EXHIBIT 10.12
MEMORANDUM OF UNDERSTANDING
SEPTEMBER 8, 1998
OBJECTIVE
Establish a mutually acceptable definitive Agreement (Agreement) in which Ms.
Xxxxxxx Xxxxxx (Xxxxxx) will serve as an independent consultant to GK
Intelligent Systems, Inc. (GKIS) in the creation, development, and distribution
of children's and family-oriented intelligent learning products.
DESCRIPTION OF DUTIES
Xxxxxx will use her best effort to assist XXXX in establishing a new Children's
Learning Division. Xxxxxx and/or a person under her direction and control will
help:
o Create marketable product themes addressing the Children's and family
education markets
o Submit project proposals
o Write project plans
o Develop budgets
o Assemble multimedia production teams
o Cast and select acting talent
o Produce the multimedia components of approved GKIS intelligent learning
products
o Assist in product distribution and branding. Xxxxxx will, whenever possible,
use her contacts and knowledge of appropriate distribution channels to help
facilitate distribution of the products she helps produce. Xxxxxx will also
assist and lend the "Xxxxxxx Xxxxxx" name to the products she produces to
facilitate branding of GKIS SMART ONE(TM) and other relevant GKIS brands.
o Assist in public relations related to GKIS and its children/family products.
Xxxxxx will, within reason and subject to her advance approval and general
availability, make personal appearances and provide personal interviews to
the press, television, and public media to assist in creating a favorable
image for GKIS and its children/family products.
o Assist in the establishment of a Children's/family learning division within
GKIS.
o Assist GKIS in establishing outside entities such as advisory boards and
foundations in the areas of human and Children's learning.
o Introduce GKIS to key business contacts.
DESCRIPTION OF PROJECTS
o Children's preschool education and development
o Children's elementary education
o Family learning
COMPENSATION AND PAYMENT TERMS
o $500,000 for use of name rights, payable as follows: $150,000 paid upon
execution of this Memorandum; $50,000 no later than 30 days thereafter and
$50,000 per month to term starting January 1st, 1999.
o 10% of sales revenues (less only distribution fees) from products produced
by or bearing the Xxxxxx name. The method of distribution and all associated
distribution costs shall be subject to the mutual consent of Xxxxxx and
GKIS.
o 5% of sales revenues (less only distribution fees) of products produced by
3rd parties introduced by Xxxxxx to GKIS, but not bearing the production
influence or name of Xxxxxx.
o A minimum of 8% of the total production cost (including but not limited to
the cost of scripting, talent, shooting, editing, animation, graphics and
software coding) of each product. A production committee at GKIS will
approve the expenditure for each product in advance. If Xxxxxx completes a
product at or below budget, XXXX agrees to consider and approve performance
bonuses for Xxxxxx (at its discretion). If, during multimedia production, a
project appears to be over budget, Xxxxxx agrees to notify GKIS of the
situation on a timely basis to seek reasonable alternatives and to minimize
the overage.
o 120,000 stock options (qualified to the extent possible) vesting over a 3
year period. The stock will vest monthly on a schedule of 1/36th per month
(3,300 shares). The option price will be the closing price at the close of
trading on the date of execution (i.e., $2.50). The stock will be subject to
SEC Rule 144 provisions.
RIGHTS TO THE USE OF THE NAME "XXXXXXX XXXXXX"
x Xxxxxx grants to GKIS the non-exclusive right to use the name "Xxxxxxx
Xxxxxx" only for those products produced in conjunction with Xxxxxx and in
connection with related mutually approved public relations activities. All
press releases bearing the name "Xxxxxxx Xxxxxx" must be approved prior to
release by Xxxxxx. The xxxxx is for the term of the Agreement.
RIGHTS TO INTELLECTUAL PROPERTY
o Each time a product is submitted by Xxxxxx to GKIS for approval, and that
product is approved by GKIS to move forward into development and production,
upon payment to Xxxxxx of a license fee (to be determined and mutually
agreed upon by GKIS and Xxxxxx in each instance a product is submitted and
approved), the CD-ROM, Internet, multimedia and electronic games rights (The
Markets) will be deemed licensed by Xxxxxx to GKIS, and GKIS will be
automatically granted the exclusive right to develop, produce and distribute
such approved product in The Markets for a license period of ten (10)
consecutive years from the date of payment of such license fee to Xxxxxx.
Xxxxxx retains sole ownership of all other rights, including but not limited
to, the copyright to the intellectual property encompassed in the product,
including but not limited to the characters, ideas, artwork, story, concept
and information, in all media and markets throughout the universe (Other
Rights) whether then known or thereafter invented, in perpetuity, unless and
until Xxxxxx, at her sole discretion, may elect to sell or license those
rights to a third party. GKIS shall be granted a right of first refusal or
negotiation to purchase or license such Other Rights in the intellectual
property encompassed within such product to other markets and/or media. If a
product has been submitted to GKIS for approval and such approval is
withheld, all rights with respect to such product will remain with Xxxxxx,
and GKIS will have no claim to the intellectual property or the product.
o When a Third Party Property (TPP) is submitted by Xxxxxx to GKIS, and GKIS
approves the production and development of such TPP, Xxxxxx shall use her
best efforts to assist GKIS in obtaining the necessary rights and/or license
to such TPP. If negotiation with the TPP is concluded and the necessary
rights are obtained, Xxxxxx and GKIS will begin research and development
with respect to such TPP.
TERM OF AGREEMENT
The Agreement will be for a period of 3 years and will self-renew thereafter on
an annual basis unless terminated under one of the conditions defined under
"Termination" below.
EXPENSE REIMBURSEMENT
o All reasonable business expenses incurred by Xxxxxx will be reimbursed
within 10 working days. Expenses exceeding $500 must be pre-approved by
GKIS. GKIS agrees that Xxxxxx can travel first class by air; executive
suites at hotels. Whenever possible, GKIS will prepay Xxxxxx'x expenses to
minimize out-of-pocket expenditures.
FINDER'S FEE
o GKIS will pay Xxxxxx'x business representative, Xxxxxx Xxxxxxxx, $10,000
upon execution of this Memorandum. After the Agreement is executed, GKIS
will grant her options for 500 shares of its restricted common stock at the
closing market price of GKIS stock upon execution (approximately $2.50). The
stock will vest immediately but will be subject to SEC Rule 144 provisions.
NON-DISCLOSURE
x Xxxxxx agrees not to disclose any of the intellectual property of a
confidential or trade secret nature during the term of the Agreement, and
GKIS warrants that it will keep Xxxxxx apprised of what is or is not of a
confidential or trade secret nature.
PERFORMANCE WARRANTS
o GKIS warrants that it will perform to its best effort in the following
areas:
* The timing, funding and approval of projects. GKIS will fund all
production costs.
* Timely payment of compensation to Xxxxxx.
* Provision of professional quality logistical support such as
staffing, equipment, and facilities.
* The offering of reasonable approval in the selection of acting
talent and production personnel for the Children's Learning
Division.
x Xxxxxx warrants that she will perform to her best effort in the following
areas:
* The completion of a minimum of at least one project.
* The provision of promotional support.
* Cost minimization on projects.
* The provision of professional product quality.
* Interfacing professionally and effectively with GKIS personnel.
* Offering reasonable personal availability.
* Timeliness in production.
TERMINATION
x Xxxxxx shall have the right to terminate the Agreement upon thirty (30) days
prior written notice to GKIS
* if GKIS is adjudicated insolvent, declares bankruptcy or fails to
continue the business of selling the products produced or created
pursuant to the Agreement, provided, however that GKIS shall not be
obligated to sell any specific quantities of products during the
term of the Agreement
* GKIS fails to make payment to Xxxxxx of any amounts due pursuant to
the Agreement within thirty (30) days after such payment is due.
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o GKIS shall have the right to terminate the Agreement upon thirty (30) days
prior written notice to Xxxxxx in the event Xxxxxx
* engages in illegal conduct resulting in a felony arrest or
indictment
* misrepresents or conceals anything in her background that could be
detrimental to the value of the endorsement being made
* dies or becomes permanently disabled
* engages in conduct that could bring Xxxxxx into public disrepute.
o Either party may terminate the Agreement at any time upon thirty (30) days
prior written notice to the other party in the event of a breach of any
provision of the Agreement by the other party, provided that, during such
thirty (30) day period the breaching party fails to cure such breach.
o Upon termination of the Agreement, GKIS will retain the right to use the
name "Xxxxxxx Xxxxxx" in connection with any then existing product produced
by or bearing the Xxxxxx name for a ten (10) year period beginning on the
date of payment of the license fee referred to above. Xxxxxx shall continue
to receive the compensation based on sales revenues (but not production
costs) of such products until such time as those products are no longer
marketed under the Xxxxxx name. Any stock options granted but not exercised
will be canceled upon the termination of the Agreement. The non-disclosure
obligations of Xxxxxx will survive the termination of the Agreement.
ARBITRATION
Any disputes arising under the Agreement will be settled by arbitration in
accordance with the commercial rules then in effect of the American Arbitration
Association.
This Memorandum of Understanding shall serve as a binding agreement until such
time as it is superseded by the Agreement. All material, terms and conditions
incorporated in this Memorandum of Understanding shall serve as the basis for
the Agreement. The Agreement will contain such other terms, conditions,
representations and warranties as are customary in a transaction of this nature.
If the Agreement is not completed within 30 days of the execution of this
Memorandum of Understanding, this Memorandum shall be binding.
Executed this 8th day of September, 1998 by and between the parties as
designated below:
Xxxxxxx Xxxxxx GK Intelligent Systems, Inc.
_________________________________ by _____________________________
Xxxx Xxxxxxx, President
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