further stockholder approval. On February 27,
1996, the Board of Directors authorized and created 883,333 shares of
Convertible Redeemable Series A Preferred Stock with a stated value of $6.00 per
share and authorized the issuance of all 883,333 shares to Microelectronics and
Computer Technology Corporation ("MCC") pursuant to that certain License
Agreement between the Company and MCC dated November 2, 1995 (see Note 7).
No. Of Par
Description Shares Value
=========== ======= ======
Preferred Stock Issued to MCC 883,333 $ 883
======= ======
These security arrangements do not provide for these preferred stocks to become
convertible at the option of the holder on an equal share basis until January 1,
1998. The preferred stock does not begin to earn or accrue dividends at the
stated 6% per annum rate until January 1, 1998. The Company does not have the
right to redeem in whole or in part until January 1, 1998. Therefore, no
dividends or other interest associated with these securities has been included
in the financial statements.
These stocks are not included in the computation of primary earnings per share
shown on the Statement of Operations, as they are not presently convertible at
balance sheet date. These also
See Accountants' Report.
The accompanying notes are an integral part of the financial statements
10
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
(A Developmental Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
August 31, 1996 (Unaudited) and updated
May 31, 1996 and 1995 (Audited)
have been excluded in any computation of primary or fully diluted earnings per
share as the addition would be antidilutive, thereby reducing the loss per share
reported.
NOTE 6 - LONG-TERM COMMITMENTS
SOFTWARE DEVELOPMENT. The Company has entered into a long-term contract with
AT&T Global Information Solutions ("AT&T GIS") whereby AT&T GIS is to develop a
working prototype computer-based training system with a dynamic user interface
("Smart Trainer"), specifically to address skills training for the operation of
Combustible Gas Indicators. The Company is presently arranging a settlement, but
expects to pay AT&T GIS approximately $600,000 for this prototype, of which
approximately $234,000 remains to be paid at balance sheet date. The Company is
also billed by AT&T GIS for video presentations and marketing support provided
to the Company as part of the contract and expects to incur similar expenses in
the future.
INCENTIVE STOCK OPTION PLAN. The Company authorized an incentive stock option
plan for management employees. The Company adopted a formal plan and has
reserved 1,000,000 shares of common stock to provide shares for the options to
be granted under the plan.
ISSUANCE OF STOCK WARRANTS. The Company has authorized the issuance of common
stock warrants per the following terms:
Date No. Of Exercise Expiration
Description Granted Warrants Price Date
=========== ======== ======== ============ ========
Common Stock Warrants 07/31/95 365,000 $ 2.00/share 07/31/00
Common Stock Warrants 07/31/95 100,000 1.50/share 07/31/00
Common Stock Warrants 12/01/95 404,003 1.00/share 12/01/97
-------
Total Common Stock Warrants 869,003
=======
LEASE COMMITMENTS. The Company leases office space in Atlanta, Georgia under a
month to month lease, which requires a monthly payment of $1,100. The Company
leases computers under two-year leases with AT&T Capital Group, expiring in
September, 1997, which require aggregate payments of approximately $14,779, and
$3,588 for the years ended May 31, 1997 and 1998, respectively. (See Note 3)
See Accountants' Report.
The accompanying notes are an integral part of the financial statements
11
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
(A Developmental Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
August 31, 1996 (Unaudited) and updated
May 31, 1996 and 1995 (Audited)
NOTE 7 - SOFTWARE LICENSE
On November 2, 1995, the Company entered into a License Agreement with
Microelectronics and Computer Technology Corporation ("MCC") to commercialize
Licensed Technology developed under the Carnot Project at MCC. The Company
obtained these rights to such software, valued at $5,300,000 by MCC, in exchange
for 883,333 shares of the Company's restricted preferred stock at a stated price
of $6.00 per share (See Note 5).
NOTE 8 - ACCOUNTS PAYABLE
Included in the Company's accounts payable at balance sheet date are the
following components:
PAYABLE TO AMOUNTS PAYABLE
- ---------- ---------------
AT&T Global Information Systems ...... $234,000
Fees and Expenses to Company Personnel 164,319
MCC Project Fees ..................... 130,000
Brewer & Pritchard - Legal Fees ...... 11,312
Rod Norville - Legal Fees ............ 23,429
Alonzo & Wells, LLP- Audit Fees ...... 8,000
--------
Total Accounts Payable .......... $571,060
========
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company's president, Gary Kimmons, has provided loans to the company during
1995 and 1996 totaling $53,547. The loans have been for the purpose of providing
working capital to the company for the payment of operation expenses and for the
purchase of capital equipment.
The loan is a current liability, anticipated to be repaid within the upcoming
fiscal year and carries an interest rate of 9.00%.
NOTE 10 - GOING CONCERN
The Company's continued existence is dependent upon its ability to successfully
market its products. The Company has funded the cost of development of the
prototype and its operations principally by obtaining additional debt financing
and equity capital. The Company has been able to keep its overhead costs
relatively low. While pursuing additional debt and equity funding, the Company
must continue to operate with limited cash flow. It is the present policy of
See Accountants' Report.
The accompanying notes are an integral part of the financial statements
12
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
(A Developmental Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
August 31, 1996 (Unaudited) and updated
May 31, 1996 and 1995 (Audited)
the Company not to pay cash dividends and to retain future earnings to support
the Company's growth.
The Company has experienced recurring losses from continuing operations for the
year ended May 31, 1995 (Audited) of $73,474, and for the year ended May 31,
1996 (Audited) of $1,730,233, and $422,666 for the three months ended August 31,
1996 (Unaudited). Since August 15, 1994, date of inception, the Company has
accumulated a deficit during the developmental stage of $2,226,372. The Company
has had no significant revenues through the balance sheet date, and has
continued to provide funds for its operations through obtaining additional debt
financing and equity capital. The Company is seeking additional sources of
capital, including equity capital, but there can be no assurance that the
Company will be successful in accomplishing its objectives. If the Company
continues to suffer recurring losses from operations and is unable to obtain
financial support, there is substantial doubt about its ability to continue as a
going concern.
Management anticipates employing both obtaining additional equity capital and
marketing its products to provide for its cost of operations. It is the business
plan intent of the Company's management to license its SMART SUPPORT SYSTEM
software programs to various private and public organizations on a fee-per-use
basis. While contract terms will vary based on expected usage and the complexity
of the program that needs to be developed, management's current intent is to
charge an average rate of $1.00 per minute per individual, resulting in an
average training program of about 25 hours costing approximately $1,500 per
employee. Management believes this to be approximately two-thirds less than the
current cost of traditional classroom and computer-based training. The Company
believes the SMART SUPPORT SYSTEM will permit governmental agencies and
corporations to provide more effective, timely and efficient training of
employees with respect to applicable work procedures through the use of
interactive multimedia computer software. Due to the necessary cost to implement
the marketing and operational plans, the Company expects losses to continue
through fiscal year ending May 31, 1997.
NOTE 11 - CONVERTIBLE DEBT
The Company borrowed $351,507 from an investor on a demand note basis, secured
by assignment of its entire interest in its intellectual property, including
that acquired by reason of its contract with AT&T GIS. Subsequent to the May 31,
1995 (Audited) date of the balance sheet, the investor accepted 250,000 shares
of the Company's restricted common stock in exchange for the debt. These May 31,
1995 (Audited) statements are presented as though these restricted shares are
already issued and outstanding.
See Accountants' Report.
The accompanying notes are an integral part of the financial statements
13
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
(A Developmental Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
August 31, 1996 (Unaudited) and updated
May 31, 1996 and 1995 (Audited)
NOTE 12 - STOCK SUBSCRIBED AND PAID
At the May 31, 1995 (Audited) balance sheet date, the company had 383,920 shares
of stock subscribed and paid but not yet issued. These shares are included in
the equity section of the balance sheet at May 31, 1995 (Audited). The shares
are included in the computation for Earnings (Loss) Per Share included on the
Statement of Operations for the year ended May 31, 1995.
See Accountants' Report.
The accompanying notes are an integral part of the financial statements
14
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GK INTELLIGENT SYSTEMS, INC.
GK Intelligent Systems, Inc. ("Corporation"), a corporation formed in
the State of Delaware on February 25, 1988 under the name of "Technicraft
Financial, Ltd." hereby adopts the following Amended and Restated Certificate of
Incorporation pursuant to Sections 242 and 245 of the Delaware General
Corporation Law:
ARTICLE I
The name of the Corporation is GK Intelligent Systems, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801, and the name of its registered agent at such address is
The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE IV
The period of duration of the Corporation is perpetual.
ARTICLE V
The total number of shares of stock which the Corporation shall have
authority to issue is 25,000,000 consisting of 15,000,000 shares of common
stock, par value $.001 per share ("Common Stock"), and 10,000,000 shares of
preferred stock, par value $.001 per share ("Preferred Stock").
Shares of Preferred Stock of the Corporation may be issued from time to
time in one or more classes or series, each of which class or series shall have
such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated in
a resolution or resolutions providing for the issue of such class or series of
Preferred Stock as may be adopted from time to time by the Board of Directors
prior to the issuance of any shares thereof pursuant to the authority hereby
expressly vested in it, all in accordance with the laws of the State of
Delaware.
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ARTICLE VI
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors consisting of not less than one nor more
than 10 directors, the exact number of directors to be determined from time to
time by resolution adopted by the Board of Directors. The number of directors
may be increased or decreased, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until his successor is elected and qualified, subject, however, to his
prior death, resignation, retirement, disqualification or removal from office.
Any vacancy on the Board of Directors howsoever resulting, may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
ARTICLE VII
Elections of directors at an annual or special meeting of stockholders
shall be by written ballot unless the Bylaws of the Corporation shall otherwise
provide.
ARTICLE VIII
Special meetings of the stockholders of the Corporation for any purpose
or purposes may be called at any time by the Board of Directors or a committee
thereof, the Chairman of the Board, President, or by the holders of at least 30%
of all the shares entitled to vote at the proposed special meeting.
ARTICLE IX
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such director as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which such
director derived an improper personal benefit. No amendment to or repeal of this
Article IX shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
ARTICLE X
(a) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or
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is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
Article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this Article
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
Article. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
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(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized by this Article. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under this Article.
(h) For purposes of this Article, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this Article with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this Article, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person
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who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
(k) No amendment or repeal of this Article X shall apply to or have any
effect on any right to indemnification provided hereunder with respect to any
acts or omissions occurring prior to such amendment or repeal.
ARTICLE XI
Whenever the Corporation shall be authorized to issue only one class of
stock, each outstanding share shall entitle the holder thereof to notice of, and
the right to vote at, any meeting of stockholders. Whenever the Corporation
shall be authorized to issue more than one class of stock, no outstanding share
of any class of stock which is denied voting power under the provisions of the
Certificate of Incorporation, or a designation thereunder, shall entitle the
holder thereof to the right to vote at any meeting of stockholders, except as
the provisions of the law shall otherwise require.
Notwithstanding the foregoing, and except as otherwise provided by law
or in the resolution or resolutions of the Board of Directors providing for the
issuance of any particular class or series of Preferred Stock, the holders of
Common Stock shall have the exclusive right to vote for the election of
Directors and for all other purposes except that, with respect to any amendment
of any provision of the Certificate of Incorporation which consists of a series
designation, or portion thereof, for any series of Preferred Stock, the holders
of Common Stock shall not be entitled to any vote. Except as otherwise provided
by law or in the resolution or resolutions of the Board of Directors providing
for the issuance of any particular class or series of Preferred Stock, the
holders of Common Stock and any other capital stock of the corporation at the
time entitled thereto shall vote together as one class.
ARTICLE XII
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class or
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creditors, and/or on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this Corporation.
ARTICLE XIII
In furtherance of, and not in limitation of the powers conferred by
statute, the stockholders or the Board of Directors are expressly authorized to
adopt, repeal, alter, amend or rescind the Bylaws of the Corporation.
ARTICLE XIV
The foregoing Amended and Restated Certificate of Incorporation was
proposed by the Board of Directors and adopted by the Stockholders of the
Corporation pursuant to Sections 242 and 228 of the Delaware General Corporation
Law.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its Chief Executive Officer this
11th day of August, 1995.
GK INTELLIGENT SYSTEMS, INC.:
By________________________________________
GARY F. KIMMONS, Chief Executive Officer
6
AMENDED AND RESTATED
BYLAWS
OF
GK INTELLIGENT SYSTEMS, INC.,
A DELAWARE CORPORATION
ARTICLE 1.
DEFINITIONS
1.1 DEFINITIONS. Unless the context clearly requires otherwise, in these
Bylaws:
(a) "BOARD" means the board of directors of the Company.
(b) "BYLAWS" means these bylaws as adopted by the Board and includes
amendments subsequently adopted by the Board or by the Stockholders.
(c) "CERTIFICATE OF INCORPORATION" means the Certificate of
Incorporation of GK INTELLIGENT SYSTEMS, INC. as filed with the Secretary
of State of the State of Delaware and includes all amendments thereto and
restatements thereof subsequently filed.
(d) "COMPANY" means GK INTELLIGENT SYSTEMS, INC., a Delaware
corporation.
(e) "SECTION" refers to sections of these Bylaws.
(f) "STOCKHOLDER" means stockholders of record of the Company.
1.2 OFFICES. The title of an office refers to the person or persons who at
any given time perform the duties of that particular office for the Company.
ARTICLE 2.
OFFICES
2.1 PRINCIPAL OFFICE. The Company may locate its principal office within
or without the state of incorporation as the Board may determine.
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2.2 REGISTERED OFFICE. The registered office of the Company required by
law to be maintained in the state of incorporation may be, but need not be, the
same as the principal place of business of the Company. The Board may change the
address of the registered office from time to time.
2.3 OTHER OFFICES. The Company may have offices at such other places,
either within or without the state of incorporation, as the Board may designate
or as the business of the Company may require from time to time.
ARTICLE 3.
MEETINGS OF STOCKHOLDERS
3.1 ANNUAL MEETINGS. The Stockholders of the Company shall hold their
annual meetings for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings at such time, date
and place as the Board shall determine by resolution.
3.2 SPECIAL MEETINGS. The Board, the Chairman of the Board, the President
or a committee of the Board duly designated and whose powers and authority
include the power to call meetings may call special meetings of the Stockholders
of the Company at any time for any purpose or purposes. Special meetings of the
Stockholders of the Company may also be called by the holders of at least 30% of
all shares entitled to vote at the proposed special meeting.
3.3 PLACE OF MEETINGS. The Stockholders shall hold all meetings at such
places, within or without the State of Delaware, as the Board or a committee of
the Board shall specify in the notice or waiver of notice for such meetings.
3.4 NOTICE OF MEETINGS. Except as otherwise required by law, the Board or
a committee of the Board shall give notice of each meeting of Stockholders.
whether annual or special, not less
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than 10 nor more than 60 days before the date of the meeting. The Board or a
committee of the Board shall deliver a notice to each Stockholder entitled to
vote at such meeting by delivering a typewritten or printed notice thereof to
him personally, or by depositing such notice in the United States mail, in a
postage prepaid envelope, directed to him at his address as it appears on the
records of the Company, or by transmitting a notice thereof to him at such
address by telegraph, telecopy, cable or wireless. If mailed, notice is given on
the date deposited in the United States mail, postage prepaid, directed to the
Stockholder at his address as it appears on the records of the Company. An
affidavit of the Secretary or an Assistant Secretary or of the Transfer Agent of
the Company that he has given notice shall constitute, in the absence of fraud,
prima facie evidence of the facts stated therein.
Every notice of a meeting of the Stockholders shall state the place,
date and hour of the meeting and, in the case of a special meeting, also shall
state the purpose or purposes of the meeting. Furthermore, if the Company will
maintain the list at a place other than where the meeting will take place, every
notice of a meeting of the Stockholders shall specify where the Company will
maintain the list of Stockholders entitled to vote at the meeting.
3.5 STOCKHOLDER NOTICE. Subject to the Certificate of Incorporation, the
Stockholders who intend to nominate persons to the Board of Directors or propose
any other action at an annual meeting of Stockholders must timely notify the
Secretary of the Company of such intent. To be timely, a Stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Company not less than 60 days nor more than 90 days prior to the date of
such meeting; provided, however, that in the event that less than 75 days'
notice of the date of the meeting is given or made to Stockholders, notice by
the Stockholder to be timely must be received not later
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than the close of business on the 15th day following the date on which such
notice of the date of the annual meeting was mailed. Such notice must be in
writing and must include a (i) a brief description of the business desired to
the brought before the annual meeting and the reasons for conducting such
business at the meeting; (ii) the name and record address of the Stockholder
proposing such business; (iii) the class, series and number of shares of capital
stock of the Company which are beneficially owned by the Stockholder; and (iv)
any material interest of the Stockholder in such business. The Board of
Directors reserves the right to refuse to submit any such proposal to
stockholders at an annual meeting if, in its judgment, the information provided
in the notice is inaccurate or incomplete.
3.6 WAIVER OF NOTICE. Whenever these Bylaws require written notice, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall constitute the equivalent of notice.
Attendance of a person at any meeting shall constitute a waiver of notice of
such meeting, except when the person attends the meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. No written
waiver of notice need specify either the business to be transacted at, or the
purpose or purposes of any regular or special meeting of the Stockholders,
directors or members of a committee of the Board.
3.7 ADJOURNMENT OF MEETING. When the Stockholders adjourn a meeting to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Stockholders may transact any business
which they may have transacted at the original meeting. If the adjournment is
for more than 30 days or, if after the adjournment, the Board or a committee of
the Board fixes a new record date for the adjourned meeting, the Board or a
committee of the Board
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shall give notice of the adjourned meeting to each Stockholder of record
entitled to vote at the meeting.
3.8 QUORUM. Except as otherwise required by law, the holders of a majority
of all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes at any meeting of
the Stockholders. In the absence of a quorum at any meeting or any adjournment
thereof, the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, or, in the absence therefrom of all the
Stockholders, any officer entitled to preside at, or to act as secretary of,
such meeting may adjourn such meeting to another place, date or time.
If the chairman of the meeting gives notice of any adjourned special
meeting of Stockholders to all Stockholders entitled to vote thereat, stating
that the minimum percentage of stockholders for a quorum as provided by Delaware
law shall constitute a quorum, then, except as otherwise required by law, that
percentage at such adjourned meeting shall constitute a quorum and a majority of
the votes cast at such meeting shall determine all matters.
3.9 ORGANIZATION. Such person as the Board may have designated or, in the
absence of such a person, the highest ranking officer of the Company who is
present shall call to order any meeting of the Stockholders, determine the
presence of a quorum, and act as chairman of the meeting. In the absence of the
Secretary or an Assistant Secretary of the Company, the chairman shall appoint
someone to act as the secretary of the meeting.
3.10 CONDUCT OF BUSINESS. The chairman of any meeting of Stockholders
shall determine the order of business and the procedure at the meeting,
including such regulations of the manner of voting and the conduct of discussion
as he deems in order.
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3.11 LIST OF STOCKHOLDERS. At least 10 days before every meeting of
Stockholders, the Secretary shall prepare a list of the Stockholders entitled to
vote at the meeting or any adjournment thereof, arranged in alphabetical order,
showing the address of each Stockholder and the number of shares registered in
the name of each Stockholder. The Company shall make the list available for
examination by any Stockholder for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
either at a place within the city where the meeting will take place or at the
place designated in the notice of the meeting.
The Secretary shall produce and keep the list at the time and place
of the meeting during the entire duration of the meeting, and any Stockholder
who is present may inspect the list at the meeting. The list shall constitute
presumptive proof of the identity of the Stockholders entitled to vote at the
meeting and the number of shares each Stockholder holds.
A determination of Stockholders entitled to vote at any meeting of
Stockholders pursuant to this Section shall apply to any adjournment thereof.
3.12 FIXING OF RECORD DATE. For the purpose of determining Stockholders
entitled to notice of or to vote at any meeting of Stockholders or any
adjournment thereof, or Stockholders entitled to receive payment of any
dividend, or in order to make a determination of Stockholders for any other
proper purpose, the Board or a committee of the Board may fix in advance a date
as the record date for any such determination of Stockholders. However, the
Board shall not fix such date, in any case, more than 60 days nor less than 10
days prior to the date of the particular action.
If the Board or a committee of the Board does not fix a record date
for the determination of Stockholders entitled to notice of or to vote at a
meeting of Stockholders, the record date shall be at the close of business on
the day next preceding the day on which notice is given or
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if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held or the date on which the Board adopts the
resolution declaring a dividend.
3.13 VOTING OF SHARES. Each Stockholder shall have one vote for every
share of stock having voting rights registered in his name on the record date
for the meeting. The Company shall not have the right to vote treasury stock of
the Company, nor shall another corporation have the right to vote its stock of
the Company if the Company holds, directly or indirectly, a majority of the
shares entitled to vote in the election of directors of such other corporation.
Persons holding stock of the Company in a fiduciary capacity shall have the
right to vote such stock. Persons who have pledged their stock of the Company
shall have the right to vote such stock unless in the transfer on the books of
the Company the pledgor expressly empowered the pledgee to vote such stock. In
that event, only the pledgee, or his proxy, may represent such stock and vote
thereon.
A plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote shall determine all
elections and, except when the law or Certificate of Incorporation requires
otherwise, the affirmative vote of a majority of the shares present in person or
represented by proxy at the meeting and entitled to vote shall determine all
other matters.
Where a separate vote by a class or classes is required, a majority
of the outstanding shares of such class or classes, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
shares of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class.
The Stockholders may vote by voice vote on all matters. Upon demand
by a Stockholder entitled to vote, or his proxy, the Stockholders shall vote by
ballot. In that event, each
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ballot shall state the name of the Stockholder or proxy voting, the number of
shares voted and such other information as the Company may require under the
procedure established for the meeting.
3.14 INSPECTORS. At any meeting in which the Stockholders vote by ballot,
the chairman may appoint one or more inspectors. Each inspector shall take and
sign an oath to execute the duties of inspector at such meeting faithfully, with
strict impartiality, and according to the best of his ability. The inspectors
shall ascertain the number of shares outstanding and the voting power of each;
determine the shares represented at a meeting and the validity of proxies and
ballots; count all votes and ballots; determine and retain for a reasonable
period a record of the disposition of any challenges made to any determination
by the inspectors; and certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots. The
certification required herein shall take the form of a subscribed, written
report prepared by the inspectors and delivered to the Secretary of the Company.
An inspector need not be a Stockholder of the Company, and any officer of the
Company may be an inspector on any question other than a vote for or against a
proposal in which he has a material interest.
3.15 PROXIES. A Stockholder may exercise any voting rights in person or by
his proxy appointed by an instrument in writing, which he or his authorized
attorney-in-fact has subscribed and which the proxy has delivered to the
secretary of the meeting pursuant to the manner prescribed by law.
A proxy is not valid after the expiration of 13 months after the
date of its execution, unless the person executing it specifies thereon the
length of time for which it is to continue in force (which length may exceed 12
months) or limits its use to a particular meeting. Each proxy is
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irrevocable if it expressly states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power.
The attendance at any meeting of a Stockholder who previously has
given a proxy shall not have the effect of revoking the same unless he notifies
the Secretary in writing prior to the voting of the proxy.
3.16 ACTION BY CONSENT. Any action required to be taken at any annual or
special meeting of stockholders of the Company or any action which may be taken
at any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
Company by delivery to its registered office, its principal place of business,
or an officer or agent of the Company having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Company's registered office shall be by hand or by certified or registered mail,
return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within 60 days of the
earliest dated consent delivered in the manner required by this section to the
Company, written consents signed by a sufficient number of holders to take
action are delivered to the Company by delivery to its registered office, its
principal place of business or an officer or agent of the Company having custody
of the book in which proceedings of meetings of
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stockholders are recorded. Delivery made to the Company's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE 4.
BOARD OF DIRECTORS
4.1 GENERAL POWERS. The Board shall manage the property, business and
affairs of the Company.
4.2 NUMBER. The number of directors who shall constitute the Board shall
equal not less than two nor more than 10, as the Board may determine by
resolution from time to time.
4.3 ELECTION OF DIRECTORS AND TERM OF OFFICE. The Stockholders of the
Company shall elect the directors at the annual or adjourned annual meeting
(except as otherwise provided herein for the filling of vacancies). Each
director shall hold office until his death, resignation, retirement, removal, or
disqualification, or until his successor shall have been elected and qualified.
4.4 RESIGNATIONS. Any director of the Company may resign at any time by
giving written notice to the Board or to the Secretary of the Company. Any
resignation shall take effect upon receipt or at the time specified in the
notice. Unless the notice specifies otherwise, the effectiveness of the
resignation shall not depend upon its acceptance.
4.5 REMOVAL. Stockholders holding a majority of the outstanding shares
entitled to vote at an election of directors may remove any director or the
entire Board of Directors at any time, with or without cause.
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4.6 VACANCIES. A majority of the remaining directors, although less than a
quorum, or a sole remaining director may fill any vacancy on the Board, whether
because of death, resignation, disqualification, an increase in the number of
directors, or any other cause. Any director elected to fill a vacancy shall hold
office until his death, resignation, retirement, removal, or disqualification,
or until his successor shall have been elected and qualified.
4.7 CHAIRMAN OF THE BOARD. At the initial and annual meeting of the Board,
the directors may elect from their number a Chairman of the Board of Directors.
The Chairman shall preside at all meetings of the Board and shall perform such
other duties as the Board may direct. The Board also may elect a Vice Chairman
and other officers of the Board, with such powers and duties as the Board may
designate from time to time.
4.8 COMPENSATION. The Board may compensate directors for their services
and may provide for the payment of all expenses the directors incur by attending
meetings of the Board or otherwise.
ARTICLE 5.
MEETINGS OF DIRECTORS
5.1 REGULAR MEETINGS. The Board may hold regular meetings at such places,
dates and times as the Board shall establish by resolution. If any day fixed for
a meeting falls on a legal holiday, the Board shall hold the meeting at the same
place and time on the next succeeding business day. The Board need not give
notice of regular meetings.
5.2 PLACE OF MEETINGS. The Board may hold any of its meetings in or out of
the State of Delaware, at such places as the Board may designate, at such places
as the notice or waiver of notice
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<PAGE>
of any such meeting may designate, or at such places as the persons calling the
meeting may designate.
5.3 MEETINGS BY TELECOMMUNICATIONS. The Board or any committee of the
Board may hold meetings by means of conference telephone or similar
telecommunications equipment that enable all persons participating in the
meeting to hear each other. Such participation shall constitute presence in
person at such meeting.
5.4 SPECIAL MEETINGS. The Chairman of the Board, the President, or
one-half of the directors then in office may call a special meeting of the
Board. The person or persons authorized to call special meetings of the Board
may fix any place, either in or out of the State of Delaware as the place for
the meeting.
5.5 NOTICE OF SPECIAL MEETINGS. The person or persons calling a special
meeting of the Board shall give written notice to each director of the time,
place, date and purpose of the meeting of not less than three business days if
by mail and not less than 24 hours if by telegraph or in person before the date
of the meeting. If mailed, notice is given on the date deposited in the United
States mail, postage prepaid, to such director. A director may waive notice of
any special meeting, and any meeting shall constitute a legal meeting without
notice if all the directors are present or if those not present sign either
before or after the meeting a written waiver of notice, a consent to such
meeting, or an approval of the minutes of the meeting. A notice or waiver of
notice need not specify the purposes of the meeting or the business which the
Board will transact at the meeting.
5.6 WAIVER BY PRESENCE. Except when expressly for the purpose of objecting
to the legality of a meeting, a director's presence at a meeting shall
constitute a waiver of notice of such meeting.
12
<PAGE>
5.7 QUORUM. A majority of the directors then in office shall constitute a
quorum for all purposes at any meeting of the Board. In the absence of a quorum,
a majority of directors present at any meeting may adjourn the meeting to
another place, date or time without further notice. No proxies shall be given by
directors to any person for purposes of voting or establishing a quorum at a
directors meetings.
5.8 CONDUCT OF BUSINESS. The Board shall transact business in such order
and manner as the Board may determine. Except as the law requires otherwise, the
Board shall determine all matters by the vote of a majority of the directors
present at a meeting at which a quorum is present. The directors shall act as a
Board, and the individual directors shall have no power as such.
5.9 ACTION BY CONSENT. The Board or a committee of the Board may take any
required or permitted action without a meeting if all members of the Board or
committee consent thereto in writing and file such consent with the minutes of
the proceedings of the Board or committee.
ARTICLE 6.
COMMITTEES
6.1 COMMITTEES OF THE BOARD. The Board may designate, by a vote of a
majority of the directors then in office, committees of the Board. The
committees shall serve at the pleasure of the Board and shall possess such
lawfully delegable powers and duties as the Board may confer.
6.2 SELECTION OF COMMITTEE MEMBERS. The Board shall elect by a vote of a
majority of the directors then in office a director or directors to serve as the
member or members of a committee. By the same vote, the Board may designate
other directors as alternate members who may replace any absent or disqualified
member at any meeting of a committee. In the absence or disqualification of any
member of any committee and any alternate member in his place, the member or
members
13
<PAGE>
of the committee present at the meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may appoint by unanimous vote
another member of the Board to act at the meeting in the place of the absent or
disqualified member.
6.3 CONDUCT OF BUSINESS. Each committee may determine the procedural rules
for meeting and conducting its business and shall act in accordance therewith,
except as the law or these Bylaws require otherwise. Each committee shall make
adequate provision for notice of all meetings to members. A majority of the
members of the committee shall constitute a quorum, unless the committee
consists of one or two members. In that event, one member shall constitute a
quorum. A majority vote of the members present shall determine all matters. A
committee may take action without a meeting if all the members of the committee
consent in writing and file the consent or consents with the minutes of the
proceedings of the committee.
6.4 AUTHORITY. Any committee, to the extent the Board provides, shall have
and may exercise all the powers and authority of the Board in the management of
the business and affairs of the Company, and may authorize the affixation of the
Company's seal to all instruments which may require or permit it. However, no
committee shall have any power or authority with regard to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the Stockholders the sale, lease or exchange of all or
substantially all of the Company's property and assets, recommending to the
Stockholders a dissolution of the Company or a revocation of a dissolution of
the Company, or amending these Bylaws of the Company. Unless a resolution of the
Board expressly provides, no committee shall have the power or authority to
declare a dividend, to authorize the issuance of stock, or to adopt a
certificate of ownership and merger.
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6.5 MINUTES. Each committee shall keep regular minutes of its proceedings
and report the same to the Board when required.
ARTICLE 7.
OFFICERS
7.1 OFFICERS OF THE COMPANY. The officers of the Company shall consist of
a President, a Secretary and such Vice Presidents, Assistant Secretaries,
Assistant Treasurers, and other officers as the Board may designate and elect
from time to time. The same person may hold at the same time any two or more
offices, except the offices of President and Secretary.
7.2 ELECTION AND TERM. The Board shall elect the officers of the Company.
Each officer shall hold office until his death, resignation, retirement, removal
or disqualification, or until his successor shall have been elected and
qualified.
7.3 COMPENSATION OF OFFICERS. The Board shall fix the compensation of all
officers of the Company. No officer shall serve the Company in any other
capacity and receive compensation, unless the Board authorizes the additional
compensation.
7.4 REMOVAL OF OFFICERS AND AGENTS. The Board may remove any officer or
agent it has elected or appointed at any time, with or without cause.
7.5 RESIGNATION OF OFFICERS AND AGENTS. Any officer or agent the Board has
elected or appointed may resign at any time by giving written notice to the
Board, the Chairman of the Board, the President, or the Secretary of the
Company. Any such resignation shall take effect at the date of the receipt of
such notice or at any later time specified. Unless otherwise specified in the
notice, the Board need not accept the resignation to make it effective.
15
<PAGE>
7.6 BOND. The Board may require by resolution any officer, agent, or
employee of the Company to give bond to the Company, with sufficient sureties
conditioned on the faithful performance of the duties of his respective office
or agency. The Board also may require by resolution any officer, agent or
employee to comply with such other conditions as the Board may require from time
to time.
7.7 PRESIDENT. The President shall be the chief operating officer of the
Company and, subject to the Board's control, shall supervise and direct all of
the business and affairs of the Company. When present, he shall sign (with or
without the Secretary, an Assistant Secretary, or any other officer or agent of
the Company which the Board has authorized) deeds, mortgages, bonds, contracts
or other instruments which the Board has authorized an officer or agent of the
Company to execute. However, the President shall not sign any instrument which
the law, these Bylaws, or the Board expressly require some other officer or
agent of the Company to sign and execute. In general, the President shall
perform all duties incident to the office of President and such other duties as
the Board may prescribe from time to time.
7.8 VICE PRESIDENTS. In the absence of the President or in the event of
his death, inability or refusal to act, the Vice Presidents in the order of
their length of service as Vice Presidents, unless the Board determines
otherwise, shall perform the duties of the President. When acting as the
President, a Vice President shall have all the powers and restrictions of the
Presidency. A Vice President shall perform such other duties as the President or
the Board may assign to him from time to time.
7.9 SECRETARY. The Secretary shall (a) keep the minutes of the meetings of
the Stockholders and of the Board in one or more books for that purpose, (b)
give all notices which these
16
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Bylaws or the law requires, (c) serve as custodian of the records and seal of
the Company, (d) affix the seal of the corporation to all documents which the
Board has authorized execution on behalf of the Company under seal, (e) maintain
a register of the address of each Stockholder of the Company, (f) sign, with the
President, a Vice President, or any other officer or agent of the Company which
the Board has authorized, certificates for shares of the Company, (g) have
charge of the stock transfer books of the Company, and (h) perform all duties
which the President or the Board may assign to him from time to time.
7.10 ASSISTANT SECRETARIES. In the absence of the Secretary or in the
event of his death, inability or refusal to act, the Assistant Secretaries in
the order of their length of service as Assistant Secretary, unless the Board
determines otherwise, shall perform the duties of the Secretary. When acting as
the Secretary, an Assistant Secretary shall have the powers and restrictions of
the Secretary. An Assistant Secretary shall perform such other duties as the
President, Secretary or Board may assign from time to time.
7.11 TREASURER. The Treasurer shall (a) have responsibility for all funds
and securities of the Company, (b) receive and give receipts for moneys due and
payable to the corporation from any source whatsoever, (c) deposit all moneys in
the name of the Company in depositories which the Board selects, and (d) perform
all of the duties which the President or the Board may assign to him from time
to time.
7.12 ASSISTANT TREASURERS. In the absence of the Treasurer or in the event
of his death, inability or refusal to act, the Assistant Treasurers in the order
of their length of service as Assistant Treasurer, unless the Board determines
otherwise, shall perform the duties of the Treasurer. When acting as the
Treasurer, an Assistant Treasurer shall have the powers and restrictions of the
17
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Treasurer. An Assistant Treasurer shall perform such other duties as the
Treasurer, the President, or the Board may assign to him from time to time.
7.13 DELEGATION OF AUTHORITY. Notwithstanding any provision of these
Bylaws to the contrary, the Board may delegate the powers or duties of any
officer to any other officer or agent.
7.14 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless the
Board directs otherwise, the President shall have the power to vote and
otherwise act on behalf of the Company, in person or by proxy, at any meeting of
stockholders of or with respect to any action of stockholders of any other
corporation in which the Company holds securities. Furthermore, unless the Board
directs otherwise, the President shall exercise any and all rights and powers
which the Company possesses by reason of its ownership of securities in another
corporation.
7.15 VACANCIES. The Board may fill any vacancy in any office because of
death, resignation, removal, disqualification or any other cause in the manner
which these Bylaws prescribe for the regular appointment to such office.
ARTICLE 8.
CONTRACTS, LOANS, DRAFTS,
DEPOSITS AND ACCOUNTS
8.1 CONTRACTS. The Board may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name and on behalf of the Company. The Board may make such authorization general
or special.
8.2 LOANS. Unless the Board has authorized such action, no officer or
agent of the Company shall contract for a loan on behalf of the Company or issue
any evidence of indebtedness in the Company's name.
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8.3 DRAFTS. The President, any Vice President, the Treasurer, any
Assistant Treasurer, and such other persons as the Board shall determine shall
issue all checks, drafts and other orders for the payment of money, notes and
other evidences of indebtedness issued in the name of or payable by the Company.
8.4 DEPOSITS. The Treasurer shall deposit all funds of the Company not
otherwise employed in such banks, trust companies, or other depositories as the
Board may select or as any officer, assistant, agent or attorney of the Company
to whom the Board has delegated such power may select. For the purpose of
deposit and collection for the account of the Company, the President or the
Treasurer (or any other officer, assistant, agent or attorney of the Company
whom the Board has authorized) may endorse, assign and deliver checks, drafts
and other orders for the payment of money payable to the order of the Company.
8.5 GENERAL AND SPECIAL BANK ACCOUNTS. The Board may authorize the opening
and keeping of general and special bank accounts with such banks, trust
companies, or other depositories as the Board may select or as any officer,
assistant, agent or attorney of the Company to whom the Board has delegated such
power may select. The Board may make such special rules and regulations with
respect to such bank accounts, not inconsistent with the provisions of these
Bylaws, as it may deem expedient.
ARTICLE 9.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
9.1 CERTIFICATES FOR SHARES. Every owner of stock of the Company shall
have the right to receive a certificate or certificates, certifying to the
number and class of shares of the stock of the Company which he owns. The Board
shall determine the form of the certificates for the shares of
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<PAGE>
stock of the Company. The Secretary, transfer agent, or registrar of the Company
shall number the certificates representing shares of the stock of the Company in
the order in which the Company issues them. The President or any Vice President
and the Secretary or any Assistant Secretary shall sign the certificates in the
name of the Company. Any or all certificates may contain facsimile signatures.
In case any officer, transfer agent, or registrar who has signed a certificate,
or whose facsimile signature appears on a certificate, ceases to serve as such
officer, transfer agent, or registrar before the Company issues the certificate,
the Company may issue the certificate with the same effect as though the person
who signed such certificate, or whose facsimile signature appears on the
certificate, was such officer, transfer agent, or registrar at the date of
issue. The Secretary, transfer agent, or registrar of the Company shall keep a
record in the stock transfer books of the Company of the names of the persons,
firms or corporations owning the stock represented by the certificates, the
number and class of shares represented by the certificates and the dates thereof
and, in the case of cancellation, the dates of cancellation. The Secretary,
transfer agent, or registrar of the Company shall cancel every certificate
surrendered to the Company for exchange or transfer. Except in the case of a
lost, destroyed, stolen or mutilated certificate, the Secretary, transfer agent,
or registrar of the Company shall not issue a new certificate in exchange for an
existing certificate until he has cancelled the existing certificate.
9.2 TRANSFER OF SHARES. A holder of record of shares of the Company's
stock, or his attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary, transfer agent or registrar of the Company, may
transfer his shares only on the stock transfer books of the Company. Such person
shall furnish to the Secretary, transfer agent, or registrar of the Company
proper evidence of his authority to make the transfer and shall properly endorse
and surrender for
20
<PAGE>
cancellation his existing certificate or certificates for such shares. Whenever
a holder of record of shares of the Company's stock makes a transfer of shares
for collateral security, the Secretary, transfer agent, or registrar of the
Company shall state such fact in the entry of transfer if the transferor and the
transferee request.
9.3 LOST CERTIFICATES. The Board may direct the Secretary, transfer agent,
or registrar of the Company to issue a new certificate to any holder of record
of shares of the Company's stock claiming that he has lost such certificate, or
that someone has stolen, destroyed or mutilated such certificate, upon the
receipt of an affidavit from such holder to such fact. When authorizing the
issue of a new certificate, the Board, in its discretion may require as a
condition precedent to the issuance that the owner of such certificate give the
Company a bond of indemnity in such form and amount as the Board may direct.
9.4 REGULATIONS. The Board may make such rules and regulations, not
inconsistent with these Bylaws, as it deems expedient concerning the issue,
transfer and registration of certificates for shares of the stock of the
corporation. The Board may appoint or authorize any officer or officers to
appoint one or more transfer agents, or one or more registrars, and may require
all certificates for stock to bear the signature or signatures of any of them.
9.5 HOLDER OF RECORD. The Company may treat as absolute owners of shares
the person in whose name the shares stand of record as if that person had full
competency, capacity and authority to exercise all rights of ownership, despite
any knowledge or notice to the contrary or any description indicating a
representative, pledge or other fiduciary relation, or any reference to any
other instrument or to the rights of any other person appearing upon its record
or upon the share
21
<PAGE>
certificate. However, the Company may treat any person furnishing proof of his
appointment as a fiduciary as if he were the holder of record of the shares.
9.6 TREASURY SHARES. Treasury shares of the Company shall consist of
shares which the Company has issued and thereafter acquired but not cancelled.
Treasury shares shall not carry voting or dividend rights.
ARTICLE 10.
INDEMNIFICATION
10.1 The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company) by reason of the fact
that he is or was a director, officer, employee or agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner in which
he reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
22
<PAGE>
10.2 The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company and except
that no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the Company
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
10.3 To the extent that a director, officer, employee or agent of the
Company has been successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in subsections 10.1 and 10.2 of this Article, or
in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
10.4 Any indemnification under subsections 10.1 and 10.2 of this Article
(unless ordered by a court) shall be made by the Company only as authorized in
the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the
23
<PAGE>
circumstances because he has met the applicable standard of conduct set forth in
subsections 10.1 and 10.2 of this Article. Such determination shall be made (a)
by the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (b) if such quorum
is not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.
10.5 Expenses (including attorneys' fees) incurred by an officer or
director in defending in a civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Company as authorized by this Article. Such expenses (including attorneys' fees)
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
10.6 The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
10.7 The Company shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
24
<PAGE>
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Company would have the power to indemnify him against such
liability under this Article.
10.8 For purposes of this section references to "the Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this Article with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
10.9 The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
10.10 Nothing contained in this Article 10, or elsewhere in these Bylaws,
shall operate to indemnify any director or officer is such indemnification is
contrary to law, either as a matter of public policy, or under the provisions of
the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, or any other applicable state or Federal law.
25
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ARTICLE 11.
TAKEOVER OFFERS
In the event the Company receives a takeover offer, the Board of Directors
shall consider all relevant factors in evaluating such offer, including, but not
limited to, the terms of the offer, and the potential economic and social impact
of such offer on the Company's stockholders, employees, customers, creditors and
community in which it operates.
ARTICLE 12.
NOTICES
12.1 GENERAL. Whenever these Bylaws require notice to any Stockholder,
director, officer or agent, such notice does not mean personal notice. A person
may give effective notice under these Bylaws in every case by depositing a
writing in a post office or letter box in a postpaid, sealed wrapper, or by
dispatching a prepaid telegram addressed to such Stockholder, director, officer
or agent at his address on the books of the Company. Unless these Bylaws
expressly provide to the contrary, the time when the person sends notice shall
constitute the time of the giving of notice.
12.2 WAIVER OF NOTICE. Whenever the law or these Bylaws require notice,
the person entitled to said notice may waive such notice in writing, either
before or after the time stated therein.
ARTICLE 13.
MISCELLANEOUS
13.1 FACSIMILE SIGNATURES. In addition to the use of facsimile signatures
which these Bylaws specifically authorize, the Company may use such facsimile
signatures of any officer or officers, agents or agent, of the Company as the
Board or a committee of the Board may authorize.
26
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13.2 CORPORATE SEAL. The Board may provide for a suitable seal containing
the name of the Company, of which the Secretary shall be in charge. The
Treasurer, any Assistant Secretary, or any Assistant Treasurer may keep and use
the seal or duplicates of the seal if and when the Board or a committee of the
Board so directs.
13.3 FISCAL YEAR. The Board shall have the authority to fix and change the
fiscal year of the Company.
ARTICLE 14.
AMENDMENTS
Subject to the provisions of the Certificate of Incorporation, the
Stockholders or the Board may amend or repeal these Bylaws at any meeting.
The undersigned hereby certifies that the foregoing constitutes a true and
correct copy of the Bylaws of the Company as adopted by the Directors on the
11th day of August, 1995.
Executed as of this 11th day of August, 1995.
--------------------------------------------
GARY F. KIMMONS, Chief Executive Officer
27
EXHIBIT 4.1
COMMON STOCK PAR VALUE $.001
GK
NUMBER INTELLIGENT SHARES
C SYSTEMS, INC.
SEE REVERSE FOR CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE
IN HOUSTON, TX OR NEW YORK, NY CUSIP 361751 10 0
THIS CERTIFIES THAT
SPECIMEN
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
GK INTELLIGENT SYSTEMS, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[GK INTELLIGENT SYSTEMS, INC.]
[CORPORATE SEAL]
[DELAWARE]
ILLEGIBLE SIGNATURE COUNTERSIGNED AND REGISTERED:
PRESIDENT FIRST INTERSTATE BANK OF TEXAS, N.A.
TRANSFER AGENT AND REGISTRAR
ILLEGIBLE SIGNATURE BY
SECRETARY AUTHORIZED SIGNATURE
<PAGE>
GK
INTELLIGENT
SYSTEMS, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE
CORPORATION, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-- as tenants in common UNIF GIFT MIN ACT-- Custodian
TEN ENT-- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenents with right Under Uniform Gifts to Minors
of survivorship and not as Act
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
---------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING POSTAL ZIP CODE, OF ASSIGNEE
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------- Shares
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named
Corporation, with full power of substitution in the premises.
Dated
--------------------------------
X
NOTICE: -------------------------------------------
THE SIGNATURE(S) TO THIS (SIGNATURE)
ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN X
UPON THE FACE OF THE -------------------------------------------
CERTIFICATE IN EVERY PARTICULAR (SIGNATURE)
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.
SIGNATURE(S) GUARANTEED BY:
GK INTELLIGENT SYSTEMS, INC.
WARRANT AGREEMENT
December 1, 1995
Kimberly Ann Quinn
10 Fordham Road
Laflin, PA 18702
Dear Ms. Quinn:
GK Intelligent Systems, Inc., a Delaware corporation (the "Company"), for
value received, hereby agrees to issue stock purchase warrants entitling the
person whose name appears on the signature page of this Agreement to purchase an
aggregate of 5,000 shares of the Company's common stock (the "Common Stock").
Such warrants are evidenced by warrant certificates in the form attached hereto
as EXHIBIT A (each such instrument being hereinafter referred to as a "Warrant,"
and each Warrant and all instruments hereafter issued in replacement,
substitution, combination or subdivision thereof being hereinafter collectively
referred to as the "Warrants"). The Warrants will be issued in consideration of
services rendered to the Company by the person whose name appears on the
signature page of this Agreement. The number of shares of Common Stock
purchasable upon exercise of the Warrants is subject to adjustment as provided
in Section 5 below. The Warrants will be exercisable by each of you or any other
Warrant holder (as defined below) as to all or any lesser number of shares of
Common Stock covered thereby, at an initial Purchase Price of $1.00 per share,
subject to adjustment as provided in Section 5 below, for the exercise period
defined in Section 3(a) below. The term "Warrant holder" refers to the person
whose name appears on the signature page of this agreement and any transferee or
transferees permitted by Section 2(a) below.
1. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to you as follows:
(a) CORPORATE AND OTHER ACTION. The Company has all requisite power and
authority (corporate and other), and has taken all necessary corporate action,
to authorize, execute, deliver and perform this Warrant Agreement, to execute,
issue, sell and deliver the Warrants and a certificate or certificates
evidencing the Warrants, to authorize and reserve for issue and, upon payment
from time to time of the Purchase Price, to issue, sell and deliver, the shares
of the Common Stock issuable upon exercise of the Warrants (the "Shares"), and
to perform all of its obligations under this Warrant Agreement and the Warrants.
The Shares, when issued in accordance with this Agreement, will be duly
authorized and validly issued and outstanding, fully paid and nonassessable and
free of all liens, claims, encumbrances and preemptive rights. This Warrant
Agreement and, when issued, each Warrant issued pursuant hereto, has been or
will be duly executed and delivered by the Company and is or will be a legal,
valid and binding agreement of the Company, enforceable in accordance with its
terms. No authorization, approval, consent or other order of any governmental
WARRANT AGREEMENT PAGE 1
<PAGE>
entity, regulatory authority or other third party is required for such
authorization, execution, delivery, performance, issue or sale.
(b) NO VIOLATION. The execution and delivery of this Warrant Agreement,
the consummation of the transactions herein contemplated and the compliance with
the terms and provisions of this Warrant Agreement and of the Warrants will not
conflict with, or result in a breach of, or constitute a default or an event
permitting acceleration under, any statute, the Articles of Incorporation or
Bylaws of the Company or any indenture, mortgage, deed of trust, note, bank
loan, credit agreement, franchise, license, lease, permit, or any other
agreement, understanding, instrument, judgment, decree, order, statute, rule or
regulation to which the Company is a party or by which it is or may be bound.
2. TRANSFER.
(a) TRANSFERABILITY OF WARRANTS. You agree that the Warrants are being
acquired as an investment and not with a view to distribution thereof and that
the Warrants may not be transferred, sold, assigned or hypothecated except as
provided herein and in compliance with all applicable securities and other laws.
You further acknowledge that the Warrants may not be transferred, sold, assigned
or hypothecated unless pursuant to a registration statement that has become
effective under the Securities Act of 1933, as amended ("Act"), setting forth
the terms of such offering and other pertinent data with respect thereto, or
unless you have provided the Company with an acceptable opinion from acceptable
counsel that such registration is not required. Certificates representing the
Warrants shall bear an appropriate legend.
(b) REGISTRATION OF SHARES. You agree not to make any sale or other
disposition of the Shares except pursuant to a registration statement which has
become effective under the Act, setting forth the terms of such offering, the
underwriting discount and commissions and any other pertinent data with respect
thereto, unless you have provided the Company with an acceptable opinion of
counsel reasonably acceptable to the Company that such registration is not
required. Certificates representing the Shares, which are not registered as
provided in Section 2, shall bear an appropriate legend and be subject to a
"stop-transfer" order.
(c) NO REGISTRATION RIGHTS. The Company has not agreed to provide Warrant
holder with any registration rights under the Act..
3. EXERCISE OF WARRANTS, PARTIAL EXERCISE.
(a) EXERCISE PERIOD. Subject to the terms of this Section 3(a), each
Warrant is exercisable at any time on or after December 1, 1995 and shall expire
and all rights hereunder shall be extinguished upon the close of business on
December 1, 1997.
(b) EXERCISE IN FULL. Subject to Section 3(a), Warrants may be exercised
in full by the Warrant holder by surrender of the Warrants, with the form of
subscription at the end thereof duly executed by such Warrant holder, to the
Company at its principal office at 2345 Bering Drive, Suite
WARRANT AGREEMENT PAGE 2
<PAGE>
321, Houston, Texas 77057, Attention: Chief Executive Officer, accompanied by
payment in cash or by certified or bank cashier's check payable to the order of
the Company, in the amount obtained by multiplying the number of shares of the
Common Stock represented by the respective Warrant or Warrants by the Purchase
Price per share (after giving effect to any adjustments as provided in Section 5
below).
(c) PARTIAL EXERCISE. Subject to Section 3(a), each Warrant may be
exercised in part by the Warrant holder by surrender of the Warrant, with the
form of subscription at the end thereof duly executed by such Warrant holder, in
the manner and at the place provided in Section 3(b) above, accompanied by
payment, in cash or by certified or bank cashier's check payable to the order of
the Company, in amount obtained by multiplying the number of shares of the
Common Stock designated by the Warrant holder in the form of subscription
attached to the Warrant by the Purchase Price per share (after giving effect to
any adjustments as provided in Section 5 below). Upon any such partial exercise,
the Company at its expense will forthwith issue and deliver to or upon the order
of the Warrant holder a new Warrant of like tenor, in the name of the Warrant
holder thereof or as the Warrant holder (upon payment by such Warrant holder of
any applicable transfer taxes) may request, subject to Section 2(a), calling in
the aggregate for the purchase of the number of shares of the Common Stock equal
to the number of such shares called for on the face of the respective Warrant
(after giving effect to any adjustment herein as provided in Section 5 below)
minus the number of such shares designated by the Warrant holder in the
aforementioned form of subscription.
4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
Any exercise of the Warrants pursuant to Section 3 shall be deemed to have
been effected immediately prior to the close of business on the date on which
the Warrants together with the subscription form and the payment for the
aggregate Purchase Price shall have been received by the Company. At such time,
the person or persons in whose name or names any certificate or certificates
representing the Shares or Other Securities (as defined below) shall be issuable
upon such exercise shall be deemed to have become the holder or holders of
record of the Shares or Other Securities so purchased. As soon as practicable
after the exercise of any Warrant in full or in part, and in any event within 10
business days thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) will cause to be issued in the name of, and
delivered to the purchasing Warrant holder, a certificate or certificates
representing the number of fully paid and nonassessable shares of Common Stock
or Other Securities to which such Warrant holder shall be entitled upon such
exercise, plus in lieu of any fractional share to which such Warrant holder
would otherwise be entitled, cash in an amount determined pursuant to Section
6(e), together with any other stock or other securities and property (including
cash, where applicable). The term "Other Securities" refers to any stock (other
than Common Stock), other securities or assets (including cash) of the Company
or any other person (corporate or otherwise) which the holders of the Warrants
at any time shall be entitled to receive, or shall have received, upon the
exercise of the Warrants, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 5 below or
otherwise.
WARRANT AGREEMENT PAGE 3
<PAGE>
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES PURCHASABLE.
The Purchase Price and the number of Shares are subject to adjustment from
time to time as set forth in this Section 5.
(a) In case the Company shall at any time after the date of this Agreement
(i) declare a dividend on the Common Stock in shares of its capital stock, (ii)
subdivide the outstanding Shares, (iii) combine the outstanding Common Stock
into a smaller number of Common Stock, or (iv) issue any shares of its capital
stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then in each case the Purchase Price,
and the number and kind of Shares receivable upon exercise, in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination, or reclassification shall be proportionately adjusted
so that the holder of any Warrant exercised after such time shall be entitled to
receive the aggregate number and kind of Shares which, if such Warrant had been
exercised immediately prior to such record date, he would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination, or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) No adjustment in the Purchase Price shall be required if such
adjustment is less than $.05; PROVIDED, HOWEVER, that any adjustments which by
reason of this subsection (b) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 5 shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
(c) Upon each adjustment of the Purchase Price as a result of the
calculations made in subsection (a) of this Section 5, each Warrant outstanding
prior to the making of the adjustment in the Purchase Price shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
Shares (calculated to the nearest thousandth) obtained by (i) multiplying the
number of Shares purchasable upon exercise of a Warrant immediately prior to
adjustment of the number of Shares by the Purchase Price in effect prior to
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
6. FURTHER COVENANTS OF THE COMPANY.
(a) DILUTION OR IMPAIRMENTS. The Company will not, by amendment of its
certificate or articles of incorporation or through any reorganization, transfer
of assets, consolidation, merger or dissolution, avoid or seek to avoid the
observance or performance of any of the terms of the Warrants or of this Warrant
Agreement, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Warrant holders against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company:
WARRANT AGREEMENT PAGE 4
<PAGE>
(i) shall at all times reserve and keep available, solely for
issuance and delivery upon the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable upon the
exercise of the Warrants and shall take all necessary actions to ensure
that the par value per share, if any, of the Common Stock (or Other
Securities) is at all times equal to or less than the then effective
Purchase Price per share; and
(ii) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock or Other Securities upon the exercise
of the Warrants from time to time outstanding.
(b) TITLE TO STOCK. All shares of Common Stock delivered upon the exercise
of the Warrants shall be validly issued, fully paid and nonassessable; each
Warrant holder shall, upon such delivery, receive good and marketable title to
the Shares, free and clear of all voting and other trust arrangements, liens,
encumbrances, equities and claims whatsoever; and the Company shall have paid
all taxes, if any, in respect of the issuance thereof.
(c) EXCHANGE OF WARRANTS. Subject to Section 2(a) hereof, upon surrender
for exchange of any Warrant to the Company, the Company at its expense will
promptly issue and deliver to or upon the order of the holder thereof a new
Warrant or like tenor, in the name of such holder or as such holder (upon
payment by such Warrant holder of any applicable transfer taxes) may direct,
calling in the aggregate for the purchase of the number of shares of the Common
Stock called for on the face or faces of the Warrant or Warrants so surrendered.
The Warrants and all rights thereunder are transferable in whole or in part upon
the books of the Company by the registered holder thereof, subject to the
provisions of Section 2(a), in person or by duly authorized attorney, upon
surrender of the Warrant, duly endorsed, at the principal office of the Company.
(d) REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of such Warrant, the Company, at the expense of the Warrant holder, will execute
and deliver, in lieu thereof, a new Warrant of like tenor.
(e) FRACTIONAL SHARES. No fractional Shares are to be issued upon the
exercise of any Warrant, but the Company shall pay a cash adjustment in respect
of any fraction of a share which would otherwise be issuable in an amount as
determined by the Board of Directors.
7. OTHER WARRANT HOLDERS: HOLDERS OF SHARES.
The Warrants are issued upon the following terms, to all of which each
Warrant holder by the taking thereof consents and agrees: (a) any person who
shall become a transferee, within the limitations on transfer imposed by Section
2(a) hereof, of a Warrant properly endorsed shall take such Warrant subject to
the provisions of Section 2(a) hereof and thereupon shall be authorized to
represent himself as absolute owner thereof and, subject to the restrictions
contained in this Warrant
WARRANT AGREEMENT PAGE 5
<PAGE>
Agreement, shall be empowered to transfer absolute title by endorsement and
delivery thereof to a permitted BONA FIDE purchaser for value; (b) any person
who shall become a holder or owner of Shares shall take such shares subject to
the provisions of Section 2(b) hereof; (c) each prior taker or owner waives and
renounces all of his equities or rights in such Warrant in favor of each such
permitted BONA FIDE purchaser, and each such permitted BONA FIDE purchaser shall
acquire absolute title thereto and to all rights presented thereby; and (d)
until such time as the respective Warrant is transferred on the books of the
Company, the Company may treat the registered holder thereof as the absolute
owner thereof for all purposes, notwithstanding any notice to the contrary.
8. MISCELLANEOUS.
All notices, certificates and other communications from or at the request
of the Company to any Warrant holder shall be mailed by first class, registered
or certified mail, postage prepaid, to such address as may have been furnished
to the Company in writing by such Warrant holder, or, until an address is so
furnished, to the address of the last holder of such Warrant who has so
furnished an address to the Company, except as otherwise provided herein. This
Warrant Agreement and any of the terms hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Warrant Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Texas. The headings in this Warrant
Agreement are for purposes of reference only and shall not limit or otherwise
affect any of the terms hereof. This Warrant Agreement, together with the forms
of instruments annexed hereto as exhibits, constitutes the full and complete
agreement of the parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant Agreement to be
executed effective the 1st day of December, 1995, in Houston, Texas, by its
proper corporate officers, thereunto duly authorized.
GK INTELLIGENT SYSTEMS, INC.
By________________________________________
GARY F. KIMMONS, Chief Executive Officer
The above Warrant Agreement is confirmed as of the above date.
- ----------------------------------------
KIMBERLY ANN QUINN
WARRANT AGREEMENT PAGE 6
<PAGE>
EXHIBIT A
WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER: (A) THE SECURITIES ACT OF 1933,
AS AMENDED, IN RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED IN
SECTIONS 3 AND 4 OF SUCH ACT AND REGULATION D PROMULGATED THEREUNDER; OR (B) ANY
STATE SECURITIES LAWS IN RELIANCE UPON APPLICABLE EXEMPTIONS THEREUNDER. THESE
WARRANTS MUST BE ACQUIRED FOR INVESTMENT ONLY FOR THE ACCOUNT OF THE INVESTOR,
AND NEITHER THE WARRANTS NOR THE UNDERLYING STOCK MAY BE TRANSFERRED OR
EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE SECURITIES AND OTHER LAWS.
To Purchase
5,000 Shares of
Common Stock
GK INTELLIGENT SYSTEMS, INC.
Incorporated Under the Laws of Delaware
This certifies that, for value received, the hereafter named registered
owner is entitled, subject to the terms and conditions of this Warrant, until
the expiration date, to purchase the number of shares set forth above of the
common stock (the "Common Stock"), of GK Intelligent Systems, Inc. (the
"Corporation") from the Corporation at the purchase price per share hereafter
set forth, on delivery of this Warrant to the Corporation with the exercise form
duly executed and payment of the purchase price (in cash or by certified or bank
cashier's check payable to the order of the Corporation) for each share
purchased. This Warrant is subject to the terms of the Warrant Agreement between
the parties thereto dated as of December 1, 1995, the terms of which are hereby
incorporated herein. Reference is hereby made to such Warrant Agreement for a
further statement of the rights of the holder of this Warrant.
Registered Owner: Kimberly Ann Quinn Date: December 1, 1995
Purchase Price
Per Share: $1.00
Expiration Date: Subject to Section 3(a) of the Warrant Agreement, 5:00 p.m.
Houston, Texas time on December 1, 1997.
WITNESS the signature of the Corporation's authorized officer:
GK INTELLIGENT SYSTEMS, INC.
By________________________________________
GARY F. KIMMONS, Chief Executive Officer
A-1
<PAGE>
FORM OF SUBSCRIPTION
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
To GK Intelligent Systems, Inc.:
The undersigned, the holder of the enclosed Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _________* shares of Common Stock of GK Intelligent
Systems, Inc. and herewith makes payment of $_______________ therefor, and
requests that the certificate or certificates for such shares be issued in the
name of and delivered to the undersigned.
Dated:______________
--------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the enclosed Warrant)
--------------------------------------------
(Address)
- ---------------------------
(*) Insert here the number of shares called for on the face of the Warrant or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised, in either case without making any adjustment
for additional Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant Agreement pursuant to which the Warrant was granted, may be
delivered upon exercise.
A-2
<PAGE>
FORM OF ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers
unto __________________________________ the right represented by the enclosed
Warrant to purchase _________________ shares of Common Stock of GK Intelligent
Systems, Inc. to which the enclosed Warrant relates, and appoints
_____________________ Attorney to transfer such right on the books of GK
Intelligent Systems, Inc. with full power of substitution in the premises.
The undersigned represents and warrants that the transfer of the enclosed
Warrant is permitted by the terms of the Warrant Agreement pursuant to which the
enclosed Warrant has been issued, and the transferee hereof, by his acceptance
of this Agreement, represents and warrants that he is familiar with the terms of
said Warrant Agreement and agrees to be bound by the terms thereof with the same
force and effect as if a signatory thereto.
Dated:_________________________
--------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the enclosed Warrant)
--------------------------------------------
(Address)
Signed in the presence of:
- ------------------------------------
A-3
Exhibit 10.1
LICENSE AGREEMENT
Between
MICROELECTRONICS AND COMPUTER TECHNOLOGY CORPORATION
and
GK INTELLIGENT SYSTEMS, INC.
THIS AGREEMENT is made by and between MICROELECTRONICS AND COMPUTER
TECHNOLOGY CORPORATION ("MCC"), a Delaware corporation having its principal
place of business at 3500 West Balcones Center Drive, Austin, Texas 78759, and
GK INTELLIGENT SYSTEMS, INC. ("GKIS"), a Delaware corporation, having its
principal place of business at P. O. Box 6690, Houston, Texas 77265-6690
(hereinafter sometimes individually the "Party" and collectively the
"Parties"); effective as of the date accepted by MCC as indicated by its
authorized signature below.
RECITALS
WHEREAS, MCC is a consortium engaged in long-term research and
development, consisting of shareholder and associate companies (the "Member
Companies"); and
WHEREAS, MCC holds legal title to the technology described and listed in
Exhibit A (the "Licensed Technology") as more fully defined below; and
WHEREAS, pursuant to the MCC Bylaws, the MCC Master Plan for Transfer and
Licensing of Technology ("Master Plan"), and a vote of the MCC Board of
Directors and applicable Member Companies, the Licensed Technology has been
made available for licensing to GKIS; and
WHEREAS, GKIS desires to obtain certain rights to commercialize said
Licensed Technology under the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the receipt and sufficiency of which is acknowledged, the
Parties agree as follows:
ARTICLE 1. DEFINITIONS
1.01 "Confidential Information" shall mean any information including, but not
limited to, Licensed Technology, acquired, discovered, developed, created or
learned by one Party (the furnishing Party) or its employees in the course of,
or as a result of, any of its or their research and development activities
which the furnishing Party treats or maintains as confidential, secret,
proprietary, restricted, classified or otherwise as not to be disclosed by the
other Party (the receiving Party). Confidential Information includes but is
not limited to unpublished copyrightable material, notes, memoranda, writings,
records, files, working papers, reports, opinions, drawings, blueprints,
schematics, specifications, computer programs, documentation, data, technical
data or any other materials, in whatever form, manner or medium recorded,
including any and all copies thereof. Confidential Information, if disclosed
or provided in tangible form, shall be clearly and conspicuously marked
"Confidential" or "Proprietary". Information, if orally or visually disclosed,
shall be identified as confidential in nature at the time of its disclosure
and shall be confirmed in writing by the furnishing Party and appropriately
marked within thirty (30) days of such disclosure. Confidential Information
shall not include (a) information generally known in the trade or which is
publicly known, including information which becomes publicly known through no
fault of the receiving Party, as evidenced by prior publication or other
equivalent
<PAGE>
probative evidence; or (b) information in the receiving Party's possession prior
to the creation or acquisition of such information by the furnishing Party, as
evidenced by dated information prepared in the normal course of the receiving
Party's business; or (c) information which comes into the receiving Party's
possession from a third party not in violation of any obligation or duty of
confidentiality after creation or acquisition of such information by the
furnishing Party; or (d) information which is independently developed by the
receiving Party without use of or reference to Confidential Information, as
evidenced by dated information prepared in the normal course of the receiving
Party's business.
1.02 "Copyright or Copyrights" shall mean all classes of registered or
registerable works embodying, relating to or arising out of technology now or
hereafter owned by MCC or pursuant to which MCC may grant licenses, in any and
all countries and jurisdictions of the world.
1.03 "GKIS Object Code" shall mean GKIS's most recent "hardened" version of
the Licensed Technology, including all improvements, modifications,
enhancements, updates, new releases, and derivative works by GKIS to the
Licensed Technology, in the form of dynamically linked object code libraries,
and all related documentation.
1.04 "GKIS Source Code" shall mean the most recent source code version of the
GKIS Object Code, in both machine readable and human readable form, and all
related documentation.
1.05 "Internal Use" shall mean any use by the user in the development of a
tool or in the incorporation into a service designed for or on behalf of the
user for the user's internal business purposes. Internal Use shall include use
by the user's employees, contractors or consultants, but specifically excludes
direct use or access by other third parties, including the user's customers,
and excludes the design or manufacture of, or incorporation into, a service or
product designed, manufactured and marketed by or on behalf of the user.
1.06 "Licensed Technology" shall mean the specific technology described and
listed in Exhibit A hereto, including, but not limited to, source code and
related documentation, rights to which GKIS desires to obtain.
1.07 "Licensable Software" shall mean GKIS's software and related
documentation and services which are developed from Licensed Technology in
such a manner as to render Confidential Information in the underlying
technology not easily derivable. By way of example, but not limitation, it is
agreed that machine-specific object code prepared from Licensed Technology
shall be "Licensable Software." By way of further example, the source code
version of the Licensed Technology, or any product containing substantive
portions thereof, shall not be Licensable Software.
1.08 "Member Companies" shall mean certain MCC Shareholders and MCC
Associates that have agreed to participate in various technology programs at
MCC pursuant to a Research and Development Agreement dated April 1, 1991,
which may be amended by MCC from time to time, which also classifies certain
Member Companies as "Level 1" or "Level II" participants in various technology
programs.
1.09 "Use" shall mean any use by GKIS or its permitted sublicensees of
Licensed Technology in the design or manufacture of, or in the incorporation
of Licensed Technology into, a service or product designed, manufactured or
marketed by or on behalf of GKIS or its permitted sublicensees and includes
the direct distribution of such products, including through OEM's, VARs,
distribution dealers and sales representatives.
<PAGE>
ARTICLE 2. LICENSE GRANT
2.01 Grant. In consideration of royalty payments and other obligations by GKIS
as set forth herein, MCC hereby grants to GKIS a non-exclusive, worldwide
right and license to Use the Licensed Technology, subject to the terms and
conditions of this Agreement. This license includes, without limitation, the
following rights:
(a) To create derivative works:
(b) To distribute derivative works;
(c) With respect to derivative works prepared by GKIS without the
assistance or involvement of MCC and in compliance with the other
terms and conditions of this Agreement, the right to register
copyrights in such derivative works in the name of GKIS;
(d) With respect to Licensable Software, to make, have made, license,
sublicense, lease, transfer or sell products or services which
incorporate Licensed Technology or with respect to which Licensed
Technology has been used in connection with the design or
manufacture of such a product or service;
(e) To use, reproduce, modify, and translate such Licensed Technology
for any purpose, including the development of Licensable Software;
(f) With respect to software other than Licensable Software, to
sublicense third parties to use, reproduce, and/or modify such
software (including source code) solely for the purpose of
preparing, supporting and maintaining Licensable Software, subject
to the requirement that each such third party so licensed agrees to
maintain the underlying Licensed Technology in confidence in
accordance with the confidentiality provisions of this Agreement;
(g) The right to receive one copy of the source code, in machine
readable form, and one copy of all documentation listed as Licensed
Technology. MCC agrees to replace any defective media or copies
within ten (10) days of written notice thereof by GKIS; and
(h) The right to place copies of the source code for Licensed Technology
and related documentation with an escrow agent solely for the
purpose of licensing such source code and related documentation to
third parties to support and maintain copies of Licensable Software
transferred subject to this Agreement and only for such copies on
which the royalty due hereunder have been paid to MCC, either by
GKIS or by the user desiring such support and/or maintenance.
2.02 Sublicenses and Assignment. Except as provided in Section 2.01 above,
the rights and licenses granted hereunder convey no right to grant sublicenses
to Licensed Technology, are not to be deemed transferable by operation of law
for any purpose, are indivisible, and are nonassignable, except with MCC's
prior written approval. Notwithstanding the foregoing, GKIS may disclose and
permit use of Licensed Technology by a contractor who agrees for the benefit
of MCC to be bound by the confidentiality provisions of this Agreement, to the
extent necessary to permit GKIS to have products made or have services
provided to GKIS. Likewise, GKIS may act as a subcontractor in the performance
of a U.S. Government contract to a prime contractor by granting a limited
sublicense to such prime contractor with respect to Licensed Technology
relating to the specific contract in question, provided GKIS otherwise
complies with this
<PAGE>
Agreement and that the prime contractor agrees in writing to comply with the
confidentiality provisions of this Agreement.
2.03 Use of Confidential Information. It is expressly understood and agreed
that it shall not be a breach of GKIS's obligation to preserve the
confidentiality of Confidential Information for GKIS to license, lease, transfer
or sell a product or service which incorporates Licensed Technology or with
respect to which Licensed Technology has been used in connection with the design
or manufacture of such a product or service, if such use is otherwise in
accordance with the terms and conditions of this Agreement. However, GKIS agrees
that in the licensing, leasing, transfer or sale of such products or services,
it will protect Confidential Information from disclosure in the same manner and
to the same extent as it protects its own comparable technology in similar
transactions, but in no event less than a reasonable degree of protection.
2.04 Existing Licenses. Nothing herein shall limit or modify the terms and
conditions of any licenses or rights granted to or to be granted to the Member
Companies or others in accordance with the MCC Bylaws.
ARTICLE 3. PROTECTION OF CONFIDENTIAL INFORMATION
3.01 Confidentiality Acknowledgment. GKIS acknowledges that Confidential
Information is a special, valuable and unique asset of MCC and, subject to the
provisions of Section 2.03 hereof, agrees to take reasonable measures to prevent
disclosure to any other person or entity of Confidential Information GKIS, its
employees, agents or consultants or those of any contractor, subcontractor, or
supplier of GKIS, except as specifically authorized in writing by MCC. GKIS
specifically agrees to take measures in the same manner and to the same extent
as GKIS protects its own comparable technology in similar transactions, but in
no event less than reasonable measures, to prevent disclosure of Confidential
Information relating to the Licensed Technology, except as specifically
authorized hereunder or in writing by MCC, GKIS agrees that MCC shall, in
addition to all other remedies, have the right to enforce the provisions of this
section through injunction or other equitable relief if the unauthorized
disclosure involves a substantial portion of the source code embodying Licensed
Technology.
3.02 Confidentiality Period. GKIS's confidentiality obligations hereunder shall
expire with respect to an item of Confidential Information transferred pursuant
to this Agreement five (5) years after receipt thereof. The expiration of
confidentiality obligations shall not affect royalty obligations thereafter.
3.03 Nothing in this Article shall be construed to prevent either Party from
complying with a lawful order to disclose Confidential Information by a court of
competent jurisdiction or governmental agency so long as such Party subject to
such order takes all reasonable precautions to preserve the confidentiality of
such information as provided by law.
ARTICLE 4. PAYMENTS
GKIS agrees to pay MCC, upon acceptance by MCC of this Agreement as evidenced by
its authorized signature hereto, a total of Five Million Three Hundred Thousand
Dollars ($5,300,000), in convertible preferred stock issued by GKIS in
accordance with the terms of Exhibit D hereto.
ARTICLE 5. GKIS OBLIGATIONS
5.01 License, VAR. GKIS agrees to make available to the Member Companies listed
in Exhibit B as Level 1 participants in an MCC project (such as Carnot or
Infosleuth) that is based on or related to the Licensed Technology (i) a
separate license agreement to use the GKIS Object Code for commercial
distribution and sublicensing, subject to a license fee to be negotiated between
GKIS and such Member Companies that shall be at least
<PAGE>
Agreement and that the prime contractor agrees in writing to comply with the
confidentiality provisions of this Agreement.
2.03 Use of Confidential Information. It is expressly understood and agreed
that it shall not be a breach of GKIS's obligation to preserve the
confidentiality of Confidential Information for GKIS to license, lease, transfer
or sell a product or service which incorporates Licensed Technology or with
respect to which Licensed Technology has been used in connection with the design
or manufacture of such a product or service, if such use is otherwise in
accordance with the terms and conditions of this Agreement. However, GKIS agrees
that in the licensing, leasing, transfer or sale of such products or services,
it will protect Confidential Information from disclosure in the same manner and
to the same extent as it protects its own comparable technology in similar
transactions, but in no event less than a reasonable degree of protection.
2.04 Existing Licenses. Nothing herein shall limit or modify the terms and
conditions of any licenses or rights granted to or to be granted to the Member
Companies or others in accordance with the MCC Bylaws.
ARTICLE 3. PROTECTION OF CONFIDENTIAL INFORMATION
3.01 Confidentiality Acknowledgment. GKIS acknowledges that Confidential
Information is a special, valuable and unique asset of MCC and, subject to the
provisions of Section 2.03 hereof, agrees to take reasonable measures to prevent
disclosure to any other person or entity of Confidential Information GKIS, its
employees, agents or consultants or those of any contractor, subcontractor, or
supplier of GKIS, except as specifically authorized in writing by MCC. GKIS
specifically agrees to take measures in the same manner and to the same extent
as GKIS protects its own comparable technology in similar transactions, but in
no event less than reasonable measures, to prevent disclosure of Confidential
Information relating to the Licensed Technology, except as specifically
authorized hereunder or in writing by MCC. GKIS agrees that MCC shall, in
addition to all other remedies, have the right to enforce the provisions of this
section through injunction or other equitable relief in the unauthorized
disclosure involves a substantial portion of the source code embodying Licensed
Technology.
3.02 Confidentiality Period. GKIS's confidentiality obligations hereunder shall
expire with respect to an item of Confidential Information transferred pursuant
to this Agreement five (5) years after receipt thereof. The expiration of
confidentiality obligations shall not affect royalty obligations thereafter.
3.03 Nothing in this Article shall be construed to prevent either Party fro
complying with a lawful order to disclose Confidential Information by a court of
competent jurisdiction or governmental agency so long as such Party subject to
such order takes all reasonable precautions to preserve the confidentiality of
such information as provided by law.
ARTICLE 4. PAYMENTS
GKIS agrees to pay MCC, upon acceptance by MCC of this Agreement as evidenced by
its authorized signature hereto, a total of Five Million Three Hundred Thousand
Dollars ($5,300,000), in convertible preferred stock issued by GKIS in
accordance with the terms of Exhibit D hereto.
ARTICLE 5. GKIS OBLIGATIONS
5.01 License, VAR, GKIS agrees to make available to the Member Companies listed
in Exhibit B as Level 1 participant in an MCC project (such as Carnot or
Infosleuth) that is based on or related to the Licensed Technology (i) a
separate license agreement to use the GKIS Object Code for commercial
distribution and sublicensing, subject to a license fee to be negotiated between
GKIS and such Member Companies that shall be at least
<PAGE>
as favorable as that granted any other third party, and (iii) a VAR
re-distribution license at 50% of GKIS's then established list price. Under no
circumstances shall MCC assume any responsibility or liability for any product,
service, license or agreement between GKIS and the Member Companies.
5.02 Escrow. GKIS agrees to place the GKIS Source Code in escrow for the
benefit of MCC and the Member Companies, subject to the terms and conditions of
the Source Code Escrow Agreement of Exhibit C. MCC shall deliver the Escrow
Agreement of Exhibit C to the escrow agent for execution. The Parties agree that
in the event the GKIS Source Code is released to MCC in accordance with Exhibit
C, then MCC and the Member Companies listed in Exhibit B shall have a perpetual,
non-exclusive license to use and modify the GKIS Source Code solely for the
purpose of continuing the benefits afforded to MCC and the Member Companies
under this or any other written agreement with GKIS. The GKIS Source Code shall
be considered Confidential Information under this Agreement.
ARTICLE 6. PERSONNEL
6.01 The Parties agree to develop a mutually agreeable method whereby one or
more GKIS personnel will be made available to MCC in a manner similar to the MCC
Assignee program. GKIS shall bear the salary and other employment expense of
such personnel, and MCC shall provide corporate accommodations including office
space and computer facilities at rates to be mutually agreed upon.
ARTICLE 7. MCC INFOSLEUTH PROJECT
7.01 MCC has established the Infosleuth project as a follow-on project to the
Carnot project. GKIS agrees that any fees paid by GKIS for licenses to the
results of or participation in any MCC project are separate and distinct from
any payments under this Agreement, and likewise that any payments made hereunder
shall not count as participation fees.
ARTICLE 8. WARRANTIES
8.01 Disclaimer. MCC shall make reasonable efforts to verify the accuracy of
the information furnished by it under this Agreement. MCC shall replace any
defective media or unreadable copies furnished hereunder. Notwithstanding the
foregoing, MCC MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,
CONCERNING THE ACCURACY OF THE GENERAL DESCRIPTION OF THE LICENSED TECHNOLOGY,
THE QUALITY OF ANY RESULTS TO BE ACHIEVED BY THE USE OF THE LICENSED TECHNOLOGY,
THE CONDITION OF THE LICENSED TECHNOLOGY, ITS MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE, OR TO ANY MATTER WHATSOEVER RELATING TO THE LICENSED
TECHNOLOGY, ALL LICENSED TECHNOLOGY AND RELATED PROGRAMS, DOCUMENTATION, AND ANY
OTHER ITEMS OR SERVICES PROVIDED UNDER THIS AGREEMENT ARE EXPRESSLY UNDERSTOOD
BY THE PARTIES TO BE LICENSED "AS IS", WITH ALL DEFECTS.
8.02 Limitations of Liability. IT IS EXPRESSLY UNDERSTOOD BY THE PARTIES THAT
MCC SHALL BEAR NO LIABILITY WITH RESPECT TO ANY CLAIM OR DAMAGES CAUSED BY ANY
ALLEGED DEFECTS IN THE CONDITION OR DESIGN OF THE LICENSED TECHNOLOGY, ANY
PRODUCTS OR SERVICES DERIVED THEREFROM, OR ANY OTHER ITEM ARISING OUT OF OR
RELATING TO THIS AGREEMENT, MCC'S TOTAL LIABILITY FOR BREACH OF ANY WARRANTIES
EXPRESS OR IMPLIED, SHALL BE LIMITED TO THE ROYALTIES RECEIVED BY MCC HEREUNDER
WITHIN THE THREE (3) MONTH PERIOD IMMEDIATELY PRECEDING THE DATE SUCH LIABILITY
IS DETERMINED.
<PAGE>
8.03 Novelty. MCC does not warrant the novelty of the Licensed Technology, and
does not represent that any patents shall be obtained for the Licensed
Technology.
8.04 Commercial Exploitation. MCC does not warrant that the Licensed Technology
is capable of commercial exploitation. The risks of such exploitation shall be
assumed solely by GKIS.
ARTICLE 9. LEGAL ACTIONS
9.01 Third Party Claims. MCC may (but is not obligated hereunder to) defend, at
its expense, any legal action based on a claim that the Licensed Technology
infringes any patent, copyright, trade secret, or other proprietary right, or
that the Licensed Technology relates to any personal injury, products liability,
or other claim of a third party, whether such action is brought directly against
MCC or against GKIS or both. To the extent such action is brought against GKIS,
GKIS agrees to notify MCC promptly in writing of the claim. GKIS further agrees
to provide all reasonably available information, assistance, and authority to
enable MCC to defend such action. GKIS shall be entitled to participate, at its
own expense, in the defense of any such claim against GKIS and defended by MCC.
MCC shall promptly (and in no event later than fifteen (15) days before any
judicial or other formal response to the claim is required) advise GKIS, in
writing, whether MCC will defend each such claim against GKIS. In the event that
GKIS, rather than MCC, defends such action, GKIS shall retain any sums recovered
subject to Section 1.05.
9.02 Substitution. Should the Licensed Technology become, or in MCC's opinion
be likely to become, the subject of a claim of infringement of a patent,
copyright or other right of a third party, MCC shall, at its option and without
additional cost to GKIS: (a) defend any action based on such claim pursuant to
Section 9.01 above; or (b) procure for GKIS the right to continue its Use of the
Licensed Technology; or (c) if an action has been brought and GKIS's right to
Use Licensed Technology cannot be procured in a commercially reasonable manner
nor a replacement procured, elect to terminate the licenses granted with respect
to the portion of the Licensed Technology which is the subject of such action
upon sixty (60) days written notice to GKIS in which case the Parties shall
negotiate in good faith a fair and equitable royalty rate for the non-terminated
portion of the Licensed Technology.
9.03 Third Party Infringements. MCC may institute any lawsuits or other actions
in the courts, administrative agencies or otherwise, which are reasonably
necessary to prevent the infringement of Patents, Copyrights, or other
intellectual property rights or contractual rights in the Licensed Technology,
and may oppose, request reexamination or cancel applications for registration or
registrations of conflicting patents or copyrights. MCC and GKIS shall cooperate
fully with each other by making, at its own expense, files and personnel
reasonably available to one another for the purposes of such prosecutions or any
other actions contemplated herein. In the event infringement continues which
causes, or reasonably threatens to cause, substantial competitive harm to GKIS,
and MCC does not file suit against such infringer within sixty (60) days of
receiving notice of such infringement, then GKIS may bring suit in its own name
against the infringer, and may keep all proceeds of any judgment or settlement
which results subject to Section 1.05. GKIS may also oppose, request
reexamination or cancel applications for registration or registrations of
conflicting patents or copyrights if MCC does not do so after reasonable notice
and request from GKIS. The reasonableness of the response time shall take into
account any deadlines imposed for action under the applicable statutes and
administrative rules.
9.04 Indemnification. The Parties recognize that the commercialization of the
Licensed Technology involves a considerable amount of technical and business
risk. Therefore, in consideration of the rights granted to GKIS herein, GKIS
agrees that at all times during this Agreement and thereafter, should either
party become involved with a third party in any legal action arising out of this
Agreement based upon events occurring after the effective
<PAGE>
date of this Agreement, then GKIS shall indemnify, defend and hold harmless MCC
and its officers, directors, employees, agents, affiliates, successors and
assigns with respect to any claim, demand, liability, damage or expense
(including attorney's fees, court costs, and out-of-pocket expenses) relating to
such action. GKIS specifically assumes all liability including, but not limited
to, all risk of infringement of the rights of others with respect to derivative
works by GKIS based on the Licensed Technology and agrees to hold MCC harmless
in any action asserted against MCC by a third party with respect to such works
to the extent that such action is based on such works prepared by GKIS or its
sublicensees. The indemnification obligations hereunder shall not be limited in
any way by the amount or type of damages, compensation, or benefits payable by
or for GKIS under any insurance policy covering any indemnified matters.
9.05 Limitation. IT IS EXPRESSLY UNDERSTOOD THAT MCC DISCLAIMS ANY WARRANTY OF
NON-INFRINGEMENT AND ASSUMES NO OBLIGATION WITH RESPECT TO ANY ALLEGED OR PROVEN
INFRINGEMENT OF THE LICENSED TECHNOLOGY OR OTHER RIGHTS OF THIRD PARTIES DUE TO
ACTIVITIES UNDER THIS AGREEMENT.
ARTICLE 10. MODIFICATIONS AND IMPROVEMENTS
10.01 Consent. Each Party shall be free to undertake modifications and
improvements to the Licensed Technology.
10.02 Title. Title and ownership of modifications to the Licensed Technology,
made solely by a Party, shall be held solely by that Party.
ARTICLE 11. EXPORTS
11.01 Export Controls. GKIS agrees to comply with all relevant U.S. Export
Regulations and to obtain all required licenses prior to exporting or
re-exporting any products or information relating to the Licensed Technology.
MCC does not represent that an export license shall not be required nor that, if
required, it shall be issued. GKIS assumes all responsibility of its exports or
re-exports incorporating or related to the Licensed Technology.
11.02 Approvals. GKIS may obtain, at its own expense, any government approval
required to carry out the purpose of this Agreement. GKIS shall keep MCC
informed of its progress in seeking government approval.
ARTICLE 12. NATURE OF RELATIONSHIP
12.01 The relationship between the Parties is that of independent contractors.
Nothing contained herein shall be construed to imply a joint venture,
partnership, employer-employee, or principle-agent relationship between the
Parties; and neither Party, by virtue of this Agreement, shall have any right,
power or authority to act or create any obligation, express or implied, on
behalf of the other Party.
ARTICLE 13. SOLICITATION OF EMPLOYEES
13.01 GKIS, recognizing that its access to the plans and personnel of MCC and
its Member Companies gives it unique advantages with respect to identifying key
employees, agrees that during the term of this Agreement and for a period of one
(1) year thereafter, GKIS shall not hire or attempt to hire any employee or
former employee of MCC or a Member Company identified in Exhibit B without the
express written consent of MCC or the respective Member Company unless such
former employee (i) has not been employed by MCC or the respective Member
Company for at least one (1) year, or (ii) has been involuntarily terminated by
MCC or the respective Member Company.
<PAGE>
ARTICLE 14. PUBLICITY
14.01 Cooperation. The Parties agree to cooperate in the creation of press
releases, public announcements, advertisements and other marketing materials
directly or indirectly related to this Agreement or which make reference to the
other Party. Each Party agrees that it shall promptly notify the other Party of
the preparation of any such materials, that it shall furnish such materials to
the other Party, that it shall provide the other Party an ample opportunity to
review and comment on such materials, and that it shall not publish or use such
material without the prior written consent of the other Party, which consent
shall not be unreasonably withheld. In addition, each Party agrees to include in
such materials any disclaimers reasonably requested by the other Party.
14.02 Party's Name. Nothing in this Agreement shall imply any right by a Party
to use any name, trademark, service mark, or logo of any kind belonging to the
other Party without the prior written consent of the other Party.
ARTICLE 15. TAXES
15.01 Any direct or indirect taxes resulting from this License, except for
income or other taxes measured by income or gross receipts of MCC, shall be paid
by GKIS.
ARTICLE 16. TERM AND TERMINATION
16.01 License Term. Except as set forth in Section 16.02 below, the rights and
licenses granted herein shall be perpetual and irrevocable.
16.02 Material Breach. A material breach of this Agreement which remains
uncured for thirty (30) days after written notice thereof by the aggrieved Party
to the breaching Party shall entitle the aggrieved Party, at its option, by
written notice, to terminate this Agreement. Upon such termination, GKIS's
rights and licenses hereunder shall immediately cease and GKIS shall immediately
return to MCC all Licensed Technology, Confidential Information, and related
material received from MCC under or pursuant to this Agreement.
16.03 Payments. Failure by GKIS to pay any amounts when due hereunder shall
constitute a material breach of this Agreement.
16.04 Termination by GKIS. GKIS shall have the right to terminate this License
Agreement by providing MCC with sixty (60) days written notice of GKIS's
intention to terminate.
16.05 Financial Condition. If one of the Parties (a) ceases to carry on its
business, (b) becomes "insolvent" (as the term is defined in the United States
Bankruptcy code, as amended from time to time), (c) fails to pay its debts in
the ordinary course of business under conditions indicating insolvency, or (d)
voluntarily seeks, consents to or acquiesces in the benefits of any bankruptcy
or similar debtor-relief laws, then the other Party may terminate this Agreement
without prejudice to any other remedy to which that other Party may be entitled
at law or in equity or elsewhere under this Agreement by giving written notice
of termination to the first Party.
16.06 Survival of Obligations. Termination by a Party shall not operate as a
waiver of either Party's accrued rights and obligations under this Agreement. In
particular, the rights and obligations relating to Confidential Information,
payments, disclaimers, indemnification, arbitration, warranties, along with
claims and causes of action for breach of this Agreement, shall survive the
termination, cancellation, assignment or expiration of this Agreement.
<PAGE>
ARTICLE 17. DISPUTE RESOLUTION
17.01 Mediation. Any controversy or dispute between the Parties arising out
of or relating to this Agreement or the relationship of the Parties
established thereby shall be promptly submitted to mediation under the
auspices of the Center for Public Resources, Inc., or a mutually agreeable
group engaged in corporate dispute management, but in no case shall such
mediation extend beyond thirty (30) days following notice in writing of such
controversy or dispute. Each Party shall pay its own costs, expenses,
attorney's fees or other charges related to mediation.
17.02 Binding Arbitration. Except as otherwise provided below, if the Parties
undergo mediation under Section 17.01 and satisfactory resolution is not
achieved, or if resolution cannot be achieved before the expiration of the
time period set forth in Section 17.01, then the dispute shall be settled by
binding arbitration in Austin, Texas, in accordance with the Commercial
Arbitration Rules, including the Expedited Procedures (the "Expedited Rules"),
of the American Arbitration Association ("AAA"), which are incorporated herein
by reference.
17.03 Arbitration Remedy. Except as modified by Section 17.02 above, it is
understood by the Parties that arbitration of any dispute or controversy
between the Parties arising out of this Agreement is the sole and exclusive
remedy for such dispute or controversy, subject to the provisions of the Texas
General Arbitration Act, R.C.S. Art. 224. et seq. and the Federal Arbitration
Act, Title 9, Section 1, et seq.
17.04 American Arbitration Association. The Parties agree to use the services
of the AAA for the resolution of all disputes arising hereunder.
17.05 Initiating Arbitration. Whenever a Party reasonably and honestly
believes that: (1) the other has breached this Agreement; or (2) there exists
a dispute or controversy arising under or out of this Agreement, the
initiating Party must send written notice and demand arbitration within sixty
(60) days after receiving actual knowledge of the breach, dispute or
controversy. Service of any arbitration claim hereunder may be effected
pursuant to the notice provisions of Section 19.11 hereof and shall be filed
with the AAA in accordance with the Expedited Rules. The notice shall contain
the specific and particular facts which describe the nature of the dispute,
the amount involved and the remedy sought.
17.06 Arbitration Selection. After receipt of notice demanding arbitration,
the AAA shall mail a list of six (6) potential arbitrators to each Party, who
shall, within seven (7) days after the mailing date of such list: 1) return
the list to the AAA after preemptory strikes of no more than two names from
the list, with the remaining names numbered in order of preference, and 2)
submit to the other Party the name of a Party-appointed arbitrator to be a
third arbitrator. The AAA shall then select two neutral arbitrators from among
those not stricken by either Party in accordance with the designated order of
mutual preference and shall invite them to serve. The two neutral arbitrators
shall then select one of the two Party-appointed arbitrators to serve for any
reason the remaining Party-appointed arbitrator shall serve. If neither
Party-appointed arbitrator can serve, the two neutral arbitrators shall choose
the third arbitrator. If for any reason, two neutral arbitrators cannot be
appointed from those remaining and unstricken on the list, the AAA shall act
in accordance with the Expedited Rules to create the panel of two neutral
arbitrators. The Parties agree that at least one arbitrator shall have a
formal education, training and/or experience in the field of computer science.
17.07 Arbitration Costs. Unless a majority of the arbitrators find that
exceptional circumstances exist, which would allow the majority to award
reasonable attorney's fees, administrative fees and/or costs to the Party
found to be exceptionally aggrieved, each Party shall pay its own costs,
expenses, attorney's fees or other charges related to the arbitration, whether
imposed by the arbitrators or by the arbitrating organization.
<PAGE>
17.08 Arbitrating Witnesses. The arbitrators shall have the power to subpoena
witnesses to the proceedings to the same extent that a Texas district court
judge would have in the same district where the arbitration hearing is held.
Witnesses shall testify under oath during the hearings and depositions.
17.09 Completion of Arbitration. The arbitration hearing shall be completed
within thirty (30) days, unless completion within that time is not possible
because one or more arbitrators is unavailable, or refuses to participate in
the proceedings, or if the hearing facility becomes unavailable. Expedited
Rule 56 is hereby modified. If any arbitrator becomes unavailable or refuses
to participate in the proceedings, that arbitrator shall be dismissed and a
new arbitrator shall be selected, as described in Section 17.06 above. This
provision shall be deemed self-executing and an award may be entered against a
Party who fails to appear at any duly noticed hearing.
17.10 Arbitration Award. The decision of the arbitrators shall be set forth
in a written award, signed by each arbitrator. The award shall be issued
within twenty (20) days after the completion of the arbitration proceedings.
The award is a final and binding decision for the Parties on the issues
arbitrated, identified and decided in the award. The award shall not be
appealable to any court, subject to the provisions of the Texas General
Arbitration Act, R.C.S. Arts. 224, et seq. and the Federal Arbitration Act,
Title 9, Section 1, et seq.
17.11 Equitable Relief. Either Party shall have the right to seek and obtain
from any court of competent jurisdiction any equitable or provisional relief
or remedy enforcing any right or interest it may have in connection with this
Agreement, including without limitation a temporary restraining order,
preliminary injunction, writ of attachment, order compelling an audit, or
enforcement of any liens or security interests held by either Party in the
property of the other. No such judicial actions permitted by this section
shall waive or limit the claiming Party's rights to adjudicate the merits of
the dispute by arbitration.
ARTICLE 18. INSURANCE
18.01 Insurance Required. GKIS shall maintain at its own expense in full
force and effect at all times during this Agreement, in form and with a
responsible insurance carrier acceptable to MCC, an insurance policy for at
least the scope of the indemnification in Section 9.04 above. GKIS shall
provide MCC at least thirty (30) days written notice before the policy is
materially altered or cancelled. No act or omission by MCC shall act as a
waiver of the insurance required herein. GKIS's obtaining or failure to obtain
the required insurance shall in no way relieve GKIS of its indemnity
obligations hereunder.
18.02 Policy Limits. The insurance policy listed in Section 18.01 shall
include at least the following:
(a) Comprehensive General Liability, including protective and
contractual liability, personal injury, advertising injury, and
medical expenses, with a per occurrence limit of $1,000,000; and
(b) Employer's Liability and Worker's Compensation as required by the
laws of the state wherein the work is to be performed.
18.03 Proof of Insurance. GKIS shall, upon reasonable request, promptly
furnish or cause to be furnished to MCC evidence in form and substance
satisfactory to MCC, of the maintenance of the insurance required herein,
including, but not limited to, originals or copies of policies, certificates
of insurance (with applicable riders and endorsements) and proof of premium
payments. MCC, however, shall be under no duty either to ascertain the
existence of or to examine such insurance or to advise GKIS in the event such
insurance fails to comply with this Agreement.
<PAGE>
18.04 Policy Provisions. Any insurance policy held by GKIS (i) shall be
primary and without right of contribution from other insurance which may be
available to or carried by MCC; (ii) shall waive any right of the insurers to
any setoff or counterclaim or any other deduction in respect of any liability
of MCC; (iii) shall provide that neither the insurers nor any subrogees of
GKIS shall have any right or recourse against MCC for any reason whatsoever;
and (iv) shall provide an express waiver of subrogation rights as against MCC.
Furthermore, MCC shall be named as an also insured or additional insured for
the Comprehensive General Liability insurance policy of GKIS.
18.05 Additional Insurance. GKIS agrees to cooperate in applying for any
additional insurance which names MCC as an also insured or additional insured
for MCC's benefit as MCC deems appropriate provided MCC pays the premium
payments associated with such additional insurance.
ARTICLE 19. MISCELLANEOUS PROVISIONS
19.01 Compliance with Law and Force Majeure. Anything to the contrary in this
Agreement notwithstanding, the rights and obligations of each Party hereto
shall be subject to all laws, regulations, or orders, both present and future,
of any Government having jurisdiction over such Party including without
limitation applicable United States laws relating to export or asset controls.
Without limiting the generality of the foregoing, the Parties agree that GKIS
shall be responsible for ensuring adherence to such export or asset control
laws with respect to the transfer of any Licensed Technology to its foreign
subsidiaries. Neither Party shall be liable to the other Party for any loss,
injury, delay, damages or other casualty suffered or incurred by such other
Party hereto due to strike, riot, storm, fire, explosion, act of God, war,
governmental action, or any other cause similar thereto, which is beyond the
reasonable control of such Party, and any failure or delay by either Party
hereto in performance of any of its obligations under this agreement due to
one or more of the foregoing causes shall not be considered a breach of this
Agreement.
19.02 Further Assurance. Each Party agrees to execute such additional
document(s) and to take such further action as the other Party may reasonably
request to protect MCC's rights in and GKIS's Use of the Licensed Technology.
19.03 No Conflict. MCC and GKIS each hereby represent and warrant that full
compliance with the terms and conditions of this Agreement will not conflict
with, result in a breach of or constitute a default under any other agreement
or obligation by which said Party is bound and that it has taken all corporate
action necessary for the authorization, execution, delivery and performance of
this Agreement, and when executed, this Agreement and any exhibits, schedules
and attachments hereto will constitute valid and binding obligations of each
Party.
19.04 Names. Neither Party shall have the right to use the name of the other
Party in a manner inconsistent with the relationship set forth in Section
12.01 without the express written consent of the other Party.
19.05 Severability. To the extent that any of the covenants set forth herein,
or any word, phrase, clause or sentence thereof, shall be found to be illegal
or unenforceable for any reason, such covenant, word, phrase, clause, or
sentence shall be modified or deleted in such manner so as to make the
Agreement as modified legal and enforceable under applicable laws, and the
balance of the Agreement or part thereof, shall not be affected thereby, the
balance being construed as severable and independent. The Parties agree that,
in the event that such a modification or deletion would threaten or frustrate
the purpose of this Agreement, they will negotiate a reasonable substitute
provision which reflects their intent in entering into this Agreement.
<PAGE>
19.06 Entire Agreement. This Agreement, along with any exhibits, schedules and
attachments hereto, represents the entire agreement between the Parties,
superseding all other previous oral or written communications, representations,
and agreements between the Parties with respect to the subject matter hereof.
19.07 Applicable Law. ANY ISSUES ARISING OUT OF OR UNDER THIS AGREEMENT NOT
GOVERNED BY FEDERAL LAW SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS
APPLICABLE TO CONTRACTS EXECUTED AND WHOLLY TO BE PERFORMED IN TEXAS AND AS
THOUGH BOTH PARTIES WERE THEN CORPORATIONS OF AND DOING BUSINESS IN TEXAS.
19.08 Forum. All lawsuits, arbitration proceedings, mediation proceedings, or
other legal actions under or concerning this Agreement shall be conducted in
Austin, Texas.
19.09 Waiver. No waiver of any right or breach of any provision of this
agreement shall constitute a waiver of any other right or breach of any other
provision, nor shall it be deemed to be a general waiver of such provision by
that Party or to sanction any subsequent breach thereof by the other Party.
19.10 Headings. Headings in this agreement are included for convenience only
and are not to be used in construing or interpreting this Agreement.
19.11 Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and deemed given when sent if by telex, or
when deposited with the cable or telegraph company, or when mailed with first
class postage prepaid, and shall be addressed as follows:
If to MCC:
Thomas E. Kirkland
Vice President and General Counsel
Microelectronics and Computer Technology Corporation
3500 West Balcones Center Drive
Austin, Texas 78759
If to GKIS:
Gary F. Kimmons
President, CEO
GK Intelligent Systems, Inc.
P.O. Box 6690
Houston, Texas 77265-6690
Either Party may give written notice of a change of address, and after such
notice is received by the other Party, any notice thereafter shall be given to
such Party at such changed address.
19.12 Amendments. No amendment or modification of this Agreement shall be valid
unless expressed by a duly authorized writing executed by both Parties, except
that MCC may amend Exhibit B without the consent of GKIS.
19.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original and all of which will
constitute together but one and the same document.
19.14 Beneficial Parties. This Agreement shall inure to the benefit of and be
binding upon the Parties and their respective successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized representatives to become effective as of the date last
executed below.
MICROELECTRONICS AND COMPUTER GK INTELLIGENT SYSTEMS, INC.
TECHNOLOGY CORPORATION
/s/ JOHN W. MCRARY /s/ GARY F. KIMMONS
John W. McRary Gary F. Kimmons
Signature Signature
/s/ JOHN W. MCRARY /s/ GARY F. KIMMONS
John W. McRary Gary F. Kimmons
Name (Typed or Printed) Name (Typed or Printed)
CEO & PRESIDENT PRESIDENT, CEO
Title Title
Date: 11/2/95 Date: 11/1/95
<PAGE>
EXHIBIT A
to
LICENSE AGREEMENT
Between
MICROELECTRONICS AND COMPUTER TECHNOLOGY CORPORATION
and
GK INTELLIGENT SYSTEMS, INC.
LICENSED TECHNOLOGY
1. GENERAL DESCRIPTION OF LICENSED TECHNOLOGY
The Licensed Technology was developed under the Carnot Project at MCC as of
December 31, 1994 and as delivered on the effective date of this Agreement.
<PAGE>
EXHIBIT B
to
LICENSE AGREEMENT
Between
MICROELECTRONICS ONE AND COMPUTER TECHNOLOGY CORPORATION
and
GK INTELLIGENT SYSTEMS, INC.
LIST OF MCC MEMBER COMPANIES PARTICIPATING
IN A PROJECT BASED ON OR RELATED TO
THE LICENSED TECHNOLOGY
1. CARNOT PROJECT
LEVEL I
1. AT&T Global Information Solutions
2. Anderson Consulting
3. Bellcore
LEVEL II
1. Motorola
2. Eastman Kodak
2. INFOSLEUTH PROJECT
LEVEL I
1. Computing Devices International
2. Eastman Chemical Company
3. Express Star Systems
4. Hughes Aircraft Company
5. Texas Instruments
6. TradeWave
LEVEL II
1. Motorola
EXHIBIT 10.2
*INDUSTRIAL DESIGN SERVICES AGREEMENT
IN THIS AGREEMENT dated September 30, 1993, I-NET Intelligent Systems, Inc.,
("I-NET"), a Delaware corporation, doing business at 3830 University Blvd.,
Houston, TX 77005 (mailing address: P.O. Box 6690, Houston TX 77265-6690) and
NCR Corporation ("NCR"), a Maryland corporation, doing business at 1700 S.
Patterson Blvd., Dayton, OH 45479 agree as follows:
1. BACKGROUND
1.1. NCR, through its NCR Human Interface Technology Center, provides system
prototype development and other services to NCR business units and outside
companies.
1.2. I-NET is in the business of manufacturing and marketing training systems
and wishes to use the services of the NCR Human Interface Technology Center.
2. SCOPE OF SERVICES
2.1. NCR shall provide the services described in Exhibit A ("Project")
including the delivery of the Deliverables (as that term is defined in Exhibit
A). NCR shall perform the services and deliver the Deliverables in accordance
with the Project Plan set out in Exhibit A. Delivery dates in the Exhibit are
only estimates since the ability to perform the services and deliver the
Deliverables will depend on a number of factors outside of NCR's control.
2.2. Any alteration of the Project or Deliverables, including any refinements
NCR may propose, may require changes in the Project, the Deliverables, the
Schedule or the payments set out in Section 3. All alterations must be approved
by both parties in writing.
3. PAYMENT
3.1. NCR will charge I-NET on a time and materials basis. NCR's hourly billing
rate is $75. NCR estimates that the fees for the Project will not exceed
$530,000.
3.2. In addition, I-NET shall pay NCR's reasonable expenses (including
materials and travel) plus 15%. I-NET shall also pay any taxes due as a result
of services performed under this Agreement except for taxes based on NCR's net
income.
3.3. NCR may issue invoice for payment as set out in Exhibit A. Payment will be
due upon invoice. any late payments will be subject to a 1.5% per month late
charge.
<PAGE>
4. OWNERSHIP AND RIGHTS
4.1. Except as specifically set out in Paragraphs 4.2, 4.3, and 4.4, all right,
title, and interest in and to Project Deliverables and all Intellectual Property
included therein shall belong to I-NET.NCR further grants I-NET the right to
make derivative works of the Project Deliverables and use the Project
Deliverables and all Intellectual property included in the Project Deliverables,
in any manner and without restriction, in any and all subsequent learning,
teaching and/or training systems, in whatever form, that I-NET may wish to
develop, develop and/or market.
4.2. With respect to Derivative Tools that NCR may already own or develop at
their own expense during or after the completion of this project, NCR grants
I-NET a personal world-wide, non-exclusive, royalty-free license under any NCR
intellectual property to use, perform, display, and make internal backup copies
of the Derivative Tools owned by NCR and to use the Derivative Tools in any
manner and without restriction, in any and all subsequent learning, teaching
and/or training systems, in whatever form, that I-NET may wish to develop and/or
market. I-NET may not sublicense these rights but may have another person
exercise these rights on behalf of I-NET.
4.3. With respect to generic Engine Deliverables that NCR may already own or
develop at their own expense during this project, NCR grants I-NET a personal
world-wide, non-exclusive, royalty-free license under NCR intellectual property
to use, perform, display, and make copies of the Engine Deliverables owned by
NCR, as required for making copies of the entire prototype system and to use, in
any manner and without restriction, the Engine Deliverables in any and all
subsequent learning, teaching or training systems, in whatever form, that I-NET
may wish to develop, develop and/or market. I-NET may not sublicense these
rights but may have another person exercise these rights on behalf of I-NET.
4.4. For Derivative Tools and Engine Deliverables that NCR has obtained by
license or otherwise from other vendors, NCR grants to I-NET a non-exclusive
sublicense to use all such Derivative Tools and Engine Deliverables to the
extent set forth in paragraphs 4.2 and 4.3 to the extent that NCR is legally
able to do so. NCR shall inform I-NET of vendors it is negotiating with for
Derivative Tools and Engine Deliverables not owned by NCR. NCR shall also take
reasonable efforts to assist I-NET in obtaining rights for Derivative Tools and
Engine Deliverable sunder terms and conditions that NCR would attempt to obtain
for itself. NCR shall use its best efforts to obtain the royalty-free right for
I-NET to use one copy of the Engine Deliverables not owned by NCR, with the
prototype delivered pursuant to this Agreement.
4.5. Any further development of the Project Deliverables, the Derivative Tools
and/or the Engine Deliverables completed, by NCR within six (6) months following
termination of this Agreement and which has a direct
______________________________
Ind. Des Agr. - Page 2
<PAGE>
application to learning systems of the general type as the Project Deliverables
shall be subject to the provisions of Paragraphs 4.1, 4.2, 4.3 and 4.4
4.6. In the event that NCR makes future modifications, improvements or
enhancements to any of the Project Deliverables, the Derivative Tools and/or the
Engine Deliverables, and to the extent such modifications, improvements or
enhancements are not subject to the provisions of 4.5, NCR grants I-NET the
option to acquire any such modifications, improvements or enhancements under
mutually acceptable terms. The obligations in this paragraph shall expire on
October 1, 2005.
4.7 For the purposes of this section 4, "Project Deliverables", "Derivative
Tools", and "Engine Deliverables" are all defined in Exhibit A.
5. CONFIDENTIALITY
5.1. The terms "Discloser" and "Recipient" each refer to NCR and I-NET.
5.2. "Confidential Information" means all information reasonably related to
this Agreement which the Discloser first discloses to the Recipient between June
14, 1993, and June 14, 1995; (i) in documents or other tangible materials
clearly marked CONFIDENTIAL or the like, or (ii) orally or in any other
intangible form, if at the time of first disclosure the Discloser tells the
Recipient that the information is confidential, and within 10 calendar days
after that first disclosure the Discloser delivers to the Recipient documents or
other tangible materials clearly marked CONFIDENTIAL or the like which disclose
or describe that information.
"Confidential Information" does not include information which: (a) is or becomes
publicly known or readily ascertainable by the public through no wrongful act of
the Recipient; (b) is independently developed by or for the Recipient; (c) the
Recipient receives from a third party, if the Recipient does not know of any
restrictions on the disclosure of that information; or (d) the Discloser
discloses to a third party without similar restrictions on disclosure.
5.3. For a period of 15 months from the last date of signing below, the
Recipient will use reasonable efforts to prevent the disclosure of Confidential
Information to any other person, unless disclosure is required by law. NCR may
disclose Confidential Information to NCR's affiliates (American Telephone and
Telegraph Company and the companies AT&T directly or indirectly owns or
controls), if the Confidential Information so disclosed remains subject to this
Agreement and NCR remains liable for any unauthorized disclosures by its
affiliates. All materials containing Confidential Information delivered by the
Discloser under this Agreement are and will remain the Discloser's property; at
the Discloser's written request, the Recipient must promptly return to the
Discloser all those materials and any copies, except a single archival copy.
______________________________
Ind. Des Agr. - Page 3
<PAGE>
5.4. This Agreement does not: (i) restrict either party from developing new
products, improving existing products, or marketing any new, improved, or
existing products; or (ii) commit either party to disclose any particular
information, or to develop, make, use, buy, sell, or otherwise dispose of any
existing or future product, or to favor or recommend any product or service of
the other party. To be binding, any such restriction or commitment must be in
writing and signed by both parties.
5.5. This Section 5 does not enlarge, diminish, or affect the rights and
obligations that either party may have or come to have under any other Section
of this Agreement or any other written agreement signed by both parties, or with
respect to any patent or copyright of either party. Except as this Agreement or
any such other written agreement specifically provides, there are no
restrictions on the use or disclosure of any information exchanged at any time
between the parties, in the past or in the future, except restrictions that
either party may independently have a right to assert under the patent or
copyright laws.
6. INTELLECTUAL PROPERTY INFRINGEMENT
6.1. I-NET will notify NCR immediately after it becomes aware of any claim or
threatened claim of infringement involving the Deliverables. NCR will defend at
its expense any claim or suit brought against I-NET alleging that the
Deliverables infringes a United States patent, copyright, or trade secret and
will pay all costs and damages finally awarded, if I-NET gives NCR: (1) prompt
written notice of the claim; (2) all requested information which I-NET possesses
about the claim; (3) reasonable cooperation and assistance; and (4) sole
authority to defend or settle the claim.
6.2. In the defense or settlement of the claim, NCR may obtain for I-NET the
right to continue using the Deliverables or replace or modify the Deliverables
so that it becomes non-infringing. If those remedies are not reasonably
available, NCR will terminate I-NET's rights with respect to that Deliverable
and refund the fees paid under Paragraph 3.1 that are attributable to that
Deliverable.
6.3. NCR shall not have any liability under this Section 6 (i) if any
infringement or allegation of infringement is based on (a) the use of the
Deliverables in combination with any item or information not furnished directly
by NCR, (b) any modification of the Deliverables other than by NCR or at NCR's
direction, (c) information provided to NCR by I-NET, (d) NCR's compliance with
I-NET's directions or specifications; (ii) for the use of a Deliverable in a
process; or (iii) infringement otherwise caused by I-NET. I-NET shall defend,
indemnify and hold NCR harmless for any claim of infringement covered by this
Paragraph 6.3.
6.4. This Section states NCR's entire liability for infringement of patents,
copyrights, and trade secrets.
______________________________
Ind. Des Agr. - Page 4
<PAGE>
6.5. This Agreement does not impose an obligation or confer a right on either
NCR or I-NET to (i) institute any action or suit against third parties for
infringement or (ii) defend any action or suit brought by a third party which
challenges or concerns the validity of any patent or other right.
7. WARRANTIES AND EXCLUSIONS
7.1. Each Party warrants that it has the right and power to enter into this
Agreement and that there are no outstanding assignments, grants, licenses,
encumbrances, obligations or agreements which would prevent it from performing
under the terms of this Agreement.
7.2. NCR warrants that:
7.2.1. it will perform the services and create the Deliverables using a
reasonable degree of care, and in a timely and expeditious manner;
and
7.2.2. the Combustible Gas Indicator Computer-based Training Prototype
will include working examples, appropriate to a prototype of all
of the functions defined in the Functional Specification set out
in Exhibit B.
7.3. Any claims under the above warranty must be made within 90 days of the
earlier of the delivery of the associated Deliverable or the final Deliverable.
NCR's obligation under the warranty shall be limited to correcting or replacing
the service or Deliverable, or, at NCR's option, refunding the portion of the
fee paid related to the service or Deliverable. I-NET shall use its best efforts
to limit the amount of travel NCR must do to fulfill NCR's warranty obligation
under this Paragraph.
7.4. Except as set out in Paragraph 7.2, the Deliverables are provided on an
"AS IS" basis. EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, EACH PARTY
DISCLAIMS ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO THE
IMPLIED WARRANTIES OR MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
THOSE ARISING FROM A COURSE OF PERFORMANCE OR DEALING, TRADE USAGE, OR
OTHERWISE.
7.5. I-NET shall ensure the accuracy and safety of the Deliverables. I-NET will
defend, indemnify and hold NCR harmless from any claims regarding the
Deliverables (except those claims specified in Section 6 for which NCR
indemnifies I-NET) or the services provided under this Agreement.
7.6. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, OR FOR LOSS OF PROFITS OR REVENUE, WHETHER IN AN ACTION
IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE, EVEN IF ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. NCR WILL NOT BE LIABLE FOR DIRECT DAMAGES CAUSED BY
LATE DELIVERY.
______________________________
Ind. Des Agr. - Page 5
<PAGE>
EACH PARTY WILL, HOWEVER, BE LIABLE FOR PERSONAL INJURY CAUSED BY ITS
NEGLIGENCE.
7.7 Except for personal injury caused by negligence, neither party's liability
will exceed the amount paid or due to NCR under Section 3 even if any provision
of this Agreement fails of its essential purpose.
7.8 The respective obligations under this Agreement are the sole and exclusive
remedies for any breach or default under it and for any other claims related to
the Deliverables and any services provided. The Parties acknowledge that this
Agreement, including this Section 9, fairly allocates risks and responsibilities
between the Parties and permits NCR to provide services to I-NET at lower rates
than would otherwise be available.
8. TERM AND TERMINATION
8.1. Either NCR or I-NET may terminate this Agreement for any reason by written
notice. The termination shall be effective 30 days after receipt of the written
notice.
8.2. Either NCR or I-NET may terminate this Agreement for any reason by written
notice at the completion of a phase as set out in the Project Plan in Exhibit A
or if I-NET does not agree to any changes in the Project, Project Plan or
Deliverables proposed by NCR. The termination shall be effective immediately. If
I-NET makes such a termination, I-NET shall pay a termination charge equal to 2
times the average weekly charge incurred by I-NET prior to termination.
8.3. Upon any termination, I-NET shall pay NCR the portion of the fees set out
in Paragraph 3.1 that the work completed at the effective date of termination
bears to the whole plus any payments made or due under Paragraphs 3.2 and 3.3.
NCR shall deliver any Deliverables due at the effective date of termination.
8.4. Sections 4, 5, 6, 7 and 9 shall survive any termination of this Agreement.
9. ARBITRATION OF DISPUTES; GOVERNING LAW
Any controversy or claim, whether based on contract tort or other legal theory
(including, but not limited to, any claim of fraud or misrepresentation),
arising out of or related to this Agreement shall be resolved by arbitration
pursuant to this Paragraph and the then current rules and supervision of the
American Arbitration Association. The duty to arbitrate shall extend to any
officer, employee, agent, or subsidiary making or defending any claim which
would otherwise be arbitrable hereunder. The matter of difference shall be
referred to three arbitrators who are knowledgeable in business information and
electronic data processing systems: one to be appointed by each Party, and a
third being nominated by the two selected by the Parties, or, if they cannot
______________________________
Ind. Des Agr. - Page 6
<PAGE>
agree on the third, by the American Arbitration Association. The arbitrators
shall determine the place or places where meetings are to be held. The
arbitrators must base their decision with respect to the differences before them
on the contents of this Agreement, and the decision of any two of the three
arbitrators shall be binding on both Parties. The arbitrators shall not have the
power to award punitive or exemplary damages. Issues of arbitrability shall be
determined in accordance with the federal substantive and procedural laws
relating to arbitration; all other aspects shall be interpreted in accordance
with the laws of the State of Texas. Each party shall bear its own attorneys'
fees associated with the arbitration and other costs, and expenses of the
arbitration shall be borne as provided by the rules of the American Arbitration
Association. If court proceedings to stay litigation or compel arbitration are
necessary, the party who unsuccessfully opposes such proceedings shall pay all
associated costs, expenses and attorneys' fees that are reasonably incurred by
the other party. If any portion of this Section is held to be unenforceable, it
shall be severed and shall not effect either the duty to arbitrate hereunder or
any other part of this section.
10. MISCELLANEOUS
10.1. The relationship between the parties shall remain that of independent
contractors and neither party shall have the authority to create obligations for
the other.
10.2. I-NET shall not represent the Deliverables as a standard NCR product.
10.3. I-NET is solely responsible for any products acquired from someone other
than NCR, even if NCR recommended them or assisted in their selection or
evaluation.
10.4. I-NET will not export any Deliverable or technical information outside of
the United States without the appropriate U.S. and foreign government approvals.
10.5. Neither Party shall be liable for failing to fulfill its obligations due
to acts of God, civil or military authority, war, strikes, fire, failure of its
suppliers to meet commitments, or other causes beyond its reasonable control.
10.6. Failure to enforce any Contract term is not a waiver of future
enforcement of that or any other term. The provisions of this Agreement are
severable; if any provision is unenforceable, the remaining provisions will
remain in effect.
10.7. This Agreement may only be modified by a writing signed by both Parties.
The printed terms on any document, including invoices, purchase orders, or
shipping documents, exchanged by the Parties shall not modify or supplement this
Agreement.
10.8. Each Party acknowledges that it has read this Agreement (including all
Exhibits), and agrees that it is the complete and exclusive understanding
between them.
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Ind. Des Agr. - Page 7
<PAGE>
ACCEPTED:
INET INTELLIGENT SYSTEMS, INC. NCR CORPORATION
By: /s/ GARY F. KIMMONS By: /s/ LEE W. HOEVEL
Printed: GARY F. KIMMONS Printed: LEE W. HOEVEL
Title: President Title: Vice-President, T&D
Date: 9/30/93 Date: 10-04-93
______________________________
Ind. Des Agr. - Page 8
<PAGE>
EXHIBIT A
DESCRIPTION OF PROJECT
The NCR Human Interface Technology Center will develop a working prototype
computer-based training system with a functional adaptive dynamic user
interface, specifically to address skills training for the operation of
Combustible Gas indicators. This prototype will address the skills training
required in the operation of Combustible Gas Indicators and will incorporate a
functional adaptive dynamic user interface capable of capturing and recording
the current performance level of a user, evaluating that performance against
an expert user model, and adjusting the instructional session accordingly.
This prototype will be an original proof of concept vehicle. It will not
possess the full range of functionality, robustness, or architectural
integrity typically found in commercial grade products. The complete
functionality for this prototype is described in Exhibit B.
PROJECT PLAN
DESCRIPTION OF DELIVERABLES
Figure 1. represents a generic architectural diagram of an ADI-Enabled
Training Application and the ADI-Enabled Tools Required to Build it. The
Derivative Tool Elements displayed on this diagram (Numbered 1.-7.) and also
including the Tool User Interface and Tool User Model will be a set of generic
tools that can be used to construct any ADI-Enabled Application. These tools
are not yet available, and as such, are the subject of ongoing research and
development by the NCR Human Interface Technology Center. These tools are not
the subject of this prototype development effort.
Another class of elements represented on this diagram are generic Engine
Deliverables that again are applicable to any ADI-Enabled Application
environment. Included in this group are the following: ASK Browser, Teaching
Executive, Simulator, Adaptor, Adaptation Rules, Student Interface, the
Generic Student Model, and the Generic Tutoring Rules. These subsystems are
required in order to make the prototype functional; however, they are not
being developed as a part of this prototype development. Some of these
elements have already been developed, some are under development, and others
will be acquired under license from 3rd parties. These elements will be
provided in the prototype system in executable object form. NCR will work with
I-NET in selecting 3rd party elements that have mutually agreeable licensing
terms.
The third class of elements shown on Figure 1. are those elements that are
specific to this prototype development, Project Deliverables, and are being
fully
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Ind. Des Agr. - Page 9
<PAGE>
funded by I-NET. Included in this class are the following: Case Base,
Domain Principles, CGI Tutoring Rules, Simulation Model, and CGI-Specific
Student Model. All right, title, and interest in and to these elements shall
belong to I-NET, as specified in paragraph 4.1 of this agreement. The
following are descriptions of these elements.
Simulation Model: Coded rules that drive the simulation; for example, "If
there is 10% natural gas in the air, and the CGI is functioning correctly, and
the student takes a sample correctly on the % gas scale, the meter reads 10%."
Also includes the media required to present the simulation.
CGI Tutoring Rules: Rules that define instructional behavior specific to the
CGI training system; for example, "if the student forgets to check zero
settings on the CGI before sampling in a simulation, emphasize instrument
preparation steps in the ensuing exercises until the student performs it
correctly three times."
Domain Principles: Principles that define correct CGI operation. For example,
"Never check the zero settings of the CGI in a place where you can smell gas."
Case Base: A set of cases that provide content material for learning. These
are real or true-to-life incidents in which failures of CGI monitoring have
negative consequences.
CGI-Specific Student Model: Data stored in the student model that is
specifically related to CGI content. For example, a record indicating initial
performance and amount of training received on preparing the CGI for use.
SCHEDULE OF DELIVERABLES AND PAYMENT ESTIMATED COST
- ------------------------------------ --------------
PHASE 1. - ANALYSIS AND DESIGN OF PROTOTYPE - 6 WEEKS $100,973
PHASE 2. - DEVELOPMENT - 12 WEEKS $282,604
PHASE 3. - TESTING AND EVALUATION - 6 WEEKS $ 89,023
PHASE 4. - ITERATION - 4 WEEKS $ 57,375
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Ind. Des Agr. - Page 10
<PAGE>
ATTACHMENT B
The deliverable for this contract is a prototype "smart trainer" for training
users of combustible gas indicator (CGI) instruments and of CGI related
information. For the purposes of this contract, three terms need to be
clarified to specify the deliverable:
o Who are the users/trainees of the system?
o What constitutes CGI training?
o What constitutes the prototype to be delivered?
SMART TRAINER USERS/TRAINEES
Individual "Users" include management and training staff of client
organizations as well as users of CGI instruments and CGI generated
information. Individual users may be divided into those who physically use
(operators) the instrument to detect combustible gases and those who may not
but who either supervise, train, direct or verify its correct use, or who must
handle information (knowers) generated from its use.
Job classes for individual operators include, but are not limited to:
o Inside service personnel
o Failure investigation inspectors
o Construction crew
o Construction foreman
o Construction crew leader
o Leak consultant
o Service supervisor
o Manager
Job classes for individual knowers include, but are not limited to:
o Dispatchers
o Supervisors
o Secretaries
o Trainers
o Managers
<PAGE>
Individuals in any of the following categories are excluded from the
definition of users of the Smart Trainer. Those excluded are those individuals
who:
o Cannot read the national language the system uses at an high school entry
level or better;
o Are physically unable to operate the computer system on which the training
will be delivered;
o Are visually handicapped and unable to effectively interact with a computer
generated visual display;
o Are cognitively handicapped or mentally retarded to the extent that they
are unable, as determined by a competent supervisor, to perform the duties
related to CGI use in a consistent, comprehensive manner.
Corporate "users" include individual companies and governmental units in any
of the following industries:
o Natural gas
o Liquid propane
o Fire
o Police
o Rescue
o Public safety
o Military
o Water/sewer
o Power
o Phone
o Leak detection consulting
o Gasoline/petroleum
o Mining
o Hospital
INet CGI "Smart Trainer" Prototype Agreement, Attachment B Page 2
<PAGE>
PROTOTYPE CGI TRAINING
For the purposes of this contract, the phrase "CGI training" covers similar
content and skill sets to the CGI portions of the Safety Evaluation and
Failure Investigation classes taught by the Transportation Safety Institute
and other organizations. With reference to the content of these courses, CGI
training would be limited by the descriptions that follow.
LIMITS ON CGI TRAINING CONTENT
CGI training about gas properties would be limited to information about
selected properties of combustible gases pertinent to the proper operation and
use of CGIs and to the interpretation of data from CGIs.
CGI training covers operation and use of the CGI up to the event of gas being
detected or a site being confirmed as having no gas. After these points, the
operator's task branches to company-specific procedures which would not be
within the scope of training based on the class of CGI instruments and their
proper use. (Customization is optional at additional cost.)
CONTENT OF CGI TRAINING
The content of CGI training will include:
1. Skills needed before bringing the instrument to a site:
o Purge the instrument's gas path (hose, filament chamber, bulb);
o Calibration for target gas(es);
O Check and replacement of batteries (when necessary;
o Check and replacement, or cleaning, of filters (when necessary);
o Check and response to leaks and obstructions in the CGI instrument hose and
piping system;
o Check and response to burned out filaments;
o Zeroing the instrument's voltage reading;
o Zeroing the instrument for the percent gas scale;
o Zeroing the instrument for the percent LEL scale;
o Zeroing the instrument for other gases or scales (if available).
INet CGI "Smart Trainer" Prototype Agreement, Attachment B Page 3
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2. Skills needed at the site before entering a possible combustible
atmosphere:
o Purging the instrument in a clean atmosphere;
o Additional probe extenders;
o Add filters or other gases, i.e., hydrocarbons, if necessary;
o Zeroing the instrument's voltage reading;
o Zeroing the instrument for the percent gas scale;
o Zeroing the instrument for the percent LEL scale;
o Zeroing the instrument for other gases or scales (if available).
3. Skills needed at a site when entering or within a possible combustible
atmosphere:
o Examining the exterior of a site for signs of gas leaks;
o Avoiding using sources of ignition: electrical switches, etc. when
searching for a leak;
o Using proper search strategies and tactics;
o Being alert to gas levels below the LEL, in the explosive range and above
the UEL;
o Examine the interior of a site for signs of gas leaks;
o Use proper safety precautions and practices;
o Demonstrate proper concern for life and property.
EXCLUSIONS OF CONTENT FROM CGI TRAINING
CGI training will specifically exclude:
1. Company-specific actions taken after gas is detected, beyond a general
statement of immediate objectives supported by industry practice, unless
customization for company-specific actions has been mutually agreed upon;
2. Technical discussions of gas properties, beyond that needed to know how the
instrument operates and what its limitations are;
3. Training on flame ionization detectors and other trace gas detectors, beyond
mentioning that they exist and have a specified role in gas detection;
4. Managing leak situations (these would be company, facility and industry
specific responses), unless customization for company-specific actions has
been mutually agreed upon;
5. Failure investigation;
6. Training on the regulations, unless otherwise mutually agreed upon.
INet CGI "Smart Trainer" Prototype Agreement, Attachment B Page 4
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OBJECTIVES OF CGI TRAINING
The objectives of CGI Training are for trainees to be able to perform the
following skills at a level equal to or better than that currently accepted as
industry standard on a CGI mock-up or realistically simulated CGI within real
or simulated test environments:
1. Skills needed before bringing the instrument to a site;
o Purge a CGI's gas path (hose, filament chamber, bulb) in a proper
atmosphere;
o Calibrate a CGI for a target gas(es);
o Check and replace batteries (when necessary);
o Check and replace, or clean, filters (when necessary);
o Check and respond to leaks and obstructions in a CGI instrument's hose
and piping system;
o Check and respond to a burned out filament in a CGI;
o Zero a CGI's voltage reading;
o Zero a CGI's percent gas scale;
o Zero a CGI's percent LEL scale;
o Zero a CGI for other gases or scales (if available).
2. Skills needed at the site before entering a possible combustible atmosphere:
o Purge a CGI's gas path [hose, filament chamber, bulb] in a proper
atmosphere;
o Add probe extenders to reach heights or depths appropriate for gas
searches;
o Add filters for other gases, i.e., hydrocarbons, if necessary;
o Zero a CGI's voltage reading;
o Zero a CGI's percent gas scale;
o Zero a CGI's percent LEL scale;
o Zero a CGI for other gases or scales (if available)
INet CGI "Smart Trainer" Prototype Agreement, Attachment B Page 5
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3. Skills needed at a site when entering or within a possible combustible
atmosphere;
o Examine the exterior of a site for signs of gas leaks;
o Avoid using sources of ignition; electrical switches, etc. when searching
for a leak;
o Use proper search strategies and tactics;
o Be alert to gas levels below the LEL, in the explosive range and above
the UEL;
o Examine the interior of a site for signs of gas leaks;
o Use proper safety precautions and practices;
o Demonstrate proper concern for life and property.
PERFORMANCE STANDARDS
The performance standards for CGI training are:
1. For trainees who complete the training, an average of ninety percent will be
able to achieve competency on at least 70 percent of the skill requirements
or better. These assessments may be for software accounting purposes only.
2. For an average of ninety percent of trainees who complete a lesson (or
subset of the complete CGI training module) of the CGI training to be able
to do so in less than twenty minutes of contact time with the system.
INet CGI "Smart Trainer" Prototype Agreement, Attachment B Page 6
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PROTOTYPE SMART TRAINER
SCOPE
The prototype is required to be a working prototype, but may have a limited
scope over the task domain.
The prototype must demonstrate the instructional engine and serve as a model for
similar instruction in other content areas.
The prototype will not be ready to become a product "as is."
The prototype will demonstrate reliability and functionality adequate for
compelling demonstrations.
The prototype will demonstrate, within reasonable limitations, the capability
for implementation of a different task domain of equivalent complexity and
structure without extensive modification to "Engines" deliverables.
ADAPTABILITY
The prototype should demonstrate adaptability to different trainee national
languages, e.g., English and Spanish.
The prototype software must be integratable with different hardware and software
platforms to be mutually agreed upon by INet and NCR with reasonable
implementation time.
The prototype must adapt the curriculum of training to the user's areas of
proficiency and weakness as determined by pre-testing and/or records of
performance and/or purposes.
The prototype must adaptively modify the difficulty of problems faced in
successive problems to the user's successes and errors from his/her previous
problems.
ADMINISTRATIVE FUNCTIONS
The prototype must perform record keeping and reporting of student performance
and progress.
The prototype must be managed with an administrator program that tracks student
performance and progress.
INet CGI "Smart Trainer" Prototype Agreement, Attachment B Page 7
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USABILITY
The prototype must demonstrate variations in instructional methods in response
to student preferences for instructional method.
The prototype must demonstrate "natural" interfaces closely compatible to the
CGI operator's experience when using CGI instruments.
Students should be able to interact with the program by an easy to use
interface, e.g., natural language, voice, touch.
INSTRUCTIONAL METHODOLOGY
The prototype will be in the form of a self-paced, criterion referenced
multimedia software program incorporating part-task and scenario based
simulation and may also include touch controls to simulate CGI hardware.
The prototype must conform to the principle of criterion referenced instruction,
where students are branched back to re-learning after experiencing difficulty on
specific learning areas. Unless they exist voluntarily, students should be
required to demonstrate competency on specific tasks or task steps before
exiting a specific learning area.
The prototype must demonstrate problem situations which are highly variable;
students should be unable to learn them and pass them on to other students.
The prototype should demonstrate the capacity for students to take different
roles: trainee with computer as coach; coach with computer as trainee; trainee
with no coach; coach with another human as trainee.
INSTRUCTIONAL CONTENT
The prototype should rely heavily on case histories to support points and for
examples.
The prototype must demonstrate the use of more than one type of CGI.
The complete CGI training program will be referred to as the "CGI Training
Module." Logical subsets of the module will be referred to as "lessons." The
prototype will not necessarily cover the complete training module.
INet CGI "Smart Trainer" Prototype Agreement, Attachment B Page 8
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OPERATIONS STANDARDS
An average of ninety percent of trainees will be able to use the prototype with
10 or fewer requests per lesson (or hour of training) for assistance during
usability testing.
An average of ninety percent of trainees in field testing will be able to use
the prototype with 3 or fewer requests for help per lesson (or hour of
training).
INet CGI "Smart Trainer" Prototype Agreement, Attachment B Page 9
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of December ___, 1993
and is entered into by and between Gary F. Kimmons ("Executive") and GK
Intelligent Systems, Inc., a Texas corporation ("GKIS").
RECITALS
GKIS considers it essential to the best interest of GKIS and its
shareholders that Executive be encouraged to remain with GKIS and continue to
devote full attention to GKIS's business notwithstanding the possibility, threat
or occurrence of a change in Control (as defined below) of GKIS. GKIS believes
that it is the best interest of GKIS and its shareholders to reinforce and
encourage the continued attention and dedication of Executive and to diminish
inevitable distractions arising from the possibility of a Change in Control of
GKIS. Accordingly, to assure GKIS that it will have Executive's undivided
attention and services notwithstanding the possibility, threat or occurrence of
a Change in Control of GKIS, and to induce Executive to remain in the employ of
GKIS, and for other good and valuable consideration, the Board of Directors of
GKIS has caused GKIS to enter into this Agreement.
TERMS AND CONDITIONS
Executive and GKIS hereby agree to the following terms and conditions:
1. TERM OF AGREEMENT. This Agreement shall be effective as of the date
first indicated above and shall expire on the third anniversary of such date;
provided however that on such third anniversary and on the anniversary of such
date in each year thereafter, such expiration date shall be extended for one
additional year, unless, at least 60 days prior to such expiration date, GKIS
shall have delivered to Executive or Executive shall have delivered to GKIS
written notice that such expiration date shall not be so extended.
2. EFFECTIVE DATE. The "Effective Date" shall mean the first date during
the term of this Agreement on which a Change of Control (as defined in Section
3) occurs; provided, however, that if a Change of Control occurs and if
Executive's employment with GKIS is terminated prior to the date on which the
Change of Control occurs, and if it is reasonably demonstrated by Executive that
such termination of employment (a) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (b) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
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3. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" of GKIS shall mean the following:
(a) Approval by the stockholders of GKIS of the dissolution or
liquidation of GKIS;
(b) Approval by the stockholders of GKIS of an agreement to merge or
consolidate, or otherwise reorganize, with or into one or more entities which
are not subsidiaries, as a result of which less than 50% of the outstanding
voting securities of the surviving, purchasing or resulting entity are, or are
to be, owned by former stockholders of GKIS (excluding from the term "former
stockholders" a stockholder who is, or as a result of the transaction in
question becomes, an "affiliate",termthat is used in the Securities and Exchange
Act of 19theand Rules promulgated thereunder, of any party to sumerger,
consolidation or reorganization);
(c) Approval by the stockholders of GKIS of the sale of
substantially all of GKIS's business and/or assets to a person or entity which
is not a subsidiary; or
(d) A Change in Control as defined in GKIS's By-Laws as of the date
first written above or as s bsequently defined therein.
4. EMPLOYMENT PERIOD. GKIS hereby agrees to continue Executive in its
employ, and Executive hereby agrees to remain in the employ of GKIS subject to
the terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the date which is the latest of the following:
(a) The date which is 15 days after the first anniversary of a
Change in Control;
(b) The date which is 15 days after the first anniversary of the
effective date of any mapprovalhe of which constituted a Change in Control; and
(c) April 15, 2002;
Such period shall hereinafter be referred to as the "Employment Period."
5. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES. During the Employment Period, (i)
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material
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respects with the most significant of those held, exercised and assigned at any
time during the 120-day waiting period immediately preceding the Effective Date;
and (ii) Executive's services shall be performed at the location where Executive
was employed immediately preceding the Effective Date or any office or location
which is less than 35 miles further away from Executive's place of residence.
(b) COMPENSATION AND BENEFITS. During the Employment Period, GKIS
shall pay Executive an annual base salary ("Annual Base Salary"), payable in
semi-monthly installments, which shall initially be at least equal to twelve
times the highest monthly base salary paid or payable, including any base salary
which has been earned but deferred, to Executive by GKIS during the twelve-month
period immediately preceding the month in which the Effective Date occurs. GKIS
may, in its discretion, periodically increase Executives base salary. The term
"Annual Base Salary" as used in this Agreement shall refer to Annual Base Salary
as so increased. GKIS may not, however, reduce Executive's base salary during
the Employment Period. Executive shall be provided with incentives (annual and
long-term), retirement benefits, welfare benefits and fringe benefits no less
favorable in the aggregate than those on effect for Executive at any time during
the 120-day waiting period immediately preceding the Effective Date, except for
any reductions in benefits which apply generally to all executives of GKIS.
6. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. Executive's employment shall terminate
automatically upon Executive's death during the Employment Period. If GKIS
determines in good faith that the Disability of Executive has occurred during
the employment period (pursuant to the definition of Disability set forth
below), it may give to Executive written notice in accordance with Section 17 of
this Agreement of its intention to terminate Executive's employment with GKIS.
Executive's employment with GKIS shall terminate effective on the 30th day after
receipt of such notice by Executive (the "Disability Effective Date"), provided
that, within the 30 days after such receipt, Executive shall not have returned
to full-time performance of Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of Executive from Executive's duties with
GKIS on a full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by GKIS or its insurers and acceptable to
Executive or Executive's legal representative.
(b) CAUSE. GKIS may terminate Executive's employment during the
Employment Period for cause. For purposes of this Agreement, "Cause" shall mean:
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(i) The willful and continued failure of Executive to perform
substantially Executive's duties with GKIS or one of its affiliates
(other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to Executive by the Board or the Chief
Executive Officer of GKIS which specifically identifies the manner
in which the Board or Chief Executive Officer believes that
Executive has not substantially performed Executive's duties, or
(ii) The willful engaging by Executive in illegal conduct or
gross misconduct which materially and demonstrably injures GKIS.
(c) GOOD REASON. Executive's employment may be terminated by
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) The assignment to Executive of any duties inconsistent in
any respect with Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 5(a) of this Agreement,
or any other action by GKIS which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken
in bad faith and which is remedied by GKIS after receipt of notice
thereof given by Executive;
(ii) Any failure by GKIS to comply with any of the provisions
of Section 5(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by GKIS promptly after receipt of notice thereof
given by Executive;
(iii) GKIS's requiring Executive to be based at any office or
location other than as provided in Section 5(a) hereof;
(iv) Any purported termination by GKIS of Executive's
employment otherwise than as expressly permitted by this Agreement;
or
(v) Any failure by GKIS to comply with and satisfy Section
12(c) of this Agreement.
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For purposes of this Section 6(c), any good faith determination of "Good Reason"
made by Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by Executive for any reason pursuant to
a Notice of Termination delivered during the 15-day period immediately following
the latest of (i) the first anniversary of a Change in Control, (ii) the first
anniversary of the effective date of any merger the approval of which
constituted a Change in Control, or (iii) March 31, 1997 shall be deemed to be a
termination for Good Reason for all purposes of this Agreement, provided that
Executive has given notice to GKIS pursuant to Section 17 hereof at least 30
days prior to such termination.
(d) NOTICE OF TERMINATION. Any termination by GKIS for Cause, or by
Executive for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 17 of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated and (iii) subject to Section 6(c)
(iii) and the last sentence of Section 6(c), if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than thirty days after the giving
of such notice). The failure by Executive or GKIS to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of Executive or GKIS, respectively,
hereunder or preclude Executive or GKIS, respectively, from asserting such fact
or circumstance in enforcing Executive's or GKIS's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if
Executive's employment is terminated by GKIS for Cause, or by Executive for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if Executive's employment is
terminated by GKIS other than for Cause or Disability, the Date of Termination
shall be the date on which GKIS notifies Executive of such termination and (iii)
if Executive's employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of Executive or the Disability
Effective Date, as the case may be.
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7. OBLIGATIONS OF GKIS UPON TERMINATION.
(a) GOOD REASON; OTHER THAN FOR CAUSE OR DISABILITY. If GKIS shall
terminate Executive's employment other than for Cause or Disability during the
Employment Period or Executive shall terminate employment for Good Reason
pursuant to a Notice of Termination delivered during the Employment Period, GKIS
agrees to make the payments and provide the benefits described below.
(i) GKIS shall pay to Executive in a lump sum in cash
within 10 days after the Date of Termination an amount equal
to the product of (1) and (2), where (1) is three and (2) is
the sum of Executive's Annual Base Salary and the average of
the last three annual incentive bonuses actually paid to
Executive by GKIS for any calendar year before the Date of
Termination (the "Average Annual Bonus"); and
(ii) Upon Executive's Date of Termination, Executive
shall be 100% vested in the amounts credited to any Qualified
Plan in which he is a participant.
(iii) Upon Executive's Date of Termination, Executive's
awards under any stock-based plan under which the Executive
has been granted stock or options to purchase such shall be
accelerated as follows:
(A) Each option and each related stock
appreciation right shall become immediately exercisable
to the extent theretofore not exercisable;
(B) Restricted stock shall immediately
vest free of restrictions; and
(C) The number of shares covered by each
performance share award shall be issued to Executive;
provided, however, that awards shall not, in any event, be so accelerated to a
date less than one year after the date of grant or award date if prohibited by
the terms of the applicable Plan. Acceleration of awards shall comply with
applicable regulatory requirements, including without limitation, Section 422 of
the Code and Rule 16b-3 promulgated by the Securities and Exchange Commission
pursuant to the Securities and Exchange Commission
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pursuant to the Securities Exchange Act of 1934.
(iv) For one year after Executive's Date of Termination,
or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, GKIS shall
continue to provide welfare benefits and fringe benefits and
other perquisites to Executive and/or Executive's family at
least equal to those which would have been provided to them if
Executive's employment had not been terminated in accordance
with the most favorable plans, practices, programs or policies
of GKIS and its affiliated companies applicable generally to
other peer executives and their families immediately preceding
the Date of Termination; provided, however that if Executive
becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provoked under
such other plan during such applicable period of eligibility.
For purposes of determining eligibility (but not the time of
commencement of benefits) of Executive for retiree benefits
pursuant to such plans, practices, programs and policies,
Executive shall be considered to have remained employed until
one year after the Date of Termination and to have retired on
the last day of such period.
(v) The sum of (A) the Executive's Annual Base Salary
through the Date of Termination to the extent due for services
rendered but not theretofore paid, (B) with respect to any
Performance Period under the GK Intelligent Systems, Inc.
Long-Term Incentive Plan which has not been completed as of
the Date of Termination, an amount equal to (1) multiplied by
(2), where (1) is 150% of the Value (as defined in such plan)
of the Participant's accrued benefits on the Participant's
Date of Termination, and (2) is a fraction, the numerator of
which is the number of full months between the beginning of
such Performance Period and the Participant's Date of
Termination and the denominator of which is the total number
of months in the Performance Period, and (C) any compensation
previously deferred by the Executive (together with any
accrued earnings or interest thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid (the
amount referred to in clauses (A), (B) and
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(C) above being referred to as "Accrued Obligations").
(vi) To the extent not theretofore paid or provided,
GKIS shall timely pay or provide Executive any other amounts
or benefits required to be paid or provided or which Executive
is eligible to receive under any plan, program, policy,
practice, contract or agreement of GKIS and its affiliated
companies (such other amounts and benefits being hereinafter
referred to as "Other Benefits") in accordance with the terms
of such plan, program, policy, practice, contract or
agreement.
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 10 days of the Date of Termination.
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If Executive's employment
shall be terminated for Cause during the Employment Period or, if Executive
voluntarily terminates employment during the Employment Period, excluding a
termination for Good Reason, this Agreement shall terminate without further
obligations to Executive (other than the obligation to pay to Executive his
Annual Base Salary earned through the Date of Termination and any benefits
payable to Executive under a plan policy, practice, etc., referred to in Section
8 below).
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit Executive's continuing or future participation in any plan, program,
policy or practice provided by GKIS or any of its affiliated companies and for
which Executive may qualify, nor, subject to Section 21, shall anything herein
limit or otherwise affect such rights as Executive may have under any contract
or agreement with GKIS or any of its affiliated companies. Amounts which are
vested benefits or which Executive is otherwise entitled to receive under any
plan,
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policy, practice or program of or any contract or agreement with GKIS or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
9. FULL SETTLEMENT. GKIS's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which GKIS may have against Executive or others. In no event shall
Executive be obligated to seek other employment or take any other action by way
of litigation of the amount payable to Executive under any of the provisions of
this Agreement and, except as provided in Section 7(a)(v), such amounts shall
not be reduced whether or not Executive obtains other employment. GKIS agrees to
pay, to the full extent permitted by law, all legal fees and expenses which
Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by GKIS, Executive or others of the validity or enforceability
of, or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by Executive about the
amount of any payment pursuant to this Agreement), plus in each case interest on
any delayed payment at the applicable Federal rate provided for in Section 7872
(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
Notwithstanding the foregoing, GKIS shall not be obligated to pay any legal fees
or expenses of Executive in any contest by Executive about the amount of any
payment under this Agreement if it is determined that GKIS did not breach this
Agreement and Executive's claim was not made in good faith.
10. CERTAIN ADDITIONAL PAYMENTS BY GKIS.
(a) In the event that any payment or distribution by GKIS to or for
the benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
10(a)) ("Payment") is determined to be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then GKIS shall pay to Executive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 10(c), all
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determinations required to be made under this Section 10, including whether and
when a Gross-Up payment is required and the amount of such Gross-Up payment and
the assumptions to be utilized in arriving at such determination, shall be made
by I- NET'S Certified Public Accountant or such other certified public
accounting firm as may be designated by Executive and which is satisfactory to
GKIS (the "Accounting Firm"), which shall provide detailed supporting
calculations both to GKIS and Executive within 15 business days of the receipt
of request from Executive or GKIS. All fees and expenses of the Accounting Firm
shall be borne solely by GKIS. Any Gross-Up Payment, as determined pursuant to
this Section 10(b), shall be paid by GKIS to Executive within five days of the
receipt of the Accounting Firm's determination. No such determination that a
Gross-Up Payment is required shall be made unless the Accounting Firm furnishes
GKIS with a written opinion that there is no reasonable basis for not paying the
Excise Tax. As a result of the uncertainty in the application of Section 4999 of
the code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by GKIS should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that GKIS exhausts its remedies
pursuant to Section 10(c) and Executive thereafter is required to make a payment
of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by GKIS to or for the benefit of Executive.
(c) Executive shall notify GKIS in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by GKIS
of the Gross-Up Payment. Such notification shall be given as soon as practicable
but no later than ten business days after Executive is informed in writing of
such claim and shall apprise GKIS of the nature of such claim and the date on
which such claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which it
gives such notice to GKIS (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If GKIS notifies Executive
in writing prior to the expiration of such period that it desires to contest
such claim, Executive shall:
(i) Give GKIS any information reasonably
requested by GKIS relating to such claim,
(ii) Take such action in connection with contesting such
claim as GKIS shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by GKIS,
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(iii) Cooperate with GKIS in good faith in order to
contest such claim effectively, and
(iv) Permit GKIS to participate in any proceedings
relating to such claim;
provided, however, that GKIS shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this Section 10(c),
GKIS shall control all proceedings taken in connection with such contest and ,
at its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
Executive agrees to prosecute such contest to a determination before any
administration tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as GKIS shall determine; provided, however, that if GKIS
directs Executive to pay such claim and sue for a refund, GKIS shall advance the
amount of such payment to Executive, on an interest-free basis and shall
indemnify and hold Executive harmless, on an after-tax basis, from any Excise
Tax or income tax (including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed income with respect
to such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of Executive with
respect to which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, GKIS's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by Executive of an amount advanced by GKIS
pursuant to Section 10(c), Executive becomes entitled to receive any refund with
respect to such claim, Executive shall (subject to GKIS's complying with the
requirements of Section 10(c)) promptly pay to GKIS the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by Executive of an amount advanced by GKIS
pursuant to Section
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10(c), a determination is made that Executive shall not be entitled to any
refund with respect to such claim and GKIS does not notify Executive in writing
of its intent to contest such denial of refund prior to the expiration of 30
days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
11. CONFIDENTIAL INFORMATION. Executive shall hold in fiduciary capacity
for the benefit of GKIS all secret or confidential information, knowledge or
data relating to GKIS or any of its affiliated companies, and their respective
businesses, which shall have been obtained by Executive during Executive's
employment by GKIS or any of its affiliated companies and which shall not be or
become public knowledge (other than by acts by Executive or representatives of
Executive in violation of this Agreement). After termination of Executive's
employment with GKIS, Executive shall not, without the prior written consent of
GKIS or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than GKIS and
those designated by it. In no event shall an asserted violation of the
provisions of this Section 11 constitute a basis for deferring or withholding
any amounts otherwise payable to Executive under this Agreement.
12. SUCCESSORS.
(a) This Agreement is personal to Executive and without the prior
written consent of GKIS shall not be assignable by Executive otherwise than by
will or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
GKIS and its successors and assigns.
(c) GKIS 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 GKIS to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that GKIS would be required
to perform it if no such succession had taken place. As used in this Agreement,
"GKIS" shall mean GKIS as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
13. ARBITRATION.
(a) The Executive Officers Compensation and Development Committee of
the Board of Directors of GKIS (the
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"Administrator") shall administer this Agreement. The Administrator (either
directly or through its designees) will have power and authority to interpret,
construe, and administer this Agreement; provided that, the Administrator's
authority to interpret this Agreement shall not cause the Administrator's
decisions in this regard to be entitled to a deferential standard of review in
the event that Executive seeks review of the Administrator's decision as
described below.
(b) Neither the Administrator nor its designee, shall be liable to
any person for any action taken or omitted in connection with the interpretation
and administration of this Agreement.
(c) Because it is agreed that time will be of the essence in
determining whether any payments are due to Executive under this Agreement,
Executive may, if he desires, submit any claim for payment under this Agreement
or dispute regarding the interpretation of this Agreement to arbitration. This
right to select arbitration shall be solely that of Executive, and Executive may
decide whether or not to arbitrate in his discretion. The "right to select
arbitration" is not mandatory on Executive, and Executive may choose in lieu
thereof to bring an action in an appropriate civil court. Once an arbitration is
commenced, however, it may not be discontinued without the mutual consent of
both parties to the arbitration procedure set forth in this section.
(d) Any claim for arbitration may be submitted as follows: If
Executive disagrees with the Administrator regarding the interpretation of this
Agreement and the claim is finally denied by the Administrator in whole or in
part, such claim may be filed in writing with an arbitrator of Executive's
choice who is selected by the method described in the next three sentences. The
first step of the selection shall consist of Executive's submitting a list of
five potential arbitrators to the Administrator. Each of the five arbitrators
must be either (1) a member of the National Academy of Arbitrators located in
the State of Texas or (2) a retired Texas District Court or Appellate Court
judge. Within one week after receipt of the list, the Administrator shall select
one of the five arbitrators as the arbitrator for the dispute in question. If
the Administrator fails to select an arbitrator in a timely manner, Executive
shall then designate one of the five arbitrators as the arbitrator for the
dispute in question.
(e) The arbitration hearing shall be held within seven days (or as
soon thereafter as possible) after the picking of the arbitrator. No continuance
of said hearing shall be allowed without the mutual consent of Executive and
Administrator. Absence from or nonparticipation at the hearing by either party
shall not prevent the issuance of an award. Hearing procedures
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which will expedite the hearing may be ordered at the arbitrator's discretion,
and the arbitrator may close the hearing in his or her sole discretion when he
or she decides he or she has heard sufficient evidence to satisfy issuance of an
award.
(f) The arbitrator's award shall be rendered as expeditiously as
possible and in no event later than one week after the close of the hearing. In
the event the arbitrator finds that GKIS has breached this Agreement, he or she
shall order GKIS to immediately take the necessary steps to remedy the breach.
In addition, he or she shall order GKIS to pay Executive an additional amount
equal to 10% of the amount actually in dispute. This additional amount shall
constitute damages and not a penalty. The award of the arbitrator shall be final
and binding upon the parties. The award may be enforced in any appropriate court
as soon as possible after its rendition. If an action is brought to confirm the
award, both GKIS and Executive\e agree that no appeal shall be taken by either
party from any decision rendered in such action.
(g) The Administrator will be considered the prevailing party in a
dispute if the arbitrator determines (1) that GKIS has not breached this
Agreement and (2) the claim by Executive was not made in good faith. Otherwise,
Executive will be considered the prevailing party. In the event that GKIS is the
prevailing party, the fee of the arbitrator and all necessary expenses of the
hearing (excluding any attorney's fees incurred by GKIS) including stenographic
reporter, if employed, shall be paid by the Executive. In the event that
Executive is the prevailing party, the fee of the arbitrator and all necessary
expenses of the hearing (INCLUDING all attorneys' fees incurred by the Executive
in pursuing his claim), including the fees of a stenographic reporter if
employed, shall be paid by GKIS.
14. GOVERNING LAW. The laws of Texas shall govern the validity and
interpretation of this Agreement, with regard to conflicts of laws.
15. CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
16. AMENDMENT. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
17. NOTICES. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to Executive:
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Gary Kimmons
2345 Bering, #321
Houston, Texas 77056
If to GKIS:
GK Intelligent Systems, Inc.
13103 F.M. 1960 West, Suite 200
Houston, Texas 77065
Attention: Rodney L. Norville
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
18. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
19. WITHHOLDING TAXES. GKIS may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
20. NO WAIVER. Executive's or GKIS's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right Executive or GKIS may have hereunder, including, without limitation, the
right of Executive to terminate employment for Good Reason pursuant to Section
6(c) of this Agreement, shall not be deemed to be a waiver of such provision or
right of this Agreement.
21. AT-WILL EMPLOYMENT. Executive and GKIS acknowledge that, except as may
otherwise be provided under any other written agreement between Executive by
GKIS prior to the Effective Date is "at will" and, prior to the Effective Date,
Executive's employment may be terminated by either Executive or GKIS at any
time, in which case Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof.
22. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
shall together constitute one and the same Agreement.
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23. NO PROHIBITED PAYMENTS. Notwithstanding anything contained in this
Agreement to the contrary, GKIS shall not make any payment to Executive which,
according to the opinion of GKIS's outside counsel, would violate Section
2523(k) of the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer
Recovery Act of 1990 (codified at 12 U.S.C. 1828 (k)), or any rules or
regulations promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first written above in
Houston, Texas.
EXECUTED: ___________, 19__
GK INTELLIGENT SYSTEMS, INC.
By____________________________
EXECUTED: ___________, 19__
By____________________________
Gary F. Kimmons
16
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of December ___, 1993
and is entered into by and between Rodney L. Norville, P.C. ("Executive") and GK
Intelligent Systems, Inc., a Texas corporation ("GKIS").
RECITALS
GKIS considers it essential to the best interest of GKIS and its
shareholders that Executive be encouraged to remain with GKIS and continue to
devote full attention to GKIS's business notwithstanding the possibility, threat
or occurrence of a change in Control (as defined below) of GKIS. GKIS believes
that it is the best interest of GKIS and its shareholders to reinforce and
encourage the continued attention and dedication of Executive and to diminish
inevitable distractions arising from the possibility of a Change in Control of
GKIS. Accordingly, to assure GKIS that it will have Executive's undivided
attention and services notwithstanding the possibility, threat or occurrence of
a Change in Control of GKIS, and to induce Executive to remain in the employ of
GKIS, and for other good and valuable consideration, the Board of Directors of
GKIS has caused GKIS to enter into this Agreement.
TERMS AND CONDITIONS
Executive and GKIS hereby agree to the following terms and conditions:
1. TERM OF AGREEMENT. This Agreement shall be effective as of the date
first indicated above and shall expire on the third anniversary of such date;
provided however that on such third anniversary and on the anniversary of such
date in each year thereafter, such expiration date shall be extended for one
additional year, unless, at least 60 days prior to such expiration date, GKIS
shall have delivered to Executive or Executive shall have delivered to GKIS
written notice that such expiration date shall not be so extended.
2. EFFECTIVE DATE. The "Effective Date" shall mean the first date during
the term of this Agreement on which a Change of Control (as defined in Section
3) occurs; provided, however, that if a Change of Control occurs and if
Executive's employment with GKIS is terminated prior to the date on which the
Change of Control occurs, and if it is reasonably demonstrated by Executive that
such termination of employment (a) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (b) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
<PAGE>
3. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" of GKIS shall mean the following:
(a) Approval by the stockholders of GKIS of the dissolution or
liquidation of GKIS;
(b) Approval by the stockholders of GKIS of an agreement to merge or
consolidate, or otherwise reorganize, with or into one or more entities which
are not subsidiaries, as a result of which less than 50% of the outstanding
voting securities of the surviving, purchasing or resulting entity are, or are
to be, owned by former stockholders of GKIS (excluding from the term "former
stockholders" a stockholder who is, or as a result of the transaction in
question becomes, an "affiliate",termthat is used in the Securities and Exchange
Act of 19theand Rules promulgated thereunder, of any party to sumerger,
consolidation or reorganization);
(c) Approval by the stockholders of GKIS of the sale of
substantially all of GKIS's business and/or assets to a person or entity which
is not a subsidiary; or
(d) A Change in Control as defined in GKIS's By-Laws as of the date
first written above or as s bsequently defined therein.
4. EMPLOYMENT PERIOD. GKIS hereby agrees to continue Executive in its
employ, and Executive hereby agrees to remain in the employ of GKIS subject to
the terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the date which is the latest of the following:
(a) The date which is 15 days after the first anniversary of a
Change in Control;
(b) The date which is 15 days after the first anniversary of the
effective date of any mapprovalhe of which constituted a Change in Control; and
(c) April 15, 2002;
Such period shall hereinafter be referred to as the "Employment Period."
5. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES. During the Employment Period, (i)
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material
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respects with the most significant of those held, exercised and assigned at any
time during the 120-day waiting period immediately preceding the Effective Date;
and (ii) Executive's services shall be performed at the location where Executive
was employed immediately preceding the Effective Date or any office or location
which is less than 35 miles further away from Executive's place of residence.
(b) COMPENSATION AND BENEFITS. During the Employment Period, GKIS
shall pay Executive an annual base salary ("Annual Base Salary"), payable in
semi-monthly installments, which shall initially be at least equal to twelve
times the highest monthly base salary paid or payable, including any base salary
which has been earned but deferred, to Executive by GKIS during the twelve-month
period immediately preceding the month in which the Effective Date occurs. GKIS
may, in its discretion, periodically increase Executives base salary. The term
"Annual Base Salary" as used in this Agreement shall refer to Annual Base Salary
as so increased. GKIS may not, however, reduce Executive's base salary during
the Employment Period. Executive shall be provided with incentives (annual and
long-term), retirement benefits, welfare benefits and fringe benefits no less
favorable in the aggregate than those on effect for Executive at any time during
the 120-day waiting period immediately preceding the Effective Date, except for
any reductions in benefits which apply generally to all executives of GKIS.
6. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. Executive's employment shall terminate
automatically upon Executive's death during the Employment Period. If GKIS
determines in good faith that the Disability of Executive has occurred during
the employment period (pursuant to the definition of Disability set forth
below), it may give to Executive written notice in accordance with Section 17 of
this Agreement of its intention to terminate Executive's employment with GKIS.
Executive's employment with GKIS shall terminate effective on the 30th day after
receipt of such notice by Executive (the "Disability Effective Date"), provided
that, within the 30 days after such receipt, Executive shall not have returned
to full-time performance of Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of Executive from Executive's duties with
GKIS on a full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by GKIS or its insurers and acceptable to
Executive or Executive's legal representative.
(b) CAUSE. GKIS may terminate Executive's employment during the
Employment Period for cause. For purposes of this Agreement, "Cause" shall mean:
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(i) The willful and continued failure of Executive to perform
substantially Executive's duties with GKIS or one of its affiliates (other
than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered
to Executive by the Board or the Chief Executive Officer of GKIS which
specifically identifies the manner in which the Board or Chief Executive
Officer believes that Executive has not substantially performed
Executive's duties, or
(ii) The willful engaging by Executive in illegal conduct or gross
misconduct which materially and demonstrably injures GKIS.
(c) GOOD REASON. Executive's employment may be terminated by
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) The assignment to Executive of any duties inconsistent in any
respect with Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 5(a) of this Agreement, or any other action by
GKIS which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and which is remedied by
GKIS after receipt of notice thereof given by Executive;
(ii) Any failure by GKIS to comply with any of the provisions of
Section 5(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by
GKIS promptly after receipt of notice thereof given by Executive;
(iii) GKIS's requiring Executive to be based at any office or
location other than as provided in Section 5(a) hereof;
(iv) Any purported termination by GKIS of Executive's employment
otherwise than as expressly permitted by this Agreement; or
(v) Any failure by GKIS to comply with and satisfy Section 12(c) of
this Agreement.
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For purposes of this Section 6(c), any good faith determination of "Good Reason"
made by Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by Executive for any reason pursuant to
a Notice of Termination delivered during the 15-day period immediately following
the latest of (i) the first anniversary of a Change in Control, (ii) the first
anniversary of the effective date of any merger the approval of which
constituted a Change in Control, or (iii) March 31, 1997 shall be deemed to be a
termination for Good Reason for all purposes of this Agreement, provided that
Executive has given notice to GKIS pursuant to Section 17 hereof at least 30
days prior to such termination.
(d) NOTICE OF TERMINATION. Any termination by GKIS for Cause, or by
Executive for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 17 of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated and (iii) subject to Section 6(c)
(iii) and the last sentence of Section 6(c), if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than thirty days after the giving
of such notice). The failure by Executive or GKIS to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of Executive or GKIS, respectively,
hereunder or preclude Executive or GKIS, respectively, from asserting such fact
or circumstance in enforcing Executive's or GKIS's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if
Executive's employment is terminated by GKIS for Cause, or by Executive for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if Executive's employment is
terminated by GKIS other than for Cause or Disability, the Date of Termination
shall be the date on which GKIS notifies Executive of such termination and (iii)
if Executive's employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of Executive or the Disability
Effective Date, as the case may be.
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7. OBLIGATIONS OF GKIS UPON TERMINATION.
(a) GOOD REASON; OTHER THAN FOR CAUSE OR DISABILITY. If GKIS shall
terminate Executive's employment other than for Cause or Disability during the
Employment Period or Executive shall terminate employment for Good Reason
pursuant to a Notice of Termination delivered during the Employment Period, GKIS
agrees to make the payments and provide the benefits described below.
(i) GKIS shall pay to Executive in a lump sum in cash within 10 days
after the Date of Termination an amount equal to the product of (1) and
(2), where (1) is three and (2) is the sum of Executive's Annual Base
Salary and the average of the last three annual incentive bonuses actually
paid to Executive by GKIS for any calendar year before the Date of
Termination (the "Average Annual Bonus"); and
(ii) Upon Executive's Date of Termination, Executive shall be 100%
vested in the amounts credited to any Qualified Plan in which he is a
participant.
(iii) Upon Executive's Date of Termination, Executive's awards under
any stock-based plan under which the Executive has been granted stock or
options to purchase such shall be accelerated as follows:
(A) Each option and each related stock appreciation right
shall become immediately exercisable to the extent theretofore not
exercisable;
(B) Restricted stock shall immediately vest free of
restrictions; and
(C) The number of shares covered by each performance share
award shall be issued to Executive;
provided, however, that awards shall not, in any event, be so accelerated to a
date less than one year after the date of grant or award date if prohibited by
the terms of the applicable Plan. Acceleration of awards shall comply with
applicable regulatory requirements, including without limitation, Section 422 of
the Code and Rule 16b-3 promulgated by the Securities and Exchange Commission
pursuant to the Securities and Exchange Commission
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pursuant to the Securities Exchange Act of 1934.
(iv) For one year after Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, GKIS shall continue to provide welfare
benefits and fringe benefits and other perquisites to Executive and/or
Executive's family at least equal to those which would have been provided
to them if Executive's employment had not been terminated in accordance
with the most favorable plans, practices, programs or policies of GKIS and
its affiliated companies applicable generally to other peer executives and
their families immediately preceding the Date of Termination; provided,
however that if Executive becomes reemployed with another employer and is
eligible to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits described
herein shall be secondary to those provoked under such other plan during
such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, Executive shall be considered to have remained employed until
one year after the Date of Termination and to have retired on the last day
of such period.
(v) The sum of (A) the Executive's Annual Base Salary through the
Date of Termination to the extent due for services rendered but not
theretofore paid, (B) with respect to any Performance Period under the GK
Intelligent Systems, Inc. Long-Term Incentive Plan which has not been
completed as of the Date of Termination, an amount equal to (1) multiplied
by (2), where (1) is 150% of the Value (as defined in such plan) of the
Participant's accrued benefits on the Participant's Date of Termination,
and (2) is a fraction, the numerator of which is the number of full months
between the beginning of such Performance Period and the Participant's
Date of Termination and the denominator of which is the total number of
months in the Performance Period, and (C) any compensation previously
deferred by the Executive (together with any accrued earnings or interest
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the amount referred to in clauses (A), (B) and
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<PAGE>
(C) above being referred to as "Accrued Obligations").
(vi) To the extent not theretofore paid or provided, GKIS shall
timely pay or provide Executive any other amounts or benefits required to
be paid or provided or which Executive is eligible to receive under any
plan, program, policy, practice, contract or agreement of GKIS and its
affiliated companies (such other amounts and benefits being hereinafter
referred to as "Other Benefits") in accordance with the terms of such
plan, program, policy, practice, contract or agreement.
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 10 days of the Date of Termination.
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If Executive's employment
shall be terminated for Cause during the Employment Period or, if Executive
voluntarily terminates employment during the Employment Period, excluding a
termination for Good Reason, this Agreement shall terminate without further
obligations to Executive (other than the obligation to pay to Executive his
Annual Base Salary earned through the Date of Termination and any benefits
payable to Executive under a plan policy, practice, etc., referred to in Section
8 below).
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit Executive's continuing or future participation in any plan, program,
policy or practice provided by GKIS or any of its affiliated companies and for
which Executive may qualify, nor, subject to Section 21, shall anything herein
limit or otherwise affect such rights as Executive may have under any contract
or agreement with GKIS or any of its affiliated companies. Amounts which are
vested benefits or which Executive is otherwise entitled to receive under any
plan,
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policy, practice or program of or any contract or agreement with GKIS or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
9. FULL SETTLEMENT. GKIS's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which GKIS may have against Executive or others. In no event shall
Executive be obligated to seek other employment or take any other action by way
of litigation of the amount payable to Executive under any of the provisions of
this Agreement and, except as provided in Section 7(a)(v), such amounts shall
not be reduced whether or not Executive obtains other employment. GKIS agrees to
pay, to the full extent permitted by law, all legal fees and expenses which
Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by GKIS, Executive or others of the validity or enforceability
of, or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by Executive about the
amount of any payment pursuant to this Agreement), plus in each case interest on
any delayed payment at the applicable Federal rate provided for in Section 7872
(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
Notwithstanding the foregoing, GKIS shall not be obligated to pay any legal fees
or expenses of Executive in any contest by Executive about the amount of any
payment under this Agreement if it is determined that GKIS did not breach this
Agreement and Executive's claim was not made in good faith.
10. CERTAIN ADDITIONAL PAYMENTS BY GKIS.
(a) In the event that any payment or distribution by GKIS to or for
the benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
10(a)) ("Payment") is determined to be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then GKIS shall pay to Executive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 10(c), all
9
<PAGE>
determinations required to be made under this Section 10, including whether and
when a Gross-Up payment is required and the amount of such Gross-Up payment and
the assumptions to be utilized in arriving at such determination, shall be made
by INET'S Certified Public Accountant or such other certified public accounting
firm as may be designated by Executive and which is satisfactory to GKIS (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
GKIS and Executive within 15 business days of the receipt of request from
Executive or GKIS. All fees and expenses of the Accounting Firm shall be borne
solely by GKIS. Any Gross-Up Payment, as determined pursuant to this Section
10(b), shall be paid by GKIS to Executive within five days of the receipt of the
Accounting Firm's determination. No such determination that a Gross-Up Payment
is required shall be made unless the Accounting Firm furnishes GKIS with a
written opinion that there is no reasonable basis for not paying the Excise Tax.
As a result of the uncertainty in the application of Section 4999 of the code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by GKIS should
have been made ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that GKIS exhausts its remedies pursuant to Section
10(c) and Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by GKIS to or for the
benefit of Executive.
(c) Executive shall notify GKIS in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by GKIS
of the Gross-Up Payment. Such notification shall be given as soon as practicable
but no later than ten business days after Executive is informed in writing of
such claim and shall apprise GKIS of the nature of such claim and the date on
which such claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which it
gives such notice to GKIS (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If GKIS notifies Executive
in writing prior to the expiration of such period that it desires to contest
such claim, Executive shall:
(i) Give GKIS any information reasonably requested by GKIS relating
to such claim,
(ii) Take such action in connection with contesting such claim as
GKIS shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by GKIS,
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<PAGE>
(iii) Cooperate with GKIS in good faith in order to contest such
claim effectively, and
(iv) Permit GKIS to participate in any proceedings relating to such
claim;
provided, however, that GKIS shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this Section 10(c),
GKIS shall control all proceedings taken in connection with such contest and ,
at its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
Executive agrees to prosecute such contest to a determination before any
administration tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as GKIS shall determine; provided, however, that if GKIS
directs Executive to pay such claim and sue for a refund, GKIS shall advance the
amount of such payment to Executive, on an interest-free basis and shall
indemnify and hold Executive harmless, on an after-tax basis, from any Excise
Tax or income tax (including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed income with respect
to such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of Executive with
respect to which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, GKIS's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by Executive of an amount advanced by GKIS
pursuant to Section 10(c), Executive becomes entitled to receive any refund with
respect to such claim, Executive shall (subject to GKIS's complying with the
requirements of Section 10(c)) promptly pay to GKIS the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by Executive of an amount advanced by GKIS
pursuant to Section
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10(c), a determination is made that Executive shall not be entitled to any
refund with respect to such claim and GKIS does not notify Executive in writing
of its intent to contest such denial of refund prior to the expiration of 30
days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
11. CONFIDENTIAL INFORMATION. Executive shall hold in fiduciary capacity
for the benefit of GKIS all secret or confidential information, knowledge or
data relating to GKIS or any of its affiliated companies, and their respective
businesses, which shall have been obtained by Executive during Executive's
employment by GKIS or any of its affiliated companies and which shall not be or
become public knowledge (other than by acts by Executive or representatives of
Executive in violation of this Agreement). After termination of Executive's
employment with GKIS, Executive shall not, without the prior written consent of
GKIS or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than GKIS and
those designated by it. In no event shall an asserted violation of the
provisions of this Section 11 constitute a basis for deferring or withholding
any amounts otherwise payable to Executive under this Agreement.
12. SUCCESSORS.
(a) This Agreement is personal to Executive and without the prior
written consent of GKIS shall not be assignable by Executive otherwise than by
will or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
GKIS and its successors and assigns.
(c) GKIS 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 GKIS to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that GKIS would be required
to perform it if no such succession had taken place. As used in this Agreement,
"GKIS" shall mean GKIS as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
13. ARBITRATION.
(a) The Executive Officers Compensation and Development Committee of
the Board of Directors of GKIS (the
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<PAGE>
"Administrator") shall administer this Agreement. The Administrator (either
directly or through its designees) will have power and authority to interpret,
construe, and administer this Agreement; provided that, the Administrator's
authority to interpret this Agreement shall not cause the Administrator's
decisions in this regard to be entitled to a deferential standard of review in
the event that Executive seeks review of the Administrator's decision as
described below.
(b) Neither the Administrator nor its designee, shall be liable to
any person for any action taken or omitted in connection with the interpretation
and administration of this Agreement.
(c) Because it is agreed that time will be of the essence in
determining whether any payments are due to Executive under this Agreement,
Executive may, if he desires, submit any claim for payment under this Agreement
or dispute regarding the interpretation of this Agreement to arbitration. This
right to select arbitration shall be solely that of Executive, and Executive may
decide whether or not to arbitrate in his discretion. The "right to select
arbitration" is not mandatory on Executive, and Executive may choose in lieu
thereof to bring an action in an appropriate civil court. Once an arbitration is
commenced, however, it may not be discontinued without the mutual consent of
both parties to the arbitration procedure set forth in this section.
(d) Any claim for arbitration may be submitted as follows: If
Executive disagrees with the Administrator regarding the interpretation of this
Agreement and the claim is finally denied by the Administrator in whole or in
part, such claim may be filed in writing with an arbitrator of Executive's
choice who is selected by the method described in the next three sentences. The
first step of the selection shall consist of Executive's submitting a list of
five potential arbitrators to the Administrator. Each of the five arbitrators
must be either (1) a member of the National Academy of Arbitrators located in
the State of Texas or (2) a retired Texas District Court or Appellate Court
judge. Within one week after receipt of the list, the Administrator shall select
one of the five arbitrators as the arbitrator for the dispute in question. If
the Administrator fails to select an arbitrator in a timely manner, Executive
shall then designate one of the five arbitrators as the arbitrator for the
dispute in question.
(e) The arbitration hearing shall be held within seven days (or as
soon thereafter as possible) after the picking of the arbitrator. No continuance
of said hearing shall be allowed without the mutual consent of Executive and
Administrator. Absence from or nonparticipation at the hearing by either party
shall not prevent the issuance of an award. Hearing procedures
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<PAGE>
which will expedite the hearing may be ordered at the arbitrator's discretion,
and the arbitrator may close the hearing in his or her sole discretion when he
or she decides he or she has heard sufficient evidence to satisfy issuance of an
award.
(f) The arbitrator's award shall be rendered as expeditiously as
possible and in no event later than one week after the close of the hearing. In
the event the arbitrator finds that GKIS has breached this Agreement, he or she
shall order GKIS to immediately take the necessary steps to remedy the breach.
In addition, he or she shall order GKIS to pay Executive an additional amount
equal to 10% of the amount actually in dispute. This additional amount shall
constitute damages and not a penalty. The award of the arbitrator shall be final
and binding upon the parties. The award may be enforced in any appropriate court
as soon as possible after its rendition. If an action is brought to confirm the
award, both GKIS and Executive\e agree that no appeal shall be taken by either
party from any decision rendered in such action.
(g) The Administrator will be considered the prevailing party in a
dispute if the arbitrator determines (1) that GKIS has not breached this
Agreement and (2) the claim by Executive was not made in good faith. Otherwise,
Executive will be considered the prevailing party. In the event that GKIS is the
prevailing party, the fee of the arbitrator and all necessary expenses of the
hearing (excluding any attorney's fees incurred by GKIS) including stenographic
reporter, if employed, shall be paid by the Executive. In the event that
Executive is the prevailing party, the fee of the arbitrator and all necessary
expenses of the hearing (INCLUDING all attorneys' fees incurred by the Executive
in pursuing his claim), including the fees of a stenographic reporter if
employed, shall be paid by GKIS.
14. GOVERNING LAW. The laws of Texas shall govern the validity and
interpretation of this Agreement, with regard to conflicts of laws.
15. CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
16. AMENDMENT. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
17. NOTICES. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to Executive:
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Rodney L. Norville,P.C.
13103 F.M. 1960 West, Suite 200
Houston, Texas 77065
Attention: Rodney L. Norville
If to GKIS:
GK Intelligent Systems, Inc.
Gary Kimmons
2345 Bering, #321
Houston, Texas 77056
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
18. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
19. WITHHOLDING TAXES. GKIS may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
20. NO WAIVER. Executive's or GKIS's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right Executive or GKIS may have hereunder, including, without limitation, the
right of Executive to terminate employment for Good Reason pursuant to Section
6(c) of this Agreement, shall not be deemed to be a waiver of such provision or
right of this Agreement.
21. AT-WILL EMPLOYMENT. Executive and GKIS acknowledge that, except as may
otherwise be provided under any other written agreement between Executive by
GKIS prior to the Effective Date is "at will" and, prior to the Effective Date,
Executive's employment may be terminated by either Executive or GKIS at any
time, in which case Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof.
22. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
shall together constitute one and the same Agreement.
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23. NO PROHIBITED PAYMENTS. Notwithstanding anything contained in this
Agreement to the contrary, GKIS shall not make any payment to Executive which,
according to the opinion of GKIS's outside counsel, would violate Section
2523(k) of the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer
Recovery Act of 1990 (codified at 12 U.S.C. 1828 (k)), or any rules or
regulations promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first written above in
Houston, Texas.
EXECUTED: ___________, 19__
GK INTELLIGENT SYSTEMS, INC.
By____________________________
Gary Kimmons, President
EXECUTED: ___________, 19__
RODNEY L. NORVILLE, P.C.
By____________________________
Rodney L. Norville, Pres.
16
GK INTELLIGENT SYSTEMS, INC.
1995 INCENTIVE STOCK OPTION PLAN
<PAGE>
GK INTELLIGENT SYSTEMS, INC.
1995 INCENTIVE STOCK OPTION PLAN
1. ADOPTION AND PURPOSE
GK Intelligent Systems, Inc., a Delaware corporation (the "Company"),
hereby adopts this GK Intelligent Systems, Inc. 1995 Incentive Stock
Option Plan, as hereinafter set forth (the "Plan"), subject to
stockholder approval. The purpose of the Plan is to foster and promote
the financial success of the Company and materially increase stockholder
value by (a) strengthening the Company's capability to develop and
maintain an outstanding management team, (b) motivating superior
performance by the management team, (c) encouraging and providing for
obtaining an ownership interest in the Company, (d) attracting and
retaining outstanding executive talent by providing incentive
compensation opportunities competitive with other companies, and (e)
enabling key employees to participate in the long-term growth and
financial success of the Company. The Plan is intended to provide
"incentive stock options" within the meaning of that term under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). Any
proceeds of cash or property received by the Company for the sale of GK
Intelligent Systems, Inc. common stock, $.001 par value (the "Common
Stock") pursuant to options granted under this Plan will be used for
general corporate purposes.
2. ADMINISTRATION
2.1 The Plan shall be administered by a committee (the "Committee")
appointed by the Board of Directors of the Company (the "Board")
and composed of at least two Board members. The Committee shall
use its best efforts to meet the plan administration requirements
described under Rule 16b-3(c)(2) promulgated under the Securities
Exchange Act of 1934 or any similar rule which may subsequently
be in effect. Any vacancy on the Committee shall be filled by the
Board.
2.2 Subject to the express provisions of the Plan, the Committee
shall have the sole and complete authority to (a) determine such
persons to whom awards hereunder shall be granted, (b) make
awards in such form and amounts as it shall determine, (c) impose
such limitations and conditions upon such awards as it shall deem
appropriate, (d) interpret the Plan, prescribe, amend and rescind
rules and regulations relating to it, (e) determine the terms and
provisions of the respective participants' agreements (which need
not be identical), and (f) make such other determinations as it
deems necessary or advisable for the administration of the Plan.
The decisions of the Committee on matters within their
jurisdiction under the Plan shall be conclusive and binding on
the Company and all other persons. No members of the Board or the
Committee shall be liable for any action taken or determination
made in good faith.
2.3 All expenses associated with the Plan shall be paid by the
Company or its Subsidiaries.
<PAGE>
2.4 As used in this Section and wherever used in this Plan, the term
"Subsidiary" shall mean a corporation (other than the Company) in
which the Company directly or indirectly controls 50% or more of
the combined voting power of all stock of that corporation.
3. ELIGIBILITY
The Committee may grant options to purchase Common Stock under this Plan
(referred to as "Options") only to key employees, executive officers and
directors of the Company or its Subsidiaries. The Committee shall
determine, within the provisions of the Plan, those persons to whom, and
the times at which, Options shall be granted. In making such
determinations, the Committee may take into account the nature of the
services rendered by the employee, his or her present and potential
contributions to the Company's success, and such other factors as the
Committee in its discretion shall deem relevant. Grants may be made to
the same individual on more than one occasion. An employee of the
Company who is granted Options pursuant to this Plan shall be referred
to as a "Participant."
4. GRANTING OF OPTIONS
4.1 POWERS OF THE COMMITTEE. The Committee shall determine, in
accordance with the provisions of the Plan, the duration of each
Option, the exercise price (I.E., Option price) under each
Option, the time or times within which (during the term of the
Option) all or portions of each Option may be exercised, and
whether cash, Common Stock, or other property may be accepted in
full or partial payment upon exercise of an Option.
4.2 NUMBER OF OPTIONS. As soon as practicable after the date such
person is determined to be eligible under Section 3 hereof, the
Committee may, in its discretion, grant to such person a number
of Options determined by the Committee.
5. COMMON STOCK
Each Option granted under the Plan shall be convertible into one (1)
share(s) of Common Stock, unless adjusted in accordance with the
provisions of Section 7 hereof. Options may be granted for a number of
shares not to exceed, in the aggregate, 1,000,000 shares of Common
Stock, subject to adjustment pursuant to Section 7 hereof. For purposes
of calculating the maximum number of shares of Common Stock that may be
issued under the Plan, (i) all the shares issued (including the shares,
if any, withheld for tax withholding requirements) shall be counted when
cash is used as full payment for shares issued upon the exercise of an
Option, and (ii) shares tendered by a Participant as payment for shares
issued upon exercise of an Option shall be available for issuance under
the Plan. Upon the exercise of an Option, the Company may deliver either
authorized but
2
<PAGE>
unissued shares, treasury shares, or any combination thereof. In the
event that any Option granted under the Plan expires unexercised, or is
surrendered by a Participant for cancellation, or is terminated or
ceases to be exercisable for any other reason without having been fully
exercised, the Common Stock theretofore subject to such Option shall
again become available for new Options to be granted under the Plan to
any eligible person (including the holder of such former Option) at an
Option price determined in accordance with Section 6.2 hereof, which
price may then be greater or less than the Option price of such former
Option. No fractional shares of Common Stock shall be issued, and the
Committee shall determine the manner in which fractional share value
shall be treated.
6. REQUIRED TERMS AND CONDITIONS OF OPTIONS
6.1 AWARD OF OPTIONS. The Committee may, from time to time and
subject to the provisions of the Plan and such other terms and
conditions as the Committee may prescribe, grant to any
Participant in the Plan one or more "incentive stock options"
(intended to qualify as such under the provisions of Section 422
of the Code) to purchase for cash or shares the number of shares
of Common Stock allotted by the Committee. The date an Option is
granted shall mean the date selected by the Committee as of which
the Committee allots a specific number of shares to a Participant
pursuant to the Plan. Except as otherwise provided in Section
6.4, Options shall not be granted to any owner of 10% or more of
the total combined voting power of the Company and its
Subsidiaries.
6.2 OPTION PRICE. Except as otherwise provided in Section 6.4, the
option price per share of Common Stock deliverable upon the
exercise of an Option shall be 100% of the "Fair Market Value" of
a share of Common Stock on the date the Option is granted. For
purposes of this Plan, Fair Market Value shall mean as of any
date and in respect of any share of Common Stock, the closing
price on such date or on the next business day, if such date is
not a business day, of a share of Common Stock last reported on
the principal national securities exchange on which the Common
Stock is listed or admitted to trade, provided that, if shares of
Common Stock shall not have been traded on such securities
exchange for more than 10 days immediately preceding such date or
if deemed appropriate by the Committee for any other reason, the
Fair Market Value of shares of Common Stock shall be as
determined by the Committee in such other manner as it may deem
appropriate. In no event shall the Fair Market Value of any share
of Common Stock be less than its par value.
6.3 TERM AND EXERCISE. Each Option shall be fully exercisable six
months from the date of its grant except in the event of the
Participant's death or "disability" (within the meaning of
Section 22(e)(3) of the Code) or unless a shorter period is
provided by the Committee or another Section of this Plan. Except
as otherwise
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<PAGE>
provided in Section 6.4, each Option may be exercised during a
period of 10 years from the date of grant thereof.
6.4 TEN PERCENT SHAREHOLDER. Notwithstanding anything to the contrary
in this Plan, Options may be granted to any owner of 10% or more
of the total combined voting power of the Company and its
Subsidiaries (i) if the Option price is at least 110% of the Fair
Market Value of a share of Common Stock on the date the Option is
granted, and (ii) the Option by its terms is not exercisable
after the expiration of five years from the date such Option is
granted.
6.5 MAXIMUM AMOUNT OF OPTION GRANT. The aggregate Fair Market Value
(determined on the date the Option is granted) of Common Stock
subject to an Option granted to a Participant by the Committee in
any calendar year shall not exceed $100,000.
6.6 METHOD OF EXERCISE. Options may be exercised by giving written
notice to the Treasurer of the Company, stating the number of
shares of Common Stock with respect to which the Option is being
exercised and tendering payment thereof. In lieu of part or all
of a cash payment, the Committee may permit payment in Common
Stock, valued at fair market value (as determined by the
Committee) on the date of exercise. Payment for Common Stock,
whether in cash or in other shares of Common Stock, shall be made
in full at the time that an Option, or any part thereof, is
exercised.
7. ADJUSTMENTS
7.1 The aggregate number or type of shares of Common Stock with
respect to which Options may be granted hereunder, the number or
type of shares of Common Stock subject to each outstanding
Option, and the Option price per share for each such Option may
all be appropriately adjusted, as the Committee may determine,
for any increase or decrease in the number of shares of issued
Common Stock resulting from a subdivision or consolidation of
shares whether through reorganization, recapitalization,
consolidation, payment of a share dividend, or other similar
increase or decrease.
7.2 Subject to any required action by the stockholders, if the
Company shall be a party to a transaction involving a sale of
substantially all its assets, a merger, or a consolidation, any
Option granted hereunder shall pertain to and apply to the
securities to which a holder of Common Stock would be entitled to
receive as a result of such transaction; provided, however, that
all unexercised Options under the Plan may be cancelled by the
Company as of the effective date of any such transaction by
giving notice to the holders of such Options of its intention to
do so, and by permitting the exercise of such Options during the
30-day period immediately after the date such notice is given.
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<PAGE>
7.3 In the case of dissolution of the Company, every Option
outstanding hereunder shall terminate; provided, however, that
each Option holder shall have 30 days' prior written notice of
such event, during which time he shall have a right to exercise
his partly or wholly unexercised Options.
7.4 On the basis of information known to the Company, the Committee
shall make all determinations under this Section 7, including
whether a transaction involves a sale of substantially all the
Company's assets; and all such determinations shall be conclusive
and binding on the Company and all other persons.
8. OPTION AGREEMENTS
Each award of Options shall be evidenced by a written agreement,
executed by the employee and the Company, which shall contain such
restrictions, terms and conditions as the Committee may require in
accordance with the provisions of this Plan. Option agreements need not
be identical. The certificates evidencing the shares of Common Stock
acquired upon exercise of an Option may bear a legend referring to the
terms and conditions contained in the respective Option agreement and
the Plan, and the Company may place a stop transfer order with its
transfer agent against the transfer of such shares. If requested to do
so by the Committee at the time of exercise of an Option, each
Participant shall execute a certificate indicating that he is purchasing
the Common Stock under such Option for investment and not with any
present intention to sell the same.
9. LEGAL AND OTHER REQUIREMENTS
The obligation of the Company to sell and deliver Common Stock under
Options shall be subject to all applicable laws, regulations, rules and
approvals, including, but not by way of limitation, the effectiveness of
a registration statement under the Securities Act of 1933, if deemed
necessary or appropriate by the Board, of the Common Stock reserved for
issuance upon exercise of Options. In the case of officers or other
persons subject to Section 16(b) of the Securities Exchange Act of 1934,
the Committee may at any time impose any limitations upon the exercise,
delivery and payment of any Option which, in the Committee's discretion,
are necessary in order to comply with Section 16(b) and the rules and
regulations thereunder. A participant shall have no rights as a
stockholder with respect to any shares covered by an Option, or
exercised by him, until the date of delivery of a stock certificate to
him for such shares. No adjustment other than pursuant to Section 7
hereof shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is delivered.
10. NON-TRANSFERABILITY
During the lifetime of an optionee, any Option granted to him shall be
exercisable only by him or by his guardian or legal representative. No
Option shall be assignable or transferable, except by will, by the laws
of descent and distribution, or pursuant to certain
5
<PAGE>
divorce decrees. The granting of an Option shall impose no obligation
upon the optionee to exercise such Option or right.
11. NO CONTRACT OF EMPLOYMENT
Neither the adoption of this Plan nor the grant of any Option shall be
deemed to obligate the Company or any subsidiary of the Company to
continue the employment of any employee for any particular period, nor
shall the granting of an Option constitute a request or consent to
postpone the retirement date of any employee.
12. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
members of the Board or the Committee, the members of the Committee
shall be indemnified by the Company against the reasonable expenses,
including attorneys' fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding (or in
connection with any appeal therein), to which they or any of them may be
a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted hereunder, and against
all amounts paid by them in settlement thereof (provided such settlement
is approved by independent legal counsel selected by the Company) or
paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Committee member
is liable for gross negligence or misconduct in the performance of his
duties; provided that within 60 days after institution of any such
action, suit or proceeding a Committee member shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the
same.
13. WITHHOLDING TAXES
Whenever the Company proposes or is required to issue or transfer shares
of Common Stock under the Plan, the Company shall have the right to
require the grantee to remit to the Company an amount sufficient to
satisfy any federal, state and/or local withholding tax requirements
prior to the delivery of any certificate or certificates for such
shares. Alternatively, the Company may issue or transfer such shares of
Common Stock net of the number of shares sufficient to satisfy the
withholding tax requirements. For withholding tax purposes, the shares
of Common Stock shall be valued on the date the withholding obligation
is incurred.
14. LEAVES OF ABSENCE
The Committee shall be entitled to make such rules, regulations and
determinations as it deems appropriate under the Plan in respect of any
leave of absence taken by the recipient of any Option. Without limiting
the generality of the foregoing, the Committee shall be entitled to
determine (i) whether or not any such leave of absence shall constitute
a
6
<PAGE>
termination of employment within the meaning of the Plan and (ii) the
impact, if any, of any such leave of absence on Options under the Plan
theretofore made to any recipient who takes such leave of absence.
15. NEWLY ELIGIBLE PARTICIPANTS
Except as otherwise provided herein, the Committee shall be entitled to
make such rules, regulations, determinations and awards as it deems
appropriate in respect of any participant who becomes eligible to
participate in the Plan.
16. TERMINATION AND AMENDMENT OF PLAN
The Board, acting by a majority of its members (exclusive of Board
members who are not eligible to be appointed to the Committee as
described in Section 2.1) without further action on the part of the
stockholders, may from time to time alter, amend or suspend the Plan or
any Option granted hereunder or may at any time terminate the Plan;
provided, however, that the Board may not:
(a) change the total number of shares of Common Stock available for
Options under the Plan (except as provided in Section 7 hereof);
(b) extend the duration of the Option;
(c) increase the maximum term of Options;
(d) decrease the Option price or otherwise materially increase the
benefits accruing to Participants under the Plan; or
(e) materially modify the eligibility requirements of the Plan;
and provided further that no such action shall materially and adversely
affect any outstanding Options without the consent of the respective
optionees.
17. GENDER AND NUMBER
Except when otherwise indicated by the context, words in the masculine
gender when used in the Plan shall include the feminine gender and vice
versa, and the singular shall include the plural and the plural shall
include the singular.
18. GOVERNING LAW
The Plan, and all agreements hereunder, shall be construed in accordance
with and governed by the laws of the State of Delaware.
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19. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon adoption by the Board and a
majority of stockholders.
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