-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H8FNayxVDlSb52ZqkhaxmV5Amv2SOB2+9zBQ5HA4r7vkvciaJfdmyWADxxEHqB1T IMoE0amoXL1I0CIJY/h+pQ== 0001020488-00-000049.txt : 20000331 0001020488-00-000049.hdr.sgml : 20000331 ACCESSION NUMBER: 0001020488-00-000049 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORDCRUNCHER INTERNET TECHNOLOGIES CENTRAL INDEX KEY: 0001085278 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 841370590 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27453 FILM NUMBER: 587189 BUSINESS ADDRESS: STREET 1: 405 EAST 12450 SOUTH CITY: DRAPER STATE: UT ZIP: 84020 BUSINESS PHONE: 8018169904 MAIL ADDRESS: STREET 1: 405 EAST 12450 SOUTH CITY: DRAPER STATE: UT ZIP: 84020 10-K 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1999. [ ] Transition report under section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to _____________. Commission file number 0-27453 WORDCRUNCHER INTERNET TECHNOLOGIES, INC. ---------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Nevada 84-1370590 -------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 405 East 12450 South, Suite B, Draper, Utah 84020 - ------------------------------------------- ----- (Address of principal executive office) (Zip Code) 801.816.9904 ------------ (Issuer's telephone number) Securities to be registered under Section 12(b) of the Act: Title of Each Class Name of Each Exchange ------------------- On Which Registered ------------------- None None Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, par value $.001 Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), Yes __X__ No _____, and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within 60 days prior to the date of filing: $63,683,299. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 13,467,698. Part I Item 1. Business. Introduction. We are a development state company engaged in the development and marketing of a focused Internet site which serves the needs of the business professional. Content and services found at logio.com, which we launched on March 19, 2000, are tailored to provide, under one roof, a broad spectrum of the information and services that are required by business people in their daily work activities. Information resources include a unique, readily accessible "drill-down" directory that organizes thousands of business-oriented web sites according to specific job function. The directory is augmented by an advanced search technology that can search either the abstracts or the full text of all the sites listed in the directory, and then displays the search results in a "hits in context" format. We couple this information with the services that the average business professional uses on a daily basis, including travel arrangements, stock quotes, news, weather, maps, financial calculators, e-mail and calendaring. This combination creates a full service destination site designed specifically for the business professional. We intend to expand the delivery of this full service concept to other electronic means of communication such as cell phones, pagers, personal digital assistants and set top boxes. All of these services will be marketed under the brand name "Logio." Although there is a great deal of free information on the Internet, publishers still own valuable content that is not currently available on the Internet. This information can be very useful to business people. For example, research reports, market analyses, industry specific newsletters and commentary, studies produced by analyst and research firms, are routinely sold in print form to the business community. We believe that sales and delivery of this kind of content via the Internet is a logical step in the development of information distribution channels, and are positioning Logio to take a leading role in this effort. Logio is developing a method whereby this type of business-oriented content can be sold and delivered through our Logio site. We believe that Logio will be used by business professionals for a number of different activities. Our objective is to have our customers naturally keep Logio open ("on their desktop") all day long, and when they are away from their computers, to access Logio-delivered information using whatever device is practical. The rapid growth of the Internet and the proliferation of Internet sites has increasingly challenged consumers, content providers and advertisers to effectively reach one another. Consumers are often challenged to quickly find the most relevant information, products and services related to a particular interest or topic. Content providers are typically challenged to differentiate their products and services in an increasingly crowded medium, and to improve the visibility of their web sites. Advertisers are challenged to more effectively deliver their advertising messages to interested audiences and target groups. Because of these trends, Internet development is in some ways mirroring the recent history of the print publishing industry. For example, over the past thirty years, the number of newspapers and magazines devoted to specialized subjects has exploded while general interest publications are experiencing hard times. Logio has chosen to create a site that meets the needs of business people, and address some of the more well-documented functional problems that plague Internet users. For example, most search engines do not differentiate between the types of sites they search. Hence, a search initiated through a general interest portal is run against all the sites they have indexed, regardless of category. With literally billions of web pages on the Internet, the body of information that is being searched is too broad. Logio has assembled a team of editors that constantly combs the web to find only sites that deal with business topics. This means that a business person who searches using Logio has a much higher level of confidence that search results will come from sites that pertain to the area of interest. Because we are focusing solely on the "business subset" of the web, we can use a far more specialized and powerful search engine that addresses some common Internet user complaints. General web portals generally return lists of hundred or even thousands of potential pages for further review. As a result, Internet users may spend substantial time searching through the list of returned documents to find out which documents are relevant. This frequently requires the user to call up the referenced page and either visually scan the page or conduct another page search to find the specific reference in question. In contrast, Logio provides advanced search capabilities that display the desired search result "in context," surrounding several lines of text on either side of the search result. This allows the user to make some judgement of a web sites' value prior to leaving the Logio site to more fully examine the search result. While Logio's "hits-in-context" display is not its sole method of differentiating itself in the market, it is indicative of the attention management has paid to refining the Internet experience for the benefit of its users. For further information on other Logio advantages, see "Our Solution" below. Logio Markets. We believe business professionals will use Logio. The Internet is an interactive worldwide network of computers and data systems that allow its users to retrieve data, purchase products, send and receive communications and purchase or provide services. The Internet is based on a technology platform that incorporates a series of standards that allow computers in various locations and of various makes and models to communicate effectively with one another. The use of the Internet has grown substantially since it was first commercially introduced in the 1990s. Forrester Research Corporation estimates that by 2003, approximately 200 million business people will be using the Internet. The significant increase in the number of Internet users has resulted in a rapid increase in the number of advertisers, products and services on the Internet. Forrester estimates that approximately $3.3 billion was spent on Internet and online advertising in 1998, growing to approximately $22.6 billion by the year 2002. We believe Logio will become an important source not only for free content, but also for business information that can be purchased for delivery in electronic form from the Internet. According to a January 2000 study conducted by Forrester Research, the market for business information sold via the Internet will reach $11 billion by the year 2004. The magnitude of the business-to-business market, estimated to be at minimum $1.3 trillion by 2003, provides Logio with an avenue to focus on the needs of business people, regardless of industry, while most of the B2B websites focus on very tight vertical markets (such as steel, waste water treatment, chemicals). We believe that Logio's `horizontal' focus will create opportunities for networking and cooperation within the business-to-business marketplace. Our Solution. Business professionals use the Internet for many reasons - -- to acquire needed information and/or knowledge, to make business connections, to obtain business tools and to make purchases. All these resources are currently available, but scattered about in traditional places and on the Internet. We seek to bring these solutions together at the Logio business information service. The Logio.com business portal has the resources to help business professionals quickly find information they seek: o A focused, targeted directory of comprehensive information, organized by occupation. o A powerful, superior search function that returns results in context and suggests related concepts. o News and current events, updated constantly. Logio also adds the tools and services business professionals generally need to be efficient: o Free email and Internet-based group calendaring and scheduling o Travel services: city guides; hotel, car, airplane reservations o Maps and directions o Stock and financial information, portfolio tracking o Weather information o Financial calculators The guiding strategy that we use to achieve our objectives and differentiate ourselves from our competitors rests on a commitment to timely relevance, to providing today's business professionals with what they need, when they need it. This is achieved by constantly identifying and then consolidating in one place the content and services that business people use. Current components of Logio product and strategy include: Robust, Proprietary Business Directory. One of Logio's most useful and unique information resources is a proprietary business directory. The directory's organizational structure is simple, but unique. Sites are organized among broad industries, such as accounting, finance, marketing, sales, human resources and administration. Business professionals can scan the directory, find the right category tree, review the titles and abstracts of sites pertaining to a given subject, and find the ones that should help them get their job done. Logio's directory will start out with over twenty-five thousand hand picked business websites. "Hits in Context" Search Results. The Logio search engine overcomes one of the most tedious and time-consuming problems on the web. After you do a search, most search engines make you follow a hyperlink to see if search results really have what you wanted. Logio shows "hits in context." In other words, several lines of text surround the search terms you entered. This way, you can see at a glance if a hit is relevant without leaving the Logio site. Relevant Products, Services and Features. Because today's business people don't use the Internet just to find information, part of Logio's charter is to add features and functionality that will keep users there as much of the time as possible. Creating individual and group calendars, booking travel and airline reservations, checking the weather, getting directions and maps, using the free e-mail service, checking news, and keeping track of investments is just a start. Personalization. To develop product affinity with the target audience, Logio is flexible and able to adjust to the diverse needs of the business community. The ability to personalize the content stream and functional layout of the web pages enables the user to define a series of web pages tailored to their specific taste and needs. I-Commerce. There are times when needed information is simply not available for free. At other times, it is less expensive and more efficient to buy information than to search for it on the Internet. In both cases, the needed data can often be acquired from a publisher for a price. We are therefore exploring opportunities and technologies that will enable Logio to deliver pay-per-view access to a large and valuable library of business reports. Internationalization. Over the period between 2000 and 2002, our goal is to create, maintain and support a global presence and develop the ability to distribute content to all major geographies. We intend to make our service available in multiple languages and in multiple countries. Business Model / Revenue Generation. Unlike most other information services and e-commerce ventures, Logio's value proposition for its customers is based on convenience, control and choice rather than price. Logio offers its viewers control and personal management of the vast offerings for business information and related services. We plan to generate revenue from several key areas, including advertising, fee-based content, affiliate programs, e-commerce, co-branding relationships, sponsorships, licensing and merchandising. Technology Infrastructure. A successful business-to-business Internet site is available all the time. The Logio site architecture is state-of-the-art. Designed to be highly available, technically advanced and readily scalable, this hardware and software configuration can accommodate growth and flex to increased loads on virtually a moment's notice. Portfolio of Broadcast Platforms. Although the primary initial platform is the Internet, we are aggressively exploring content distribution to other devices, information appliances and platforms. Partnering. We expect to create long-term, mutually beneficial partnerships. These partnerships will focus on business media and technology companies who have a worldwide presence and/or content. We are seeking affiliations with companies that lend credibility to the Logio brand, and can benefit from our forward-looking strategies. Our Business Objectives and Strategy. Logio's objective is to be an indispensable service for business professionals competing in today's marketplace, thereby becoming a leading site on the Internet for business people. We expect to provide the most popular services and the most valuable content to our customers, with the goal of keeping them on our site for as many of their Internet-based activities as possible. We will continue to pursue a convergent media strategy so that we can give business professionals instant access, anywhere and anytime, to information and services. By supplying them with cutting edge, comprehensive content, combined with useful features and powerful tools that can be personalized to meet individual needs, we believe that Logio will offer today's connected business professional a competitive edge. Our research shows that business people typically fall into a highly desirable demographic profile. They are often well-educated, and possess both disposable income and business budget dollars to spend on personal and business purchases. As such, they represent a target market that advertisers have historically been willing to pay a premium to reach. By tailoring our destination website to meet the needs of this target market, we believe we will be able to more quickly generate revenues. According to Zona Research, focused portals and directories will have an increased impact on the revenues and advertising expenditures on the Internet. During the next five years online directory spending for focused portals and directories should increase from 10% of the overall Internet advertising budget to 80% of the overall Internet advertising budget. We believe that, as business people become increasingly familiar with and dependent on the Internet for information, the market for "paid" content will continue to accelerate. Logio is positioning itself, from both a technological and a strategic relationship standpoint, to capitalize on this trend. We intend to achieve our business objectives using the following strategies: Position Logio as the premier Internet destination for business professionals. We are developing a comprehensive and strategic brand strategy that we expect will position Logio as the premier business information service. Through advertising, we are working to develop market awareness of our product, and provide strong site traffic. We believe that the site experience will be such that users will develop loyalty to the brand. Increase Logio Brand Recognition. We believe brand recognition on the Internet will be crucial to the growth of Logio. We will actively seek to develop relationships with companies whose brands will lend credibility and momentum to ours. Sales and Marketing. We expect that Logio will generate a large percentage of its initial revenue from sales of advertising on the site. The more rapidly we can develop traffic to the site, the more rapidly we will be able to increase advertising sales. Our ability to fund an aggressive advertising program that will promote Logio is important. This campaign will consist of both online and offline components. The online campaign will include banners and sponsorships, and the offline campaign will include radio, newspaper, outdoor and funds permitting, television. The company's key partner in developing the advertising strategy in an internationally recognized firm, Pittard / Sullivan, headquartered in Los Angeles, California. Logio's public relations efforts are geared towards developing strong interest in the site. The company will undertake a full scale publicity campaign at launch, targeting online, print, and broadcast press for maximum exposure and site traffic. Our key partner in developing the public relations strategy is Bailey Gardiner Communications, whose headquarters are in San Diego, California. The site's "personalization" database is expected to occupy increasingly greater importance in the marketing strategy. When users come to the Logio site, they have the option of `customizing' or `personalizing' the view of the site that they see. This means that they can choose which industry news feeds they require, what maps and weather reports are first available, and similar customized functionalities. Some of the information that we will ask for includes occupation, business type, and industry and information. While providing this kind of information makes the site all the more useful to the individual user, it also makes our customers more valuable to advertisers. We will be able to provide e-mail updates on a periodic basis, and offer specials based on user preferences. Customer Support and Services. We believe that our Internet site should be available virtually all the time. The customer support and services aspect of the company is therefore reliant on a round-the-clock team that constantly monitors the operations of the Logio website. Competition. Our market is new, very competitive and subject to rapid technological and content change. We expect competition to persist, increase, and intensify in the future as the markets for our products and services continue to develop and as additional companies enter our markets. A number of companies are now participating in the development and operation of portals. For the sake of this discussion, we have divided them into three categories: - -------------------------------------------------------------------------------- Type Mega Portals General Portals Business Portals - -------------------------------------------------------------------------------- Examples AOL Lycos Dowjones.com Yahoo! GO BizProLink MSN Snap VerticalNet Excite Brint.com Office.com - -------------------------------------------------------------------------------- The Mega Portals focus on satisfying the needs of every internet user. They are large, well-funded and established companies that have millions of daily users. Each has a section devoted to business. The General Portals compete with the Mega Portals for a share of the consumer market. The difference between general and mega portals is primarily related to prominence in the market. For example, GO (owned by Disney) recently announced that they were refocusing their efforts and would be refocusing their site on Entertainment and Recreational activities. This decision occurred after spending a year trying to grow the number of unique visitors to the site. We believe that Go's decision is a good indicator of the trend towards specialization on the Internet. Business Portals can be broken down into three different groups. The first group represents the Internet presence of an established print publication. The second group specializes in delivering information to highly specialized vertical markets. The third and final group is focused on meeting the needs of small businesses. Several of the participants in each of these market sectors have established web presence and brands, and have been offering their services for a number of years. The increased use and visibility of Logio will depend, in large part, on our ability to continue adding content and services to our site, maintaining operational performance levels, and effectively marketing our product. We also believe it will be essential for us to develop long-term business alliances with parties with which we can enter into strategic relationships. We believe we will need to make significant investments in research and development in order to keep up with the technological and operational demands imposed by the anticipated ongoing developments in the Internet. At the present time, we have not identified any other companies that are using precisely the same approach as Logio, or are targeting the horizontal market as we are. Nonetheless, there is always the potential that other, larger interests will choose to enter the market we are developing, or that a new market may emerge. We may not be able to compete effectively with current and future competitors. Product Development. The existing Logio site represents and investment of approximately $3.5 million in equipment, software, interface design, underlying application development software, and general costs. The site is connected to the Internet using Cisco gear, and is hosted by Qwest communications. The technology selection process for the site is governed by several fundamental principles. o Internet users want sites to be up constantly, and to load fast. Hardware is chosen and code is written accordingly. o The site must be easily and quickly expanded or modified without adversely affecting performance. o Equipment and software is supplied by manufacturers with proven track records and a commitment to timely and effective support. o The solution must be cost effective. We elected to use Sun Microsystems Enterprise computers for the core hardware. These systems have been proven in Internet applications. They are also readily available should we need to either grow the system quickly, or if a system should fail. All systems are built using standard components, such that all hard drives in all systems are the same. This means we have a consolidated inventory list for field service, and enables us to reuse or re-purpose individual systems or components as the need demands. In addition to our proprietary application software, the Logio site uses iPlanet's (formerly the Sun/Netscape Alliance) Application and Enterprise Servers, Oracle's 8I Parallel Database Server, the Veritas Volume Management System, and Dataware's InQuery Search and Retrieval engine. Our initial target platform for distribution of business relevant information and services is the Internet. Logio will aggressively develop distribution capabilities for other digital-enabled devices. These may include; Intranet, personal digital assistants (PDA), pagers, cellular and smart phones, electronic books, global positioning systems (GPS), set top boxes and traditional broadcast channels. Our ability to successfully develop and release new products and enhancements to Logio in a timely manner will be subject to a variety of factors, including our ability to solve technical problems and test products, the availability of financial, sales and management resources, and other factors, some of which we may not be able to control. We may experience difficulties that could delay or prevent our successful development, introduction or marketing of new products and enhancements. Material Contracts. We are a party to the following material contracts and arrangements: Brigham Young University License. On February 14, 1997 we signed a master license agreement with BYU, under which we obtained the exclusive worldwide rights to use, develop, manufacture, market, and modify the WordCruncher technology. BYU retained the ownership rights to any improvements to the WordCruncher technology that we develop. We issued BYU (and certain individuals who developed the licensed technology while they were employed by BYU) 110,742 shares of common stock for this license. In July 1998, we issued BYU an additional 434,019 shares of common stock in connection with our acquisition of WordCruncher Publishing Technologies. The WordCruncher technology constitutes the core search technology we use in our "Logio" product. The term of this license is for as long as allowed by law, but it may be terminated if we materially breach the license. We are required to pay BYU a royalty of 3% of our adjusted gross sales. Annual minimum royalties began in January 1999, and $20,000 was due for 1999. The minimum royalty payments increase annually and, in 2002, will be capped at $150,000. In addition, when we acquired the License, BYU had already sublicensed the technology to several other parties for royalty payments ranging from 3% to 8% of the sublicensee's gross sales. Under the term of the license, we are required to pass through to BYU 50% of the royalty payments we receive from these sublicenses. Dataware License. In July 1999 we signed a three year source code software license agreement with Dataware Technologies, Inc. granting us access to code for Dataware's proprietary search engine technology. We intend to blend this technology with our search technologies as we continue to develop our overall product line. The license has a two year renewal option and cost us $350,000. In connection with this agreement, we also signed a Consulting Agreement with Acsiom Inc., an affiliate of Dataware, to provide consulting services relating to the integration of the Dataware search engine into our existing technology, including our business professional portal site. This agreement requires us to pay hourly developer consulting fees ranging from $100 - - $150 per hour. Pittard Sullivan Contract. In July 1999 we retained Pittard Sullivan, a marketing communications company in the media and entertainment industries, to provide us with brand strategy, brand identity and site design consulting services. Brand strategy and identity efforts include the development of the brand vision, brand mission, brand positioning policies, and an articulation of our core branding values. Site development consulting efforts include creative conceptualization and strategic analysis, design creation, production and implementation, and testing. This contract runs through year end 1999 and has cost $365,000. Digital Boardwalk Agreement. In June 1999 we signed a strategic agreement with Digital Boardwalk, a commercial website developer and e-commerce specialist, to integrate business information resources and services offered within our portal site for business professionals. Components of this effort include specifications and development of user services and features, web application flow, site security, third-party data sources, and methods for connecting the application to our existing data infrastructure. The contract was for $50,000 and expired in July, 1999. We are currently negotiating an additional contract with Boardwalk that will be for approximately $200,000. Purchase Agreement. In February and March 1999, we sold 6,300 shares of our newly designated Series A Preferred Stock to eight investors under the terms of a purchase agreement. We received a total of $6.3 million in the transaction. After we paid the expenses of the placement agent ($378,000) and our other expenses for the transaction ($15,000), we netted $5,907,900 from the sale. In connection with the transaction, we also issued warrants to both the purchasers and the placement agent and granted those parties certain registration rights for the shares of common stock they can acquire by converting the Series A Preferred Stock and exercising the warrants. Columbia Financial Group Services Agreement. In January 1999, we entered into a services agreement with Columbia Financial Group. Columbia provides investor relations services for a number of public companies, particularly those companies that are involved in the Internet business. Under the agreement, we agreed to grant Columbia warrants to purchase for five years up to 200,000 shares of our common stock for $5 per share. Sierra Systems Consulting and Development Agreement. In September 1999, we entered into a consulting and development contract agreement with Sierra Systems Consultants, Inc. Under the terms of the agreement, Sierra provides web site development support services for launching our web site, including the development, delivery, testing and debugging of our web site technology. We are required to pay a fixed price of $500,000 in exchange for these services, to be paid in four installment payments based upon meeting certain milestones. Veritas Software Financial Agreement. In November 1999, we entered into a software purchase agreement with Veritas Software. Under the agreement, we are purchasing software products that will be used in the delivery of our web site for $60,830. The purchase price must be paid in full by May 2000. Netscape Software Financial Agreement. In November 1999, we entered into a software purchase agreement with Netscape. Under the terms of the agreement, we are purchasing software products, including maintenance services, for the delivery of our web site. The purchase price for the software products and maintenance services is $268,068.72, which must be paid in full by November 2000. Oracle Software Agreement. In November 1999, we entered into a software license agreement with Oracle Corporation. Under the terms of the agreement, we have a non-exclusive license to use certain Oracle software products which manage our database. The purchase price under the license agreement is approximately $257,000, which is paid in four quarterly payments after an initial payment and includes support services for one year. The term of the agreement is for two years, with a November 2001 expiration date. Sun Microsystems License Agreement. In December 1999, we entered into a master lease agreement with Sun Microsystems Finance. Under the lease agreement, we lease the server equipment necessary to host our web site. The term of the lease is for two years, with a December 2001 expiration date. The monthly payments under this agreement are approximately $28,500 per month, for the two year period. Qwest Dedicated Internet Access Service Agreement. In January 2000, we entered into an internet access agreement with Qwest Internet Solutions, Inc. Under the terms of the agreement, Qwest hosts and provides internet access to our web site for a monthly fee of $2,200 and variable charges based on usage of our site. The term of the agreement is for two years, expiring in January 2002, but automatically renews for successive two year terms unless either party gives 60 days notice prior to the expiration date. Netdotworks Consulting and Support Agreement. In February 2000, we entered into a consulting and support agreement with Netdotworks, Corporation. Under the agreement, Netdotworks provides web site administration and management consulting and support services for our web site. We are required to pay $90,000 per month for the initial 120 day term. Upon expiration of the initial 120 day term, we have the option to extend the agreement for an additional 240 day term, or on a month to month basis until February 2001. DoubleClick, Inc. DART Service Agreement. In February 2000, we entered into an agreement with DoubleClick Inc. Under the terms of the agreement, DoubleClick provides advertisement delivery services for our web site. We are required to pay monthly service fees based on the number of banner impressions that are delivered to our web site through the service. The agreement expires in December 2000, after which we would have to renegotiate a new agreement with DoubleClick if we wished to continue receiving the services. Corporate Development. Our predecessor in interest was incorporated in the State of California on May 2, 1997, as Dunamis, Inc. Dunamis, Inc. was formed for the purpose of publishing and marketing books and audio and video tapes. On June 25, 1998, Dunamis, Inc. completed a merger with a Nevada corporation that had been created for the sole purpose for changing Dunamis, Inc.'s domicile from California to Nevada. On July 14, 1998, the surviving entity in that transaction completed a merger with WordCruncher Publishing Technologies, Inc., formerly known as Redstone Publishing, Inc., a Utah corporation. The Nevada corporation was the surviving entity in that transaction and, as part of the transaction, changed its name to "WordCruncher Internet Technologies, Inc." Patents, Licenses and Intellectual Property. Our success will depend, in part, on our ability to obtain and protect patents, maintain trade secrets and operate without infringing on the proprietary rights of others in the United States and other countries. We intend to file patent applications relating to our technology, products and processes as the need arises. However, any of these patents or patent applications could be challenged, invalidated or circumvented by our competitors. If we were to become involved in a dispute regarding our intellectual property, we may have to participate in interference proceedings before the United States Patent and Trademark Office to determine who has the first claim to the rights involved. We could also be forced to seek a judicial determination concerning the rights in question. These types of proceedings can be costly and time consuming, even if we eventually prevail. If we did not prevail, we could be forced to pay potentially significant damages, obtain a license to the technology in question, or stop commercializing a certain product. We also rely on trade secrets, proprietary know-how and confidentiality provisions in agreements with employees and consultants to protect our intellectual property rights. These other parties may not comply with the terms of their agreements with us, and we may not be able to adequately enforce our rights against those parties. We have adopted a policy of requiring our employees and collaborators to execute confidentiality agreements when they commence employment or consulting relationships with us. These agreements generally provide that all confidential information developed or made known to the individual during the course of his or her relationship with us is to be kept confidential and not disclosed to third parties, except under certain specific circumstances. In the case of employees, the agreements also provide that all inventions conceived by the individual in the course of his or her employment will be our exclusive property. Employees. As of March 20, 2000, we had 23 employees 19 independent contractors. Approximately 20 of our employees are engaged in development activities, 10 are engaged in operational activities, 6 are engaged in administrative and finance functions, and 6 are engaged in sales or marketing. Our employees are not presently covered by any collective bargaining agreement. We believe our relations with our employees are good, and we have not experienced any work stoppages. Item 2. Properties. On December 31, 1999, we leased 3,600 square feet of administrative, office and developmental space at the Town Square Professional Plaza in Draper, Utah 84020. On March 21, 2000, we amended the lease to include an additional 1,800 square feet of administration and development space, and the term of the lease is from March 15, 1999 until March 31, 2002. Beginning on April 1, 2000, the rental for the space will be $5,728 per month, which we believe is typical for similar premises in the area. We believe that our current office space is adequate for our needs. Item 3. Legal Proceedings. We are not a party to any proceeding or threatened proceeding as of the date of this annual report. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of our stockholders during the fourth quarter of the fiscal year ended December 31, 1999. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Since July 1998, our common stock has been traded over-the-counter and quoted on the OTC Electronic Bulletin Board under the symbol "WCTI." Standard Registrar and Transfer Company, Inc. currently, acts as transfer agent and registrar for the common stock. The following table presents the range of the high and low bid prices of our common stock as reported by the Nasdaq Trading and Market Services for each of the periods indicated. The quotations shown below represent prices between dealers, may not include retail markups, markdowns, or commissions and may not necessarily represent actual transactions: Year Quarter High Low --------- ------------------- ----------- ----------- 1999 First Quarter $36.25 $ 4.78 Second Quarter $ 7.81 $ 3.56 Third Quarter $ 6.13 $ 3.63 Fourth Quarter $ 5.75 $ 3.19 First Quarter $14.00 $ 5.75 2000 (through 3/20/00) There were approximately 147 holders of record of our common stock and 8 holders of record of our Series A Preferred Stock as of December 31, 1999. We have never declared or paid any cash dividends on our common stock. We do not intend to pay any cash dividends on our common stock for the foreseeable future. The following discussion describes all securities we have sold within the past three years without registration: On May 16, 1997 we issued 1,500,000 shares of WordCruncher Publishing common stock for $1,500 in cash to Carol N. Purcell and Wilford Purcell, the founders of Dumanis, Inc. In July 1998, these shares were exchanged for 1,500,000 shares of WordCruncher Internet Technologies common stock. Beginning on May 15 and ending on June 11, 1997, we sold, in exchange, 1,500,000 shares of common stock at $.05 per share, for an aggregate offering amount of $75,000 pursuant to Rule 504 of Regulation D of the Securities Act. On July 14, 1998, the Company issued an aggregate of 2,433,334 shares of common stock to the stockholders of WordCruncher Publishing in a merger of that company into ours. On July 1, 1998, we issued 13,500 shares of common stock, valued at $13,000, to M. Daniel Lunt, one of our officers and directors, in satisfaction of a note we issued to Mr. Lunt. On October 30, 1998 we issued an aggregate of 39,000 shares of common stock, for $70,200, to four individuals in consideration for services they provided to us. Specifically, 29,000 restricted shares were issued to Timothy J. Riker, 5,000 shares to Peter T. Stoop, and 5,000 shares to Robert J. Stevens. In October 1998, we issued 13,000 shares of common stock to Jeffrey B. Peterson to acquire certain intellectual property rights held by Mr. Peterson. We valued those shares at $24,000. In November 1998, we issued 25,000 shares of common stock to Universal Business Insurance in satisfaction of insurance premiums we owed to it. We valued those shares at $25,000. On December 7, 1999, we converted approximately $26,000 of debt to Universal Business Insurance into 8,000 shares of our common stock, which we valued at $3.25 per share. On February 8 and March 15, 1999, we issued an aggregate of 6,300 shares of Series A Convertible Preferred Stock to eight persons pursuant to a purchase agreement. The Series A Convertible Preferred Stock was issued for an aggregate of $6.3 million. Through March 2000, all of the holders of the issued Series A Convertible Preferred Stock elected to convert such preferred stock into 625,000 shares of our common stock. We have issued an additional 727,756 shares of our common stock to our Series A Convertible Preferred Stockholders pursuant to the provisions of the purchase agreement by which the preferred stock was purchased. We also issued 61,650 shares of our common stock to our Series A Convertible Preferred Stockholders through March, 2000, as a cumulative dividend. In June, 1999 we issued 2,000 shares valued at $22,000 to two of our former employees in connection with their termination of employment with us. During fiscal year 1999, our employees exercised a total of 4,000 options at an exercise price of $.10 per share. In each of January and March, 2000, we issued an additional 2,000 shares, for a total of an additional 4,000 shares, upon the exercise of options held by our employees at an exercise price of $.10 per share. In January, 2000, Columbia Financial Group exercised its warrant in part and purchased from us 100,000 shares of our common stock at a price of $5.00 per share. In March, 2000, Cardinal Capital and three of its assignees exercised its warrant to purchase an aggregate of 58,000 shares of our common stock at an exercise price of $7.00 per share. In connection with each of these isolated issuances of our securities, we believe that each purchaser (i) was aware that the securities had not been registered under federal securities laws, (ii) acquired the securities for its own account for investment purposes and not with a view to or for resale in connection with any distribution for purposes of the federal securities laws, (iii) understood that the securities would need to be indefinitely held unless registered or an exemption from registration applied to a proposed disposition and (iv) was aware that the certificate representing the securities would bear a legend restricting their transfer. We believe that, in light of the foregoing, the sale of our securities to the respective acquirers did not constitute the sale of an unregistered security in violation of the federal securities laws and regulations by reason of the exemptions provided under ss.ss. 3(b) and 4(2) of the Securities Act, and the rules and regulations promulgated thereunder. Item 6. Selected Financial Data. The financial information set forth below with respect to our statements of operations for each of the years in the two-year period ended December 31, 1998, and with respect to our balance sheets at December 31, 1997 and 1998 is derived from the financial statements that have been audited by our former independent certified public accountants, Crouch, Bierwolf & Chisholm, and is qualified by reference to such financial statements and notes related thereto. The financial information set forth below with respect to our statements of operations for the one-year period ended December 31, 1999, and with respect to our balance sheet at December 31, 1999 is derived from the financial statements that have been audited by our current independent certified public accountants, Grant Thornton, and is qualified by reference to such financial statements and notes related thereto. The following selected financial data should be read in conjunction with our financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Result of Operations."
Year Ended December 31, ----------------------- 1999 1998 1997 ------------- ------------- ------------- Revenues: Product Sales.................................. $ 15,289 $ 32,884 $ 16,034 Contract research revenues, royalties and license fees 8,066 49,794 8,450 ------------- ------------- ------------- Total revenues............................. 23,355 $ 82,678 $ 24,484 Cost of sales & royalties...................... 15,071 $ 15,864 $ 806 ------------- ------------- ------------- Gross Profit (loss) 8,284 66,814 23,678 Operating costs and expenses: Research & development......................... 1,198,546 266,563 126,281 Sales & marketing.............................. 953,708 34,554 5,274 General & administrative....................... 1,340,486 217,318 206,874 Depreciation & amortization.................... 179,169 10,406 6,419 Compensation expense for common stock and options 1,452,610 - - ------------- ------------- ------------- Total operating expense.................... 5,124,519 528,841 344,848 ------------- ------------- ------------- Operating loss................................... (5,116,235) (462,027) (321,170) Other income and (expense) Interest income and other, net................. 196,310 7,276 3,077 Interest expense............................... (9,955) (28,158) (17,125) ------------- ------------- ------------- Total other income and (expense), net...... 186,355 (20,882) (14,048) Loss before income taxes......................... (4,929,880) (482,909) (335,218) Provision for income taxes....................... - - - ------------- ------------- ------------- Net loss......................................... $ (4,929,880) $ (482,909) $ (335,218) ============= ============= ============= Deduction for dividends and accretion............ (6,469,861) - - ------------- ------------- ------------- Net loss attributable to common stockholders..... $(11,399,741) $ (482,909) $ (335,218) ============= ============= ============= Basic and Diluted loss per common share.......... $(0.96) $(0.08) $(0.61) Weighted average outstanding shares.............. 11,879,919 6,100,679 545,535 ============= ============= ============= Balance Sheet Data: Cash and cash equivalents........................ $ 1,055,371 $ 425,702 $ 10,369 Total Assets..................................... 4,769,737 623,617 139,928 Long term liabilities, including current portion. 553,333 147,620 342,272 Deficit accumulated during the development stage. (12,217,868) (818,127) Total Stockholders' Equity (deficit)............. 3,164,054 441,084 (208,943) See Notes to Financial Statements for information concerning the computation of per share amounts.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Overview. We are a development stage company and our initial product, has only recently been available for use in the marketplace. We launched on website at www.logio.com on March 19, 2000. We are continuing to develop and market Logio for the business professional. We have devoted most of our resources since inception in November 1996 to the research and development of Logio and are now beginning to expend additional resources on the development of brand awareness of "Logio." As of December 31, 1999, we had an accumulated earnings deficit of $12,217,868. We expect our operating losses to continue until we develop a sufficient customer and advertising base to cover our operating expenses. Reverse Acquisition Treatment. Our predecessor in interest was incorporated in the state of California on May 2, 1997, as Dunamis, Inc. Dunamis was formed for the purpose of publishing and marketing books and audio and video tapes. On June 25, 1998, Dunamis completed a merger with a Nevada corporation that had been created for the sole purpose of changing Dunamis' domicile from California to Nevada. On July 14, 1998, the surviving entity in that transaction completed a merger with WordCruncher Publishing Technologies, Inc., formerly "Redstone Publishing, Inc.", a Utah corporation that was formed in November, 1996. The Nevada corporation was the surviving entity in that transaction and, as part of the transaction, changed its name to "WordCruncher Internet Technologies, Inc." At the time of the merger, WordCruncher Publishing Technologies held the rights to a significant portion of the intellectual property upon which our site was initially designed. As a result of the merger, the former shareholders of WordCruncher Publishing Technologies, Inc. also obtained a majority of the voting power of the combined companies. Accordingly, in conformance with generally accepted accounting principles, the merger has been accounted for as a "reverse acquisition." Consistent with reverse acquisition accounting treatment, our accounting statements are the financial statements of WordCruncher Publishing Technologies, Inc. and differ from the financial statements of Dunamis, Inc. Stock Split and Change in Par Value. In July 1998, we authorized a 3 for 1 forward stock split. We have retroactively restated our financial statements to reflect that stock split. In connection with the reverse merger with Dunamis, we also changed the par value of our common stock to $.001. That change has also been retroactively applied in our financial statements. Unless otherwise noted in this prospectus, all share amounts reflect the forward stock split. Results of Operation. The following summarizes the results of our operations for the years ended December 31, 1999 and 1998 and 1997. Year Ended December 31, ----------------------- 1999 1998 1997 ------------ ----------- ----------- Revenues $23,355 $82,678 24,484 Cost of sales 15,071 15,864 806 ------------ ----------- ----------- Gross profit (loss) $ 8,284 $66,814 $23,678 Research & development 1,198,546 266,563 126,281 Sales & marketing 953,708 34,554 5,274 General & administrative 1,340,486 217,318 206,874 Depreciation & amortization 179,169 10,406 6,419 Compensation expense for common stock and options 1,452,610 - - ------------ ----------- ----------- Total operating expense 5,124,519 528,841 344,848 Operating Loss $(5,116,235) (462,027) (321,170) Interest income 196,310 7,276 3,077 Interest Expense (9,955) (28,158) (17,125) ------------ ----------- ----------- Total interest income (expense) 186,345 (20,882) (14,048) Net loss $(4,929,880) $ (482,909) $ (335,218) ============ =========== =========== Our expenses have exceeded our revenues for each fiscal period since our inception. The revenues we have generated to date have been nominal and almost exclusively related to product sales and licensing fees for our personal computer based version of our software. Those revenues will continue to decrease as we switch our development and marketing emphasis to an Internet version of Logio. Accordingly, we believe a comparison of the results of our operations on a period-by-period basis is of limited benefit. We expect that, as we continue to implement our business plan, our revenues will grow, along with the burdens generally associated with larger revenues, including increased expenses for our managerial, accounting and technical personnel. Comparison of Year End Periods. Following is a comparison of our operating results for the year ended December 31, 1999 with the year ended December 31, 1998: Revenue. Revenues decreased $59,323 from $82,678 for the year ended December 31,1998, to $23,355 for the year ended December 31, 1999. This 72% decrease was due to the discontinuation of our PC-based product and our intense focus on the development of our Logio.com site which has only recently become available to the marketplace. Costs of Revenues. Cost of revenues remained relatively flat with 1998 cost of sales amounting to $15,864 and 1999 amounting to $15,071. This slight decrease in cost of sales in the face of significant declines in revenue is attributed to the added cost of discontinuing our PC based lines. Research & Development. Research and development expense increased nearly 450% from $266,563 in 1998 to $1,198,546 in 1999. This was due to the significant level of expenditure involved in the development of our Logio.com site over the past 12 months. Selling Expenses. Sales and marketing expenses also increased significantly from $34,554 in 1998 to $953,708 in 1999, an increase of nearly 2800%, as we prepared to and initiated the sales effort in connection with our Logio.com site. Nearly 50% of these monies were spent in connection with our advertising and branding campaign with Pittard Sullivan and a majority of the balance was devoted to salaries and marketing fees. General and Administrative. General and administrative expense increased significantly in 1999, as we increased staff in preparation for commercial operations. During 1999, as compared to 1998, our general and administrative expenses increased 617% to $1,340,486 from $217,138. Depreciation and Amortization. Depreciation and amortization expense increased from $10,406 in 1998 to $179,169 in 1999 primarily due to the additional property, equipment and software that we acquired in 1999 to support our website operations. Total Operating Expenses. Total operating expenses increased $4,595,678 from $528,841 in 1998 to $5,124,519 in 1999. This 969% increase in operating expenses resulted in an operating loss for 1999 of $5,116,235, an increased loss of $4,654,208 over the 1998 loss of $462,027. Other Income. Other income increased from $7,276 in 1998 to $196,310 in 1999, a 2700% increase, as interest and dividends on invested cash increased significantly based on higher cash balances associated with the cash proceeds received from the Series A Preferred Share offering. These cash balances are temporarily invested pending their ultimate use in funding development activities. Interest Expense. As a result of decreased borrowing, our interest expense decreased from $28,158 in 1998 to $9,955 in 1999. Net Loss. Our net loss for 1999 grew $4,446,971 to $4,929,880, compared to a loss of $482,909 for 1998 as a result of our increased costs and expenses related to the research, development and implementation of our Logio.com website operations. Net Loss Attributable to Common Shareholders. Giving effect to the beneficial conversion feature of our Series A Preferred Share offering, our total loss attributable to common shareholders was $11,399,741 in 1999. This resulted in an increase to additional paid in capital and a corresponding accumulated increase in deficit. This was the first year that the beneficial conversion feature was available to the preferred stockholders. Quarterly Trends. We do not anticipate significant "seasonal" changes in our operations. We expect revenues to grow consistently over the next five years, but we believe they should grow reasonably even from quarter to quarter. We believe revenues will come initially from advertising sales at our site. We believe we will generate additional revenues through our partnership arrangements with other sites that use Logio in other commerce-related areas over the Internet and through the sale of information through the Logio site. Liquidity and Capital Resources. Since our inception, we have funded our cash requirements through debt and equity financings. We have used the funds from those transactions to fund our investment in the development of our Logio.com business information site, provide working capital and for general corporate purposes. As of the year ended December 31, 1997, we had total assets of $139,928, and total liabilities of approximately $348,872, resulting in a negative net worth of $208,943. Our operating losses totaled $335,218. These losses were funded primarily by related party loans, which were backed by a revolving bank line of credit. In connection with the merger between WordCruncher Publishing Technologies, Inc. and Dunamis, Inc. in July 1998, we obtained a significant new source of operating capital. At the time of the merger, Dunamis, Inc. held cash reserves of approximately $1 million, and had no liabilities. As a result of that transaction, our total assets for the year ended December 31, 1998 were $623,617, including cash or cash equivalents of $425,702. Our liabilities totaled $182,533, resulting in a stockholders equity of $441,084, including an operating loss of $482,909 for the year ending December 31, 1998. Cash provided by financing activities in 1999 included $6.3 million, from our sale of our Series A Preferred Stock to eight investors. Our expenses for the offering totaled $392,100, resulting in net proceeds to us of $5,907,900. As a result, as of December 31, 1999, we had total assets of $4,769,737. Our total liabilities as of that date were $1,605,683 and our stockholders' equity was $3,164,054. This includes an increase to accumulated deficit of $6,469,861 and a corresponding increase to paid-in capital in recognition of the beneficial conversion feature of our convertible preferred shares issued during the period. We used $2,986,246 in cash for operations. Cash was used to pay salaries related to development, marketing and administrative personnel, building operating lease and other operating payables. Cash was used in investing related activities, including $1,260,831 in property and equipment purchases and purchases of short-term investments totaling $1,454,207. Our cash, cash equivalents and short term investments at December 31, 1999 totaled $2,517,518. A summary of our audited balance sheets for the years ended December 31, 1999, 1998 and 1997 are as follows: Year Ended December 31, ----------------------- 1999 1998 1997 Cash and Cash Equivalents and Short- ----------- ----------- ---------- Term Investments $2,517,518 $425,702 $10,369 Current Assets $2,833,391 $425,702 $15,369 Total Assets $4,769,737 $623,617 $139,928 Current Liabilities $1,352,333 $170,919 $321,307 Total Liabilities $1,605,683 $182,533 $348,872 Total Stockholders' Equity $3,164,054 $441,084 $(208,943) Total Liabilities & Stockholders' Equity $4,769,737 $623,617 $139,928 We have the resources to continue our product development efforts, commence commercial operations and to initiate our sales, marketing and promotional activities for Logio through the end of the third quarter of 2000, based upon our current estimates of projected expenditures during the period. We operate in a very competitive industry that requires continued large amounts of capital to develop and promote its products. Many of our competitors have significantly greater capital resources. We believe it will be essential to continue to raise additional capital, both internally and externally to compete in this industry. Our need to raise external capital in the future will depend upon many factors, including, but not limited to, the rate of sales growth and market acceptance of our product lines, the amount and timing of our necessary research and development expenditures, the amount and timing of our expenditures to sufficiently market and promote our products and the amount and timing of any accessory new product introductions. In addition to accessing the public equity markets, we will pursue bank credit lines and equipment lease lines for certain capital expenditures. However, there can be no assurance that we will be able to access the capital we need. We currently estimate that we will require between $25 and $30 million to develop our products and launch our operations in accordance with our business plan through 2002. The actual costs will depend on a number of factors, including o our ability to negotiate favorable prices for purchases of necessary portal components, o the number of our customers and advertisers, o the services for which they subscribe, o the nature and success of the services that we offer, o regulatory changes, and o changes in technology. In addition, our actual costs and revenues could vary from the amounts we expect or budget, possibly materially, and those variations are likely to affect how much additional financing we will need for our operations. Accordingly, there can be no assurance our actual financial needs will not exceed the amounts available to us. To the extent that we acquire the amounts necessary to fund our business plan through the issuance of equity securities, our then-current shareholders may experience dilution in the value per share of their equity securities. The acquisition of funding through the issuance of debt could result in a substantial portion of our cash flows from operations being dedicated to the payment of principal and interest on that indebtedness, and could render us more vulnerable to competitive and economic downturns. Recent Accounting Pronouncements . In June 1998, Statement of Financing Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" was released. The Statement requires recognition of all derivatives as either assets or liabilities on a company's balance sheet and the measurement of those instruments at fair market value. The Statement provides for the accounting treatment of changes in the fair value of a derivative depending on the planned use of the derivative and the resulting designation. We are required to implement the Statement in the first quarter of fiscal 2000. We have not used derivative instruments, however, and we believe that the impact of the adoption of this Statement will not have a significant effect on our financial statements. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for Costs of Computer Software Developed or Obtained for Internal Use." The Statement is effective for fiscal years beginning after December 15, 1998. The statement provides guidance and accounting for the cost of computer software developed or obtained for internal use by a company. We adopted this Statement on January 1, 1999, but do not believe that it will have a significant effect on our financial statements. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-4, "Deferral of the Effective Date of a Provision of Statement of Position 97-2." The Statement of Position 98-4 defers for one year the application of certain provisions of Statement of Position 97-2, "Software Revenue Recognition." Different informal and non-authoritative interpretations of certain provisions of Statement of Position 97-2 have been printed and, as a result, the American Institute of Certified Public Accountants issued Statement of Position 98-9 in December 1998 which is effective for periods beginning on or after March 15, 1999. Statement of Position 98-9 extends the effective date of Statement of Position 98-4 and provides additional interpretative guidance. The adoption of Statement of Position 97-2, Statement of Position 98-4, and Statement of Position 98-9 have not have and are not expected to have a material impact on our results of operations, financial position or cash flows. However, due to the uncertainties related to the outcome of these amendments, we cannot determine the impact of the Statement on our future financial results. Statement of Financial Accounting Standards, or SFAS, No. 130, "Reporting Comprehensive Income," requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. We adopted the provisions of SFAS No. 130 beginning January 1, 1998, as required. Our comprehensive losses and net losses are not materially different for all periods presented. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," establishes standards for reporting information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. We adopted the provisions of SFAS No. 131 for the year ending December 31, 1998 as required. Currently, we do not believe we have any separately reportable business segments or other disclosure information required by the Statement. New Accounting Pronouncements. We have reviewed all recently issued, but not yet adopted, accounting standards to determine their effects, if any, on our results of operations or financial position. Based on our review, we believe that none of these pronouncements will have a significant effect on our current or future earnings or operations. Item 8. Financial Statements and Supplementary Data.
WORDCRUNCHER INTERNET TECHNOLOGIES, INC. INDEX TO FINANCIAL STATEMENTS Page ----- INDEPENDENT AUDITORS' REPORTS Report of Grant Thornton LLP, independent certified public accountants on the December 31, 1999 financial statements F-2 Report of Crouch, Bierwolf and Chisholm independent certified public accountants on the December 31, 1998 and 1997 financial statements F-3 CONSOLIDATED FINANCIAL STATEMENTS Balance Sheets as of December 31, 1999 and 1998 F-4 Statements of Operations for the Years Ended December 31, 1999, 1998, 1997, and cumulative amounts since inception F-5 Statement of Stockholders' Equity for the Years Ended December 31, 1999, 1998, 1997, and cumulative amounts since inception F-6 Statements of Cash Flows for the Years Ended December 31, 1999, 1998, 1997, and cumulative amounts since inception F-9 Notes to Financial Statements F-11
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders WordCruncher Internet Technologies, Inc. We have audited the accompanying consolidated balance sheet of WordCruncher Internet Technologies, Inc. (a development stage company), as of December 31, 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements, audited by other auditors, for the period from November 5, 1996 (inception) to December 31, 1998 reflect total revenues and net loss of $107,162 and $818,127, respectively, of the related totals. Our opinion insofar as it relates to the cumulative amounts since inception included for such prior period, is based solely on the report of other auditors. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the 1999 financial statements referred to above present fairly, in all material respects, the consolidated financial position of WordCruncher Internet Technologies, Inc. (a development stage company), as of December 31, 1999, and the consolidated results of their operations and their consolidated cash flows for the year then ended and cumulative amounts since inception in conformity with generally accepted accounting principles. The Company is in the development stage as of December 31, 1999. Recovery of the Company's assets is dependent on future events, the outcome of which is indeterminable. In addition, successful completion of the Company's development plan and its transition, ultimately, to attaining profitable operations, is dependent upon obtaining adequate financing to fulfil its development activities and achieving a level of sales adequate to support the Company's cost structure. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the financial statements, the Company has incurred consolidated cumulative net losses attributable to common stockholders of $12,217,868 since inception of operations. This factor, among others, as discussed in Note B to the financial statements, raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/GRANT THORNTON LLP Salt Lake City, Utah March 6, 2000 F-2 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of WordCruncher Internet Technologies, Inc. We have audited the accompanying consolidated balance sheets of WordCruncher Internet Technologies, Inc. (a development stage company) as of December 31, 1998 and 1997 and the related statements of operations, stockholders' equity and cash flows for the years ended December 31, 1998, 1997 and 1996 and from inception of the development stage on November 5, 1996 through December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of WordCruncher Internet Technologies, Inc. (a development stage company) as of December 31, 1998 and 1997 and the results of its consolidated operations and cash flows for the years ended December 31, 1998, 1997 and 1996 and from inception of the development stage on November 5, 1996 through December 31, 1998 in conformity with generally accepted accounting principles. Crouch, Bierwolf & Chisholm Salt Lake City, Utah January 21, 1999 F-3
WordCruncher Internet Technologies, Inc. (a development stage company) CONSOLIDATED BALANCE SHEETS December 31, ASSETS 1999 1998 ---------------- ------------- Current assets Cash and cash equivalents $ 1,055,371 $ 425,702 Short-term investments (Note C) 1,462,147 - Prepaid expenses 311,199 - Interest receivable 1,983 - Current maturities of notes receivable (Note F) 1,955 - Accounts receivable 736 - ---------------- ------------- Total current assets 2,833,391 425,702 ---------------- ------------- PROPERTY And Equipment, at cost (Note E) 1,930,335 81,419 NOTES RECEIVABLE, less current maturities (Note F) - 100,200 Other assets (Note D) 6,011 16,296 ---------------- ------------- $ 4,769,737 $ 623,617 ================ ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term obligations (Note G) $ - $ 120,000 Current maturities of capital lease obligations (Note H) 299,983 16,006 Notes payable 659,682 - Accounts payable 306,349 10,421 Accrued expenses 86,319 24,492 ---------------- ------------- Total current liabilities 1,352,333 170,919 CAPITAL LEASE OBLIGATIONS, less current maturities (Note H) 253,350 11,614 COMMITMENTS (Notes H and I) - - Stockholders' equity (Notes B, C, I, J, K, M and N) 6% preferred stock, par value $0.01; liquidation preference $1,000; authorized 15,000 shares; issued and outstanding 6,300 shares 63 - in 1999 and none in 1998 Common stock, par value $0.001; authorized 60,000,000 shares; issued and outstanding 11,891,002 shares in 1999 and 11,877,002 shares in 1998 11,891 11,877 Additional paid-in capital 15,362,028 1,247,334 Accumulated other comprehensive income 7,940 - Deficit accumulated during the development stage (12,217,868) (818,127) ---------------- ------------- Total stockholders' equity 3,164,054 441,084 ---------------- ------------- $ 4,769,737 $ 623,617 ================ ============= The accompanying notes are an integral part of these statements. F-4
WordCruncher Internet Technologies, Inc. (a development stage company) CONSOLIDATED STATEMENTS OF OPERATIONS Cumulative amounts Year ended December 31, since ------------------------------------------------- inception 1999 1998 1997 -------------- --------------- ---------------- -------------- Revenues $ 130,517 $ 23,355 $ 82,678 $ 24,484 Cost of sales 31,741 15,071 15,864 806 -------------- --------------- ---------------- -------------- Gross profit 98,776 8,284 66,814 23,678 Selling expenses 993,536 953,708 34,554 5,274 Research and development 1,591,390 1,198,546 266,563 126,281 General and administrative 1,764,678 1,340,486 217,318 206,874 Depreciation and amortization 195,994 179,169 10,406 6,419 Compensation expense for common stock and options (Note K) 1,452,610 1,452,610 - - -------------- --------------- ---------------- -------------- Total operating expenses 5,998,208 5,124,519 528,841 344,848 -------------- --------------- ---------------- -------------- Loss from operations (5,899,432) (5,116,235) (462,027) (321,170) Other income (expense) Interest income and other 206,663 196,310 7,276 3,077 Interest expense (55,238) (9,955) (28,158) (17,125) -------------- --------------- ---------------- -------------- 151,425 186,355 (20,882) (14,048) -------------- --------------- ---------------- -------------- Net Loss $ (5,748,007) $ (4,929,880) $ (482,909) $ (335,218) ============== =============== ================ ============== Deduction for dividends and accretion (Note J) $ (6,469,861) $ (6,469,861) $ - $ - ============== =============== ================ ============== Net loss attributable to common stockholders $ (12,217,868) $ (11,399,741) $ (482,909) $ (335,218) ============== =============== ================ ============== Net loss per common share - basic and diluted (Note M) $ (2.09) $ (0.96) $ (0.08) $ (0.61) ============== =============== ================ ============== Weighted-average number of shares outstanding - basic and diluted 5,850,408 11,879,919 6,100,679 545,535 ============== =============== ================ ============== The accompanying notes are an integral part of these statements.
F-5
WordCruncher Internet Technologies, Inc. (a development stage company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Years ended December 31, 1999, 1998, 1997, and period from November 5, 1996 (inception) to December 31, 1996 Preferred stock Common stock --------------------------- --------------------------- Price per Number Number Date share of shares Amount of shares Amount ------------- ------------- ------------ ------------ ------------ ------------ Balances at November 5, 1996 - $ - - $ - - $ - Net loss - - - - - - - - ------------ ------------ ------------ ---------- Balances at December 31, 1996 - - - - - - Issuance of stock for cash to Jan 97 0.001 - - 622,500 623 organizers Issuance of stock for cash Feb 97 0.001 - - 67,500 67 Issuance of stock for license Feb 97 - - - 110,742 111 agreement (Note I) Issuance of stock to employees Sep 97 0.333 - - 252,450 252 for services Issuance of stock for services Aug 97 1.092 - - 37,875 38 performed Net loss for the year - - - - - - - - ------------ ------------ ------------ ---------- Balances at December 31, 1997 - - - - 1,091,067 1,091 Issuance of stock for cash Jul 98 4.17 - - 120,000 120 Reverse acquisition and Jul 98 - - - 9,885,435 9,886 reorganization adjustment (Continued)
F-6
WordCruncher Internet Technologies, Inc. (a development stage company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Years ended December 31, 1999, 1998, 1997, and period from November 5, 1996 (inception) to December 31, 1996 --CONTINUED-- Deficit Accumulated accumulated Additional other during paid-in comprehensive development capital income stage ------------ --------------- ------------ Balances at November 5, 1996 $ - $ - $ - Net loss - - - ------------ --------------- ------------ Balances at December 31, 1996 - - - Issuance of stock for cash to 52 - - organizers Issuance of stock for cash 8 - - Issuance of stock for license (111) - - agreement (Note I) Issuance of stock to employees 83,898 - - for services Issuance of stock for services 41,337 - - performed Net loss for the year - - (335,218) ------------ --------------- ------------ Balances at December 31, 1997 125,184 - (335,218) Issuance of stock for cash 499,880 - - Reverse acquisition and (8,550) - - reorganization adjustment
F-6(a)
WordCruncher Internet Technologies, Inc. (a development stage company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED Years ended December 31, 1999, 1998, 1997, and period from November 5, 1996 (inception) to December 31, 1996 Preferred stock Common stock --------------------------- --------------------------- Price per Number Number Date share of shares Amount of shares Amount ------------- ------------- ------------ ------------ ------------ ------------ Issuance of stock for cash Jul 98 0.725 - - 690,000 690 Issuance of stock for debt Jul 98 0.96 - - 13,500 13 conversion Issuance of stock for services Oct 98 1.90 - - 39,000 39 Issuance of stock for software Oct 98 1.80 - - 13,000 13 technology Issuance of stock for insurance Nov 98 1.00 - - 25,000 25 coverage Net loss for the year - - - - - - ------------ ------------ ------------ ------------ Balances at December 31, 1998 - - - - 11,877,002 11,877 Issuance of warrants for Jan 99 - - - - - consulting services (Note K) Issuance of preferred stock for Feb 99 1,000 6,100 61 - - cash, net of offering costs (Note J) Issuance of preferred stock for Mar 99 1,000 200 2 - - cash, net of offering costs (Note J) (Continued)
F-7
WordCruncher Internet Technologies, Inc. (a development stage company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED Years ended December 31, 1999, 1998, 1997, and period from November 5, 1996 (inception) to December 31, 1996 --CONTINUED-- Deficit Accumulated accumulated Additional other during paid-in comprehensive development capital income stage ------------ --------------- ------------ Issuance of stock for cash 499,310 - - Issuance of stock for debt 12,987 - - conversion Issuance of stock for services 70,161 - - Issuance of stock for software 23,387 - - technology Issuance of stock for insurance 24,975 - - coverage Net loss for the year - - (482,909)- ------------ --------------- ------------ Balances at December 31, 1998 1,247,334 - (818,127) Issuance of warrants for 258,000 - - consulting services (Note K) Issuance of preferred stock for 5,719,839 - - cash, net of offering costs (Note J) Issuance of preferred stock for 187,998 - - cash, net of offering costs (Note J)
F-7(a)
WordCruncher Internet Technologies, Inc. (a development stage company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED Years ended December 31, 1999, 1998, 1997, and period from November 5, 1996 (inception) to December 31, 1996 Preferred stock Common stock --------------------------- --------------------------- Price per Number Number Date share of shares Amount of shares Amount ------------- ------------- ------------ ------------ ------------ ------------ Issuance of common stock to Jun 99 0.11 - - 2,000 2 employees for compensation Issuance of common stock for Aug 99 0.10 - - 4,000 4 exercise of options Issuance of common stock for Dec 99 3.25 - - 8,000 8 conversion of debt Issuance of stock options to Jan-Dec 99 - - - - - employees for compensation Accretion of intrinsic value of Feb-Dec 99 - - - - - preferred stock (Note J) Dividends on preferred stock (Note J) Feb-Dec 99 - - - - - Unrealized gain on marketable - - - - - - securities (Note C) Net loss for the year - - - - - - ------------ ------------ ------------ ------------ Balances at December 31, 1999 - - 6,300 $ 63 11,891,002 $ 11,891 ============ ============ ============ ============ The accompanying notes are an integral part of this statement.
F-8
WordCruncher Internet Technologies, Inc. (a development stage company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED Years ended December 31, 1999, 1998, 1997, and period from November 5, 1996 (inception) to December 31, 1996 --CONTINUED-- Deficit Accumulated accumulated Additional other during paid-in comprehensive development capital income stage ------------ --------------- ------------- Issuance of common stock to 21,998 - - employees for compensation Issuance of common stock for 396 - - exercise of options Issuance of common stock for 25,992 - - conversion of debt Issuance of stock options to 1,430,610 - - employees for compensation Accretion of intrinsic value of 6,131,944 - (6,131,944) preferred stock (Note J) Dividends on preferred stock (Note J) 337,917 - (337,917) Unrealized gain on marketable - 7,940 - securities (Note C) Net loss for the year - - (4,929,880) ------------ --------------- ------------- Balances at December 31, 1999 15,362,028 $ 7,940 $(12,217,868) ============ =============== =============
F-8(a)
WordCruncher Internet Technologies, Inc. (a development stage company) STATEMENTS OF CASH FLOWS Cumulative Amounts Year ended December 31, Since ------------------------------------------------- Inception 1999 1998 1997 --------------- --------------- --------------- --------------- Increase (decrease) in cash and cash equivalents Cash flows from operating activities Net loss $ (5,748,007) $ (4,929,880) $ (482,909) $ (335,218) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 195,994 179,169 10,406 6,419 Issuance of common stock and options for compensation and other expenses 1,673,335 1,452,610 95,200 125,525 Issuance of warrants for consulting services 258,000 258,000 - - Changes in assets and liabilities Prepaid expenses (311,199) (311,199) - - Interest receivable (1,983) 8,035 (7,141) (2,877) Accounts receivable (736) (736) - - Accounts payable 301,349 295,928 4,251 1,170 Accrued expenses 86,319 61,827 19,063 5,429 --------------- --------------- --------------- --------------- Total adjustments 2,201,079 1,943,634 121,779 135,666 --------------- --------------- --------------- --------------- Net cash used in operating activities (3,546,928) (2,986,246) (361,130) (199,552) --------------- --------------- --------------- --------------- Cash flows from investing activities Purchases of property and equipment (1,279,458) (1,260,831) (18,627) - Increase in short-term investments (1,454,207) (1,454,207) - - Repayment of notes receivable from related parties 115,745 110,745 5,000 - Notes receivable issued to related parties (117,700) (12,500) (23,200) (82,000) Increase in deposits (5,076) - (5,076) - --------------- --------------- --------------- --------------- Net cash used in investing activities (2,740,696) (2,616,793) (41,903) (82,000) --------------- --------------- --------------- ---------------
(Continued) F-9
WordCruncher Internet Technologies, Inc. (a development stage company) STATEMENTS OF CASH FLOWS - CONTINUED Cumulative Amounts Year ended December 31, Since ------------------------------------------------ Inception 1999 1998 1997 --------------- -------------- -------------- -------------- Cash flows from financing activities Proceeds from issuance of common stock 1,001,150 400 1,000,000 750 Proceeds from issuance of preferred stock 6,300,000 6,300,000 - - Payment of fees associated with issuance of preferred stock (392,100) (392,100) - - Proceeds from issuance of notes payable 685,682 685,682 - - Proceeds from issuance of long-term obligations 313,000 - 13,000 300,000 Principal payments under capital lease obligations (256,423) (241,274) (6,320) (8,829) Principal payments of long-term obligations (308,314) (120,000) (188,314) - --------------- -------------- -------------- -------------- Net cash provided by investing activities 7,342,995 6,232,708 818,366 291,921 --------------- -------------- -------------- -------------- Net increase in cash and cash equivalents 1,055,371 629,669 415,333 10,369 Cash and cash equivalents at beginning of period - 425,702 10,369 - --------------- -------------- -------------- -------------- Cash and cash equivalents at end of period $ 1,055,371 $ 1,055,371 $ 425,702 $ 10,369 =============== ============== ============== ============== Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ 49,128 $ 4,584 $ 29,888 $ 14,656 Income taxes - - - - Noncash financing activities Purchase of equipment through lease obligations $ 818,177 $ 766,987 $ - $ 51,190 Unrealized gain on available-for-sale securities 7,940 7,940 - - Issuance of common stock for debt conversion 39,000 26,000 13,000 - The accompanying notes are an integral part of these statements.
F-10 WordCruncher Internet Technologies, Inc. (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows: 1. Organization and principles of consolidation WordCruncher Internet Technologies, Inc. (the Company) was incorporated on November 5, 1996 in the State of Utah under the name of Redstone Publishing, Inc. On March 10, 1997, the Company changed its name to WordCruncher Publishing Technologies, Inc. During July 1998, the Company merged with Dunamis, Inc. a public company organized in the State of California. Dunamis had approximately $1 million of cash and essentially no other assets and liabilities. Management of Dunamis resigned and management of the Company now manages the consolidated entity. The merger was recorded as a reverse acquisition, therefore WordCruncher is the accounting survivor. In connection with the merger, Dunamis, the legal survivor, changed its name to WordCruncher Internet Technologies, Inc. and changed its domicile to the State of Nevada. The Company's headquarters are in Draper, Utah, where the Company is engaged in the development and marketing of a business information Internet site. The Internet site is specialized for business professionals and the business-to-business marketplace. The Company has acquired a license agreement from a University wherein the Company has an exclusive, worldwide right to sell, develop and manufacture the "WordCruncher" technology. 2. Stock split and change in par value In July 1998, the Company authorized a 3 for 1 forward stock split. These financial statements have been retroactively restated to reflect the stock split. Pursuant to the reverse merger with Dunamis, the Company's par value of its common stock changed to $.001 per share. This change has also been retroactively applied. 3. Development stage company The Company is a development stage company and is concentrating substantially all of its efforts in raising capital and developing its business information Internet site for future commercial release. 4. Software development costs Software development costs incurred in the development of software related products are charged to expense as incurred. Material software development costs incurred subsequent to the establishment of technological feasibility are capitalized. Technological feasibility is established by the Company upon completion of a working model. Software development costs incurred by the Company subsequent to technological feasibility have been insignificant. F-11 WordCruncher Internet Technologies, Inc. (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 5. Recognition of revenue The Company recognizes income and expense on the accrual basis of accounting. During the development stage, the Company has received revenues for certain services provided for indexing printed materials to online format. Revenue is recorded when the services are completed. The Company also generates revenues during the development stage from the sale of its publishers' proprietary version of the search engine technology. This technology is sold separately without future performance such as upgrades or maintenance, and is not sold with support services, therefore revenue is recorded upon the sale and delivery of the product. Licensing fees are also received from the sublicensing of this technology which is included in the software of certain sublicenses. Licensing fees are recorded as revenue as software is reported as sold by the sublicensee. 6. Cash and cash equivalents The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. 7. Short-term investments Short-term investments are comprised of various government securities, commercial paper and other securities, which mature in one year or less and are classified as available-for-sale. Available-for-sale securities are measured at fair value with net unrealized gains and losses reported in equity. 8. Fair value of financial instruments The fair value of the Company's cash equivalents, receivables, accounts payable and accrued liabilities approximate carrying value due to the short-term maturity of the instruments. The fair value of long-term obligations approximate carrying value based on their effective interest rates compared to current market rates. 9. Use of estimates In preparing the Company's financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. 10. Depreciation and amortization Depreciation of property and equipment is provided on the straight-line method over the estimated useful lives of the assets. Accelerated methods of depreciation of property and equipment are used for income tax purposes. F-12 WordCruncher Internet Technologies, Inc. (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 10. Depreciation and amortization - continued Property and equipment under capital leases are amortized over the lessor of the life of the asset or the term of the lease. Maintenance, repairs, and renewals which neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Gains or losses on dispositions of property and equipment are included in earnings. 11. Income taxes In 1997, WordCruncher Publishing Technologies, Inc. elected to file federal and state income taxes under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company did not pay corporate income taxes on its taxable income during that period of time. Instead, the stockholders were liable for individual income taxes on their respective shares of the Company's net operating income in their individual income tax returns. Effective July 1, 1998, the Company filed consolidated tax returns with its parent and terminated its S-Corporation status. Since July 1, 1998, the Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred income tax liabilities are provided based on the difference between the financial statement and tax bases of assets and liabilities as measured by the currently enacted tax rates in effect for the years in which these differences are expected to reverse. Deferred tax expense or benefit is the result of changes in deferred tax assets and liabilities. 12. Comprehensive income In 1998, the Company adopted Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130 establishes standards for disclosure and financial statement display for reporting total comprehensive income and its individual components. Comprehensive income, as defined, includes all changes in equity during a period from nonowner sources. The Company's comprehensive income includes net loss and unrealized gains on investments and is displayed in the statement of stockholders' equity. 13. Net loss per common share The computation of net loss per common share is based on the weighted-average number of shares outstanding during each period presented. Diluted loss per common share would include the dilutive potential effects of options, warrants, and convertible and reset features of Series A preferred stock, but were not included in the calculation of diluted EPS because their effects were antidilutive. F-13 WordCruncher Internet Technologies, Inc. (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 14. Certain reclassifications Certain nonmaterial reclassifications have been made to the 1998 and 1997 financial statements to conform to the 1999 presentation. NOTE B - GOING CONCERN The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company is a development stage company, has generated only limited revenue through December 31, 1999, and has sustained losses from operations each period since inception. In addition, it has a deficit accumulated during the development stage of $12,217,868. Also, the Company has used cash in, rather than provided cash from, its operations. In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financing requirements on a continuing basis, to maintain present financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. The Company has taken the following steps to revise its operating and financial requirements which it believes are sufficient to provide the Company with the ability to continue in existence: o During February and March 1999, Company received a total of $6,300,000 for a preferred stock offering (Note J). o During December 1999, the Company's pending S-1 Registration Statement became effective. o Through January 2000, the Company entered into agreements with prominent ad serving and reporting technology companies to utilize various technologies for its site management. o Also in January 2000, the Company has selected a full-service advertising agency to promote its planned business information Internet site. o In March of 2000, negotiations were underway to obtain up to $15,000,000 of additional financing. o In March 2000, the Company completed a working model of its planned business information Internet site. F-14 WordCruncher Internet Technologies, Inc. (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE C - SHORT-TERM INVESTMENTS At December 31, 1999, the cost, fair value and unrealized gain on short-term investments are as follows: Fair value $ 1,462,147 Cost 1,454,207 ------------ Unrealized gain $ 7,940 ============ NOTE D - OTHER ASSETS Other assets consist of the following: 1999 1998 ------------ ------------ Deposits $ 5,076 $ 5,076 Other 935 1,202 Interest receivable - 10,018 ------------ ------------ $ 6,011 $ 16,296 ============ ============ NOTE E - PROPERTY AND EQUIPMENT Property and equipment, at cost and estimated useful lives are as follows:
Estimated useful 1999 1998 lives ------------ ------------- ------------- Computer equipment $ 1,217,668 $ 54,352 5 Furniture and fixtures 49,392 5,358 7 Software technology 858,868 38,400 3 ------------ ------------- 2,125,928 98,110 Less accumulated depreciation 195,593 16,691 ------------ ------------- Total property and equipment $ 1,930,335 $ 81,419 ============ =============
F-15 WordCruncher Internet Technologies, Inc. (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997
NOTE F - NOTES RECEIVABLE - RELATED PARTIES Notes receivable consist of the following: 1999 1998 ------------- ------------ 8% note receivable from a former employee, interest and principal due in full April 2000, not collateralized $ 1,955 $ - 8% note receivable from an officer, interest and principal due in full January 1, 2000, received in full in 1999 - 66,700 8% note receivable from an officer, interest and principal due in full January 1, 2002, received in full in 1999 - 29,500 8% note receivable from a corporation owned by an officer, interest and principal due in full January 1, 2000, received in full in 1999 - 4,000 ------------- ------------ 1,955 100,200 Less current maturities 1,955 - ------------- ------------ $ - $ 100,200 ============= ============
NOTE G - LONG-TERM OBLIGATIONS At December 31, 1998, the Company had prime plus 1.5 percent (9.25 percent) notes payable to officers in the amount of $120,000. Interest payments were due monthly, and principal was due in December 1999. The notes were not collateralized and were paid in full in 1999. NOTE H - LEASES 1. Operating leases The Company leases their office facilities under an operating lease, which expires in March 2002. Future minimum lease payments are as follows: Year ending December 31, 2000 $ 44,933 2001 44,933 2002 11,233 Thereafter - ------------- $ 101,099 ============= F-16 WordCruncher Internet Technologies, Inc. (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE H - LEASES - CONTINUED 2. Capital lease obligations Included in property and equipment is $818,177 and $51,101 of computer equipment under capital leases at December 31, 1999 and 1998, respectively. The related accumulated amortization is $56,411 and $16,333 at December 31, 1999 and 1998, respectively. Future minimum lease payments at December 31, 1999, are as follows: Year ending December 31, 2000 $ 335,930 2001 260,923 2002 3,388 Thereafter - ------------- Total minimum lease payments 600,241 Less amount representing interest 46,908 Present value of net minimum lease payments 553,333 Less current maturities 299,983 ------------- Noncurrent portion $ 253,350 ============= NOTE I - COMMITMENTS 1. Licenses On February 14, 1997, the Company signed an exclusive license agreement with Brigham Young University (BYU), a Utah nonprofit corporation and educational institution, wherein the Company has the worldwide rights to market, modify, develop and manufacture the "WordCruncher" technology, which is a software program used to search data for specific items (search engine). The term of the license covers the underlying period of the patent as provided for by federal law, which is 17 years. The agreement calls for license fees and royalties of three percent of adjusted gross sales, and 50 percent of royalty payments from sublicenses. Annual minimum royalties begin for the calendar year 1999 and are due the quarter following the year end, as specified below. Minimum royalty payments will be capped at $150,000 from 2002 forward. The Company acquired the license through stock issuance, and was required to maintain BYU's equity interest of 10 percent through July 1998. F-17 WordCruncher Internet Technologies, Inc. (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE I - COMMITMENTS - CONTINUED 1. Licenses - continued The Company is committed to minimum royalty payments as follows: Year ending December 31, 2000 $ 50,000 2001 100,000 2002 150,000 2003 150,000 2004 150,000 Thereafter 1,368,750 ------------- $ 1,968,750 ============= These minimum royalties are due as long as the license agreement is in effect. 2. Employment agreements The Company has six employment and severance agreements with certain officers and a manager of the Company. Salaries covered by these agreements range from $100,000 to $120,000 annually, subject to annual adjustment. Contracts with three individuals provide for annual salaries of $120,000 (plus annual increases of at least eight percent and cash bonuses determined by the board of directors or the compensation committee), and are for terms of three years expiring in August 2001. The agreements provide for severance equal to one year's salary if the individual is terminated without cause. Furthermore, if there is a change in control as defined by these three agreements, the contracts provide for compensation equal to five times the average of the sum of amounts paid to the executive for salary for the five fiscal years immediately preceding the date of the change in control. The other three contracts provide for annual salaries of $84,000 to $100,000 (plus monthly commissions equal to 50 percent of monthly base salary and/or annual incentive bonuses equal to 30-60 percent of annual base salary), and are for terms of two years expiring April through December 2001. The agreements also provide for severance equal to 90 days of the employee's base salary plus the maximum amount of incentive pay the employee would have earned in the same 90 day period. Furthermore, if there is a change in control, as defined by these agreements, the contracts provide for compensation equal to the employee's annual base salary. There is no provision for any severance payments under these employment contracts. 3. Consulting and development contract The Company has entered into a consulting and development contract in connection with the launch of its website. The Company is required to pay a fixed price of $500,000 in exchange for these services, to be paid in four installments based upon meeting certain milestones. At December 31, 1999, $275,000 remains payable under this contract. F-18 WordCruncher Internet Technologies, Inc. (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE J - PREFERRED STOCK In January of 1999, the Board of Directors approved the creation of Series A Convertible Preferred Stock (Preferred Stock) and authorized 15,000 shares. The Preferred Stock has a stated value of $1,000 per share, and a cumulative dividend of 6 percent. The Company issued 6,100 and 200 shares of the Preferred Stock in February and March of 1999, respectively. The Preferred Stock is convertible into a total of 625,000 shares of the Company's common stock at a conversion rate of $10.08 per share. The conversion price is based on the average closing price of the Company's common stock during the 20 day period immediately preceding the closing of the preferred issuance. The Preferred shares hold no voting rights and have liquidation preferences of $1,000 per share and cumulative dividends. The Preferred shareholders have a limited right to receive additional shares of common stock ("reset shares") if the market price of the common stock is less than the "reset price" of $12.096 per share for a ten day period of time following certain reset dates (adjustment price). The additional shares are calculated as the difference between the reset price and the adjustment price, multiplied by one third of the purchase price of Preferred stock divided by the conversion price, divided by the adjustment price. The reset dates commence 150, 240 and 360 calendar days following the issuance of the Preferred Stock. As of December 31, 1999, the holders of Preferred stock are entitled to receive 574,867 shares of common stock under this provision. On the dates that the Preferred Stock was issued, the intrinsic values of the beneficial conversion feature were $10,995,740 and $31,994 in February and March, respectively. The intrinsic values were derived by the difference between the conversion price and the market value of the common stock on the day of the preferred stock issuance multiplied by the number of common shares into which the Preferred Stock is convertible. The closing price of the stock was $28.25 and $11.69 at each of the respective closing dates. The proceeds received from the sale of these convertible instruments were $6,100,000 and $200,000, respectively. Because the intrinsic values of the beneficial conversion features are greater than the proceeds received, the discounts assigned to the convertible instruments are $6,100,000 and $31,944, respectively, creating a total discount of $6,131,944. The Preferred Stock became fully convertible into common stock as of November of 1999 and the discount was accreted accordingly during 1999 and is reflected on the statement of operations as a deduction for dividends and accretion. Offering cost related to the issuance of Preferred Stock total $392,100 and have been netted with the proceeds for reporting purposes. Cumulative Preferred dividends total $337,917 as of December 31, 1999. F-19 WordCruncher Internet Technologies, Inc. (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE K - STOCK OPTIONS AND WARRANTS 1. Stock options The Company provides for issuance of stock options to certain employees, directors, officers and others. There has been no formal stock option plan adopted as of December 31, 1999. The Board of Directors has approved the granting of options as follows: Directors, officers and key employees have been granted options to acquire 1,079,000 shares of common stock. The options were granted at various dates at prices ranging from $0.10 to $5.54 per share, which amounts represent prices below market price of the Company's shares on the dates granted as determined by the Board of Directors. The options vest periodically through November 2002 and expire through June 2003. Fair market value of options granted The Company has adopted only the disclosure provisions of Statement of Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock-Based Compensation". Therefore, the Company accounts for stock based compensation under Accounting Principles Board Opinion No. 25, under which compensation cost has been recognized using the intrinsic value method. Under this method, compensation cost is recognized over the vesting period based on the difference, if any, on the date of grant between the fair value of the Company's stock and the amount an employee must pay to acquire the stock. Had compensation cost been determined based upon the fair value of the options at the grant date consistent with the methodology prescribed by SFAS 123, the Company's net loss and loss per share would have been changed to the following pro forma amounts: 1999 ---------------- Net loss attributable to As reported $ (11,399,741) common stockholders Pro forma (11,453,549) Net loss per common share - As reported (.96) basic and diluted Pro forma (.96) The fair value of these options was estimated at the date of grant using the Black-Scholes American option-pricing model with the following weighted-average assumptions: expected volatility of 120 percent; risk-free interest rate of 6.5 percent; and expected life of 3.50 years. The weighted-average fair value of options granted was $4.75. Option pricing models require the input of highly sensitive assumptions, including the expected stock price volatility. Also, the Company's stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. Management believes the best input assumptions available were used to value the options and that the resulting option values are reasonable. F-20 WordCruncher Internet Technologies, Inc. (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE K - STOCK OPTIONS AND WARRANTS - CONTINUED Information with respect to the Company's stock options is as follows:
Weighted- average Stock Exercise exercise options price price ------------ ------------- ------------- Outstanding at January 1, 1997 - $ - $ - Granted - - - Exercised - - - Canceled/expired - - - ------------ ------------- ------------- Outstanding at December 31, 1997 - - - Granted - - - Exercised - - - Canceled/expired - - - ------------ ------------- ------------- Outstanding at December 31, 1998 - - - Granted 1,079,000 0.10 - 5.54 1.79 Exercised (4,000) 0.10 0.10 Canceled/expired - - - ------------ ------------- ------------- Outstanding at December 31, 1999 1,075,000 $ 0.10 - 5.54 $ 1.80 ============ ============= ============= Exercisable at December 31, 1999 116,833 $ 0.10 $ 0.10 ============ ============= =============
Additional information regarding stock options outstanding and exercisable at December 31, 1999 is summarized as follows:
Options Outstanding Options Exercisable ----------------------------------------------------------- -------------------------------------- Weighted- average Weighted- Weighted- remaining average average Number contractual exercise Number exercise Range of exercise prices outstanding life (years) price xercisable price ------------------------ ------------- ----------- ----------- ------------ ----------- $ 0.10 440,000 13.3 $ 0.10 116,833 $ 0.10 $ 2.72 - $ 2.77 550,000 21.0 2.73 - - $ 3.00 - $ 3.47 35,000 1.3 3.17 - - $ 5.54 50,000 1.9 5.54 - - ------------- ------------ 1,075,000 37.5 $ 1.80 116,833 $ 0.10 ============= ============
F-21 WordCruncher Internet Technologies, Inc. (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE K - STOCK OPTIONS AND WARRANTS - CONTINUED 2. Warrants Series A, B and C warrants In connection with the sale of Series A Convertible Preferred Stock (Note J), purchasers, were issued Series A and B warrants to purchase the Company's common stock. Series C warrants were also issued to a third party for a finder's fee. Series A warrants allow holders to purchase up to an aggregate of 71,069 shares of common stock at a weighted-average price of $34.53 per share. Series B warrants allow holders to purchase up to an aggregate of 47,380 shares of common stock at a weighted-average of $41.44 per share. Series C warrants allow holders to purchase up to 189,000 shares of common stock at a weighted-average price of $29.01 per share. All 307,449 Series A, B and C warrants expire in February 2004. Other warrants issued for services In January of 1999, and in conjunction with the sale of Series A Convertible Preferred Stock (Note J), the Company issued warrants to purchase 200,000 shares of the Company's common stock to its investor relations consultant. The warrants were issued with an exercise price of $5.00 per share and are fully vested at December 31, 1999. The fair value of $1.29 was estimated as the value of the services performed. Consulting expenses relating to these warrants totaled $258,000 during 1999. Information with respect to the Company's warrants is as follows: Weighted- Number average of shares exercise price ------------ ------------- Outstanding at January 1, 1997 - $ - Granted - - Exercised - - Forfeited - - ------------ ------------- Outstanding at December 31, 1997 - - Granted - - Exercised - - Forfeited - - ------------ ------------- Outstanding at December 31, 1998 - - Granted 507,449 $ 21.48 Exercised - - Forfeited - - ------------ ------------- Outstanding at December 31, 1999 507,449 $ 21.48 ============ ============= Warrants exercisable at December 31, 1999 507,449 $ 21.48 ============ ============= F-22 WordCruncher Internet Technologies, Inc. (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE L - INCOME TAXES The income tax expense (benefit) reconciled to the tax computed at the federal statutory rate of 34 percent is as follows: 1999 1998 ------------ ----------- Income tax benefit at statutory rate $ (1,676,159) $ (164,189) Income tax attributed to the S-Corporation - 8,560 State income tax benefit, net of federal tax benefit (115,157) (15,936) Nondeductible option compensation 493,887 - Deductible stock option compensation (6,068) - Change in valuation allowance 1,301,627 169,896 Other, net 1,870 1,669 ------------ ----------- Income tax expense $ - $ - ============ =========== Deferred income tax assets and liabilities are as follows: 1999 1998 ------------ ----------- Deferred tax assets Deferred expenses $ 146,465 $ - Net operating losses 1,442,150 169,896 ------------ ----------- 1,588,615 169,896 Less valuation allowance (1,471,524) (169,896) ------------ ----------- 117,091 - ------------ ----------- Deferred tax liabilities Deferred income (117,091) - ------------ ----------- Net deferred tax assets (liability) $ - $ - ============ =========== The Company has sustained net operating losses in each of the periods presented. There were no deferred tax assets or income tax benefits recorded in the financial statements for net deductible temporary differences or net operating loss carryforwards because the likelihood of realization of the related tax benefits cannot be established. Accordingly, a valuation allowance has been recorded to reduce the net deferred tax asset to zero and consequently, there is no income tax provision or benefit for any of the period presented. The increase in the valuation allowance was $1,301,628 and $169,896 for the years ended December 31, 1999 and 1998, respectively. As of December 31, 1999, the Company had net operating loss carryforwards for tax reporting purposes of approximately $3,866,354 expiring in various years through 2019. Through June 30, 1998, the Company elected to file federal and state income taxes under the provisions of Subchapter S of the Internal Revenue Code. Effective July 1, 1998, the Company revoked its S election, and will therefore be a taxable entity under the provisions of Subchapter S of the Internal Revenue Code. F-23 WordCruncher Internet Technologies, Inc. (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 NOTE M - NET LOSS PER COMMON SHARE
Cumulative amounts Year ended December 31, since -------------------------------------------- inception 1999 1998 1997 ------------ ------------- ------------ ------------- Common shares outstanding during the entire period - 11,877,002 1,091,067 - Weighted-average common shares issued during the period 5,850,408 2,917 5,009,612 545,535 ------------ ------------- ------------ ------------- Weighted-average common shares used in basic EPS 5,850,408 11,879,919 6,100,679 545,535 Dilutive effects of potential common shares - - - - ------------ ------------- ------------ ------------- Weighted-average number of common shares and dilutive potential common stock used in diluted EPS 5,850,408 11,879,919 6,100,679 545,535 ============ ============= ============ =============
For the years ended December 31, 1999, 1998 and 1997, and for cumulative amounts since inception, all of the convertible securities, reset provisions, options and warrants discussed in Notes J and K were not included in the computation of diluted EPS because to do so would have been antidilutive. NOTE N - SUBSEQUENT EVENTS 1. Company name change In January 2000, the Company began conducting business under the name "Logio". 2. Preferred stock conversion Through March 2000, 6,300 shares of the Company's preferred stock were converted into 625,000 common shares and 728,046 "reset shares" of the Company's common stock were issued to preferred shareholders (Note J). Also, through March 2000, cumulative dividends were paid to preferred shareholders in the form of 61,650 shares of the Company's common stock. 3. Options granted Through March 2000, options for 5,000 shares of the Company's common stock were granted to an employee. 4. Options and warrants exercised Through March 2000, warrants were exercised for 158,000 shares of the Company's common stock and options were exercised for 4,000 shares of the Company's common stock. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. On February 1, 2000, our Board of Directors authorized the engagement of Grant Thornton LLP as our auditor for the fiscal year ended December 31, 1999. Our decision to change accountants was prompted by the ability of Grant Thornton LLP to provide audit services for us on an extended scale as our operations are expected to expand. We entered into an engagement letter with Grant Thornton on February 23, 2000, and concurrently with that engagement, we dismissed Crouch Bierwolf & Chisholm, P.C., which had served as our independent accountants since 1998. Our Board of Directors participated in and approved the decision to change independent accountants. The reports of Crouch Bierwolf on our financial statements for the past fiscal year contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with its audit for the most recent fiscal year and through February 23, 2000, there were no disagreements with Crouch Bierwolf on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Crouch Bierwolf would have caused Crouch Bierwolf to make reference thereto in their report on the financial statements for such year. During the most recent fiscal year and through February 23, 2000, we had not consulted with Grant Thornton LLP regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, and neither a written report was provided to us nor oral advice was provided that Grant Thornton LLP concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement or a reportable event. Item 10. Directors and Executive Officers of the Registrant. Our directors, executive officers and key employees, as of the date hereof, and their respective ages and positions with us are set forth below. Biographical information for each of those persons is also presented below. Our executive officers are chosen by our Board of Directors and serve at its discretion. There are no existing family relationships between or among any of our directors or executive officers. Name Age Position Held - ----------------- --- ---------------------------------------------------- M. Daniel Lunt 46 President, Chief Executive Officer, Director James W. Johnston 47 Chairman of the Board, Executive Vice President, Director Kenneth W. Bell 50 Senior Vice President, Chief Financial Officer, Treasurer, Secretary, Director Edward Sullivan 47 Director David Grow 43 Director Michael Fowler 56 Director Peter T. Stoop 38 Vice President of Marketing Martin E. Cryer 39 Vice President of Product Development M. Daniel Lunt: Mr. Lunt was a co-founder of WordCruncher Publishing and has served as our President, Chief Executive Officer and Director since November 1996. Mr. Lunt has over 20 years experience in the computer software industry. Between 1983 and 1993, he was employed by WordPerfect Corporation, most recently as Vice President of Worldwide Marketing. In that capacity, he was responsible for the development and implementation of WordPerfect's marketing, sales and support divisions. After leaving WordPerfect in 1993, Mr. Lunt became the president of a residential real estate development company. Mr. Lunt attended Brigham Young University. James W. Johnston: Mr. Johnston was a co-founder WordCruncher Publishing and has served as our Director, Chairman of the Board and Executive Vice President since November 1996. From December 1990 to November 1996, he was president of Johnston & Company, which published virtual works using Logio technology, including the Constitution Papers (CD ROM). Mr. Johnston has 15 years of expertise in developing and marketing products involving content presentation, analysis software and virtual publishing. Kenneth W. Bell: Mr. Bell joined us as our Senior Vice President, Chief Financial Officer, Secretary and Treasurer and Director in February 1997. Between April 1990 and December 1996, he served as President and Chief Financial Officer of Kelmarc Corporation, a financial and management advisory company. He has twenty-five years experience in a variety of finance and management positions, including employment in the commercial banking area for fifteen years in Utah and California. Mr. Bell received his B.S. from BYU in 1972. Edward Sullivan: Mr. Sullivan joined us as one of our directors in February 2000. Since 1989, he served as President and Chief Executive Officer of Pittard Sullivan, a brand and marketing communications company. Mr. Sullivan has twenty years of experience in advertising, marketing and media management, with over 250 channel launches around the world. Mr. Sullivan was educated at the University of Cincinnati and Central Academy of Commercial Arts. He has also attended Harvard Business School's Accelerated Business Administration Program as well as Carnegie Mellon's Oral Communications Program David R. Grow: Mr. Grow joined us as one of our Directors on February 1, 2000. Since 1995, Mr. Grow has served as Executive Vice President, Chief Operating Officer and Chief Financial Officer for Daw Technologies, Inc. Prior to joining Daw Technologies, Mr. Grow was employed by Novell, Inc. from 1992 to 1995, most recently as director of operations for Novell's $500 million software applications division. Mr. Grow also served as Corporate Controller for WordPerfect Corporation from 1992 to 1994 where he was responsible for the accounting, financial analysis and reporting for the $700 million, multi-national software publishing company. He was employed by Price Waterhouse as a Senior Audit Manager for the years 1982 to 1992. Mr. Grow is a certified public accountant, licensed in the State of Utah. Michael D. Fowler: Mr. Fowler joined us as one of our Directors on February 1, 2000. Since 1997, Mr. Fowler serves as the Vice President, Chief Financial Officer of Howa Construction, Inc. During the period of 1995 through 1997, Mr. Fowler was a small business consultant to companies involved in medical services, microbrewery/restaurants, telecommunications and employee leasing. From 1990 to 1995, Mr. Fowler served as Vice President, Treasurer and a director of Grand Valley Gas Company, where he was responsible for the company's accounting, treasury, risk management, legal affairs and investor relations. Peter T. Stoop: In September 1998, Mr. Stoop joined us as our Vice President of Sales and Marketing. He was employed by Novell, Inc. from February 1994 through June 1997, most recently as senior director of product management for Novell's $70 million product division. Mr. Stoop has eight years of experience in the computer industry. Mr. Stoop received his MBA in marketing from the William E. Simon School of Business at the University of Rochester in 1989. Martin Cryer: Mr. Cryer joined us as our Vice President of Product Development in March 1999. Mr. Cryer has nearly 20 years experience in the computer industry. He has designed and developed several generations of computer systems, covering both symmetrical multi-processing and parallel architectures. Between 1996 and 1999, Mr. Cryer oversaw the Salt Lake City based Siemens Research and Development Centre. Mr. Cryer also served 12 years in the Unisys UNIX Systems Group, contributing significantly to many of its innovative server system designs. He graduated from Queen Mary College, University of London and has been residing in the United States for the past 10 years. Board of Directors. Our Board of Directors is comprised of six persons. The number of directors can be increased as provided in our by-laws, which allow either our board of directors or our stockholders to approve the change. Our directors serve for terms of one-year. Board of Directors Committees. Our Board of Directors has established three committees, the audit committee, the compensation committee and the executive committee. Each of these committees is be responsible to the full Board of Directors, and, in general, its activities will be subject to the approval of the full Board of Directors. The audit committee is primarily charged with the review of professional services provided by our independent auditors, the determination of the independence of those auditors, our annual financial statements, and our system of internal accounting controls. The audit committee also reviews such other matters with respect to our accounting, auditing and financial reporting practices and procedures as it finds appropriate or as is brought to its attention, including our selection and retention of independent accountants. Our audit committee is currently comprised of Messrs. Bell, Grow and Fowler. The compensation committee is charged with the responsibility of reviewing executive salaries, administering bonuses, incentive compensation and our stock option plans and approving our other executive officer benefits. The compensation committee also consults with our management regarding pension and other benefit plans, and our compensation policies and practices in general. Our compensation committee is currently comprised of Messrs. Lunt, Johnston and Sullivan. The executive committee is charged with the performance of the duties of the Board of Directors between regularly scheduled meetings of our Board, and with the functions of the full Board of Directors with regard to matters addressed by it. The executive committee is currently comprised of Messrs. Lunt, Johnston and Bell. Compensation of Directors. We do not have any standard arrangement for compensating our directors for the services they provide to us in their capacity as directors, including services for committee participation or for special assignments. We have, however, approved a stock option package for the year 2000 under which our independent directors, Messrs. Grow, Fowler and Sullivan, may each earn options on up to 10,000 shares of our common stock with an exercise price of $5.86 a share. Employment Agreements. We have adopted a policy of entering into employment agreements with our senior management, and have entered into such agreements with Messrs. Lunt, Bell, Johnston, Cryer and Stoop. The terms of the employment agreements for Messrs. Lunt, Bell and Johnston begun on September 1, 1998 and have initial terms of three years. Under the agreements, each is entitled to receive a base annual salary of $102,000 during the first year of the agreements. The salary will be increased annually, effective in September of each year, by an amount equal to the greater of 8% or an amount determined by the Board of Directors. In addition to the base salary amounts, each of Messrs. Lunt, Bell and Johnston will receive incentive bonuses, as determined by our Board of Directors, standard benefits such as health and life insurance, disability payments and reimbursement of reasonable business expenses. We have also entered into an employment agreement with each of Messrs. Stoop and Cryer. The initial term of each agreement is two years and each provides for a base salary of $100,000. The agreements also provide for standard health and medical insurance, incentive bonuses, disability coverage and reimbursement for reasonable business expenses. In addition, through of March 15, 2000 Mr. Stoop received 500,000 options and Mr. Cryer received 300,000 options to acquire shares of our common stock vesting over a three year period. We may terminate the employment contracts for cause, as defined in the agreements, or without cause. If the contract is terminated without cause or as a result of a "change of control", as defined in the agreements, the employee is generally entitled to receive severance pay. In the event of a change of control, Messrs. Lunt, Bell and Johnston will each receive a payment equal to five times the sum of his average annual salary, bonus and profit sharing, based on a per year average over the five preceding years. The term "change of control" is defined in their agreements as o any tender offer, stock exchange offer or other take-over device in which any person becomes the beneficial owner of 30% or more of the total voting power of our outstanding securities; o any realignment of the Board of Directors or change in officers due to shareholder action; o our sale by 30% or more of our assets; or o any merger or reorganization where we are not the surviving entity or our shareholders fail to retain substantially the same direct or indirect ownership in us immediately after the merger or reorganization. If Mr. Stoop or Cryer is terminated for cause under his agreement, he will not be entitled to receive any severance compensation. If the termination is without cause, we are obligated to pay him a severance payment equal to 90 days' of base salary, payable in three equal monthly installments, and if the termination is because of a change of control, he is entitled to receive a severance payment equal to his annual salary, payable in three installments. A change of control is defined in his agreement as any sale or other disposition by the us of all or substantially all of our assets, any merger or consolidation with another corporation in which our shareholders as a group do not hold at least 50% of the voting power of the surviving corporation, or any person becomes the beneficial owner of 50% or more of our voting power. Section 16(a) of the Securities Exchange Act of 1934. Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC"). Executive officers, directors and greater than 10% shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal 1999 all filing requirements applicable to our executive officers and directors and greater than 10% shareholders were complied with, except that Messrs. Lunt, Johnston and Bell each filed one report on Form 4 late. Item 11. Executive Compensation. The following table summarizes the compensation paid to or earned by our chief executive officer and our four most highly-compensated executive officers whose total salary and bonus exceed $100,000 during each of the past two fiscal years:
Summary Compensation Table - ----------------------------------------------------------------------------------------------------------- Annual Compensation Long-Term Compensation Awards ---------------------------------------------------------------- Other Annual Securities Underlying Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Options / SARs (#) - ----------------------------------------------------------------------------------------------------------- M. Daniel Lunt 1999 $120,000 - - - President, CEO, Director 1998 $102,000 - - - James W. Johnston 1999 $120,000 - - - Executive V.P.,Chairman 1998 $102,000 - - - Kenneth W. Bell 1999 $120,000 - - - Senior V.P., CFO, Director 1998 $102,000 - - - Peter Stoop 1999 $100,000 - - 500,000 V.P. Sales and Marketing 1998 $66,200 - - - Martin Cryer 1999 $100,000 - - 300,000 V.P. Product Development 1998 - - - - - -----------------------------------------------------------------------------------------------------------
The following table presents additional information concerning the option awards made during fiscal year 1999 to each of our named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR - -------------------------------------------------------------------------------------------------------------------- Potential Realizable Value at Assumed Annual Rates of Stock Individual Grants Price Appreciation for Option -------------------------------------------------------- Term Percent of Total Market Number of Options Price Securities Granted Exercise on Underlying to Emp. of Base Grant Options in Fiscal Price Date Expiration Name Granted (#) Year ($/Sh) ($/Sh) Date 5% ($) 10% ($) - -------------------------------------------------------------------------------------------------------------------- M. Daniel Lunt - - - - - - - President, CEO, Director James W. Johnston - - - - - - - Executive V.P.,Chairman Kenneth W. Bell - - - - - - - Senior V.P., CFO, Director Peter Stoop 50,000 4.6% $0.10 $2.375 3/21/02 $135,905 $160,959 V.P. Sales and Marketing 250,000 23.2% $0.10 $3.562 11/18/02 $1,031,637 $1,219,518 200,000 18.5% $2.72 $3.625 6/23/03 $316,260 $469,224 Martin Cryer 50,000 4.6% $0.10 $8.875 9/22/02 $521,538 $615,162 V.P. Product Development 250,000 23.2% $2.72 $3.625 6/23/03 $395,325 $586,530 - --------------------------------------------------------------------------------------------------------------------
The intrinsic value of each respective grant to Mr. Stoop as of the date of such grant was $113,750, $865,500, and $181,000 respectively. The intrinsic value of each respective grant to Mr. Cryer as of the date of such grant was $438,750 and $226,250 respectively. The following table summarizes the exercise of stock options during fiscal year 1999 by each of our named executive officers, and the fiscal year-end value of unexercised stock options held by each of them:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES - ------------------------------------------------------------------------------------------------------------------- Number of Securities Value of Shares Value Underlying Unexercised Unexercised In-The- Acquired on Realized Options at Fiscal Year-End (#) Money Options at Name Exercise (#) ($) Exercisable / Unexercisable Fiscal Year-End ($) - ------------------------------------------------------------------------------------------------------------------- M. Daniel Lunt - - - - President, CEO, Director James W. Johnston - - - - Executive V.P.,Chairman Kenneth W. Bell - - - - Senior V.P., CFO, Director Peter Stoop - - 103,333 / 396,667 $2,875,000 V.P. Sales and Marketing Martin Cryer - - 5,000 / 295,000 $1,725,000 V.P. Product Development - -------------------------------------------------------------------------------------------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth, as of December 31, 1999, the beneficial ownership of our outstanding common stock by o each of our executive officers, o each of our directors, and o all executive officers and directors as a group. As of December 31, 1999, no other person held five percent or more of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. For purposes of calculating the percentages shown in the chart, each person listed is also deemed to beneficially own any shares issuable on either the exercise of vested options or warrants held by that person and that are exercisable within 60 days after December 31, 1999. Except as indicated by footnote, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The inclusion of any shares as beneficially owned does not constitute an admission of beneficial ownership of those shares. The percentage calculation of beneficial ownership is based on 11,891,002 shares of common stock outstanding as of December 31, 1999.
- ------------------------------------------------------------------------------------------------------------------- Name of Beneficial Owner, Common Stock Beneficially Owned Title of Class Relationship to Us Shares Percent - -------------------------- ---------------------------------------------- ----------------- -------------------- Officers and Directors Common Stock M. Daniel Lunt 1 1,798,383 15.1% President, CEO, Director Common Stock James W. Johnston 2 2,021,223 17.0% Chairman of the Board, Executive V.P. Common Stock Kenneth W. Bell 3 1,510,608 12.7% Senior V.P., CFO, Treasurer, Secretary, Director Common Stock Edward Sullivan 4 2,500 * Director Common Stock Michael Fowler 4, 5 3,000 * Director Common Stock David Grow 4 2,500 * Director Common Stock Peter T. Stoop 103,333 * V.P. Marketing and Sales Common Stock Martin Cryer 5,000 * V.P. Product Development Common Stock All Executive Officers and Directors as 5,446,047 45.8% a Group (8 persons) - ------------------------------ -----------------------------------------------------------------------------------
1 Mr. Lunt shares voting power and investment power with his wife, Lori Lunt. 2 Mr. Johnston shares voting power and investment power of 1,953,339 shares held jointly with his wife, Catherine F. Johnston, 66,408 of such shares are held in the name of his wife, Catherine F. Johnston. He also influences the investment power and voting power of 1,476 shares held by his son, LeGrand Johnston. Mr. Johnston does not disclaim beneficial ownership of his wife's and son's shares. 3 Mr. Bell has sole voting power and investment power of 330,000 shares and shares voting power and investment power of 1,180,608 shares with his wife, Roberta L. Bell. 4 Represents options to acquire shares of our common stock within sixty days of the date of this report at an average weighted exercise price of $5.86 per share. 5 Includes 2,500 options to acquire shares of our common stock within sixty days of the date of this report at an average weighted exercise price of $5.86 per share. Item 13. Certain Relationships and Related Transactions. The following information summarizes certain transactions either we engaged in during the past two years or we propose to engage in involving our executive officers, directors, 5% stockholders or immediate family members of those persons: Management Loans to Us. James Johnston, Kenneth Bell and Daniel Lunt secured a line of credit in the amount of $250,000, which they agreed to use to loan us up to that amount on a revolving basis, and loaned us an additional $50,000, for a total of $300,000 in 1997. Mssers. Johnston, Bell, and Lunt have received no direct or indirect consideration for their securing this line of credit. We subsequently drew down the entire $250,000 loan commitment. As of December 31, 1998, we owed $120,000 of the $300,000. In October 1998, we repaid the $50,000 loan and the line of credit was paid down to zero in January 1999, but it still remains available to be drawn on, if we need it, through December 31, 1999. In May 1998, Mr. Lunt loaned us $13,000, which we repaid in July 1998 though our issuance of additional common stock to Mr. Lunt. Indebtedness of Management. We advanced a total of $66,700 to James Johnston during 1997 and 1998. The amounts outstanding on these loans as of December 31, 1998 was $66,700. The interest rate is 8%, with interest and principle due on January 1, 2000, but was paid in full by Mr. Johnston in March 1999. We also advanced a total of $29,500 to Kenneth Bell in 1997 and 1998. Mr. Bell repaid those amounts to us in March 1999. We also loaned an entity owned by M. Daniel Lunt $10,000 in 1997, and loaned him $4,000 personally in 1998. Five thousand dollars of the $10,000 loan was repaid by offsetting amounts we otherwise owed Mr. Lunt, and the other $5,000 was repaid in cash, and the $4,000 loan was paid to us in March 1999. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. The following documents are filed as part of this Annual Report on Form 10-K. (a) Financial Statements and Schedules. Consolidated Balance Sheets at December 31, 1999 and 1998 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements All schedules have been omitted since the required information is not present, is not present in amounts sufficient to require submission of the schedule or because the required information is included in the financial statements or notes thereto. (b) Exhibits Exhibit Number Description 2.1* Agreement and Plan of Reorganization between the Company and WordCruncher Publishing Technologies, Inc., dated July 14 1998 3.1* Articles of Incorporation of the Company 3.2* Articles of Merger, filed June 20, 1998 3.3* Articles of Merger, filed July 15, 1998 3.4* Articles of Merger 3.5* Certificate of Amendment, filed February 1, 1999 3.6* Bylaws of the Company 4.1* Reference is made to Exhibit 3.4 4.2* Specimen of Common Stock Certificate 10.1* Lease between the Company and SLT III, LLC, dated December 24, 1998 10.2* License Agreement between the Company and Brigham Young University, dated February 14, 1997 10.3* Purchase Agreement between the Company and Jeffrey B. Petersen, dated December 28, 1998 10.4* Employment Agreement between the Company and Kenneth W. Bell, dated September 1, 1998 10.5* Employment Agreement between the Company and James W. Johnston, dated September 1, 1998 10.6* Employment Agreement between the Company and M. Daniel Lunt, dated September 1, 1998 10.7* Employment Agreement between the Company and Peter T. Stoop 10.8* Preferred Stock Purchase Agreement between the Company and certain Series A Preferred investors, dated February 8, 1999 10.9* Letter Amendment Regarding Preferred Stock Purchase Agreement, dated April 21, 1999 10.10* Escrow Agreement among the Company, the Goldstein Law Group and certain Series A Preferred Investors, dated February 8, 1999 10.11* Registration Rights Agreement among the Company and certain Series A Preferred Investors, dated February 8, 1999 10.12* Form of Warrant issued to certain Series A Preferred Investors on February 8, 1999 10.13* Warrant issued to Placement Agent, dated February 8, 1999 10.14* Dataware License Agreement, dated July 1999 10.15* Pittard Sullivan Contract, dated July 1999 10.16* Digital Boardwalk Agreement, dated July 1999 10.17* Acsiom, Inc. Consulting Agreement, dated July 1999 10.18 Columbia Financial Group Services Agreement, dated January, 1999 10.19 Sierra Systems Consulting and Development Agreement, dated September, 1999 10.20 Veritas Software Financial Agreement, dated November, 1999 10.21 Netscape Software Financial Agreement, dated November,1999 10.22 Oracle Software Agreement, dated November, 1999 10.23 Sun Microsystems License Agreement, dated December, 1999 10.24 Qwest Dedicated Internet Access Service Agreement, dated January 2000 10.25 Netdotworks Consulting and Support Agreement, dated February, 2000 10.26 DoubleClick, Inc. DART Service Agreement, dated February, 2000 16.1** Letter of Crouch, Bierwolf & Chisholm 24.1 Power of Attorney (see signature page) 27.1 Financial Data Schedule - ------------------------- * Incorporated by reference to Registration Statement Form S-1, File No. 333-79357, filed on May 28, 1999, and amended on August 17, 1999, September 24, 1999, October 25, 1999, November 19, 1999 and December 6, 1999. ** Incorporated by reference to Current Report Form 8-K, File No. 000-27453, filed on March 1, 2000. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WORDCRUNCHER INTERNET TECHNOLOGIES, INC. By: /s/ --------------------------------------- M. Daniel Lunt, Chief Executive Officer Dated: Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 30, 2000. By: /s/ ---------------------------------------- James W. Johnston, Chairman of the Board, Executive Vice President By: /s/ ---------------------------------------- Kenneth W. Bell, Senior Vice President, Chief Financial Officer, Treasurer, Secretary, Director By: /s/ ---------------------------------------- M. Daniel Lunt, President, Chief Executive Officer, Director By: /s/ ---------------------------------------- Michael Fowler, Director EX-10.18 2 COLUMBIA FINANCIAL GROUP SERVICES AGREEMENT CONSULTANT AGREEMENT Columbia Financial Group is an investor relations, direct marketing, publishing, public relations and advertising firm with expertise in the dissemination of information about publicly traded companies. Also in the business of providing investor relations services, public relations services, publishing, advertising services, fulfillment services, as well as Internet related services. Agreement made this 1st day of January, 2000, between WordCruncher Internet Technologies, Inc. (hereinafter referred to as "Corporation"), and Columbia Financial Group, Inc. (hereinafter referred to as "Consultant"), (collectively referred to as the "Parties"): Recitals: The Corporation desires to engage the services of the Consultant to perform for the Corporation consulting services regarding all phases of the Corporation's "Investors Relations" to include direct investor relations and broker/dealer relations as such may pertain to the operation of the Corporation's business. The Consultant desires to consult with the Board of Directors, the Officers of the Corporation, and certain administrative staff members of the Corporation, and to undertake for the Corporation consultation as to the company's investor relations activities involving corporate relations and relationships with various broker/dealers involved in the regulated securities industry. AGREEMENT 1. The respective duties and obligations of the contracting Parties shall be for a period of twelve (12) months commencing on the date first appearing above. This Agreement may be terminated by either parties only in accordance with the terms and conditions set forth in Paragraph 8. Services Provided by Consultant 2. Consultant will provide consulting services in connection with the Corporation's "investor relations" dealings with NASD broker/dealers and the investing public. (At no time shall the Consultant provide services which would require Consultant to be registered and licensed with any federal or state regulatory body or self-regulating agency.) During the term of this Agreement, Consultant will provide those services customarily provided by an investor relations firm to a Corporation, including but not limited to the following: (a) Aiding the Corporation in developing a marketing plan directed at informing the investing public as to the business of the Corporation; and (b) Providing assistance and expertise in devising an advertising campaign in conjunction with the marketing campaign as set forth in (1) above; and (c) Advise the Corporation and provide assistance in dealing with institutional investors as it pertains to the Corporation's offerings of its securities; and (d) Aid and assist the Corporation in the Corporation's efforts to secure "marketing makers" which will trade the Corporation's stock to the public by providing such information as may be required; and (e) Aid and advise the Corporation in establishing a means of securing nationwide interest in the Corporation's securities; and (f) Aid and assist the Corporation in creating an "institutional site program" to provide ongoing and continuous information to fund managers; and (g) Aid and consult with the Corporation in the preparation and dissemination of press releases and news announcements; and (h) Aid and consult with the Corporation in the preparation and dissemination of all "due diligence" packages requested by and furnished to NASD registered broker/dealers, the investing public, and/or other institutional and/or fund managers requesting such information from the Corporation; and (i) At the Corporation's direction, work with the Corporation's Public Relations firm to jointly support the Corporation's overall public relations program. Compensation 3. In consideration for the services provided by Consultant to the Corporation, the Corporation shall, on behalf of the Consultant cause to be vested at the time of execution of this Agreement 25% of the warrants set forth in A) and B) below and shall cause an additional 25% of such warrants to vest on June 30, 2000. The balance of the warrants, or an additional 50% of the amounts set forth in A) and B) below, shall vest on September 30, 2000 if no termination of this Agreement has taken place prior to that date. If a notice of termination, as described in Section 8 Termination, has been issued by either party then a pro rata number of the warrants to be vested in the final 50% amount shall be vested through the date of termination. All warrants vested shall have a term of five (5) years and shall contain piggyback registration rights. The warrants shall be issued at the following exercise prices: A) 200,000 warrants at $5.00 per share B) 200,000 warrants at $6.00 per share (Collectively hereinafter referred to as "compensation") Compliance 4. At the time of Consultant's execution of the warrants referred to in #3, Compensation above, common shares underlying the warrants, delivered by Corporation to Consultant will, at that particular time, be free trading, or if not the shares shall be included n the next registration filed by the Corporation. The warrants shall have "piggy back" registration rights and will, at the expense of the Corporation, be included in said registration. Representation of Corporation 5. (a) The Corporation, upon entering this Agreement, hereby warrants and guarantees to the Consultant that to the best knowledge of the Officers and Directors of the Corporation, all statements, either written or oral, made by the Corporation to the Consultant are true and accurate, and contain no misstatements of a material fact. Consultant acknowledges that estimates of performance made by Corporation are based upon the best information available to Corporation officers at the time of said estimates of performance. The Corporation acknowledges that the information it delivers to the Consultant will be used by the Consultant in preparing materials regarding the Company's business, including but not necessarily limited to, its financial condition, for dissemination to the public. Therefore, in accordance with Paragraph 6, below, the Corporation shall hold harmless the Consultant from any and all errors, omissions, misstatements, except those made in a negligent or intentionally misleading manner in connection with all information furnished by Corporation to Consultant. (b) Consultant shall agree to release information only with written or verbal approval of the Corporation. 6. WordCruncher Internet Technologies, Inc. 1. Authorized: 60 million shares 2. Issued: 13,395,407 shares 3. Outstanding: 13,395,407 shares 4. Free trading (float): 7,115,108 shares (approx.) 5. Shares subject to Rule 144 restrictions: 4.45 million shares (approx.) Limited Liability 7. With regard to the services to be performed by the Consultant pursuant to the terms of this Agreement, the Consultant shall not be liable to the Corporation, or to anyone who may claim any right due to any relationship with the Corporation, for any acts or omissions in the performance of services on the part of the Consultant, except when said acts or omissions of the Consultant are due to its willful misconduct or culpable negligence. Termination 8. After June 30, 2000 this Agreement may be terminated by either party upon the giving of not less than thirty (30) days written notice, delivered to the parties at such address or addresses as set forth in Paragraph 9, below. In the event of termination final compensation shall be treated as outlined in Section 3, Compensation. Notices 9. Notices to be sent pursuant to the terms and conditions of this Agreement, shall be delivered as follows: Timothy J. Rieu Kenneth W. Bell Columbia Financial Group, Inc. WordCruncher Internet Technologies, 1301 York Road, Ste. 400 Inc. Lutherville, Maryland 21093 405 East 12450 South, Ste. B Draper, UT 84021 Attorney's Fees In the event any litigation or controversy, including arbitration, arises out of or in connection with this Agreement between the Parties hereto, the prevailing party in such litigation, arbitration or controversy, shall be entitled to recover from the other party or parties, all reasonable attorney's fees expenses and suit costs, including those associated within the appellate or post judgment collections proceedings. Arbitration 10. In connection with any controversy or claim arising out of or relating to this Agreement, the Parties hereto agree that such controversy shall be submitted to arbitration, in conformity with the Federal Arbitration Act (Section 9 U.S. Code Section 901 et seq), and shall be conducted in accordance with the Rules of the American Arbitration Association. Any judgment rendered as a result of the arbitration of any dispute herein, shall upon being rendered by the arbitrators be submitted to a Court of competent jurisdiction with the state of Maryland, if initiated by Consultant, or in the state of Utah if initiated by the Corporation. Governing Law 11. This Agreement shall be construed under and in accordance with the laws of the State of Utah, and all parties hereby consent to Utah as the proper jurisdiction for said proceeding provided herein. Parties Bound 12. This Agreement shall be binding on and inure to the benefit of the contracting parties and their respective heirs, executors, administrators, legal representatives, successors, and assigns when permitted by this Agreement. Legal Construction 13. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, the invalidity, illegality, or unenforceability shall not affect any other provision of the Agreement, and this Agreement shall be construed as if the invalid, illegal, or unenforceable provision had never been contained in it. Prior Agreements Superseded 14. This Agreement constitutes the sole and only Agreement of the contracting parties and supersedes any prior understandings or written or oral agreements between the respective parties. Further, this Agreement may only be modified or changed by written agreement signed by all the parties hereto. Multiple Copies or Counterparts of Agreement 15. The original and one or more copies of this Agreement may be executed by one or more of the parties hereto. In such event, all of such executed copies shall have the same force and effect as the executed original, and all of such counterparts taken together shall have the effect of a fully executed original. Further, this Agreement may be signed by the parties and copies hereof delivered to each party by way of facsimile transmission, and such facsimile copies shall be deemed original copies for all purposes if original copies of the parties' signatures are not delivered. Liability of Miscellaneous Expenses 16. The Corporation shall be responsible for any miscellaneous fees and costs which are pre-approved in writing by the Corporation prior to their expenditure. Headings 17. Headings used throughout this Agreement are for reference and convenience, and in no way define, limit or describe the scope or intent of this Agreement or effects its provisions. IN WITNESS WHEREOF, the Parties have set their hands and seal as of the date written above. BY: ---------------------------------------- Timothy J. Rieu, President Columbia Financial Group, Inc. BY: /s/ Kenneth W. Bell ---------------------------------------- Kenneth W. Bell, Sr. Vice President WordCruncher Internet Technologies, Inc. EX-10.19 3 SIERRA SYSTEMS CONSULTING AND DEVELOPMENT AGMT SIERRA SYSTEMS CONSULTANTS, INC. CONSULTING AND DEVELOPMENT CONTRACT AGREEMENT #__________________ This Consulting and Development Contract (the "Agreement") is made as of September 16, 1999 between WordCruncher Internet Technologies, Inc. ("WordCruncher") and Sierra Systems consultants, Inc. ("Sierra"). To the extent that prior to the date or execution of this Agreement Sierra has begun performed or completed any Services, Deliverables or other work or performance called for by this Agreement, all such Services, Deliverables, work and performance shall be governed by this Agreement. 1. Services.Sierra agrees to perform for WordCruncher the services listed in Attachment A ("Services") and to develop, test, debug and deliver to WordCruncher the computer programs and other deliverables identified in Attachment A ("Deliverables"). WordCruncher agrees that Sierra will have ready access to WordCruncher's staff and resources as necessary to perform the Services. Where such access is not consistently provided, WordCruncher agrees to accept any resulting delays in the Time Schedule included in Attachment A. A. Development of the Deliverables. Sierra agrees to develop Deliverables which conform to the Specifications. The "Specifications" are the features, compatibility, functionality, performance, descriptions, requirements and other specifications set forth in Attachment A and in the sierra document, "Spyhop Architecture and Design," dated October 4, 1999, the Sierra document, "Project Charter," dated October 1, 1999, the Digital Boardwalk document, "Project Plan," dated November 11, 1999, the WordCruncher document, "Spyhop Product Requirements Document," version 0.89, the WordCruncher document, "Spyhop Search Engine Design Document," version 1.6. The Specifications may be changed by WordCruncher, provided that if such changes cause a net increase in development cost or time to Sierra, then Sierra shall be entitled to a reasonable increase in compensation under Section 2 below. If the increase in compensation is unacceptable to WordCruncher, then WordCruncher may withdraw the changes to the Specifications and the compensation shall not be increased. If and when WordCruncher presents Specification changes to Sierra, Sierra will promptly consult with WordCruncher on the increase in compensation, if any, caused by the changes. Any changes by WordCruncher to the Specifications will be reduced to writing and added to this Agreement. B. Development and Deliver Schedule. The development and delivery of the Deliverables and the performance of the Services shall proceed in accordance with the Time Schedule in Attachment A. C. Progress Reports. Sierra shall provide written progress reports to WordCruncher when requested by WordCruncher describing the status and progress of the Services and Deliverables. D. Delivery,Testing and Correction. When Sierra has completed a working version of the Deliverables, the Deliverables will be delivered to WordCruncher for review and testing. Nonconformities with the Specifications, programming errors and other problems with the Deliverables shall be promptly corrected by Sierra and then the corrected Deliverables shall be re-delivered to WordCruncher. Review, testing and correction will be repeated until all discovered nonconformities with the Specifications and all programming errors and other problems have been corrected to WordCruncher's reasonable satisfaction. When review and testing by WordCruncher show that all corrections have been made and that the Deliverables are satisfactory to WordCruncher, WordCruncher shall accept the Deliverables. WordCruncher shall not unreasonably withhold acceptance. E. Source Code and Development Environment. Sierra shall deliver to WordCruncher any and all source code, object code, executable code, pseudo code, designs, programming documentation, flow charts, logic diagrams, specifications, and other works of authorship that may be written or created as part of or in connection with the Services or the Deliverables or their development, testing or correction and all of the foregoing are deemed part of the "Deliverables" for the purposes of this Agreement. Sierra shall include comments in the source code. The source code comments and organization and the programming documentation given to WordCruncher shall be in conformance with professional standards of computer programming and shall be sufficient to enable programmers employed by WordCruncher to maintain and enhance the Deliverables. Sierra shall also deliver to WordCruncher the "Development Environment" for the Deliverables. The "Development Environment" means the software tools, utilities, development automation software, and other code, materials and items used by Sierra's programmers to design, develop, compile, build, test, maintain, and enhance the Deliverables. Anything needed to compile or build the Deliverables (other than commercially available operating systems, compilers, tool kits and products) shall be included in and with the Development Environment. If a component of the Development Environment is commercially available to the public, Sierra need only identify the component in a written document included with the Development Environment. The Development Environment does not include any Deliverables (i.e., it is in addition to the Deliverables). 2. Payment. Subject to the other provisions of this Agreement, WordCruncher agrees to pay Sierra for Services and Deliverables in accordance with the payment schedule in Attachment B. WordCruncher shall reimburse Sierra for all reasonable travel expenses outside the Los Angeles area incurred by Sierra in the performance of Services, at Sierra's net cost. Travel must be approved in advance by WordCruncher. Invoices will be issued in accordance with the payment schedule of Attachment B, and will include travel expenses incurred. Travel expenses that are covered by this contract are shown in Attachment C. Payment is due within 340 days of invoice date. Sales taxes, if any, are additional. 3. Confidential Information. Sierra shall not disclose to any other organization or individual any confidential information that Sierra may obtain from WordCruncher or any of the other contractors, vendors, and third party content providers working with WordCruncher. Confidential information means information, technology, plans, documents, research, development, financial information, information about the Spyhop Site, trade secretes or business affairs, but does not include information which is generally known to the public or to individuals or organizations of ordinary skill in computer design and programming. A. Deliverables and Source Code. Sierra shall not disclose or transfer to any third party any Deliverables or any source code or documentation for the Deliverables. B. Restrictions on Use. Except as necessary in the performance of the Services or the development, testing or debugging of the Deliverables, Sierra shall not use any of said confidential information. C. Return of Materials. Any and all designs, templates, documents, code, items and other materials provided by WordCruncher or any of the other contractors, vendors, and third party content providers working with WordCruncher in connection with this Agreement and all copies and embodiments thereof shall be returned or delivered by Sierra to WordCruncher upon WordCruncher's request, and Sierra shall retain no copy thereof. Upon WordCruncher's request, Sierra shall certify in writing its compliance with this Section 3. D. Rights of Other Persons. Sierra shall not disclose to WordCruncher or use in the Services or the development of any Deliverables any code, work of authorship, technology or intellectual property which is proprietary to any other person, company or entity, except as permitted by WordCruncher (e.g., the designs, templates, content and contributions from WordCruncher or its contractors such as Digital Boardwalk, Inc. and Pittard Sullivan). E. Injunctive Relief. Sierra agrees that a breach by Sierra of this Agreement will cause irreparable injury to WordCruncher not adequately compensable in monetary damages alone or through other legal remedies. Therefore, in the event of a breach, WordCruncher shall be entitled to preliminary and permanent injunctive relief and other equitable relief in addition to damages and other legal remedies. 4. Staff. Sierra's staff is not and shall not be deemed to be employees of WordCruncher. Sierra shall take appropriate measures to insure that its staff who perform Services are competent to do so and that they do not breach or act inconsistent with this Agreement. Sierra agrees that for a period of twelve months following the termination of the Services and any other work for WordCruncher under this Agreement, Sierra will not solicit or offer employment to WordCruncher's employees engaged in any efforts under this Agreement without WordCruncher's prior written approval. WordCruncher will have final approval on all Sierra staff assigned to the Services. A. Development by Employees. The development of the Deliverables shall be done only by employees of Sierra within the scope of their employment (with the exceptions of designs, templates, content and contributions from WordCruncher or its contractors such as Digital Boardwalk, Inc. and Pittard Sullivan). If Sierra must engage the services of any independent contractor, Sierra shall first obtain WordCruncher's written approval and a written contract satisfactory to WordCruncher with the independent contractor. The contract must include an assignment to WordCruncher all of the independent contractor's right, interest and title in and to the Deliverables (including copyrights, trade secrets and other intellectual property), reasonable non-disclosure and non-use provisions binding on the independent contractor, and such other provisions as WordCruncher reasonably requests. 5. Use and Ownership of Work Product. WordCruncher shall have ownership of the Deliverables and other work product of Sierra under this Agreement. Sierra hereby assigns to WordCruncher the copyrights and other intellectual property and rights in and to the Deliverables and other works product. In the event that the Deliverables contain any Development Objects (as defined below), then such Development Objects are licensed on a nonexclusive, unlimited, irrevocable, worldwide basis to WordCruncher. Such license includes the right to grant sublicenses and includes the right to use, copy, publish, distribute, display, modify, enhance, create derivative works and commercialize. "Development Objects" shall mean any code, objects, algorithms or subroutines which have been used repeatedly by programmers in the development of other computer programs and which are intended to be used repeatedly in the development of future computer programs. Furthermore, the Development Environment and all of the Sierra's intellectual property and rights in and to the Development Environment are licensed on a non-exclusive, unlimited, irrevocable, world-wide basis to WordCruncher for use in connection with the Deliverables and their maintenance and enhancement, including the right to grant sublicenses. A. Registration of Copyrights. WordCruncher may register the copyright(s) to the Deliverables with U.S. Copyright Office. Sierra shall cooperate in all respects with the reasonable requests of WordCruncher necessary to facilitate such registration. B. Recordation. WordCruncher may record this Agreement, or at WordCruncher's election, a notice and/or description of this Agreement or any assignment or license herein, with the U.S. Copyright Office, U.S. Patent and Trademark Office, and/or any other government agencies, entities or offices. Sierra shall provide any cooperation reasonably requested by WordCruncher to facilitate such recordation. C. Enforcement and Defense. Sierra shall cooperate with all reasonably requests by WordCruncher in connection with the enforcement or defense of any copyrights or other intellectual property assigned by Sierra to WordCruncher, or any litigation, arbitration, mediation or settlement proceedings or meetings relating to the Deliverables or such copyrights to other intellectual property. D. Moral Rights. For purposes of this Agreement, "Moral Rights" shall mean any rights of paternity or integrity, any right to claim authorship of the Deliverables, to object to any distortion, mutilation or other modification of, or other derogatory action in relation to, the Deliverables, whether or not such would be prejudicial to Sierra's or the author's honor or reputation, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless whether or not such right is denominated or generally referred to as a "moral" right. Sierra hereby irrevocably transfers and assigns to WordCruncher any and all Moral Rights that Sierra or any of its employees may have in or to the Deliverables. Sierra, on behalf of itself and its employees, also hereby forever waives and agrees never to assert any and all Moral Rights it or its employees may have in or to the Deliverables, at any time. Notwithstanding anything herein to the contrary, this Section D is subject to the following: (1) This Section D applies only if and to the extent that it is valid and enforceable under, and not in conflict with, applicable law, applicable international copyright treaties. (2) This Section D shall require no assignment or transfer that is in conflict with applicable law or any applicable international copyright treaties. E. Further Assurances. Sierra shall execute and deliver to WordCruncher such documents, assignments and further assurances as are reasonably requested by WordCruncher to better evidence or document any assignment, license or rights under this Agreement or to further or support any of the purposes or provisions of this Agreement. 6. WordCruncher and Sierra Representatives. Mr. Daniel Lunt (or a replacement designated by WordCruncher) will represent WordCruncher during the performance of this Agreement with respect to the Services and Deliverables or any other matter under this Agreement and has authority to execute written modifications or additions to this Agreement on behalf of WordCruncher. Mr. Bill McGraw (or a replacement designated by Sierra) will represent Sierra during the performance of this Agreement with respect to the Services and Deliverables or any other matter under this Agreement and has authority to execute written modifications or additions to this Agreement on behalf of Sierra. 7. Limited Warranty. Sierra warrants that it shall perform the Services and this Agreement in accordance with the standards of care and diligence normally practiced by recognized software companies and professionals performing similar services. Except for the warranties expressly stated in this Agreement, Sierra makes no other warranties, whether written, oral, statutory or implied, including without limitation the implied warranties of fitness for a particular purpose and merchantability. In no event except for a breach of an express warranty in this Agreement, shall either Party be liable to the other Party for special or consequential damages, whether or not the possibility of such damages has been disclosed in advance or could have been reasonably foreseen. A. Right to Enter Into Agreement. Each Party warrants that it has the right to enter into this Agreement and that this Agreement is not in conflict with any other agreement or obligation of said Party. B. Deliverables. Sierra warrants that the Deliverables will conform to their Specifications and that any nonconformities, defects or errors will be promptly remedied by Sierra. C. Year 2000 Compliance. Sierra represents and warrants that the Deliverables delivered by Sierra to WordCruncher will be properly designed and coded to be used prior to, during, and after the calendar year 2000 A.D., and that the Deliverables will operate during each such time period without error relating to date data, specifically including, without limitation, any error relating to, or the product of, date data which represents or references different centuries or more than one century. Without limiting the generality of the foregoing, Sierra further represents and warrants the following for the Deliverables: (i) The Deliverables will not abnormally end or provide invalid or incorrect results as a result of date data, specifically including date data which represents or references different centuries or more than one century. (ii) The Deliverables will be designed and coded to ensure year 2000 compatibility, including, but not limited to, date data century recognition, calculations which accommodate same century and multi-century formulas and date values, and date data interface values that reflect the century. (iii)All date-related interfaces and data fields will include an indication of century. (iv) All date processing by the Deliverables will include a four digit year format and will recognize and correctly process dates for leap years. (v) The Deliverables will require that all date data (whether received from users, systems, applications or other sources) include an indication of century in each instance. (vi) All date output and results, in any form, will include an indication of century in each instance. The term "date data" shall mean any data, output or input which includes an indication of or reference date. D. No Self-Help Code or Unauthorized Code. Sierra warrants to WordCruncher that no copy of the Deliverables provided by Sierra under this Agreement will contain or be accompanied by any Self-Help Code or Unauthorized Code (as defined below). "Self-Help Code" means any back door, time bomb, drop dead device, or other routine, code, algorithm or hardware component designed or used: (i) to disable, erase, alter or harm the Deliverables or any computer system, program, database, data, hardware or communications software, automatically with the passage of time, or under the control of, or through some affirmative action by, a person other than WordCruncher, or (ii) to access any computer system, program, database, data, hardware or communications system of WordCruncher. "Self-Help Code" does not include any code in the Deliverables or any accompanying hardware component designed and used to permit Sierra to obtain access to the Deliverables on WordCruncher's computer system (e.g., remote access via modem) solely for purposes of providing maintenance or technical support to WordCruncher, provided that such code or hardware component is first disclosed to WordCruncher and approved by WordCruncher in writing. "Unauthorized Code" means any virus, Trojan horse, worm, or other routine, code, algorithm or hardware component designed or used to disable, erase, alter, or otherwise harm any computer system, program, database, data, hardware or communications system, or to consume, use, allocate or disrupt any computer resources. E. Infringement. Sierra warrants that the Deliverables will be of original development and design and will not infringe, misappropriate or violate any copyright, patent, trade secret, intellectual property, privacy or other right of a third party. F. Indemnification. Sierra shall indemnify WordCruncher and its officers, directors, shareholders, affiliates, contractors, licensees, customers, employees and representatives against, and hold them harmless from, any claim by a third party that the Deliverables (or their reproduction, sale, distribution or use) constitutes an infringement of said third party's copyright, patent, trade secret, intellectual property, privacy or other right, and all litigation, arbitration, judgments, awards, settlements, damages, costs, expenses, attorneys' fees, losses, liabilities, penalties and fines resulting from or relating to such claim. Sierra shall have no obligation under the preceding sentence for infringement based upon any modification or addition by WordCruncher to the Deliverables. Sierra shall indemnify and hold harmless WordCruncher and WordCruncher's officers, directors, shareholders, affiliates, employees, contractors, licensees, customers, and representatives from and against any and all claims, litigation, arbitration, judgments, awards, settlements, damages, costs, expenses, attorneys' fees, losses, liabilities, penalties and fines resulting from or relating to Sierra's (or its employees') fault, negligence, willful misconduct, fraud or strict liability. 8. Additional Work. If WordCruncher requests additional services, Section 3 through 11 of this Agreement will apply to the extent reasonable, unless a new written Agreement is entered into by WordCruncher and Sierra. Such additional services will be covered on additional Attachments or statement of work. A. Available at WordCruncher's Request. For at least two years following acceptance of the deliverables by WordCruncher, Sierra shall be available to provide WordCruncher and its designees with such additional technical support, consultation, training, maintenance and enhancement as may be requested from time to time by WordCruncher. Such technical support, consultation, training, maintenance and enhancement shall be at Sierra's then-current standard fees and charges, which shall not be unreasonable. However, prior to and during the first year of said two-year period there shall be no fee or other charge for any programming errors, unless the correction is for a version of the Deliverables where the source code has been modified by WordCruncher or its other contractors. WordCruncher is not obligated to request any additional technical support, consultation, training, maintenance or enhancement. This Section 8 does not require WordCruncher to pay any additional fees or charges for the Services or Deliverables as they are included in the $500,000 fixed fee of Appendix B. 9. Delays. Example of WordCruncher actions which may affect scheduled success include change requests, changes in Specifications or standards, or unavailability of test data, test computer, information staff or technical support needed by Sierra. In these and similar cases, the term for completion of the Services will be extended by a mutually agreed upon period not to exceed a period equal to the time of delay. Sierra will use its best efforts to overcome delays and complete the Services and deliverables on schedule. 10. Arbitration. Any claim or controversy between WordCruncher and Sierra arising out of or relating to this Agreement shall be resolved in the following manner: A. Notice. Prior to filing any claim in a court of competent jurisdiction or initiating any arbitration proceeding, a Party shall give the other Party at least 10 days' advance written notice of its intention to do so. Each Party agrees to make its representative reasonably available to meet (either in person or by teleconference) with the other Party to resolve the claim controversy. B. Meeting. If the other Party desires to have such a meeting, neither Party may file a claim or begin arbitration prior to the occurrence of such meeting. The Parties shall meet in good faith at the offices of the other Party or the other Party's attorney. C. Arbitration. In the event the other Party does not agree within the 10 days to such meeting or if after such meeting the Parties are still unable to resolve their differences, any claim or controversy shall be finally decided by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association by a single arbitrator appointed in accordance with such rules. Such arbitration shall be conducted in Los Angeles if brought by WordCruncher or in Salt Lake County if brought by Sierra. The award rendered by the arbitrator shall be final, and judgment may be entered upon it at any court having jurisdiction. 11. Miscellaneous. A. Entire Agreement. This Agreement (including its Attachments) contains the entire Agreement between WordCruncher and Sierra with respect to the matters covered herein. Each Party acknowledges that, in entering into this Agreement, it is not relying on any other representations of the other Party other than the representations contained or referenced herein. B. Force Majeure. Neither WordCruncher nor Sierra will be responsible for any failure by it to perform its obligations under this Agreement, if failure is due to causes beyond the non-performing party's reasonable control, including, without limitation, acts of God, war and labor disputes. The non-performing Party shall give prompt written notice to the other Party of the cause and its effects on performance and shall diligently exercise all best efforts to overcome the cause and resume performance. The other Party may cancel this Agreement if the performance is not resumed within five days. C. Assignment. This Agreement may not be assigned by Sierra without the prior written consent of WordCruncher. WordCruncher may assign or transfer this Agreement to any person or entity who acquires substantially all of WordCruncher's intellectual property in or to the Spyhop web site. Except for this prohibition on assignment, the Agreement shall be binding upon the heirs, successors and assigns of WordCruncher and Sierra. D. Severability. If any provision of this Agreement is found to be invalid, illegal or unenforceable by a court of competent jurisdiction, the remaining provisions shall not be affected and will continue in full force and effect. E. Notices. (i) Notices to WordCruncher should ii) Notices to Sierra should be be to: sent to: President Bill McGraw WordCruncher Technologies Inc. Sierra Systems Consultants Inc. 405 East 12450 South, Suite B 19800 MacArthur Boulevard Draper, Utah 84020 Irvine, CA 92612 or to such substitute address as the Party to receive such notice designates by written notice to other Party. F. Costs and Expenses. Each Party shall be responsible for the costs and expenses incurred by it and its employees and representatives, except as otherwise stated herein. G. Relationship. Neither Party is the partner, joint venturer, agent or representative of the other Party. Neither Party has the authority to make any representations or warranties or incur any obligations or liabilities on behalf of the other Party. Neither Party shall make any representation to a third party inconsistent with this Section G. H. Construction. This Agreement represents the wording selected by the Parties to define their agreement and no rule of strict construction shall apply against any Party. Whenever the context reasonably permits, the singular shall include the plural, the plural shall include the singular, and the whole shall include any part thereof. I. Waiver. Any waiver of, or promise not to enforce, any right under this Agreement shall not be enforceable unless evidenced by a writing signed by the Party making said waiver or promise. J. Executionand Authority. This Agreement may be executed in any number of duplicate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. The persons signing below represent that they are duly authorized to execute this Agreement for and on behalf of the Party for whom they are signing. The signatures below of the authorized representative of WordCruncher and Sierra indicate their acceptance of the terms and conditions of this Agreement. WordCruncher Internet Sierra Systems Consultants, Inc. Technologies, Inc. /s/ /s/ ----------------------------- -------------------------------- Martin Cryer, Vice President Bill McGraw, Vice President ATTACHMENT A: SCOPE OF SERVICE DATE: Jan 6, 2000 ------------------ WORDCRUNCHER INITIALS: /s/ (not legible) ------------------ SIERRA INITIALS: /s/ (not legible) ------------------ AGREEMENT #: ----------------- Services: Services will be provided to WordCruncher as proposed in the Sierra letter to WordCruncher dated September 22, 1999, and in Sierra document, "Spyhop Architecture and Design," dated October 4, 1999, the Sierra document, "Project Charter," dated October 1, 1999, the Digital Boardwalk document, "Project Plan," dated November 11, 1999, the WordCruncher document, "Spyhop Product Requirements Document," version 0.8, and the WordCruncher document, "Spyhop Search Engine Design Document," version 1.6. Services also include the development, delivery, testing and debugging of the Deliverables. These services will be provided in support of the development of the Spyhop web site. Deliverables: Deliverables will be provided to WordCruncher as proposed in the same documents listed above under "Services." The deliverables include but are not limited to HTML templates, data bases, scripts, integration modules, and any other Sierra or Digital Boardwalk software components required to deliver a fully functioning web site that conforms to the specifications set forth in the above referenced documents. It is understood that certain other software licenses for products required to build the Spyhop site (i.e., NAS, NES, Oracle, and Solaris) will be acquired by WordCruncher separate from this contract. Specifications: The specifications for the deliverables are defined in the same documents listed above under "Services." Time Schedule: The time schedule for this project is defined by the Digital Boardwalk document, "Project Plan," dated November 4, 1999. As of November 3, 1999, it has been agreed between the involved parties that the target release date is now February 15, 2000. ATTACHMENT B: PAYMENT DATE: Jan 6, 2000 ------------------ WORDCRUNCHER INITIALS: /s/ (not legible) ------------------ SIERRA INITIALS: /s/ (not legible) ------------------ AGREEMENT #: ----------------------- The total fees for this project, including the Services and Deliverables, will be in the form of a fixed-price amount of $500,000. This shall be the total compensation to Sierra. The $500,000 fee will be paid as follows: (a) An initial payment of $100,000 representing 20% of the total fees upon satisfactory completion of the first phase including design specifications and a detailed project. Sierra acknowledges receipt of $100,000 of this amount prior to execution of this Agreement. (b) A second payment of $125,000 representing 25% of the total fees was due upon acceptance of the Spyhop Architecture document by WordCruncher. Sierra acknowledges receipt of $125,000 of this amount prior to execution of this Agreement. (c) A third payment of $125,000 representing 25% of the total fees will be due upon delivery of the Deliverables for the beta site to begin testing (scheduled for January 4, 2000). (d) A final payment of $150,000 representing 30% of the total fees will be due upon final acceptance by WordCruncher of the Deliverables. Due to the extreme importance of meeting the launch date of February 15, 2000, Sierra agrees to share in the urgency by agreeing to the following terms. If the Spyhop web site fails to launch by February 15, due to factors within Sierra's control or Sierra's failure to perform in a timely manner under this Agreement, 10% of the final payment will be withheld. If it fails to launch by February 22, 30% of the final payment will be withheld. If it fails to launch by February 29, 100% of the final payment will be withheld. Additional Services: If any additional services, technical support, consultation, training, maintenance and enhancement are requested by WordCruncher (see Section 8 of the Agreement), they will be performed by Sierra at the following rates: [Insert rates] Such rates shall not be increased until one year from the date of this Agreement. Thereafter, Sierra's then-current standard rates shall apply. ATTACHMENT C: TRAVEL EXPENSES DATE: Jan 6, 2000 ------------------ WORDCRUNCHER INITIALS: /s/ (not legible) ------------------ SIERRA INITIALS: /s/ (not legible) ------------------ AGREEMENT #: -------------------- Sierra will make every attempt to minimize travel expenses by assigning qualified resources from our Los Angeles office to address WordCruncher's requirements and priorities. Travel expenses will be invoiced at cost, in the event that consultants need to be brought in from other locations to meet WordCruncher's schedule and requirements. No travel will be reimbursed without prior authorization from WordCruncher. WordCruncher's reasonable guidelines applicable to travel will be followed. EX-10.20 4 VERITAS SOFTWARE FINANCIAL AGREEMENT VERITAS SOFTWARE FINANCIAL AGREEMENT November 4, 1999 The following software products will be offered to WordCruncher for purchase through the following financial agreement between the parties: WordCruncher, IBS and Veritas. This agreement will be in effect upon software order placement and will conclude upon final payment made by WordCruncher. 1. Veritas Software products to be purchased for $60,830.25. Please see the IBS Quotation WCVTS-01 dated 11/4/99. 2. WordCruncher will be extended a 40-day net purchase arrangement on the transaction. WordCruncher has the option of paying any amount of money upon order. The total amount payable on the invoice after the 40-day period will carry a 1-% carry fee per 30-day period. 3. WordCruncher may elect to pay the 1-% carry charge for a six-month period. On or before the 6th month, the total amount of the invoice must be paid in full. 4. This transaction is final upon order. /s/ illegible 11/4/99 EX-10.21 5 NETSCAPE SOFTWARE FINANCIAL AGREEMENT NETSCAPE SOFTWARE FINANCIAL AGREEMENT November 4, 1999 The following software products will be offered to WordCruncher for purchase through the following financial agreement between the parties: WordCruncher, IBS and Access Graphics. This agreement will be in effect upon software order placement and will conclude upon final payment made by WordCruncher. 1. Netscape Software products to be purchased for $268,068.72. Please see the IBS Quotation NAS201 dated 11/4/99. 2. WordCruncher will be extended a 40-day net purchase arrangement on the transaction. WordCruncher may pay prior to net 30 and receive a 1-% discount on the invoice amount. WordCruncher has the option of paying any amount of money upon order. The total amount payable on the invoice after the 40-day period will carry a 1-% carry fee per 30-day period. 3. WordCruncher may elect to pay the 1-% carry charge for a twelve-month period. On or before the 12th month, the total amount of the invoice must be paid in full. 4. This transaction is final upon order. Sun-Netscape Alliance Right To Use (RTU) Certificate of Authenticity This Certificate of Authenticity is your assurance that you have legally licensed from Sun Microsystems these products(s). 508028 Enduser Address: Enduser PO Number: 1059444 WORD CRUNCHER INTERNET TECHNOLOGIES RTU Number: US-1318042-0 DRAPER, UT 94020 Issue Date: November 17, 1999 Attn.: MARTIN CRYER Effective Date: November 17, 1999 Expiration Date: November 17, 2000 IT Support Contact: Name: MARTIN CRYER Email: MARTIN_CRYER@WORDCRUNCHER. COM Tech Support Contact: Name: MARTIN CRYER Email: MARTIN_CRYER@WORDCRUNCHER. COM Product Description Alliance Product Number Quantity - -------------------------------------------------------------------------------- WEB SERVER ENT LICENSE IWEM9-400-9929 4 WEB SERVER ENT MAINTENANCE IWEM9-MNT-9929 4 BRONZE MAINTENANCE KIT AMB99-MNT-99D9 1 Customer agrees to comply with the terms of any license agreement or product specific terms included in or with the above-referenced products. Sun-Netscape Alliance Right To Use (RTU) Certificate of Authenticity This Certificate of Authenticity is your assurance that you have legally licensed from Sun Microsystems these products(s). 508028 Enduser Address: Enduser PO Number: 1063512 WORD CRUNCHER INTERNET TECHNOLOGIES RTU Number: US-1354753-0 405 EAST 12450 SOUTH Issue Date: December 22, 1999 STE B Effective Date: December 22, 1999 DRAPER, UT 94020 Expiration Date: December 22, 2000 Attn.: MARTIN CRYER IT Support Contact: Name: MARTIN CRYER Email: MARTIN_CRYER@WORDCRUNCHER. COM Tech Support Contact: Name: MARTIN CRYER Email: MARTIN_CRYER@WORDCRUNCHER. COM Product Description Alliance Product Number Quantity - -------------------------------------------------------------------------------- NETSCAPE APPLICATION SERVER LICENSE NAS29-LCO-R999 8 NETSCAPE APPLICATION SERVER MAINTENANCE NAS29-MNT-4999 8 Customer agrees to comply with the terms of any license agreement or product specific terms included in or with the above-referenced products. Sun-Netscape Alliance Right To Use (RTU) Certificate of Authenticity This Certificate of Authenticity is your assurance that you have legally licensed from Sun Microsystems these products(s). 508028 Enduser Address: Enduser PO Number: ibs4005/1067674 WORD CRUNCHER INTERNET TECHNOLOGIES RTU Number: US-1384536-0 DRAPER, UT 94020 Issue Date: February 01, 2000 Attn.: MARTIN CRYER Effective Date: February 01, 2000 Expiration Date: February 01, 2001 IT Support Contact: Name: MARTIN CRYER Email: MARTIN_CRYER@WORDCRUNCHER. COM Tech Support Contact: Name: MARTIN CRYER Email: MARTIN_CRYER@WORDCRUNCHER. COM Product Description Alliance Product Number Quantity - -------------------------------------------------------------------------------- UPGRADE SILVER TO GOLD AMG29-MNT-9989 1 GOLD MAINTENANCE KIT AMG99-MNT-99D9 1 Customer agrees to comply with the terms of any license agreement or product specific terms included in or with the above-referenced products. SUN MAJOR WORLDWIDE AGREEMENT SUN MAINTENANCE (Sun-Netscape Alliance Software) BY CONTACTING SUN FOR TECHNICAL SUPPORT THROUGH THE TELEPHONE NUMBER O URL ADDRESS PROVIDED WITH THIS AGREEMENT OR BY DOWNLOADING ANY UPGRADES PROVIDED WITH THIS AGREEMENT, THE INDIVIDUAL OR ENTITY WHO PURCHASED THE MAINTENANCE PLAN (`CUSTOMER") IS CONSENTING TO BE BOUND BY AND IS BECOMING A PARTY TO THIS AGREEMENT. IF CUSTOMER DOES NOT AGREE TO ALL OF THE TERMS OF THIS AGREEMENT, CUSTOMER SHOULD NOT CONTACT SUN FOR SUPPORT OR DOWNLOAD UPGRADES AND PROMPTLY CONTACT CUSTOMER'S PLACE OF PURCHASE FOR CANCELLATION OF MAINTENANCE, CUSTOMER WILL RECEIVE A REFUND OF ANY MONEY PAID ONLY IF CUSTOMER CONTACTS THE PLACE OF PURCHASE TO CANCEL CUSTOMER'S MAINTENANCE ORDER WITHIN THIRTY (30) DAYS OF PURCHASE. THIS AGREEMENT WILL BE VALID FOR ONE (1) YEAR FROM CUSTOMER'S DATE OF PURCHASE ("MAINTENANCE PERIOD"). 1. DEFINITIONS 1.1 "End User" means each individual within each corporation or entity licensed to use Software under Sun's standard Binary Code License, which includes the Software product terms and conditions accompanying the Software ("BCL"). If Software is licensed to be used to provide further services for individuals outside of the corporation or entity licensing the Software, regardless if for a fee, then "End User" includes such individuals. 1.2 "Errors" means one or more reproducible deviations in the standard, unmodified Software from the applicable specifications shown in the documentation. 1.3 "Maintenance Option" means additional Maintenance Program features set forth in a Schedule that Customer may choose to purchase. 1.4 "Maintenance Period" means twelve (12) months from the Maintenance Effective Date. 1.5 "Maintenance Program" means the Sun program pursuant to which Customer may obtain technical support and maintenance Services, including any Maintenance Options for which Customer has paid the applicable Maintenance fee. 1.6 "Maintenance Release" means a Software revision or patch that improves the functionality of Software that does not contain any new features or enhancements. A Maintenance Release is not an upgrade. 1.7 "Schedule" means the additional terms applicable to each Maintenance Program, which are incorporated herein, including any optional terms set forth in attachments thereto. The terms of a Schedule will take precedence over any terms in this Exhibit to the extent that they are inconsistent. 1.8 "Software" means the software licensed by Customer pursuant to the Software Exhibit. 1.9 "SoftwareRelease" means a release of Software that is designated by Sun in its sole discretion by a change in the digit(s) to the left of the decimal point in the Software version number [(x).x.x]. 1.10 "Update" means a release of Software that is designated by Sun in its sole discretion by a change in the digit(s) to the right of the tenths digit in the Software version number [x.x.(x)]. 1.11 "Upgrade"means Updates, Version Releases, or Software Releases that Sun makes generally commercially available and excludes Software Releases or Software designated by Sun as a separate Software or new component. 1.12 "Version Release" means a release of Software that is designated by Sun in its sole discretion by a change in the tenths digit in the Software version number [x.(x).x]. 2. TECHNICAL SUPPORT 2.1 Sun will provide back-end support to Customer for Errors not resolved by Customer pursuant to Customer's support policies and in accordance herewith. 2.2 Sun will provide Customer with a telephone number that Customer may use to report Errors during Sun business hours. If stated in the Schedule for a particular Maintenance Program, Sun will also provide Customer with a website URL. 2.3 Sun will make reasonable efforts to correct significant Errors that Customer identifies, classifies and reports to Sun and that Sun substantiates. Sun may reclassify Errors if it reasonably believes that Customer's classification is incorrect. 2.4 Customer will provide sufficient information to Sun to enable Sun to duplicate the Error before Sun's response obligations will commence. Unless otherwise authorized in writing by Sun, Sun will not be required to correct any Error caused by: (i) incorporation of, attachment of a feature, program, or device to the Software, or any part thereof, by Customer; (ii) any nonconformance caused by accident, transportation, neglect, misuse, alteration, modification, or enhancement of the Software by or on behalf of Customer; (iii) Customer's failure to provide an installation environment recommended for the Software; (iv) Customer's use of the Software for other than the specific purpose for which the Software is intended; (v) Customer's use of the Software on any systems other than the specified hardware platform for such Software; (vi) Customer's use of defective media or defective duplication of the Software; or (vii) Customer's failure to incorporate any Maintenance Releases previously released by Sun which corrects such Error. 2.5 Provided Error reports are received by Sun during Sun business hours, Sun will use reasonable commercial efforts to communicate with Customer about the Error, via telephone within the target response times specified in the Schedule for the applicable Maintenance Program(s). 2.6 Sun will use reasonable commercial efforts to identify defective source code and to resolve each significant Error by providing either a reasonable workaround, an object code patch or a specific action plan for how Sun will address the problem and an estimate of how long it will take to rectify the defect. 2.7 Sun agrees to support a given revision, to include Software Releases, Upgrades and Version Releases of the Software, for twelve (12) months. 2.8 Sun may subcontract the provision of Services under any Maintenance Program, in which case Sun will remain primarily responsible for the provision of such Services. 3. MAINTENANCE RELEASES AND UPGRADES 3.1 Provided that Customer has paid the applicable Maintenance Program fees, Customer will be entitled to receive any Maintenance Releases and/or Upgrades made generally available during the Maintenance Period for the Software licensed from Sun by Customer and covered under a Maintenance Program. 3.2 Provided that Customer has paid for and has current Maintenance Program for Software Releases and Upgrades, Customer will be entitled to all commercially released major and minor Updates included in such Maintenance Program for the period thereof, regardless of whether such Updates result from independent development by Netscape or Sun, or joint development by the Sun-Netscape Alliance. 3.3 Netscape client products are excluded from coverage under any Maintenance Program. 3.4 Any Upgrades released during the Maintenance Period shall be made available on a Sun-designated web site for access or electronic download by Customer. Sun shall register Customer for such access or electronic downloads, and will provide Customer with instructions in writing or electronically. When a Maintenance Release or Upgrade is available for access or download, Sun will issue to an address designated by Customer an electronic communication indicating such availability. 3.5 Use of Software Updates, Version Releases, Software Releases, Maintenance Releases and Upgrades is governed by the applicable BCL obtained with the original Software. 4. TERM AND TERMINATION 4.1 This Maintenance Exhibit will come in force on the Maintenance Effective Date and, unless earlier terminated by either party as set forth below, remain in effect for a period of one (1) year. 4.2 Prior to the expiration of the current term, Sun may invoice Customer for annual renewal of the Maintenance Program pursuant to the terms, conditions, and pricing then in effect. If Customer does not wish to renew the Maintenance Program, Customer must contact Sun prior to the expiration of the current term in order to decline the renewed Maintenance Program. 4.3 Reinstatement of a lapsed Maintenance Program is subject to Sun's then-current Services reinstatement fees in effect on the date the reinstatement of Services is ordered. 4.4 Either party may terminate this Maintenance Agreement: (i) immediately upon written notice to the other party of a non-remediable breach; (ii) immediately, upon written notice to the other party if the other party fails to cure a remediable breach not involving non-payment of amounts due within thirty (30) days of being notified of such breach; (iii) by thirty (30) days' written notice to the other party in the event that no Maintenance Program is in effect under this Maintenance Exhibits; or (iv) immediately, upon written notice to the party to which termination for cause of any other Exhibit to the Master Terms is imputed. 4.5 Each party waives and releases the other from any claim to compensation or indemnity related to the permitted or lawful termination of the business relationship established under this Exhibit. However, terminated shall not affect the right of either party to receive or recover: (i) damages sustained by reason of material breach of this Maintenance Exhibit by the other party; or (ii) any payments which may then be owing under the terms of this Maintenance Exhibit. 5. PRICE AND LICENSE FEES 5.1 Prices and license fees for Maintenance Programs will be non-refundable and based on the applicable Sun Price List at the time Customer places an order. Payment will be made in US Dollars. 5.2 Customer may place written purchase orders for renewal or different Maintenance Program provided that each purchase order contains the following: (i) the Agreement number; (ii) the name of the Maintenance Program; (iii) the service fees and charges therefor; (iv) bill to address (if different); and (v) the names and email addresses of Customer's technical liaisons. 5.3 Sun reserves the right to charge Customer additional technical support fees at its then standard rates for technical support services performed in connection with reported Errors which are later determined to have been due to hardware or software not supplied by Sun or caused by any of the items set forth in Section 2.4 (i)-(vii). 5.4 Sun's service offerings are continually evolving. Accordingly, Sun reserves the right to make Maintenance Program substitutions and modifications at any time that do not cause a materially adverse effect on overall service performance. 6. CUSTOMER OBLIGATIONS 6.1 Customer,and not Sun, will be responsible for, and will bear all expenses associated with, providing front-line technical support, Maintenance Releases, and Upgrades to its End Users. Until Customer has paid Sun the annual Services fee for an End User, Customer shall not be entitled to provide Maintenance Releases and/or Upgrades to any End User or use any back-end support received from Sun to provide front-line technical support to such End User. 6.2 Customer must comply with all trouble-shooting and technical database procedures relevant to an Error prior to contacting Sun. 6.3 Customer must establish and maintain a procedure external to systems for reconstruction of lost or altered files, data or programs. 6.4 Customer agrees to use reasonable commercial efforts to answer its End Users' support questions. Customer's technical liaisons who contact Sun for technical support must have sufficient technical expertise for Customer to perform its obligations hereunder. Only the Customer technical liaisons identified to Sun will contact Sun for technical support and notify Sun in writing or electronically of changes in the technical liaisons. 6.5 Customer agrees that any information or documentation distributed by Customer to its End Users will clearly and conspicuously state that End Users should call Customer for technical support for the Software. 6.7 Sun will have no obligation to furnish any assistance, information or documentation with respect to the Software, directly to End Users. If Sun customer support representatives are being contacted by a significant number of Customer's End Users then, upon Sun's request, Customer and Sun will cooperate to minimize such contact. 7. INSURANCE 7.1 If the Maintenance Program Customer has purchased includes provision of onsite support by Sun or Netscape at Customer's location, Sun and Netscape shall each be responsible, at their expense, for securing and maintaining Worker's compensation insurance in accordance with the local laws applicable to such onsite support. If Sun or Netscape is permitted by state law to be a self-insurer, they may maintain the equivalent of such insurance. 7.2 Sun and Netscape further agree to be responsible, at their expense, for securing and maintaining adequate Comprehensive General Liability insurance for claims for damages based on bodily injury (including death) and property damage caused by or arising from acts or omissions of their respective employees. 8. ADDITIONAL LIMITATIONS In no event will any entity working with Sun on the development and supply of any Upgrades or services or part thereof by liable under the terms of this Agreement. SCHEDULE A TERMS FOR GOLD, SILVER AND BRONZE MAINTENANCE PROGRAMS Customer may select one or more of the following Maintenance Program in its purchase order. Customer's purchase order must indicate which Maintenance Program is being purchased. Working hours and working days are defined by the Sun office delivering the Maintenance Program. 1. Gold Maintenance Program 1.1 Customer may use the telephone number and web site URL provided by Sun to request support. Customer may submit Priority 1 problems only, 24 hours a day, 7 days a week. For Priority 1 problems, Customer agrees to notify Sun via telephone. 1.2 Customer Contacts: Customer will identify 4 members of its customer support staff, per 8 hour shift, to act as the primary technical liaisons responsible for all communications with Sun's technical support representatives. 1.3 Customer will designate, in writing and/or e-mail to Sun, its list of liaisons within 1 week after Sun's receipt of Customer's purchase order, and may substitute contacts at any time by providing 1 week's prior written and/or electronic notice thereof to Sun. 1.4 Working hours in the U.S. and Canada are 5:00 a.m. to 5:00 p.m. (PST). Priority 1 working hours are identified in subsection 1.1 above. Working hours outside the U.S. and Canada vary with the location and office. 1.5 The following target response times will apply:
Priority Failure Description Initial Target Response Time - ---------------------------------------------------------------------------------------------------------- 1 Enterprise Critical (Production Server or application is not functioning) 1 business hours 2 Severe Impact (Software inconsistency causes significantly decreased 4 business hours Customer productivity, such as periodic work stoppages or feature crashes) 3 Degraded Operations (Software inconsistency causes slightly impaired Next business day Customer productivity, but Customer can work around problem) 4 Minimal Impact (Requests for minor changes such as documentation Next business days updates, cosmetic defects or feature enhancements)
2. Silver Maintenance Program 2.1 Customer may use the telephone number and web site URL provided by Sun to request technical support. 2.2 Customer Contacts: Customer will identify 2 members of its customer support staff, per 8 hour shift, to act as the primary technical liaisons responsible for all communications with Sun's technical support representatives. 2.3 Customer will designate, in writing and/or e-mail to Sun, its list of liaisons within 1 week after Sun's receipt of Customer's purchase order, and may substitute contacts at any time by providing 1 week's prior written and/or electronic notice thereof to Sun. 2.4 Working hours in the U.S. and Canada are 5:00 a.m. to 5:00 p.m. (PST). Working hours outside the U.S. and Canada vary with location and office. 2.5 The following target response times will apply:
Priority Failure Description Initial Target Response Time - -------------------------------------------------------------------------------------------------------- 1 Enterprise Critical (Production Server or application is not functioning) 4 business hours 2 Severe Impact (Software inconsistency causes significantly decreased 8 business hours Customer productivity, such as periodic work stoppages or feature crashes) 3 Degraded Operations (Software inconsistency causes slightly impaired Next business day Customer productivity, but Customer can work around problem) 4 Minimal Impact (Requests for minor changes such as documentation 2 business days updates, cosmetic defects or feature enhancements)
3. Bronze Maintenance Program 3.1 Customer may use the telephone number and web site URL provided by Sun to request technical support. 3.2 Customer Contacts: Customer will identify 2 members of its customer support staff, per 8 hour shift, to act as the primary technical liaisons responsible for all communications with Sun's technical support representatives. 3.3 Customer will designate, in writing and/or e-mail to Sun, its list of liaisons within 1 week after Sun's receipt of Customer's purchase order, and may substitute contacts at any time by providing 1 week's prior written and/or electronic notice thereof to Sun. 3.4 Working hours in the U.S. and Canada are 8:00 a.m. to 5:00 p.m. (PST). Working hours outside of the U.S. and Canada vary with location and office. 3.5 The following target response times will apply:
Priority Failure Description Initial Target Response Time - --------------------------------------------------------------------------------------------------------- 1 Enterprise Critical (Production Server or application is not functioning) 6 business hours 2 Severe Impact (Software inconsistency causes significantly decreased Next business day Customer productivity, such as periodic work stoppages or feature crashes) 3 Degraded Operations (Software inconsistency causes slightly impaired Next business day Customer productivity, but Customer can work around problem) 4 Minimal Impact (Requests for minor changes such as documentation 2 business days updates, cosmetic defects or feature enhancements)
EX-10.22 6 ORACLE SOFTWARE AGREEMENT DATED NOVEMBER, 1999 ORACLE Credit Corporation Payment Plan Agreement Customer: WordCruncher Internet Executed by Customer Technologies Inc. (authorized signature): Address: 405 East, 12450 South, By: /s/ Suite B Name: Kenneth W. Bell Draper, Utah 84020 Title: Senior VP & CFO Executed by Oracle Credit Corporation: Phone: (801) 816-9904 By: PPA No.: Name: Effective Date: Title: This Payment Plan Agreement is entered into by Customer and Oracle Credit Corporation ("OCC") to provide for the payment of the System Price specified in a Payment Schedule on an installment basis. The System (as defined below) is being acquired from Oracle Corporation, an alliance member/agent of Oracle Corporation or any other party providing any portion of the System ("Supplier"). Each Payment Schedule shall specify the Software and other products and services, which items together with any upgrade, transfer, substitution, or replacement thereof, shall comprise the "System." Each Payment Schedule shall incorporate the terms and conditions of the PPA to form a "Contract," and the System specified therein shall be subject to the terms and conditions of such Contract. The System shall be licensed or provided to Customer directly by Supplier pursuant to the terms of the Order and Agreement specified in the Contract. Except as provided under the Contract, Customer's rights and remedies under the Order and Agreement, including Supplier's warranty and refund provisions, shall not be affected. 1. PAYMENT SCHEDULE: Customer agrees to pay OCC the Payment Amounts in accordance with the Contract, with each payment due and payable on the applicable Due Date. If full payment of each Payment Amount and other amounts payable is not received by OCC within 10 days of each Due Date, Customer agrees to pay to OCC interest on the overdue amount at the rate equal to the lesser of one and one-half percent (1.5%) per month, or the maximum amount allowed by law. Unless stated otherwise, Payment Amounts exclude any applicable sales, use, property or any other tax allocable to the System, Agreement or Contract ("Taxes"). Any amounts or any Taxes payable under the Agreement which are not added to the Payment Amounts due under the Contract are due and payable by Customer, and Customer shall remain liable for any filing obligations. Customer's obligation to remit Payment Amounts to OCC or its assignee in accordance with the Contract is absolute, unconditional, noncancellable, independent, and shall not be subject to any abatement, set-off, claim, counterclaim, adjustment, reduction, or defense for any reason, including but not limited to, any termination of any Agreement, or performance of the System. 2. ASSIGNMENT: Customer hereby consents to OCC's assignment of all or a portion of its rights and interests in and to the Contract to third-parties ("Assignee"). OCC shall provide Customer notice thereof. Customer and OCC agree that Assignee shall not, because of such assignment, assume any of OCC's or Supplier's obligations to Customer. Customer shall not assert against Assignee any claim, defense, counterclaim or setoff that Customer may have against OCC or Supplier. Customer waives all rights to make any claim against Assignee for any loss or damage of the System or breach of any warranty, express or implied, as to any matter whatsoever, including but not limited to the System and service performance, functionality, features, merchantability or fitness for a particular purpose, or any indirect, incidental or consequential damages or loss of business. Customer shall pay Assignee all amounts due and payable under the Contract, but shall pursue any claims under any Agreement solely against Supplier. Except when a Default occurs, neither OCC nor Assignee will interfere with Customer's quiet enjoyment or use of the System in accordance with the Agreement's terms and conditions. 3. DEFAULT; REMEDIES: Any of the following shall constitute a Default under the Contract (i) Customer fails to pay when due any sums due under any Contract; (ii) Customer breaches any representation or fails to perform any obligation in any Contract; (iii) Customer materially breaches or terminates the license relating to the Software; (iv) Customer defaults under a material agreement with Assignee; or (v) Customer becomes insolvent or makes an assignment for the benefit of creditors, or a trustee or receiver is appointed for Customer or for a substantial part of its assets, or bankruptcy, reorganization or insolvency proceedings shall be instituted by or against Customer. In the event of a Default that is not cured within thirty (30) days of its occurrence, OCC may (i) require all outstanding Payment Amounts and other sums due and scheduled to become due (discounted at the lesser of the rate in the Contract or five percent (5%) per annum simple interest) to become immediately due and payable by Customer; (ii) pursue any rights provided under the Agreement, as well as terminate all of Customer's rights to use the System and related services, and Customer agrees to cease all use of the System; and (iii) pursue any other rights or remedies available at law or in equity. In the event OCC institutes any action for the enforcement of the collection of Payment Amounts, there shall be due from Customer, in addition to the amounts due above, all costs and expenses of such action, including reasonable attorneys' fees. No failure or delay on the part of OCC to exercise any right or remedy hereunder shall operate as a waiver thereof, or as a waiver of any subsequent breach. All remedies are cumulative and not exclusive. Customer acknowledges that upon a default under the Contract, no party shall license, lease, transfer or use any Software in mitigation of any damages resulting from Customer's default. 4. CUSTOMER'S REPRESENTATIONS AND COVENANTS: Customer represents that, throughout the terms of the Contract, the Contract has been duly authorized and constitutes a legal, valid, binding and enforceable agreement of Customer. Any transfer or assignment of Customer's rights or obligations in the System, or under the Agreement or the Contract shall require OCC's and Assignee's prior written consent. A transfer shall include a change in majority ownership of Customer. Customer agrees to promptly execute any ancillary documents and take further actions as OCC or Assignee may reasonably request, including, but not limited to, assignment notifications, acceptance certificates, certificates of authorization, registrations, and filings. Customer agrees to provide copies of Customer's balance sheet, income statement, and other financial reports as OCC or Assignee may reasonably request. 5. MISCELLANEOUS: The Contract shall constitute the entire agreement between Customer and OCC regarding the subject matter herein and shall supersede any inconsistent terms set forth in the Order, Agreement or any related agreements, Customer purchase orders and all prior oral and written understandings. If any provision of the Contract is invalid, such invalidity shall not affect the enforceability of the remaining terms of the Contract. Customer's obligations under the Contract shall commence on the Effective Date specified therein. Except for payment terms specified in the Contract, Customer remains responsible for all the obligations under each Agreement. Each Payment Schedule, and any changes to a Contract or any related document, shall take effect when executed by OCC. The Contract shall be governed by the laws of the State of California and shall be deemed executed in Redwood Shores, CA as of the Contract Effective Date. ORACLE Credit Corporation Payment Schedule Page 1 of 1 (Oracle Product) No. 1 Customer: WordCruncher Internet Executed by Customer Technologies Inc. (authorized signature): Address: 405 East, 12450 South, By: /s/ Suite B Draper, Utah 84020 Name: Kenneth W. Bell Title: Senior VP & CFO Contact: Executed by Oracle Credit Corporation: Phone: (801) 816-9904 By: Order: dated Name: Agreement: dated Title: PPA No.: dated Payment Schedule Effective Date: System Payment Schedule: - ------ Payment Amount Due Date: Software: $136,512.00 1 @ $76,954 Due at signing Support: $120,000.00 one year 4 @ $49,069 Due 01-Feb-00, 01-May-00, Education: 01-Aug-00 and 01-Nov-00 Consulting: Other: Five (5) payments due as set forth above. System Price: $265,512.00 Optional (if this box is checked): - -------- [x] The Customer has ordered the System from an alliance member/agent of Oracle Corporation whose name and address are specified below. Customer shall provide OCC with a copy of such Order. The System shall be directly licensed or provided by the Supplier specified in the applicable Order and Agreement, each of which shall be considered a separate contract. Customer has entered into the Order and Agreement based upon its own judgment, and expressly disclaims any reliance upon statements made by OCC about the System, if any. Customer's rights with respect to the System are as set forth in the applicable Order and Agreement and Customer shall have no right to make any claims under such Order and Agreement against OCC or its Assignee. Neither Supplier nor any alliance member/agent is authorized to waive or alter any term or condition of this Contract. If within ten days of the Payment Schedule Effective Date, OCC is provided with Customer invoices for the System specifying applicable Taxes, then OCC may add the applicable Taxes in accordance with this Contract. Alliance Member/Agent: Integrated Business Solutions Address: 505 East 200 South Suite 401 Salt Lake City, UT 84102 Contact: Deborah Hoffler Phone: (801) 328-4567 This Payment Schedule is entered into by Customer and Oracle Credit Corporation ("OCC") for the acquisition of the System from Oracle Corporation, an alliance member/agent of Oracle Corporation or any other party providing any portion of the System ("Supplier"). This Payment Schedule incorporates by reference the terms and conditions of the above-referenced Payment Plan Agreement ("PPA") to create a separate Contract ("Contract"). A. PAYMENTS: This Contract shall replace Customer's payment obligation under the Order and Agreement to Supplier, to the extent of the System Price listed above, upon Customer's delivery of a fully executed Order Agreement, PPA, Payment Schedule, and any other documentation required by OCC, and execution of the Contract by OCC. Customer agrees that OCC may add the applicable Taxes due on the System Price to each Payment Amount based on the applicable tax rate invoiced by supplier at shipment. OCC may adjust subsequent Payment Amounts to reflect any change or correction in Taxes due. If the System Price includes support fees for a support period that begins after the first support period, such future support fees and the then relevant Taxes will be paid to Supplier as invoiced in the applicable support period from the Payment Amounts received in that period. The balance of each Payment Amount, unless otherwise stated, includes a proportional amount of the remaining components of the System Price excluding such future support fees, if any. B. SYSTEM: Software shall be acceptable, and the services shall be deemed ordered pursuant to the terms of the Agreement. customer agrees that any software acquired from Supplier to replace any part of the System shall be subject to the terms of the Contract. Any claims related to the performance of any component of the System shall be made pursuant to the Order and Agreement. Neither OCC nor Assignee shall be responsible to Customer for any claim or liability pertaining to any performance, actions, warranties or statements of Supplier. C. ADMINISTRATIVE: Customer agrees that OCC or its Assignee may treat executed faxes or photocopies delivered to OCC as original documents; however, Customer agrees to deliver original signed documents if requested. Customer agrees that OCC may insert the appropriate administrative information to complete this form. OCC will provide a copy of the final Contract upon request. EX-10.23 7 SUN MICROSYSTEMS LICENSE AGREEMENT SUN MICROSYSTEMS FINANCE MASTER LEASE AGREEMENT Master Lease #SL7082094 ------------ Lessor agrees to lease to Lessee and Lessee agrees to lease from Lessor, subject to the following terms of this Master Lease Agreement ("Master Lease") and any Lease Schedule ("Schedule"), collectively referred to as the Lease ("Lease"), the personal property described in any Schedule together with all attachments, replacements, parts, substitutions, additions, upgrades, accessories, software licenses and operating manuals (the "Product"). Each Schedule shall constitute a separate, distinct, and independent Lease and contractual obligation of Lessee. 1. Commencement Date and Term The initial lease term ("Initial Term") and Lessee's rental obligations shall begin on the Commencement Date and continue for the number of Rental Periods specified in the Lease as set forth in Section 2 below and shall renew automatically thereafter until terminated by either party upon not less than ninety (90) days written notice. The Commencement Date with respect to each item of Product shall be the 16th day after date of shipment to Lessee. 2. Rent and Rental Period All rental payments and any other amounts payable under a lease are collectively referred to as "Rent." The Rental Period shall mean the rental payment period of either calendar months, quarters, or as otherwise specified in each Schedule. Rent for the specified Rental Period is due and payable in advance, to the address specified in Lessor's invoice, on the first day of each Rental Period during the Initial Term and any extension (collectively, the "Lease Term"), provided, however, that Rent for the period of time (if any) from the Commencement Date to the first day of the first Rental Period shall begin to accrue on the Commencement Date. If any Rent is not paid when due, Lessee will pay a service fee equal to five percent (5%) of the overdue amount plus interest at the rate of one and one-half percent (1.5%) per month or the maximum legal interest rate, whichever is less. 3. Net Lease, Taxes and Fees Each Schedule shall constitute a net lease and payment of Rent shall be absolute and unconditional, and shall not be subject to any abatement, reduction, set off, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever. Lessee agrees to pay Lessor when due shipping charges, fees, assessments and all taxes (municipal, state and federal) imposed upon a Lease or the Product or its ownership, leasing, renting, possession or use except for taxes based on Lessor's income. 4. Title Product shall always remain personal property. Lessee shall have no right or interest in the Product except as provided in this Master Lease and the applicable Schedule and shall hold the Product subject and subordinate to the rights of Lessor. Lessee agrees to execute UCC financing statements as and when requested by Lessor and hereby appoints Lessor as its attorney-in-fact to execute such financing statements. Lessor may file a photocopy of any Lease as a financing statement. Lessee will, at its expense, keep the Product free and clear from any liens or encumbrances of any kind (except any caused by Lessor) and will indemnify and hold Lessor harmless from and against any loss or expense caused by Lessee's failure to do so. Lessee shall give Lessor immediate written notice of any attachment or judicial process affecting the Product or Lessor's ownership. If requested, Lessee will label the Product as the property of Lessor and shall allow, subject to Lessee's reasonable security requirements, the inspection of the product during regular business hours. 5. Use, Maintenance and Repair Lessee, at its own expense, shall keep the Product in good repair, appearance and condition, other than normal wear and tear and shall obtain and keep in effect throughout the term of the Schedule a hardware and software maintenance agreement with the manufacturer or other party acceptable to Lessor. All parts furnished in connection with such repair and maintenance shall be manufacturer authorized parts and shall immediately become components of the Product and the property of Lessor. Lessee shall use the Product in compliance with the manufacturer's or supplier's suggested guidelines. 6. Delivery and Return of Product Lessee assumes the full expense of transportation, insurance, and installation to Lessee's site. Upon termination of each Schedule, Lessee will provide Lessor a letter from the manufacturer certifying that the Product is in good operating condition and is eligible for continued maintenance and that the operating system is at the then current level, unless under a Sun service contract during the Lease Term. Lessee, at its expense, shall deinstall, pack and ship the Product to a U.S. location identified by Lessor. Lessee shall remain obligated to pay rent on the Product until the Product and certification are received by Lessor. 7. Assignment and Relocation Lessee may sublease or assign its rights under this agreement with Lessor's prior written consent, which consent shall not be unreasonably withheld, subject, however, to any terms and conditions which Lessor may require. No permitted assignment or sublease shall relieve Lessee or any of its obligations hereunder. Lessee acknowledges Lessor may sell and/or assign its interest or grant a security interest in each Lease and/or the Product to an assignee ("Lessor's Assignee"), so long as Lessee is not in default hereunder. Lessor or Lessor's Assignee shall not interfere with Lessee's right of quiet enjoyment and use of the Product. Upon the assignment of each Lease, Lessor's Assignee shall have any and all discretions, rights and remedies of Lessor and all references to Lessor shall mean Lessor's Assignee. In no event shall any assignee of Lessor be obligated to perform any duty, covenant or condition under this Lease and Lessee agrees it shall pay such assignee without any defense, rights of set-off or counterclaims and shall not hold or attempt to hold such assignee liable for any of Lessor's obligations hereunder. Lessee, at its expense, may relocate Product (after packing it for shipment in accordance with the manufacturer's instructions) to a different address with thirty (30) days prior written notice to Lessor. The Product shall at all times be used solely within the United States. 8. Upgrades and Additions Lessee may affix or install any accessory, addition, upgrade, equipment or device on the Product ("Additions") provided that such Additions (i) can be removed without causing material damage tot he Product, (ii) do not reduce the value of the Product and (iii) are obtained from or approved by Sun Microsystems Computer Corporation and are not subject to the interest of any third party other than Lessor. Any other Additions may not be installed without Lessor's prior written consent. At the end of the Schedule Term, Lessee shall remove any Additions which (i) were not leased by Lessor and (ii) are readily removable without causing material damage or impairment of the intended function, use, or value of the Product and restore the Product to its original configuration. Any Additions which are not so removable will become the Lessor's property (lien free). 9. Lease End Options Upon written notice given at least ninety (90) days prior to expiration of the Lease Term, and provided Lessee is not in default under any Schedule, Lessee may (i) exercise any purchase option set forth on the Schedule, or (ii) renew the Schedule for a minimum extension period of twelve (12) months, or (iii) return the Product to Lessor at the expiration date of the Schedule pursuant to Section 6 above. 10. Insurance, Loss or Damage Effective upon shipment of Product to Lessee and until Product is received by Lessor, Lessee shall provide at its expense (i) insurance against the loss or theft or damage to the Product for the full replacement value, and (ii) insurance against public liability and property damage. Lessee shall provide a certificate of insurance that such coverage is in effect, upon request by Lessor, naming Lessor as loss payee and/or additional insured as may be required. Lessee shall bear the entire risk of loss, theft, destruction of or damage to any item of product. No loss or damage shall relieve Lessee of the obligation to pay Rent or any other obligation under the Schedule. In the event of loss or damage, Lessee shall promptly notify Lessor and shall, at Lessor's option, (i) place the Product in good condition and repair, or (ii) replace the Product with lien free Product of the same model, type and configuration in which case the relevant Schedule shall continue in full force and effect and clear title in such Product shall automatically vest in Lessor, or (iii) pay Lessor the present value of remaining Rent plus the buyout purchase option price provided for in the applicable Schedule. 11. Selection, Warranties and Limitation of Liability Lessee acknowledges that it has selected the Product and disclaims any reliance upon statements made by Lessor. Lessee acknowledges and agrees that use and possession of the Product by Lessee shall be subject to and controlled by the terms of any manufacturer's or, if appropriate, supplier's warranty, and Lessee agrees to look solely to the manufacturer or, if appropriate, supplier with respect to all mechanical, service and other claims, and the right to enforce all warranties made by said manufacturer are hereby assigned to Lessee for the term of the Schedule. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, LESSOR HAS NOT MADE AND DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, NONINFRINGEMENT, THE DESIGN, QUALITY, CAPACITY OR CONDITION OF THE PRODUCT, ITS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. IT BEING AGREED THAT AS THE LESSEE SELECTED BOTH THE PRODUCT AND THE SUPPLIER, NO DEFECT, EITHER PATENT OR LATENT SHALL RELIEVE LESSEE OF ITS OBLIGATION HEREUNDER, LESSEE AGREES THAT LESSOR SHALL NOT BE LIABLE FOR SPECIFIC PERFORMANCE OR ANY LIABILITY, LOSS, DAMAGE OR EXPENSE OF ANY KIND INCLUDING, WITHOUT LIMITATION, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES OF ANY NATURE, DAMAGES ARISING FROM THE LOSS OF USE OF PRODUCT, LOST DATA, LOST PROFITS, OR FOR ANY CLAIM OR DEMAND. 12. Indemnity Lessee shall indemnify and hold harmless Lessor and Lessor's Assignee from and against any and all claims, actions, suits, proceedings, liabilities, damages, penalties, costs and expenses (including reasonable attorneys' fees), arising out of the use, operation, possession, ownership (for strict liability in tort only), selection, leasing, maintenance, delivery or return of any item of Product. 13. Default and Remedies Lessee shall be in default of any Lease if (i) Lessee fails to pay Rent within ten (10) days of due date; (ii) Lessee fails to perform or observe or breaches any covenant or condition or any representation or warranty in such Lease, and such failure or breach continues unremitted for a period of ten (10) days after written notice from Lessor; (iii) Lessee, except as expressly permitted in the Lease, attempts to move, sell, transfer, encumber, or sublet without consent any item of Product leased under such Lease; (iv) Lessee files or has filed against it a petition in bankruptcy or becomes insolvent or makes an assignment for the benefit of creditors or consents to the appointment of a trustee or receiver or either shall be appointed for Lessee or for a substantial part of its property without its consent, or (v) Lessee or any guarantor of Lessee is declared legally deceased or if Lessee shall terminate its existence by merger, consolidation, sale of substantially all of its assets or otherwise. Upon default, Lessor may, at its option, take one or more of the following actions, (i) declare all sums due and to become due under the Schedule immediately due and payable, (ii) require Lessee to return immediately all Product leased under such Schedule to Lessor in accordance with Paragraph 6 hereof, (iii) without breach of the peace take immediate possession of and remove the Product; (iv) sell any or all of the Product at public or private sale or otherwise dispose of, hold, use or lease to others, or, (v) exercise any right or remedy which may be available to Lessor under applicable law, including the right to recover damages for the breach of the Schedule. In addition, Lessee shall be liable for reasonable attorney's fees, other costs and expenses resulting from any default, or the exercise of Lessor's remedies, including placing such Product in the condition require by Paragraph 6 hereof. Each remedy shall be cumulative and in addition to any other remedy otherwise available to Lessor at law or in equity. No express or implied waiver of any default shall constitute a waiver of any of Lessor's other rights. 14. Lessee's Representations Lessee represents and warrants for this Master Lease and each Schedule that the execution, delivery and performance by Lessee have been duly authorized by all necessary corporate action; the individual executing was duly authorized to do so; the Master Lease and each Schedule constitute valid, binding agreements of the Lessee enforceable in accordance with their terms; that all information supplied by Lessee, including but not limited to the credit application and other financial information concerning Lessee, is accurate in all material respects as of the date provided; and if there is any material change in such information prior to manufacturer's or, if appropriate, supplier's shipment of Product under the Schedule, Lessee will advise Lessor of such change in writing. 15. Applicable Law This Master Lease and each Schedule shall in all respects be governed by and construed in accordance with the laws of the state of California without giving effect to the principles of conflict of laws. 16. Miscellaneous Lessee agrees to execute and deliver to Lessor such further documents, including, but not limited to, financing statements, assignments, and financial reports and take such further action as Lessor may reasonably request to protect Lessor's interest in the Product. The performance of any act or payment by Lessor shall not be deemed a waiver of any obligation or default on the part of Lessee. Lessor's failure to require strict performance by Lessee of any of the provisions of this Master Lease shall not be a waiver thereof. No rights or remedies referred to in Article 2A of the Uniform Commercial Code will be conferred on Lessee unless expressly granted in this Master Lease. This Master Lease together with any Schedule constitutes the entire understanding between the parties and supersedes any previous representations or agreements whether verbal or written with respect to the use, possession and lease of the Product described in that Schedule. In the event of a conflict, the terms of the Schedule shall prevail over the Master Lease. No amendment or charge of any of the terms or conditions herein shall be binding upon either party unless they are made in writing and are signed by an authorized representative of each party. Each Schedule is non-cancellable for the full term specified and each Schedule shall be binding upon, and shall inure to the benefit of Lessor, Lessee, and their respective successors, legal representatives and permitted assigns. All agreements, representations and warranties contained herein shall be for the benefit of Lessor and shall survive the execution, delivery and termination of this Master Lease, any Schedule or related document. Any provision of this Master Agreement and/or each Schedule which is unenforceable shall not cause any other remaining provision to be ineffective or invalid. The captions set forth herein are for convenience only and shall not define or limit any of the terms thereof. Any notices or demands in connection with any Schedule shall be given in writing by regular or certified mail at the address indicated in the Schedule, or to any other address specified. THIS MASTER LEASE SHALL BECOME EFFECTIVE ON THE DATE ACCEPTED BY LESSOR. LESSOR: LESSEE: SUN MICROSYSTEMS FINANCE WORDCRUNCHER INTERNET TECHNOLOGIES, A Sun Microsystems, Inc. Business INC. By: _______________________________ By: _______________________________ (Authorized Signature) (Authorized Signature) Name: _____________________________ Name: _____________________________ Title: ____________________________ Title: ____________________________ Date: _____________________________ Date: _____________________________ Sun Microsystems Finance 5500 Wayzata Boulevard, Suite 725 Golden Valley, MN 55416 800 786-3366 Lease Schedule ("Schedule") No. 001 To Master Lease Agreement ("Master Lease") No. SL7082094 - -------------------------------------------------------------------------------- LESSEE LESSOR - -------------------------------------------------------------------------------- NAME: WordCruncher Internet Technologies, SUN MICROSYSTEMS FINANCE Inc. A SUN MICROSYSTEMS, INC. ADDRESS: 405 East 12450 South BUSINESS Suite B 901 SAN ANTONIO ROAD Draper, UT 84020 PALO ALTO, CA 94303 ADMIN. CONTACT: Mr. Ken Bell PHONE NO.: 800-786-3366 PHONE NO.: 801-816-9904 FAX NO.: 612-513-3299 - -------------------------------------------------------------------------------- BILLING ADDRESS PAYMENT SCHEDULE - -------------------------------------------------------------------------------- LEASE TERM: 24 MONTHS Same as above RENTAL: $23,779.00* PER MONTH * Payments to be made via Auto- matic Bank Withdrawal LESSEE PURCHASE ORDER NO.: SALES/USE TAX: Payment amount may CONTACT: be increased to PHONE NO.: include applicable sales/use tax. - -------------------------------------------------------------------------------- LOCATION OF PRODUCT END OF LEASE OPTIONS - -------------------------------------------------------------------------------- Same as above __X__ FMV PURCHASE OR RENEWAL _____ $1 PURCHASE OPTION CONTACT: _____ 10% PURCHASE OPTION PHONE NO.: _____ OTHER: - -------------------------------------------------------------------------------- PRODUCT DESCRIPTION AS DESCRIBED IN INTEGRATED BUSINESS SOLUTIONS QUOTATION NO. Word 11-4-99 LESS INTEGRATED BUSINESS SOLUTIONS EXHIBIT "A" ADDING INTEGRATED BUSINESS SOLUTIONS QUOTATION #'s Word 11-3-99(1), Word 11-30-99(2), Word 11-30-99(3) Modified, Word 11-30-99(4), Word 11-30-99(5), & Word 11-30-99(6), & QWEST PRODUCTS & SERVICES PURCHASE ORDER FORMS DATED 11/23/99; TOTALING $97,688, DATED 12/3/99; TOTALING $11,410, & DATED 12/3/99; TOTALING $2,886 ATTACHED HERETO. - -------------------------------------------------------------------------------- MASTER AGREEMENT: This Schedule is issued and effective this date set forth below pursuant to the Master Lease identified above. All of the terms, conditions, representations and warranties of the Master Lease are hereby incorporated herein and made a part hereof as if they were expressly set forth in this Schedule and this Schedule contains a separately enforceable, complete and independent lease with respect to the Product described herein. By their execution and delivery of this Schedule, the parties hereby affirm all of the terms, conditions, representations and warranties of the Master Lease. The additional terms set forth on the reverse side hereof are made a part of this Schedule. - -------------------------------------------------------------------------------- AGREED AND ACCEPTED BY: AGREED AND ACCEPTED BY: SUN MICROSYSTEMS FINANCE LESSEE WordCruncher Internet A Sun Microsystems, Inc. Business Technologies, Inc. BY: _________________________________ BY: /s/ James W. Johnston NAME: Vicki Kandl NAME: James W. Johnston TITLE: Manager-Lease Originations TITLE: Chairman DATE: _______________________________ DATE: 13 Dec. 99 Sun Microsystems Finance 5500 Wayzata Boulevard, Suite 725 Golden Valley, MN 55416 800 786-3366 Lease Schedule ("Schedule") No. 002 To Master Lease Agreement ("Master Lease") No. SL7082094 - -------------------------------------------------------------------------------- LESSEE LESSOR - -------------------------------------------------------------------------------- NAME: WordCruncher Internet Technologies, SUN MICROSYSTEMS FINANCE Inc. A SUN MICROSYSTEMS, INC. ADDRESS: 405 East 12450 South BUSINESS Suite B 901 SAN ANTONIO ROAD Draper, UT 84020 PALO ALTO, CA 94303 ADMIN. CONTACT: Mr. Ken Bell PHONE NO.: 800-786-3366 PHONE NO.: 801-816-9904 FAX NO.: 612-513-3299 - -------------------------------------------------------------------------------- BILLING ADDRESS PAYMENT SCHEDULE - -------------------------------------------------------------------------------- Same as above LEASE TERM: 24 MONTHS RENTAL: $452.05* PER MONTH LESSEE PURCHASE ORDER NO.: * Payments to be made using Auto- CONTACT: matic Bank Withdrawal PHONE NO.: SALES/USE TAX: Payment amount may be increased to include applicable sales/use tax. - -------------------------------------------------------------------------------- LOCATION OF PRODUCT END OF LEASE OPTIONS - -------------------------------------------------------------------------------- Same as above __X__ FMV PURCHASE OR RENEWAL _____ $1 PURCHASE OPTION CONTACT: _____ 10% PURCHASE OPTION PHONE NO.: _____ OTHER: - -------------------------------------------------------------------------------- PRODUCT DESCRIPTION AS DESCRIBED IN QWEST COMMUNICATIONS QUOTATIONS DATED 12/19/99 TOTALING $2,591.00 & DATED 12/3/99 TOTALING $12,503.00 ATTACHED HERETO. - -------------------------------------------------------------------------------- MASTER AGREEMENT: This Schedule is issued and effective this date set forth below pursuant to the Master Lease identified above. All of the terms, conditions, representations and warranties of the Master Lease are hereby incorporated herein and made a part hereof as if they were expressly set forth in this Schedule and this Schedule contains a separately enforceable, complete and independent lease with respect to the Product described herein. By their execution and delivery of this Schedule, the parties hereby affirm all of the terms, conditions, representations and warranties of the Master Lease. The additional terms set forth on the reverse side hereof are made a part of this Schedule. - -------------------------------------------------------------------------------- AGREED AND ACCCEPTED BY: AGREED AND ACCCEPTED BY: SUN MICROSYSTEMS FINANCE LESSEE WordCruncher Internet A Sun Microsystems, Inc. Business Technologies, Inc. BY: _______________________________ BY: /s/ Kenneth W. Bell NAME: Carrie A. Halvorson NAME: Kenneth W. Bell TITLE: Sun Programs Manager TITLE: SRVP & CFO DATE: _____________________________ DATE: 1/26/00 ADDITIONAL TERMS FOR SMCC PRODUCTS The following additional terms and conditions shall govern the use of SMCC Products leased hereunder. 1.0 USE OF SOFTWARE Lessee's use of any software Products ("Software") provided under this Schedule shall be governed by the object code license accompanying such Software. 2.0 WARRANTY Product warranties may vary depending on the specific SMCC Product leased. Applicable terms and conditions are as set out in the then current U.S. End User Price List. Software is warranted to conform to published specifications for a period of ninety (90) days from the date of delivery. SMCC does not warrant that: (i) operation of any Software will be uninterrupted or error free; or (ii) functions contained in Software will operate in combinations which may be selected for use by the licensee or meet the licensee's requirements. These warranties extend only to Lessee as an original Lessee. Lessee's exclusive remedy and SMCC's entire liability under these warranties will be: (i) with respect to Product, repair or at SMCC's option, replacement; and (ii) with respect to Software, use its best efforts to correct such Software as soon as practical after licensee has notified SMCC of Software's nonconformance. If such repair, replacement or correction is not reasonably achievable, SMCC will refund the rental fee/license fee. Unless Lessee has executed an on-site service agreement, repair or replacement will be undertaken at a service location authorized by SMCC. All Software customization is provided "AS IS", without a warranty of any kind. No SMCC warranty shall apply to any Software that is modified without SMCC's written consent or any Product or Software which has been misused, altered, repaired or used with equipment or software not supplied or expressly approved by SMCC. SMCC reserves the right to change these warranties at any time upon Notice and without liability to Lessee or third parties. EXCEPT AS SPECIFIED IN THIS AGREEMENT, ALL EXPRESS OR IMPLIED REPRESENTATIONS AND WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT, ARE HEREBY DISCLAIMED. 3.0 TRADEMARKS AND OTHER PROPRIETARY RIGHTS "Trademarks" means all company names, products' names, marks, logos, designs, trade dress and other designations or brands used by Sun Microsystems, Inc., its subsidiaries and affiliates ("Sun") in connection with Products, including, Sun, Sun Microsystems, the Sun logo, SPARCstation, SPARCserver, and all Sun product designs. Lessee is granted no right, title, license or interest in the Trademarks. Lessee acknowledges Sun's rights in the Trademarks and agrees that any and all use of the Trademarks by Lessee shall inure to the sole benefit of Sun. 4.0 HIGH RISK ACTIVITIES PRODUCTS ARE NOT FAULT-TOLERANT AND ARE NOT DESIGNED, MANUFACTURED OR INTENDED FOR USE OR RESALE AS ON-LINE CONTROL EQUIPMENT IN HAZARDOUS ENVIRONMENTS REQUIRING FAIL-SAFE PERFORMANCE, SUCH AS IN THE OPERATION OF NUCLEAR FACILITIES, AIRCRAFT NAVIGATION OR COMMUNICATION SYSTEMS, AIR TRAFFIC CONTROL, DIRECT LIFE SUPPORT, OR WEAPONS SYSTEMS IN WHICH THE FAILURE OF PRODUCTS COULD LEAD DIRECTLY TO DEATH, PERSONAL INJURY, OR SEVERE PHYSICAL OR ENVIRONMENTAL DAMAGE ("HIGH RISK ACTIVITIES"). SMCC SPECIFICALLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OF FITNESS FOR HIGH RISK ACTIVITIES. Lessee represents and warrants that it will not use, distribute or resell Products (including Software) for High Risk Activities and that it will ensure that its end-users or customers of Product are provided with a copy of the notice in the previous paragraph. EX-10.2 8 QWEST DEDICATED INTERNET ACCESS SERVICE QWEST INTERNET SOLUTIONS, INC. Dedicated Internet Access Service Agreement 1. General. This Agreement is made by and between Qwest Internet Solutions, Inc., a Delaware corporation with an address at 555 Seventeenth Street, Denver, CO 80202 ("Qwest") and Customer ("Customer") as identified below. This Agreement shall e effective on the date that it is executed by Qwest following Customer's execution ("Effective Date"). This Agreement sets forth the terms and conditions pursuant to which Qwest shall provide to Customer the Qwest Dedicated Internet Access Service ("Service") described in Addendum A-2 hereto, which Addendum is incorporated by reference herein. 2. Rates and Charges: Payment. Customer agrees to pay all applicable rates and charges set forth on Addendum A-1 hereto, which Addendum is incorporated by reference herein. In addition to such rates and charges, Customer shall be responsible for all sales and use taxes, as well as any duties or levies, arising in connection with the Service, including without limitation any and all fees and taxes which may be imposed by any internet registration authority. IN connection with the registration and maintenance of Customer's domain name(s) and/or internet address(es), if any. Billing for the recurring component of the Service shall be monthly in advance. Payment for the non-recurring component of the Service, including initial set-up and installation fees shall be payable upon execution of Addendum A-1. Charges shall be due upon Customer's receipt of invoice and payable within thirty (30) days of such date. Any amount not paid within such period shall bear interest at the lesser of (i) the rate of one and one-half percent (1 1/2%) per month, or (ii) the highest rate permitted by applicable law if Customer reasonably and in good fait disputes any portion of an invoice, Customer shall timely pay the full invoiced amount and provide Qwest, within thirty (30) days of payment a written statement adequately support Customer's position regarding the dispute. Qwest shall determine in its good faith business judgment whether such invoiced times were erroneous, and shall issue a credit to Customer if it so determines. Qwest reserves the right to change or modify the rates and charges for the Service or eliminate or modify certain components of the Service, upon not less than forty-five (45) days advance written notice to Customer. In the event of such modification or elimination with respect to the Service, Customer may terminate this Agreement, without penalty, upon not less than thirty (30) days advance written notice to Qwest. Customer's execution of this Agreement signifies Customer's acceptance of Qwest's initial and continuing credit review and approval. Qwest reserve the right to withhold implementation of Service pending completion of Qwest's credit review and Qwest may condition initiation of Service on its receipt of a deposit or such other means to establish reasonable assurance of payment. 3. Term and Termination. (a) This Agreement shall be effective upon the Effective Date and continue until the expiration (or termination) of Addendum A-1 as issued pursuant hereto. Unless otherwise set forth in Addendum A-1, the term with respect to such Addendum A-1 (its "Term") shall commence on the date upon which, with respect to the Service ordered, the Service is made available for use by Customer, and continue for a period of twelve (12) months. Addendum A-1 may be terminated by either party at the end of its Term by giving written notice at least sixty (60) days prior thereto, but in the absence of such notice, such Addendum A-1 shall automatically renew under the same terms and conditions for a term equal to that of its original Term (such renewal term shall also be referred to herein as the "Term"). In the event Customer terminates the Agreement prior to the conclusion of the Term, Customer shall pay to Qwest all charges for Service provided through the effective date of such cancellation plus a cancellation charge determined as follows: (i) if the Term for the cancelled Service is one (1) year or less, then the cancellation charge shall be an amount equal to the balance of the monthly Service charges (then in effect at the time of cancellation) for such cancelled Service that would otherwise have become due for the unexpired balance of the Term; (ii) if the Term for the canceled Service is longer than one(1) year and such cancellation becomes effective prior to the completion of the first year of the Term, the cancellation charge shall be an amount equal to the balance of the monthly Service charges (then in effect at the time of cancellation) for such cancelled Service that otherwise would have become due for the unexpired portion of the first year of the Term, plus fifty percent (50%) of the balance of such monthly charges for the remainder of the Term beyond the first year; and (iii) if the Term for the cancelled Service is longer than one (1) year and such cancellation becomes effective after completion of the first year of the Term, the cancellation charge shall be an amount equal to fifty percent (50%) of the balance of the monthly Service charges (then in effect at the time of cancellation) for such cancelled Service that otherwise would have become due and payable for the unexpired portion of the Term. In addition, if Customer was granted a discount or waiver with respect to any non-recurring charges based on the duration of Customer's Term commitment (an "NRC Discount"), then Customer shall also pay an amount equal to the NRC Discount. It is agreed that Qwest's damages if Service is cancelled prior to the completion of the Term shall be difficult or impossible to ascertain, thus the amounts set forth herein are intended to establish liquidated damages in the event of cancellation and are not intended as a penalty. (b) Qwest may terminate this Agreement and/or cease or suspend the provision of the Service upon default of Customer. Default includes: (i) the failure to pay any amount when due hereunder (after five (5) days prior notice of such failure to pay); (ii) the filing of a petition in bankruptcy by or against Customer; and (iii) any material default of this Agreement including but not limited to violation of the "AUP" (as hereinafter defined) or conduct that Qwest, in its sole discretion, believes may subject Qwest to civil or criminal litigation, charges and/or damages. If Qwest has suspended the Service pursuant to this Section 3(b), Qwest shall require a reconnection fee in order to resume Service. Termination shall not relieve Customer of its obligation to pay all fees for Service accrued and owing u to and including the date of termination or otherwise payable pursuant to Section 3(a) above, nor shall it preclude Qwest from pursuing any other remedies available to it, at law or in equity. (c) In the event a law or regulatory action prohibits, substantially impairs or makes impracticable the provision of Service under this Agreement, as determined by Qwest, Qwest may, at its option and without liability, terminate this Agreement or modify the Service or the terms and conditions of this Agreement in order to conform to such action ("Regulatory Modification"); provided, however, that Qwest shall provide thirty (30) days written notice prior to Customer of any such Regulatory Modification, unless Qwest determines, in its good faith business judgment, that it is necessary to reduce the foregoing notice period. Use by Customer of the Service after implementation of a Regulatory Modification shall constitute acceptance by Customer of such changes. 4. Rights and Obligations of Customer. Customer represents that (a) it has full right and authority to enter into this Agreement; (b) it will not use the Service in any manner which is in violation of any law or governmental regulation, or Qwest's Acceptable Use Policy ("AUP") as amended from time to time by Qwest, which AUP is posted on Qwest's web site at (www.qwest.com) and which is incorporated by reference herein; (c) the "Customer Data" (as hereinafter defined) will not violate or infringe the rights of others, including, without limitation, any patent, copyright, trademark, trade dress, trade secret, privacy, publicity, or other personal or proprietary right; (d) the Customer Data will not include indecent or obscene material or constitute a defamation or libel of Qwest or any third party and will not result in the obligation of Qwest to make payment of any third party licensing fees; and (e) it will comply with all relevant export and encryption laws and regulations of the United States. For purposes of this Section 4, "Customer Data" shall mean the text, data, images, sounds, photographs, illustrations, graphics, programs, code and other materials transmitted through the Service hereunder. 5. Equipment of Software Not Provided By Qwest. Customer shall be solely responsible for the installation, operation, maintenance, use and compatibility of equipment or software not provided by Qwest and Qwest shall have no responsibility or liability in connection therewith. In the event that equipment or software not provided by Qwest impairs Customer's use of any Service: (a) Customer shall nonetheless be liable for payment for all Service provided by Qwest; and (b) any service specifications or service levels (and corresponding service credits) generally applicable to the Service shall not apply. Customer shall cooperate with Qwest in setting the initial configuration for its equipment's interface with the Service and comply with Qwest's instructions in connection therewith. 6. Rights and Obligations of Qwest; Disclaimer of Warranties. (a) Qwest, at its sole discretion, may secure domain names and assign internet address space (subject to reasonable availability) for the benefit of Customer during the Term, and Qwest will route those addressees on Qwest's network, it being understood and agreed that neither Customer nor any of its "Users" (as defined in the AUP) shall have the right to route these addresses. Customer understands and agrees that it shall have no ownership interest in any IP address which Qwest obtains on Customer's behalf and that Qwest shall retain ownership of all such IP addresses, and upon termination of the Agreement, Customer's access to and utilization of such IP addresses shall terminate. (b) Customer agrees that it is solely responsible for assessing its own computer and transmission network needs and the results to be obtained therefrom and Qwest exercises no control whatsoever over the merchandise, information and services offered or accessible on the Internet. Qwest shall use commercially reasonable efforts to (i) monitor its network and its interconnection to other networks and (ii) maintain its network, including interconnections, in an operational state (except during scheduled maintenance) in order to provide Service in accordance with any applicable service level agreement ("SLA"). CUSTOMER ASSUMES TOTAL RESPONSIBILITY FOR CUSTOMER'S USE AND USERS' USE OF THE SERVICE, SOFTWARE OR EQUIPMENT PROVIDED BY QWEST, IF ANY, AND THE INTERNET. CUSTOMER UNDERSTANDS AND AGREES FURTHER THAT THE INTERNET (1) CONTAINS MATERIALS SOME OF WHICH ARE SEXUALLY EXPLICIT OR MAY BE OFFENSIVE AND (2) IS ACCESSIBLE BY PERSONS WHO MAY ATTEMPT TO BREACH THE SECURITY OF QWEST'S AND/OR CUSTOMER'S NETWORK(S). QWEST HAS NO CONTROL OVER AND EXPRESSLY DISCLAIMS ANY LIABILITY OR RESPONSIBILITY WHATSOEVER FOR SUCH MATERIALS OR ACTIONS AND CUSTOMER AND CUSTOMER'S USERS ACCESS THE SERVICE AT CUSTOMER'S OWN RISK. EXCEPT AS SPECIFICALLY SET FORTH HEREIN OR IN THE ADDENDUM, THE SERVICE AND RELATED SOFTWARE AND/OR EQUIPMENT PROVIDED BY QWEST, IF ANY, ARE PROVIDED ON AN "AS IS" AND "AS AVAILABLE" BASIS WITHOUT WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF TITLE, NONINFRINGEMENT OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NO ADVICE OR INFORMATION GIVEN BY QWEST, ITS AFFILIATES OR ITS CONTRACTORS OR THEIR RESPECTIVE EMPLOYEES SHALL CREATE A WARRANTY. Some states do not allow the limitation of implied warranty, and therefore certain provisions may not apply to customers located in those states. 7. Limitation of Liability. TO THE MAXIMUM EXTENT PERMITTED BY LAW, IN NO EVENT SHALL QWEST, ITS AFFILIATES OR AGENTS BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OR LOST OR IMPUTED PROFITS OR ROYALTIES, LOST DATA OR COST OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES ARISING FROM OR RELATED TO THE SERVICE OR THIS AGREEMENT WHETHER FOR, AMONG OTHER THINGS, BREACH OF WARRANTY OR ANY OBLIGATION ARISING THEREFROM, AND WHETHER LIABILITY IS ASSERTED IN, AMONG OTHER THINGS, CONTRACT OR TORT (INCLUDING BUT NOT LIMITED TO NEGLIGENCE AND STRICT PRODUCT LIABILITY) WHETHER OR NOT QWEST HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE. QWEST'S LIABILITY HEREUNDER SHALL IN NO EVENT EXCEED AN AMOUNT EQUAL TO THE AVERAGE MONTHLY RECURRING CHARGE PAID BY CUSTOMER FOR THE SERVICE, SUCH AVERAGE MONTHLY CHARGE TO BE CALCULATED BASED UPON THE PERIOD COMMENCING ON THE EFFECTIVE DATE AND CONCLUDING ON THE DATE A CLAIM IS MADE. CUSTOMER HEREBY WAIVES ANY CLAIM THAT THESE EXCLUSIONS DEPRIVE IT OF AN ADEQUATE REMEDY OR CAUSE THIS AGREEMENT TO FAIL OF ITS ESSENTIAL PURPOSE. Except as specifically set froth in the SLA, the foregoing sets forth Customer's exclusive remedy for breach of this Agreement by Qwest. Some states do not allow the exclusion of incidental or consequential damages, and therefore certain provisions hereof may not apply to customers located in those states. The provisions of this Section 7 allocate the risks between Qwest and Customer and Qwest's pricing reflects the allocation of risk and limitation of liability specified herein. 8. Indemnity. Customer agrees to defend, indemnify and hold Qwest and its affiliates harmless from any and all liabilities, costs and expenses, including reasonable attorneys' fees, related to or arising from: (a) any breach of this Agreement by Customer or Users; (b) the use of the Service or the Internet or the placement or transmission of any information, software or other materials on the Internet by Customer or Users, including but not limited to any Customer Data; (c) acts or omissions of Customer, Customer's agents or contractors in connection with, among other things, the installation, maintenance, presence, use or removal of equipment or software not provided by Qwest connected or to be connected to the Service; and (d) claims for infringement of any third party proprietary right, including copyright, patent, trade secrete and trademarks rights, arising from the use of any services, equipment and software not provided by Qwest. 9. Non-Solicitation of Employees. Customer shall not, during the Term of this Agreement and for a period of one (1) year thereafter, directly or indirectly solicit, employ, offer to employ, nor engage as a consultant, any employee of Qwest with whom Customer had contact pursuant to this Agreement. 10. Non-Disclosure. Except with respect to information in the public domain or which is legally required to be disclosed, Customer shall not disclose any of the terms and conditions of this Agreement to any third party during the Term and for a period of twelve (12) months thereafter. 11. Assignment. Customer shall not assign this Agreement or, unless set forth in Addendum A-1, resell the right to use the Service, without the prior written consent of Qwest. 12. Miscellaneous. (a) Any dispute relating to this Agreement shall be submitted for binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association and judgment on any award entered therein may be entered in any court of competent jurisdiction. The venue for any such arbitration shall be Denver, Colorado. (b) In the event that any portion of this Agreement is held to be unenforceable, the unenforceable portion shall be construed as nearly as possible to reflect the original intent of the parties and the remainder of the provisions shall remain in full force and effect. (c) Qwest's failure to insist upon strict performance of any provision of this Agreement shall not be construed as a waiver of any of its rights hereunder. (d) The terms and conditions of this Agreement, including all Addenda, shall prevail notwithstanding any different or additional terms and conditions of any purchase order or other form for purchase or payment submitted by Customer to Qwest. (e) All terms and provisions of this Agreement which should by their nature survive the termination of this Agreement shall so survive, including but not limited sections 3, 4, 6, 7, 8, 9, 10 and 12. (f) Qwest is acting as n independent contractor and shall have exclusive control of the manner and means of performing its obligations. (g) Qwest will not be responsible for performance of its obligations hereunder where delayed or hindered by war, riots, embargoes, strikes or acts of its vendors, suppliers, accidents, acts of God, or any other event beyond its control. (h) All notices shall be sent by registered or certified mail or by overnight commercial delivery to the address set forth in this Agreement by each party. Notices to Qwest shall be sent to the attention of its General Counsel. (i) This Agreement shall be governed by the laws of the State of New York. Any cause of action Customer may have with respect to the Service must be commenced within one (1) year after the claim or cause of action arises or such claim or cause of action is barred. In any proceeding to enforce the terms of this Agreement, the party prevailing shall be entitled to recover all of its expenses, including, without limitation, reasonable attorney's fees. (j) This Agreement may be executed in separate counterparts using facsimile copies, each of which shall be deemed an original, and all of which shall be deemed one and the same instrument and legally binding upon the parties. (k) This Agreement, including the AUP (as such AUP may be amended from time to time), Addendum A-1 and Addendum A-2, constitutes the entire agreement between Customer and Qwest with respect to the Service. This Agreement may only be amended in a written agreement executed by authorized representatives of both parties hereto. CUSTOMER WORD CRUNCHER INTERNET TECHNOLOGIES INC. /s/ - ---------------------------------------------------------- Signature of Authorized Representative Date Martin Cryer, VP Product Dev. - ---------------------------------------------------------- Name and Title of Authorized Representative Customer Address: 405 East 12450 South, Suite B Draper, UT 84020 QWEST INTERNET SOLUTIONS, INC. - ---------------------------------------------------------- Signature of Authorized Representative Date - ---------------------------------------------------------- Name and Title of Authorized Representative Qwest ADDENDUM A-2 TO QWEST SERVICE AGREEMENT Dedicated Internet Access ("DIA") Service Description This Addendum A-2 to the agreement by and between Customer and Qwest (the "Agreement") sets forth the description of Qwest's Dedicated Internet Access ("DIA") Service, as provided pursuant to such Agreement. Except as otherwise set forth herein, capitalized terms shall have the definitions assigned to them in the Agreement. Qwest DIA Service consists of: (i) a dedicated, high-speed network connection between Customer's premises (as specified in Addendum A-1 of the Agreement) and Qwest's domestic (continental United States) Internet protocol ("IP") network; and (ii) routing services, based upon the Transmission Control Protocol/Internet Protocol which will afford Customer Internet connectivity. The specific bandwidth and, therefore, the speed or rate at which Customer may transmit and receive data via its Internet connection, is specified in Addendum A-1 of the Agreement. If specified in Addendum A-1, Qwest will, on Customer's behalf, use commercially reasonable efforts to perform the following as part of the DIA Service; (i) order local access facilities connecting Customer's premises to a Qwest point-of presence; and/or (ii) secure IP address space for Customer in accordance with Addendum A-1. Estimated dates of completion including Firm Order Commitments (collectively, the "FOC Dates") are often dependent on parties other than Qwest, including Local Exchange Carriers; therefore, FOC Dates are provided on a "Best efforts" basis, but Qwest makes no guarantees regarding FOC Dates except as may be specifically set forth in the Service Level Agreement ("SLA") below. For Customers purchasing "Burstable" DIA Services as set forth herein, the methodology for Burstable Billing is as follows: Usage samples are taken every 5 minutes throughout the month. Only one sample is captured for each five-minute period, even though there are actually two samples take; one for inbound utilization and one for outbound utilization. The higher of these two figures is retained. At the end of the billing period, the samples are ordered from highest to lowest. The result is a database of over 8,000 samples (12 samples/hour *24 hours/day *30 days/month), with the highest sample listed first and the lowest sample listed last. The top 5% of the samples (representing the top 5% of usage levels) are discarded. The highest remaining sample is used to calculate the usage level. This is the 95th percentile of peak usage. The DIA Service purchased herein is subject to the following SLA which is effective as of the first day of the second month after initial installation of Services. NETWORK AVAILABILITY GOAL - ------------------------- NETWORK AVAILABILITY GOAL. For domestic Qwest Internet Services, Qwest's goal is to maintain network availability at the bandwidth specified in the Addendum of 100%. COMPONENTS INCLUDED. All components of the Qwest IP Network (e.g. POPs, Routers, Circuits) and Qwest-provided local access facilities used to access the Qwest IP Network (e.g. Local Loop) are included in the determination of Network Availability. NETWORK AVAILABILITY MEASUREMENT AND REMEDIES. Network Downtime is measured based on the total outage time of the affected Services. Network Downtime shall exist when a particular Customer circuit (the "Affected Service") is unable to transmit data and Qwest records such failure in the Qwest trouble ticket system. Network Downtime is measured from the time the trouble ticket is opened to the time the Affected Service is again able to transmit and receive data. Upon Customer's written request to the Call Management Center made within five (5) business days of the last day of the month in which the Network Downtime occurred, Qwest shall provide a service credit equal of the pro-rated charges for one day of Services for the Affected Service for each cumulative hour of Network Downtime. SERVICE CREDIT EXCEPTIONS. Service credits will not be available to Customer in cases which the Services are unavailable as a result of (i) the negligence, acts or omissions of Customer, its employees, contractors or agents or its end users; (ii) the failure or malfunction of equipment, applications or systems not owned or controlled by Qwest, (iii) circumstances or causes beyond the control of Qwest, including instances of Force Majeure (as defined in this Agreement), or (iv) scheduled service maintenance, alteration, or implementation. Such credits will be granted only if Customer affords Qwest full and free access to Customer's premises and equipment to make necessary repairs, maintenance, testing. etc. NETWORK DELAY GOAL - ------------------- NETWORK DELAY GOAL. Qwest's goal is to maintain an average roundtrip POP-to POP (e.g. IP Backbone) on-network delay of 75 milliseconds. CALCULATION. The calculation for average roundtrip network delay (Average Network Delay) for a given month is as follows based on the procedure criteria defined below: [SIGMA] (Roundtrip Delay for POP-POP trunks) = Average Network -------------------------------------------- Delay Total Number of POP-POP trunks COMPONENTS INCLUDED. All components of the Qwest IP Network shall be included in the determination of Average Network Delay. AVERAGE NETWORK DELAY MEASUREMENT AND REMEDIES. Average Network Delay will be measured by software and hardware components capable of measuring application traffic and responses at each POP to be measured for roundtrip delay. Measurements shall be performed on an ongoing basis to adequately determine a consistent average performance level for the calculation, and posted to the Qwest web site provided to Customer. If the Average Network Delay falls below the Network Delay Goal within the calendar month, Qwest shall provide a service credit equal of 10% percent of the total monthly charges relating to the affected Services. SERVICE CREDIT EXCEPTIONS. Service credits will not be available in cases where the Average Network Delay exceeds the Network Delay Goal as a result of (i) the negligence, acts or omissions of Customer, its employees, contractors or agents or its end users; (ii) the failure or malfunction of equipment, applications or systems not owned or controlled by Qwest, (iii) circumstances or causes beyond the control of Qwest, including instances of Force Majeure, or (iv) scheduled service maintenance, alteration, or implementation. Such credits will be granted only if Customer affords Qwest full and free access to Customer's premises and equipment to make necessary repairs, maintenance, testing, etc. REPORTING LEVEL GOAL - --------------------- REPORTING LEVEL GOAL. Qwest's goal is to report service interruptions within 10 minutes or less after Qwest's determination that the Customer's Services are unavailable. DEFINITION AND PROCESS. If Qwest determines that the Services are unavailable (i.e. router is unable to transmit and/or receive data), Qwest will contact Customer within 10 minutes, via an agreed upon method. In connection with Qwest's obligations to contact Customer, Customer must provide a valid pager number, fax number or email address. Customer is solely responsible for providing accurate contact information for customer's designated point of contact. COMPONENTS INCLUDED. All components of the Qwest IP Network shall be included in the determination of whether Qwest has met the Reporting Level Goal. REMEDIES. Upon verification by Qwest that Qwest failed to meet the Reporting Level Goal, Qwest shall provide a service credit equal to the prorated charges for one day of network connectivity for the affected Services; provided, however, that a maximum of one such credit may be accrued per day. SERVICE CREDIT EXCEPTIONS. Service credits will not be available in cases where the failure to meet the Reporting Level Goal is a result of (i) Customer's failure to provide valid and accurate contact information as set forth above; (ii) the failure or malfunction of equipment, applications or systems not owned or controlled by Qwest, (iii) circumstances or causes beyond the control of Qwest, including instances of Force Majeure (as defined in this Agreement), or (iv) schedule service maintenance, alteration, or implementation. MAINTENANCE WINDOW DEFINITION - ----------------------------- Maintenance performed by Qwest shall be classified as one of the following two (2) types: NORMAL MAINTENANCE. Normal maintenance shall refer to: (i) upgrades of hardware or software; or (ii) upgrades to increase capacity. Normal Maintenance while being conducted may degrade the quality of the Services provided which may include an outage of the Services; provided, however than an outage related to Normal Maintenance shall not be deemed to be Network Downtime. Normal maintenance shall be undertaken by Qwest only on Sunday morning between the hours of 12:00 AM and 6:00 AM Local Time and on Wednesday morning between the hours of 12:00 AM and 6:00 AM Local Time. For purposes of this SLA, "Local Time" shall refer to the local time in the time zone in which an Affected Service is located; provided, however, that if Affected Services are located in multiple time zones, Local Time shall refer to Eastern Standard Time. Qwest shall provide two (2) days prior notice of Normal Maintenance. URGENT MAINTENANCE. Urgent maintenance shall refer to efforts by Qwest to correct Qwest IP Network conditions which are likely to cause a material Service outage and which require immediate correction. Urgent Maintenance, while being conducted, may degrade the quality of the Services provided to an Affected Service which may include an outage of the Services. An outage related to Urgent Maintenance shall be deemed an outage for purposes of calculating Network Downtime and Actual Network Availability. Qwest may undertake Urgent Maintenance at any time Qwest deems necessary. Qwest shall provide notice of Urgent Maintenance to Customer as soon as is commercially practicable under the circumstances. INSTALLATION GOAL. Except as otherwise stated in the applicable Addendum, Qwest guarantees that with respect to (a) frame relay, fractional T-1 and T-1 circuits, the local loop and Qwest port shall be installed within 45 business days, (b) T-3 circuits, the local loop and Qwest port shall be installed within 60 business days, and (c) OC-3 circuits, the local loop and Qwest port shall be installed within the time period specified in writing by a Qwest Sales Manager (the" Installation Goal"). These installation intervals shall commence at the close of business on the day upon which Customer has provided Qwest with a signed Agreement, any applicable Addenda, a completed Contact Form, and a completed and approved credit application. Upon Customer's written request, if Qwest determines in its good faith discretion that it has failed to meet this installation Goal, then it shall credit Customer's account for one-half of the set-up fee with respect to the affected Services. No such credit shall be available for any failure to meet the Installation Goal which is the result of (i) the negligence, acts or omissions of Customer, its employees, contractors or agents or its end users, (ii) the failure or malfunction of equipment, applications or systems not owned or controlled by Qwest, or (iii) circumstances or causes beyond the control of Qwest, including instances of Force Majeure, and such credit shall be Customer's sole and exclusive remedy in the event Qwest fails to meet the Installation Goal. MAXIMUM CREDITS AND TERMINATION OPTION. In the event that Customer is entitled to multiple credits under this SLA arising from the same event, such credits shall not be cumulative and Customer shall be entitled to receive only the maximum single credit available for such event. Under no circumstances will Qwest be required to credit Customer in any one calendar month charges in excess of seven (7) days of service. A credit shall be applied only to the month in which the event giving rise to the credit occurred. Notwithstanding the foregoing, in the event that, in any single calendar month, either (A) Customer would be able to receive credits totaling fifteen (15) or more days (but for the limitation set forth in this section) resulting from three (3) or more events during such calendar month, (B) any single event entitling Customer to credits under the section entitled "Network Availability Goal" above exists for a period of eight (8) consecutive hours, or (C) any number of events entitling Customer to credits under "Network Availability Goal" above exists for an aggregate of twenty-four (24) hours, then, Customer may terminate this agreement for cause and without penalty by written notice to the Call Management Center with a courtesy copy to the attention of the General Counsel within five (5) business days following the end of such calendar month. Such termination will be effective forty-five (45) days after receipt of written notice by Qwest. The provisions of this Service Level Agreement state Customer's sole and exclusive remedy for service interruptions of service deficiencies of any kind whatsoever. All terms and conditions of this Addendum A-2 and the Agreement (collectively, the "Agreement") entered into between the parties shall prevail over any conditions in customer purchase orders, payments or other forms, all of which are hereby rejected. Please sign below to confirm your agreement with the terms stated herein. Customer Qwest Internet Solutions, Inc. WORD CRUNCHER INTERNET TECHNOLOGIES INC. By: /s/ By: --------------------------------- --------------------------------- Martin Cryer Date Title Date V.P. Product Development EX-10.25 9 NETDOTWORKS CONSULTING AND SUPPORT AGREEMENT CONSULTING AND SUPPORT AGREEMENT This agreement (the "Agreement") is entered into as of the 22 day of February, 2000 (the "Effective Date"), by and between Netdotworks, Corp., a Utah corporation ("Provider"), and WordCruncher Internet Technologies, Inc. a Nevada corporation ("WordCruncher"). Recitals A. Whereas, WordCruncher has developed and will soon an Internet website at www.logio.com wherein it will provide a searchable business portal dedicated to news, data and services of importance to business professionals; and B. Whereas, Provider is a full service network systems consulting firm with experience in network architectural design, multi-platform database administration, network security, network audits, Web site administration and project management; and C. Whereas, WordCruncher desires to engage Provider to perform certain consulting and support services, and Provider desires to provide such services, in accordance with the terms and conditions of this Agreement; and D. Whereas, Provider and WordCruncher desire to set forth in writing their mutual intent and understanding of the scope and terms of such engagement. Agreement Now, therefore, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following meanings, unless the context otherwise requires. Certain other terms are defined elsewhere in this Agreement. 1.1 "Access Terminals" mean the computer terminals located at _________ Draper, Utah (the "Access Terminals Site") and connected to the System through the Frame relay. 1.2 "Agreement" means this Consulting and Support Agreement between Provider and WordCruncher, as amended from time to time. 1.3 "Code" means all computer programming code (both object and source, unless otherwise specified) and application program interfaces associated with the System, as modified or enhanced from time to time by WordCruncher, including, without limitation, all interfaces, navigational devices, menu structures or arrangements, icons, help, operational instructions, commands, syntax, hyper-text markup language, design, templates the literal and non-literal expressions of ideas that operate, cause, create, direct, manipulate, access or otherwise affect the Content whether created or licensed from third parties by WordCruncher including, without limitation, any copyrights, trade secrets and other intellectual or industrial property rights therein. 1.4 "Content" means all text, graphics, animation, audio and/or digital video components and other online materials and services included on logio-com, but does not include the Code. 1.5 "End-User(s)" means any person or entity that accesses logio.com or uses the services therein. 1.6 "Frame Relay" means the data-packet switching service used by WordCruncher to transmit data between the System and the Access Terminals. 1.7 "Intellectual Property Right(s)" means any patent, copyright, trademark, trade secret, trade dress, mask work, right of attribution or integrity or other intellectual or industrial property rights or proprietary rights arising under the laws of any jurisdiction (including, without limitation, all claims and causes of action for infringement, misappropriation or violation thereof and all rights in any registrations and renewals). 1.8 "Launch Date" means the first day that logio.com provided services become available on the Internet to End Users. 1.9 "Services" mean any and all services provided by Provider under Section 2 of this Agreement. 1.10 "logio.com" means the WordCruncher owned Internet site, namely www.logio.com. 1.11 "System" means all application server hardware devices and software owned, rented or licensed by WordCruncher, used to operate logio.com and located at the data center of Qwest Communications International Inc. in ___________________, California (the "Data Center Site"). The System does not include the Access Terminals and the Frame Relay. 2. Scope of Services. On the terms and subject to the conditions set forth in this Agreement, Provider shall provide to WordCruncher the following services (collectively, the "Services"): 2.1 Obtaining Familiarity. Provider shall at least three weeks prior to the Launch Date, provide two senior employees of Provider to be available at the Access Terminals Site to develop a familiarity with the System and the procedures WordCruncher has established relating to the System. These two senior employees are billable at a rate of $10,000 per month each. Any amount payable to Provider under this Section 2.1 shall be prorated during any month in which this Agreement is not in effect for the entire month. 2.2 Database and Web Server Support. From and after one week prior to the Launch Date, Provider shall 9a) proactively monitor the System to identify situations that could cause downtime of the System and to respond to those issues to maintain the availability of the System for all End Users, (b) seek ways to improve performance and reliability of the System through optimization of the System, (c) monitor the backend connectivity between the database, application, Web and search servers of the System to verify that the entire process is functioning and providing the required resources for the operation of the System, (d) monitor backups of the content and verify the backups' integrity through regular testing, (e) administer, and update as reasonably necessary, a disaster recovery plan for the System and (f) assist WordCruncher managers, developers and programmers with the implementation of modifications to the System and the establishment of proper quality control requirements to be met before such modifications are made. 2.2.1 Level of Support. From and after one week prior to the Launch Date, Provider shall provide at all times of every day a database server administrator and a Web site administrator at the Access Terminals Site and a security consultant on an as-needed basis to provide the Services set forth in Section 2.2. 2.2.2 Logs and Manuals. Provider shall keep detailed logs of resolution steps taken by Provider to remedy any failure, or events that could potentially create failure, of the System. Provider shall maintain and update a manual relating to the Services set forth in Section 2.2. 3. WordCruncher's Responsibilities. WordCruncher shall, to the extent reasonably necessary for Provider to fulfill its responsibilities under this Agreement and at no charge to Provider, (a) provide reasonable cooperation and assistance to Provider, (b) be responsible for all costs associated with maintaining and upgrading the System, Access Terminals and Frame Relay, (c) provide and be responsible for all costs associated with the Access Terminals Site, including, but not limited to, security for such site (d) furnish information requested by Provider, including, but not limited to, the Code, (e) provide reasonable access to WordCruncher personnel, and (f) keep Provider reasonably informed of the date on which WordCruncher believes the Launch Date will occur. Any delays attributable to WordCruncher's failure to respond to reasonable requests by Provider shall extend any and all deadlines set forth in this Agreement for an amount of time equal to WordCruncher's delay and/or release Provider from its obligations hereunder to the extent that Provider is affected by such delay or failure of WordCruncher. 4. Payments. 4.1 Payment for the Services and Reimbursements. The amount to be paid to Provider for all of the Services during the Initial Term (as hereinafter defined) shall be $90,000 per month (with first months payment due upon execution of the Agreement) payable on the fifteenth (15) day of each month during the Initial Term. In the event that WordCruncher elects to extend the term of this Agreement for an additional two hundred forty days in accordance with Section 5.1(a), the amount to be paid to Provider for all of the Services during such extended period shall be $85,000 per month during the first four months of the Extended Period (as hereinafter defined) and $85,000 per month during the first four months of the Extended Period (as hereinafter defined) and $80,000 per month during the fifth month of the Extended Period through the end of the Extended Period. In the event that WordCruncher elects to extend the term of this Agreement on a month to month basis in accordance with Section 5.1(b), the amount to be paid to Provider for all of the Services during such extended period shall be $90,000 per month during the first two months of the Month to Month Period (as hereinafter defined) and $80,000 per month during the third month of the Month to Month Period through February 22, 2001. Any amount payable to Provider under this Section 4.1 shall be prorated during any month in which this Agreement is not in effect for the entire month. WordCruncher shall reimburse Provider for actual, reasonable out-of-pocket expenses, including travel expenses, incurred by Provider in furtherance of its obligations under this Agreement. Without limiting the generality of the foregoing, WordCruncher shall reimburse Provider for all expenses Provider incurs to travel to the Data Center Site. WordCruncher shall pay such reimbursements within thirty days after Provider has submitted to WordCruncher an invoice therefor. 4.2 Payment Terms. All payments required to be made by WordCruncher hereunder shall be in U.S. currency. In the event of a payment dispute between the parties hereto, WordCruncher agrees to pay any and all sums due to Provider not in dispute without prejudice to WordCruncher's legal rights. The fees to be paid by WordCruncher hereunder are exclusive of any and all sales, use or other taxes or charges levied or imposed on Provider, resulting from this Agreement or any part thereof. 5. Term and Termination. 5.1 Initial Term. This Agreement shall remain in full force and effect for a period of one hundred twenty days from the date Provider first provides full time support in accordance with section 2.2 and 2.2.1 above (the "Initial Term"). WordCruncher may terminate this Agreement with or without cause at the end of the Initial Term upon thirty days written notice to Provider prior to the end of the Initial Term. 5.2 Option to Extend. In the event WordCruncher does not elect to terminate this Agreement at the end of the Initial Term in accordance with Section 5.1, WordCruncher shall have the option to extend the term of this Agreement in full force and effect (a) for a period of an additional two hundred forty days from the end of the Initial Term (the "Extended Term"); provided that this Agreement may be terminated during the Extended Term in accordance with Section 5.3 or (b) on a month to month basis until February 22, 2001 (the "Month to Month Period"). 5.3 Termination. During the Extended Term, either party may deliver to the other party a written "Notice of Default" in the event that the other party has breached any material provision hereunder. Such Notice of Default must prominently contain the following sentences in capital letters: "THIS IS A FORMAL NOTICE OF A BREACH OF CONTRACT. FAILURE TO CURE SUCH BREACH WILL HAVE SIGNIFICANT LEGAL CONSEQUENCES." A party that has received a Notice of Default shall have twenty days to cure the alleged breach (and, if the defaulting party shall have commenced actions in good faith to cure such defaults which are not susceptible of being cured during such twenty-day period, such period shall be extended (but not in excess of twenty additional days) while such party continues such actions to cure (the "Cure Period") If such party fails to cure the breach within the Cure Period, as long as such default shall be continuing, the non-defaulting party shall have the right to either (a) suspend its performance or payment obligations under this Agreement, (b) seek an order of specific performance, (c) seek an award of compensatory damages, and/or (d) terminate the Agreement. 6. Confidential Information. 6.1 Nondisclosure. If either party acquires Confidential Information of the other, such receiving party shall maintain the confidentiality of the disclosing party's Confidential Information, shall use such Confidential Information only for the purposes for which it is furnished and shall not reproduce or copy it in whole or in part except for use as authorized in this Agreement. Without limiting the generality of the foregoing, neither party shall use the Confidential Information of the other party to solicit the other party" customers or to otherwise compete unfairly with the other party. Confidential Information shall mean all information of the disclosing party which it treats as confidential or proprietary. Confidential Information shall not include information which is or hereafter becomes generally available to others without restriction or which is obtained by the receiving party without violating the disclosing party's rights under this Section 6 or any other obligation of confidentiality. The terms and conditions of this Agreement and the Code shall constitute Confidential Information. Provider and WordCruncher shall cooperate to request confidential treatment as may be mutually agreed by them with respect to certain terms of this Agreement and the transactions contemplated hereby in any filing with the Securities and Exchange Commission, any other government authority or any securities exchange or stock market. 6.2 Duration. With respect to all Confidential Information, the parties' rights and obligations under this Section 6 shall remain in full force and effect following the termination of this Agreement. 6.3 Ownership. All materials and records which constitute Confidential Information, other than copies of this Agreement, shall be and remain the property of, and belong exclusively to, the disclosing party, and the receiving party agrees either to surrender possession of and turn over or to destroy and certify to the other party the destruction of all such Confidential Information which it may possess or control upon request of the disclosing party or upon the termination of this Agreement. 6.4 Injunctive Relief. The parties acknowledge and agree that, in the event of a breach or threatened breach by any party of any provision of this Section 6, the other party will have no adequate remedy in money or damages and, accordingly, shall be entitled to an injunction against such breach. However, no specification in this Section 6 of a specific legal or equitable remedy shall be construed as a waiver or prohibition against any other legal or equitable remedies in the event of a breach of this Section 6 of this Agreement. 6.5 Legal Obligation to Disclose. Each party shall be released from its obligations under this Section 6 with respect to information which such party is required to disclose to others pursuant to obligations imposed by law, rule or regulation or securities exchange or stock market rule; provided, however, that prior to any such required disclosure, such party shall, to the extent practicable, provide written notice and consult with the other party. 7. Representations and Warranties. 7.1 General. Each party represents and warrants to the other party that (a) it has the right and power to perform its obligations and (b) its performance under this Agreement will not violate any agreement or obligation between it and a third party or any applicable law or regulation, and does not now or will not in the future infringe upon or violate any Intellectual Property Right or other proprietary or non-proprietary right of any third party. 7.2 Quality; Conformity. Provider warrants that each of the Services will (a) be completed in a good and workmanlike manner consistent with the requirements of and in accordance with standards customary in the industry and (b) be completed by duly qualified and skilled personnel of Provider with qualifications no less favorable than those set forth in Exhibit A hereto. 7.3 WordCruncher's Ownership Rights. WordCruncher warrants that it owns all right, title and interest in and to the System and the Code and any other programs, systems, data or materials provided to Provider hereunder, unless expressly stated otherwise in Exhibit B hereto. 7.4 No Warranties. Provider makes no express or implied warranties, including but not limited to, implied warranties of merchantability and fitness for a particular purpose with respect to the services rendered by its personnel or th results obtained from their work. Any of the services provided by provider pursuant to this agreement are provided "As is" without warranty of any kind. The entire risk as to such services is assumed by WordCruncher. Provider disclaims all warranties either expressed or implied with respect to the services including, but not limited to implied warranties of merchantability, fitness for a particular purpose. 8. Limitation of Liability. In no event shall Provider be responsible for any special, incidental, direct, indirect, punitive, reliance or consequential damages, whether foreseeable or not, arising under this Agreement or from any breach or partial breach of the provisions of this Agreement or occasioned by any defect in the Services, delay in availability of the Services, failure of the Services, interruptions or outages of the System, Frame Relay, Access Terminals or any other cause whatsoever or arising out of any act or omission by Provider, as applicable, its employees, servants and/or agents, including but not limited to, damage or loss of data, property or equipment, loss or profits or revenue, cost of capital, cost of replacement services, or claims of End Users and other customers for service interruptions or transmission problems. 9. Force Majeure. Neither party shall be liable for any delay or failure to perform its obligations under this Agreement, where such delay or failure results from any cause beyond such party's reasonable control including, without limitation, any (a) act of God (fire, storm, floods, earthquakes, etc.), (b) civil disturbances, (c) mechanical, electronic or communications failure, or (d) disruption of telecommunications, power or other essential services; provided that it gives the other party written notice thereof promptly and, in any event within fifteen days of discovery thereof and uses its best efforts to cure the delay if such party is responsible to cure such delay. Notwithstanding the foregoing, either party may terminate this Agreement upon written notice to the other party in the event such failure to perform continues unremedied for a period of thirty days in the aggregate. 10. General. 10.1 Amendments. Any term of this Agreement may be amended and the observance of any term may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the parties. 10.2 Waivers. The failure of a party hereto at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same unless the same is waived in writing. No waiver by a party of any condition or any breach of any term, covenant, representation or warranty contained in this Agreement shall be effective unless in writing, and no waiver of any one or more instances shall be deemed to be a further or continuing waiver of any such condition or breach in other instances or a waiver of any other condition or breach of any other term, covenant, representation or warranty. A valid waiver is limited to the specific situation for which it was given. 10.3 Assignment. This Agreement may not be assigned, or otherwise transferred, in whole or in part, by either party without the prior written consent of the other party. Any attempted assignment in violation of the foregoing will be void. 10.4 Interpretation. This Agreement has been negotiated by the parties and their respective counsel and will be interpreted fairly in accordance with its terms and without any strict construction in favor of or against either party. 10.4 Counterparts. This Agreement may be executed in two or more counterparts, and each counterpart will be deemed an original, but all counterparts together will constitute a single instrument. 10.6 Choice of Law; Venue. This Agreement will be governed by and construed in accordance with the laws of the State of Utah, without regard to principles of conflicts of law. Each party hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any state or federal court sitting in Salt Lake City, Utah over any suit, action or proceeding arising out of or relating to this Agreement. 10.7 Headings. The headings contained in this Agreement are for the purposes of convenience only and are not intended to define or limit the contents of this Agreement. 10.8 Independent Contractors. The parties are independent contractors and neither party is an employee, agent, servant, representative, partner or joint venturer of the other. Neither party has the right or ability to bind the other to any agreement with a third party or to incur any obligation or liability on behalf of the other party without the other party's written consent. WordCruncher shall have no direction or control of Provider, or any person employed by or contracted for by Provider, except in the results to be obtained. 10.9 Notices. Any notice or other communication must be in writing, and either actually delivered (including delivery by facsimile, telex, courier or similar means) or deposited in the United States mail in registered or certified form, return receipt requested, postage prepaid, addressed to the receiving party at the address stated below or to another address as such party may indicate by notice in accordance with this Section 10.9. Notice will be effective on the date that it is delivered or, if sent by mail in accordance with this Section 10.9, five days after the date of mailing. For Provider: Netdotworks, Corp. 215 South State, Suite 675 Salt Lake City, UT 84111 Facsimile: 801-505-6224 For WordCruncher: WordCruncher Internet Technologies Inc. 405 E. 12450 S Suite B Draper, UT 84020 Facsimile: 801-816-9840 10.10 Severance. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is found to violate a law, it will be severed from the rest of the Agreement and ignored. 10.11 Survival of Terms. Regardless of the circumstances of termination or expiration of this Agreement or portion thereof, the provisions of Sections 6 ("Confidential Information"), 7 ("Representations and Warranties"), 8 ("Limitation of Liability"), 10 ("General") will survive the termination or expiration and continue according to their terms. 10.12 Time. Whenever reference is made in this Agreement to "days," the reference means calendar days, not business days, unless otherwise specified. 10.13 Attorneys' Fees. If any party hereto brings an action or proceeding for the declaration of the rights of the parties hereunder, for injunctive relief, or for an alleged breach or default of, or any other action arising out of this Agreement or the transactions contemplated hereby, the prevailing party in any such action shall be entitled to an award of reasonable attorneys' fees and any court costs incurred in such action or proceeding, in addition to any other damages or relief awarded, regardless of whether such action proceeds to final judgment. 10.14 Entire Agreement. This Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof and merges all prior written or oral communications, understandings, and agreements with respect to the subject matter of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement by their duly authorized representatives, to be effective as of the Effective Date stated above. NETDOTWORKS, CORP. By: /s/ ------------------------------------- Name: Clay Flory Title: Principal Partner WORDCRUNCHER INTERNET TECHNOLOGIES, INC. By: /s/ ------------------------------------- Name: M. Daniel Lunt Title: President and CEO EX-10.26 10 DOUBLECLICK, INC. DART SERVICE AGREEMENT 41 Madison Avenue, 22nd Floor New York, NY 10010 212/693-0001 Click DoubleClick www.doubleclick.net DART(TM) SERVICE AGREEMENT FOR PUBLISHERS TERMS AND CONDITIONS 1. Agreement. DoubleClick, Inc. ("DoubleClick") and You hereby enter into the agreement set forth in these Terms and Conditions and in the Cover Page (collectively, this "DART Service Agreements" or "Agreement"), as of the Effective Date set forth on the Cover Page. All capitalized items not otherwise defined in these Terms and Conditions shall have the meanings as defined on the Cover Page. "Advertiser shall mean any entity or person that desires to advertise their own products or services. "Publisher" shall mean any entity or person that desires to use the DART Service to target and measure advertisements for Advertisers on their own Web site. 2. DART Service. The DART Service (the "Service") is a service provided by DoubleClick to Publishers for targeted and measured delivery of ad banners from DoubleClick's servers to the Web Sites set forth on the cover page of this Agreement ("Target Sites"). The ad banners are displayed to visitors ("Visitors") to the Target Sites based on criteria selected by You and Your Advertisers. 3. Ad Management Systems. You and DoubleClick understand that You are required to use DoubleClick's proprietary Ad Management System software technology (the "System") in order to receive the Service. Accordingly, DoubleClick grants to You the non-exclusive and non-transferrable right to access and use the System, which You can access and use only on DoubleClick's Web servers by means of a unique password chosen by You, and only for the purposes of: (i) performing projections of ad banner impression inventories that might be available through the Service, (ii) uploading and storing ad banners for delivery by the Service, (iii) selecting trafficking criteria for the delivery of ad banners to Target Sites and Visitors, and (iv) receiving reports of ad banner impressions and other data related to the delivery of ad banners by the Service. 4. Your Obligation. You shall be solely responsible for soliciting all Advertisers, trafficking of ad banners (which shall include the input of ad banners into the System) and handling all inquiries of any type or nature. You shall obtain all necessary rights, licenses, consents, waivers and permissions from Advertisers, Visitors and others, to allow DoubleClick to store and deliver ad banners and otherwise operate the Service3 on Your behalf and on behalf of You Advertisers, and to use any data provided in or collected by the System. You further represent that You have read, and will conform to DoubleClick's statements on privacy that can be found on the DoubleClick Web site. You further agree that advertisements provided to DoubleClick and/or delivered on behalf of You, and Your other promotional and marketing activities in connection with the use of the Service, including the Target Sites, shall not be deceptive, misleading, obscene, defamatory, illegal or unethical. 5. DoubleClick's Obligations. DoubleClick's sole obligations hereunder shall be (i) to make the System available to You, (ii) to deliver ad banners through the Service according to the trafficking criteria selected by You using the System, (iii) to make customer service personnel available by telephone for support twenty-four hours per day, seven days per week and (iv) to provide six training days at DoubleClick's premises explaining the proper use of the Service and the System. A "training day" is defined as a full day training session for one of Your employees. You can divide the training days in any manner You deem appropriate, such as having three employees attend two sessions each, six employees attend one session each, or one employee attend all six sessions. The cost for such training sessions is included in the Upfront Fee. If You require additional training or training on Your site, DoubleClick shall provide such training to You at DoubleClick's standard published rates for such training. For training on Your Site, You agree to reimburse DoubleClick for its actual travel and lodging expenses. You shall not permit any of Your employees to access and use the Service or the System unless any such employee has successfully completed the training session and has been so certified by DoubleClick. 6. Fees. You shall pay DoubleClick the fees set forth on the Cover Page to this Agreement. The fees may include an Upfront Fee and Monthly Service Fees. The Upfront Fee is a one-time, non-creditable, non-refundable fee for Your use of the Service and the System, payable upon execution of this Agreement. The Monthly Service Fees are recurring, non-refundable, non-creditable fees, payable within thirty (30) days after receipt of an invoice from DoubleClick for such fees. The Monthly Service Fee shall be based on the number of ad banner impressions delivered through the Service on behalf of You each month, divided by one thousand (1,000) and multiplied by the Monthly Service Fee CPM rate set forth on the Cover Page to this Agreement. If Your Monthly Service Fee is less than the Minimum Monthly Service Fee in any given month, You shall owe DoubleClick the Minimum Monthly Service Fee for that month. To the extent that the average file size of all ad banners delivered via the Service in a given month ("Average Ad Size") exceeds the Ad Size Limit set forth on the Cover Page, the Monthly Service Fee payable for that month shall be increased by an amount that shall be calculated by subtracting the Ad Size Limit from the Average Ad Size, diving that difference by the Ad Size Limit, and multiplying the quotient by the Monthly Service Fee CPM rate set forth on the Cover Page of this Agreement. All fees hereunder shall be denominated in U.S. dollars and paid by wire transfer to an account to be designated by DoubleClick, or by other means expressly agreed to in writing by DoubleClick, or by other means expressly agreed to in writing by DoubleClick. You shall also be responsible for and shall pay any applicable sales, use or other taxes or duties, tariffs or the like applicable in provision of the Service (except for taxes on DoubleClick's income). Late payments will be subject to late fees at the rate of one and one half percent (1.5%) per month, or, if lower, the maximum rate allowed by law. If You fail to pay fees invoiced by DoubleClick within thirty (30) days following the payment due date. DoubleClick shall have the right to suspend performance of the Services without notice to You; such Service not be reinstated until You pay all such overdue amounts and an additional reinstatement fee of $1,000. In addition, You also agree to pay any attorneys' fees and/or collection costs incurred by DoubleClick in collecting any past due amounts from You. 7. Proprietary Rights and Restriction. DoubleClick is the exclusive supplier of the Service and the exclusive owner of all right, title and interest in and to the System, all software, databases and other aspects and technologies related to the System and Service, including the System, any enhancements thereto and any materials provided to You by DoubleClick through the System or otherwise. You may not use the System except pursuant to the limited rights expressly granted in this Agreement. You shall use the System only in accordance with reference manuals to be supplied by DoubleClick and only in accordance with DoubleClick's standard security procedures, as posted on the DoubleClick Web sited or otherwise notified to You. 8. Data. You have the sole and exclusive right to use all data derived from Your use of the Service, for any purpose related to Your business; provided that DoubleClick may use and disclose the Visitors' data (other than personally identifiable information) derived from Your use of the Service only (i) for DoubleClick's reporting purposes, consisting of compilation of aggregated statistics about the Service (e.g., the aggregate number of ads delivered) that may be provided to customers, potential customers and the general public; and (ii) if required by court order, law or governmental agency. As part of the DART service, DoubleClick will supply You with unlimited Standard Reports available on the Admanage Interface. DoubleClick can supply customized reports that are not available on the Admanage Interface at an additional cost. 9. Term. Unless terminated earlier in accordance with the termination rights set forth in this Agreement, the term of this Agreement shall commence on the Effective Date and continue in effect until December 31, 2000 (the "Term"). 10. Termination. At any time during the Term, this Agreement shall terminate (i) thirty (30) days after DoubleClick's notice to You if the Service Fee for any month following the third month of the Term is less than the Minimum Monthly Service Fee set forth on the Cover Page to this Agreement, (ii) thirty (30) days after a party's notice to the other party that such other party is in breach hereunder, unless the other party cures such breach within said thirty (30) day period or (iii) ten (10) days after DoubleClick's notice to You of DoubleClick's reasonable determination that You are using the Service or the System in such a manner that could damage or cause injury to the Service or the System or reflect unfavorably on the reputation of DoubleClick (i.e. the Target Sites begin serving pornographic content). If this Agreement is terminated by DoubleClick due to a breach by You. You are required to promptly pay DoubleClick the Minimum Monthly Service Fee for the balance of the Term. 10. Indemnification. You agree to indemnify and hold DoubleClick and its officers, directors, employees and agents (each a "DoubleClick Indemnitee") harmless from and against any and all third party claims, actions, losses, damages, liability, costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements incurred by a DoubleClick Indemnitee in any action between You and the DoubleClick Indemnitee, or between the DoubleClick Indemnitee and any third party or otherwise) arising out of or in connection with (i) the breach of any of Your representations, warranties or obligations set forth in this Agreement, (ii) Your use of the Service or the System other than as permitted herein, or (iii) any claim by any Advertiser arising from Your arrangement to display Advertisers' Advertising on the Target Sites. DoubleClick agrees to indemnify and hold You and Your officers, directors, employees and agents (each "Your Indemnitee") harmless from and against any and all third-party claims, actions, losses, damages, liability, costs and expenses including, without limitation, reasonable attorneys' fees and disbursements incurred by Your Indemnitee in any action between DoubleClick and Your Indemnitee, or between Your Indemnitee and any third party or otherwise) arising out of or in connection with the breach of any of DoubleClick's representations, warranties or obligations set forth in this Agreement. 12. WARRANTIES AND DISCLAIMER. DoubleClick represents and warrants that the System was developed by DoubleClick and may be used by You without infringement or misappropriation of any third party's copyrights, trademarks or trade secrets or U.S. patents issued as of the Effective Date. You acknowledge that the Service and the System can be used to target, measure and traffic advertisements in many different ways and based on many different types of data. You represent and warrant that You will not use the Service or the System in a way or for any purpose that infringes or misappropriates any third party's intellectual property or personal rights. EXCEPT AS SET FORTH IN THIS AGREEMENT, DOUBLECLICK MAKES NO WARRANTIES OF ANY KIND TO ANY PERSON WITH RESPECT TO THE SERVICE, THE SYSTEM OR ANY AD BANNER OR OTHER DATA SUPPLIED THEREBY, WHETHER EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT. 13. Limitation and Exclusion of Liability. Except as otherwise set forth in the Agreement, DoubleClick shall not be liable to You or any other third party for any loss, cost, damage or expense incurred in connection with the availability, operation or use of the Service, the System or any ad banner or other data supplied thereby, including, without limitation, for any unavailability or inoperability of the System or the Internet, technical malfunction, computer error or loss or corruption of data, or other injury, damage or disruption of any kind related thereto, unless DoubleClick has directly caused such loss, cost, damage or expense through its gross negligence or intentional misconduct. In no event shall either party be liable for any indirect, incidental, consequential, special or exemplary damages, including, but not limited to, loss of profits, or loss of business opportunity, even if such damages are foreseeable and whether or not such party has been advised of the possibility thereof. Each party's maximum aggregate liability shall not exceed the total amount paid by You to DoubleClick under this Agreement during the twelve (12) month period prior to the first date the liability arose. 12. Confidentiality The terms of this Agreement, and information and data that one party (the "Receiving Party") has received or will receive from the other party (the "Disclosing Party") about the Service, the System and other matters are proprietary and confidential information ("Confidential Information"), including without limitation any information that is marked as "confidential" or should be reasonably understood to be confidential or proprietary to the disclosing Party and any reference manuals compiled or provided hereunder. The Receiving Party agrees that for the Term and for two (2) years thereafter, the Receiving Party will not disclose the Confidential Information to any third party, nor use the Confidential Information for any purpose not permitted under this Agreement. The nondisclosure obligations set forth in this Section shall not apply to information that the Receiving Party can document is generally available to the public (other than through breach of this Agreement) or was already lawfully in the Receiving Party's possession at the time of receipt of the information from the Disclosing Party. 15. Independent Contractor Status. Each party shall be and act as an independent contractor and not as partner, joint venturer or agent of the other. 16. Modifications and Waivers. This Agreement represents the entire understanding between DoubleClick and You and supersedes all prior agreements relating to the subject matter of this Agreement. No failure or delay on the part of either party in exercising any right, power or remedy under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise or the exercise of any other right, power or remedy. Unless otherwise specified, any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement and any consent to any departure by the parties from the terms of this Agreement, shall be effective only if its made or given in writing and signed by both parties. 17. Assignment. This Agreement and rights hereunder are not transferrable or assignable without prior written consent of the non-assigning party; provided, however, that this Agreement may be assigned by either party (a) to a person or entity who acquires substantially all of such party's assets, stock or business by sale, merger or otherwise and (b) to an affiliate of such party. 18. Applicable Law. This Agreement shall be governed by the law of New York, without reference to its conflict of laws, rules or principles, and the United States. 19. Audit of the System. On a monthly basis, the System is independently audited by ABC Interactive, a third-party auditor. Upon request, DoubleClick agrees to provide You with a copy of the reports prepared by ABC Interactive relating to the System. DoubleClick agrees to provide You with the same rights to copies of the reports if DoubleClick enters an agreement with a third-party auditor other than ABC Interactive at some later date. 20. General. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the minimum extent necessary without invalidating the remaining provisions of this Agreement or effecting the validity or enforceability of such provisions in any other jurisdiction. No failure or omission by either party in the performance of any obligation under this Agreement shall be deemed a breach of this Agreement nor create any liability if the same shall arise from any cause or causes beyond the reasonable control of such party, including but not limited to the following: acts of God, acts or omissions of any government, or any rules, regulations or orders of any governmental authority or any officer, department, agency or instrument thereof: first, storm, flood, earthquake, accident, acts of the public enemy, war, rebellion, Internet brown-out, insurrection, riot, invasion, strikes, or lockouts. All notices, demands and other communications provided for or permitted under this Agreement shall be made in writing to the parties at the addresses on the Cover Page and shall be sent by registered or certified first-class mail, return receipt requests, telecopies, courier service or personal delivery and shall be deemed received upon delivery. 41 Madison Avenue, 22nd Floor New York, NY 10010 212/693-0001 Click DoubleClick www.doubleclick.net DART(TM) SERVICE AGREEMENT FOR PUBLISHERS - -------------------------------------------------------------------------------- You agree to pay DoubleClick, Inc., all of the fees and other charges specified below and DoubleClick, Inc. agrees to provide the DART Service to You, all in accordance with the attached Terms and Conditions. Both You and DoubleClick, Inc. agree that this Cover Page and the attached Terms and Conditions (collectively, the "DART Service Agreement" or "Agreement"), may be updated from time to time by replacing or adding further signed attachments to this Agreement. - -------------------------------------------------------------------------------- Your Company Wordcruncher Contact: Dan Lunt Name So. W. Canyon Crest Rd. Phone: 801-816-9904 and Alpine, UT Fax: 801-756-8198 Address: 84004 E-Mail: Your Billing Contact: Mike Schouten Address, if Phone: 801-816-9904 Different: Fax: E-Mail: Web Site(s): www.wordcruncher.com Fees Upfront Fee due on signing US$ 4500 Monthly Service Fee per 1000 ad banner impressions (CPM) (see chart below) Ad Size Limit: 12 Kbytes Minimum Monthly Service Fee: US$ 500* *Effective February 1, 2000 /s/ RC ----------------------------------------------------------------- Custom MONTHLY SERVICE FEE Arrangements ------------------- Number of Revenue Generating Ad Impressions Delivered by DART Service Per Month Cost Per Thousand ----------------------------------- ----------------- From 1 to 1,000,000 $1.40 From 1,000,001 to 5,000,000 $1.25 From 5,000,001 to 10,000,000 $1.05 From 10,000,001 to 20,000,000 $0.90 From 20,000,001 to 30,000,000 $0.75 From 30,000,001 to 40,000,000 $0.65 From 40,000,001 to 50,000,000 $0.55 From 50,000,000+++ $0.45 Example of Monthly Service Fee Circulation ------------------------------------------ If the number of ad impressions delivered by the Service in the month is 6,750,000 (i) Divide into Volume Tiers Tier 1: 1,000,000 Tier 2: 4,000,000 Tier 3: 1,750,000 (ii) Divide each tier amount by 1,000 and then multiply by the applicable Monthly Service Fee rate Tier 1: (1,000,000 / 1,000) x $1.40 = $1400 Tier 2: (4,000,000 / 1,000) x $1.25 = $5000 Tier 3: (1,750,000 / 1,000) x $1.05 = $1837.50 ---------- Monthly service Fee $8237.50 ------------------------------------------------------------------ Fee for non-revenue generating house ads redirected to Your servers for delivery on Your bandwidth (on a CPM basis) US$ 0.20 - -------------------------------------------------------------------------------- The undersigned confirm their mutual agreement to these arrangements as of the Effective Date. - -------------------------------------------------------------------------------- DOUBLECLICK INC. YOUR COMPANY NAME: WCTI (Please print) Signature: /s/ Signature: /s/ ----------------------------- ---------------------------- Printed Name: Aaron Mittman Printed Name: Dan Lunt Title: Director, Direct Sales N. America Title: President/CEO Effective Date: _______________________ - -------------------------------------------------------------------------------- DOUBLECLICK(R) and DART(TM) are trademarks of DoubleClick Inc., (c)1998 DoubleClick Inc. All rights reserved. EX-27 11 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, FOR WORDCRUNCHER INTERNET TECHNOLOGIES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0001085278 WORDCRUNCHER INTERNET TECHNOLOGIES, INC. 1 U.S. DOLLARS 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1.000 1,055,371 1,462,147 4,674 0 0 2,833,391 1,930,335 195,593 4,769,737 1,352,333 0 0 63 11,891 3,152,100 4,769,737 23,355 23,355 15,071 5,124,519 0 0 9,955 (4,929,880) 0 (4,929,880) 0 0 0 (4,929,880) (0.96) (0.96)
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