THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER ANY STATE SECURITIES LAWS. SUCH WARRANT AND SHARES MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED.
GK INTELLIGENT SYSTEMS, INC.
COMMON STOCK PURCHASE WARRANT
Warrant No. GKIS-013
Issue Date: May 30, 2003
Exercise Price: See Section 1.3
Warrant to Purchase: 500,000 Shares of Common Stock
Expires: See Section 1.4
Transferable or Exercisable Upon Conditions Herein Specified
THIS CERTIFIES that for value received, Benchmark Consulting, Inc.,
Corporation, a New York Corporation, hereafter referred to as the "Holder", is
entitled to subscribe for and purchase from GK Intelligent Systems, Inc., a
Nevada Corporation, hereinafter referred to as ("GKIS" or the "Corporation"),
Five Hundred Thousand (500,000) shares of the Common Stock, $0.001 par value per
share (the "Common Stock"), of the Corporation (such shares to be subject to
adjustment in accordance with Section 4. hereof, hereinafter sometimes called
the "Warrant Shares" at the exercise price and within the exercise period, as
set forth herein.
1. Exercise of Warrant.
1.1 Method of Exercise. The rights represented by this Warrant may be
exercised by the Holder hereof, in whole at any time or in part from time to
time during the Exercise Period, but not as to a fractional share of Common
Stock, by the surrender of this Warrant (properly endorsed) at the office of the
Corporation, at 0000 Xxxxxxxx Xxxxx, Xxxxxxx, Xxxxx 00000, or at such other
agency or office of the Corporation in the United States of America as it may
designate by notice in writing to the Holder hereof at the address of such
Holder appearing on the books of the Corporation), and by payment to the
Corporation of the Exercise Price in an acceptable form of payment as set forth
in section 1.6 below.
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1.2 Delivery of Shares Upon Exercise. In the event of any exercise of the
rights represented by this Warrant, (i) a certificate or certificates for the
shares of Common Stock so purchased, registered in the name of the person
entitled to receive the same, shall be mailed to the Holder hereof within a
reasonable time, not exceeding ten (10) days, after the rights represented by
this Warrant shall have been so exercised; provided, however, that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate in
a name other than that of the registered Holder thereof, and the Corporation
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to the satisfaction
of the Corporation that such tax has been paid; (ii) unless this Warrant has
expired, a new Warrant representing the number of shares (except a remaining
fractional share), if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such time.
The person in whose name any certificate for shares of Common Stock is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price was made, irrespective of the date
of delivery of such certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Corporation are closed,
such person shall be deemed to have become the holder of record of such shares
at the close of business on the next succeeding date on which the stock transfer
books are open. The issuance of any shares of Common Stock pursuant to the terms
of this Warrant shall at all times be subject to the requirements of the ACT, as
amended, and to the applicable foreign and state securities and blue sky laws
then in effect.
1.3 Exercise Price. The Exercise Price for the Warrants shall be based upon
the Closing Bid of the Common Stock of the Corporation as reported on the Pink
Sheets or NASD Over the Counter Bulletin Board, as of the date of issuance of
this Warrant (the "Closing Bid"), and shall be calculated as follows:
(a) Round 1. The Holder shall have the right to purchase 125,000
shares of the Common Stock of the Corporation, at an Exercise Price equal
to one hundred twenty-five percent (125%) of the Closing Bid;
(b) Round 2. The Holder shall have the right to purchase 125,000
shares of the Common Stock of the Corporation, at an Exercise Price equal
to one hundred fifty percent (150%) of the Closing Bid;
(c) Round 3. The Holder shall have the right to purchase 125,000
shares of the Common Stock of the Corporation, at an Exercise Price equal
to one hundred seventy-five percent (175%) of the Closing Bid; and
(a) Round 4. The Holder shall have the right to purchase 125,000
shares of the Common Stock of the Corporation, at an Exercise Price equal
to two hundred percent (200%) of the Closing Bid.
1.4 Exercise Period. The rights represented by the Warrant may be Exercised
during the Exercise Periods as follows:
(a) Round 1. The Holder shall have the right to purchase 125,000
shares of the Common Stock of the Corporation, at the Exercise Price set
forth in Section 1.3(a), beginning on the date hereof and ending on the
close of business one hundred eighty (180) days from date of issuance;
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(b) Round 2. The Holder shall have the right to purchase 125,000
shares of the Common Stock of the Corporation, at the Exercise Price set
forth in Section 1.3(b), beginning on the date hereof and ending on the
close of business two hundred ten (210) days from date of issuance, subject
to extension as set forth in Section 1.5 below.
(c) Round 3. The Holder shall have the right to purchase 125,000
shares of the Common Stock of the Corporation, at the Exercise Price set
forth in Section 1.3(c), beginning on the date hereof and ending on the
close of business two hundred forty (240) days from date of issuance,
subject to extension as set forth in Section 1.5 below.
(d) Round 4. The Holder shall have the right to purchase 125,000
shares of the Common Stock of the Corporation, at the Exercise Price set
forth in Section 1.3(c), beginning on the date hereof and ending on the
close of business two hundred seventy (270) days from date of issuance,
subject to extension as set forth in Section 1.5 below.
1.5 Extension of Exercise Period. In the event that Round 1 of the Warrants
as set forth in Section 1.3(a) is exercised by the Holder, then the Exercise
Period for Round 2, Round 3 and Round 4, as set forth in Section 1.4(b), (c) and
(d), above, shall be extended for an additional period of sixty (60) days, from
the date that a Registration Statement registering the Shares issuable upon
exercise of Round 1, is deemed effective.
By way of Example only , if Round 1 is exercised on the 180th day
following issuance of this Warrant, and a Registration Statement with
regard to Round 1 is deemed effective the 240th day following issuance
of this Warrant, then the exercise period for Rounds 2, 3 and 4 would
end on the 300th day following issuance of this Warrant.
1.6 Forms of Payment Authorized. Upon Exercise of the Warrant, the Holder
shall deliver to the Corporation, at the time of giving the notice of exercise
payment in one of the following forms:
(a) Cash Payment. Payment in form of cash, by certified or official
bank check or via wire transfer, in United States Dollars for each share
being purchased; or
(b) Payment With Shares of the Corporation. Holder may also pay the
Purchase Price by delivering and surrendering to the Corporation Shares
which:
(i) have been owned by the Holder for at least six (6) months;
and
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(ii) have an aggregate fair market value on the date of surrender
equal to the Purchase Price.
(iii) In the event that the number of shares evidenced by the
certificates delivered exceeds the number required, the Company
will reimburse the differential through a payment to the Holder
by check.
(c) Fair Market Value. If the Shares are traded in a public market,
the fair market value of the Shares shall be the closing bid or price of
the Shares (or the closing price of the Corporation's Common Stock in which
the Shares are convertible) reported for the business day immediately
before Holder delivers its Notice of Exercise to the Corporation. If the
Shares are not traded in a public market, the Board of Directors of the
Corporation shall determine fair market value in its reasonable good faith
judgment. The foregoing notwithstanding, if Holder advises the Board of
Directors in writing that Holder disagrees with such determination, then
the Corporation and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determination by the Board of
Directors, then all fees and expenses of such investment banking firm shall
be paid by the Corporation. In all other circumstances, such fees and
expense shall be paid by Holder.
2. Covenants as to Common Stock. The Corporation covenants and agrees that
all shares of Common Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable, and free from all taxes, liens and charges with respect to
the issue thereof without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all actions as may be
requisite to assure that the stated or par value, if any, of the Common Stock is
at all times equal to or less than the then exercise price per share of Common
Stock issuable upon exercise of this Warrant. The Corporation further covenants
and agrees that the Corporation will at all times have authorized and reserved,
free from preemptive rights, a sufficient number of shares of its Common Stock
to provide for the exercise of the rights represented by this Warrant. The
Corporation further covenants and agrees that if any shares of Common Stock to
be reserved for the purpose of the issuance of shares upon the exercise of this
Warrant require registration with or approval of any governmental authority
under any Federal or State law before such shares may be validly issued or
delivered upon exercise, then, the Corporation will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be. If and so long as the Common Stock issuable upon the exercise
of this Warrant is listed on any national securities exchange, the Corporation
will, if permitted by the rules of such exchange, list and keep listed on such
exchange, upon official notice of issuance, all shares of such Common Stock
issuable upon exercise of this Warrant.
4
3. Registration Rights. The Corporation agrees that the Shares issuable
upon exercise of this Warrant, shall be subject to the registration rights set
forth in that certain Registration Rights Agreement executed concurrently
herewith, a copy of which is attached hereto as Exhibit A.
4. Adjustment of Warrant Shares.
4.1 If at any time the Corporation shall (i) take a record of the
shareholders of Common Stock for the purpose of entitling them to receive a
dividend payable in, or other distribution of, additional shares of Common
Stock, (ii) subdivide the outstanding shares of Common Stock into a larger
number of shares of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares of Common Stock, then the Exercise
Price shall be adjusted to equal the product of the Exercise Price in effect
immediately prior to the event giving rise to the adjustment multiplied by a
fraction the numerator of which is equal to the number of shares of Common Stock
outstanding immediately prior to the event giving rise to the adjustment and the
denominator of which is equal to the number of shares of Common Stock
outstanding immediately after such event upon any such adjustment of the
Exercise Price, the holder hereof shall thereafter be entitled to purchase upon
the exercise of this Warrant, at the Exercise Price resulting from such
adjustment, the number of shares of Common Stock (calculated to the nearest
1/100th of a share) obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable on the exercise hereof immediately prior to such adjustment and
dividing the product thereof by the Exercise Price resulting from such
adjustment. No adjustment in the Exercise Price shall be required to be made
unless such adjustment would require an increase or decrease of at least $0.10,
provided, however, that any adjustments which by reason of this section are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
4.2 Anything contained herein to the contrary notwithstanding, in case, at
any time after the date hereof, of any capital reorganization or any
reclassification of the stock of the Corporation (other than a change in par
value or from par value to no par value or from no par value to par value or as
a result of a stock dividend or subdivision, split-up or combination of shares),
or the consolidation or merger of the Corporation with or into another
corporation (other than a consolidation or merger in which the Corporation is
the continuing corporation and which does not result in any change in the Common
Stock), or any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Corporation), or the sale or disposition of all or
substantially all of the properties and assets of the Corporation to another
corporation, in which holders of Common Stock shall be entitled to receive cash,
stock, securities or other property with respect to or in exchange for Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger, exchange, sale or other disposition, the Corporation or
the successor or purchaser, as the case may be, shall make lawful and adequate
provision so that this Warrant shall thereafter be exercisable for, and upon
exercise the holder hereof shall be entitled to receive, the amount and kind of
cash, stock, securities or other property which the holder of the number of
shares of Common Stock deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation, merger, exchange, sale or other
disposition) upon exercise of this Warrant would have been entitled to receive
upon or as a result of such reorganization, reclassification, consolidation,
merger, sale or other disposition. The provisions of this Section 4.2 shall
similarly apply to successive reorganizations, reclassification, consolidations,
mergers, exchanges, sales or other dispositions.
5
4.3 Whenever the number of Warrant Shares shall be adjusted as provided in
Section 4.1 above, the Corporation shall forthwith file, at the office of the
transfer agent for the Common Stock or at such other place as may be designated
by the Corporation, a statement, signed by its chief financial officer, showing
in reasonable detail the facts requiring such adjustment and the number of
Warrant Shares that shall be in effect after such adjustment. Upon request by
the holder of this Warrant, the Corporation shall also cause a copy of such
statement to be sent by first-class, certified mail, return receipt requested,
postage prepaid, to the holder of this Warrant at such holder's address
appearing on the Corporation's records, and, if not so previously mailed, shall
provide a copy of such statement to the holder hereof at the time of exercise.
5. No Stockholder Rights. This Warrant shall not entitle the holder hereof
to any voting or other rights as a stockholder of the Corporation.
6. Transfer Restriction Legend. Each certificate representing shares
initially issued upon exercise of this Warrant (and subsequently issued if
appropriate), unless at the time of exercise such shares are registered under
the Securities Act, shall bear the following legend (and any additional legend
required by applicable securities laws or any securities exchange or NASDAQ at
the time of such exercise) on the face thereof:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state and may not be sold, transferred,
hypothecated or otherwise assigned except pursuant to a registration
statement with respect to such securities which is effective under
such act and under any applicable state securities laws unless, in the
opinion of counsel reasonably satisfactory to the Company, an
exemption from the registration requirements of such act and state
securities laws is available."
Any certificate issued at any time upon transfer of, or in exchange for or
replacement of, any certificate bearing such legend (except a new certificate
issued upon completion of a public distribution of the securities represented
thereby pursuant to a registration under the Securities Act) shall also bear
such legend unless, in the opinion of counsel for the registered holder thereof
reasonably acceptable to the Company, the shares represented thereby need no
longer be subject to the restrictions in this Section. The provisions of this
Section 6., shall be binding upon all subsequent holders of certificates bearing
the above legend, and shall also be applicable to all subsequent holders of this
Warrant.
7. Condition for Issuance of Shares upon Exercise. The Corporation will be
able to issue the shares of Common Stock upon exercise of the Warrant only if
there is a then current Private Placement Memorandum or registration statement
available for and distributed to the warrant holders relating to such Common
Stock, or only if such Warrant and Common Stock is qualified for sale or exempt
6
from registration and qualification under applicable federal securities laws and
state securities laws of the jurisdiction in which various holders of the
Warrants reside. The Corporation reserves the right in its sole discretion to
determine not to apply for exemptions or to register such Common Stock in any
jurisdiction where the time and expense do not justify such exemption filing or
registration. The Warrants may be deprived of any value in the event the
Corporation does not satisfy or the Corporation chooses not to satisfy any such
requirements. Although it is the present intention of the Corporation to satisfy
such requirements, there can be no assurance that the Corporation will be able
to do so.
8. Holder Representation and Acknowledgment. The Holder by accepting this
Warrant agrees and acknowledges that the Warrant is being purchased for its own
account, for investment purposes only, and not for the account of any other
person, and not with a view to distribution, assignment or resale to others or
to fractionalization in whole or in part, and the Holder further represents,
warrants and agrees as follows: no other person has or will have a direct or
indirect beneficial interest in this Warrant and the Holder will not sell,
hypothecate or otherwise transfer his Warrant except in accordance with the Act,
as amended and applicable state securities laws or unless, in the opinion of
counsel for the Holder acceptable to the Corporation, an exemption from the
registration of the Act and such laws is available.
9. No Assignment or Transfer of Warrant. Neither this Warrant or any rights
hereunder are transferable in whole, (or in part) without the express written
consent of the Corporation.
10. Elimination of Fractional Interests. The Corporation shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, nor shall it be required to pay cash in lieu of fractional interests, it
being the intent of the parties that all fractional interests shall be
eliminated.
11. Exchange of Warrant. This Warrant is exchangeable, upon the surrender
hereof by the Holder hereof at the office or agency of the Corporation
designated in Section 1 hereof, for a new Warrant of like tenor representing the
right to subscribe for and purchase the number of Warrant Shares which may be
subscribed for and purchased hereunder.
12. Notices to Warrant Holders. Nothing contained in this Warrant shall be
construed as conferring upon the holder hereof the right to vote or to consent
to or receive notice as a shareholder in respect of any meetings of shareholders
for the election of Directors or any other matter, or as having any rights
whatsoever as a shareholder of the Corporation. If, however, at any time prior
to the expiration of the Warrant and prior to its exercise, any of the following
events shall occur:
12.1 The Corporation shall offer to all of the holders of its Common
Stock any additional shares of stock of the Corporation or securities
convertible into or exchangeable for shares of stock of the Corporation, or
any option, right or warrant to subscribe therefore, or
7
12.2 A dissolution, liquidation or winding up of the Corporation
(other than in connection with a consolidation or merger) or a sale of all
or substantially all of its property, assets and business as an entirety
(whether by merger, consolidation or sale of assets) shall be proposed.
Then, in any one or more of the above said events, the Corporation shall
give written notice of such events at least fifteen (15) days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to such convertible or exchangeable
securities or subscription rights, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the issuance of any convertible or
exchangeable securities, or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
13. Lost, Stolen, Mutilated, Destroyed Warrant. Upon surrender by the
holder of this Warrant to the Corporation, the Corporation at its expense will
issue in exchange therefore, and deliver to such holder, a new Warrant. Upon
receipt of evidence satisfactory to the Corporation of the loss, theft,
destruction or mutilation of this Warrant, and in the case of any such loss,
theft or destruction, upon delivery by such holder of an indemnity agreement or
security satisfactory to the Corporation, and in case of any such mutilation,
upon surrender and cancellation of this Warrant, the Corporation, upon
reimbursement of all reasonable expenses incident thereto, will issue and
deliver to such holder a new Warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant delivered to such holder in
accordance with this Section 13., shall bear the same securities legends as the
Warrant which it replaced.
14. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of California applicable to contracts
made therein.
15. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
15.1 If to the registered holder of this Warrant, to the address of
such holder as shown on the books of the Corporation; or
15.2 If the Corporation, at 0000 Xxxxxxxx Xxxxx, Xxxxxxx, Xxxxx 00000.
16. Successors. All the covenants, agreements, representations and
warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
17. Headings. The Article and Section headings in this Warrant are inserted
for purposes of convenience only and shall have no substantive effect.
8
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed
by its duly authorized officers as of the date first above written.
GK INTELLIGENT SYSTEMS, INC.
A Delaware Corporation
Dated: May 30, 2003 /S/ Xxxx X. Xxxxxxx
-------------------------------
By: Xxxx X. Xxxxxxx
Its: President and CEO
9
FORM OF EXERCISE
[To be signed only upon exercise of the Warrant]
The Undersigned, the Holder of the attached Warrant, hereby irrevocably elects
to exercise the purchase right represented by such Warrant for, and to purchase
hereunder _______________ shares of Common Stock of GK Intelligent Systems.,
Inc., a Delaware Corporation, and:
[__] herewith tenders payment of $__________________ in full payment of the
exercise price for such shares, or
[__] herewith tenders and delivers __________________ shares of the Common
Stock of the Corporation, pursuant to Section 1.6(b), which have been owned by
the Holder for at least six (6) months and have an aggregate fair market value
on the date of surrender equal to the aggregate Exercise Price of
$__________________; or
and requests that the certificate for such shares purchased hereunder be
issued in the name of, and delivered to:
----------------------------------------
Name as Shares are to be registered
----------------------------------------
Address
----------------------------------------
City, State and Zip
----------------------------------------
SNN / EIN
If said number of shares shall not be all the shares purchasable hereunder, that
a new Warrant for the balance of the remaining shares purchasable under the
within Warrant be requested in the name of, and delivered to, the undersigned at
the address stated below.
The undersigned further acknowledges that the undersigned is/are acquiring the
shares purchasable under the Warrant for investment for its own account and not
as the nominee or agent, and not with the view to, or for resale in connection
with, any distribution of such shares within the meaning of the Securities Act.
Dated: ____________________________ __________________________________
Signature of Warrant Holder(s)
FORM OF ASSIGNMENT
[To be signed only upon transfer of a Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
_________________________________, whose address is ____________________________
____________________________________________________________________, all of the
rights represented by the within Warrant to purchase
____________________________ shares of the Common Stock of GK Intelligent
Systems, Inc., to which the within Warrant relates, and appoints
_______________________________________, Attorney to transfer such rights on the
books of GK Intelligent Systems, Inc., with full power of substitution in the
premises.
--------------------------------- ------------------------------------
Signature of Warrant Holder(s) Signature of Warrant Holder(s)
------------------------------------
Name of Holder of Warrant
------------------------------------
Address of Holder of Warrant:
------------------------------------
City, State and Zip
