CONSULTING AGREEMENT
THIS AGREEMENT is entered into effective the 15th day of March, 2002, at
Houston, Texas, Between GK INTELLIGENT SYSTEMS, INC., a Delaware corporation
("Corporation" or "GKIS") and RENEE H. ETHRIDGE ("ETHRIDGE").
WHEREAS, GKIS is in the business of providing artificial intelligence based
education, training and performance support and is based in Houston, Texas; and
WHEREAS, GKIS desires that ETHRIDGE consult with GKIS on the resurrection of the
company's operations in the domestic and international marketplace; and
WHEREAS, ETHRIDGE desires to acquire an equity interest in the Corporation's
common stock; and
WHEREAS, GKIS considers it to be in its best interest that ETHRIDGE assume a
position as a member of the GKIS Board of Directors;
NOW, THEREFORE, in consideration of the premises, the parties agree as follows:
1. Agreement to Provide Consulting Services. Upon election by consent of
the majority of the shares of GKIS, ETHRIDGE agrees to assume a
position on the GKIS Board of Directors for the term of this
agreement. In this capacity, ETHRIDGE agrees to act as an adviser to
GKIS and mentor its management, and to apprise GKIS of operational
developments as ETHRIDGE in her sole discretion shall deem
appropriate. In addition, ETHRIDGE agrees to help GKIS establish its
initial operational infrastructure, making herself reasonably
available to mentor and advise GKIS directors, officers and management
periodically during the term of this agreement, all on a part-time
basis as parties mutually agree.
2. Position on GKIS Board of Directors. The Corporation, acting through
its existing Board of Directors, will appoint ETHRIDGE as a member of
the Board of Directors for the term of this agreement.
3. Compensation. As compensation for the services to be rendered
hereunder, GKIS will issue ETHRIDGE One Million (1,000,000) shares of
GKIS common restricted stock (the "Initial Shares") to be issued as
soon hereafter as practicable. GKIS shall tender the Initial Shares to
ETHRIDGE, provided that any law or regulation requires the Corporation
to take any action with respect to the Initial Shares before the
issuance hereof, then the date of delivery for such shares shall be
extended for the period necessary to take such action.
1
4. Agreement to Relinquish. In the event of ETHRIDGE's failure of
performance or early termination of her agreement as set out herein,
ETHRIDGE agrees to return (relinquish) to GKIS any unvested Initial
Shares as defined herein. Each month during the term of this
agreement, one-fourth of the Initial Shares shall no longer be subject
to such required relinquishment to GKIS, or in other words, such
shares shall vest. The shares remaining after the previous month's
fractions of shares have vested shall be considered unvested. The
Initial Shares shall immediately and automatically vest upon material
breach by GKIS of this agreement or any of its warranties and
representations, without notice or action by ETHRIDGE, and shall no
longer be subject to relinquishment.
In the event that a majority of GKIS shareholders fail to ratify a
10:1 reverse split of the Corporation's stock, ETHRIDGE agrees to
return nine hundred thousand (900,000) of the Initial Shares to GKIS,
irrespective of any vesting which may have occurred.
5. Rights Prior to Issue. ETHRIDGE shall have no rights as a stockholder
with respect to the Initial Shares until such shares are issued.
6. Amendment in Writing. No amendment, modification or change to this
agreement shall be binding unless in writing, signed by all the
parties hereto.
7. Agreement Binding. This agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, legatees,
administrators, executors, legal representatives, successors, assigns
(including remote, as well as immediate, successors to and assignees
of said parties).
8. Representations, Warranties and Agreements of ETHRIDGE. ETHRIDGE
represents, warrants and agrees as follows:
a. No Registration. ETHRIDGE is aware that the Shares have not been
registered nor is registration contemplated under the Securities
Act of 1933, and accordingly, that the Shares must be held
indefinitely unless they are subsequently registered under said
Act or unless, in the opinion of counsel for the Corporation, a
sale or transfer may be made without registration hereunder.
ETHRIDGE agrees that any certificates evidencing the Shares may
bear a legend restricting the transfer hereof consistent with the
foregoing and that a notation may be made in the records of the
Corporation restricting the transfer of the Shares in a manner
consistent with the foregoing.
b. No Preemptive Rights. ETHRIDGE acknowledges and agrees that she
has no preemptive rights with respect to the Shares to be
conveyed hereunder.
2
9. Representations, Warranties and Agreements of GKIS. GKIS represents,
warrants and agrees as follows:
a. Authority. GKIS is a corporation duly organized, validly
existing, and in good standing under the laws of Delaware, with
full corporate power and authority to carry on its business as it
is now being conducted, to own or hold under lease the properties
and assets it now owns or holds under lease, and to enter into
and perform its obligations under this agreement. The execution
and delivery of this agreement and the consummation of all the
transactions contemplated hereby have been duly authorized by all
necessary corporate action on behalf of GKIS. The persons signing
on behalf of GKIS are duly authorized to do so and this agreement
will be binding upon GKIS. GKIS is not subject to any lien or
encumbrance of any kind nor is it subject to any agreement,
instrument, order, or decree of any court or government body
which would prevent consummation of the transaction contemplated
by this agreement.
b. No Suits Pending. There are no actions, suits, or proceedings
pending, outstanding or threatened, against or affecting GKIS or
any of the assets, properties or business of GKIS at law or in
equity, or before or by any governmental authority, except as set
out in its filings with the SEC or otherwise disclosed to
ETHRIDGE.
c. No Violations of Laws. To the best of its knowledge, GKIS is not
in default or violation under any law, ordinance or regulation,
or with respect to any order, writ, injunction, decree, or demand
of any court or any governmental authority, or in the payment of
any indebtedness for borrowed money or under the terms or
provisions of any agreement or instrument evidencing or securing
any such indebtedness except as disclosed to ETHRIDGE.
d. Governmental Agencies. GKIS will comply with the requirements of
all applicable laws, regulations, and requirements pertaining to
GKIS.
e. Information Provided. To the best of its knowledge, all
information provided by GKIS to ETHRIDGE was and is accurate in
all material respects and did not or does not, to the best of
GKIS' knowledge, omit any information necessary to make such
information and documentation necessary.
f. Financial Statements. GKIS has delivered to ETHRIDGE its audited
annual report for the fiscal year ended December 31, 1998, as set
out in its Form 10K-SB, and its latest unaudited quarterly
financial statements, as set out in its Form 10Q-SB. The
financial statements present fairly the financial position and
results of operations of GKIS prior to closing its doors in June,
1999.
g. Licenses and Permits. GKIS has all licenses, permits, approvals,
consents, orders, rights and other authorizations necessary to
enable it to conduct its business as currently conducted.
3
h. No Undisclosed Liabilities. Except as set out in its audited
annual report or quarterly unaudited financial statements, and as
otherwise disclosed to ETHRIDGE, GKIS has no liabilities or
obligations.
i. No Conflict with Other Documents. Neither the execution and
delivery of this agreement nor the carrying out of this
transaction will result in any violation, termination or
modification of, or be in conflict with GKIS' charter documents
or bylaws, any contract or agreement to which GKIS is a party or
is bound, or result in the creation of any lien or encumbrance
upon any of the properties or assets of GKIS.
j. Status of Shares to be Issued. All issued Shares of capital stock
of GKIS are, and upon issuance to ETHRIDGE, in accordance with
the terms of this agreement; the Shares will also be, duly
authorized, validly issued and fully-paid and non-assessable. The
Shares to be issued by GKIS hereunder are, and will be when
issued, free and clear of all encumbrances, except as set out in
this agreement.
10. Term of Agreement. This agreement shall be in effect for one hundred
twenty (120) days, starting and counting the date of execution, unless
terminated by either party pursuant to the provisions contained
herein.
11. Termination of Agreement. This agreement may be terminated as follows:
a. Illness or Other Incapacity. If ETHRIDGE, during the term of this
agreement, shall fail to perform her duties hereunder as a result
of illness or other incapacity which shall continue for a period
of more than six weeks, the Corporation shall have the right to
terminate this agreement and the employment hereunder as of a
date to be specified in a written notice of termination sent to
ETHRIDGE, such date to be not less than ten (10) days following
receipt of said notice. The Initial Shares shall be fully vested
as of the date of termination and will not be subject to return
to GKIS.
b. Conduct. If ETHRIDGE shall willfully violate any law; embezzle or
otherwise steal from the Corporation; use liquor or drugs to an
extent which has a visible detrimental effect on her services;
conduct herself publicly or privately in a manner which offends
against decency or causes her to be held in public ridicule or
causes public scandal, the Corporation shall have the right to
terminate this agreement and employment hereunder upon notice
given in the manner specified in 12.a. In the event of
termination under this Subparagraph 12.b., vesting of the Initial
Shares shall cease, GKIS shall have no further obligation to
ETHRIDGE under this agreement, and ETHRIDGE shall relinquish all
unvested Initial Shares.
4
c. Unilateral Termination, if any, by ETHRIDGE. ETHRIDGE may
terminate this agreement and employment hereunder effective as of
a date to be specified in a written notice of termination, such
date to be not less than ten (10) days after delivery of the
notice, and all vesting of the Initial Shares shall cease as of
the end of the month during which termination is effective, GKIS
shall have no further obligation to ETHRIDGE under this
agreement, and ETHRIDGE shall return to GKIS all unvested Initial
Shares, unless termination is the result of material breach by
GKIS of the provisions of this agreement.
d. Vesting of Initial Shares after Termination for Death or
Disability. If ETHRIDGE shall die during the term of this
agreement, her legal representative or executor shall be entitled
to receive any compensation which is unpaid and accrued from the
date of her last payment until the date of her death, and this
agreement shall terminate. All unvested Initial Shares shall
immediately vest and not be subject to relinquishment to GKIS.
e. Termination for Cause Other than Conduct. GKIS may terminate this
agreement during the initial term if the Board of Directors
determines that ETHRIDGE has failed to perform her duties
hereunder for a period of at least six weeks, and such failure is
not due to illness or disability. Such termination shall be
effective as of a date to be specified in a written notice of
termination, such date to be the end of a month not less than ten
(10) days after delivery of the notice, provided that during such
10-day (or greater) period ETHRIDGE shall have opportunity to
contest such termination to a meeting of the entire Board of
Directors and the Board shall agree by a majority vote of its
members that ETHRIDGE shall be terminated for cause, and all
vesting of Initial Shares shall cease as of such date and
ETHRIDGE shall relinquish to GKIS all unvested Initial Shares.
12. Notices. All notices required hereunder shall be sent via certified
mail, postage prepaid, if to GKIS, in care of Gary F. Kimmons, 2602
Yorktown Place, Houston, Texas, 77056, and if to ETHRIDGE, in care of
Renee H. Ethridge, 6850 Cayton Street, Houston, Texas, 77061.
13. Choice of Law. The parties agree that this agreement shall be governed
by and interpreted in accordance with the laws of the State of Texas,
excluding any principle or provision hereof that would require
application of the laws of any other jurisdiction.
14. Arbitration. If the parties have any disagreement or dispute arising
in connection with this agreement or the subject matter of this
agreement that cannot be resolved amicably among the parties, such
dispute shall, on the written request of either party, be submitted to
arbitration, which will comply with and be governed by the provisions
of the Texas Civil Practice and Remedies Code, Section 171.000, et
seq., and the American Arbitration Association. Pursuant to Section
171.026(a) of the Texas Civil Practice and Remedies Code, arbitration
shall be conducted under the Commercial Arbitration Rules of the
American Arbitration Association in existence at the time of
arbitration. The cost and expenses, including attorney's fees and the
fees of arbitrators, shall be borne by the losing party or in such
proportion as the arbitrators shall determine.
5
15. Confidential Information. ETHRIDGE shall hold in fiduciary capacity
for the benefit of GKIS all secret or confidential information,
knowledge or data relating to GKIS or any of its affiliated companies,
and their respective businesses, which shall have been obtained by
ETHRIDGE during ETHRIDGE's employment by GKIS or any of its affiliated
companies and which shall not be or become public knowledge (other
than by acts by ETHRIDGE or representatives of ETHRIDGE in violation
of this agreement). After termination of ETHRIDGE's employment with
GKIS, ETHRIDGE shall not, without the prior written consent of GKIS or
as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than
GKIS and those designated by it.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
on the day and year set forth above.
GK INTELLIGENT SYSTEMS, INC.
/S/ Gary F. Kimmons
By: ______________________________
GARY F. KIMMONS, C.E.O.
/S/ Renee H. Ethridge
-------------------------------
RENEE H. ETHRIDGE
6