UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 24, 2000
LUCAS EDUCATIONAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-24374 62-1690722
- ------------------- ----------------- -------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
P.O. Box 789, Templeton, CA 93465
---------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 434-9633
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Item 1. Changes in Control of Registrant
--------------------------------
On March 24, 2000, Lucas Educational Systems, Inc. ('Registrant") completed a
private placement and management restructuring to enable it to actively pursue
its business of marketing and distributing proprietary memory enhancement
products developed by its founder, ex-NBA all-pro Jerry Lucas. A total of
$1,400,000 was raised through an offering of 89,974 shares of Series A
Convertible Preferred Stock that was sold to a group of accredited investors.
Proceeds of the offering, which is anticipated to convert to 9 million shares of
common stock on the one year anniversary of the transaction, will be used to
commence marketing and distribution activities to establish the Company as a
provider of memory training techniques and related educational products.
Applications of these products range from teaching adults to speak Spanish and
memorize names and faces, to providing children's educational products and Bible
study aids.
Registrant hired Jeffrey R. Gullo of Plano, Texas as President and Chief
Executive Officer to lead Registrant from its development stage. Mr. Lucas will
remain as the company's chief spokesperson and Chairman of the Board of
Directors. The Board, in its entirety, now consists of Messrs. Lucas, Gullo, and
Mr. J.D. Young, an outside representative appointed by the Series A investor
class.
Under the terms of Mr. Gullo's Employment Agreement, he received 2,385,000
shares of common stock at a price of $0.061 per share of which 1,130,000 were
vested upon closing the offering and 1,255,000 will be forfeitable if all
actions to enable the Registrant to process and fill orders via the Internet,
call center and fax are not taken by March 1, 2001. He also received
nonqualified stock options under the Company's 2000 Executive Stock Incentive
Plan to purchase a total of 5,430,000 shares for $0.061 per share over 48 months
or sooner upon achieving certain financial goals.
Registrant also entered into an Employment Agreement with Mr. Lucas which
granted to him nonqualified options to purchase 2,000,000 shares of common stock
at $0.061 per share, over 48 months or sooner upon achieving certain financial
goals. The Registrant also obtained the right to acquire additional intellectual
property rights from Mr. Lucas upon the issuance of options to purchase
1,500,000 shares of common stock for $0.061 per share.
Following conversion of the Series A Convertible Preferred Stock and exercise of
all the foregoing options, the ownership of Registrant would be as follows:
Shares Percent
---------- -------
Jerry Lucas 11,545,000 35.2%
Jeffrey Gullo 7,815,000 23.8%
Series A Investors 9,000,000 27.5%
Public 4,408,619 13.5%
---------- -----
32,768,619 100.0%
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Item 7. Financial Statement and Exhibits
--------------------------------
(b) Exhibits
1. Employment Agreement with Jeffrey R. Gullo
2. Employment Agreement with Jerry R. Lucas
3. Amendment to Licensing and Royalty Agreement
4. Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock
5. 2000 Employee Stock Option Plan
6. 2000 Executive Stock Incentive Plan
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LUCAS EDUCATIONAL SYSTEMS, INC.
By: /s/ Jeffrey R. Gullo
---------------------
Jeffrey R. Gullo, President
Dated: March 29, 2000
<PAGE>
INDEX EXHIBITS
1. Employment Agreement with Jeffrey R. Gullo
2. Employment Agreement with Jerry R. Lucas
3. Amendment to Licensing and Royalty Agreement
4. Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock
5. 2000 Employee Stock Option Plan
6. 2000 Executive Stock Incentive Plan
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EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the 22nd day of March,
2000, between Lucas Educational Systems, Inc. (hereinafter referred to as
"Employer"), and Jeffrey R. Gullo (hereinafter referred to as "Employee").
In consideration of the mutual promises hereinafter set forth, the
parties hereto agree as follows:
1. Employment. Employer agrees to employ Employee and Employee agrees
to serve Employer to perform such duties as may be appointed from time to time
by the Board of Directors of the Employer. The Employee's employment shall be
upon the terms and conditions hereinafter set forth. During the term of this
Agreement, Employee shall be engaged as the President and Chief Executive
Officer. Employee's powers and duties in those capacities to be those as set
forth in the Bylaws of Employer and the powers and duties customary to such
position in similar companies. The Employee shall report to the Board of
Directors of the Employer and shall become a member of the Board of Directors of
Employer. If Employee is elected or appointed with the Employee's consent to an
office with any of Employer's subsidiaries or affiliates during the term of this
Agreement, the Employee will serve in such capacity or capacities without
additional compensation.
2. Term. The employment of Employee hereunder and this Employment
Agreement shall commence the date hereof and shall continue in effect
indefinitely until terminated pursuant to Section 7 hereof.
3. Extent of Services. Employee shall devote Employee's entire
productive time, attention, knowledge and skills solely to the business and
interest of Employer, and Employer shall be entitled to all of the benefits and
profits arising from the work, services and advice of Employee. Employee shall
not, during the term of this Agreement, directly or indirectly render any
services of a business, commercial or professional nature to any other person or
organization, whether for compensation or otherwise, and whether or not such
other person or organization competes with the business of Employer, without the
prior written consent of Employer. However, Employee shall be free to spend time
during non-business hours on matters of market investment by himself and members
of his family.
4. Conformity to Employer's Systems and Procedures. Employee agrees to
follow, obey and observe all of the rules, regulations, policies, procedures and
systems of Employer, to observe the workdays and hours as specified by Employer,
to work for the best interest of Employer in the business in which it is
engaged, and to strive to further the goodwill and professional standing of
Employer with its clients, customers and the public generally, to attend to the
duties of employment hereunder regularly and not to be absent therefrom except
on account of illness or other conditions beyond the control of Employee.
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5. Compensation.
5.1 Base Salary. Employer will pay Employee during the
Employee's term of service hereunder compensation for the Employee's
services (sometimes hereinafter referred to as the "Base Salary"), in
the amount of $10,000 per month. Employee's salary will be reviewed at
least annually and adjustments made as Employer may determine.
5.2 Bonus. An annual bonus of up to 100% of base salary will
be paid annually within 90 days after the end of Employer's fiscal
year, upon achieving the following targeted amounts of earnings before
deduction for interest, taxes, depreciation and amortization ("EBITDA")
during each fiscal year during the term of this Agreement (or partial
year thereof):
Annual Fiscal Bonus Percentage
EBITDA of Base Salary
--------------------- ----------------
Less than $250,000 -0-
$250,000-$749,999 25%
$750,000-$1,249,999 50%
$1,250,000-$1,749,999 75%
more than $1,750,000 100%
The bonus formula shall be subject to review by the Board of Directors
from time to time.
5.3 Stock Awards. Employee shall receive grants of Employers
Common Stock and options to purchase same as follows:
5.3.1 Employer shall issue a total of 2,385,000
shares upon execution hereof (based upon the number of shares
outstanding on March 1, 2000, referred to herein as "pre-split
shares,"), subject to the risk of forfeiture, as follows:
(i) 1,130,000 shares will be issued upon execution of
this Agreement, subject to forfeiture if the closing of an
offering of $1,400,000 of Employer's Series A Convertible
Preferred Stock does not occur on or before May 1, 2000; and
(ii) 1,255,000 shares will be issued upon execution
of this Agreement, subject to forfeiture if all actions to
enable the Employer to be ready to receive and fill live
orders via the Internet, call center and inbound fax lines are
not taken by March 1, 2001; a determination of such readiness
will be made by the unanimous approval of the Board of
Directors.
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5.3.2 Employer shall issue to Employee a Stock Option
Agreement to acquire up to 5,430,000 shares of common stock
for an exercise price of $0.061, for an exercise period of ten
years, exercisable upon the occurrence of the following
vesting events:
(i) 1,575,000 shares shall vest upon the first to
occur of 48 months of consecutive employment under this
Agreement or when the Employer shall report cumulative gross
revenue of $2,000,000;
(ii) 1,900,000 shares shall vest upon the first to
occur of 48 months of consecutive employment under this
Agreement or the Company shall report quarterly gross revenue
of $1,250,000; and
(iii) 1,955,000 shares shall vest upon the passage of
36 months of consecutive employment under this Agreement.
5.4 Withholding. Employer and Employee each recognize and
acknowledge that Employer is obligated to withhold payroll taxes from
the salary of Employee, and that Employee shall receive compensation
after deduction of all payroll taxes which Employer is required by law
to withhold from the compensation of Employee.
6. Expenses. During the term of employment provided for herein,
Employer shall pay or reimburse Employee, in accordance with its standard policy
in effect from time to time, upon submission of vouchers by the Employee for all
reasonable expenses incurred by the Employee in the interest of Employer's
business.
7. Termination.
7.1 Termination Events. Subject to the provisions of Paragraph
7.2 of this Section, this Agreement shall terminate:
7.1.1 Upon death of Employee.
7.1.2 At the option of the Employer if Employee shall become
disabled and remain disabled for a period of six (6) months. Disability
shall be defined as Employee's inability through illness or other cause
to perform his normal work load as measured by the twelve (12) months
preceding the commencement of such disability. During such disability,
Employee shall be compensated in accordance with Employer's standard
policy regarding disability.
7.1.3 Upon mutual agreement.
7.1.4 At any time at the option of Employee.
7.1.5. At the Employer's option for any good cause. For
purposes of this Section, "good cause" for termination shall mean: (a)
the conviction of Employee of any act involving moral turpitude, or (b)
any material breach by Employee of any of the terms of, or the failure
to perform any covenant contained in, this Agreement.
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7.1.6. By the Employee for "Good Reason." For purposes of this
Agreement, "Good Reason" shall mean the occurrence after a Change in
Control of any of the events or conditions described in Subsections (1)
through (9) hereof:
(1) a change in the Employee's status, title, position or
responsibilities (including reporting
responsibilities) which, in the Employee's reasonable
judgment, represents an adverse change from his
status, title, position or responsibilities as in
effect immediately prior thereto; the assignment to
the Employee of any duties or responsibilities which,
in the Employee's reasonable judgment, are
inconsistent with his status, title, position or
responsibilities; or any removal of the Employee from
or failure to reappoint or reelect him to any of such
offices or positions, except in connection with the
termination of his employment pursuant to Sections
7.1.1, 7.1.2, 7.1.3, 7.1.4 or 7.1.5, other than Good
Reason;
(2) a reduction in the Employee's base salary or any
failure to pay the Employee any compensation or
benefits to which he is entitled within five days of
the date due;
(3) a failure to increase the Employee's base salary at
least annually at a percentage of base salary no less
than the average percentage increases (other than
increases resulting from the Employee's promotion)
granted to the Employee during the three full years
ended prior to a Change in Control (or such lesser
number of full years during which the Executive was
employed);
(4) the Employer's requiring the Employee to be based at
any place outside 50 miles from the Employee's place
of business on the date hereof, except for reasonably
required travel on the Employer's business;
(5) the failure by the Employer to (a) continue in effect
(without reduction in benefit level, and/or reward
opportunities) any material compensation or employee
benefit plan in which the Employee was participating
immediately prior to the Change in Control, unless a
substitute or replacement plan has been implemented
which provides substantially identical compensation
and benefits to the Employee or (b) provide the
Employee with compensation and benefits, in the
aggregate, at least equal (in terms of benefit levels
and/or reward opportunities) to those provided for
under each other compensation or employee benefit
plan, program and practice as in effect at any time
within ninety (90) days preceding the Change in
Control Date or at any time thereafter;
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(6) the insolvency or the filing (by any party, including
the Employer) of a petition for the bankruptcy of the
Employer;
(7) any material breach by the Employer of any provisions
of this Agreement;
(8) any purported termination of the Employee's
employment for Cause by the Company which does not
comply with the terms of Section 7.1.5.; or
(9) the failure of the Employer to obtain an agreement,
satisfactory to the Employee, from any successor or
assign of the Employer to assume and agree to perform
this Agreement.
Any event or condition described in Section 7.1.6 (1)-(9) which occurs
prior to a Change in Control but which the Employee reasonably demonstrates (a)
was at the request of a third party who had indicated an intention or taken
steps reasonably calculated to effect a Change in Control (a "Third Party"), or
(b) otherwise arose in connection with, or in anticipation of a Change in
Control, shall constitute Good Reason for purposes of this Agreement
notwithstanding that it occurred prior to the Change in Control. The Executive's
right to terminate his employment pursuant to Section 7.1.6 shall not be
affected by his incapacity due to physical or mental illness.
7.1.7. For any reason other than those set forth in Sections
7.1.1., 7.1.2., 7.1.3., 7.1.4, 7.1.5 or 7.1.6, upon giving Employee 60
days advance notice, or, in lieu thereof, 60 days severance pay.
7.2 Consequences of Termination.
7.2.1. Upon termination by mutual agreement under Section
7.1.3, by the Employee under Section 7.1.4., or for good cause under
Section 7.1.5, the Employee shall be paid all salary prorated to the
date of termination.
7.2.2 Upon termination under Section 7.1.1., 7.1.2., 7.1.6. or
7.1.7, Employee(or his estate) shall be entitled to receive (1)
severance compensation in lieu of any further compensation after the
termination date in a single payment in cash in an amount equal to one
year of the Employee's base salary at the highest rate in effect at any
time subsequent to the 90th day prior to the termination date; and (2)
for eighteen (18) months, the Employer's current cost sharing shall
continue on behalf of the Employee and his dependents and beneficiaries
in regard to the life insurance, disability, medical, dental and
hospitalization benefits provided to the Employee at any time during
the 90-day period prior to the termination date.
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The amounts provided for in Section 7.2 shall be paid within five days
after the Employee's Termination Date. The Employee shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise and no such payment shall be offset or reduced by
the amount of any compensation or benefits provided to the Employee in any
subsequent employment. The severance pay and benefits provided for in Sections
7.2.4 shall be in lieu of any other severance pay to which the Executive may be
entitled under any Company severance plan, program or arrangement.
8. Trade Secrets and Confidential Information. During the term of this
Agreement, Employee will have access to customer lists and compilations of
information and records specific to and regularly used in the operation of the
business of Employer. Employee acknowledges that such information constitutes
valuable and confidential information of the Employer. Employee shall not
disclose any of the aforesaid private company secrets, directly or indirectly,
nor use them in any way, either during the term of this Agreement or after
termination of employment. All files, records, electronic and magnetic files,
documents, specifications, equipment and similar information relating to the
business of Employer, whether prepared by Employee or otherwise coming into
Employee's possession, shall remain the exclusive property of Employer and shall
not be removed from the premises of Employer except as shall be necessary for
Employee to perform Employee's duties under this Agreement. Upon termination of
this Agreement for any reason, Employee will deliver all such materials in his
possession and all copies thereof to Employer.
9. Work Product. All elements of proprietary products and intellectual
property developed by Employee during the term of this Agreement shall
constitute "Exploited Property" under the terms of the Licensing and Royalty
Agreement dated August 13, 1997 between the Employer and the Licensor named
therein. Any copyrights, trademarks, tradenames or service marks relating to
products developed by Employee shall be owned by Licensor and registered in the
name of Licensor and shall be subject to the License.
10. Restrictive Covenants. In consideration of the provision to
Employee of the Employer's trade secrets and confidential information, and in
order to protect the rights of Employer to its trade secrets, confidential
information, and client relationships, the Employee hereby agrees as follows:
10.1 Employee agrees that during a period of two (2) years
following any termination of employment, Employee shall not be an
officer, director, employee, agent or representative, or an owner of
more than five percent (5%) of the outstanding capital stock of any
corporation, or an owner of any interest in, or employee, agent or
representative of, any other form of business association, sole
proprietorship or partnership that solicits, hires (whether or not
solicited) or otherwise attempts to induce any employees, agents or
representatives of Employer to terminate their position as employee,
agent or representative therewith.
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10.2 Employee agrees that, during the term of this Agreement
and for a period of two (2) years following termination for any reason,
Employee shall not, directly or indirectly by being an officer,
director, employee, agent, representative or consultant, or a record or
beneficial owner of more than five percent of the outstanding capital
stock of any corporation or an owner of any interest in, or employee
of, any other form of business association, sole proprietorship or
partnership, conduct a business in competition with the business
conducted by Employer on the date of termination.
10.3 In the event that any adjudicative body shall finally
hold that this Section 10 constitutes an unreasonable restriction upon
Employee, the parties hereby expressly agree that the provisions of
this Section 10 shall not be rendered void, but shall apply as to time
and territory or to such other extent as such body may indicate
constitutes a reasonable restriction under the circumstances involved.
11. Arbitration. Any controversy between the parties to this Agreement
involving the construction or application of any of the terms, covenants or
conditions of this Agreement or arising out of any section hereof or any
condition in connection with the termination of employment, shall, on the
written request of one party served on the other, be submitted to binding
arbitration in Dallas, Texas, and such arbitration shall comply with and be
governed by the Commercial Arbitration Rules of the American Arbitration
Association. Each party hereto shall appoint one person as an arbitrator within
30 days after service of the request for arbitration, and the two arbitrators so
chosen shall select a third impartial arbitrator with fifteen days of the date
on which the second arbitrator is selected. The arbitrators shall decide all
questions presented to them by majority vote. The decision of a majority of the
arbitrators shall be final and conclusive on all parties hereto. The expenses of
arbitration conducted pursuant to this Section shall be borne by the parties in
such proportions as the arbitrators may decide. All parties shall be entitled to
be represented by counsel of their choosing throughout the arbitration
proceedings.
12. General Provisions.
12.1 Notice. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and
sent by certified mail by Employer to the residence of
Employee, or by Employee to Employer's principal office.
12.2 Assignability. This Agreement and the rights, interests
and benefits hereunder shall not be assignable or in any way alienated
by Employee. Employer shall have the right of assignment and transfer
of its rights hereunder to any successor to the majority of its assets
and any such successor shall be bound by the terms hereof.
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12.3 Waiver of Breach. The waiver by Employer or Employee of a
breach of any provisions of this Agreement by the other shall not
operate or be construed as a waiver of any subsequent breach.
12.4 Entire Agreement. This instrument contains the entire
agreement of the parties. It may not be changed orally, but only by an
agreement in writing, signed by the party against whom enforcement of
any waiver, change, modification, extension or discharge is sought.
12.5 Attorneys' Fees. In the event that there shall be any
litigation or court proceeding with respect to this Agreement or the
obligations of the parties hereunder, the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs from the other
party.
12.6 Governing Law. This Employment Agreement shall be
governed by the laws of the State of Texas.
12.7 Survival. Sections 5.4, 7, 8, 9, 10, 11 and 12 shall
survive the termination of this Agreement and remain applicable to and
enforceable against Employer, Employee, and their respective heirs,
personal representatives, successors and assigns.
12.8 Definition of Change in Control. For purposes of this
Agreement, a "Change in Control" shall mean any one or more of the
following events:
(a) An acquisition (other than directly from the Employer) of
any voting securities of the Employer (the "Voting
Securities") by any "Person" (the term person is used for the
purposes of Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), immediately after which
such Person has "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of twenty-five
percent (25%) or more of the combined voting power of the
Employer's then outstanding Voting Securities; provided,
however, in determining whether a Change in Control has
occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in
Control. A "Non-Control Acquisition" shall mean an acquisition
by (i) an employee benefit plan (or trust forming a part
thereof) maintained by (A) the Employer or (B) any corporation
or other Person of which a majority of its voting power or its
voting equity securities or equity interest is owned, directly
or indirectly, by the Employer (for purposes of this
definition, a "Subsidiary" (ii) the Employer or its
Subsidiaries, or (iii) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined);
(b) The Individuals who, as of the date of this Agreement, are
members of the Board (the "Incumbent Board"), cease to
constitute at least two-third of the members of the Board.
Provided, however, that if after the election, or nomination
for election by the Employer's common stockholders, if any new
director was approved by a vote of at least two-thirds of the
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Incumbent Board, such new director shall, for purposes of this
Plan, be considered as a member of the Incumbent Board;
provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person other than the board (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(c) Approval by stockholders of the Employer of:
(1) a merger, consolidation or reorganization
involving the Employer, unless such a merger,
consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean
a merger, consolidation or reorganization of the
Employer where:
(i) the stockholders of the
Employer, immediately before such merger,
consolidation or reorganization, own
directly or indirectly immediately following
such merger, consolidation or
reorganization, seventy percent (70%) of the
combined voting power of the outstanding
Voting Securities of the corporation
resulting from such merger or consolidation
or reorganization (the "Surviving
Corporation") in substantially the same
proportion as their ownership of the Voting
Securities immediately before such merger,
consolidation or reorganization,
(ii) the individuals who were
members of the Incumbent Board immediately
prior to the execution of the agreement
providing for such merger, consolidation or
reorganization constitute at least two-third
of the members of the board of directors of
the Surviving Corporation, or a corporation
beneficially directly or indirectly owning a
majority of the Voting Securities of the
Surviving Corporation, and
(iii) no Person other than (a) the
Employer, (b) any Subsidiary, (c) any
employee benefit plan (or any trust forming
a part thereof) maintained by the Employer,
the Surviving Company, the Surviving
Corporation, or any Subsidiary, or (d) any
Person who, immediately prior to such
merger, consolidation or reorganization had
Beneficial Ownership of fifty-one percent
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(51%) or more of the then outstanding Voting
Securities, has Beneficial Ownership of
fifty-percent (51%) or more of the combined
voting power of the Surviving Corporation's
then outstanding Voting Securities.
(2) A plan of complete liquidation or
dissolution of the Company, or
(3) An agreement for the sale or other
disposition of all or substantially all of
the assets of the Employer to any Person
(other than a transfer to a Subsidiary):
(d) Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because any Person (the "Subject
Person") acquired Beneficial Ownership of more than the
permitted amount of the then outstanding Voting Securities as
a result of the acquisition of Voting Securities by the
Employer which, by reducing the number of shares Beneficially
Owned by Subject Persons, provided that if a Change in Control
would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the
Employer, and after such share acquisition by the Employer,
the Subject Person becomes the Beneficial Owner of any
additional Voting Securities which increases the percentage of
the then outstanding Voting Securities Beneficially Owned by
the Subject Person, then a Change in Control shall occur.
IN WITNESS WHEREOF, Employer has caused this Employment Agreement to be
executed in its corporate name by its corporate officers thereunto duly
authorized, and Employee has executed this Employment Agreement.
EMPLOYEE:
/s/ Jeffrey R. Gullo
------------------------
Jeffrey R. Gullo
Lucas Education Systems, Inc.:
By: /s/ Jerry R. Lucas
------------------------
Jerry R. Lucas, Chairman
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EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the 22nd day of March,
2000, between Lucas Educational Systems, Inc. (hereinafter referred to as
"Employer"), and Jerry R. Lucas (hereinafter referred to as "Employee").
In consideration of the mutual promises hereinafter set forth, the
parties hereto agree as follows:
1. Employment. Employer agrees to employ Employee and Employee agrees
to serve Employer to perform such duties as may be appointed from time to time
by the Board of Directors or the Chief Executive Officer of the Employer. The
Employee's employment shall be upon the terms and conditions hereinafter set
forth. During the term of this Agreement, Employee shall be engaged as the
Chairman of the Board of Directors. Employee's powers and duties in those
capacities to be those as set forth in the Bylaws of Employer and the powers and
duties customary to such position in similar companies. The Employee shall
report to the Board of Directors and the Chief Executive Officer of the Employer
and shall remain a member of the Board of Directors of Employer. If Employee is
elected or appointed with the Employee's consent to an office with any of
Employer's subsidiaries or affiliates during the term of this Agreement, the
Employee will serve in such capacity or capacities without additional
compensation.
2. Term. The employment of Employee hereunder and this Employment
Agreement shall commence the date hereof and shall continue in effect
indefinitely until terminated pursuant to Section 7 hereof.
3. Extent of Services. Employee shall devote Employee's entire
productive time, attention, knowledge and skills solely to the business and
interest of Employer, and Employer shall be entitled to all of the benefits and
profits arising from the work, services and advice of Employee. Employee shall
not, during the term of this Agreement, directly or indirectly render any
services of a business, commercial or professional nature to any other person or
organization, whether for compensation or otherwise, and whether or not such
other person or organization competes with the business of Employer, without the
prior written consent of Employer. However, Employee shall be free to spend time
during non-business hours on matters of market investment by himself and members
of his family.
4. Conformity to Employer's Systems and Procedures. Employee agrees to
follow, obey and observe all of the rules, regulations, policies, procedures and
systems of Employer, to observe the workdays and hours as specified by Employer,
to work for the best interest of Employer in the business in which it is
engaged, and to strive to further the goodwill and professional standing of
Employer with its clients, customers and the public generally, to attend to the
duties of employment hereunder regularly and not to be absent therefrom except
on account of illness or other conditions beyond the control of Employee.
<PAGE>
5. Compensation.
5.1 Base Salary. Employer will pay Employee during the Employee's term
of service hereunder compensation for the Employee's services (sometimes
hereinafter referred to as the "Base Salary"), in the amount of $8,000 per
month. Employee's salary will be reviewed at least annually and adjustments made
as Employer may determine.
5.2 Royalty Payments. Employee is entitled to receive royalty payments
pursuant to the terms of that certain Licensing and Royalty Agreement dated
August 13, 1997 (the "License") previously executed between Employer and
Employee. Payments of royalties shall be in lieu of any bonus or other
compensation to Employee.
5.3 Stock Awards. Employee shall receive options to purchase Employer's
Common Stock as follows:
5.3.1 Employer shall issue to Employee a Stock Option
Agreement to acquire up to 2,000,000 shares (based upon the number of
shares outstanding on March 1, 2000, referred to herein as "pre-split
shares") for an exercise price of $0.061, for a period of ten years,
upon the occurrence of the following vesting events:
(i) 1,000,000 shares shall vest upon the first to occur
of 48 months of consecutive employment under this
Agreement, or when the Employer reports $2,000,000 of
cumulative gross revenue; and
(ii) 1,000,000 shares of Common Stock upon the first to
occur of 48 months of consecutive employment under
this Agreement or when the Employer shall report
quarterly gross revenue of $1,250,000.
5.3.2 Employer shall have the option for a period of five
years to issue to Employee ten year options to purchase 1,500,000
shares of Common Stock at an exercise price of $0.061 upon notification
to Employee that it has implemented the Amendment to License Agreement
in the form attached as Exhibit A to this Agreement.
5.4 Withholding. Employer and Employee each recognize and acknowledge
that Employer is obligated to withhold payroll taxes from the salary of
Employee, and that Employee shall receive compensation after deduction of all
payroll taxes which Employer is required by law to withhold from the
compensation of Employee.
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6. Expenses. During the term of employment provided for herein,
Employer shall pay or reimburse Employee, in accordance with its standard policy
in effect from time to time, upon submission of vouchers by the Employee for all
reasonable expenses incurred by the Employee in the interest of Employer's
business.
7. Termination.
7.1 Termination Events. Subject to the provisions of Paragraph 7.2 of
this Section, this Agreement shall terminate:
7.1.1 Upon death of Employee.
7.1.2 At the option of the Employer if Employee shall become
disabled and remain disabled for a period of six (6) months. Disability
shall be defined as Employee's inability through illness or other cause
to perform his normal work load as measured by the twelve (12) months
preceding the commencement of such disability. During such disability,
Employee shall be compensated in accordance with Employer's standard
policy regarding disability.
7.1.3 Upon mutual agreement.
7.1.4 At any time at the option of Employee, including in the
event of any default by Employer under the License.
7.1.5. At the Employer's option for any good cause. For
purposes of this Section, "good cause" for termination shall mean: (a)
the conviction of Employee of any act involving moral turpitude, or (b)
any material breach by Employee of any of the terms of, or the failure
to perform any covenant contained in, this Agreement.
7.1.6. By the Employee for "Good Reason." For purposes of this
Agreement, "Good Reason" shall mean the occurrence after a Change in
Control of any of the events or conditions described in Subsections (1)
through (9) hereof:
(1) a change in the Employee's status, title, position or
responsibilities (including reporting
responsibilities) which, in the Employee's reasonable
judgment, represents an adverse change from his
status, title, position or responsibilities as in
effect immediately prior thereto; the assignment to
the Employee of any duties or responsibilities which,
in the Employee's reasonable judgment, are
inconsistent with his status, title, position or
responsibilities; or any removal of the Employee from
or failure to reappoint or reelect him to any of such
offices or positions, except in connection with the
termination of his employment pursuant to Sections
7.1.1, 7.1.2, 7.1.3, 7.1.4 or 7.1.5, other than Good
Reason;
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(2) a reduction in the Employee's base salary or any
failure to pay the Employee any compensation or
benefits to which he is entitled within five days of
the date due;
(3) a failure to increase the Employee's base salary at
least annually at a percentage of base salary no less
than the average percentage increases (other than
increases resulting from the Employee's promotion)
granted to the Employee during the three full years
ended prior to a Change in Control (or such lesser
number of full years during which the Executive was
employed);
(4) the Employer's requiring the Employee to be based at
any place outside 50 miles from the Employee's place
of business on the date hereof, except for reasonably
required travel on the Employer's business;
(5) the failure by the Employer to (a) continue in effect
(without reduction in benefit level, and/or reward
opportunities) any material compensation or employee
benefit plan in which the Employee was participating
immediately prior to the Change in Control, unless a
substitute or replacement plan has been implemented
which provides substantially identical compensation
and benefits to the Employee or (b) provide the
Employee with compensation and benefits, in the
aggregate, at least equal (in terms of benefit levels
and/or reward opportunities) to those provided for
under each other compensation or employee benefit
plan, program and practice as in effect at any time
within ninety (90) days preceding the Change in
Control Date or at any time thereafter;
(6) the insolvency or the filing (by any party, including
the Employer) of a petition for the bankruptcy of the
Employer;
(7) any material breach by the Employer of any provisions
of this Agreement;
(8) any purported termination of the Employee's
employment for Cause by the Company which does not
comply with the terms of Section 7.1.5.; or
(9) the failure of the Employer to obtain an agreement,
satisfactory to the Employee, from any successor or
assign of the Employer to assume and agree to perform
this Agreement.
Any event or condition described in Section 7.1.6 (1)-(9) which occurs
prior to a Change in Control but which the Employee reasonably demonstrates (a)
was at the request of a third party who had indicated an intention or taken
steps reasonably calculated to effect a Change in Control (a "Third Party"), or
(b) otherwise arose in connection with, or in anticipation of a Change in
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Control, shall constitute Good Reason for purposes of this Agreement
notwithstanding that it occurred prior to the Change in Control. The Executive's
right to terminate his employment pursuant to Section 7.1.6 shall not be
affected by his incapacity due to physical or mental illness.
7.1.7. For any reason other than those set forth in Sections
7.1.1., 7.1.2., 7.1.3., 7.1.4, 7.1.5 or 7.1.6, upon giving Employee 60
days advance notice or in lieu thereof, 60 days severance pay.
7.2 Consequences of Termination.
7.2.1. Upon termination by mutual agreement under
Section 7.1.3, by the Employee under Section 7.1.4., or for
good cause under Section 7.1.5, the Employee shall be paid all
salary prorated to the date of termination.
7.2.2 Upon termination under Section 7.1.1., 7.1.2.,
7.1.6. or 7.1.7, Employee(or his estate) shall be entitled to
receive (1) severance compensation in lieu of any further
compensation after the termination date in a single payment in
cash in an amount equal to one year of the Employee's base
salary at the highest rate in effect at any time subsequent to
the 90th day prior to the termination date; and (2) for
eighteen (18) months, the Employer's current cost sharing
shall continue on behalf of the Employee and his dependents
and beneficiaries in regard to the life insurance, disability,
medical, dental and hospitalization benefits provided to the
Employee at any time during the 90-day period prior to the
termination date.
The amounts provided for in Section 7.2 shall be paid within five days
after the Employee's Termination Date. The Employee shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise and no such payment shall be offset or reduced by
the amount of any compensation or benefits provided to the Employee in any
subsequent employment. The severance pay and benefits provided for in Sections
7.2.4 shall be in lieu of any other severance pay to which the Executive may be
entitled under any Company severance plan, program or arrangement.
8. Trade Secrets and Confidential Information. During the term of this
Agreement, Employee will have access to customer lists and compilations of
information and records specific to and regularly used in the operation of the
business of Employer. Employee acknowledges that such information constitutes
valuable and confidential information of the Employer. Employee shall not
disclose any of the aforesaid private company secrets, directly or indirectly,
nor use them in any way, either during the term of this Agreement or after
termination of employment. All files, records, electronic and magnetic files,
documents, specifications, equipment and similar information relating to the
business of Employer, whether prepared by Employee or otherwise coming into
Employee's possession, shall remain the exclusive property of Employer and shall
5
<PAGE>
not be removed from the premises of Employer except as shall be necessary for
Employee to perform Employee's duties under this Agreement. Upon termination of
this Agreement for any reason, Employee will deliver all such materials in his
possession and all copies thereof to Employer.
9. Work Product. All elements of proprietary products and intellectual
property developed by Employee during the term of this Agreement shall
constitute "Exploited Property" under the License. Any copyrights, trademarks,
tradenames or service marks relating to products developed by Employee shall be
owned by Employee and registered in the name of Employee and shall be subject to
the License.
10. Restrictive Covenants. In consideration of the provision to
Employee of the Employer's trade secrets and confidential information, and in
order to protect the rights of Employer to its trade secrets, confidential
information, and client relationships, the Employee hereby agrees as follows:
10.1 Employee agrees that during a period of two (2) years
following any termination of employment, Employee shall not be an
officer, director, employee, agent or representative, or an owner of
more than five percent (5%) of the outstanding capital stock of any
corporation, or an owner of any interest in, or employee, agent or
representative of, any other form of business association, sole
proprietorship or partnership that solicits, hires (whether or not
solicited) or otherwise attempts to induce any employees, agents or
representatives of Employer to terminate their position as employee,
agent or representative therewith.
10.2 Employee agrees that, during the term of this Agreement
and for a period of two (2) years following termination for any reason,
Employee shall not, directly or indirectly by being an officer,
director, employee, agent, representative or consultant, or a record or
beneficial owner of more than five percent of the outstanding capital
stock of any corporation or an owner of any interest in, or employee
of, any other form of business association, sole proprietorship or
partnership, conduct a business in competition with the business
conducted by Employer on the date of termination.
10.3 During the term of this agreement, Employee shall not
engage in any outside employment. Direct product sales that have been
made during live appearances under the License will be transitioned out
under the following terms: (i) all outside sales will be curtailed when
Employee's royalty payments have exceeded $250,000 and at any time in
which the company continues on an annualized run rate to exceed that
amount; (ii) outside sales beyond Employee's current inventory will be
restricted to products purchased in advance and directly from the
company at a markup of 25% over cost; and (iii) all outside sales are
restricted to that which is purchased and transferred to the end user,
for personal use, while Employee is physically on site. To the extent
that other, non-company related appearances such as public speaking and
pro-am golf tournaments do not interfere with Employee's ability to
perform his company duties, the board will not seek to restrict such
activities.
10.4 In the event that any adjudicative body shall finally
hold that this Section 10 constitutes an unreasonable restriction upon
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<PAGE>
Employee, the parties hereby expressly agree that the provisions of
this Section 10 shall not be rendered void, but shall apply as to time
and territory or to such other extent as such body may indicate
constitutes a reasonable restriction under the circumstances involved.
11. Arbitration. Any controversy between the parties to this Agreement
involving the construction or application of any of the terms, covenants or
conditions of this Agreement or arising out of any section hereof or any
condition in connection with the termination of employment, shall, on the
written request of one party served on the other, be submitted to binding
arbitration in Dallas, Texas, and such arbitration shall comply with and be
governed by the Commercial Arbitration Rules of the American Arbitration
Association. Each party hereto shall appoint one person as an arbitrator within
30 days after service of the request for arbitration, and the two arbitrators so
chosen shall select a third impartial arbitrator with fifteen days of the date
on which the second arbitrator is selected. The arbitrators shall decide all
questions presented to them by majority vote. The decision of a majority of the
arbitrators shall be final and conclusive on all parties hereto. The expenses of
arbitration conducted pursuant to this Section shall be borne by the parties in
such proportions as the arbitrators may decide. All parties shall be entitled to
be represented by counsel of their choosing throughout the arbitration
proceedings.
12. General Provisions.
12.1 Notice. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and sent by
certified mail by Employer to the residence of Employee, or by Employee
to Employer's principal office.
12.2 Assignability. This Agreement and the rights, interests
and benefits hereunder shall not be assignable or in any way alienated
by Employee. Employer shall have the right of assignment and transfer
of its rights hereunder to any successor to the majority of its assets
and any such successor shall be bound by the terms hereof.
12.3 Waiver of Breach. The waiver by Employer or Employee of a
breach of any provisions of this Agreement by the other shall not
operate or be construed as a waiver of any subsequent breach.
12.4 Entire Agreement. This instrument contains the entire
agreement of the parties. It may not be changed orally, but only by an
agreement in writing, signed by the party against whom enforcement of
any waiver, change, modification, extension or discharge is sought.
12.5 Attorneys' Fees. In the event that there shall be any
litigation or court proceeding with respect to this Agreement or the
obligations of the parties hereunder, the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs from the other
party.
12.6 Governing Law. This Employment Agreement shall be
governed by the laws of the State of Texas.
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12.7 Survival. Sections 5.3.3, 5.4., 7, 8, 9, 10, 11 and 12
shall survive the termination of this Agreement and remain applicable
to and enforceable against Employer, Employee, and their respective
heirs, personal representatives, successors and assigns.
12.8 Definition of Change in Control. For purposes of this
Agreement, a "Change in Control" shall mean any one or more of the
following events:
(a) An acquisition (other than directly from the Employer) of
any voting securities of the Employer (the "Voting
Securities") by any "Person" (the term person is used for the
purposes of Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), immediately after which
such Person has "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of twenty-five
percent (25%) or more of the combined voting power of the
Employer's then outstanding Voting Securities; provided,
however, in determining whether a Change in Control has
occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in
Control. A "Non-Control Acquisition" shall mean an acquisition
by (i) an employee benefit plan (or trust forming a part
thereof) maintained by (A) the Employer or (B) any corporation
or other Person of which a majority of its voting power or its
voting equity securities or equity interest is owned, directly
or indirectly, by the Employer (for purposes of this
definition, a "Subsidiary" (ii) the Employer or its
Subsidiaries, or (iii) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined);
(b) The Individuals who, as of the date of this Agreement, are
members of the Board (the "Incumbent Board"), cease to
constitute at least two-third of the members of the Board.
Provided, however, that if after the election, or nomination
for election by the Employer's common stockholders, if any new
director was approved by a vote of at least two-thirds of the
Incumbent Board, such new director shall, for purposes of this
Plan, be considered as a member of the Incumbent Board;
provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person other than the board (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(c) Approval by stockholders of the Employer of:
(1) a merger, consolidation or reorganization
involving the Employer, unless such a merger,
consolidation or reorganization is a "Non-Control
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Transaction." A "Non-Control Transaction" shall mean
a merger, consolidation or reorganization of the
Employer where:
(i) the stockholders of the Employer,
immediately before such merger, consolidation or
reorganization, own directly or indirectly
immediately following such merger, consolidation or
reorganization, seventy percent (70%) of the combined
voting power of the outstanding Voting Securities of
the corporation resulting from such merger or
consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as
their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization,
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger,
consolidation or reorganization constitute at least
two-third of the members of the board of directors of
the Surviving Corporation, or a corporation
beneficially directly or indirectly owning a majority
of the Voting Securities of the Surviving
Corporation, and
(iii) no Person other than (a) the Employer,
(b) any Subsidiary, (c) any employee benefit plan (or
any trust forming a part thereof) maintained by the
Employer, the Surviving Company, the Surviving
Corporation, or any Subsidiary, or (d) any Person
who, immediately prior to such merger, consolidation
or reorganization had Beneficial Ownership of
fifty-one percent (51%) or more of the then
outstanding Voting Securities, has Beneficial
Ownership of fifty-percent (51%) or more of the
combined voting power of the Surviving Corporation's
then outstanding Voting Securities.
(2) A plan of complete liquidation or dissolution of
the Company, or
(3) An agreement for the sale or other disposition of
all or substantially all of the assets of the
Employer to any Person (other than a transfer to a
Subsidiary):
(d) Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because any Person (the "Subject
Person") acquired Beneficial Ownership of more than the
permitted amount of the then outstanding Voting Securities as
a result of the acquisition of Voting Securities by the
Employer which, by reducing the number of shares Beneficially
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<PAGE>
Owned by Subject Persons, provided that if a Change in Control
would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the
Employer, and after such share acquisition by the Employer,
the Subject Person becomes the Beneficial Owner of any
additional Voting Securities which increases the percentage of
the then outstanding Voting Securities Beneficially Owned by
the Subject Person, then a Change in Control shall occur.
IN WITNESS WHEREOF, Employer has caused this Employment Agreement to be
executed in its corporate name by its corporate officers thereunto duly
authorized, and Employee has executed this Employment Agreement.
EMPLOYEE:
/s/ Jerry R. Lucas
-------------------
Jerry R. Lucas
Lucas Education Systems, Inc.:
By: /s/ Jeffrey R. Gullo
----------------------
Jeffrey R. Gullo, President
10
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AMENDMENT TO LICENSING
AND ROYALTY AGREEMENT
Amendment dated March 22, 2000 to that certain Licensing and Royalty
Agreement (the "License") dated August 13, 1997, between Lucas Educational
Systems, Inc. ("Licensee") and Jerry R. Lucas and Cheri W. Lucas ("Licensor").
A. Upon notification from Licensee to Licensor that it elects to
implement the provisions of this Amendment, Licensee shall issue to Licensor
1,500,000 shares of Licensee's Common Stock (as adjusted for any splits or
combinations after March 1, 2000) under Licensee's 2000 Stock Option Plan and
the following amendment shall become effective:
1. Section 1.1of the License is amended and replaced in its
entirety by the following provision:
1.1 Licensor hereby grants, assigns and sets over
unto Licensee, and Licensee hereby accepts, the exclusive
right, license and privilege (the "Licensee"), as applicable,
to develop, produce, manufacture, print, market, sell,
license, lease, rent, exhibit, broadcast, distribute and
otherwise exploit Licensor's Property throughout the world
(the "Territory") for a term commencing upon the date hereof
and ending on December 31, 2096 (the "Term") unless sooner
terminated pursuant to Section 3.2, below. The License is
subject to all terms and conditions hereof, each of which
shall operate as express conditions precedent to the License.
Included within the License is the right to exploit those
existing products enumerated on Schedule "A" hereto and to
develop and exploit those products currently in development
and enumerated on Schedule "B" hereto and to exploit those
characters and songs enumerated on Schedule "C" hereto.
Notwithstanding the foregoing, Licensor reserves to itself and
excludes from the License (i) personal endorsements by Jerry
Lucas personally or as Dr. MemoryTM or by his family, and (ii)
the right to produce and exploit a daily syndicated newspaper
column tentatively known as "Remember This."
2. Any provision of the License that purports to require
Licensor's consent or approval to any use of the Exploited Property
shall be satisfied and deemed approved or given if such use is approved
by the Board of Directors of Licenses.
3. Existing Section 11.4 is renumbered as Section 11.5, and a
new Section 11.4 is added to read as follows:
<PAGE>
11.4 Licensee shall be in default under the Employment
Agreement between Licensee and Jerry R. Lucas dated the date
hereof, and such default shall continue for 30 days after Mr.
Lucas has given notice to Licensee of such default and such
default remains uncured.
B. General
1. Employment Agreement. The License shall be read together
with the Employment Agreement.
2. Arbitration. Any controversy between the parties to this
Amendment or the License involving the construction or application of
any terms, covenants or conditions of this Agreement or arising out of
any section hereof shall, on the written request of one party served on
the other, be submitted to binding arbitration in Dallas, Texas, and
such arbitration shall comply with and be governed by the Commercial
Arbitration Rules of the American Arbitration Association. Each party
hereto shall appoint one person as an arbitrator within 30 days after
service of the request for arbitration, and the two arbitrators so
chosen shall select a third impartial arbitrator within fifteen days of
the date on which the second arbitrator is elected. The arbitrators
shall decide all questions presented to them by majority vote. The
decision of a majority of the arbitrators shall be final and conclusive
on all parties hereto. The expenses of arbitration conducted pursuant
to this Section shall be borne by the parties in such proportions as
the arbitrators may decide. All parties shall be entitled to be
represented by counsel of their choosing throughout the arbitration
proceedings.
3. Entire Agreement. This instrument and the License contain
the entire agreement of the parties. It may not be changed orally, but
only by an agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge
is sought.
4. Other Provisions. In all other respects, the License shall
remain in effect, unaltered by this Amendment.
<PAGE>
SIGNATURES FOLLOW
/s/ Jerry R. Lucas
-----------------
Jerry R. Lucas
/s/ Cheri W. Lucas
-----------------
Cheri W. Lucas
Lucas Educational Systems, Inc.
By: /s/ Jeffrey R. Gullo
---------------------
Jeffrey R. Gullo, President
<PAGE>
LUCAS EDUCATIONAL SYSTEMS, INC.
Certificate of Designations, Preferences and
Rights of Preferred Stock
By Resolution of the Board of Directors
I, Jeffrey R. Gullo, President and Secretary of Lucas Educational
Systems, Inc., a corporation organized and existing under the Delaware General
Corporation Law (the "Act"), in accordance with the provisions of Section 151(g)
of the Act, DO HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation (or an amendment thereto) of said Corporation,
said Board of Directors, at a meeting duly held on March 24, 2000, adopted a
resolution providing for the issuance of a series of Ninety Thousand (90,000)
shares of Series A Convertible Preferred Stock, which resolution is as follows:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions of
its Certificate of Incorporation, a series of Preferred Stock of the
Corporation is hereby created, such series of Preferred Stock to be
designated Series A Convertible Preferred Stock, to consist of 90,000
shares with a par value of $0.001 per share and to have such rights,
preferences and other features as set forth on Exhibit A to these
minutes.
<PAGE>
IN WITNESS WHEREOF, said Lucas Educational Systems, Inc. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
Jeffrey R. Gullo, its President and Secretary this 24th day of March, 2000.
/S/ Jeffrey R. Gullo
-------------------------------
Jeffrey R. Gullo, President
/S/ Jeffrey R. Gullo
-------------------------------
Jeffrey R. Gullo, Secretary
STATE OF TEXAS ss.
ss.
COUNTY OF DALLAS ss.
On March 24, 2000 personally appeared before me, a Notary Public,
Jeffrey R. Gullo, President and Secretary of Lucas Educational Systems, Inc.,
who acknowledged that they executed the above instrument on behalf of said
corporation.
/S/ Linda Supulski
---------------------------------
Notary Public, State of Texas
<PAGE>
EXHIBIT A
SERIES A PREFERRED STOCK
1. Lucas Educational Systems, Inc. (the "Company") establishes a
series of Preferred Stock pursuant to the authority contained in the Certificate
of Incorporation of the Company, to be known as Series A Convertible Preferred
Stock, par value $0.001 per share.
2. There shall be authorized the issuance of 90,000 shares of Series A
Convertible Preferred Stock.
3. The issue price of Series A Convertible Preferred Stock shall be
$15.56 per share, (the "Issue Price") issuable in exchange for cash.
4. No dividend shall be payable on Series A Convertible Preferred
Stock unless and until declared by the Board of Directors.
5. In the event of any dissolution, liquidation or winding up of the
Company, whether voluntarily or involuntarily, the holders of Series A
Convertible Preferred Stock, without any preference among them, shall be
entitled to receive in cash out of the assets of the Company, whether capital or
surplus or otherwise, before any distribution of the assets shall be made to the
holders of Common Stock, an amount equal to the aggregate Issue Price of their
shares, together, in all cases, with unpaid declared dividends, if any, to the
date fixed for such payment. After payment to the holders of the Series A
Convertible Preferred Stock of the full preferential amounts hereinbefore
provided for, the holders of Series A Convertible Preferred Stock will have no
other rights or claims to any of the remaining assets of the Company, either
upon distribution of such assets or upon dissolution, liquidation or winding up.
The sale of all or substantially all of the property of the Company to, or the
merger, consolidation or reorganization of the Company into or with, any other
company, or the purchase or redemption by the Company of any shares of any class
of its Preferred Stock or its Common Stock or any other class of its stock shall
not be deemed to be a distribution of assets or a dissolution, liquidation or
winding up for the purposes of this paragraph.
6. So long as full dividends on all outstanding shares of Series A
Convertible Preferred Stock for all dividend periods have been paid or declared
and set apart for payment and subject to any applicable requirements of Texas
law, then following satisfaction of such conditions, the Company may, at its
option, any time after April 1, 2002, to the extent not therefore converted into
Common Stock, redeem the whole or any part of the shares of Series A Preferred
Stock, and the redemption price thereof shall be equal to the Issue Price of the
shares so redeemed, plus the amount of unpaid dividends, if any, to the date of
such redemption. The Company may only redeem outstanding shares of Series A
Preferred Stock after giving each record holder of Series A Preferred Stock at
such holder's last address, as shown on the records of the Company, at least
twenty (20), but not more than fifty (50), days' notice thereof in writing by
mail, postage prepaid. Except as may be limited herein, all such redemptions of
Series A Preferred Stock shall be effected in accordance with any procedure for
redemptions set forth in the Act. Shares of Series A Convertible Preferred Stock
which are redeemed shall be restored to the status of authorized but unissued
shares.
On or before the date fixed for redemption, the Company, if it elects
to call such shares for redemption, shall provide for payment of a sum
sufficient to redeem the shares called for redemption either (1) by setting
aside the sum, separate from its other funds, in trust for the benefit of the
holders of the shares to be redeemed, or (2) by depositing such sum in a bank or
trust company as a trust fund, with irrevocable instructions and authority to
the bank or trust company to give or complete the notice of redemption and to
pay, on or after the date fixed for redemption, the redemption price on
surrender of certificates evidencing the shares of Series A Convertible
Preferred Stock called for redemption. From and after the date fixed for
redemption, (a) the shares shall be deemed to be redeemed, (b) such setting
aside or deposit shall be deemed to constitute full payment of the shares, (c)
the shares shall no longer be deemed to be outstanding, (d) the holders thereof
shall cease to be shareholders with respect to such shares, and (e) the holders
thereof shall have no rights with respect thereto, except the right to receive
their proportionate shares of the fund set aside pursuant hereto or deposited
upon surrender of their respective certificates. Any interest accrued on funds
set aside pursuant hereto or deposited shall belong to the Company. If the
holders of shares do not, within six (6) years after such deposit, claim any
amount so deposited for redemption thereof, the bank or trust company shall upon
demand pay over to the Company the balance of the funds so deposited, and the
bank or trust company shall thereupon be relieved of all responsibility to such
holders.
<PAGE>
7. Holders of the Series A Convertible Preferred Stock shall have no
right to cause redemption of the Series A Convertible Preferred Stock by the
Company.
8. The holders of Series A Convertible Preferred Stock shall have the
right to vote on all matters to come before a meeting of the Shareholders, at
the rate of 100 votes per share. Holders of Series A Preferred Stock shall be
entitled to receive notice of any meeting of shareholders of the Company at
which they are entitled to vote.
In addition, the holders of shares of Series A Convertible Preferred
Stock, voting as a class, shall have the right to elect, by plurality vote, one
member to the Company's Board of Directors from among those persons who shall be
nominated by the holders of the Series A Convertible Preferred Stock by ballot
addressed to such holders in advance of the Company's annual meeting of
stockholders. The foregoing voting rights shall be in lieu of any other right to
vote as class on any matter.
9. Subject to and upon compliance with the provisions hereof, upon the
occurrence of one of the events set forth below, and provided the Company's
Certificate of Incorporation shall have been amended to authorize sufficient
shares of Common Stock, each share of Series A Convertible Preferred Stock shall
automatically be converted into shares of Common Stock (the "Common Stock") of
the Company at a conversion rate of 100 shares of Common Stock for each one
share of Series A Convertible Preferred Stock (referred to herein as the
"Conversion Price"). The events giving rise to automatic conversion of the
Series A Convertible Preferred Stock shall be the following:
a. The sale of the Company of all or substantially all of its
assets;
b. The transfer of beneficial ownership (excluding any transfer
to family members and affiliates or the original offer and
sale of the Series A Convertible Preferred Stock) of shares
comprising more than 50% of all shares outstanding;
c. The merger or consolidation of the company in which the
Company is not the surviving corporation;
d. The liquidation of the Company; or
e. The arrival of the first anniversary date of the filing of
this certificate,
The Conversion Price and number of common shares issuable upon
conversion shall be adjusted to take into account any and all increases or
reductions in the number of shares of Common Stock outstanding which may have
occurred since the date of issuance of the Series A Convertible Preferred Shares
by reason of a split, share dividend, merger, consolidation, or other capital
change or reorganization affecting the number of outstanding common shares so as
fairly and equitably to preserve so far as reasonably possible the original
conversion rights of the Series A Convertible Preferred Stock, and provided
further that when such adjustment is required, no notice of redemption shall be
given until such amendment and adjustment shall have been accomplished.
Upon any conversion of all or a part of the outstanding shares of
Series A Convertible Preferred Stock, the Series A Convertible Preferred Stock
surrendered for conversion shall be canceled and returned to the status of
authorized by unissued shares. Under no circumstances shall the Company be
obligated to issue any fractional shares.
In order to complete the conversion, the holders of Series A Preferred
Stock shall present the shares to the Company at its office, all certificates
representing the Series A Convertible Preferred Stock. Such notice shall also
state the name or names (with the address or addresses) in which the certificate
or certificates representing Common Stock which shall be issuable on such
conversion shall be issued. As soon as practicable after the presentation of the
shares of Series A Convertible Preferred Stock, the Company shall issue and
shall deliver to the holder a certificate or certificates for the number of full
shares of common stock issuable upon the conversion of Series A Convertible
Preferred Shares (or portion hereof). Such conversion shall be deemed to have
been effected immediately prior to the close of business on the date on which
such notice shall have been received by the Company, and the shares of Series A
Convertible Preferred Stock shall have been presented as aforesaid, and
conversion shall be at the Conversion Price in effect at such time, and at such
time the rights of the holder of the shares of Series A Convertible Preferred
Stock are so converted) and the person or persons in whose name or names any
certificate or certificates for Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of the
Common Stock represented thereby. Notwithstanding the holder's designation of
names in which shares of Common Stock are to be issued, nothing contained in
this Section shall permit the holders of the Series A Convertible Preferred
Stock to make any transfer or assignment of its rights hereunder which is
otherwise prohibited by the Series A Convertible Preferred Stock or by law.
<PAGE>
LUCAS EDUCATIONAL SYSTEMS, INC.
2000 EMPLOYEE STOCK OPTION PLAN
1,500,000 Shares
ARTICLE I - GENERAL
1.1 Purpose of the Plan.
The purpose of the Lucas Educational Systems, Inc. 2000 Employee Stock
Option Plan (the "Plan") is to assist Lucas Educational Systems, Inc.,
a Delaware corporation (the "Company"), in securing and retaining Key
Participants of outstanding ability by making it possible to offer them
an increased incentive to join or continue in the service of the
Company and to increase their efforts for its welfare through
participation or increased participation in the ownership and growth of
the Company.
1.2 Definitions.
(a) "Acceleration Event" means any event which in the
opinion of the Board of Directors of the Company is likely to lead to
changes in control of share ownership of the Company, whether or not
such change in control actually occurs.
(b) "Award" means an Option granted to a Key Participant
under the Plan.
(c) "Board of Directors" or "Board" means the Board of
Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means the committee referred to in Section
1.3.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Fair Market Value" means the closing price of the
shares on the principal trading market on which the Common Stock is
primarily traded on the day on which such value is to be determined
or, if no shares were traded on such day, on the next preceding day on
which shares were traded, as reported by NASDAQ. If at any time shares
of Common Stock are not traded on an exchange or in the
over-the-counter market, Fair Market Value shall be the value
determined by the Board of Directors or Committee administering the
Plan, taking into consideration those factors affecting or reflecting
value which they deem appropriate.
(h) "Grantee" means a Key Participant to whom an Award is
granted under the Plan.
(i) "Incentive Share" means a share of Common Stock awarded
to a Key Participant under Article VI hereof on such terms as are
determined by the Committee.
(j) "Incentive Share Agreement" means a written agreement in
such form as the Board or Committee, as applicable, shall approve that
evidences the terms and conditions of an award of Incentive Shares
hereunder.
(k) "Incentive Stock Option" means an option to purchase
shares of Common Stock which is intended to qualify as an incentive
stock option as defined in Section 422 of the Code.
(l) "Key Participant" means any person, including officers,
directors, employees, agents and consultants of the Company or any
Subsidiary who are designated a Key Participant by the Board or
Committee, as applicable, and is or is expected to be primarily
responsible for the management, growth, or
<PAGE>
supervision of some part or all of the business of the Company. The
power to determine who is and who is not a Key Participant is reserved
solely for the Committee.
(m) "Nonqualified Stock Option" means an option to purchase
shares of Common Stock which is not intended to qualify as an
Incentive Stock Option as defined in Section 422 of the Code.
(n) "Option" means an Incentive Stock Option or a
Nonqualified Stock Option.
(o) "Optionee" means a Key Participant to whom an Option is
granted under the Plan.
(p) "Parent" means any corporation which qualifies as a
parent of a corporation under the definition of "parent corporation"
contained in Section 425(e) of the Code.
(q) "Subsidiary" means any corporation which qualifies as a
subsidiary of a corporation under the definition of "subsidiary
corporation" contained in Section 425(f) of the Code.
(r) "Term" means the period during which a particular option
may be exercised as determined by the Committee and as provided in the
option agreement.
1.3 Administration of the Plan.
The Plan shall be administered by a committee (the "Committee")
appointed by the Board of Directors consisting solely of two or more
Non-Employee Directors, as defined in Rule 16b-3 (see Section 1.10,
below), or in the absence of an appointment of such a Committee, the
full Board shall serve as the Committee. Subject to the control of the
Board, and without limiting the control over decisions described in
Section 1.7, the Committee shall have the power to interpret and apply
the Plan and to make regulations for carrying out its purpose. More
particularly, the Committee shall determine which Key Participants
shall be granted Options and the terms of such grants. When granting
Options, the Committee shall designate the Option as either an
Incentive Stock Option or a Nonqualified Stock Option. Determinations
by the Committee under the Plan (including, without limitation,
determinations of the person to receive Awards, the form, amount and
timing of such Awards, and the terms and provisions of such Awards and
the agreements evidencing same) need not be uniform and may be made by
it selectively among persons who receive, or are eligible to receive,
Awards under the Plan, whether or not such persons are similarly
situated. In serving on the Committee, members thereof shall be
considered to be acting in their capacity as members of the Board of
Directors and shall be entitled to all rights of indemnification
provided by the Bylaws of the Company or otherwise to members of the
Board of Directors.
1.4 Shares Subject to the Plan.
The total number of shares that may be purchased pursuant to Options
under the Plan shall not exceed 1,500,000 shares of Common Stock.
Shares subject to the Options which terminate or expire prior to
exercise shall be available for future Awards under the Plan without
again being charged against the limitation of 1,500,000 shares set
forth above. Shares issued pursuant to the Plan may be either unissued
shares of Common Stock or reacquired shares of Common Stock held in
treasury.
1.5 Terms and Conditions of Options.
All Options shall be evidenced by agreements in such form as the
Committee shall approve from time to time subject to the provisions of
Article II and Article III, as appropriate, and the following
provisions:
(a) Exercise. The Committee shall determine whether the Option
shall be exercisable in full at any time during the Term or in
cumulative or noncumulative installments during the Term.
<PAGE>
(b) Termination of Employment or Contractor Relationship. An
Optionee's Options shall expire on the expiration of the Term
specified in Section 2.1 or 3.1 as the case may be, or upon the
occurrence of such events as are specified in the agreement. In the
event of exercise of the Option after termination of employment or
contractor relationship, the Optionee may exercise the Option only
with respect to the shares which could have been purchased by the
Optionee at the date of such termination, and then only for a period
of 90 days thereafter. However, the Committee may, but is not required
to, waive any requirements made pursuant to Section 1.5(b) so that
some or all of the shares subject to the Option may be exercised
within the time limitation described in this subsection. An Optionee's
employment or contractor relationship shall be deemed to terminate on
the last date for which he receives a regular wage, salary or contract
payment. Whether military, government or other service or other leave
of absence shall constitute a termination of employment shall be
determined in each case by the Committee at its discretion, and any
determination by the Committee shall be final and conclusive. A
termination of employment or contractor relationship shall not occur
where the Optionee transfers from the Company to one of its
Subsidiaries or transfers from a Subsidiary to the Company.
(c) Death or Disability. Upon termination of an Optionee's
employment or contractor relationship by reason of death or disability
(as determined by the Committee consistent with the definition of
Section 422(c)(7) of the Code), the Option shall expire on the earlier
of the expiration of (i) the date specified in the Option which in no
event shall be later than 12 months after the date of such termination,
or (ii) the Term specified in Section 2.1 or 3.1 as the case may be.
The Optionee or his successor in interest, as the case may be, may
exercise the Option only as to the shares that could have been
purchased by the Optionee at the date of his termination of employment.
However, the Committee may, but is not required to, waive any
requirements made pursuant to Section 1.5(b) so that some or all of the
shares subject to the Option may be exercised within the time
limitation described in this subsection.
(d) Payment. Payment for shares as to which an Option is
exercised shall be made in such manner and at such time or times as
shall be provided in the option agreement, including cash, Common Stock
of the Company which was previously acquired by the Optionee, or any
combination thereof. The Fair Market Value of the surrendered Common
Stock as of the date of exercise shall be determined in valuing Common
Stock used in payment for Options.
(e) Nontransferability. No Option granted under the Plan shall
be transferable other than by will or by the laws of descent and
distribution. During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee.
(f) Additional Provisions. Each option agreement may contain
such other terms and conditions not inconsistent with the provisions of
the Plan, including the award of cash amounts, as the Committee may
deem appropriate from time to time.
1.6 Stock Adjustments; Mergers.
(a) Generally. Notwithstanding Section 1.4, in the event the
outstanding shares are increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities
of the Company or of any other corporation by reason of any merger,
sale of stock, consolidation, liquidation, recapitalization,
reclassification, stock split up, combination of shares, stock
dividend, or transaction having similar effect, the total number of
shares set forth in Section 1.4 shall be proportionately and
appropriately adjusted by the Committee.
(b) Options. Following a transaction described in subsection
(a) above, if the Company continues in existence, the number and kind
of shares that are subject to any Option and the option price per share
shall be proportionately and appropriately adjusted without any change
in the aggregate price to be paid therefor upon exercise of the Option.
If the Company will not remain in existence or substantially all of its
voting Common Stock and Common Stock will be purchased by a single
purchaser or group of purchasers acting together, then the Committee
may (i) declare that all Options shall terminate 30 days after the
Committee gives written notice to all Optionee's of their immediate
right to exercise all Options then outstanding (without regard to
limitations on exercise otherwise contained in the Options), or (ii)
notify all Optionee's that all Options granted under the Plan shall
apply with appropriate adjustments as determined by the Committee to
<PAGE>
the securities of the successor corporation to which holders of the
numbers of shares subject to such Options would have been entitled, or
(iii) take action that is some combination of aspects of (i) and (ii).
The determination by the Committee as to the terms of any of the
foregoing adjustments shall be conclusive and binding. Any fractional
shares resulting from any of the foregoing adjustments under this
section shall be disregarded and eliminated.
1.7 Acceleration Event.
If an Acceleration Event occurs in the opinion of the Board of
Directors, based on circumstances known to it, the Board of Directors
may, but is not obligated to, direct the Committee to declare that any
or all Options granted under the Plan shall become exercisable
immediately notwithstanding the provisions of the respective agreements
granting any such Awards.
1.8 Notification of Exercise.
Options shall be exercised by written notice directed to the Secretary
of the Company at the principal executive offices of the Company. Such
written notice shall be accompanied by any payment required pursuant to
Section 1.5(d). Exercise by an Optionee's heir or the representative of
his estate shall be accompanied by evidence of his authority to so act
in form reasonably satisfactory to the Company.
1.9 Modification, Extension and Renewal of Awards.
Subject to the terms and conditions and within the limitations of the
Plan, the Committee may modify, extend or renew outstanding Awards or
accept the surrender of outstanding Awards (to the extent not
theretofore exercised) granted under the Plan or under any other plan
of the Company or a Subsidiary, and authorize the granting of new
Awards pursuant to the Plan in substitution therefor, and the
substituted Awards may bear such different or additional terms and
conditions as the Committee shall deem appropriate within the
limitations of the Plan. Notwithstanding the foregoing, however, no
modification of an Award shall, without the consent of the Grantee
holding the Award, adversely affect the rights or obligations of such
Grantee.
1.10. Compliance with Rule 16b-3.
It is intended that the provisions of the Plan and any Award shall
comply in all respects with the terms and conditions of Rule 16b-3
under the Securities Exchange Act of 1934, as in effect on January 1,
1999 and as amended, or any successor provisions, as it relates to
persons subject to the reporting requirements of Section 16(a) of such
Act. Any agreement granting an Award shall contain such provisions as
are necessary or appropriate to assure such compliance. To the extent
that any provision hereof is found not to be in compliance with such
rule as it relates to such Act, such provision shall be deemed to be
modified so as to be in compliance with such rule, or if such
modification is not possible, shall be deemed to be null and void, as
it relates to such Grantee.
ARTICLE II - INCENTIVE STOCK OPTIONS
2.1 Terms of Incentive Stock Options.
Each Incentive Stock Option granted under the Plan shall be exercisable
only during a Term fixed by the Committee; provided, however, that the
Term shall end no later than 10 years after the date the Incentive
Stock Option is granted.
<PAGE>
2.2 Limitation on Options.
The aggregate Fair Market Value of Common Stock (determined at the
time the Incentive Stock Option is granted) subject to Incentive Stock
Options granted to a Key Participant under all plans of the Key
Participant's employer corporation and its Parent or Subsidiary
corporations and that become exercisable for the first time by such
Key Participant during any calendar year may not exceed $100,000.
2.3 Special Rule for Ten Percent Shareholder.
If at the time an Incentive Stock Option is granted, a participant owns
stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of his employer corporation or of
its Parent or any of its Subsidiaries, as determined using the
attribution rules of Section 424(d) of the Code, then the terms of the
Incentive Stock Option shall specify that the option price shall be at
least 110% of the Fair Market Value of the stock subject to the
Incentive Stock Option and such Incentive Stock Option shall not be
exercisable after the expiration of five years from the date such
Incentive Stock Option is granted.
2.4 Interpretation.
In interpreting this Article II of the Plan and the provisions of
individual option agreements, the Committee and the Board shall be
governed by the principles and requirements of Sections 421, 422 and
425 of the Code, and applicable Treasury Regulations.
ARTICLE III - NONQUALIFIED STOCK OPTIONS
3.1 Terms and Conditions of Options.
In addition to the requirements of Section 1.5, each Nonqualified Stock
Option granted under the Plan shall be exercisable only during a Term
fixed by the Committee.
3.2 Section 83(b) Election.
The Company recognizes that certain persons who receive Nonqualified
Stock Options may be subject to restrictions regarding their right to
trade Common Stock under applicable securities laws. Such may cause
Optionee's exercising such Options not to be taxable under the
provisions of Section 83(c) of the Code. Accordingly, Optionee's
exercising such Nonqualified Stock Options may consider making an
election to be taxed upon exercise of the Option under Section 83(b) of
the Code and to effect such election will file such election with the
Internal Revenue Service within thirty (30) days of exercise of the
Option and otherwise in accordance with applicable Treasury
Regulations.
ARTICLE IV - ADDITIONAL PROVISIONS
4.1 Stockholder Approval.
The Plan shall be submitted for the approval of the stockholders of the
Company at the first annual meeting of stockholders held subsequent to
the adoption of the Plan and in all events within two years of its
approval by the Board of Directors. If at said meeting the stockholders
of the Company do not approve the Plan, the Plan shall terminate.
4.2 Compliance with Other Laws and Regulations.
The Plan, the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such
Options, shall be subject to all applicable Federal and state laws,
rules, and regulations and to such approvals by any government or
regulatory agency as may be required. The Company shall not be required
to issue or deliver any certificates for shares of Common Stock prior
to (a) the listing of such shares on any stock exchange on which the
Common Stock may then be listed and (b) the completion of any
registration or qualification or exemption of such shares under any
Federal or state law, or any ruling or regulation of any government
body which the Company shall, in its sole discretion, determine to be
necessary or advisable.
<PAGE>
4.3 Amendments.
The Board of Directors may discontinue the Plan at any time, and may
amend it from time to time, but no amendment, without approval by
stockholders, may increase the total number of shares which may be
issued under the Plan. Other than as expressly permitted under the
Plan, no outstanding Award may be revoked or altered in a manner
unfavorable to the Grantee without the consent of the Grantee.
4.4 No Rights As Shareholder.
No Grantee shall have any rights as a shareholder with respect to any
share subject to his or her Option prior to the date of issuance to him
or her of a certificate or certificates for such shares.
4.5 Withholding.
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 or local withholding tax liability in such
form as the Company may determine or accept in its sole discretion,
including payment by surrender or retention of shares of Common Stock
prior to the delivery of any certificate or certificates for such
shares.
4.6 Continued Employment Not Presumed.
This Plan and any document describing this Plan and the grant of any
Award hereunder shall not give any Optionee or other Participant a
right to continued employment or directorship by the Company or its
Subsidiaries or affect the right of the Company or its Subsidiaries to
terminate the employment or directorship of any such person with or
without cause.
4.7 Effective Date; Duration.
The Plan shall become effective as of the date of stockholder approval
and shall expire ten years thereafter. No Awards may be granted under
the Plan after the expiration date, but Awards granted on or before
that date may be exercised according to the terms of the related
agreements and shall continue to be governed by and interpreted
consistent with the terms hereof.
<PAGE>
EXHIBIT E
LUCAS EDUCATIONAL SYSTEMS, INC.
2000 EXECUTIVE STOCK INCENTIVE PLAN
11,315,000 SHARES
ARTICLE I
GENERAL
1.1 Purpose of the Plan.
The purpose of the Lucas Educational Systems, Inc. 2000 Executive Stock
Incentive Plan (the "Plan") is to assist Lucas Educational Systems, Inc., a
Delaware corporation (the "Company") in securing and retaining key persons of
outstanding ability to serve the Company as key executive personnel by making it
possible to offer them an increased incentive to join or continue in the service
of the Company and to increase their efforts for its welfare through
participation or increased participation in the ownership and growth of the
Company.
1.2 Definitions.
(a) "Award" means a Restricted Stock Grant or an Option
granted to a Participant under the Plan.
(b) "Board of Directors" or "Board" means the Board of
Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Common Stock" means the Common Stock of the Company.
(e) "Grantee" means a Participant to whom an Award is
granted under the Plan.
(f) "Participant" means any person, including consultants
and directors, who is designated a Participant and is or is expected
to be instrumental in promoting the business of the Company.
(g) "Nonqualified Stock Option" means an option to purchase
shares of Common Stock which is not intended to qualify as an
Incentive Stock Option as defined in Section 422 of the Code.
(h) "Option" means a Nonqualified Stock Option to purchase
shares of Common Stock.
(i) "Optionee" means a Participant to whom an Option is
granted under the Plan.
(j) "Parent" means any corporation which qualifies as a
parent of a corporation under the definition of "parent corporation"
contained in Section 425(e) of the Code.
- 1 -
<PAGE>
(k) "Restricted Stock Grant" means an Award in the form of a
grant of restricted common stock of the Company at a purchase price of
$0.061 per Share, which may be paid by the recipient in cash or by the
provision of services acceptable to the Board of Directors.
(l) "Subsidiary" means any corporation which qualifies as a
subsidiary of a corporation under the definition of "subsidiary
corporation" contained in Section 425(f) of the Code.
(m) "Term" means the period during which a particular option
may be exercised as determined by the Committee and as provided in the
option agreement.
1.3 Administration of the Plan.
The Plan shall be administered by the Board of Directors. The Board
shall have the power to interpret and apply the Plan and to make
regulations for carrying out its purpose. More particularly, the Board
shall determine which Participants shall be granted Options and the
terms of such grants. Determinations by the Board under the Plan
(including, without limitation, determinations of the person to receive
Awards, the form, amount and timing of such Awards, and the terms and
provisions of such Awards and the agreements evidencing same) need not
be uniform and may be made by it selectively among persons who receive,
or are eligible to receive, Awards under the Plan, whether or not such
persons are similarly situated. The Plan shall not be qualified under
Section 423 of the Code.
1.4 Shares Subject to the Plan.
The total number of shares that may be purchased pursuant to Awards
under the Plan shall be 11,315,000 shares of Common Stock. Shares may
be issued either under Nonqualified Stock Options or as Restricted
Stock Grants.
1.5 Terms and Conditions of Options.
All Options shall be evidenced by agreements in such form as the
Committee shall approve from time to time subject to the provisions of
Article II and Article III, as appropriate, and the following
provisions:
(a) Exercise Price. The exercise price of the Option shall
be $0.061 per share, which is the price determined by the Board of
Directors to be the fair market value of the Common Stock on the date
hereof pursuant to an independent appraisal.
(b) Exercise. All options must be exercised, if at all,
within the time set forth in the Employment Agreement or Option
Agreement evidencing the Options.
(c) Termination. An Optionee's Option shall expire if not
exercised by the Termination Date, or upon the occurrence of such
events as are specified in the agreement.
(d) Death or Disability. Options under the Plan shall not
terminate due to a Participant's death or disability.
(e) Payment. Payment for shares as to which an Option is
exercised shall be made by each Participant in cash or in existing
shares of common stock at their fair market value.
(f) Nontransferability. No Option granted under the Plan
shall be transferable other than by will or by the laws of descent and
distribution. During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee.
- 2 -
<PAGE>
(g) Additional Provisions. Each option agreement may contain
such other terms and conditions not inconsistent with the provisions
of the Plan, including the award of cash amounts, as the Committee may
deem appropriate from time to time.
(h) Awards. Awards are hereby made to the following persons
in the following amounts:
Name Shares Type of Award*
- --------------------------------------------------------------------------------
Jeffrey R. Gullo 2,385,000 Restricted Stock Grant
Jeffrey R. Gullo 5,430,000 Options
Jerry R. Lucas 2,000,000 Options
Jerry R. Lucas 1,500,000 Options that may be
granted if Company elects to
acquire certain intellectual
property rights
* All such Awards are defined in and made pursuant to Employment
Agreements dated March 22, 2000 with such persons.
1.6 Stock Adjustments; Mergers.
(a) Generally. Notwithstanding Section 1.4, in the event the
outstanding shares are increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities
of the Company or of any other corporation by reason of any merger,
sale of stock, consolidation, liquidation, recapitalization,
reclassification, stock split up, combination of shares, stock
dividend, or transaction having similar effect, the total number of
shares set forth in Section 1.4 shall be proportionately and
appropriately adjusted.
(b) Options. Following a transaction described in subsection
(a) above, if the Company continues in existence, the number and kind
of shares that are subject to any Option and the option price per
share shall be proportionately and appropriately adjusted without any
change in the aggregate price to be paid therefor upon exercise of the
Option. If the Company will not remain in existence or substantially
all of its voting Common Stock and Common Stock will be purchased by a
single purchaser or group of purchasers acting together, then the
Company may (i) declare that all Options shall terminate 30 days after
the Company gives written notice to all Optionee's of their immediate
right to exercise all Options then outstanding (without regard to
limitations on exercise otherwise contained in the Options), or (ii)
notify all Optionee's that all Options granted under the Plan shall
apply with appropriate adjustments as determined by the Company to the
securities of the successor corporation to which holders of the
numbers of shares subject to such Options would have been entitled, or
(iii) take action that is some combination of aspects of (i) and (ii).
The determination by the Company as to the terms of any of the
foregoing adjustments shall be conclusive and binding. Any fractional
shares resulting from any of the foregoing adjustments under this
section shall be disregarded and eliminated.
1.7 Notification of Exercise.
Options shall be exercised by written notice directed to the Secretary of
the Company at the principal executive offices of the Company. Such written
notice shall be accompanied by any payment required pursuant to Section
1.5(e). Exercise by an Optionee's heir or the representative of his estate
shall be accompanied by evidence of his authority to so act in form
reasonably satisfactory to the Company.
1.8 Modification, Extension and Renewal of Awards.
Subject to the terms and conditions and within the limitations of the
Plan, the Company may modify, extend or renew outstanding Awards or
accept the surrender of outstanding Awards (to the extent not
theretofore exercised) granted under the Plan or under any other plan
of the Company or a Subsidiary, and authorize the granting of new
Awards pursuant to the Plan in substitution therefor, and the
substituted Awards may bear such different or additional terms and
conditions as the Company shall deem appropriate within the
limitations of the Plan. Notwithstanding the foregoing, however, no
modification of an Award shall, without the consent of the Grantee
holding the Award, adversely affect the rights or obligations of such
Grantee.
- 3 -
<PAGE>
1.9. Compliance with Rule 16b-3.
It is intended that the provisions of the Plan and any Award shall comply
in all respects with the terms and conditions of Rule 16b-3 under the
Securities Exchange Act of 1934, as in effect on March 1, 2000 and as
amended, or any successor provisions, as it relates to persons subject to
the reporting requirements of Section 16(a) of such Act. To the extent that
any provision hereof is found not to be in compliance with such rule as it
relates to such Act, such provision shall be deemed to be modified so as to
be in compliance with such rule, or if such modification is not possible,
shall be deemed to be null and void, as it relates to such Grantee.
ARTICLE II
ADDITIONAL PROVISIONS
2.1 Board Approval.
The Plan has been approved by the unanimous consent of the Board of
Directors of the Company.
2.2 Compliance with Other Laws and Regulations.
The Plan, the grant and exercise of Options hereunder, and the obligation
of the Company to sell and deliver shares under such Options, shall be
subject to all applicable Federal and state laws, rules, and regulations
and to such approvals by any government or regulatory agency as may be
required. The Company shall not be required to issue or deliver any
certificates for shares of Common Stock prior to (a) the listing of such
shares on any stock exchange on which the Common Stock may then be listed
and (b) the completion of any registration or qualification or exemption of
such shares under any Federal or state law, or any ruling or regulation of
any government body which the Company shall, in its sole discretion,
determine to be necessary or advisable. The Company shall file a Form S-8
registration statement to register the Common Stock issued under the Plan
and any resales thereof as soon as the Company becomes eligible for the use
of Form S-8. Each Participants shall be required to execute a Subscription
Agreement in the form of Exhibit A attached hereto.
2.3 Amendments.
The Board of Directors may discontinue the Plan at any time, and may amend
it from time to time, but no amendment, without approval by stockholders,
may (a) increase the total number of shares which may be issued under the
Plan or to any individual under the Plan, (b) reduce the Option price for
shares which may be purchased pursuant to Options under Articles II or III
of the Plan, (c) extend the period during which Awards may be granted, or
(d) change the class of employees to whom Awards may be granted, except as
provided in Section 1.6. Other than as expressly permitted under the Plan,
no outstanding Award may be revoked or altered in a manner unfavorable to
the Grantee without the consent of the Grantee.
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2.4 No Rights As Shareholder.
No Grantee shall have any rights as a shareholder with respect to any share
subject to his or her Option prior to the date of issuance to him or her of
a certificate or certificates for such shares.
2.5 Withholding.
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 or local withholding tax liability in such form as the
Company may determine or accept in its sole discretion, including payment
by surrender or retention of shares of Common Stock prior to the delivery
of any certificate or certificates for such shares.
2.6 Effective Date; Duration.
The Plan shall become effective as of March 24, 2000 pursuant to Board of
Director approval received effective such date and shall be submitted for
ratification by the Stockholders at the next annual meeting of
stockholders.
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