-----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, LeRWyRQ5zkD671IcQiFdvnbxymlHmB26YihOYjV7iGTiKHbp4Oq/GqjizyqXdAXZ TAg/6O9UX7W0+Au57NEH/g== 0001023175-99-000026.txt : 19990624 0001023175-99-000026.hdr.sgml : 19990624 ACCESSION NUMBER: 0001023175-99-000026 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 19990528 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORDCRUNCHER INTERNET TECHNOLOGIES CENTRAL INDEX KEY: 0001085278 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 841370590 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-79537 FILM NUMBER: 99637116 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 S-1 1 As filed with the Securities and Exchange Commission on May 28, 1999 Registration No. ______________ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- WORDCRUNCHER INTERNET TECHNOLOGIES, INC. (Name of issuer in its charter) --------------- Nevada 7379 84-1370590 (State of incorporation) (Primary Standard Industrial (I.R.S. Employer Classification Code Number) Identification No.) 405 East 12450 South, Suite B Draper, Utah 84020 (801) 816-9904 (Address and telephone number of registrant's principal executive offices and principal place of business) ---------------- Kenneth W. Bell 405 East 12450 South, Suite B Draper, Utah 84020 (801) 816-9904 (Name, Address and telephone number of agent for service) ---------------- Copies to: Scott R. Carpenter, Esq. Parsons Behle & Latimer 201 South Main Street, Suite 1800 Salt Lake City, Utah 84111 (801) 532-1234 Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. If the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [ x ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following boxes and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following boxes and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] Calculation of Registration Fee
- ----------------------------------------------------------------------------- Title of each class of Proposed Maximum Proposed Minimum Amount of securities to be Amount to be Offering price per aggregate offering Registration registered(1) Registered(2) Share(3) Price Fee - ------------------------------------------------------------------------------------------------ Common Stock 2,693,137 $5.50 $14,812,253 $4,118 - ------------------------------------------------------------------------------------------------
(1) This registration statement covers the resale by certain selling stockholders of up to an aggregate of 2,693,137 shares of Common Stock, par value $0.001, of the Company, 1,035,690 shares of which were previously acquired by the selling stockholders, and 1,657,447 shares of which may be acquired by certain of the selling stockholders upon the conversion of presently outstanding convertible preferred shares and the exercise of warrants. (2) If there is a stock split, stock dividend or similar transaction involving the Company's Common Stock, in order to prevent dilution, the number of shares registered hereunder will automatically be increased to cover the additional shares in accordance with Rule 416(a) under the Securities Act. (3) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457 under the Securities Act, based on the average of the high and low prices of the Company's Common Stock on May 27,1999. The Company hereby amends this Registration Statement on such a date or dates as may be necessary to delay its effective date until the Company shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. PROSPECTUS SUBJECT TO COMPLETION, DATED May 28, 1999 _____________________________________________________________________________ The information in this Prospectus is not complete and may be changed. The Company may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. WORDCRUNCHER INTERNET TECHNOLOGIES, INC. a Nevada corporation 2,693,137 shares of Common Stock $0.001 per share This is a public offering of 2,693,137 shares of the Common Stock (the "Shares") of WordCruncher Internet Technologies, Inc. (the "Company," "we," or "us"). All of the Shares being offered, when sold, will be sold by certain selling stockholders (the "Selling Stockholders"), as identified in this Prospectus. We will not receive any of the proceeds from the sale of the Shares. However, we will receive proceeds from the exercise of warrants which can be exercised by certain of the Selling Stockholders. Our Common Stock is currently traded over the counter under the symbol "WCTI." The last reported sales price of the Common Stock on that market on May 27, 1999 was $5.50 per share. We intend to submit an application to list our Common Stock on the NASDAQ National Market Systm under the symbol "WCTI." _________________________ Investing in the Shares involves certain risks. See "Risk Factors" beginning on page 7. _________________________ Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities, or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. _________________________ May 28, 1999 1 You should rely only on the information contained in this Prospectus. We have not authorized anyone to provide you with information different from that contained in this Prospectus. The Selling Stockholders are offering and selling the Shares only in jurisdictions where offers and sales are permitted. The information contained in this Prospectus is accurate only as of the date of this Prospectus, regardless of the time of the delivery of the Prospectus or any sale of the Shares. In this Prospectus, references to the "Company," "WordCruncher Internet Technologies, Inc.," "we," "us," and "our," refer to WordCruncher Internet Technologies, Inc. Table of Contents Page Prospectus Summary 3 Risk Factors 7 Transactions Effected in Connection With the Offering 11 Use of Proceeds 12 Price Range of Common Stock and Shares Eligible for Future Sale 12 Capitalization 13 Dividend Policy 13 Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operation 15 Business 18 Management 24 Principal and Selling Stockholders 28 Certain Relationships and Related Transactions 30 Changes In and Disagreements With Accountants 30 Interest of Named Experts and Counsel 31 Plan of Distribution 31 Description of Capital Stock 32 Commission's Position on Indemnification for Securities Act Liabilities 35 Index to Financial Statements 37 _________________________ We own or have the rights to trademarks or trade names that we use in connection with the sale and marketing of our products and services, including the "WordCruncher" and "Spyhop" trademarks. This Prospectus may also include references to trademarks of other companies. 2 SUMMARY Because this is only a summary of the information contained in this Prospectus, it does not contain all of the information that may be important to you in your investment decision to acquire the Shares. You should read this entire Prospectus carefully, especially the section entitled "Risk Factors" and the financial statements and notes, before deciding to invest in the Shares. Our Business We develop and intend to market next-generation focused Internet portal sites coupled with data harvesting, text indexing, retrieval and analysis software which we market under the brand name "Spyhop." Spyhop allows Internet and private data network ("intranet") users to search single web sites, search multiple web sites concurrently or search substantial portions of an entire data network in an efficient manner. Spyhop is based on technology originally developed at Brigham Young University by a team that included educational psychologists, computer programmers and logic experts. Their goal was to develop a software product that would assist them in their research and teaching. Since 1986, researchers have used the basic Spyhop technology for research projects in over 20 countries and in more than 15 languages. In February 1997, we purchased an exclusive, worldwide license to market, modify and develop that technology. Since then, we have augmented the capabilities of the Spyhop technology by adapting it for use on data systems that incorporate Internet protocols ("IP") and refining its search and display capabilities. We have tested Spyhop on an Internet beta site and we expect to launch its production use in the fourth quarter of 1999. We believe Spyhop provides an effective method for quickly sifting through large amounts of data on the Internet and intranets for relevant information. Our Market We believe Spyhop can be used for data searching, retrieval and indexing on both intranets and the Internet, but believe that it will be used primarily by consumers on the Internet. We intend to market Spyhop initially to specialized segments of Internet users including business researchers and professionals, and then to intranet users. The Internet is an interactive worldwide network of computers and data systems that allows 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 IP, which is the system of standards that allows computers in various locations and of various makes to communicate with one another. The Internet's use has grown substantially since it was first commercially introduced in the early 1990s. International Data Corporation estimates that Internet users will grow from approximately 35 million in 1996 to approximately 160 million by 2000. The increase in the number of users has resulted in a rapid increase in the numbers of advertisers, products and services on the Internet. For example, Jupiter Communications estimates that advertisers spent approximately $340 million on Internet and online advertising in 1996, and that Internet and online advertising will grow to approximately $5 billion by the year 2000. 3 The use of intranets has also dramatically increased in recent years. Corporations, universities and other large organizations have recently begun to create large networks of interconnected computer networks to allow employees, researchers and other parties access to private data. Many of these intranets have adopted or use IP, which allows their users to obtain data and information from the Internet as well as from the organization's private data cache. A July 1996 survey of fifty Fortune 1000 companies reported that 64% of the entities responding to the survey were currently using intranets, and that another 32% were building them. We believe the rapid growth of the Internet and intranets and, especially, the proliferation of Internet sites, has made it increasingly challenging for consumers, content providers and advertisers to effectively reach one another. Consumers are generally 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 services in an increasingly crowded medium and to improve the visibility of their sites. Advertisers are challenged to more effectively deliver their messages to both general audiences and target groups. Many of our competitors have developed products, including portals, which they believe make the task of finding relevant data, information, advertising or products on the Internet or intranets easier and less time consuming. These portals generally return a list of web sites (based on search parameters) that contain limited extracts or descriptions of the web sites. They can answer search inquires with lists of potential documents that contain several thousand results, with little or no input as to which results are relevant. As a result, Internet and intranet users generally spend substantial time searching through the list of the web sites presented to find out which web sites are relevant to their particular inquiry. This generally requires the user to call up the referenced page and either visually scan it or conduct another page search to find the specific information in question. The Company's Solution Spyhop provides advanced Internet and intranet harvesting, text indexing, retrieval and analysis capabilities that create a search result metaphor we call "what you see is what you get." In a Spyhop search result, a portion of the computer screen is devoted to an information summary that is the equivalent of a table of contents or index. Each entry in the table of contents represents a web site, category or subcategory, and the entry shows the user how many references match the search criteria on each web site. By clicking on an entry in the table of contents, users see the search results in the actual surrounding context and can determine more efficiently and quickly if the web site provides the information they want. Spyhop is based on a computer algorithm that takes search result data and organizes it in terms that are familiar to the average person such as a table of contents or an index. Spyhop can also sort, analyze, and manipulate search results to make it easier to find what the user is looking for. This conceptual "bridge building" is especially useful for new Internet users, who are not generally familiar with the limitations of existing portals. Spyhop uses a linguistic analysis technique, formerly known as "collocation" and commonly known as "neighbors," that assists users in quickly zeroing in on sites and pages that contain needed, relevant information. This function also allows users to construct a search request that avoids getting too many responses to a search that was ambiguously phrased. 4 The Offering Shares of Common Stock offered by the Selling Stockholders ......................... 2,693,137(1) Common Stock outstanding after the offering......... 13,434,449(2) Common Stock owned by the Selling Stockholders after the offering .............. 5,210,214(3) Use of Proceeds..................................... We will not receive any proceeds from the sale of the Shares. See "Use of Proceeds." Proposed NASDAQ symbol.............................. _____________ (1) Assumes the conversion of outstanding Series A Preferred Stock into 624,999 Shares and the exercise of the warrants we issued in connection with the Series A Preferred Stock (the "Warrants") for 307,449 Shares. We are required to register under this Prospectus for the benefit of the holders of the Series A Preferred Stock two times the number of shares of Common Stock they can acquire on conversion of their Series A Preferred Stock plus the number of shares of Common Stock they can acquire under the warrants they hold. However, that number of Shares is the greatest number of Shares we may be required to register for the Series A Preferred Stock and Warrant holders, and the actual number of Shares we issue to them may be smaller. (2) Based on 11,877,002 Shares of Common Stock outstanding as of March 31, 1999. Excludes approximately 375,000 shares of Common Stock subject to outstanding options granted under employee stock options, of which 16,500 were exercisable as of March 31, 1999. Also excludes warrants to acquire up to 200,000 shares of Common Stock (at $5 per share) we have issued to a third party for services. That party has earned warrants to acquire 50,000 shares of Common Stock as of March 31, 1999. Assumes (i) 307,449 Shares issuable upon the exercise of the Warrants as of March 31, 1999, and (ii) the conversion by certain of the Selling Stockholders of outstanding shares of Series A Preferred Stock into 624,999 Shares. The number of Shares issuable on conversion of the Series A Preferred Stock is subject to adjustment. We are required to register under this Prospectus for the benefit of the holders of the Series A Preferred Stock two times the number of shares of Common Stock they can acquire on conversion of their Series A Preferred stock plus the number of shares of Common Stock they can acquire under the Warrants they hold. However, that number of Shares is the greatest number of Shares we may be required to register for the Series A Preferred Stock and Warrant holders, and the actual number of Shares we issue to them may be smaller. The actual number of shares of Common Stock currently issuable to the holders of the Series A Preferred Stock (upon its conversion) and the outstanding Warrants (upon their exercise) is 932,448 shares, consisting of 624,999 shares from the assumed conversion of the Series A Preferred Stock and 307,449 shares from the exercise of the Warrants. See "Description of Capital Stock." (3) Assumes the matters set forth in footnotes 1 and 2 and the sale by the Selling Stockholders of all the Shares. 5 Summary and Operating Data
Three Months Ended Year Ended December 31, March 31, --------------------------- -------------------------- 1997 1998 1998 1999 ------------- ------------- ------------ ------------- Statement of Operations Data: Total Revenues $ 24,484 $ 82,678 $ 38,782 $ 10,097 Operating costs and expenses: Cost of goods sold and royalties 806 15,864 82 22,714 Research and development - - - - Depreciation and amortization 6,419 10,406 2,479 15,177 Marketing, general and administrative 338,429 518,435 33,442 392,620 ------------- ------------- ------------ ------------- Income (loss) from operations (321,170) (462,027) 2,779 (420,414) Non operating income (loss), net (14,048) (20,882) (8,586) 23,169 Provision for income taxes - - - - ------------- ------------- ------------ ------------- Income (loss) before cumulative effect of change in accounting (335,218) (482,909) (5,807) (397,245) Cumulative effect of change in accounting - - - - ------------- ------------- ------------ ------------- Net income (loss) $ (335,218) $ (482,909) $ (5,807) $ (397,245) ============= ============= ============ ============= Basic and diluted loss per common share: Income (loss) before cumulative effect of change in accounting $ (0.61) $ (0.08) Cumulative effect of change in accounting - - - - ------------- ------------- ------------ ------------- Net Income (loss) per common share $ (0.61) $ (0.08) - - ============= ============= ------------ ------------- Weighted average shares outstanding 545,535 6,100,679
March 31, 1999 Actual ---------------- Balance Sheet Data: Cash, cash equivalents, marketable debt securities and certificate of deposit $ 5,745,679 Total assets 6,122,467 Long-term obligations, including current portion 23,213 Deficit accumulated during development stage (1,215,372) Stockholders' equity 5,951,790
Unless otherwise indicated, all information in this Prospectus (i) assumes no exercise of outstanding and exercisable options or warrants, (ii) assumes no exercise of the Warrants (as hereafter defined) or the conversion of the outstanding Series A Preferred Stock, and (iii) reflects the 3 for 1 forward stock split we effected in July 1998. See Notes to Financial Statements for information concerning the computation of per share amounts. 6 RISK FACTORS An investment in the Shares is very risky. You should carefully consider the following risks in addition to the information contained in the remainder of this Prospectus before purchasing the Shares. This Prospectus contains forward-looking statements that involve risks and uncertainties. Many factors, including those described below, may cause actual results to differ materially from anticipated results. WE HAVE A LIMITED OPERATING HISTORY. We incorporated in 1996 and purchased the license to develop and market the basic Spyhop technology in February 1997. We only recently completed our beta testing of Spyhop on our web site. We may encounter financial, managerial, technological or other difficulties as a result of our lack of operating history. Although we anticipate our operating revenue will increase in the future, we cannot guarantee that our revenues will exceed our operating expenses. OUR QUARTERLY RESULTS COULD FLUCTUATE. We have consistently had losses since our formation. Our quarterly operating results in the future may vary significantly, depending on factors such as revenue from our advertising sales and software license fees, the timing of our new product and service announcements and launches, market acceptance of new and enhanced versions of Spyhop and related products (if any), changes in our operating expenses, changes in our business strategy, and general economic factors. We have limited or no control over many of these factors. Our quarterly revenues will also be difficult to forecast because the markets for our products and services are evolving and our revenues in any period could be significantly affected by new product announcements and product launches by our competitors, as well as by alternative technologies. We believe period-to-period comparisons of our results of operations will not necessarily be meaningful for the foreseeable future. OUR INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE. Our operating results will depend to a significant extent on our ability to successfully introduce our products and improve Spyhop. Internet industries rapidly change. Accordingly, our ability to compete successfully in our markets will depend on a number of factors, including our ability to identify emerging target markets, identify emerging technological trends within those markets, develop and maintain competitive products, enhance our products by adding innovative features that differentiate them from our competitor's products, bring products to market on a timely basis at competitive prices and respond effectively to new technological changes or new product announcements by others. We believe we will need to make continuing significant expenditures for research and development in the future. We may not be able to successfully develop new products or, if we do, those products may not be accepted by the market. WE ARE SUBJECT TO INTENSE COMPETITION. The development and marketing of search engines and Internet portals is extremely competitive. Many of our competitors have competitive advantages, including established positions in the market, brand name recognition, greater financial, technical, marketing and managerial resources, and established strategic alliances. Further, our competitors may succeed in developing products or technologies that are more effective than ours, or that make our products and technologies obsolete. WE DEPEND ON OUR MANAGEMENT. We depend on the efforts and abilities of our officers, directors and certain key employees. If we lose the services of one or more of those persons, that loss could have a material adverse effect on our operations. WE ARE CONTROLLED BY OUR EXECUTIVE OFFICERS AND DIRECTORS. Our executive officers and directors beneficially own approximately 45.2% of the Common Stock. After this offering, they will own over 34.1% of the Common Stock, even assuming the sale of all the Shares. As a result they will have substantial influence over our operations and on the outcome of matters submitted to our stockholders for approval. In addition, their ownership of such a large portion of the Common Stock could discourage the purchase of our Common Stock by potential investors, and could have an anti-takeover effect, possibly depressing the trading price of our stock. WE DEPEND ON PATENTS AND PROPRIETARY RIGHTS. Our ability to compete effectively in our markets will depend, in part, on our ability to protect the proprietary nature of the Spyhop technology through a combination of patents, licenses and trade secrets. Competition in our markets is intense and our competitors may independently develop or obtain patents on technologies that are substantially equivalent or superior to Spyhop. We could incur 7 substantial costs in defending patent infringement lawsuits brought by others and in prosecuting patent infringement lawsuits against third party infringers. A portion of our basic proprietary technology is based on an exclusive, worldwide license to a patent that was issued to Brigham Young University ("BYU"). Our success depends in part on the continued validity of that patent and, if we or BYU fail to prosecute or maintain that patent, our business could be damaged. Further, that patent (or patent applications or continuances we file in the future) could be challenged, invalidated or circumvented by our competitors. Patents can also fail to provide meaningful competitive advantages. For example, another company could develop a search engine technology that provides search results similar to Spyhop search results without infringing on the BYU patent. Intellectual property rights, by their nature, are uncertain and involve complex legal and factual questions. We may unknowingly infringe on the proprietary rights of others and may be liable for our infringement, which could cost us significant amounts. We are not aware of any third party intellectual property rights which would prevent our use of Spyhop, although rights of that type may exist. If we infringe on the intellectual property of another party, we could be forced to seek a license to those intellectual property rights or alter our products or processes so they no longer infringe on the rights of the third party. If we are required to obtain a license to another party's proprietary rights, that license could be expensive, if we could obtain it at all. If BYU fails to defend the rights under its patent but we decide to take up the defense, we would be responsible for those patent litigation costs. If we were to become involved in a dispute regarding our intellectual property, we might have to participate in interference proceedings declared by the United States Patent and Trademark Office to determine who had the claimed rights first. We could be forced to seek a judicial determination concerning the rights in question. These types of proceedings can be costly and time consuming, and we may not prevail. If we did not prevail, we could be forced to pay significant damages, obtain a license or stop marketing a certain product. We also rely on trade secrets and other unpatented proprietary information in our product development activities. To the extent we rely on confidential information to maintain our competitive position, other parties may independently develop the same or similar information. We seek to protect our trade secrets and proprietary knowledge in part through confidentiality agreements with our employees and collaborators. These agreements may not effectively prevent disclosure of our confidential information and may not provide us with an adequate remedy in the event of unauthorized disclosure of such information. If employees or collaborators develop products independently that may be applicable to our products under development, disputes may arise about ownership of proprietary rights to those products. Those products will not necessarily become our property, but may remain the property of those persons. Protracted and costly litigation could be necessary to enforce and determine the scope of our proprietary rights. Our failure to obtain or maintain patent and trade secret protection, for any reason, could have a material adverse effect on our business, financial position and results of operations. WE WILL NEED ADDITIONAL CAPITAL. Based on our current expenditure rate, we believe we will need additional financing by the middle of 2000. Therefore, the success of our business strategy will be dependent on our ability to access equity capital markets and borrow on terms that are financially advantageous to us. We have no external source of financing and we have not received any commitment for any funds we may need in the future. We may not be able to obtain funds on acceptable terms. If we fail to obtain funds on acceptable terms, we may be forced to delay or abandon some or all of our business plans, which could have a material adverse effect. If we are unable to obtain additional capital, we also may not have sufficient working capital to finance acquisitions, pursue business opportunities or develop products. If we borrow money, we could be forced to use a large portion of our cash reserves to repay it, including interest. If we issue our securities for capital, your interest and the interests of the other then-current shareholders could be diluted. OUR PRODUCTS ARE COMPLEX. Spyhop is complex and may contain errors, defects and "bugs." We have detected those kinds of errors, defects and bugs in the past and have corrected them as quickly as possible. Correcting any defects or bugs we discover in the future may require us to make significant expenditures of capital 8 and other resources. Despite our continuing tests, users may find errors or defects in Spyhop which could cause additional development costs or result in delays in (or loss of) Spyhop market acceptance. OUR STOCK PRICE MAY BE VOLATILE. In recent years the stock market in general, and the market for shares of high technology companies in particular, have experienced extreme price fluctuations. In many cases these fluctuations have been unrelated to the operating performance of the affected companies. The trading price of our Common Stock, including the Shares, may be subject to extreme fluctuations in response to both business-related issues (such as quarterly variations in operating results, or announcements of our new products or our competitors) and stock market-related influences (such as changes in analysts' estimates, the presence or absence of short-selling of our Common Stock and events affecting other companies that the market deems to be comparable to us). WE MAY HAVE PROBLEMS AS A RESULT OF THE YEAR 2000 ISSUE. We rely on computer systems, applications and devices in operating and monitoring all of the major aspects of our business, including financial systems (such as general ledger, accounts payable and payroll modules), customer service, networks and telecommunications equipment and end products. Also, we provide our services and products over the Internet, which is a computer-based industry. Even if our internal systems are not materially affected by the year 2000 issue, we could be affected by disruptions in the operation of the persons and entities with which we interact or year 2000 disruptions that affect our customers. Despite our efforts to address the impact of year 2000 on our internal systems and operations, we may suffer a material disruption of our business, which could have a material adverse effect on our financial condition and results of our operations. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. We have included forward-looking statements in this prospectus. The information contained in this Prospectus includes information based on trends or other forward-looking statements that involve a number of assumptions, risks and uncertainties. The actual results of our operations could differ materially from our historical results of operations and those discussed in the forward- looking statements. The forward-looking statements are based on our management's beliefs, as well as assumptions they have made based on currently available information. Words such as "anticipate," "believe," "estimate," "plan," "expect," "intend" and words or phrases of similar import, as they relate to us or our management, are intended to identify forward-looking statements. The forward-looking statements should be read in light of these factors and the factors identified elsewhere in this Prospectus. THE FUTURE SALE OF OUR COMMON STOCK COULD POSE INVESTMENT RISKS. The market price of our Common Stock could drop as a result of sales of the Common Stock (including the Shares) in the market after this offering, or the perception that such sales could occur. These factors could also make it more difficult for us to raise funds through future offerings of our Common Stock. There will be a total of 13,434,449 shares of Common Stock outstanding immediately after this offering, assuming the sale of all the Shares (and also assuming no exercise of outstanding options or warrants other than the Warrants). The Shares will be freely transferable without restriction or further registration under the Securities Act of 1933 (the "Securities Act"), except for any Shares purchased by our "affiliates," as defined in Rule 144 under the Securities Act. We also have 4.5 million shares of Common Stock outstanding that are freely transferrable without registration under the Securities Act, except for any of such shares purchased by our "affiliates." The remaining shares of Common Stock outstanding will be "restricted securities," as defined in Rule 144. The Shares may be sold in the future without further registration under the Securities Act to the extent such sales are permitted by Rule 144 or any other exemption under the federal securities laws. WE HAVE A SHORT MARKET HISTORY. There has not been a large public market for our equity securities, although our Common Stock has traded on the over-the-counter market since July 1998. We intend to apply for listing on the NASDAQ system as soon as possible. We do not know the extent to which investor interest in our stock will lead to the development of a substantial and active trading market or how liquid that market might be. The offering price for the Shares was determined by the Selling Stockholders. You may not be able to resell your Shares at or above the price you pay for your Shares. WE HAVE NOT PAID DIVIDENDS. We have never paid dividends on our Common Stock. We intend to retain future earnings to finance our growth and development and do not plan to pay cash dividends in the foreseeable future. 9 WE HAVE AN UNPROVEN PRODUCT AND WE OPERATE IN A DEVELOPING MARKET. Spyhop is based on search engine technology which has been used for over 10 years. We have refined the basic Spyhop technology by adding additional functions and recently concluded a beta test of Spyhop on our web site. We are modifying Spyhop in light of those test results. Our success will depend largely on our ability to refine and continue to develop Spyhop and other products. If Spyhop does not achieve significant market acceptance and usage, our business, results of operations and financial condition could be materially and adversely affected. The primary markets for Spyhop have only recently begun to develop and are rapidly evolving. As is typical of new and rapidly evolving industries, demand for (and market acceptance of) products and services that have been released recently or that are planned for future release are subject to a high level of uncertainty. If the markets for Spyhop fail to develop, develop more slowly than we expect, or become saturated with products of other competitors, or if Spyhop does not achieve market acceptance, our business, results of operations and financial condition could suffer. Our markets are highly dependent on the use of the Internet. A number of critical issues concerning the commercial use of the Internet, including security, reliability, capacity, costs, ease of use, access, quality of service and acceptance of advertising remain unresolved and may retard the growth of the Internet for commercial applications. WE ARE DEPENDANT ON THE CONTINUED ADOPTION OF INTRANETS. In addition to providing services over the Internet, we intend to provide or license Spyhop for use on intranet systems. Therefore, we will be dependent on the development of those systems. Intranets may not be adopted by large numbers of organizations, and the organizations adopting intranets may not want users to communicate over those systems. Our products may not appeal to organizations that use intranets. WE WILL NEED TO MANAGE OUR GROWTH. We hope and expect to grow rapidly, both in the rate of our sales and operations and the number and complexity of our products, product distribution channels, and product development activities. Several members of our key management team only recently joined us. See "Management." Our growth, coupled with the rapid evolution of our markets, has placed, and is likely to continue to place, significant strains on our administrative, operational, technical and financial resources and increase demands on our internal management systems, procedures and controls. If we are unable to manage future growth effectively, our business, results of operations and financial condition could be materially adversely affected. WE WILL BE DEPENDANT UPON VALUE ADDED LINKS. We intend to establish value added links with leading Internet content providers to allow their users to use Spyhop without leaving the content provider's web site. We expect to derive revenue from these value added links and to increase Spyhop brand recognition among users through such relationships. Our success in establishing Spyhop as a recognized brand name and achieving its acceptance in the market will depend in part on our ability to establish and maintain value added links. WE MAY BE SUBJECT TO RISK OF CAPACITY CONSTRAINTS AND SYSTEM FAILURES. A key element of our marketing strategy is to make Spyhop available at no cost to users of the Internet through our own web site. Accordingly, Spyhop's performance will be critical to our ability to establish the Spyhop brand name. Increases in the volume of searches conducted using Spyhop could strain our system capacity, which could lead to slower response times or complete system failures. In addition, if the number of Internet users increases, Spyhop may not be able to be scaled appropriately. We will likely be required to make certain performance and support commitments in our value added link agreements and if we fail to meet the commitments, those agreements could be terminated or we could be liable for damages. We will also be dependent on hardware suppliers for prompt delivery, installation and service of servers and other equipment that we use to operate our web site and for Internet access. The servers and other hardware equipment will be vulnerable to damages from fire, earthquake, power loss, telecommunications failures and similar events. Our business operations may also be vulnerable to computer viruses, break-ins and similar disruptive problems. WE MAY BE SUBJECT TO INCREASED REGULATIONS AND WE MAY HAVE LIABILITY FOR INFORMATION RETRIEVED FROM THE INTERNET. Other than laws and regulations applicable to businesses generally, there are currently few laws 10 and regulations expressly applicable to access and commerce on the Internet. Due to the increased popularity and use of the Internet, however, it is possible that new laws and regulations may be adopted with respect to the Internet relating to the issues such as user privacy, pricing and characteristics, and content and quality of products and services. For example, we may be subject to the provisions of the Communications Decency Act, which if found to be constitutional, could expose us to substantial liability. The adoption of any such laws or regulations could retard the growth or the use of the Internet, which could adversely affect the demand for our products and services. Those laws or regulations could also result in significant additional costs and technological challenges for us in complying with any mandatory requirements. Further, several states have attempted to tax online retailers and service providers even when they have no physical presence in the state. There is currently a three-year moratorium on taxing Internet commerce which was imposed by the federal government. We cannot predict what effect the lapse of the moratorium period will have on our business operations. In addition, plaintiffs have brought claims, and sometimes obtained judgments, against online services for defamation, negligence, copyright or trademark infringement or under other theories with respect to materials disseminated through those services. We will maintain a web site to which users can upload materials, so we may be subject to similar claims. WE MAY BE SUBJECT TO RISKS ASSOCIATED WITH GLOBAL OPERATIONS. Spyhop has multi-language capability. We have not concentrated on developing that function, but we believe we could do so in the future. As a result, we could derive substantial portions of our revenues from customers outside the United States. Our ability to expand products and services internationally would be limited by the general acceptance of the Internet and intranets in other countries. In addition, international operations are subject to a number of risks, including costs of localizing products and services for international markets, dependence on independent resellers, multiple and conflicting regulations regarding communications, restrictions on use of data and internet access, longer payment cycles, unexpected changes in regulatory environments, import and export restrictions and tariffs, difficulties in staffing and managing international operations, greater difficulty or delay in accounts receivable collection, potentially adverse tax consequences, the burden of complying with a variety of laws outside the United States, the impact of possible recessionary environments and economies outside the United States and political and economic instability. Furthermore, we expect that our export sales would be denominated predominately in United States dollars. Therefore, an increase in the value of the United States dollar relative to other currencies could make our products and services more expensive and potentially less competitive in international markets. NONE OF OUR SHAREHOLDERS IS SUBJECT TO A LOCK-UP. Our current stockholders have not entered into any agreements which restrict their ability to sell or otherwise dispose of their Common Stock. As a result, our stockholders will be able to sell any and all of their shares of Common Stock, subject only to applicable federal securities laws. Sales and distributions of substantial amounts of Common Stock in the public market, whether by reason of this Prospectus or by the same or other shareholders, could adversely effect the prevailing market prices for our securities. TRANSACTIONS EFFECTED IN CONNECTION WITH THE OFFERING In February 1999, we entered into an agreement (the "Purchase Agreement") with eight accredited investors relating to the purchase by those investors of up to $15 million of our newly designated Series A Convertible Preferred Stock (the "Series A Preferred Stock"). In March 1999, the parties completed the purchase and sale of the Series A Preferred Stock under the Purchase Agreement when those investors acquired 6,300 shares of our Series A Preferred Stock for $6,300,000. The Series A Preferred Stock is convertible into the number of shares of Common Stock equal to the dollar amount of the Series A Preferred Stock divided by $10.08, or a total of 624,999 shares. The holders of the Series A Preferred Stock may receive additional shares of Common Stock based on the trading price of the Common Stock at certain preset times. In connection with the transaction, the investors also acquired warrants (the "Warrants") which will permit them to purchase 307,449 additional shares of Common Stock through February 2004 at weighted average exercise prices ranging from $28.25 to $40.71 per share. See "Description of Capital Stock." In connection with the investors' purchase of the Series A Preferred Stock, we granted those investors certain registration rights. Under the terms of those rights, we are required to file a registration statement (of which this Prospectus is a part) with the Securities and Exchange Commission which will register not 11 less than twice the number of shares of Common Stock which would be required for the conversion of the Series A Preferred Stock held by those investors if that stock were converted on the trading date immediately preceding the filing of the registration statement. We are also required to register the number of shares of Common Stock required for exercise of all the warrants. The number of shares of Common Stock issuable on conversion of the outstanding Series A Preferred Stock is 624,999 shares and the number of shares of Common Stock issuable on the exercise of the Warrants is 307,449 shares, so the total number of shares of Common Stock we are registering for the holders of the Series A Preferred Stock and the Warrants hereunder is 1,557,447 shares of Common Stock (624,999 shares times 2, plus 307,449 shares). USE OF PROCEEDS We are registering the Shares for the benefit of the Selling Stockholders and the Selling Stockholders will sell the Shares from time to time under this Prospectus. Other than the exercise price that certain of the Selling Stockholders pay to exercise Warrants, we will not receive any of the proceeds from the sale of the Shares. Those Selling Stockholders are not obligated to exercise their Warrants, and there can be no assurance they will exercise all or any of them. If they exercised all of the Warrants, however, we would receive $9,591,960. We intend to use any proceeds from the exercise of the Warrants for working capital needs and general corporate purposes. We will pay all of the costs of this offering, with the exception of the costs incurred by the Selling Stockholders for their legal counsel and the costs they incur for brokerage commissions on the sale of their Shares. PRICE RANGE OF COMMON STOCK AND SHARES ELIGIBLE FOR FUTURE SALE Since July 1998, our Common Stock has been traded over-the-counter and quoted on the OTC Electronic Bulletin Board under the symbol "WCTI." There were approximately 143 holders of record of our Common Stock and 8 holders of record of our Series A Preferred Stock as of March 31, 1999. 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 the third and fourth fiscal quarters of 1998 and the first quarter of 1999. 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 ---- --------------- ------- --------- 1998 Third Quarter $ 5.0 $0.6875 Fourth Quarter $ 6.8125 $2.0 1999 First Quarter $36.25 $4.78125 Upon completion of the offering, we will have outstanding an aggregate of 13,434,449 shares of Common Stock. These amounts are inclusive of the number of shares of Common Stock we would be obligated to issue on the conversion of the Series A Preferred Stock (two times the 624,999 shares currently issuable on conversion or 1,299,998 shares) and exercise if the Warrants, as described below (307,449 shares). In addition, we reserved for issuance 375,000 shares issuable upon exercise of outstanding options (of which 16,500 are currently exercisable) and up to an additional 200,000 shares of Common Stock under warrants we are issuing to a third party for services (of which 50,000 have been earned as of March 31, 1999). The Shares offered hereby will be freely transferable without restriction or further registration under the Securities Act, except for shares which may be acquired by our "affiliates" as that term is defined in Rule 144 under the Securities Act. We also have 4.5 million shares of Common Stock that are currently freely tradable (except for such of those shares as may be acquired by our affiliates). The remaining shares of Common Stock held by existing shareholders are "restricted securities" as that term is defined in Rule 144. Restricted securities may be sold in the public market only if they are registered or if they qualify for exemption from registration under Rules 144 or 701 under the Securities Act or otherwise. None of the restricted shares held by our existing shareholders will be eligible for immediate sale in the public market under Rule 144k). 12 In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate, who has beneficially owned shares for at least one year is entitled to sell, within any three-month period commencing 90 days after the date of this prospectus, a number of shares that does not exceed the greater of (i) 1% of the then outstanding Common Shares or (ii) the average weekly trading volume in the Common Shares during the four calendar weeks preceding such sale, subject to the filing of a Form 144 with respect to such sale and certain other limitations and restrictions. In addition, a person who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, would be entitled to sell such shares under Rule 144(k) without regard to the volume, manner of sale and other limitations described above. An employee or consultant to the Company who purchased his or her shares pursuant to a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701, which permit non-affiliates to sell their Rule 701 shares without having to comply with the public information, holding- period, volume-limitation or notice provisions of Rule 144 and permit affiliates to sell their Rule 701 shares without having to comply with the Rule 144 holding period restrictions, in each case commencing 90 days after the date of this Prospectus. CAPITALIZATION The following table sets forth our capitalization as of December 31, 1998 and as adjusted to give effect to the offering and the sale of the Series A Preferred Stock in March 1999, as more particularly described in the section entitled "Transactions Effected In Connection with the Offering." December 31, 1998 Actual Proforma March 31, 1999 (as adjusted) Actual (Unaudited) ------------- ------------- ----------------- Long-term debt, including accrued interest $ 11,617 $ 11,617 $ 7,638 Shareholders equity: common shares par value $0.001; 11,877,002 shares issued and outstanding, actual; 11,877,002 shares issued and outstanding, proforma (as adjusted) $ 1,259,211 $ 866,211 $ 867,111 Series A Convertible Preferred shares, par value $0.01; no shares issued and outstanding, actual; 6,300 shares issued and outstanding, proforma (as adjusted) $ 0 $ 6,300,000 $ 6,300,000 Accumulated deficit $ (818,127) $ (818,127) $ (1,215,372) Total shareholders' equity (deficit) $ 441,084 $ 6,348,084 $ 5,951,790 Total capitalization $ 452,701 6,359,701 $ 5,959,428 ------------- ------------- -------------- DIVIDEND POLICY 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. 13 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 13 1998 are derived from the financial statements included elsewhere in this Prospectus that has been audited by our independent certified public accountants, Crouch Bierwolf & Chisolm, and is qualified by reference to such financial statements and notes related thereto. The financial data for the three month period ended March 31, 1998 and 1999 are derived from our unaudited financial statements included elsewhere in this prospectus and, in the opinion of our management, includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth. The results for the three months ended March 31, 1999 are not necessarily indicative of the results that we can expect for the full year. 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".
Three Months Ended Year Ended December 31, March 31, --------------------------- -------------------------- 1997 1998 1998 1999 ------------- ------------- ------------ ------------- Revenues: Product Sales $ 16,034 $ 32,884 $ 10,560 $ 2,535 Contract research revenues, royalties and license fees 8,450 49,794 28,222 7,562 ------------- ------------- ------------ ------------- Total revenues 24,484 82,678 38,782 10,097 Operating costs and expenses: Cost of products sold 806 15,864 82 22,714 Research and development - - - - Selling, general and administrative 344,848 528,841 35,921 407,797 Non-recurring charges - - - - ------------- ------------- ------------ ------------- Total costs and expenses 345,654 555,705 36,003 430,511 ------------- ------------- ------------ ------------- Income (loss) from operations (321,170) (462,027) 2,779 (420,414) Interest expense 17,125 28,158 8,5861 3,018 Interest income and other, net 3,077 7,276 - 26,187 ------------- ------------- ------------ ------------- Income (loss) from continuing operations before income taxes and minority interest (335,218) (482,909) (5,807) (397,245) Minority interest - - - - Income tax expense (benefit) - - - - ------------- ------------- ------------ ------------- Income (loss) from continuing operations (335,218) (482,909) (5,807) (397,245) Income (loss) from discontinued operations - - - - ------------- ------------- ------------ ------------- Net income (loss) $ (335,218) $ (482,090) $ (5,807) $ (397,245) ============= ============= ============ ============= Per Common Share Amounts: Income (loss) from continuing operations $ (0.61) $ (0.08) - - Income from discontinued operations - - - - ------------- ------------- ------------ ------------- Net income (loss) $ (0.61) $ (0.08) ============= ============= Shares used in computing per share amounts 545,535 6,100,679 Balance Sheet Data: Cash and cash equivalents $ 10,369 $ 425,702 $ 4,769 $ 5,745,679 Total Assets 139,928 623,617 135,278 23,213 Long-term obligations, including current portion 342,272 147,620 339,112 6,122,467 Redeemable, convertible preferred shares - - - - Accumulated deficit (335,218) (818,127) (341,025) (1,215,372) Shareholders' equity (deficit) (208,943) 441,084 (214,750) 5,951,790
See Notes to Financial Statements for information concerning the computation of per share amounts. 14 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, including those factors set forth under the section entitled "Risk Factors" and elsewhere in this Prospectus. Overview. We are developing and intend to market a data system search engine and focused portal sites that can be used to provide efficient, reliable search results in Internet and intranet environments. We will market our portal site, coupled with our search engine, under the brand name "Spyhop." It uses proprietary intellectual property rights that we either own or license. In early 1999, we conducted beta tests of Spyhop, and are currently responding to the recommendations and concerns that we received in the test. We anticipate being able to launch Spyhop commercially in the fourth quarter of 1999. We intend to initially target the business and professional segments of the Internet market as a provider of portal search services and through licensing arrangements with other portal or web site providers. We have devoted most of our resources since inception in November 1996 to the research and development of Spyhop and the development of brand awareness of "Spyhop." We are a development stage company, have generated only nominal revenues to date, and, as of March 31, 1999, we had an accumulated earnings deficit of approximately $1,214,000. 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. 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 we currently use. 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 on a common share equivalent basis. 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, 1997 and 1998 and for the interim period ended March 31, 1999. Years Ended December 31, Interim Period Ended 1997 1998 March 31, 1999 ---------- ---------- ------------------ Revenues $ 24,484 $ 82,678 $ 10,097 Cost of Revenues 806 15,864 22,714 ----------- ---------- -------------- 15 Gross Profit $ 23,678 $ 66,814 $ (12,617) Research & Development 66,988 92,744 89,817 General & Administrative 261,741 402,110 266,668 Sales & Marketing 10,845 33,987 51,312 Total Operating Expense 344,848 528,841 407,797 Operating Income/Loss (321,170) (462,027) (420,414) Interest Expense (17,125) (28,158) 3,018 Interest Income 2,877 7,276 26,186 Net Profit (loss) $ (335,218) $(482,909) $ (397,245) 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 should continue to decrease as we switch our development and marketing emphasis to an Internet version of Spyhop. Accordingly, we believe a comparison of the results of our operations on a period-by-period basis is of little benefit. We expect that, as we implement our business plan, our revenues will grow, along with the burdens generally associated with larger revenues, including increased burdens on our managerial, accounting and technical personnel. 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 be reasonably even from quarter to quarter. We believe they will come initially from advertising sales and from "shared advertising revenues" at associated sites. We believe we will generate additional revenues through our licensing/partnership arrangements that use Spyhop in other commerce-related areas over the Internet. As we move into the corporate intranet market, we believe we will generate additional revenues from licensing agreements and maintenance agreements with those corporate clients. We expect slightly greater variation in quarter to quarter results as we move into the corporate intranet arena. Liquidity and Capital Resources. Since our inception, we have funded our cash requirements through debt and equity transactions. We have used the funds from those transactions to fund our investments in, and acquisition of, our technology, to provide working capital and for general corporate purposes, including paying expenses we incurred in connection with our development of Spyhop. As of the year ended December 31, 1997, we had current assets of $139,928, and total liabilities of approximately $348,871, 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. See "Certain Relationships and Related Transactions." 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 approximately $182,000, resulting in a net worth of $441,084, including an operating loss of $482,909 for the year ending December 31, 1998. In February, 1999, we received the first cash portions ($6.1 million) from our sale of our Series A Preferred Stock to eight investors. In March, 1999, we received the last of the proceeds from the sale of those shares (in the amount of $200,000). Our expenses for the offering totaled $393,000, resulting in net proceeds to us of $5,907,000. As a result, as of March 31, 1999, we had total assets of $6,122,467. Our total liabilities as of that date were $169,522, and our stockholders' equity was $5,952,925. Our cash or cash equivalents at March 31, 1999 totaled $5,745,659.00. 16 A summary of our audited balance sheets for the years ended December 31, 1997 and 1998 and our interim statements for March 31, 1999 are as follows: Years Ended December 31, Interim Period Ended 1997 1998 March 31, 1999 ----------- ----------- -------------------- Cash/Cash Equivalents $ 10,369 425,702 5,745,659 Current Assets 15,369 425,702 5,813,376 Total Assets 139,928 623,617 6,122,447 Current Liabilities 321,307 170,919 149,309 Total Liabilities 348,871 182,533 169,522 Total Stockholder Equity (208,943) 441,084 5,952,925 Total Liabilities & Stockholders Equity 139,928 623,617 6,122,447 With the infusion of cash from our sale of the Series A Preferred Stock, we believe we have the resources to continue our product development efforts and to initiate our sales, marketing and promotional activities for Spyhop. 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 (i) our ability to negotiate favorable prices for purchases of necessary portal components, (ii) the number of our customers and advertisers, (iii) the services for which they subscribe, (iv) the nature and success of the services that we offer, (v) regulatory changes, and (vi) 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. Year 2000 Compliance. We have completed a review of our computer systems and operations to determine the extent to which our business will be vulnerable to potential errors and failures as a result of the "year 2000" problem. The year 2000 problem results from the use of computer programs which were written using only two digits (rather than four digits) to define applicable years. On January 1, 2000, any clock or date recording mechanism, including date-sensitive software which uses only two digits to represent the year, could recognize a date using "00" as the year "1900," rather than the year "2000." This could result in system failures or miscalculations, causing disruptions of operations, including, among other things, a temporary inability to process 17 transactions, send invoices, provide services or engage in similar activities. These failures, miscalculations and disruptions could have a material adverse effect on our business, operations and financial condition. We have concluded, based on our review of our operations and computer systems, that our significant computer programs and operations will not be materially affected by the Year 2000 problem, and that we can modify or replace the programs that will be affected by the end of 1999 at a cost which will not be significant. Under a reasonably likely worst case scenario, however, our computer systems and/or operations could be materially affected by the Year 2000 problem. In addition to our own properties and computer systems, we rely on operations and computer systems of third-party customers, financial institutions, vendors and other parties with or through which we conduct business (such as Internet service providers and the owners of communications backbones utilized by us). We have prioritized our year 2000 efforts in an effort to protect, to the extent possible, our business and operations. Our first priority will be to protect our critical operations such as those systems and applications that we use to provide search engine capabilities to various Internet and intranet customers from incurring material service interruptions that could occur as a result of the year 2000 transition. To this end, we have attempted to identify any element within our business operation (including elements relating to third party relationships) that could be materially impacted by the year 2000 date change, and have attempted to determine the risks to our continuing business operations as a result of an adverse effect resulting from that date change. We generally require our key vendors and suppliers to warrant they are year 2000 ready. We have purchased most of our mission-critical systems from such third-party vendors. We have attempted to identify the vendors and third-parties with which we have contractual relationships which may not be year 2000 compliant by the end of 1999, and we have adopted contingency plans which we believe will mitigate any adverse impact to our business operations resulting from those vendors' or third parties' inability to perform their contractual obligations. Our contingency plans include preparing and using backup copies of our financial records, determining the availability and reliability of alternate network and backbone communication systems, and scheduling additional phone center, repair and administrative personnel to be on hand on the transition date. 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. BUSINESS The following description of our business should be read in conjunction with the information included elsewhere in this Prospectus. This section contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results discussed in the forward-looking statements as a result of certain of the risk factors set forth below and elsewhere in this Prospectus. Introduction. We are engaged in the development and marketing of next- generation focused Internet portal sites coupled with data harvesting, text indexing, retrieval and analysis software which we market under the brand name "Spyhop." Spyhop allows Internet and intranet users to search single web sites, search multiple web sites concurrently, or search substantial portions of an entire data network. Spyhop is based on technology originally developed at Brigham Young University ("BYU") by a team that included educational psychologists, computer programmers and logic experts. Their goal was to create a software product that would assist scientists and scholars in research and teaching. Since 1986, the basic Spyhop technology has been used in research projects in over 20 countries and in more than 15 languages. In February 1997, we purchased an exclusive, worldwide license to market, modify, develop and manufacture the basic Spyhop technology. Since then, we have augmented the basic Spyhop technology by adapting it for use on the Internet and 18 adding additional search and display functions. We believe Spyhop is well suited to help persons efficiently sift through large amounts of data for relevant information. We believe Spyhop technology can be used for data searching, retrieval and indexing on both the Internet and Internet protocol-based intranets. As described in more detail below, we believe Spyhop will be employed primarily by business researchers and professionals on the Internet. The use of the Internet has grown substantially since it was first commercially introduced in the 1990s, resulting in concomitant increases in the number of advertiser and product service offerings accessible by the Internet. The rapid growth of the Internet and intranets, and the proliferation of Internet sites, has increasingly challenged consumers, content providers and advertisers to effectively reach one another. Consumers are generally 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 both large interested audiences and target groups. Many competitors have developed products, including portals, which they believe make the task of finding relevant data, information, advertising or products on the Internet and other data systems easier and less time consuming. These portals generally return a list of web sites without showing which web sites may be relevant to the actual search query. In some cases, these portals return lists of hundred or thousands of potential documents for further review. As a result, Internet and intranet users may spend substantial time searching through the list of returned documents to find out which documents are relevant. This generally requires the user to call up the reference page and either visually scan the page or conduct another page search to find the specific reference in question. Spyhop provides advanced search capabilities that create a search result metaphor we refer to as "what you see is what you get." In a Spyhop search result a portion of the computer screen is devoted to an information summary that is the equivalent of a table of contents or index. Each entry in the table of contents represents an Internet site or page, and the entry shows the user how many references match the search criteria on each web site or page. By clicking on an entry in the table of contents or index, users can see the search results in the actual surrounding context of the document and determine more quickly and efficiently if the web site provides the information they want. Spyhop is based on a computer algorithm that takes search result data and organizes it in terms which we believe are familiar to the average person, such as tables of contents or indices. Spyhop can also sort, analyze, and manipulate search results to make it easier to find what the researcher is looking for. Spyhop uses a linguistic analysis technique, formerly known as "collocation" and commonly referred to for the benefit of consumers as "neighbors," that assists users in quickly determining which web sites and pages contain needed, relevant information. Spyhop also assists users in properly constructing a search request, thereby avoiding the common problem of getting too many responses to a search that was ambiguously phrased. Spyhop Markets. We believe Spyhop will be used primarily by business researchers and professionals on the Internet. The Internet is an interactive worldwide network of computers and data systems that allows 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 the Internet protocol ("IP"), which is 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. International Data Corporation estimates that the Internet user population will grow from approximately 35 million in 1996 to approximately 160 million by 2000. 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. For example, Jupiter Communications has estimated that approximately $340 million was spent on Internet and online advertising in 1996, and that Internet and online advertising will grow to be approximately $5 billion by the year 2000. 19 As the Internet developed, corporations, universities and other large organizations began developing private data networks to serve the needs of their organizations. Generally, these networks are custom-built, and use proprietary protocols to connect specific communities or groups of users through local area networks and wide area networks. Private networks are generally expensive to build and maintain, and the proprietary nature of the networks and their applications sometimes makes it difficult to manage and exchange information between them. In addition, these networks typically use leased telephone lines, modem banks and other proprietary systems to connect geographically distinct parts of the same private network (such as connecting a field office in Boise, Idaho with a home office in New York City), to link separate private networks and to permit access by remote individual users. Many organizations have begun to create intranets that adopt IP. Because the Internet and intranets are increasingly using the same protocols, intranets can provide users with substantially increased access to information and other users, both inside an organization and, via the Internet, throughout the world. As a result, a July 1996 Forrester Research survey of fifty Fortune 1000 companies reported that 64% of the respondents were currently using intranets, and another 32% were building intranets. According to International Data Corporation, the market for intranet software products and services in the year 2000 will exceed $3 billion, up from approximately $276 million in 1995, and the estimated expenditures for intranet software products and services will exceed $6 billion in the year 2000, up from approximately $260 million in 1995. The adoption of IP on private networks to create intranets and the increasing use of the Internet to link private networks have created a need for location and platform independent software products and services that integrate all levels of the workplace and allow users to quickly and efficiently obtain relevant and useful information. Currently, solutions for searching and retrieving information from data networks generally involves the use of catalogs, search services or other specially designed applications. We believe these tools generally lack sufficient speed, accuracy and comprehensiveness, and can be difficult to use. In many cases, currently-used portals and information retrieval devices produce search results that do not allow the user to easily determine if any particular search result is relevant to the search query. Our Solution. The basic Spyhop technology, originally called "WordCruncher," was developed on the campus of BYU, a non-profit corporation and educational institution located in Provo, Utah. In the early 1980's, Dr. Monte Shelley, an educational psychologist, and several professors and research scholars at Brigham Young University began to design a software product to assist them with their research and teaching. Their efforts produced a software program that generates a detailed index of documents of almost any size. This index included the exact location of each word found in the search document and its relationship to other words and phrases. The software also allowed users to retrieve full texts and determine logical connectors, frequency distribution and collocation. Because they worked with scholars from around the world, the development team also designed the software to provide multiple language support capabilities. The resulting technology has been used in research projects in over twenty countries and in over 15 languages. In 1997, we purchased the exclusive, worldwide rights to this search technology, which we augmented by adding technology from another search engine and adapted for use on the Internet under the brand name "Spyhop." Spyhop currently incorporates the following features: Fast, In-Context Display of Search Results. When an Internet user initiates a search on other portals, results are returned in the form of a list of web sites that may or may not contain relevant information. Before the user knows for certain which web sites are relevant, he must call up the referenced page and either visually scan the page or do a "page search" to find the specific reference to the search term. During a Spyhop search, however, one portion of the screen is devoted to the equivalent of a table of contents. Each entry in the table of contents represents an Internet site, page, category or subcategory the entry shows the user how many references match the search criteria on each web site or page. By clicking on an entry in the table of contents, the user can see the search results with the actual surrounding context; in other words, "hit-in-context." With this type of display, the user can preliminarily determine if a web site provides the information he wants without having to link to the web site first. New Information Presentation Model. As part of our efforts to make Spyhop search results more familiar, Spyhop takes search results data and organizes it in terms which we believe are familiar to the average 20 person (for example, in the form of a table of contents or index). Spyhop also provides tools that sort, analyze and manipulate search results to make it easier to find what the user is looking for. This conceptual "bridge- building" is useful not only for experienced Internet users, but for the increased number of new Internet users. Collocation / Advanced Proximity Analysis (Neighbors). Many people who search the Internet do not receive the search results they want, in part because they use an ambiguous search. One of the most common results of ambiguously constructed searches is the tendency to get far too many possible search references, or "hits." Spyhop uses a linguistic analysis technique, formally known as "collocation" and commonly referred to as "neighbors," to help users quickly zero in on web sites or pages which contain relevant information. Relevance. Some portals rank search results based on factors that may have little or no relevance to the data the user is seeking. For example, at least one widely-used portal displays search results based, in part, on the fees paid to the provider of the portal. In contrast, Spyhop uses pre- computed document ranking, in conjunction with term location, frequency and distribution feature, to determine the most relevant hits for a given search and sort these to the top of the list the user sees. Speed of Engine / Scalability. We believe that two of the primary requirements for a successful portal are speed and scalability. "Speed" refers to speed of indexing, and the speed of returning search results to users. "Scalability" refers to the ability of the portal to cope with the vast amount of data on the data base being searched. Spyhop uses detailed indexing to handle rapid searching of very large data bases and is designed for scalable clustered systems to achieve near linear performance increases as we add additional hardware. Our Business Objectives and Strategy. We intend to be the leader in the development and marketing of specialized portal sites for the Internet and intranets. Initially, we intend to focus our business efforts on the continued development and marketing of Spyhop for the Internet, with an emphasis on the business and professional segments of that market. We believe Internet users in those market segments typically spend more money on Internet services, software and hardware and that, therefore, they are a significant target for advertisers. According to Zona Research, focused portals and directories will have an increased impact on the revenues and advertising expenditures on the Internet, and 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. By focusing our target market on the business and professional users segment of the Internet market initially, we believe we will be able to more quickly generate revenues on our own site and associated sites through better advertising and applications of other e-commerce applications that use Spyhop. Based on the results of our marketing effort in the business and professional Internet market segments, we intend either to focus our long-term business efforts on other specialized segments of the Internet or more aggressively pursue the development of products and services for the intranet segments of the data services industry. We intend to achieve our business objectives using the following strategies: We Will Launch and Maintain Our Own Web Site. We currently maintain a web site at http:\\www.wordcruncher.com, where users can preview descriptions of our Company and Spyhop. In February, 1999, we opened our web site as a "beta" for evaluating Spyhop's capabilities and consumer reaction. We discontinued the beta site in March 1999. While it was in operation, we received up to 25,000 hits per day. We intend to use the data we obtained from our beta test to further refine Spyhop's capabilities. We also intend to use our web site as the primary site for third parties to use Spyhop. We will provide the use of Spyhop to the visitors to our web site for free. We Intend to Increase Spyhop Brand Recognition. We believe brand recognition on the Internet will be crucial to effectively marketing Spyhop. We are offering Spyhop without charge to web users as a showcase and to establish ourselves as a premier provider of services on the Internet. We also plan to make available additional free services on the Internet to showcase our technology and to extend awareness of the Spyhop brand. 21 We Will Use Value Added Links. We intend to develop increased Spyhop brand recognition in the marketplace by entering into licensing agreements with major Internet content providers to deliver Spyhop branded Internet search service results to users through "value added links" on those other providers' web sites. We Intend to Maximize Advertising Revenue. Although we expect to earn revenue from licensing through value added link agreements, we expect that the primary source of our revenues will be from advertising generated on our portal site. We also expect to conduct a significant portion of our business over the Internet, including marketing, communications, partner registration, sales, software distribution and partner and customer support. We intend our web page to be a "front door" to a menu of business and professional oriented activities, and to offer users an interactive multi- media environment where they can access information about our products, download software products, receive support and conduct commercial transactions with us. Sales and Marketing. Our sales strategy is to achieve broad market penetration by employing multiple distribution channels, including direct sales over the Internet and sales through our own sales organization, value added resellers, Internet service providers, telecommunications companies, original equipment manufacturers and independent software vendors. We anticipate that, by the end of 1999, we will have an 8 person sales and marketing team that will market Spyhop directly to advertisers and content providers. Our primary sales tool will be our web site, which will demonstrate, promote and sell software products that can be downloaded directly to the user's computer. Customer Support and Services. We believe a high level of customer support and service for products will be critical to our success. Our principal customer support focus will be to provide training, documentation and technical support at our web site to persons using Spyhop. Competition. Our markets are new, very competitive and subject to rapid technological change. We face competition in the overall Internet/intranet software market, as well as in each of the market segments where Spyhop will compete. 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 provide or have announced intentions to provide software products based on Internet protocols and which are designed as portals in either the Internet or intranet markets. In particular, Spyhop will face competition from AltaVista, Excite, Hotbot, Infoseek, Lycos, Yahoo!, Ask Jeeves and Open Text. A number of the companies offering these portals have been offering services on the Internet for a number of years (although, not to focused Internet segments), so the increased use and visibility of Spyhop will depend, in large part, on our ability to build and host a large web index as the web grows in size while maintaining operational performance levels. We also believe it will be essential for us to develop long-term business alliances with parties with which we can enter into value added link contracts. 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 changes in the Internet and intranet markets. We are aware of several other large and small software developers that are focusing significant resources on developing and marketing software products and services that will compete with Spyhop. Some of our current and potential competitors may bundle their products with other software or hardware, including operating systems and browsers, in a manner that may discourage users from purchasing or using our products and services. We may not be able to compete effectively with current and future competitors. Product Development. Our current product development efforts are focused on post-beta test adjustments to Spyhop. These adjustments include revisions related to the functionality, speed and interface of our portal site. Based on our current estimates, we believe that we will be able to launch Spyhop on a production basis in the fourth quarter of 1999. We intend to actively support industry standards and, if they are commercially feasible, incorporate new standards-compliant features into Spyhop as they become available. Some of the technology we use was developed 22 by third parties and then licensed to us. We have, however, developed significant additions to this technology internally and, to date, have spent over $1.25 million in research and engineering activities. Our ability to successfully develop and release new products and enhancements to Spyhop 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 (the "License") 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) 544,761 shares of Common Stock for the License. The WordCruncher technology constitutes the core search technology we use in our "Spyhop" product. The term of the 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 will be 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. Petersen Intellectual Property Purchase. We purchased certain intellectual property from Jeffrey B. Petersen in December 1998. The intellectual property consists of software and source codes that we use to build databases, a boolean search engine for searching databases, a dynamically updatable search engine, and certain utility/sample programs. We paid $50,000 for the intellectual property by delivering $15,000 in cash and 13,000 shares of Common Stock to Mr. Petersen. 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 the 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 $5,907,000 from the sale. In connection with the transaction, we also issued both the purchasers and the placement agent the Warrants 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. See "Transactions Effected in Connection With the Offering," "Description of Capital Stock" and "Principal and Selling Stockholders." Columbia Financial Group Services Agreement. In December 1998, we entered into a services agreement with Columbia Financial Group ("Columbia"). 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. As of March 31, 1999, Columbia had earned warrants to purchase 50,000 shares. Corporate Development. Our predecessor in interest was incorporated in the State of California on May 2, 1997, as Dunamis, Inc. ("Dunamis"). 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 for 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. 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 23 time of the merger, WordCruncher Publishing Technologies, Inc. held the rights to a significant portion of the intellectual property we currently use. 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 Untied States and other countries. Spyhop is based, in part, on a United States patent issued to BYU. We have an exclusive world-wide license to that patent. If either we or BYU fail to file, prosecute or maintain the patent, we could be severally damaged. We intend to file additional patent applications relating to our technology, products and processes as the need arises. We will also direct BYU to file any additional patent applications relating to the technology we have licensed from it. 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 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. We have nineteen (19) employees. 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. Properties. We lease 3,600 square feet of administrative, office and developmental space at the Town Square Professional Plaza in Draper, Utah 84020. The term of the lease is from March 15, 1999 until March 31, 2002. The current annual rental for the space is $44,932 ($3,744 per month), which we believe is typical for similar premises in the area. Legal Proceedings. We are not a party to any proceeding or threatened proceeding as of the date of this Prospectus. 24 MANAGEMENT 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 45 President, Chief Executive Officer, Director James W. Johnston 46 Chairman of the Board, Executive Vice President, Director Kenneth W. Bell 49 Senior Vice President, Chief Financial Officer, Treasurer, Secretary, 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 Spyhop technology, including the Constitution Papers (DC 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. 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 project 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. 25 Board of Directors. Our Articles of Incorporation provide for a Board of Directors consisting of 3 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 intends to establish two committees, the audit committee and the compensation committee. Each of these committees will 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 will be 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 will also review 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. We are is currently seeking one or more persons to add as outside directors to the Board of Directors, and we anticipate that one or more of the new members will be appointed as a member of the audit committee. The compensation committee will be 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 will also consult with our management regarding pension and other benefit plans, and our compensation policies and practices in general. We are currently seeking one or more persons to add as outside directors to the Board of Directors. We anticipate that one or more of the new outside directors will be appointed as a member of the compensation committee. Compensation of Directors. We do not have any standard arrangement for compensating our directors for the services they provide to the Company in their capacity as directors, including services for committee participation or for special assignments. Employment Agreements. We have adopted a policy of entering into employment agreements with our senior management, and have entered into such agreements with Messers. Lunt, Bell, Johnston, and Stoop. The terms of the employment agreements for Messers. 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 Messers. 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 Mr. Stoop. The initial term of the agreement is two years and it provides for a base salary of $66,000 (increased to $84,000 effective April 1, 1999). The agreement also provides for standard health and medical insurance, incentive bonuses, disability coverage and reimbursement for reasonable business expenses. In addition, Mr. Stoop received options to acquire 300,000 shares of Common Stock vesting over a three year period. We may terminate the employment contracts for cause (which is 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, Messers. Lundt, 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 (i) 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; (ii) any realignment of the Board of Directors or change in officers due to shareholder action; (iii) our sale by 30% or more of our assets; or (iv) 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. 26 If Mr. Stoop 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. Limitations of Liability and Indemnification. Our Articles of Incorporation limit the personal liability of our directors and officers for monetary damages to the maximum extent permitted by Nevada law. Under Nevada law, these limitations include limitations on monetary damages for any action taken or failed to be taken as a director or officer except for (i) an act or omission that involves intentional misconduct or a knowing violation of a law, or (ii) payment of improper distributions. Nevada law also permits a corporation to indemnify any current or former director, officer, employee or agent if the person acted in good faith and in a manner in which he reasonably believed to be in (or not opposed to) the best interest of the corporation. In the case of a criminal proceeding, the indemnified person must also have had no reasonable cause to believe his conduct was unlawful. Our by-laws provide that, to the fullest extent permitted by our Articles of Incorporation and the Nevada Business Corporation Act, we will indemnify (and advance expenses to) our officers, directors and employees in connection with any action, suit or proceeding (whether civil or criminal) to which those persons are made party by reason of their being our director, officer or employee. Any such indemnification would be in addition to the advancement of expenses. At present, there is no pending litigation or proceeding involving any of our directors, officers, employees or agents where indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding which would result in a claim for such indemnification. 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 $100,000 (collectively, the "named executive officers") during each of the past two fiscal years. During the fiscal year ended December 31, 1996, none of our officers received any cash compensation, bonuses, stock appreciation rights, long-term compensation, stock awards or long-term incentive rights: Summary Compensation Table --------------------------- Annual Compensation All Other --------------------------- --------------- Name and Principal Position Fiscal Year Salary($) Compensation - ----------------------------- ------------- ------------- --------------- M. Daniel Lunt 1998 $102,000 (1) - President, CEO, Director 1997 - - James W. Johnston 1998 $102,000 (1) - Chairman of the Board, 1997 - - Executive Vice President Kenneth W. Bell Senior Vice President, CFO 1998 $102,000(1) - Director 1997 - Timothy J. Riker 1998 $84,000 (2) $94,250 (3) Vice President of Technology 1997 - - Peter T. Stoop 1998 $66,000 (2) - Vice President of Sales & 1997 - - Marketing - -------------------------------------------- 27 (1) Represents annual salary. Each of Messers. Lunt, Johnston and Bell joined us effective July, 1998. (2) Represents annual salary. Mr. Riker and Mr. Stoop joined us in September 1998. Mr. Stoop's annual salary was increased to $84,000 effective April 1999. Mr. Riker left us effective May 1, 1999. (3) Represents the value of Common Stock awards to the person indicated. We valued the 29,000 shares we awarded Mr. Riker at $3.25 at the time of their grant. PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth, as of March 31, 1999, the beneficial ownership of our outstanding Common Stock by (i) each person known by us to own beneficially 5% or more of our outstanding Common Stock, (ii) each of our executive officers, (iii) each of our directors, (iv) all executive officers and directors as a group, and (v) the Selling Stockholders. Beneficial ownership after this offering will depend on the number of shares actually sold by the Selling Stockholders. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission 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 (a) the exercise of vested options or warrants held by that person and that are exercisable within 60 days after March 31, 1999 or (b) the conversion of any Series A Preferred Stock held by that person. 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.
Common Stock Beneficially Number of Common Stock Beneficially Owned Name of Beneficial Owner Owned Prior to Offering(1) Shares Being After Offering (2) and Relationship to Us Shares Percent Registered Shares Percent - ------------------------ --------------- --------- -------------- ----------------- ------------ Officers and Directors: - ----------------------- M. Daniel Lunt (3) President, CEO, Director 1,798,383 15.1% 250,000 1,548,383 11.5% James W. Johnson (4) Chairman of the Board, Executive V.P. 2,021,223 17.0% 250,000 1,771,223 13.2% Kenneth W. Bell (5) Senior V.P., CFO, Treasurer, Secretary, Director 1,510,608 12.7% 250,000 1,260,608 9.4% Peter T. Stoop V.P. Marketing 5,000 * 5,000 - - Timothy J. Riker(6) V.P., Chief Scientist 29,000 * 29,000 - - Martin Cryer V.P. Product Development 10,000 * 10,000 - - All Executive Officers and Directors as a Group (6 persons)(7) 5,374,214 45.2% 794,000 4,580,214 34.1% Selling Stockholders : - -------------------- Jeffrey Peterson Consultant 13,000 * 13,000 - - Mike Schouten Marketing 5,000 * 5,000 - - Robert Stevens Programmer 5,000 * 5,000 - - Universal Insurance Consultant 25,000 * 5,000 20,000 *
28
Common Stock Beneficially Number of Common Stock Beneficially Owned Name of Beneficial Owner Owned Prior to Offering(1) Shares Being After Offering (2) and Relationship to Us Shares Percent Registered Shares Percent - ------------------------ -------------- --------- -------------- ----------------- ------------ Shane Smit Development 4,000 * 4,000 - - Brett Bell Marketing 2,000 * 2,000 - - Alexis Lee Support 2,000 * 2,000 - - Shane Jackson Accounting 2,000 * 2,000 - - Andrew Blum Consultant 3,690 * 3,690 - - Mutual Ventures Consultant 450,000 3.8% 100,000 350,000 2.6% Capital Communications Consultant 360,000 3.0% 100,000 260,000 1.9% Columbia Financial Group Consultant 100,000 * 100,000 - - Tajunnisah Owesh(8) Series A Preferred Stockholder 541,281 4.5% 541,281 - - Ohoud F. Sharbatly(8) Series A Preferred Stockholder 216,512 1.8% 216,512 - - Mohammad A. Al-Quaiz(8) Series A Preferred Stockholder 216,512 1.8% 216,512 - - Urban Development Est.(8) Series A Preferred Stockholder 108,256 * 108,256 - - Yasser M. Zaidan(8) Series A Preferred Stockholder 108,256 * 108,256 - - Khaled A. Almubarak(8) Series A Preferred Stockholder 45,512 * 45,512 - - Gibraltor Worldwide, Inc.(8) Series A Preferred Stockholder 108,256 * 108,256 - - Abdulwahhab A. Abdulwasea(8) Series A Preferred Stockholder 23,862 * 23,862 - - Cardinal Capital Management(8) Warrantholder 189,000 1.6% 189,000 - - - -----------------------------------
* Less than 1% of the outstanding Common Stock. (1) Percentage of beneficial ownership prior to offering is based on 11,877,002 shares of Common Stock outstanding as of March 31, 1999. See "Summary" for a description of the calculation of the number of shares of Common Stock outstanding. (2)Percentage of beneficial ownership after offering is based on 13,434,449 shares of Common Stock. See "Summary". That figure assumes the sale of all the Shares. The actual number of Shares sold may be less than the total registered hereunder. See footnote number 7 below. See "Summary" for a description of the calculation of the number of shares of Common Stock to be outstanding. (3)Mr. Lunt shares voting power and investment power with his wife, Lori Lunt. (4)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. (5)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. (6)Mr. Riker left us effective May 1, 1999. 29 (7)Assumes the matters set forth in footnotes 1 through 6. (8)Under the terms of the Purchase Agreement, we are required to register for the benefit of the holders of the Series A Preferred Stock and the Warrants the number of Shares equal to twice the number of shares of Common Stock those persons could acquire on the conversion of their Series A Preferred Stock, plus the number of shares of Common Stock those persons could acquire on exercise of the Warrants. The number of Shares set forth with respect to such Series A Preferred Stock holders and Warrant holders reflects twice the number of Shares that could be currently acquired upon the conversion of the Series A Preferred Stock plus the number of shares they could acquire on the exercise of the Warrants. We may issue the holders of the Series A Preferred Stock and Warrants fewer than the number of Shares reflected for them in the chart, depending on the market value of our Common Stock on certain dates. See "Transactions Effected in Connection With the Offerings" and "Description of Capital Stock." 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 Company. James Johnston, Kenneth Bell and Daniel Lunt secured a $250,000 line of credit for our benefit and loaned us $50,000 (for a total of $300,000) in 1997. We subsequently drew down the entire line of credit. 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 $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 $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 $14,000 in 1997. A portion of the loan ($5,000) was repaid by offsetting amounts we otherwise owed Mr. Lunt, another portion ($5,000) was repaid in cash, and the balance ($4,000) was paid to us in March 1999. Intellectual Property Development Rights. We purchased certain intellectual property from Jeffery Petersen in December 1998. In connection with that transaction, Timothy Riker disclaimed any interest he had in the property. Mr. Riker was involved in the early stages of the development of the intellectual property, which was further developed by Mr. Petersen before we purchased it. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE We have had no change in, or disagreements with, our principal independent accountant during our last two fiscal years. 30 INTEREST OF NAMED EXPERTS AND COUNSEL We are not aware of any expert or legal counsel named in this Registration Statement who will receive a direct or indirect substantial interest in the offering. Our counsel, Parsons Behle & Latimer, will pass on the legality of the Shares to be issued pursuant to the conversion of the Series A Preferred Stock and the exercise of the Warrants. Our financial statements at December 31, 1998 and 1997, and for the periods ending then, have been audited by Crouch, Bierwolf & Chisholm, as set forth in this report at the end of this Prospectus, and are included in reliance on that report given on the authority of that firm as experts in accounting and auditing. PLAN OF DISTRIBUTION We will not use the services of underwriters or dealers in connection with the sale of the Shares. The Shares will be freely transferable, except for the Shares issued to certain of the Selling Stockholders who are affiliates. We will hold 1,557,447 of the Shares in reserve for the conversion of the shares of Series A Preferred Stock and the exercise of the Warrants, as defined below, pursuant to the terms of the Purchase Agreement. The Selling Stockholders will offer and sell the Shares from time to time. They will act as principals for their own accounts in selling the Shares and may sell the Shares through public or private transactions, on or off established markets, at prevailing market prices or at privately negotiated prices. The Selling Stockholders will receive all of the net proceeds from the sale of the Shares and will pay all commissions and underwriting discounts in connection with their sale. Other than the exercise price the Selling Stockholders may pay with respect to the exercise of the Warrants, we will not receive any proceeds from the sale of the Shares. The distribution of the Shares by the Selling Stockholders is not subject to any underwriting agreement. We expect that the Selling Stockholders will sell the Shares through customary brokerage channels, including broker/dealers acting as principals (who then may resell the Shares), in private sales, in transactions under Rule 144 under the Securities Act, or in block trades in which the broker/dealer engaged will attempt to sell the Shares as agent but position and resell a portion of the block as principal to facilitate the transaction. We expect the Selling Stockholders to sell the Shares at market prices prevailing at the time of sale, at prices related to such prevailing market prices or negotiated prices. The Selling Stockholders may also pledge all or a portion of the Shares as collateral in loan transactions. Upon any default by the Selling Stockholders, the pledgee in the loan transaction would then have the same rights of sale as the Selling Stockholders under this Prospectus. The Selling Stockholders may also transfer the Shares in other ways not involving market makers or established trading markets, including directly by gift, distribution or other transfer without consideration, and upon any such transfer, the transferee would have the same rights of sale as the Selling Stockholders under this Prospectus. Finally, the Selling Stockholders and the brokers and dealers through whom sales of the Shares are made may be deemed to be "underwriters" within the meaning of the Securities Act, and the commissions or discounts and other compensation paid to those persons could be regarded as underwriters compensation. From time to time, the Selling Stockholders may engage in short sales, short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities, and will be able to sell and deliver the Shares in connection with those transactions or in settlement of securities loans. In effecting sales, brokers and dealers engaged by the Selling Stockholders may arrange for other brokers or dealers to participate in those sales. Brokers or dealers may receive commissions or discounts from the Selling Stockholders (or, if any such broker dealer acts as agent for the purchaser of those shares, from the purchaser) in amounts to be negotiated (which are not expected to exceed those customary in the types of transactions involved.) Brokers and dealers may agree with the Selling Stockholder to sell a specified number of shares at a stipulated price per share and, to the extent those brokers and dealers are unable do so acting as agent for the Selling Stockholder, to purchase as principal any unsold Shares at the price required to fulfill the broker dealer commitment to the Selling Stockholder. Broker dealers who acquire Shares as principals may thereafter resell those shares from time to time in transactions in the over-the-counter market or otherwise and at prices and on terms then prevailing at the time of sale, at prices then related to the then-current market price or negotiated transactions and, in connection with those resells, may pay to or receive from the purchasers of those Shares commissions as described above. 31 We will pay all expenses of registration incurred in connection with this offering, but the Selling Stockholders will pay all brokerage commission and other similar expenses incurred by them. At the time a particular offer of the Shares is made, to the extent it is required, we will distribute a supplement to this Prospectus which will identify and set forth the aggregate amount of Shares being offered and the terms of the offering. The Selling Stockholder may sell the Shares at any price. Sales of the Shares at less than market price may depress the market price of our Common Stock. Subject to applicable securities laws (and the provisions of the Purchase Agreement, which limit the number of shares of Series A Preferred Stock that their holders can convert to shares of Common Stock at any one time), the Selling Stockholders will generally not be restricted as to the number of Shares which they may sell at any one time, and it is possible that a significant number of Shares could be resold at the same time. The Selling Stockholder and any other person participating in the distribution of the Shares will also be subject to applicable provisions of the Securities Exchange Act of 1934 and the rules and regulations promulgated under it, including, without limitation, Regulation M, which may limit the timing of purchases and sales of the Shares by the Selling Stockholders and any other person. Furthermore, Regulation M of the Securities Exchange Act of 1934 may restrict the ability of any person engaged in the distribution of the Shares to engage in market- making activities with respect to the particular shares being distributed for a period of up to 5 business days prior to the commencement of the distribution. All of the foregoing may affect the marketability of the Shares and the ability of any person or entity to engage in market-making activities with respect to the Shares. To comply with certain states securities laws, if applicable, the Shares may be sold in those jurisdictions only through registered or licensed brokers or dealers. In certain states the Shares may not be sold unless the Selling Stockholder meets the applicable state notice and filing requirements. Available Information. This Prospectus does not contain all of the information set forth in the registration statement relating to the Shares. For further information, reference is made to the registration statement and such exhibits and schedules. Statements contained in the Prospectus concerning any documents are not necessarily complete and, in each instance, reference is made to the copies of the documents filed as exhibits to the registration statement. Each such statement is qualified in its entirety by that reference. Copies of these documents may be inspected, without charge, at the Commission's Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549 and at the Denver Regional offices of the Commission located at 1801 California Street, Suite 4800, Denver, Colorado 80202. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. Copies of this material also should be available through the Internet by using the Commission's EDGAR Archive, the address of which is http://www.sec.gov. DESCRIPTION OF CAPITAL STOCK Our authorized capital consists of 60,000,000 shares of Common Stock, $0.001 par value, and 50,000 preferred shares, $0.01 par value, of which 15,000 shares have been designated as the Series A Preferred Stock. As of March 31, 1999, there were 11,877,002 shares of Common Stock and 6,300 shares of Series A Preferred Stock outstanding. An additional 375,000 shares of Common Stock may be issued upon the exercise of outstanding share options (of which 16,500 are presently exercisable), up to an additional 200,000 shares may be issued to a third party upon the exercise of warrants being acquired by that party in exchange fore services (of which, it has earned warrants for 50,000 shares to date), an additional 307,449 shares may be issued upon the exercise of the outstanding Warrants as described below, and an additional 624,999 shares of Common Stock may currently be issued upon the conversion of the Series A Preferred Stock into Common Stock. As of March 31, 1999, there were approximately 143 holders of record of the Common Stock and eight record holders of the Series A Preferred shares. Common Stock. Subject to preferences that may be applicable to any then outstanding preferred shares, holders of the Common Stock are entitled to receive, pro rata, such dividends as may be declared by our Board of Directors out of funds legally available for such purposes. In the event of our liquidation, dissolution or winding-up, the holders of the Common Stock are entitled to participate in all assets remaining after the payment of liabilities and the liquidation preferences of any then-outstanding preferred shares. The holders of the Common Stock have no preemptive rights and no right to convert the Common Stock into any other securities. There are no redemption 32 or sinking fund provisions applicable to the Common Stock, and all outstanding Common Stock are fully paid and non-assessable. The holders of the Common Stock are entitled to one vote for each share they hold of record on all matters submitted to a vote of our stockholders. We have not paid, and do not intend to pay, cash dividends on the Common Stock for the foreseeable future. Preferred Shares. Our Articles of Incorporation grant our Board of Directors the authority to issue up to 50,000 shares of preferred stock, and to determine the price, rights, preferences, privileges and restrictions, including voting rights of those shares without any further vote or action by the stockholders. In February 1999, our Board of Directors created 15,000 shares of the Series A Convertible Preferred Stock, and sold 6,300 of these shares to certain of the Selling Stockholders for $1,000 per share. The Series A Convertible Preferred Stock gives its holders the right to receive $1,000, plus 6% each year, before any of our other stockholders receive anything if we are liquidated, but does not give their holders the right to vote in most matters our stockholders are asked to consider and vote on. These shares of preferred stock also give their holders a right to receive an annual 6% dividend at the time the preferred shares are converted into Common Stock. We have the option of paying the dividend in cash or in shares of Common Stock. The Series A Preferred Stock will first be convertible into shares of Common Stock on the day this registration statement becomes effective. Up to 20% of the Series A Preferred Stock can be converted into Common Stock during each month following the effective date of this Prospectus. In addition to the right to convert the Series A Preferred Stock into Common Stock, we also gave the holders of the Series A Preferred Stock a limited right to receive additional shares of Common Stock at certain times if the market price for the Common Stock is less than $12.096 per share. On the 10th trading day after each of July 8, 1999, October 6, 1999 and February 13, 2000, the holders of the Series A Preferred Stock are entitled to receive the number of Shares of Common Stock equal to one-third of the purchase price for their Series A Preferred Stock times the difference between the 10 day average closing price of the Common Stock and $12.096, divided by the ten day trading average. For example, if for the ten day trading period beginning July 8, 1999 our Common Stock trades at $10 per share, the holders of the Series A Preferred Stock would receive 43,667 additional shares of Common Stock ([$12.096-$10.00] x [$6,300,000 / 3] / 10). The Series A Preferred Stockholders also receive additional shares of Common Stock under certain other limited conditions, including if the Securities and Exchange Commission places a stop order on this registration statement. We believe our Board of Directors' authority to set the terms of, and our ability to issue, additional shares of preferred stock will provide flexibility in connection with possible financing transactions in the future. The issuance of additional preferred stock, however, could adversely affect the voting power of holders of Common Stock, and the likelihood that the holders will receive dividend payments and payments upon liquidation and could have the effect of delaying, deferring or preventing a change in our control. However, we do not presently have any plan to issue any additional shares of preferred stock. Warrants. When we sold the Series A Preferred Stock to investors in February and March, we also issued warrants (the "Warrants")to acquire shares of our Common Stock. The Warrants were issued in three series Series A and Series B, which the investors in the Series A Preferred Stock acquired, and Series C, which we issued to a third party as a finder's fee for the transaction. The Series A Warrants allow their holders to purchase up to an aggregate of 71,069 shares of Common Stock at an approximate weighted average exercise price of $33.93 per share (125% of the closing bid price for our Common Stock on the day prior to the closing of the Purchase agreement (the "Closing Price")) at any time through the fifth anniversary of the closing of the Purchase Agreement (the "Warrant Expiration Date"). The Series B Warrants allow their holders to purchase up to an aggregate of 47,380 shares of Common Stock at an approximate weighted average exercise price of $40.71 (equal to 150% of the Closing Price) at any time through the Warrant Expiration Date. The Series C Warrants allow its holder to purchase up to 189,000 shares of Common Stock at an approximate weighted average exercise price equal to $28.25 per share (105% of the Closing Price) at any time through the Warrant Expiration Date. If the holders exercise all of the Warrants, we would receive a total of $9,591,960. We have also entered into an agreement with a third party that is providing investor relations services to us. Under the agreement, we will grant that party warrants to acquire up to 200,000 shares of our Common Stock at $5 per share. As of March 31, 1999, that party has earned warrants to purchase 50,000 shares. 33 Registrations Rights. We have granted contractual registration rights to the holders of the Series A Preferred Stock. Those persons are part of the Selling Stockholders. The registration rights we granted those Selling Stockholders are as follows: (i) the "registerable securities" covered by the rights include any of our shares of capital stock which are acquired on exercise of the Warrants or the conversion of the Series A Preferred Stock. A particular security is no longer a "registerable security" if it has been registered under a registration statement filed under the Securities Act and disposed of pursuant to the registration statement, the registration statement under the Securities Act is no longer required for the immediate public distribution of that security as a result of the application of the provisions of Rule 144 under that act, or the security in question ceases to be outstanding. "Registerable Securities" also includes all securities acquired as a result of stock splits, stock dividends, reclassifications, recapitalizations or similar events relating to those securities. (ii) Subject to certain limitations, we were obligated to prepare and file with the Securities and Exchange Commission, on or before April 30, 1999, a registration statement (under the Securities Act) in order to permit a public offering sale of the registerable securities under the Securities Act. The holders of the Series A Preferred Stock waived the deadline for the filing of the registration statement from April 30, 1999 through the date hereof. We are also obligated to use our best efforts to cause a registration statement to become effective on or before June 30, 1999. This Prospectus is a part of the registration statement contemplated by the registration rights. (iii) We are required to maintain the registration statement, or a post-effective amendment, until the earlier the date of all the registerable securities have been sold pursuant to the registration statement, the date the holders of those share receive an opinion of counsel that the registerable securities may be sold under the provisions of Rule 144 without limitation, or five years after the date the holders of the Series A Preferred Stock first subscribed for their shares. (iv) We are obligated to pay all fees, disbursements and out-of-pocket expenses and costs connected with the preparation and filing of the registration statement and complying with applicable securities and Blue Sky Laws (including, without limitation, attorneys fees). The holder of the shares subject to the registration statement are obligated to bear the costs, pro rata, of any underwriting discounts and commissions, if any, applicable to the registered securities being registerable, as well as the fees of their own counsel. (v) If this registration statement was not filed with the Securities Exchange Commission on or before April 30, 1999, or is not declared effective by the Securities and Exchange Commission on or before June 30, 1999 we are obligated to pay the holders of the Series A Preferred Stock, as liquidated damages for that failure (and not as a penalty), 2% of the purchase price of the then outstanding shares of Series A Preferred Stock for each thirty calendar day period until the registration statement is filed and/or declared effective. We would be required to pay the liquidate damages in cash. We have also granted registration rights to Messers. Lunt, Johnston and Bell under the terms of their employment contracts. Those rights include both demand and "piggyback" rights. Anti-Takeover Effective Nevada Law In Certain Provisions. Nevada law provides that any agreement providing for the merger, consolidation or sale of all or substantially all of the assets of a corporation be approved by the owners of at least the majority of the outstanding shares of that corporation, unless a different vote is provided for in our Article of Incorporation. Our Articles of Incorporation do not provide for a super-majority voting requirement in order to approve any such transactions. Nevada law also gives appraisal rights for certain types of mergers, plans of reorganization, or exchanges or sales of all or substantially all of the assets of a corporation. Under Nevada law, a stockholder does not have the right to dissent with respect to (a) a sale of assets or reorganization, or (b) any plan of merger or any plan of exchange, if (i) the shares held by the stockholder are part of a class of shares which are listed on a national securities exchange or the NASDAQ National Market Systems, or are held of record by not less than 2,000 shareholders and (ii) the stockholder is not required to accept for his shares any consideration other than shares of a corporation that, immediately after the effective time of the 34 merger or exchange, will be part of a class of shares which are listed on a national securities exchange or the NASDAQ National Market System, or are held of record by not less than 2,000 holders. The Nevada Private Corporation Law also has three provisions designed to deter take-over attempts: Control Share Acquisition Provision. Under Nevada law, when a person has acquired or offers to acquire one-fifth, one-third or a majority of the stock of a corporation, stockholders meeting must be held after delivery of an "offerors" statement, at the offerors expense, so that the stockholders of the corporation can vote on whether the shares proposed to be acquired (the "control shares") can exercise voting rights. Except as otherwise provided in a corporation's Articles of Incorporation, the approval of the majority of the outstanding stock not held by the offerors is required so that the stock held by the offerors will have voting rights. The control share acquisition provisions are applicable to any acquisition of a controlling interest, unless the Articles of Incorporation or by-laws of a corporation in effect on the tenth day following the acquisition of a controlling interest by an acquiring person provides that the control share acquisition provisions do not apply. We have has not elected out of the control share acquisition provisions of Nevada law. Combination Moratorium Provision. Nevada law provides that a corporation may not engage in any "combinations," which is broadly defined to include mergers, sales and leases of assets, issuances of securities and similar transactions with an "interested stockholder" (which is defined as the beneficial owner of 10% or more of the voting power of the corporation) and certain affiliates of their associates for three years after an interested stockholder's date of acquiring the shares, unless the combination or the purchase of the shares by the interested stockholder is first approved by the Board of Directors. After the initial three-year period, any combination must still be approved by majority of the voting power not beneficially owned by the interested stockholder or the interested stockholders affiliates or associates, unless the aggregate amount of cash and the market value of the consideration other than cash that could be received by stockholders as a result of the combination is at least equal to the highest of: (a) the highest bid per share of each class or series of shares, including the common shares, on the date of the announcement of the combination or on the date the interested stockholder acquired the shares; or (b) for holders of preferred stock, the highest liquidation value of the preferred sock. Other Provisions. Under Nevada law, the selection of a period for achieving corporate goals is the responsibility of the directors. In addition, the directors and officers, in exercising their respective powers with a view to the interest of the corporation, may consider (i) the interest of the corporations employees, suppliers, creditors and customers, (ii) the economy of the state and the nation, (iii) the interest of the economy and of society and (iv) the long-term, as well as short-term, interests of the corporation and its stockholders, including the possibility that those interests may be best served by the continued independence of the corporation. The directors may also resist any change or potential change of control of the corporation if the directors, by majority vote of a quorum, determine that a change or potential change is opposed to or not in the best interest of the corporation "upon consideration of the interest of the corporations stockholders," or for one of the other reasons described above. The directors may also take action to protect the interests of the corporation' stockholders by adopting or executing plans that deny rights, privileges, powers or authority to a holder of a specific number of shares or percentage of share ownership or voting power. COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Pursuant to Nevada Revised Statutes Section 78.7502 and 78.751, our Articles of Incorporation and bylaws provide for the indemnification of our officers and directors. Mandatory indemnification is required for present and former directors. However, the director must have conducted himself in good faith and reasonably believed that his conduct was in, or not opposed to, our best interests. In a criminal action he must not have had a reasonable cause to believe his conduct was unlawful. Advances for expenses may be made if the director affirms in writing that he believes he has met the standards and that he will personally repay the expense if it is determined he did not meet the standards. We provide permissive indemnification for officers, employees or agents. Our Board must approve such indemnification and the standards and limitations are the same as for a director. 35 We will not indemnify a director or officer adjudged liable due to his negligence or willful misconduct toward us, adjudged liable to us, or if he improperly received personal benefit. Indemnification in a derivative action is limited to reasonable expenses incurred in connection with the proceeding. Also, we are is authorized to purchase insurance on behalf of an individual for liabilities incurred whether or not we would have the power or obligation to indemnify him pursuant to our bylaws. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, or officers or persons controlling us pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. 36 INDEX TO FINANCIAL STATEMENTS WORDCRUNCHER INTERNET TECHNOLOGIES, INC. Audited Financial Statements: Page Auditor's Report............................................. F-1 Balance Sheets at December 31, 1998 and 1997................. F-2 Statements of Operations for Years Ended December 31, 1998 and 1997........................... F-4 Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1998 and 1997....... F-5 Statements of Cash Flows for the Years Ended December 31, 1998 and 1997........................... F-7 Notes to Financial Statements ............................... F-8 Interim Financial Statements (Unaudited): Balance Sheets at March 31, 1999............................. F-17 Statement of Operations for the Three Months Ended March 31, 1999................................... F-19 [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 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. as of December 31, 1998 and 1997 and the related statements of operations, stockholders' equity and cash flows for the years 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 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. as of December 31, 1998 and 1997 and the results of its consolidated operations and cash flows for the years then ended in conformity with generally accepted accounting principles. Salt Lake City, Utah January 21, 1999 F-1 WordCruncher Internet Technologies, Inc. Consolidated Balance Sheets ASSETS December 31, 1998 1997 -------------- --------------- CURRENT ASSETS Cash & Cash Equivalents (Note 1) $ 425,702 $ 10,369 Notes receivable-current portion (Note 3) - 5,000 -------------- --------------- Total Current Assets 425,702 15,369 -------------- --------------- PROPERTY & EQUIPMENT (Note 2) 81,419 44,682 -------------- --------------- OTHER ASSETS Organization Costs (Note 1) 1,202 - Notes receivable-related party (Note 3) long-term portion 100,200 77,000 Interest receivable-long term 10,018 2,877 Deposits 5,076 - -------------- --------------- Total Other Assets 116,496 79,877 -------------- --------------- TOTAL ASSETS $ 623,617 $ 139,928 ============== =============== F-2 The accompanying notes are an integral part of these financial statements. WordCruncher Internet Technologies, Inc. Consolidated Balance Sheets continued LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 1998 1997 --------------- --------------- CURRENT LIABILITIES Accounts payable $ 10,421 $ 1,170 Accrued expenses 23,752 2,960 Accrued Interest 740 2,469 Current portion of long-term liabilities (Note 4) 136,006 314,708 -------------- --------------- Total Current Liabilities 170,919 321,307 -------------- --------------- LONG TERM LIABILITIES (Note 4) Notes payable-related party 120,000 300,000 Capital lease obligations 27,620 42,272 Less current portion (136,006) (314,708) -------------- --------------- Total long term Liabilities 11,617 27,564 -------------- --------------- TOTAL LIABILITIES 182,533 348,871 -------------- --------------- STOCKHOLDERS' EQUITY Common stock, authorized 60,000,000 shares of $.001 par value, issued and outstanding 11,877,002 and 363,689 shares, respectively 11,877 1,091 Additional Paid-in capital 1,247,334 125,184 Retained earnings (818,127) (335,218) -------------- --------------- Total Stockholders' Equity 441,084 (208,943) -------------- --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 623,617 $ 139,928 ============== =============== The accompanying notes are an integral part of these financial statements. F-3 WordCruncher Internet Technologies, Inc. Consolidated Statements of Operations For the Year Ended December 31 1998 1997 ------------ ------------ REVENUES $ 82,678 $ 24,484 COST OF SALES 15,864 806 GROSS PROFIT 66,814 23,678 SELLING EXPENSES - 5,274 GENERAL & ADMINISTRATIVE EXPENSES 528,841 339,574 ------------ ------------ TOTAL OPERATING EXPENSES 528,841 344,848 OPERATING LOSS (462,027) (321,170) OTHER INCOME AND (EXPENSES) Interest income 7,276 2,877 Miscellaneous income - 200 Interest expense (28,158) (17,125) ------------ ------------ Total Other Income and (Expenses) (20,882) (14,048) LOSS BEFORE INCOME TAXES (482,909) (335,218) PROVISION FOR INCOME TAXES (Note 1) ------------ ------------ NET LOSS $ (482,909) $ (335,218) ============ ============ NET LOSS PER SHARE $ (.08) $ (.61) ============ ============ WEIGHTED AVERAGE OUTSTANDING SHARES 6,100,679 545,535 ============ ============ The accompanying notes are an integral part of these financial statements. F-4 WordCrunchers Internet Technologies, Inc. Consolidated Statements of Stockholders' Equity From Inception on November 5, 1996 through December 31, 1998
Additional Retained Common Stock Paid-in Earnings Shares Amount Capital (Deficit) -------------- --------- ------------ ------------ Balance at inception-November 5, 1996 - $ - $ - $ - January 97 - Issuance of stock for cash to organizers at $.001 per share 622,500 623 52 - February 97 - Issuance of stock for cash at $.001 per share 67,500 57 8 - February 97 - Issuance of stock for license agreement 110,742 111 (111) - September 1997 - Issuance of stock to employees for services at $.33 per share 252,450 252 83,898 - August 1997 - Issuance of stock for services performed at $1.09 per share 37,875 38 41,337 - Net loss for the year ended December 31, 1997 - - - (335,218) -------------- --------- ------------ ------------ Balance on December 31, 1997 1,091,067 1,091 125,184 (335,218) July 1998 - Issuance of stock for cash at $4.17 per share 120,000 120 449,880 - July 98 - Reverse acquisition and reorganization adjustment 9,885,435 9,886 (8,550) - July 98 - Stock issued for cash at $.725 per share 690,000 690 499,310 - July 98 - Stock issued for debt conversion at $.96 per share 13,500 13 12,987 - October 98 - Shares issued for services at $1.80 per share 39,000 39 70,161 -
F-5
WordCruncher Internet Technologies, Inc. October 98 - Shares issued for software technology at $1.80 per share 13,000 13 23,387 - November 98 - Shares issued for insurance coverage at $1.0 per share 25,000 25 24,975 - Net Loss for the year ended December 31, 1998 - - - (482,909) -------------- --------- ------------ ------------- Balance on December 31, 1998 11,887,002 $ 11,877 $1,247,334 $ (818,127) ============== ========= ============ =============
The accompanying notes are an integral part of these financial statements. F-6 WordCruncher Internet Technologies, Inc. Consolidated Statements of Cash Flows December 31, 1998 1997 --------------- ---------------- Cash Flows From Operating Activities Net income (loss) $ (482,909) $ (335,218) Non-cash items: Depreciation & amortization 10,406 6,419 Stock issued for services 95,200 125,525 (Increase)/decrease in current assets: Interest receivable (7,141) (2,877) Increase/(decrease) in current liabilities: Accounts payable 4,251 1,170 Accrued expenses 19,063 5,429 --------------- --------------- Net Cash Provided (Used) by Operating Activities (361,130) (199,552) --------------- ---------------- Cash Flows from Investing Activities Cash paid for property, equipment and software technology (18,627) - Cash received on notes receivables 5,000 - Cash advanced on notes receivable (23,200) (82,000) Cash paid for deposits (5,076) - --------------- ---------------- Net Cash Provided (Used) by Investing Activities (41,903) (82,000) --------------- ---------------- Cash Flows from Financing Activities Cash received from stock issuance 1,000,000 750 Cash received from debt financing 13,000 300,000 Principal payments on long-term debt (194,634) (8,829) --------------- ---------------- Net Cash Provided (Used) by Financing Activities 818,366 291,921 --------------- ---------------- Increase/(decrease) in Cash 415,333 10,369 Cash and Cash Equivalents at Beginning of Period 10,369 - --------------- ---------------- Cash and Cash Equivalents at End of Period $ 425,702 $ 10,369 =============== ================ F-7 WordCruncher Internet Technologies, Inc. Supplemental Cash Flow Information: Cash paid for interest $ 29,888 $ 14,656 Cash paid for income taxes $ - $ - Non-cash financing transaction: Purchase of equipment with lease obligations $ - $ 51,190 The accompanying notes are an integral part of these financial statements. F-8 WordCruncher Internet Technologies, Inc. Notes to the Consolidated Financial Statements. December 31, 1998 and 1997 NOTE 1 - Summary of Significant Accounting Policies a. Organization 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 has essentially no assets and liabilities, and management of Dunamis has resigned and management of the Company now manages the consolidated entity. The merger will be recorded as a reverse acquisition, therefore WordCruncher will be the accounting survivor. In connection with the merger, the Company changed it's 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 marketing of a search engine software product. 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. b. Recognition of Revenue The Company recognizes income and expense on the accrual basis of accounting. c. Earnings (Loss) Per Share The computation of earnings per share of common stock is based on the weighted average number of shares outstanding at the date of the financial statements. d. Provision for 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 does not pay corporate income taxes on its taxable income during that period of time. Instead, the stockholders are 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 will file a consolidated return with it's parent and will lose it's S-Corp status. F-9 NOTE 1 - Summary of Significant Accounting Policies (Continued) No provision for income taxes has been recorded due to net operating loss carry forwards totaling approximately $460,000 that will be offset against future taxable income. These NOL carry forwards begin to expire in 2013. No tax benefit has been reported in the financial statements because the Company has not yet proven it can generate taxable income. d Provision for Income Taxes (continued) Deferred tax assets and the valuation account is as follows at December 31, 1998 and 1997: 1998 1997 ---------------- ------------------ Deferred tax asset: NOL carry forward $ 156,400 $ - Valuation allowance (156,400) - ---------------- ------------------ Total $ - $ - ================ ================== e. Cash and Cash Equivalents The company considers all highly liquid investments with maturities of three months or less to be cash equivalents. f. Property and Equipment Expenditures for property and equipment and for renewals and betterments, which extend the originally estimated economic life of assets or convert the assets to a new use, are capitalized at cost. Expenditures for maintenance, repairs and other renewals of items are charged to expense. When items are disposed of, the cost and accumulated depreciation are eliminated from the accounts, and any gain or loss is included in the results of operations. The provision for depreciation is calculated using the straight- line method over the estimated useful lives of the assets. Depreciation expense for the period ended December 31, 1998 and 1997 is $10,272 and $6,419, respectively. g. Stock Split & 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 changed to $.001. This change has also been retroactively applied. NOTE 2 - Property & Equipment F-10 Property and equipment consists of the following at December 31, 1998 and 1997: 1998 1997 ------------------ ----------------- Computer equipment $ 8,609 $ - Leased computer equipment 45,743 45,743 Leased furniture equipment 5,358 5,358 Software technology 38,400 - ------------------ ----------------- 98,110 51,101 Less: Accumulated depreciation - equipment 358 - Accumulated depreciation - leased equipment (16,333) (6,419) ------------------ ---------------- Total Property & Equipment $ 81,419 $ 44,682 ================== ================ NOTE 3 - Notes Receivable - Related Party The Company loaned money to several officers/shareholders of the Company. Notes receivable at December 31, 1998 and 1997 consist of the following: December 31, 1998 1997 --------- ----------- Note receivable from James Johnston, an officer, interest rate of 8%, interest and principle due January 1, 2000. 66,700 56,250 Note receivable from Kenneth Bell, an officer, bears interest at 8%, principle and interest due January 1, 2000. 29,500 20,750 Note receivable from a corporation owned by Dan Lunt, an officer, bears interest at 8% principal and interest due January 1, 2000 4,000 5,000 ---------- ---------- Total 100,200 82,000 Less current portion - 5,000 ---------- ---------- Notes receivable - long term $ 100,200 $ 77,000 ========== ========== NOTE 4 - Long-Term Liabilities Long Term Liabilities are detailed in the following schedules as of December 31, 1998 and 1997: F-11 Notes payable related party is detailed as follows: December 31 1998 1997 ---------- ----------- Note payable to three officers of the Company, bears interest of prime +1 1/2%, with principal due October 1998, unsecured note $ 120,000 $ 300,000 ---------- ----------- Total notes payable - related party 120,000 300,000 ---------- ----------- Capital lease obligations are detailed in the following schedule as of and December 31, 1998 and 1997: Capital lease obligation to a corporation for computer equipment, lease payments due monthly of $234 through December 2001, bears interest at 14%, secured by computer equipment. $ 6,818 $ 8,386 Capital lease obligation to a corporation for computer equipment and furniture, lease payments due monthly of $436 through April 2000, bears interest at 11%, secured by equipment. 6,946 11,467 Capital lease obligation to a corporation for equipment, lease payments due monthly of $499 through April 2000, bears interest at 11.5%, secured by equipment. 7,786 12,569 Capital lease obligation to a corporation for computer equipment, lease payments due monthly of $369 through June 2000, bears interest at 11.5%, secured by computer equipment. 6,070 9,850 ----------- ----------- Total Lease Obligations 27,620 42,272 ----------- ----------- Total long term liabilities 147,620 342,272 ----------- ----------- NOTE 4 - Long-Term Liabilities (Continued) 1998 1997 ----------- ----------- Less current portion of: Notes payable - related party 120,000 300,000 Capital lease obligations 16,006 14,708 ----------- ----------- Total current portion 136,006 314,708 ----------- ----------- F-12 Net Long Term Liabilities $ 11,614 $ 27,564 =========== =========== Future minimum principal payments on notes payable related party are as follows: 1999 $ 120,000 -------------- Total notes payable-related party $ 120,000 ============== Future minimum lease payments are as follows at December 31, 1998: 1999 18,456 2000 9,758 2001 2,806 --------------- 31,020 Less portion representing interest (3,400) --------------- Total $ 27,620 =============== NOTE 5 - Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. In these financial statements, fixed assets involve reliance on management's estimates. Actual results could differ from those estimates. NOTE 6 - Commitments and Contingencies The Company is committed for their office facilities. Monthly lease payments are due of $3,744 for a 38 month period. F-13 NOTE 6 - Commitments and Contingencies (Continued) Future minimum lease payments are as follows at December 31, 1998: 1999 44,928 2000 44,928 2001 44,928 2002 7,488 -------- 142,272 As part of the license agreement described in Note 7, the Company is committed to minimum royalty payments as follows: 1999 $ 20,000 2000 50,000 2001 100,000 2002 and thereafter 150,000 These minimum royalties are due as long as the license agreement is in effect. The Company has committed to Employment agreements to three officers of the Company. The agreements commenced in September 1998 and end in August 2001. Monthly installments on the agreements total $25,500. NOTE 7 - Licenses On February 14, 1998, the Company signed an exclusive license agreement with Brigham Young University, a Utah non-profit 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 lease is as long as allowed by law. The agreement calls for license fees and royalties of 3% of adjusted gross sales. Annual minimum royalties begin for the calendar year 1999 and are due the quarter following the year end, as specified in Note 6. The Company acquired the license through stock issuance, and is required to maintain BYU's equity interest of 10%. NOTE 8 - Related Party Transactions James Johnston, Kenneth Bell and Dan Lunt, officers and shareholders of the Company, borrowed $300,000 from a bank and loaned the funds to the Company. At December 31, 1998 and 1997, $120,000 and $300,000 was outstanding, respectively. Also in May 1998, Dan Lunt loaned the Company $13,000, which was paid by December 31, 1998. F-14 NOTE 8 - Related Party Transactions (Continued) The Company has advanced funds to James Johnston in the amount of $66,700 and 56,250 at December 31, 1998 and 1997, respectively. Advances have also been made to Kenneth Bell of $29,500 and 20,750 at December 31, 1998 and 1997, respectively. The Company loaned $14,000 to a Company owned by Dan Lunt during the year. $5,000 was repaid , $5,000 was offset against advertising costs incurred by Mr. Lunt, with $4,000 due at December 31, 1998. NOTE 9 - Subsequent Events On January 19, 1999 the Board of Directors organized a Series A Preferred Stock with 15,000 shares authorized. The preferred stock has a stated value of $1,000, a cumulative dividend of 6% and is convertible into shares of common stock. In February, the Company issued 6,100 shares of its preferred series A for proceeds of $6,100,000. F-15 WORDCRUNCHER INTERNET TECHNOLOGIES, INC. FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED) F-16 WordCruncher Internet Technologies, Inc. Balance Sheet As of March 31, 1999 Mar 31, 1999 ---------------- ASSETS Current Assets Checking/Savings Checking - First Security 9,210.85 Investments 5,736,456.63 Cash 11.40 ---------------- Total Checking/Savings 5,745,678.88 Accounts Receivable Accounts Receivable 589.00 ---------------- Total Accounts Receivable 589.00 Other Current Assets Interest Receivable 10,017.57 Note Receivable 12,500.00 Prepaid Deposits 5,075.71 Software Development 38,400.00 Organization 1,135.30 ---------------- Total Other Current Assets 67,128.58 ---------------- Total Current Assets 5,813,396.46 Fixed Assets Computer Equipment 270,880.94 Furniture & Fixtures 38,190.07 ---------------- Total Fixed Assets 309,071.01 ---------------- TOTAL ASSETS 6,122,467.47 ================ LIABILITIES & EQUITY Liabilities Current Liabilities Accounts Payable Accounts Payable 49,086.88 ---------------- Total Accounts Payable 49,086.88 Other Current Liabilities Payroll Liabilities 43,220.64 Accrued Interest 740.00 Accrued Preferred Dividend 54,416.79 ----------------- Total Other Current Liabilities 98,377.43 ----------------- F-17 Total Current Liabilities 147,464.31 Long Term Liabilities Leases Payable 23,213.39 ----------------- Total Long Term Liabilities 23,213.39 ----------------- Total Liabilities 170,677.70 Equity Opening Balance Equity 50.63 Common Stock 11,877.00 Preferred Stock 63.00 Additional Paid-in Capital 7,155,171.00 Retained Earnings (818,127.21) Net Income (397,244.65) ----------------- Total Equity 5,951,789.77 ----------------- TOTAL LIABILITIES & EQUITY 6,122,467.47 ================= F-18 WordCruncher Internet Technologies, Inc. Profit and Loss January through March 1999 Jan-Mar '99 ----------------- Ordinary Income/Expense Income Licensing Fees $ 7,562.09 Retail Sales 2,534.61 ----------------- Total Income 10,096.70 Cost of Goods Sold, Materials 120.00 Shipping 102.30 Advertising & Promotion 12,642.50 Royalties 9,848.90 ---------------- Total COGS 22,713.70 ----------------- Gross Profit (12,617.00) Expense Amortization 66.70 Bank Service Charges 287.19 Consulting Services 32,294.57 Depreciation Expense 15,110.49 Dues and Subscriptions 1,659.89 Equipment Leasing 58.48 58.48 Finance Charges 42.01 Insurance Medical 11,414.27 -------------- Total Insurance 11,414.27 Interest Expense 3,017.54 Internet Services 2,355.40 Licenses and Permits 181.00 Office Expenses 2,375.05 Postage and Delivery 1,305.20 Printing and Reproduction 583.47 Preferred Dividend Expense 54,416.79 Professional Fees Legal 467.28 Accounting & Audit 1,955.83 Consulting 625.00 Referral 35,700.00 --------------- Total Professional Fees 38,748.11 Rent Rental Fees 6,466.57 F-19 CAM Fees 1,997.00 --------------- Total Rent 8,463.57 Repairs Computer Repairs 106.25 ---------------- Total Repairs 106.25 Salaries & Wages Officers 76,500.00 Management 46,875.00 Development 54,116.66 Support 3,600.00 Marketing 19,017.45 ---------------- Total Salaries & Wages 200,109.11 Software 206.00 Taxes Payroll 16,572.73 Property 58.26 ---------------- Total Taxes 16,630.99 Telephone 5,324.62 Travel & Entertainment Travel 14,715.50 Entertainment 1,150.67 --------------- Total Travel & Entertainment 15,866.17 Utilities 191.29 ----------------- Total Expense 410,814.16 ----------------- Net Ordinary Income (423,431.16) Other Income/Expense Other Income Interest Income 18,323.22 Dividend Income 7,863.29 ----------------- Total Other Income 26,186.51 ----------------- Net Other Income 26,186.51 ----------------- Net Income (397,244.65) ================= F-20 We have not authorized any dealer, salesperson or other person to give any information or represent anything not contained in this Prospectus. 2,693,137 SHARES You must not rely on any unauthorized information. This Prospectus does not offer WORDCRUNCHER INTERNET to sell or buy any shares in any TECHNOLOGIES, INC. jurisdiction where it is unlawful. The information in PROSPECTUS this Prospectus is current only as of its date. May 28, 1999 TABLE OF CONTENTS ON PAGE 2 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS Item 13. Other Expenses Of Issuance And Distribution The following table sets forth the expenses payable by us in connection with the sale of the Shares. All the amounts shown are estimates except for the registration fee: Securities and Exchange Commission Registration Fee......$ 3,837 National Market Listing Fee.............................. ____ Printing and Engraving Expenses.......................... 10,000 Legal and Accounting Fees and Expenses .................. 50,000 Blue Sky Qualification Fees and Expenses................ 15,000 Transfer Agent and Registrar Fees and Expenses.......... 3,000 Miscellaneous .......................................... 1,500 -------- Total $ 83,337 Item 14. Indemnification of Directors and Officers Pursuant to Nevada Revised Statutes Section 78.7502 and 78.751, our Articles of Incorporation and bylaws provide for the indemnification of our officers and directors. Mandatory indemnification is required for present and former directors. However, the director must have conducted himself in good faith and reasonably believed that his conduct was in, or not opposed to, our best interests. In a criminal action he must not have had a reasonable cause to believe his conduct was unlawful. Advances for expenses may be made if the director affirms in writing that he believes he has met the standards and that he will personally repay the expense if it is determined he did not meet the standards. We provide permissive indemnification for officers, employees or agents. Our Board must approve such indemnification and the standards and limitations are the same as for a director. We will not indemnify a director or officer adjudged liable due to his negligence or willful misconduct toward us, adjudged liable to us, or if he improperly received personal benefit. Indemnification in a derivative action is limited to reasonable expenses incurred in connection with the proceeding. Also, we are authorized to purchase insurance on behalf of an individual for liabilities incurred whether or not we would have the power or obligation to indemnify him pursuant to our bylaws. Item 15. Recent Sales of Unregistered Securities 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 Common Stock for $1,500 in cash to Carol N. Purcell and Wilford Purcell, the founders of Dumanis, Inc. Beginning on May 15 and ending on June 11, 1997 we sold 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 $12,960, 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. On December 29, 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 $35,000. 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 February 8 and March 15, 1999, we II-1 issued an aggregate of 6,300 shares of Series A Preferred Stock to eight persons pursuant to the Purchase Agreement. The Series A Preferred Stock was issued for an aggregate of $6.3 million. 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 Sections 3(b) and 4(2) of the Securities Act, and the rules and regulations promulgated thereunder. Item 16. Exhibits and Financial Statement Schedules (a) 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 5.1* Opinion of Parsons Behle & Latimer 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 II-2 Exhibit Number Description - -------------- ------------ 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 11.11 Statement re computation of earnings per share 23.1 Consent of Parsons Behle & Latimer 23.2 Consent of Crouch, Bierwolf & Chisholm 24.1 Power of Attorney (see signature page) 27.1 Financial Data Schedule - ------------------------ * To be filed by amendment Item 17. Undertakings Pursuant to Rule 415, the undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 242(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement: (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Salt Lake, State of Utah, on May 28, 1999. WORDCRUNCHER INTERNET TECHNOLOGIES, INC. a Nevada Corporation By: /s/ M. Daniel Lunt -------------------------------------------- M. Daniel Lunt President, Chief Executive Officer, Director POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints M. Daniel Lunt and Kenneth W. Bell, and each of them, his attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him in any and all capacities, to sign any and all amendments (including posteffective amendments) to this Registration Statement, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully as to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated. By: /s/ James W. Johnston ------------------------------- Date: April 29, 1999 James W. Johnston Chairman of the Board, Executive Vice President By: /s/ Kenneth W. Bell --------------------------------- Date: April 29, 1999 Kenneth W. Bell Senior Vice President, Chief Financial Officer, Treasurer, Secretary, Director By: /s/ M. Daniel Lunt -------------------------------- Date: April 29, 1999 M. Daniel Lunt President, Chief Executive Officer, Director II-4 EX-2 2 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION ("Plan") is made this 14th day of July, 1998, among Altmount Holdings, Inc., a Nevada corporation ("AHI"); WordCruncher Publishing Technologies, Inc., a Utah corporation, any and all of its subsidiaries and fictitious names (hereinafter collectively referred to as "WordCruncher") and its shareholders (hereinafter "Shareholders"). AHI wishes to acquire one hundred percent (100%) of the issued and outstanding stock of WordCruncher for and in exchange for stock of AHI, in a stock for stock transaction intending to qualify as a tax-free exchange pursuant to Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. The parties intend for this Plan to represent the terms and conditions of such tax-free reorganization, which Plan the parties hereby adopt. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, IT IS AGREED: Section 1 Terms of Exchange 1.1 Number of Shares. At the closing provided for in Section 2 (the "Closing") the holders of all the issued and outstanding stock of WordCruncher agree to assign, transfer, and deliver to AHI all of their shares of WordCruncher stock, free and clear of all liens, pledges, encumbrances, charges, restrictions or known claims of any kind, nature or description. AHI agrees to acquire such shares thereof, by issuing and delivering in exchange solely common shares of AHI's stock, par value $0.001, in the aggregate of two million four hundred thirty three thousand three hundred thirty four (2,433,334) shares. Such 2,433,334 shares shall represent a minimum of 55% of all the outstanding and fully diluted shares of AHI. Upon transfer of one hundred percent (100%) of WordCruncher's issued and outstanding shares, WordCruncher shareholders shall be entitled to receive a certificate(s) evidencing shares of the exchanged AHI stock as provided by the exchange. The transaction contemplated herein shall be contingent upon the availability of an exemption from the registration provisions of Section 5 of the Securities Act of 1933 and any applicable state securities laws. Upon consummation of the transaction contemplated, AHI shall merge with WordCruncher and AHI shall become the surviving corporation. 1.2 Escrow. In order to facilitate the transactions contemplated herein, simultaneous with the execution hereof, AHI and the Shareholders of WordCruncher shall execute the Escrow Agreement attached hereto as Exhibit A (the "Escrow Agreement") and deposit the Shares as set forth in Section 1.1 hereof with the Escrow Depository, as such term is defined in the Escrow Agreement. 1.3 Anti-Dilution. For all relevant purposes of this Plan, the number of AHI shares to be issued and delivered pursuant to this Plan shall be appropriately adjusted to take into account any stock split, stock dividend, reverse stock split, recapitalization, or similar change in AHI common stock, which may occur between the date of the execution of this Plan and the date of the delivery of such shares. 1.4 Delivery of Certificates. The Shareholders shall transfer to AHI at the Closing the shares of common stock of WordCruncher listed opposite their respective names on Exhibit B and Exhibit C hereto (the "WordCruncher Shares") in exchange for an aggregate of 2,433,334 shares of the common stock of AHI (the "AHI Stock"). 1,833,334 shares of AHI stock shall be issued at the Closing to the Shareholders, in the numbers shown opposite their respective names in Exhibit B. 600,000 shares of AHI stock shall be issued on November 16, 1998 to the Shareholders, in the numbers shown opposite their respective names in Exhibit C. The transfer of WordCruncher shares by the Shareholders shall be effected by the delivery to AHI at the Closing of certificates representing the transferred shares endorsed in blank or accompanied by stock powers executed in blank, with all signatures guaranteed by a national bank and with all necessary transfer taxes and other revenue stamps affixed and acquired at the Shareholders' expense. The Shareholders' stock listed in Exhibit C shall also be transferred at the Closing and shall be held in escrow until November 16, 1998. 1.5 Further Assurances. AHI and WordCruncher shall not authorize or issue shares, other than those called for by this Plan, prior to the Closing. Subsequent to the execution hereof, and from time to time thereafter, all parties to this plan shall execute such additional instruments and take such other action as reasonably necessary to more effectively sell, transfer and assign clear title and ownership in the WordCruncher and AHI shares. Section 2 Closing 2.1 Closing. The Closing contemplated by Section 1.3 shall be held at the law offices of Daniel W. Jackson, Esq. on or before July 31, 1998 or at such other time or place as may be mutually agreed upon in writing by the parties. The Closing may also be accomplished by wire, express mail or other courier service, conference telephone communications or as otherwise agreed by the respective parties or their duly authorized representatives. In any event, the closing of the transactions contemplated by this Plan shall be effected as soon as practicable after all of the conditions contained herein have been satisfied. 2.2 Closing Events. At the Closing, each of the respective parties hereto shall execute, acknowledge and deliver (or shall cause to be executed, acknowledged, and delivered) any agreements, resolutions, rulings, or other instruments required by this Plan to be so delivered at or prior to Closing, together with such other items as may be reasonably requested by the parties hereto and their respective legal counsel in order to effectuate or evidence the transaction contemplated hereby. 2.3 Officers and Directors. At the Closing, the Board of Directors of AHI will adopt a resolution to change the officers and directors of AHI as follows: M. Daniel Lunt President, CEO and Director James W. Johnston Executive Vice President and Chairman of the Board of Directors Kenneth W. Bell Senior Vice President, Secretary, Treasurer and Director James S. Roberts Director 2.4 Name of the Corporation. At the Closing, the Board of Directors of AHI will adopt a resolution to change the name of AHI to WordCruncher Internet Technologies, Inc. 2.5 Mediation Arbitration. If a dispute arises out of or relates to this Plan, or the breach thereof, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation under the Commercial Mediation Rules of the American Arbitration Association, before resorting to arbitration. Thereafter, any unresolved controversy or claim arising out of or relating this Plan, or breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the Award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Section 3 Representations, Warranties and Covenants of AHI AHI represents and warrants to, and covenants with, the Shareholders and WordCruncher as follows: 3.1 Corporate Status. AHI is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. AHI has full corporate power and is duly authorized, qualified, franchised, and licensed under all applicable laws, regulations, ordinances, and orders of public authorities to own all of its properties and assets and to carry on its business on all material respects as it is now being conducted, and there is no jurisdiction in which the character and location of the assets owned by it, or the nature of the business transacted by it, requires qualification. Included in the AHI schedules (defined below) are complete and correct copies of its Articles of Incorporation and Bylaws as in effect on the date hereof. The execution and delivery of this Plan does not, and the consummation of the transactions contemplated hereby will not, violate any provision of AHI's Articles of Incorporation or Bylaws. AHI has taken all action required by law, its Articles of Incorporation, its Bylaws, or otherwise, to authorize the execution and delivery of this Plan. 3.2 Capitalization. The authorized capital stock of AHI as of the date hereof consists of 20,000,000 common shares, par value $0.001. At the Closing the Board of Directors of AHI will approve a resolution to increase the authorized capital stock of the AHI to 60,000,000 common shares, par value $0.001. The common shares of AHI issued and outstanding are fully paid, non- assessable shares. There are no outstanding options, warrants, obligations convertible into shares of stock, or calls or any understanding, agreements, commitments, contracts or promises with respect to the issuance of AHI's common stock or with regard to any options, warrants or other contractual rights to acquire any of AHI's authorized but unissued common shares. As of the Closing, AHI shall have not more than 3,333,334 shares issued and outstanding. 3.3 Financial Statements. (a) AHI hereby warrants and covenants to WordCruncher that the audited financial statements dated May 2, 1997 through (inception) June 16, 1997, fairly and accurately represent the financial condition of AHI and that no material change has occurred in the financial condition of AHI. (b) AHI hereby warrants and represents that the audited financial statements for the periods set forth in subparagraph (a), supra, fairly and accurately represent the financial condition of AHI as submitted heretofore to WordCruncher for examination and review. 3.4 Conduct of Business. AHI is a development stage company and has not engaged in any operational activities prior to the date hereof. AHI will conduct itself in the following manner pending the Closing: (a) Certificate of Incorporation and Bylaws. No change will be made in the Articles of Incorporation or Bylaws of AHI. (b) Capitalization, etc. AHI will not make any change in its authorized or issued shares of any class, declare or pay any dividend or other distribution, or issue, encumber, purchase or otherwise acquire any of its shares of any class. 3.5 Options, Warrants and Rights. AHI has no options, warrants or stock appreciation rights related to the authorized but unissued AHI common stock. There are no existing options, warrants, calls, or commitments of any character relating to the authorized and unissued AHI common stock, except options, warrants, calls, or commitments, if any, to which AHI is not a party and by which it is not bound. 3.6 Title to Property. AHI has good and marketable title to all of its properties and assets, real and personal, proprietary or otherwise, as will be reflected in the balance sheets of AHI, and the properties and assets of AHI are subject to no mortgage, pledge, lien or encumbrance, unless as otherwise disclosed in its financial statements. 3.7 Litigation. There are no actions, suits, or proceedings, pending, or, to the best knowledge of AHI, threatened by or against or effecting AHI at law or in equity, or before any governmental agency or instrumentality, domestic or foreign, or before any arbitrator of any kind; AHI does not have any knowledge of any default on its part with respect to any judgment, order, writ, injunction, decree, warrant, rule, or regulation of any court, arbitrator, or governmental agency or instrumentality. AHI and its principals have no knowledge of any facts or circumstances which could give rise to any action or proceeding. 3.8 Books and Records. From the date hereof, and for any reasonable period subsequent thereto, AHI and its present management will (i) give to the Shareholders and WordCruncher, or their duly authorized representatives, full access, during normal business hours, to all of its books, records, contracts and other corporate documents and properties so that the Shareholders and WordCruncher, or their duly authorized representatives, may inspect them; and (ii) furnish such information concerning the properties and affairs of AHI as the Shareholders and WordCruncher, or their duly authorized representatives, may reasonably request. Any such request to inspect AHI's books shall be directed to AHI's counsel, Daniel W. Jackson, at the address set forth herein under Section 10.4 Notices. 3.9 Confidentiality. Until the Closing (and thereafter if there is no Closing), AHI and its representatives will keep confidential any information which they obtain from the Shareholders or from WordCruncher concerning its properties, assets and the proposed business operations of WordCruncher. If the terms and conditions of this Plan imposed on the parties hereto are not consummated on or before 5:00 p.m. MST on July 31, 1998 or otherwise waived or extended in writing to a date mutually agreeable to the parties hereto, AHI will return to WordCruncher all written matter with regard to WordCruncher obtained in connection with the negotiations or consummation of this Plan. 3.10 Conflict with Other Instruments. The transactions contemplated by this Plan will not result in the breach of any term or provision of, or constitute a default under any indenture, mortgage, deed of trust, or other material agreements or instrument to which AHI was or is a party, or to which any of its assets or operations are subject, and will not conflict with any provision of the Articles of Incorporation or Bylaws of AHI. 3.11 Corporate Authority. AHI has full corporate power and authority to enter into this Plan and to carry out its obligations hereunder and will deliver to the Shareholders and WordCruncher, or their respective representatives, at the Closing, a certified copy of resolutions of its Board of Directors authorizing execution of this Plan by its officers and performance thereunder. 3.12 Consent of Shareholders. AHI hereby warrants and represents that the Shareholders of AHI, being the owners of a majority of the issued and outstanding stock of the Corporation consented in writing to the authorization to execute this Agreement and Plan of Reorganization as between AHI and WordCruncher pursuant to a stock-for-stock transaction in which AHI would acquire one hundred percent of the issued and outstanding shares of WordCruncher in exchange for the issuance of a total of 2,433,334 common shares of AHI and thereby WordCruncher shall merge with and into AHI. 3.13 Special Covenants and Representations Regarding the Exchanged AHI Stock. The consummation of this Plan and the transactions herein contemplated include the issuance of the exchanged AHI shares to the Shareholders, which constitutes an offer and sale of securities under the Securities Act of 1933, as amended, and applicable states' securities laws. Such transaction shall be consummated in reliance on exemptions from the registration and prospectus requirements of such statutes which depend interlace on the circumstances under which the Shareholders acquire such securities. In connection with the reliance upon exemptions from the registration and prospectus delivery requirements for such transactions, at the Closing, Shareholders shall cause to be delivered to AHI a Letter(s) of Investment Intent in the form attached hereto as Exhibit D and incorporated herein by reference. 3.14 Undisclosed or Contingent Liabilities. AHI hereby represents and warrants that it has no undisclosed or contingent liabilities which have not been disclosed to WordCruncher in writing or in this Agreement or in any Exhibit attached hereto. 3.15 Information. The information concerning AHI set forth in this Plan, and the AHI schedules attached hereto, are complete and accurate in all material respects and do not contain, or will not contain, when delivered, any untrue statement or a material fact or omit to state a material fact the omission of which would be misleading to WordCruncher in connection with this Plan. 3.16 Title and Related Matters. AHI has good and marketable title to all of its properties, interests in properties, and assets, real and personal, which are reflected, or will be reflected, in the AHI balance sheets, free and clear of any and all liens and encumbrances. 3.17 Contracts or Agreements. AHI is not bound by any material contracts, agreements or obligations which it has not already disclosed to WordCruncher in writing or in this Agreement or in any Exhibit attached hereto. 3.18 Governmental Authorizations. AHI has all licenses, franchises, permits and other government authorizations that are legally required to enable it to conduct its business in all material respects as conducted on the date hereof. 3.19 Compliance with Laws and Regulations. AHI has complied with all applicable statutes and regulations of any federal, state, or other applicable jurisdiction or agency thereof, except to the extent that noncompliance would not materially and adversely effect the business, operations, properties, assets, or condition of AHI or except to the extent that noncompliance would not result in the occurrence of any material liability, not otherwise disclosed to WordCruncher. 3.20 Approval of Plan. The Board of Directors of AHI has authorized the execution and delivery of this Plan by AHI and have approved the Plan and the transactions contemplated hereby. AHI has full power, authority, and legal right to enter into this Plan and to consummate the transactions contemplated hereby. 3.21 Investment Intent. AHI is acquiring the WordCruncher Shares to be transferred to it under this Plan for the purpose of merging with WordCruncher and not with a view to the sale or distribution thereof, and AHI shall cancel the WordCruncher Shares upon the completion of the merger. 3.22 Unregistered Shares and Access to Information. AHI understands that the offer and sale of the WordCruncher Shares have not been registered with or reviewed by the Securities and Exchange Commission under the Securities Act of 1933, as amended, or with or by any state securities law administrator, and no federal, state securities law administrator has reviewed or approved any disclosure or other material concerning WordCruncher or the WordCruncher Shares. AHI has been provided with and reviewed all information concerning WordCruncher, the WordCruncher Shares as it has considered necessary or appropriate as a prudent and knowledgeable investor to enable it to make an informed investment decision concerning the WordCruncher Shares. AHI has made an investigation as to the merits and risks of its acquisition of the WordCruncher Shares and has had the opportunity to ask questions of, and has received satisfactory answers from, the officers and directors of WordCruncher concerning WordCruncher, the WordCruncher Shares and related matters, and has had an opportunity to obtain additional information necessary to verify the accuracy of such information and to evaluate the merits and risks of the proposed acquisition of the WordCruncher Shares. 3.23 Obligations. AHI is not aware of any outstanding obligations to any of its employees or consultants as of the Closing. 3.24 AHI Schedules. AHI has delivered to WordCruncher the following items listed below, hereafter referred to as the "AHI Schedules", which is hereby incorporated by reference and made a part hereof. A certification executed by a duly authorized officer of AHI on or about the date within the Plan is executed to certify that the AHI Schedules are true and correct. (a) Copy of Articles of Incorporation, as amended, and Bylaws; (b) Financial statements; (c) Shareholder list; (d) Resolution of Directors approving Plan; (e) Consent of Shareholders approving Plan; (f) Officers' Certificate as required under Section 6.2 of the Plan; (g) Opinion of counsel as required under Section 6.4 of the Plan; (h) Certificate of Good Standing. Section 4 Representations, Warranties and Covenants of WordCruncher WordCruncher represents and warrants to, and covenants with, the Shareholders and AHI as follows: 4.1 Corporate Status. WordCruncher is a corporation duly organized, validly existing and in good standing under the laws of the State of Utah incorporated on November 5, 1996. WordCruncher has full corporate power and is duly authorized, qualified, franchised, and licensed under all applicable laws, regulations, ordinances, and orders of public authorities to own all of its properties and assets and to carry on its business on all material respects as it is now being conducted, and there is no jurisdiction in which the character and location of the assets owned by it, or the nature of the business transacted by it, requires qualification. Included in the WordCruncher schedules (defined below) are complete and correct copies of its Articles of Incorporation and Bylaws as in effect on the date hereof. The execution and delivery of this Plan does not, and the consummation of the transactions contemplated hereby will not, violate any provision of WordCruncher's Articles of Incorporation or Bylaws. WordCruncher has taken all action required by law, its Articles of Incorporation, its Bylaws, or otherwise, to authorize the execution and delivery of this Plan. 4.2 Capitalization. The authorized capital stock of WordCruncher as of the date hereof consists of 500,000 common shares. As of the date hereof all common shares of WordCruncher issued and outstanding are fully paid, non- assessable shares. There are no outstanding options, warrants, obligations convertible into shares of stock, or calls or any understanding, agreements, commitments, contracts or promises with respect to the issuance of WordCruncher's common stock or with regard to any options, warrants or other contractual rights to acquire any of WordCruncher's authorized but unissued common shares. 4.3 Conduct of Business. WordCruncher was incorporated on November 5, 1996, under the laws of Utah. WordCruncher will use its best efforts to maintain and preserve its business organization, employee relationships and goodwill intact, and will not, without the prior written consent of AHI, enter into any material commitments except in the ordinary course of business. WordCruncher agrees that WordCruncher will conduct itself in the following manner pending the Closing: (a) Certificate of Incorporation and Bylaws. No change will be made in the Certificate of Incorporation or Bylaws of WordCruncher. (b) Capitalization, etc. WordCruncher will not make any change in its authorized or issued shares of any class, declare or pay any dividend or other distribution, or issue, encumber, purchase or otherwise acquire any of its shares of any class. 4.4 Title to Property. WordCruncher has good and marketable title to all of its properties and assets, real and personal, proprietary or otherwise, as will be reflected in the balance sheets of WordCruncher, and the properties and assets of WordCruncher are subject to no mortgage, pledge, lien or encumbrance, unless as otherwise disclosed in its financial statements. 4.5 Litigation. There are no material actions, suits, or proceedings, pending, or, to the best knowledge of WordCruncher, threatened by or against or effecting WordCruncher at law or in equity, or before any governmental agency or instrumentality, domestic or foreign, or before any arbitrator of any kind; WordCruncher does not have any knowledge of any default on its part with respect to any judgment, order, writ, injunction, decree, warrant, rule, or regulation of any court, arbitrator, or governmental agency or instrumentality. 4.6 Books and Records. From the date hereof, and for any reasonable period subsequent thereto, WordCruncher and its present management will (i) give to AHI, or their duly authorized representatives, full access, during normal business hours, to all of its books, records, contracts and other corporate documents and properties so that AHI, or their duly authorized representatives, may inspect them; and (ii) furnish such information concerning the properties and affairs of WordCruncher as the Shareholders and WordCruncher, or their duly authorized representatives, may reasonably request. Any such request to inspect WordCruncher's books shall be directed to WordCruncher's representative, at the address set forth herein under Section 10.4 Notices. 4.7 Confidentiality. Until the Closing (and thereafter if there is no Closing), WordCruncher and its representatives will keep confidential any information which they obtain from the Shareholders or from WordCruncher concerning its properties, assets and the proposed business operations of WordCruncher. If the terms and conditions of this Plan imposed on the parties hereto are not consummated on or before 5:00 p.m. MST on July 31, 1998 or otherwise waived or extended in writing to a date mutually agreeable to the parties hereto, WordCruncher will return to AHI all written matter with regard to AHI obtained in connection with the negotiations or consummation of this Plan. 4.8 Investment Intent. The Shareholders shall evidence their intent to acquire the unregistered and restricted common shares of AHI delivered to them under this Plan for investment purposes and not with a view to the subsequent sale or distribution by execution and delivery of an Investment Letter to AHI. Such Investment Letter shall be similar in form to that attached hereto as Exhibit D, and shall be received by AHI on the date of Closing, or no later than the date on which the restricted shares are issued and delivered to the Shareholders. 4.9 Unregistered Shares and Access to Information. WordCruncher represents that it understands that the offer and sale of AHI shares to be exchanged for the WordCruncher Shares has not been registered with or reviewed by the securities and Exchange Commission under the Securities Act of 1933, as amended, or with or by any state securities law administrator, and no federal or state securities law administrator has reviewed or approved any disclosure or other material facts concerning AHI or AHI stock. WordCruncher represents that it has provided to its shareholders all information concerning AHI and the AHI Stock, to be exchanged for the WordCruncher Shares as it has considered necessary or appropriate for a prudent and knowledgeable investor to make an informed investment decision concerning the AHI shares. WordCruncher and the Shareholders have had the opportunity to make an investigation as to the merits and risks of their acquisition of the AHI shares, to be exchanged for the WordCruncher Shares, and have had the opportunity to ask questions of, and receive satisfactory answers from, the officers and directors of AHI concerning AHI shares to be exchanged for the WordCruncher Shares and related matters, and have had an opportunity to obtain additional information necessary to verify the accuracy of such information and to evaluate the merits and risks of the proposed acquisition of the AHI shares to be exchanged for the WordCruncher Shares. 4.10 Title to Shares. The Shareholders are the beneficial and record owners, free and clear of any liens and encumbrances, of whatever kind or nature, of all of the shares of WordCruncher of whatever class or series, which the Shareholders have contracted to exchange. 4.11 Contracts. (a) Set forth in the WordCruncher Schedules are copies or descriptions of all material contracts which written or oral, all agreements, franchises, licenses, or other commitments to which WordCruncher is a party or by which WordCruncher or its properties are bound. (b) Except as may be set forth in the WordCruncher Schedules, WordCruncher is not a party to any contract, agreement, corporate restriction, or subject to any judgment, order, writ, injunction, decree, or award, which materially and adversely effect the business, operations, properties, assets, or conditions of WordCruncher. (c) Except as set forth in the WordCruncher Schedules, WordCruncher is not a party to any material oral or written (i) contract for employment of any officer which is not terminable on 60 days (or less) notice; (ii) profit sharing, bonus, deferred compensation, stock option, severance, or any other retirement plan of arrangement covered by Title IV of the Employee Retirement Income Security Act, as amended, or otherwise covered; (iii) agreement providing for the sale, assignment or transfer of any of its rights, assets or properties, whether tangible or intangible, except sales of its property in the ordinary course of business with a value of less than $5,000; or (iv) waiver of any right of any value which in the aggregate is extraordinary or material concerning the assets or properties scheduled by WordCruncher, except for adequate value and pursuant to contract. WordCruncher has not entered into any material transaction which is not listed in the WordCruncher Schedules or reflected in the WordCruncher financial statements. 4.12 Material Contract Defaults. WordCruncher is not in default in any material respect under the terms of any contract, agreement, lease or other commitment which is material to the business, operations, properties or assets, or condition of WordCruncher, and there is no event of default or event which, with notice of lapse of time or both, would constitute a default in any material respect under any such contract, agreement, lease, or other commitment in respect of which WordCruncher has not taken adequate steps to prevent such default from occurring, or otherwise compromised, reached a satisfaction of, or provided for extensions of time in which to perform under any one or more contract obligations, among others. 4.13 Conflict with Other Instruments. The consummation of the within transactions will not result in the breach of any term or provision of, or constitute a default under any indenture, mortgage, deed of trust, or other material agreement or instrument to which WordCruncher was or is a party, or to which any of its assets or operations are subject, and will not conflict with any provision of the Articles of Incorporation or Bylaws of WordCruncher. 4.14 Governmental Authorizations. WordCruncher is in good standing in the State of Utah. Except for compliance with federal and state securities laws, no authorization, approval, consent or order of, or registration, declaration, or filing with, any court or other governmental body is required in connection with the execution and delivery by WordCruncher of this Plan and the consummation by WordCruncher of the transactions contemplated hereby. 4.15 Compliance with Laws and Regulations. WordCruncher has complied with all applicable statutes and regulations of any federal, state, or other applicable jurisdiction or agency thereof, except to the extent that noncompliance would not materially and adversely effect the business, operations, properties, assets, or condition of WordCruncher or except to the extent that noncompliance would not result in the occurrence of any material liability, not otherwise disclosed to AHI. 4.16 Approval of Plan. The Board of Directors of WordCruncher have authorized the execution and delivery of this Plan by WordCruncher and have approved the Plan and the transactions contemplated hereby. WordCruncher has full power, authority, and legal right to enter into this Plan and to consummate the transactions contemplated hereby. 4.17 Information. The information concerning WordCruncher set forth in this Plan, and the WordCruncher Schedules attached hereto, are complete and accurate in all material respects and do not contain, or will not contain, when delivered, any untrue statement or a material fact or omit to state a material fact the omission of which would be misleading to AHI in connection with this Plan. 4.18 WordCruncher Schedules. WordCruncher has delivered to AHI the following items listed below, hereafter referred to as the "WordCruncher Schedules", which is hereby incorporated by reference and made a part hereof. A certification executed by a duly authorized officer of WordCruncher on or about the date within the Plan is executed to certify that the WordCruncher Schedules are true and correct. (a) Copy of Articles of Incorporation and Bylaws; (b) Financial Statements; (c) Resolution of Board of Directors approving Plan; (d) Consent of Shareholders approving Plan; (e) A list of key employees, including current compensation, with notation as to job description and whether or not such employee is subject to written contract, and if subject to a contract or employment agreement a copy of the same; (f) A schedule showing the name and location of each bank or other institution with which WordCruncher has an account and the names of the authorized persons to draw thereon or having access thereto; (g) A schedule setting forth the shareholders, together with the number of shares owned beneficially or of record by each (also attached as Exhibits B and C); (h) A schedule setting forth all material contracts; (i) Officers' Certificate as required by Section 7.2 of the Plan; (j) Schedule of all debts, mortgages, security interests, pledges, liens, encumbrances, claims and the like; (k) Certificate of Good Standing Section 5 Special Covenants 5.1 WordCruncher Information Incorporated in AHI's Reports. WordCruncher represents and warrants to AHI that all the information furnished under this Plan shall be true and correct in all material respects and that there is no omission of any material fact required to make the information stated not misleading. WordCruncher agrees to indemnify and hold AHI harmless, including each of its Directors and Officers, and each person, if any, who controls such party, under any applicable law from and against any and all losses, claims, damages, expenses or liabilities to which any of them may become subject under applicable law, or reimburse them for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such actions, whether or not resulting in liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based on any untrue statement, alleged untrue statement, or omission of a material fact contained in such information delivered hereunder. 5.2 AHI Information Incorporated in WordCruncher's Reports. AHI represents and warrants to WordCruncher that all the information furnished under this Plan shall be true and correct in all material respects and that there is no omission of any material fact required to make the information stated not misleading. The current officers and directors of AHI agree to indemnify and hold WordCruncher harmless, including each of its Directors and Officers, and each person, if any, who controls such party, under any applicable law from and against any and all losses, claims, damages, expenses or liabilities to which any of them may become subject under applicable law, or reimburse them for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such actions, whether or not resulting in liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based on any untrue statement, alleged untrue statement, or omission of a material fact contained in such information delivered hereunder. 5.3 Special Covenants and Representations Regarding the Exchanged AHI Stock. The consummation of this Plan and the transactions herein contemplated, including the issuance of the AHI shares in exchange for one hundred percent (100%) of the issued and outstanding shares of WordCruncher to the Shareholders constitutes the offer and sale of securities under the Securities Act and the applicable state statutes, which depend, inter alia, on the circumstances under which the Shareholders acquire such securities. AHI intends to rely on the exemption of the registration provision of Section 5 of the Securities Act as provided for under Section 4.2 of the Securities Act of 1933, which states "transactions not involving a public offering", among others. Each Shareholder upon submission of his WordCruncher Shares and the receipt of the AHI shares exchanged therefor, shall execute and deliver to AHI an Investment Letter to indicate, among other representations, that the Shareholder is exchanging the WordCruncher Shares for AHI shares for investment purposes and not with a view to the subsequent distribution thereof. A proposed Investment Letter is attached hereto as Exhibit D and incorporated herein by reference for the general use by the Shareholders, as they may determine. 5.4 Action Prior to Closing. Upon the execution hereof, until the Closing date, and the completion of the consolidated audited financial statement: (a) WordCruncher and AHI will (i) perform all of its obligations under material contracts, leases, insurance policies and/or documents relating to its assets and business; (ii) use its best efforts to maintain and preserve its business organization intact, to retain its key employees, and to maintain its relationship with existing potential customers and clients; and (iii) fully comply with and perform in all material respects all duties and obligations imposed on it by all federal and state laws and all rules, regulations, and orders imposed by all federal or state governmental authorities. (b) Neither WordCruncher nor AHI will (i) make any change in its Articles of Incorporation or Bylaws except and unless as contemplated pursuant to Section 3 of this Plan; (ii) enter into or amend any contract, agreement, or other instrument of the types described in the parties' schedules, except that a party may enter into or amend any contract or other instrument in the ordinary course of business involving the sale of goods or services, provided that such contract does not involve obligations in excess of $5,000. Section 6 Conditions Precedent to Obligations of WordCruncher and the Shareholders All obligations of WordCruncher and the Shareholders under this Plan are contingent upon the satisfaction, on or before the Closing date, except as otherwise provided for herein, or waived or extended in writing by the parties hereto, of the following conditions: 6.1 Accuracy of Representations. The representations and warranties made by AHI in this Plan were true when made and shall be true as of the Closing date (except for changes therein permitted by this Plan) with the same force and effect as if such representations and warranties were made at and as of the Closing date; and, AHI shall have performed and complied with all aspects of this Agreement, unless waived or extended in writing by the parties hereto. WordCruncher shall have been furnished with a certificate, signed by a duly authorized executive officer of AHI and dated the Closing date, to the foregoing effect. 6.2 Officers' Certificate. WordCruncher and the Shareholders shall have been furnished with a certificate dated the Closing date and signed by a duly authorized executive officer of AHI, to the effect that no litigation, proceeding, investigation, claim, demand or inquiry is pending, or to the best knowledge of AHI, threatened, which might result in an action to enjoin or prevent the consummation of the transactions contemplated by this Plan, or which might result in any material adverse change in the assets, properties, business, or operations of AHI, and that this Agreement has been complied with in all material respects. 6.3 No Material Adverse Change. Prior to the Closing date, there shall have not occurred any material adverse change in the financial condition, business or operations of AHI, nor shall any event have occurred which, with lapse of time or the giving of notice or both, may cause or create any material adverse change in the financial condition, business or operations of AHI, except as otherwise disclosed to WordCruncher. 6.4 Opinion of Counsel of AHI. AHI shall furnish to WordCruncher and the Shareholders an opinion dated as of the Closing date and in form and substance satisfactory to WordCruncher and the Shareholders to the effect that: (a) AHI is a corporation duly organized, validly existing, and in good standing under the laws of the State of Nevada, and with all requisite corporate power to perform its obligations under this Plan. (b) The business of AHI, as presently conducted, including, upon the consummation hereof, the ownership of all of the issued and outstanding shares of WordCruncher, does not require it to register it to do business as a foreign corporation on any jurisdiction other than under the jurisdiction of its Articles of Incorporation or Bylaws and AHI has complied to the best of its knowledge in all material respects with all the laws, regulations, licensing requirements and orders applicable to its business activities and has filed with the proper authorities, including the Department of Commerce, Division of Corporations, and Secretary of State for the State of Nevada, all statements and reports required to be filed. (c) The authorized and outstanding capital stock of AHI as set forth in Section 3.2 above, and all issued and outstanding shares have been duly and validly authorized and issued and are fully paid and non-assessable. (d) There are no material claims, suits or other legal proceedings pending or threatened against AHI of any court or before or by any governmental body which might materially effect the business of AHI or the financial condition of AHI as a whole and no such claims, suits or legal proceedings are contemplated by governmental authorities against AHI. (e) To the best knowledge of such counsel, the consummation of the transactions contemplated by this Plan will not violate or contravene the provisions of the Certificate of Incorporation or Bylaws of AHI, or any contract, agreement, indenture, mortgage, or order by which AHI is bound. (f) This Plan constitutes a legal, valid and binding obligation of AHI enforceable in accordance with its terms, subject to the effect of any bankruptcy, insolvency, reorganization, moratorium, or similar law effecting creditors' rights generally and general principles of equity (regardless of whether such principles are considered in a proceeding in equity or law). (g) The execution and delivery of this Plan and the consummation of the transactions contemplated hereby have been ratified by a majority of the Shareholders of AHI and have been duly authorized by its Board of Directors. (h) AHI has not, nor will it undertake any action, the result of which would endanger the tax-free nature of the Plan. 6.5 Good Standing. WordCruncher shall have received a Certificate of Good Standing from the State of Nevada, dated within ninety (90) days prior to Closing, but in no event later than ten days subsequent to the execution hereof certifying that AHI is in good standing as a corporation in the State of Nevada. 6.6 Other Items. WordCruncher and the Shareholders shall have received such further documents, certifications or instruments relating to the transactions contemplated hereby as WordCruncher and the Shareholders may reasonably request. Section 7 Conditions Precedent to Obligations of AHI All obligations of AHI under this Plan are subject, at its option, to the fulfillment, before the Closing, of each of the following conditions: 7.1 Accuracy of Representations. The representations and warranties made by WordCruncher and the Shareholders under this Plan were true when made and shall be true as of the Closing date (except for changes therein permitted by this Plan) with the same force and effect as if such representations and warranties were made at and as of the Closing date; and, WordCruncher shall have performed and complied with all aspects of this Agreement, unless waived or extended in writing by the parties hereto. AHI shall have been furnished with a certificate, signed by a duly authorized executive officer of WordCruncher and dated the Closing date, to the foregoing effect. 7.2 Officers' Certificate. AHI shall have been furnished with a certificate dated the Closing date and signed by a duly authorized executive officer of WordCruncher, to the effect that no litigation, proceeding, investigation, claim, deed, or inquiry is pending, or to the best knowledge of WordCruncher, threatened, which might result in an action to enjoin or prevent the consummation of the transactions contemplated by this Plan, or which might result in any material adverse change in the assets, properties, business, or operations of WordCruncher, and that this Agreement has been complied with in all material respects. 7.3 No Material Adverse Change. Prior to the Closing date, there shall have not occurred any material adverse change in the financial condition, business or operations of WordCruncher, nor shall any event have occurred which, with lapse of time or the giving of notice or both, may cause or create any material adverse change in the financial condition, business or operations of WordCruncher, except as otherwise disclosed to AHI. 7.4 Dissenters' Rights Waived. Shareholders representing at least one hundred percent (100%) of the issued and outstanding shares of WordCruncher, and each of them, have agreed and hereby waive any dissenters' rights, if any, under the laws of the State of Utah in regards to any objection to this Plan as outlined herein and otherwise consent to and agree and authorize the execution and consummation of the within Plan in accordance to the terms and conditions of this Plan by the management of WordCruncher. 7.5 Other Items. AHI shall have received such further documents, certifications or instruments relating to the transactions contemplated hereby as AHI may reasonably request. 7.6 Execution of Investment Letter. The Shareholders shall have executed and delivered copies of Exhibit D to AHI. Section 8 Termination 8.1 Termination by WordCruncher or the Shareholders. This Plan may be terminated at any time prior to the Closing date by action of WordCruncher or the Shareholders, if AHI shall fail to comply in any material respect with any of the covenants or agreements contained in this Plan, or if any of its representations and warranties contained herein shall be inaccurate in any material respect. 8.2 Termination by AHI. This Plan may be terminated at any time prior to the Closing date by action of AHI if WordCruncher shall fail to comply in any material respect with any of the covenants or agreements contained in this Plan, or if any of its representations or warranties contained herein shall be inaccurate in any material respect. 8.3 Termination by Mutual Consent (a) This Plan may be terminated at any time prior to the Closing date by mutual consent of AHI, expressed by action of its Board of Directors, WordCruncher or the Shareholders. (b) If this Plan is terminated pursuant to Section 8, this Plan shall be of no further force and effect and no obligation, right or liability shall arise hereunder. Each party shall bare its own costs in connection herewith. Section 9 Shareholders' Representative The Shareholders hereby irrevocably designate and appoint Kenneth W. Bell, as their agent and attorney in fact (the "Shareholders' Representative") with full power and authority until the Closing to execute, deliver and receive on their behalf all notices, requests and other communications hereunder; to fix and alter on their behalf the date, time and place of the Closing; to waive, amend or modify any provisions of this Plan and to take such other action on their behalf in connection with this Plan, the Closing and the transactions contemplated hereby as such agent deems appropriate; provided, however, that no such waiver, amendment or modification may be made if it would decrease the number of shares to be issued to the Shareholders under Section 1 hereof or increase the extent of their obligation to AHI hereunder, unless agreed in writing by the Shareholders. Section 10 General Provisions 10.1 Further Assurances. At any time, and from time to time, after the Closing date, each party will execute such additional instruments and take such action as may be reasonably requested by the other party to confirm or perfect title to any property transferred hereunder or otherwise to carry out the intent and purposes of the Plan. 10.2 Payments of Costs and Fees. AHI and WordCruncher shall each bear their own costs and expenses, including any legal and accounting fees in connection with the negotiation, execution and consummation of the Plan. 10.3 Press Release and Shareholders' Communications. On the date of Closing, or as soon thereafter as practicable, WordCruncher and the Shareholders shall cause to have promptly prepared and disseminated a news release concerning the execution and consummation of the Plan, such press release and communication to be released promptly and within the time required by the laws, rules and regulations as promulgated by the United States Securities and Exchange Commission, and concomitant therewith to cause to be prepared a full and complete letter to AHI's shareholders which shall contain information required by Regulation 240.14f-1 as promulgated under Section 14(f) as mandated under the Securities and Exchange Act of 1934, as amended. 10.4 Notices. All notices and other communications required or permitted hereunder shall be sufficiently given if personally delivered, sent by registered mail, or certified mail, return receipt requested, postage prepaid, or by facsimile transmission addressed to the following parties hereto or at such other addresses as follows: If to AHI: Altmount Holdings, Inc. 369 East 900 South, # 149 Salt Lake City, Utah 84111 With a copy to: Daniel W. Jackson, Esq. 215 South State Street, Suite 1100 Salt Lake City, Utah 84111 If to WordCruncher: WordCruncher Publishing Technologies, Inc. 50 West Canyon Crest Road Alpine, Utah 84004 or at such other addresses as shall be furnished in writing by any party in the manner for giving notices hereunder, and any such notice or communication shall be deemed to have been given as of the date so delivered, mailed, sent by facsimile transmission, or telegraphed. 10.5 Entire Agreement. This Plan represents the entire agreement between the parties relating to the subject matter hereof, including any previous letters of intent, understandings, or agreements between AHI, WordCruncher and the Shareholders with respect to the subject matter hereof, all of which are hereby merged into this Plan, which alone fully and completely expresses the agreement of the parties relating to the subject matter hereof. Excepting the foregoing agreement, there are no other courses of dealing, understandings, agreements, representations, or warranties, written or oral, except as set forth herein. 10.6 Governing Law. This Plan shall be governed by and construed and enforced in accordance with the laws of the State of Nevada. except to the extent preempted by federal law, in which event (and to that extent only) federal law shall govern. 10.7 Tax Treatment. The transaction contemplated by this Plan is intended to qualify as a "tax-free" reorganization under the provisions of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. WordCruncher and AHI acknowledge, however, that each are being represented by their own tax advisors in connection with this transaction, and neither has made any representations or warranties to the other with respect to treatment of such transaction or any part or effect thereof under applicable tax laws, regulations or interpretations; and no attorney's opinion or tax revenue ruling has been obtained with respect to the tax consequences of the transactions contemplated by the within Plan. 10.8 Attorney Fees. In the event that any party prevails in any action or suit to enforce this Plan, or secure relief from any default hereunder or breach hereof, the nonprevailing party or parties shall reimburse the prevailing party or parties for all costs, including reasonable attorney fees, incurred in connection therewith. 10.9 Amendment of Waiver. Every right and remedy provided herein shall be cumulative with every other right and remedy, whether conferred herein, at law or in equity, and may be enforced concurrently or separately, and no waiver by any party of the performance of any obligation by the other shall be construed as a waiver of the same or any other default then, therefore, or thereafter occurring or existing. Any time prior to the expiration of thirty (30) days from the date hereof, this Plan may be amended by a writing signed by all parties hereto, with respect to any of the terms contained herein, and any term or condition of this Plan may be waived or the time for performance thereof may be extended by a writing signed by the party or parties for whose benefit the provision is intended. 10.10 Counterparts. This Plan may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which together shall constitute one and the same instruments. 10.11 Headings. The section and subsection headings in this Plan are inserted for convenience only and shall not effect in any way the meaning or interpretation of the Plan. 10.12 Parties in Interest. Except as may be otherwise expressly provided herein, all terms and provisions of this Plan shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, beneficiaries, personal and legal representatives, and assigns. IN WITNESS WHEREOF, the parties have executed this Plan and Agreement of Reorganization effective the day and year first set forth above. ALTMOUNT HOLDINGS, INC. Attest: /s/ Katherine Black By: /s/ John W. Peters - ------------------- ------------------- Its President WORDCRUNCHER PUBLISHING TECHNOLOGIES, INC. Attest: /s/ Kenneth W. Bell By: /s/ M. Daniel Lunt - ------------------- ---------------------- Its President SHAREHOLDERS: Attest: /s/ Kenneth W. Bell By: /s/ M. Daniel Lunt - ------------------- ------------------ Attest: /s/ Kenneth W. Bell By: /s/ James W. Johnston - ------------------- --------------------- Attest: /s/ James W. Johnston By: /s/ Kenneth W. Bell - --------------------- --------------------- EX-3.1 3 ARTICLES OF INCORPORATION OF ALTMOUNT HOLDINGS, INC. The undersigned, natural person of eighteen years or more of age, acting as incorporator of a Corporation (the "Corporation") under the Nevada Revised Statutes, adopts the following Articles of Incorporation for the Corporation: ARTICLE I NAME OF CORPORATION The name of the Corporation is Altmount Holdings, Inc. ARTICLE II SHARES The amount of the total authorized capital stock of the Corporation is 20,000,000 shares of common stock, par value $.001 per share. Each share of common stock shall have one (1) vote. Such stock may be issued from time to time without any action by the stockholders for such consideration as may be fixed from time to time by the Board of Directors, and shares so issued, the full consideration for which has been paid or delivered, shall be deemed the full paid up stock, and the holder of such shares shall not be liable for any further payment thereof. Said stock shall not be subject to assessment to pay the debts of the Corporation, and no paid-up stock and no stock issued as fully paid, shall ever be assessed or assessable by the Corporation. The Corporation is authorized to issue 20,000,000 shares of common stock, par value $.001 per share. ARTICLE III REGISTERED OFFICE AND AGENT The address of the initial registered office of the Corporation is 1025 Ridgeview, Suite 400, Reno, Nevada 89509 and the name of its initial registered agent at such address is Michael J. Morrison. ARTICLE IV INCORPORATOR The name and address of the incorporator is: NAME ADDRESS Anita Patterson 824 5th Ave., Apt. A Salt Lake City, Utah 84103 ARTICLE V DIRECTORS The members of the governing board of the Corporation shall be known as directors, and the number of directors may from time to time be increased or decreased in such manner as shall be provided by the bylaws of the Corporation, provided that the number of directors shall not be reduced to less than one (1). The name and post office address of the first board of directors, which shall be three in number, are as follows: NAME ADDRESS Anita Patterson 824 5th Ave., Apt. A Salt Lake City, Utah 84103 Jeanne Ball 6071 Aries Dr. Salt Lake City, Utah 84118 Michael Otto 157 South 1200 East Salt Lake City, Utah 84102 ARTICLE VI GENERAL A. The board of directors shall have the power and authority to make and alter, or amend, the bylaws, to fix the amount in cash or otherwise, to be reserved as working capital, and to authorize and cause to be executed the mortgages and liens upon the property and franchises of the Corporation. B. The board of directors shall, from time to time, determine whether, and to what extent, and at which times and places, and under what conditions and regulations, the accounts and books of this Corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have the right to inspect any account, book or document of this Corporation except as conferred by the Statutes of Nevada, or authorized by the directors or any resolution of the stockholders. C. No sale, conveyance, transfer, exchange or other disposition of all or substantially all of the property and assets of this Corporation shall be made unless approved by the vote or written consent of the stockholders entitled to exercise two-thirds (2/3) of the voting power of the Corporation. D. The stockholders and directors shall have the power to hold their meetings, and keep the books, documents and papers of the Corporation outside of the State of Nevada, and at such place as may from time to time be designated by the bylaws or by resolution of the board of directors or stockholders, except as otherwise required by the laws of the State of Nevada. E. The Corporation shall indemnify each present and future officer and director of the Corporation and each person who serves at the request of the Corporation as an officer or director of the Corporation, whether or not such person is also an officer or director of the Corporation, against all costs, expenses and liabilities, including the amounts of judgments, amounts paid in compromise settlements and amounts paid for services of counsel and other related expenses, which may be incurred by or imposed on him in connection with any claim, action, suit, proceeding, investigation or inquiry hereafter made, instituted or threatened in which he may be involved as a party or otherwise by reason of any past or future action taken or authorized and approved by him or any omission to act as such officer or director, at the time of the incurring or imposition of such costs, expenses, or liabilities, except such costs, expenses or liabilities as shall relate to matters as to which he shall in such action, suit or proceeding, be finally adjudged to be liable by reason of his negligence or willful misconduct toward the Corporation or such other Corporation in the performance of his duties as such officer or director, as to whether or not a director or officer was liable by reason of his negligence or willful misconduct toward the Corporation or such other Corporation in the performance of his duties as such officer or director, in the absence of such final adjudication of the existence of such liability, the board of directors and each officer and director may conclusively rely upon an opinion of legal counsel selected by or in the manner designed by the board of directors. The foregoing right of indemnification shall not be exclusive of other rights to which any such officer or director may be entitled as a matter of law or otherwise, and shall inure to the benefit of the heirs, executors, administrators and assigns of each officer or director. The undersigned incorporator executed these Articles of Incorporation, certifying that the facts herein stated are true this 10th day of November, 1997. /s/ Anita Patterson - ------------------- ANITA PATTERSON STATE OF UTAH ) : ss. COUNTY OF SALT LAKE ) On this 10th day of November, 1997, personally appeared before me Anita Patterson, personally known to me or proved to me on the basis of satisfactory evidence to be the person whose name is signed on the preceding document, and acknowledged to me that she signed it voluntarily for its stated purpose. NOTARY PUBLIC /s/ Jeanne Ball - --------------- CERTIFICATE OF ACCEPTANCE OF APPOINTMENT BY RESIDENT AGENT In the matter of Altmount Holdings, Inc., I Michael J. Morrison, with address at 1025 Ridgeview Drive, Suite 400, Reno, Washoe County, Nevada 89509, hereby accept the appointment as Resident Agent of Frontier Industries, Inc. in accordance with N.R.S. 78.090. Furthermore, that the mailing address for the above registered office is 1025 Ridgeview Drive, Suite 400, Reno Nevada 89509. IN WITNESS WHEREOF, I hereunto set my hand this 12th day of November, 1997. By: /s/ Michael Morrison -------------------- Michael J. Morrison, Resident Agent EX-3.2 4 ARTICLES OF MERGER FOR ALTMOUNT HOLDINGS, INC., A NEVADA CORPORATION Pursuant to the provisions of Section 92A.200 of the Nevada Revised Statutes, Altmount Holdings, Inc., a Nevada corporation (the "Corporation"), hereby adopts and files the following Articles of Merger as the surviving corporation to the merger of Dunamis, Inc., a California corporation ("Dunamis"), with and into the Corporation: FIRST: The name and place of incorporation of each corporation which is a party to this merger is as follows: Name Place of Incorporation ---- ---------------------- Dunamis, Inc. California Altmount Holdings, Inc. Nevada SECOND: The Agreement and Plan of Merger (the "Plan") governing the merger between the Corporation and Dunamis, has been adopted by the Board of Directors of the Corporation and Dunamis. THIRD: The approval of the shareholders of the Corporation and Dunamis was required to effectuate the merger. The number of shares of stock outstanding in each of the corporations (and the number of votes entitled to be cast) as of the date of the adoption of the Plan was as follows: Entity Type of Shares Number of Shares Outstanding - ------ -------------- ---------------------------- Dunamis, Inc. Common 3,000,000 Altmount Holdings, Inc. Common 100 The number of shares of stock of each corporation which voted for and against the Plan was as follows: Entity Type of Shares For Against - ------ -------------- --- ------- Dunamis, Inc. Common 3,000,000 0 Altmount Holdings, Inc. Common 100 0 FOURTH: The number of votes cast for the Plan by each voting group entitled to vote was sufficient for approval of the merger by each such voting group. FIFTH: Following the merger there are no amendments to the Articles of Incorporation of the surviving company. SIXTH: The complete executed Plan is on file at the registered office or other place of business of the Corporation. SEVENTH: A copy of the Plan will be furnished by the Corporation, on request and without cost, to any shareholder of either corporation which is a party to the merger. EIGHTH: The merger will be effective upon the filing of the Articles of Merger. DATED this 25th day of June, 1998. ALMOUNT HOLDINGS, INC., a Nevada corporation By /s/ Michael Otto ----------------- Michael Otto, President By /s/ Anita Patterson -------------------- Anita Patterson, Secretary/Treasurer STATE OF UTAH ) : ss. COUNTY OF SALT LAKE ) On the 25th day of June, 1998, personally appeared before me Michael Otto, and Anita Patterson personally known to me or proved to me on the basis of satisfactory evidence, and who, being by me duly sworn, did say that they are the President and Secretary/Treasurer of Altmount Holdings, Inc., and that said document was signed by them on behalf of said corporation by authority of its bylaws, and said Michael Otto and Anita Patterson acknowledged to me that said corporation executed the same. /s/ M. Jeanne Ball ------------------ NOTARY PUBLIC EX-3.3 5 ARTICLES OF MERGER FOR ALTMOUNT HOLDINGS, INC., A NEVADA CORPORATION Pursuant to the provisions of Section 92A.200 of the Nevada Revised Statutes, Altmount Holdings, Inc., a Nevada corporation (the "Corporation"), hereby adopts and files the following Articles of Merger as the surviving corporation to the merger of WordCruncher Publishing Technologies, Inc., a Utah corporation ("WordCruncher"), with and into the Corporation: FIRST: The name and place of incorporation of each corporation which is a party to this merger is as follows: Name Place of Incorporation - ---- ---------------------- WordCruncher Publishing Technologies, Inc. California Altmount Holdings, Inc. Nevada SECOND: The Agreement and Plan of Merger (the "Plan") governing the merger between the Corporation and WordCruncher, has been adopted by the Board of Directors of the Corporation and WordCruncher. THIRD: The approval of the shareholders of the Corporation and WordCruncher was required to effectuate the merger. The number of shares of stock outstanding in each of the corporations (and the number of votes entitled to be cast) as of the date of the adoption of the Plan was as follows: Entity Type of Shares Number of Shares Outstanding - ------ -------------- ---------------------------- WordCruncher Publishing Technologies, Inc. Common 372,687 Altmount Holdings, Inc. Common 1,500,000 The number of shares of stock of each corporation which voted for and against the Plan was as follows: Entity Type of Shares For Against - ------ -------------- --- ------- WordCruncher Publishing Technologies, Inc. Common 294,000 0 Altmount Holdings, Inc. Common 1,125,000 0 FOURTH: The number of votes cast for the Plan by each voting group entitled to vote was sufficient for approval of the merger by each such voting group. FIFTH: Following the merger Article I and Article II to the Articles of Incorporation of the surviving corporation shall be amended as follows: A. Delete Article I in its entirety and substitute in its place the following: ARTICLE I The name of the Corporation is WordCruncher Internet Technologies, Inc. B. Delete Article II in its entirety and substitute in its place the following: ARTICLE II The amount of the total authorized capital stock of the Corporation is 60,000,000 shares of common stock, par value $.001 per share. Each share of common stock shall have one (1) vote. Such stock may be issued from time to time without any action by the stockholders for such consideration as may be fixed from time to time by the Board of directors, and shares so issued, the full consideration for which has been paid or delivered, shall be deemed the full paid up stock, and the holder of such shares shall not be liable for any further payment thereof. Said stock shall not be subject to assessment to pay the debts of the Corporation, and no paid-up stock and no stock issued as fully paid, shall ever be assessed or assessable by the Corporation. The Corporation is authorized to issue 60,000,000 shares of common stock, par value $.001 per share. SIXTH: The complete executed Plan is on file at the registered office or other place of business of the Corporation. SEVENTH: A copy of the Plan will be furnished by the Corporation, on request and without cost, to any shareholder of either corporation which is a party to the merger. EIGHTH: The merger will be effective upon the filing of the Articles of Merger. DATED this 14th day of July, 1998. ALMOUNT HOLDINGS, INC., a Nevada corporation By /s/ Anita Patterson ------------------- Anita Patterson, President By /s/ Jeanne Ball --------------- Jeanne Ball, Secretary/Treasurer STATE OF UTAH ) : ss. COUNTY OF SALT LAKE ) On the 14th day of July, 1998, personally appeared before me Anita Patterson and Jeanne Ball personally known to me or proved to me on the basis of satisfactory evidence, and who, being by me duly sworn, did say that they are the President and Secretary/Treasurer of Altmount Holdings, Inc., and that said document was signed by them on behalf of said corporation by authority of its bylaws, and said Anita Patterson and Jeanne Ball acknowledged to me that said corporation executed the same. /s/ John Clayton ---------------- NOTARY PUBLIC EX-3.4 6 ARTICLES OF MERGER FOR ALTMOUNT HOLDINGS, INC. A NEVADA CORPORATION Pursuant to the provisions of Section 16-10a-1105 of the Utah Revised Business Corporation Act, Altmount Holdings, Inc., a Nevada corporation ("AHI"), hereby adopts and files the following Articles of Merger as the surviving corporation to the merger of WordCruncher Publishing Technologies, Inc., a Utah corporation ("WordCruncher"), with and into AHI: FIRST: Agreement and Plan of Merger. A copy of the Agreement and Plan of Merger (the "Plan") governing, as adopted by the Boards of Directors of AHI and WordCruncher and as approved by the shareholders of AHI and WordCruncher on July 13, 1998, is attached hereto as Exhibit "A". SECOND: Shareholder Approval. The approval of the shareholders of AHI and WordCruncher was required to effectuate the merger. The number of shares of stock outstanding in each of the corporations (and the number of votes entitled to be cast) as of the date of the adoption of the Plan was as follows: Entity Type of Shares Number of Shares Outstanding - ------ -------------- ---------------------------- WordCruncher Publishing Technologies, Inc. Common 372,687 Altmount Holdings, Inc. Common 1,500,000 The number of shares of stock of each corporation which voted for and against the Plan was as follows: Entity Type of Shares For Against - ------ -------------- --- ------- WordCruncher Publishing Technologies, Inc. Common 294,000 0 Altmount Holdings, Inc. Common 1,125,000 0 THIRD: Sufficiency of Vote. The number of votes cast for the Plan by each voting group entitled to vote was sufficient for approval of the merger by each such voting group. FOURTH: Principal Place of Business of the Corporation. The principal place of business in the State of Utah for WordCruncher is 50 West Canyon Crest Road, Alpine, Utah 84004. . FIFTH: Registered Agent. Pursuant to the provisions of Utah Code Annotated Section 16-10a-1107(2), the Corporation's registered agent in the State of Utah is the Secretary of the State of Utah, whose address is 160 East 300 South, P.O. Box 45801, Salt Lake City, Utah 84801. The corporation hereby consents to the service of process on it in accordance with the provisions of Utah Code Annotated Section 16-10a-1107(2)(a)(ii), as amended. DATED this 14th day of July, 1998. /s/ Anita Patterson ------------------- Anita Patterson President EX-3.5 7 CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF WORDCRUNCHER INTERNET TECHNOLOGIES, INC. We the undersigned as President and Secretary of WordCruncher Internet Technologies, Inc. do hereby certify: That the Board of Directors of said Corporation at a meeting duly convened and held on January 19, 1999 adopted a Resolution to amend the original Articles as follows: A. Delete Article IV in its entirety and substitute in its place the following: ARTICLE II The aggregate number of shares which this Corporation shall have the authority to issue is 60,000,000 shares of Common Stock, $.001 par value per share, all of such common shares shall have the same rights and preferences and shall be nonassessable; and 50,000 shares of Preferred Stock, $.01 par value per share the preferred stock to be issued in such series with such rights, preferences and designations as determined by the Corporation's board of directors. The board of directors of the Corporation shall have complete authority to prescribe, the classes, series and number of each class or series of preferred stock and the voting powers, designations, preferences, limitations, restrictions and relative rights of each class or series of the preferred stock. The above Amendment to the Articles of Incorporation was adopted by the holders of a majority, 6,072,330 common shares of the 11,877,002 outstanding common shares of the Corporation on January 21, 1999. /s/ M. Daniel Lunt - ------------------ M. Daniel Lunt, President /s/ Kenneth W. Bell - ------------------- Kenneth W. Bell, Secretary STATE OF UTAH ) : ss. COUNTY OF SALT LAKE ) On this 28th day of January, 1999, personally appeared before me M. Daniel Lunt and Kenneth W. Bell, personally known to me or provided to me on the basis of satisfactory evidence to be the persons whose names are signed on the preceding document, and acknowledged to me that they signed it voluntarily for its stated purpose. /s/ Anita Patterson - ------------------- NOTARY PUBLIC EX-3.6 8 BYLAWS OF WORDCRUNCHER INTERNET TECHNOLOGIES, INC. ARTICLE 1. OFFICES 1.1 Business Office. The principal office of the corporation shall be located at any place either within or outside the State of Nevada as designated in the corporation's most recent document on file with the Nevada Secretary of State, Division of Corporations. The corporation may have such other offices, either within or without the State of Nevada as the board of directors may designate or as the business of the corporation may require from time to time. 1.2 Registered Office. The registered office of the corporation shall be located within the State of Nevada and may be, but need not be, identical with the principal office. The address of the registered office may be changed from time to time. ARTICLE 2. SHAREHOLDERS 2.1 Annual Shareholder Meeting. The annual meeting of the shareholders shall be held on the 15th day of August in each year, beginning with the year 1998 at the hour of 2:00 p.m., or at such other time on such other day within such month as shall be fixed by the board of directors, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the State of Nevada, such meeting shall be held on the next succeeding business day. 2.2 Special Shareholder Meeting. Special meetings of the shareholders, for any purpose or purposes described in the meeting notice, may be called by the president, or by the board of directors, and shall be called by the president at the request of the holders of not less than one-fourth of all outstanding votes of the corporation entitled to be cast on any issue at the meeting. 2.3 Place of Shareholder Meeting. The board of directors may designate any place, either within or without the State of Nevada, as the place of meeting for any annual or any special meeting of the shareholders, unless by written consent, which may be in the form of waivers of notice or otherwise, all shareholders entitled to vote at the meeting designate a different place, either within or without the State of Nevada, as the place for the holding of such meeting. If no designation is made by either the directors or unanimous action of the voting shareholders, the place of meeting shall be at 525 South 300 East, Salt Lake City, Utah 84111. 2.4 Notice of Shareholder Meeting. Written notice stating the date, time, and place of any annual or special shareholder meeting shall be delivered not less than 10 nor more than 60 days before the date of the meeting, either personally or by mail, by or at the direction of the President, the board of directors, or other persons calling the meeting, to each shareholder of record entitled to vote at such meeting and to any other shareholder entitled by the Nevada Revised Statutes (the "Statutes") or the articles of incorporation to receive notice of the meeting. Notice shall be deemed to be effective at the earlier of: (1) when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid; (2) on the date shown on the return receipt if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; (3) when received; or (4) 3 days after deposit in the United States mail, if mailed postpaid and correctly addressed to an address other than that shown in the corporation's current record of shareholders. If any shareholder meeting is adjourned to a different date, time or place, notice need not be given of the new date, time and place, if the new date, time and place is announced at the meeting before adjournment. But if the adjournment is for more than 30 days or if a new record date for the adjourned meeting is or must be fixed, then notice must be given pursuant to the requirements of the previous paragraph, to those persons who are shareholders as of the new record date. 2.5 Waiver of Notice. A shareholder may waive any notice required by the Statutes, the articles of incorporation, or these bylaws, by a writing signed by the shareholder entitled to the notice, which is delivered to the corporation (either before or after the date and time stated in the notice) for inclusion in the minutes or filing with the corporate records. A shareholder's attendance at a meeting: (a) waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting because of lack of notice or effective notice; and (b) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 2.6 Fixing of Record Date. For the purpose of determining shareholders of any voting group entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any distribution, or in order to make a determination of shareholders for any other proper purpose, the board of directors may fix in advance a date as the record date. Such record date shall not be more than 70 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If no record date is so fixed by the board for the determination of shareholders entitled to notice of, or to vote at a meeting of shareholders, the record date for determination of such shareholders shall be at the close of business on the day the first notice is delivered to shareholders. If no record date is fixed by the board for the determination of shareholders entitled to receive a distribution, the record date shall be the date the board authorizes the distribution. With respect to actions taken in writing without a meeting, the record date shall be the date the first shareholder signs the consent. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof unless the board of directors fixes a new record date which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. 2.7 Shareholder List. After fixing a record date for a shareholder meeting, the corporation shall prepare a list of the names of its shareholders entitled to be given notice of the meeting. The shareholder list must be available for inspection by any shareholder, beginning on the earlier of 10 days before the meeting for which the list was prepared or 2 business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, and any adjournment thereof. The list shall be available at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting is to be held. 2.8 Shareholder Quorum and Voting Requirements. 2.8.1 Quorum. Except as otherwise required by the Statutes or the articles of incorporation, a majority of the outstanding shares of the corporation, represented by person or by proxy, shall constitute a quorum at each meeting of the shareholders. If a quorum exists, action on a matter, other than the election of directors, is approved if the votes cast favoring the action exceed the votes cast opposing the action, unless the articles of incorporation or the Statutes require a greater number of affirmative votes. 2.8.2 Voting of Shares. Unless otherwise provided in the articles of incorporation or these bylaws, each outstanding share, regardless of class, is entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. 2.9 Quorum and Voting requirements of Voting Groups. If the articles of incorporation or the Statutes provide for voting by a single voting group on a matter, action on that matter is taken when voted upon by that voting group. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. 3 Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the articles of incorporation or the Statutes provide otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. If the articles of incorporation or the Statutes provide for voting by two or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately. Action may be taken by one voting group on a matter even though no action is taken by another voting group entitled to vote on the matter. If a quorum exists, action on a matter, other than the election of directors, by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the articles of incorporation or the Statutes require a greater number of affirmative votes. 2.10 Greater Quorum or Voting Requirements. The articles of incorporation may provide for a greater quorum or voting requirement for shareholders, or voting groups of shareholders, than is provided for by these bylaws. An amendment to the articles of incorporation that adds, changes, or deletes a greater quorum or voting requirement for shareholders must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater. 2.11 Proxies. At all meetings of shareholders, a shareholder may vote in person or by proxy which is executed in writing by the shareholder or which is executed by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the corporation or other person authorized to tabulate votes before or at the time of the meeting. No proxy shall be valid after 11 months from the date of its execution unless otherwise provided in the proxy. All proxies are revocable unless they meet specific requirements of irrevocability set forth in the Statutes. The death or incapacity of a voter does not invalidate a proxy unless the corporation is put on notice. A transferee for value who receives shares subject to an irrevocable proxy, can revoke the proxy if he had no notice of the proxy. 2.12 Corporation's Acceptance of Votes. 2.12.1 If the name signed on a vote, consent, waiver, proxy appointment, or proxy appointment revocation corresponds to the name of a shareholder, the corporation, if acting in good faith, is entitled to accept the vote, consent, waiver, proxy appointment, or proxy appointment revocation and give it effect as the act of the shareholder. 2.12.2 If the name signed on a vote, consent, waiver, proxy appointment, or proxy appointment revocation does not correspond to the name of a shareholder, the corporation, if acting in good faith, is nevertheless entitled to accept the vote, consent, waiver, 4 proxy appointment, or proxy appointment revocation and give it effect as the act of the shareholder if: (a) the shareholder is an entity as defined in the Statutes and the name signed purports to be that of an officer or agent of the entity; (b) the name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation; (c) the name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, proxy appointment, or proxy appointment revocation; or (d) the name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation; or (e) two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all co- tenants or fiduciaries. 2.12.3 If shares are registered in the names of two or more persons, whether fiduciaries, members of a partnership, co-tenants, husband and wife as community property, voting trustees, persons entitled to vote under a shareholder voting agreement or otherwise, or if two or more persons (including proxy holders) have the same fiduciary relationship respecting the same shares, unless the secretary of the corporation or other officer or agent entitled to tabulate votes is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one votes, such act binds all; (b) if more than one votes, the act of the majority so voting bind all; 5 (c) if more than one votes, but the vote is evenly split on any particular matter, each fraction may vote the securities in question proportionately. If the instrument so filed or the registration of the shares shows that any tenancy is held in unequal interests, a majority or even split for the purpose of this Section shall be a majority or even split in interest. 2.12.4 The corporation is entitled to reject a vote, consent, waiver, proxy appointment or proxy appointment revocation if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder. 2.12.5 The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, proxy appointment or proxy appointment revocation in good faith and in accordance with the standards of this Section are not liable in damages to the shareholder for the consequences of the acceptance or rejection. 2.12.6 Corporate action based on the acceptance or rejection of a vote, consent, waiver, proxy appointment or proxy appointment revocation under this Section is valid unless a court of competent jurisdiction determines otherwise. 2.13 Action by Shareholders Without a Meeting. 2.13.1 Written Consent. Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting and without prior notice if one or more consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shareholders entitled to vote with respect to the subject matter thereof were present and voted. Action taken under this Section has the same effect as action taken at a duly called and convened meeting of shareholders and may be described as such in any document. 2.13.2 Post-Consent Notice. Unless the written consents of all shareholders entitled to vote have been obtained, notice of any shareholder approval without a meeting shall be given at least ten days before the consummation of the action authorized by such approval to (i) those shareholders entitled to vote who did not consent in writing, and (ii) those shareholders not entitled to vote. Any such notice must be accompanied by the same material that is required under the Statutes to be sent in a notice of meeting at which the proposed action would have been submitted to the shareholders for action. 2.13.3 Effective Date and Revocation of Consents. No action taken pursuant to this Section shall be effective unless all written consents necessary to support 6 the action are received by the corporation within a sixty-day period and not revoked. Such action is effective as of the date the last written consent is received necessary to effect the action, unless all of the written consents specify an earlier or later date as the effective date of the action. Any shareholder giving a written consent pursuant to this Section may revoke the consent by a signed writing describing the action and stating that the consent is revoked, provided that such writing is received by the corporation prior to the effective date of the action. 2.13.4 Unanimous Consent for Election of Directors. Notwithstanding subsection (a), directors may not be elected by written consent unless such consent is unanimous by all shares entitled to vote for the election of directors. 2.14 Voting for Directors. Unless otherwise provided in the articles of incorporation, every shareholder entitled to vote for the election of directors has the right to cast, in person or by proxy, all of the votes to which the shareholder's shares are entitled for as many persons as there are directors to be elected and for whom election such shareholder has the right to vote. Directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. ARTICLE 3. BOARD OF DIRECTORS 3.1 General Powers. Unless the articles of incorporation have dispensed with or limited the authority of the board of directors by describing who will perform some or all of the duties of a board of directors, all corporate powers shall be exercised by or under the authority, and the business and affairs of the corporation shall be managed under the direction, of the board of directors. 3.2 Number, Tenure and Qualification of Directions. The authorized number of directors shall be three (3); provided, however, that if the corporation has less than four shareholders entitled to vote for the election of directors, the board of directors may consist of a number of individuals equal to or greater than the number of those shareholders. The current number of directors shall be within the limit specified above, as determined (or as amended form time to time) by a resolution adopted by either the shareholders or the directors. Each director shall hold office until the next annual meeting of shareholders or until the director's earlier death, resignation, or removal. However, if his term expires, he shall continue to serve until his successor shall have been elected and qualified, or until there is a decrease in the number of directors. Directors do not need to be residents of Nevada or shareholders of the corporation. 3.3 Regular Meetings of the Board of Directors. A regular meeting of the board of directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders, for the purpose of appointing officers and transacting such other business as may come before the meeting. The board of directors may 7 provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution. 3.4 Special Meetings of the Board of Directors. Special meetings of the board of directors may be called by or at the request of the president or any director. The person authorized to call special meetings of the board of directors may fix any place as the place for holding any special meeting of the board of directors. 3.5 Notice of, and Waiver of Notice for, Special Director Meeting. Unless the articles of incorporation provide for a longer or shorter period, notice of the date, time, and place of any special director meeting shall be given at least two days previously thereto either orally or in writing. Any director may waive notice of any meeting. Except as provided in the next sentence, the waiver must be in writing and signed by the director entitled to the notice. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business and at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting, and does not thereafter vote for or assent to action taken at the meeting. Unless required by the articles of incorporation, neither the business to be transacted at, nor the purpose of, any special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. 3.6 Director Quorum and Voting. 3.6.1 Quorum. A majority of the number of directors prescribed by resolution shall constitute a quorum for the transaction of business at any meeting of the board of directors unless the articles of incorporation require a greater percentage. Unless the articles of incorporation provide otherwise, any or all directors may participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. A director who is present at a meeting of the board of directors or a committee of the board of directors when corporate action is taken is deemed to have assented to the action taken unless: (1) the director objects at the beginning of the meeting (or promptly upon his arrival) to holding or transacting business at the meeting and does not thereafter vote for or assent to any action taken at the meeting; and (2) the director contemporaneously requests his dissent or abstention as to any specific action be entered in the minutes of the meeting; or (3) the director causes written notice of his dissent or abstention as to any specific action be received by the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. 8 3.7 Director Action Without a Meeting. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if all the directors consent to such action in writing. Action taken by consent is effective when the last director signs the consent, unless, prior to such time, any director has revoked a consent by a signed writing received by the corporation, or unless the consent specifies a different effective date. A signed consent has the effect of a meeting vote and may be described as such in any document. 3.8 Resignation of Directors. A director may resign at any time by giving a written notice of resignation to the corporation. Such resignation is effective when the notice is received by the corporation, unless the notice specifies a later effective date. 3.9 Removal of Directors. The shareholders may remove one or more directors at a meeting called for that purpose if notice has been given that a purpose of the meeting is such removal. The removal may be with or without cause unless the articles of incorporation provide that directors may only be removed with cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. A director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. 3.10 Board of Director Vacancies. Unless the articles of incorporation provide otherwise, if a vacancy occurs on the board of directors, including a vacancy resulting from an increase in the number of directors, the shareholders may fill the vacancy. During such time that the shareholders fail or are unable to fill such vacancies then and until the shareholders act: (a) the board of directors may fill the vacancy; or (b) if the board of directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders: (a) if there are one or more directors elected by the same voting group, only such directors are entitled to vote to fill the vacancy if it is filled by the directors; and (b) only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders. A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs. 9 3.11 Director Compensation. By resolution of the board of directors, each director may be paid his expenses, if any, of attendance at each meeting of the board of directors and may be paid a stated salary as director or a fixed sum for attendance at each meeting of the board of directors or both. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 3.12 Director Committees. 3.12.1 Creation of Committees. Unless the articles of incorporation provide otherwise, the board of directors may create one or more committees and appoint members of the board of directors to serve on them. Each committee must have one or more members, who shall serve at the pleasure of the board of directors. 3.12.2 Selection of Members. The creation of a committee and appointment of members to it must be approved by the greater of (1) a majority of all the directors in office when the action is taken or (2) the number of directors required by the articles of incorporation to take such action. 3.12.3 Required Procedures. Those Sections of this Article 3 which govern meetings, actions without meetings, notice and waiver of notice, quorum and voting requirements of the board of directors, apply to committees and their members. 3.12.4 Authority. Unless limited by the articles of incorporation, each committee may exercise those aspects of the authority of the board of directors which the board of directors confers upon such committee in the resolution creating the committee. Provided, however, a committee may not: (a) authorize distributions; (b) approve or propose to shareholders action that the Statutes require be approved by shareholders; (c) fill vacancies on the board of directors or on any of its committees; (d) amend the articles of incorporation pursuant to the authority of directors to do so; (e) adopt, amend or repeal bylaws; (f) approve a plan of merger not requiring shareholder approval; 10 (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the board of directors; or (h) authorize or approve the issuance or sale or contract for sale of shares or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the board of directors may authorize a committee (or an officer) to do so within limits specifically prescribed by the board of directors. ARTICLE 4. OFFICERS 4.1 Number of Officers. The officers of the corporation shall be a president, a secretary and a treasurer, each of whom shall be appointed by the board of directors. Such other officers and assistant officers as may be deemed necessary, including any vice presidents, may also be appointed by the board of directors. If specifically authorized by the board of directors, an officer may appoint one or more officers or assistant officers. The same individual may simultaneously hold more than one office in the corporation. 4.2 Appointment and Term of Office. The officers of the corporation shall be appointed by the board of directors for a term as determined by the board of directors. If no term is specified, they shall hold office until the first meeting of the directors held after the next annual meeting of shareholders. If the appointment of officers shall not be made at such meeting, such appointment shall be made as soon thereafter as is convenient. Each officer shall hold office until his successor shall have been duly appointed and shall have qualified until his death, or until he shall resign or is removed. The designation of a specified term does not grant to the officer any contract rights, and the board may remove the officer at any time prior to the termination of such term. 4.3 Removal of Officers. Any officer or agent may be removed by the board of directors at any time, with or without cause. Such removal shall be without prejudice to the contract rights, if any, of the person so removed. Appointment of an officer or agent shall not of itself create contract rights. 4.4 Resignation of Officers. Any officer may resign at any time, subject to any rights or obligations under any existing contracts between the officers and the corporation, by giving notice to the president or board of directors. An officer's resignation shall take effect at the time specified therein, and the acceptance of such resignation shall not be necessary to make it effective. 4.5 President. Unless the board of directors has designated the chairman of the board as chief executive officer, the president shall be the chief executive officer of the corporation and, subject to the control of the board of directors, shall in general supervise 11 and control all of the business and affairs of the corporation. Unless there is a chairman of the board, the president shall, when present, preside at all meetings of the shareholders and of the board of directors. The president may sign, with the secretary or any other proper officer of the corporation thereunder authorized by the board of directors, certificates for shares of the corporation and deeds, mortgages, bonds, contracts, or other instruments which the board of directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the board f directors or by these bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the board of directors from time to time. 4.6 Vice Presidents. If appointed, in the absence of the president or in the event of his death, inability or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designate at the time of their election, or in the absence of any designation, then in the order of their appointment) shall perform the duties of the president, and when so acting, shall have all the powers of, and be subject to, all the restrictions upon the president. 4.7 Secretary. The secretary shall: (a) keep the minutes of the proceedings of the shareholders, the board of directors, and any committees of the board in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (c) be custodian of the corporate records; (d) when requested or required, authenticate any records of the corporation; (e) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder; (f) sign with the president, or a vice president, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the board of directors; (g) have general charge of the stock transfer books of the corporation; and (h) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned by the president or by the board of directors. Assistant secretaries, if any, shall have the same duties and powers, subject to the supervision of the secretary. 4.8 Treasurer. The treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for monies due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such bank, trust companies, or other depositaries as shall be selected by the board of directors; and (c) in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned by the president or by the board of directors. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the board of directors shall determine. Assistant treasurers, if any, shall have the same powers and duties, subject to the supervision of the treasurer. 4.9 Salaries. The salaries of the officers shall be fixed from time to time by the board of directors. 12 ARTICLE 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS, AND EMPLOYEES 5.1 Indemnification of Directors. Unless otherwise provided in the articles of incorporation, the corporation shall indemnify any individual made a party to a proceeding because the individual is or was a director of the corporation, against liability incurred in the proceeding, but only if such indemnification is both (i) determined permissible and (ii) authorized, as such are defined in subsection (a) of this Section 5.1. 5.1.1 Determination of Authorization. The corporation shall not indemnify a director under this Section unless: (a) a determination has been made in accordance with the procedures set forth in the Statutes that the director met the standard of conduct set forth in subsection (b) below, and (b) payment has been authorized in accordance with the procedures set forth in the Statutes based on a conclusion that the expenses are reasonable, the corporation has the financial ability to make the payment, and the financial resources of the corporation should be devoted to this use rather than some other use by the corporation. 5.1.2 Standard of Conduct. The individual shall demonstrate that: (a) he or she conducted himself in good faith; and (b) he or she reasonably believed: (i) in the case of conduct in his official capacity with the corporation, that his conduct was in its best interests; (ii) in all other cases, that his conduct was at least not opposed to its best interests; and (iii) in the case of any criminal proceeding, he or she had no reasonable cause to believe his conduct was unlawful. 5.1.3 Indemnification in Derivative Actions Limited. Indemnification permitted under this Section in connection with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with the proceeding. 13 5.1.4 Limitation on Indemnification. The corporation shall not indemnify a director under this Section of Article 5: (a) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or (b) in connection with any other proceeding charging improper personal benefit to the director, whether or not involving action in his or her official capacity, in which he or she was adjudged liable on the basis that personal benefit was improperly received by the director. 5.2 Advance of Expenses for Directors. If a determination is made following the procedures of the Statutes, that the director has met the following requirements, and if an authorization of payment is made following the procedures and standards set forth in the Statutes, then unless otherwise provided in the articles of incorporation, the corporation shall pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding, if: (a) the director furnishes the corporation a written affirmation of his good faith belief that he has met the standard of conduct described in this section; (b) the director furnishes the corporation a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet the standard of conduct; (c) a determination is made that the facts then known to those making the determination would not preclude indemnification under this Section or the Statutes. 5.3 Indemnification of Officers, Agents and Employees Who Are Not Directors. Unless otherwise provided in the articles of incorporation, the board of directors may indemnify and advance expenses to any officer, employee, or agent of the corporation, who is not a director of the corporation, to the same extent as to a director, or to any greater extent consistent with public policy, as determined by the general or specific actions of the board of directors. 5.4 Insurance. By action of the board of directors, notwithstanding any interest of the directors in such action, the corporation may purchase and maintain insurance on behalf of a person who is or was a director, officer, employee, fiduciary or agent of the corporation, against any liability asserted against or incurred by such person in that capacity or arising from such person's status as a director, officer, employee, fiduciary, or agent, whether or not the corporation would have the power to indemnify such person under the applicable provisions of the Statutes. 14 ARTICLE 6. STOCK 6.1 Issuance of Shares. The issuance or sale by the corporation of any shares of its authorized capital stock of any class, including treasury shares, shall be made only upon authorization by the board of directors, unless otherwise provided by statute. The board of directors may authorize the issuance of shares for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts or arrangements for services to be performed, or other securities of the corporation. Shares shall be issued for such consideration expressed in dollars as shall be fixed from time to time by the board of directors. 6.2 Certificates for Shares. 6.2.1 Content. Certificates representing shares of the corporation shall at minimum, state on their face the name of the issuing corporation and that it is formed under the laws of the State of Nevada; the name of the person to whom issued; and the number and class of shares and the designation of the series, if any, the certificate represents; and be in such form as determined by the board of directors. Such certificates shall be signed (either manually or by facsimile) by the president or a vice president and by the secretary or an assistant secretary and may be sealed with a corporate seal or a facsimile thereof. Each certificate for shares shall be consecutively numbered or otherwise identified. 6.2.2 Legend as to Class or Series. If the corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences and limitations applicable to each class and the variations in rights, preferences and limitations determined for each series (and the authority of the board of directors to determine variations for future series) must be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information on request in writing and without charge. 6.2.3 Shareholder List. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. 6.2.4 Transferring Shares. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in cash of a lost, destroyed, or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the corporation as the board of directors may prescribe. 15 6.3 Shares Without Certificates. 6.3.1 Issuing Shares Without Certificates. Unless the articles of incorporation provide otherwise, the board of directors may authorize the issue of some or all the shares of any or all of its classes or series without certificates. The authorization does not affect shares already represented by certificates until they are surrendered to the corporation. 6.3.2 Information Statement Required. Within a reasonable time after the issue or transfer of shares without certificates, the corporation shall send the shareholder a written statement containing, at a minimum, the information required by the Statutes. 6.4 Registration of the Transfer of Shares. Registration of the transfer of shares of the corporation shall be made only on the stock transfer books of the corporation. In order to register a transfer, the record owner shall surrender the shares to the corporation for cancellation, properly endorsed by the appropriate person or persons with reasonable assurances that the endorsements are genuine and effective. Unless the corporation has established a procedure by which a beneficial owner of shares held by a nominee is to be recognized by the corporation as the owner, the person in whose name shares stand in the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. 6.5 Restrictions on Transfer or Registration of Shares. The board of directors or shareholders may impose restrictions on the transfer or registration of transfer of shares (including any security convertible into, or carrying a right to subscribe for or acquire shares). A restriction does not affect shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of or otherwise consented to the restriction. A restriction on the transfer or registration of transfer of shares may be authorized: (a) to maintain the corporation's status when it is dependent on the number or identity of its shareholders; (b) to preserve entitlements, benefits or exemptions under federal or local laws; and (c) for any other reasonable purpose. A restriction on the transfer or registration of transfer of shares may: (a) obligate the shareholder first to offer the corporation or other persons (separately, consecutively or simultaneously) an opportunity to acquire the restricted shares; 16 (b) obligate the corporation or other persons (separately, consecutively or simultaneously) to acquire the restricted shares; (c) require as a condition to such transfer or registration, that any one or more persons, including the holders of any of its shares, approve the transfer or registration if the requirement is not manifestly unreasonable; or (d) prohibit the transfer or the registration of transfer of the restricted shares to designated persons or classes of persons, if the prohibition is not manifestly unreasonable. A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this Section and its existence is noted conspicuously on the front or back of the certificate or is contained in the information statement required by this Article 6 with regard to shares issued without certificates. Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction. 6.6 Corporation's Acquisition of Shares. The corporation may acquire its own shares and the shares so acquired constitute authorized but unissued shares. If the articles of incorporation prohibit the reissue of acquired shares, the number of authorized shares is reduced by the number of shares acquired, effective upon amendment of the articles of incorporation, which amendment may be adopted by the shareholders or the board of directors without shareholder action. The articles of amendment must be delivered to the Secretary of State and must set forth: (a) the name of the corporation; (b) the reduction in the number of authorized shares, itemized by class and series; (c) the total number of authorized shares, itemized by class and series, remaining after reduction of the shares; and (d) a statement that the amendment was adopted by the board of directors without shareholder action and that shareholder action was not required. ARTICLE 7. DISTRIBUTIONS 7.1 Distributions to Shareholders. The board of directors may authorize, and the corporation may make, distributions to the shareholders of the corporation subject to any restriction sin the corporation's articles of incorporation and in the Statutes. 17 7.2 Unclaimed Distributions. If the corporation has mailed three successive distributions to a shareholder at the shareholder's address as shown on the corporation's current record of shareholders and the distributions have been returned as undeliverable, no further attempt to deliver distributions to the shareholder need be made until another address for the shareholder is made known to the corporation, at which time all distributions accumulated by reason of this Section, except as otherwise provided by law, be mailed to the shareholder at such other address. ARTICLE 8. MISCELLANEOUS 8.1 Inspection of Records by Shareholders and Directors. A shareholder or director of a corporation is entitled to inspect and copy, during regular business hours at the corporation's principal office, any of the records of the corporation required to be maintained by the corporation under the Statutes, if such person gives the corporation written notice of the demand at least five business days before the date on which such a person wishes to inspect and copy. The scope of such inspection right shall be as provided under the Statutes. 8.2 Amendments. The corporation's board of directors may amend or repeal the corporation's bylaws at any time unless: (a) the articles of incorporation or the Statutes reserve this power exclusively to the shareholders in whole or part; or (b) the shareholders in adopting, amending, or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw; or (c) the bylaw either establishes, amends, or deletes, a greater shareholder quorum or voting requirement. Any amendment which changes the voting or quorum requirement for the board must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirements then in effect or proposed to be adopted, whichever are greater. 8.3 Fiscal Year. The fiscal year of the corporation shall be established by the board of directors. DATED this 2nd day of March, 1999. /s/ Kenneth W. Bell __________________________________________ Secretary 18 EX-10.1 9 LEASE BETWEEN WordCruncher Internet Technologies Inc. (W.C.T.I.) AND SLT III, LLC, a Utah limited liability company at 405 East 12450 South Suite H, Draper, Utah, 84020 FOR SPACE AT TOWN SQUARE PROFESSIONAL PLAZA, BLDG. II 405 East 12450 South Suite B DRAPER, UT 84020 December 24, 1998 DATE TABLE OF CONTENTS ARTICLE PAGE 1 DEFINITIONS AND ENUMERATION OF EXHIBITS 3 2 CONSTRUCTION AND ACCEPTANCE OF LEASED PREMISES 4 3 RENT 5 4 COMMON AREAS 6 5 SECURITY DEPOSIT 7 6 USE AND CARE OF LEASED PREMISES 7 7 TENANT'S COVENANT 8 8 MAINTENANCE AND REPAIR OF LEASED PREMISES, ALTERATIONS AND LANDLORDS RIGHT OF ACCESS 8 9 SIGNS, STORE FRONTS AND ROOF 9 10 UTILITIES 10 11 INDEMNITY AND NON-LIABILITY 10 12 INSURANCE 10 13 DAMAGE BY CASUALTY 12 14 EMINENT DOMAIN 12 15 ASSIGNMENT AND SUBLETT1NG 13 16 TAXES 14 17 DEFAULTS AND REMEDIES 14 18 HOLDING OVER EXPIRATION OR TERMINATION 17 19 SUBORDINATION 17 20 MISCELLANEOUS 18 LIST OF SCHEDULES 1 EXHIBIT "A" SITE PLAN 2 EXHIBIT "B" DESCRIPTION OF LANDLORDS WORK 3 EXHIBIT "C" TENANT'S WORK 4 EXHIBIT "D" SIGN CRITERIA 5 EXHIBIT "E" Deleted 6 EXHIBIT "F" Deleted 7 EXHIBIT "G" COMMENCEMENT DATE CERTIFICATE (Sign at Oupancy) LEASE This lease made, December 24, 1998, between SLT, III, a Utah Limited Liability Company, at 405 East 12450 South Suite H, Draper, Utah 84020, referred to as ("Landlord"), and WordCruncher Internet Technologies Inc.,405 E. 12450 So, Ste. B, Draper, Ut. 84020, referred to as ("Tenant") RECITALS In consideration of the obligation of Tenant to pay rent as herein provided and in consideration of the other terms, covenants, and conditions hereof, Landlord hereby leases to Tenant, and Tenant hereby takes from Landlord, the Leased Premises, as defined in Section 1. 1 (b), for the term at the rental, and subject to and upon all of the terms and conditions set forth below: ARTICLE ONE Definitions and Enumeration of Exhibits 1.1 In addition to other terms which are elsewhere defined in this Lease, the following terms when used in the Lease shall have the meanings set forth in this Section, and only such meanings, unless such meanings are expressly limited or expanded elsewhere herein. (a) Office Building: Town Square Professional Plaza Phase N,("Building"), situated in Draper City, County of Salt Lake, State of Utah, which as of the date hereof is as shown on Exhibit "A". (b) The Leased Premises: That portion of Building which is shown as the crosshatched area on Exhibit "A". The Leased Premises are deemed to contain 3994 square feet of Gross Rentable Area ("Tenants Square Footage"), but reserving and excepting to Landlord the use of the roof and exterior walls and beneath the floor of the Leased Premises and the right to install, maintain, use repair, and replace pipes, ducts, conduits, wires, and appurtenant fixtures, leading through the Leased Premises in locations which will not materially interfere with the Tenants use thereof. Total Square Footage of the Building shall mean 24,960 square feet of Gross Rentable Area. Space Designated Ste. B & C, shall have useable square footage of 3,600 square feet which shall consist of the net square feet from the outside of the exterior walls within the designated leased premises exclusive of any common areas in the Building. (c) Ready For Occupancy: When Landlords Work on the Leased Premises as described in Exhibit "B", hereto attached, has been substantially completed (except for minor finishing operations or items necessarily awaiting performance of Tenants Work). (d) Rental Commencement Date: Either (i) March 15, 1999 provided the Leased Premises are ready for occupancy or by the Scheduled Completion Date, or (ii) sixty (60) days following the date on which the Leased Premises are Ready for Occupancy. (e) Lease Term or Term: 38 months Lease Years, as hereinafter defined. This Lease shall terminate on the last day of the calendar month in which such date falls. Landlord and Tenant agree that upon the demand of the other they shall execute a document establishing the date on which the Term commenced as soon as such date has been established in Exhibit "G". Termination Date: March 31, 2002. (f) Scheduled Completion Date/Scheduled Lease Commencement Date: January 15, 1999. (g) Base Rent: $44,932.50 ($11.25 per square foot of Tenants Gross Rentable Area Square Footage) per year, payable in monthly installments of $3,744.38 plus applicable sales tax, if any; the total Base Rent payable over the entire Lease Term is $136,669.87 (this does not reflect annual increases) . Base Rent Adjustment Date shall mean the first day of April, in each year of the Lease Term commencing 2000. (h) DELETED (i) Advance Deposit: $5,075.71 applied as first month's rent and CAM fee. (j) Security Deposit: $5,075.71 equal to (1) months base rental amount and CAM fee. (k) Tenant's Trade Name: WordCruncher Internet Technologies Inc. ("WCTI") (l) Tenant's Work: Those items set forth in Exhibit "C" to be performed by Tenant. 3 (m) Landlord's Work: Those items set forth in Exhibit "B" (n) Landlord's Mailing Address: SLT, III, a Utah Limited Liability Company, 405 East 12450 South Suite H, Draper, Utah, 84020, or such other address as may from time to time be designated by Landlord in a written notice to Tenant. (o) Tenant's Mailing Address: 405 E. 12450 So. Ste. B Draper Utah 84020 --------------------------------------------- street city state zip code (p) Use of Leased Premises. The Leased Premises may be used only for general business office (provided that Landlord make no representation or warranty that such use is permitted under applicable law), and for no other purpose. (q) Common Areas: Those areas of the Building which are from time to time open for joint use by tenants of the Building or by the public including, without limiting the generality of the foregoing, parking areas, driveways, security areas, truckways, delivery passages, walkways, concourses, planted areas, landscaped areas, and public restrooms, break rooms, mechanical room, common truck loading and receiving areas which are not leased to or reserved for individual tenants based upon a (%) percentage of Tenant's gross square footage. Common Area Maintenance Fee ("CAM"): $1,331.33. An estimated monthly amount based on $4.00 per square foot of gross rentable area. This amount will not increase in an amount more then 5% annually. (r) Gross Rentable Area: In consideration of the Base Rent and the provisions of this Lease, Landlord leases to Tenant and Tenant accepts from Landlord the Leased Premises. Tenant's Square Footage is a stipulated amount based on Landlord's method of determining Total Gross Squire Footage for rental purposes and may not reflect the actual amount of useable floor space available for Tenant's use. (s) Liability Insurance Limits: Tenant shall, at its own expense, procure and maintain during the Lease Term comprehensive general liability insurance with respect to the Leased Premises and Tenant's activities in the Leased Premises, providing bodily injury, broad form property damage with a maximum $ 1,000 deductible, as follows: (1) $1,000,000 with respect to bodily injury or death to any one person. (2) $2,000,000 with respect to bodily injury or death arising out of any one occurrence. (3) $1,000,000 with respect to property damage or other loss arising out of any one occurrence. (4) fire and extended casualty insurance covering Tenant's trade fixtures, merchandise and other personal property in an amount not less than 100% of their actual replacement cost, and (5) worker's compensation insurance in it least the statutory amounts. (t) Occupancy Date: In the event that the Occupancy Date of this Lease precedes the Rental Commencement Date, the parties hereto agree to be bound by all the terms and provisions hereof, with the exception of Tenant's obligation to pay rent, as of the Occupancy Date. The foregoing shall in no way affect the obligations of the parties under all terms and conditions of the Lease as of the Rental Commencement Date. (u) Tenant means each person executing this Lease as a Tenant under this Lease. If more than one person is set forth on the signature line as Tenant, their liability under this Lease share be joint and several. If more than one Tenant exists, any notice required or permitted by the terms of this Lease may be given by or to any one Tenant, and shall have the same force and effect as if given by or to all persons comprising Tenant. (v) Tenant's Percentage of Operating Expenses means 16.0% percent, which is the result obtained by dividing the gross rentable square feet of the Leased Premises by the gross rentable square feet of all Premises within the Building as reasonably determined by Landlord. Throughout this agreement, the term "Operating Expenses" is used synonymously with, but not in addition to "Common Area Maintenance Fees or CAM". (w) Tenants Federal ID # 84-137O59O 1.2 The exhibits enumerated in this Section (if used) and attached to this Lease are incorporated in this Lease by this reference and are to be construed as a part of this Lease. (a) Exhibit "A" Site Plan (b) Exhibit "B" Landlord's Work (c) Exhibit "C" Tenant's Work (d) Exhibit "D" Sign Criteria (e) Exhibit "E" Deleted (f) Exhibit "F" Deleted (g) Exhibit "G" Commencement Date Certificate ARTICLE TWO Construction and Acceptance of Leased Premises 2.1 Landlord's Work. Landlord agrees that it will complete Landlord's Work as defined on Exhibit "B" with such minor variations as Landlord may deem advisable. Tenant shall have no right to enter or occupy the Leased Premises until the Leased Premises are Ready for Occupancy. If Landlord shall for any reason fail to complete that part of Landlord's Work which is required in the Leased Premises prior to the Scheduled Completion Date, Landlord shall not be deemed to be in default hereunder or otherwise liable for damages to Tenant nor shall the Term or any provision of the Lease be affected, other then the Lease Commencement Date and the Rental Commencement Date. Should Landlord fail to complete Landlord's Work and deliver possession of the Leased Premises to Tenant within one month of the date hereof, either party may terminate this Lease by written notice to the other party. In such event, Landlord shall return Tenant's Advance Deposit and Security Deposit and this Lease shall be null and void and the parties shall have no liability to each other. 2.2 Tenant's Work. Tenant agrees to submit to Landlord within thirty (30) days after the date of the Lease, plans and specifications in such detail as Landlord may reasonably request covering Tenant's Work (Tenant finish on leased premises) as specified in Exhibit "C", and any other work which Tenant proposes to do in the Leased Premises. Such plans and specifications shall comply with all requirements set forth in Exhibit "B". Tenant shall not commence any work in the Leased Premises until Landlord has approved such plans and specifications in writing, which approval shall not be unreasonably withheld or delayed. 2.3 Occupancy. When the Leased Premises are Ready for Occupancy, Tenant agrees to accept possession thereof and to proceed with due diligence to perform Tenant's Work as described in Tenants approved plans and specifications, and to install its fixtures, furniture and equipment in the Leased Premises. By occupying the Leased Premises, Tenant shall be deemed to have acknowledged that the Landlord has complied with all of its covenants and obligations with respect to the construction of the Leased Premises except for latent defects of which Tenant advises Landlord within one (1) year of the date of delivery of the Leased Premises to Tenant. In the event of any dispute concerning work performed or required to be performed in the Leased Premises by Landlord or Tenant, the matter in dispute shall be submitted to Landlord's architect for determination and his certificate with respect thereto shall be binding on Landlord and Tenant. 2.4 Parking. Landlord may, from time to time, change, alter and expand the buildings, and/or the Common Areas then existing around the Buildings and/or the Common Areas to be constructed, in the Building, provided that in no event shall there be provided less than the minimum parking facilities as set forth in Section 4.1 hereof, or required by the municipality regulations. 2.5 Notices. Any notice or other communication required or permitted to be given under this Lease must be in writing and shall be effectively given or delivered if hand delivered to the addresses for Landlord and Tenant stated below, or if sent by certified United States Mail, return receipt requested, to said addresses. Notice effected by hand delivery shall be deemed to have been received at the time of actual delivery. Any notice mailed shall be deemed to have been received upon the earlier of (a) actual receipt, (b) refusal thereof, or (c) three (3) days after mailing of same. Either party shall have the right to change its address to which notices shall thereafter be sent and the party to whose attention such notice shall be delivered by giving the other party notice thereof in accordance with the provisions of this Paragraph 20. 1. Until such time as either party shall change its address for notices, notices shall be forwarded as follows: To Landlord: SLT III, LLC 405 East 12450 South Suite H Draper, UT 84020 ATTN: Stephen L. Tripp To Tenant: WordCruncher Internet Technologies, Inc. ("WCTI") 405 East 12450 South Suite B Draper, UT 84020 ARTICLE THREE Rent 3.1 Place of Payment. Rental and other charges due and payable hereunder shall accrue hereunder from the Rental Commencement Date until the termination of the Lease and shall be payable in advance, without demand, deduction or set-off at Landlord's mailing address or at such place as Landlord may designate. 3.2 Date of Payment. Tenant covenants and agrees to pay to Landlord the Base Rent in twelve (12) equal monthly installments. The first such monthly installment shall be due and payable on or before the Rental Commencement Date (except that if the Rental Commencement Date falls on a day other than the first day of a calendar month, the first payment shall be an amount equal to that percentage of a monthly installment which the number of days from the Rental Commencement Date to the end of such calendar month bears to the total number of days in such month). 3.3 Annual Increase. On the annual anniversary date of the lease period, the landlord shall be entitled to increase the base rent (2%) of the prior (12) month period lease payment, which shall be added to the monthly base rent and paid on a monthly basis at the same time as is required for the base rent. ARTICLE FOUR Common Areas 4.1 Parking. Landlord agrees that it will maintain parking facilities adjacent to the Building or in reasonable proximity thereto, which shall contain at all times after Tenant has opened the Premises to the public for business adequate parking spaces, provided, however, that if a portion or portions of the parking area shall be taken for any public or quasi-public use under any governmental law, ordinance or regulation or by right of eminent domain or by private purchase under threat thereof, Landlord shall be relieved of its obligations to provide parking facilities in accordance with this Section to the extent that such parking facilities cannot be provided without unreasonable expense, or in reasonable proximity to the Building. 4.2 Use. Tenant, and its licensees, concessionaires, employees and customers shall have the non-exclusive right to use the Common Areas as constituted from time to time, such use to be in common with Landlord, other tenants of the Building and other persons entitled to use the Common Areas, subject to such reasonable rules and regulations as Landlord may from time to time prescribe. Tenant shall not interfere with the rights of other persons to use the Common Areas. Landlord may temporarily close any part of the parking facilities or other portions of the Common Areas for such period of time as may be necessary for (i) temporary use as a work area in connection with the construction, repairs or building maintenance of buildings or other improvements within the or contiguous property, (ii) repairs or alterations in or to the Common Areas or to any sewers, utility facilities or distribution lines located with the Common Areas, (iii) preventing the public from obtaining prescriptive rights in or to the Common Areas, (iv) security reasons or (v) doing and performing such other acts (whether similar or dissimilar to the foregoing) in, to and with respect to, the Common Areas as in the use of good business judgment the Landlord shall determine to be appropriate for the Building, provided however, that Landlord shall use reasonable efforts not to unduly interfere with or disrupt Tenant's business. 4.3 Common Area Maintenance Costs. Tenant agrees to pay as additional rent, as herein provided and described in subparagraphs 1.1q and 1.1v, its proportionate share of expense incurred by Landlord at its discretion for the operation and maintenance of the above Building, ("Operating Expenses"), including without limiting the generality of the foregoing, costs, if any, incurred for lighting, painting, cleaning, Quarterly HVAC maintenance, central trash disposal, traffic control, policing, licenses, permits, inspecting, removal of snow and ice, landscaping, activities, management services, administrative services, including, without limitation, labor and personnel, and in general, all costs labor, materials supplies, equipment and tools required for maintaining, repairing and replacing the Common Areas, costs expanded by the Landlord to place and keep the Landlord's property in compliance with all future governmental regulations, or any part thereof together with a reasonable allowance for Landlord's direct overhead, depreciation of maintenance equipment, hazard and public liability insurance and property damage insurance, the costs, expenses and fees of the following real and personal property taxes and assessments (and any tax levied in whole or in part in lieu of or in addition to such taxes and assessments), rent and gross receipts, taxes, or other person under a common maintenance regime (janitorial), all water, electricity, natural gas, sewer use consumed in the Building which is not separately metered to tenants (single or multiple) but excluding depreciation of Landlord's original investment in the Building, legal services, real estate brokerage and lease commissions, Landlord's income taxes, income tax accounting, interest, general corporate overhead or capital improvements to the Building except for capital improvements installed for file purpose of reducing or controlling expenses. If any expense, though paid in one year, relates to more than one calendar year, at option of Landlord, such expense may be proportionately allocated among such related calendar years. Tenant shall have sole responsibility for and shall pay when due all taxes, assessments, charges and fees levied by any governmental or quasi- governmental authority on Tenant's use of the Leased Premises or any leasehold improvements, personal property or fixtures kept or installed in the Leased Premises by Tenant. If any of Tenant's leasehold improvements, personal property or fixtures are assessed and taxed with the Building, Tenant shall within ten (10) days after delivery to Tenant of a written statement setting forth the amount of taxes applicable to Tenant's leasehold improvements, personal property or fixtures, pay such amounts to Landlord, pertaining to the percentage of the premises occupied by the tenant. In addition to the excluded Common Area Maintenance Costs cited above, the following expense items are also excluded: mortgage payments, expenses incurred to the sole benefit of (or arising from) other tenants in the complex, including but not limited to: a) the leasing of other portions of the complex; b) rent collection from other tenants of the complex; c) litigation, property damage, building additions and/or modifications to the sole benefit (or arising from) other tenants of the complex. Landlord agrees to use best efforts to minimize the Common Area Maintenance costs while complying with Landlord's responsibilities in a competent and professional manner. Upon written request by Tenant, Landlord agrees to furnish reasonable documentation of CAM fee calculations. Each of the following words and phrases shall have the meaning set forth: (a) "Operating Year" means each calendar year ending during the Term and the calendar year ending on or immediately following the last day of the Term. (b) "Operating Expenses" means collectively, all reasonable costs, expenses and fees incurred or payable by Landlord in connection with the Lease and the ownership, operation, management, maintenance and repair of the Building, determined in accordance with the reasonable accounting procedures and business practices customarily employed by Landlord, including, without limitation, those costs listed above in this Paragraph 4.3. (c) "Estimated Operating Expenses" means the projected amount of Operating Expenses for any given Operating Year as estimated by Landlord in Landlord's reasonable discretion. (d) "Tenant's Estimated Share of Operating Expenses" means the result obtained by multiplying Tenant's Percentage of Operating Expenses by the Estimated Operating Expenses. Tenant's Estimated Share of Operating Expenses for any fractional Operating Year shall be calculated by determining Tenant's Estimated Share of Operating Expenses to the such fractional Operating Year. (e) "Tenant's Share of Operating Expenses" means the result obtained by multiplying Tenant's Percentage of Operating Tenant's Share of Operating Expenses for any fractional Operating Year shall be calculated by determining Tenant's Share of Operating Expenses for the relevant Operating Year and then prorating such amount over such fractional Operating Year. Tenant's proportionate share of Operating Expenses shall be computed by multiplying Operating Expenses by a fraction, the numerator of which shall be the number of square feet of Gross Rentable area of the Leased Premises and the denominator of which shall be the number of square feet of Gross Rentable Area within the building. In additional to the Base Rent, Tenant covenants to pay to Landlord without abatement, deduction, offset, prior notice (except as provided in this Paragraph 4.3) or demand Tenant's Share of Operating Expenses in lawful money of the United States at such place as Landlord may designate in accordance with the provisions of this Paragraph 4.3, in advance on or before the first day of each calendar month during the Term, commencing on the Commencement Date and prior to each Operating Year after the Commencement Date. If reasonably practicable, Landlord shall furnish Tenant with a written statement (the "Estimated Operating Expenses Statement") showing in reasonable detail the computation of Tenant's Estimated Share of Operating Expenses. On or prior to the Commencement Date, and on the first day of each month following the Commencement Date, Tenant shall pay to Landlord one-twelfth (1/12th) of Tenant's Estimated Share of Operating Expenses as specified in the Estimated Operating Expenses as specified in the Estimated Operating Expenses Statement for such Operating Year. If Landlord fails to give Tenant an Estimated Operating Expenses Statement prior to any Operating Year, Tenant shall continue to pay on the basis of the Estimated Operating Expenses Statement for the prior Operating Year until the Estimated Operating Expenses Statement for the current Operating Year is received. If at any time it appears to Landlord that the Operating Expenses will vary from Landlord's original estimate, Landlord may deliver to Tenant a revised Estimated Operating Expenses Statement for such Operating Year, and subsequent payments by Tenant for such Operating Year shall be based on such revised statement. Within a reasonable time after the expiration of any Operating Year, and subsequent payments by Tenant for such Operating Year, Landlord shall furnish Tenant with a written statement (the "Actual Operating Expenses Statement") showing in reasonable detail the computation of Tenant's Share of Operating Expenses for such Operating Year and the amount by which such amount exceeds or is less than the amounts paid by Tenant during such Operating Year. If the Actual Operating Expenses Statement indicates that the amount actually paid by Tenant for the relevant Operating Year is less than Tenant's Share of Operating Expenses for such Operating Year, Tenant shall pay to Landlord such deficit within thirty (30) days after delivery of the Actual Operating Expenses Statement. Such payments by Tenant shall be made notwithstanding that the Actual Operating Expenses Statement is furnished to Tenant or within three (3) months of terminating this lease. If the Actual Operating Expenses Statement indicates that the amount actually paid by Tenant for the relevant Operating Year exceeds Tenant's Share of Operating Expenses to such Operating Year, such excess shall be applied against any amount then payable or to become payable by Tenant under this Lease. No failure by Landlord to require the payment of Tenant's Share of Operating Expenses for any period shall constitute a waiver of Landlord's right to collect such amount for such period or for any subsequent period. Nothing contained in this paragraph shall be constructed so as to reduce the Base Rent. Every statement given to Tenant by Landlord under this Lease, including, without limitation, any statement given Tenant pursuant to Paragraph 4.3, shall be conclusive and binding on Tenant unless within forty-five (45) days after the receipt of such statement, Tenant notifies Landlord that Tenant disputes the correctness of such statement, specifying the particular respects in which the statement is claimed to be incorrect. Pending the determination of such dispute by agreement between Landlord and Tenant, Tenant shall within thirty (30) days after receipt of such statement, pay the amounts set forth in such statement in accordance with such statement and such payment shall be without prejudice to Tenant's position. If such dispute exists and it is subsequently determined that Tenant has paid amounts in excess of those then due and payable under this Lease, Landlord, at Landlord's option, shall either apply such excess to an amount to become payable under this Lease or return such excess to Tenant. Landlord shall grant to an independent certified public accountant retained by Tenant reasonable access to Landlord's books and records for the purpose of verifying Operating Expenses incurred by Landlord at Tenant's expense. ARTICLE FIVE Security Deposit 5.1 Payment and Refund. On the date of Signing this Lease, Tenant shall deposit with Landlord the Security Deposit as security for the faithful performance by Tenant under this Lease. The Security Deposit shall be returned (without interest) to Tenant (or, at Landlord's option, to the last assignee of Tenant's interest under this Lease) after the expiration of the Term or earlier termination of this Lease and delivery of possession of the Leased Premises to Landlord in accordance with Paragraph 18.2 if, at such time, Tenant is not in default under the Lease. If Landlord's interest in the Lease is conveyed, transferred or assigned, Landlord shall transfer or credit the Security Deposit to Landlord's successor in interest, and Landlord shall be released from any liability for the return of the Security Deposit. Landlord may intermingle the Security Deposit with Landlord's own funds, and shall not be deemed to be a trustee of the Security Deposit. If Tenant fails to timely pay or perform any obligation under this Lease, Landlord may, prior to, concurrently with or subsequent to, exercising any other right or remedy, use, apply or retain all or any part of the Security Deposit for the payment of any monetary obligation due under this Lease, or to compensate Landlord for any other expenses, loss or damage which Landlord may incur by reason of Tenant's failure, including any damage or deficiency in the reletting of the Leased Premises. If all or any portion of the Security Deposit is so used, applied or retained, Tenant shall immediately deposit with Landlord cash in an amount sufficient to restore the Security Deposit to the original amount. Landlord may withhold the Security Deposit after the expiration of the Term or earlier termination of the Lease until Tenant has paid in full Tenant's Share of Operating Expenses for the Operating Year in which such expiration or earlier termination occurs. The Security Deposit is not a limitation on Landlord's damages or other rights under this Lease, a payment liquidated damages or prepaid rent and shall not be applied by Tenant to the rent for the last (or any) month of the Term, or to any other amount due under this Lease. If this Lease is terminated due to any default of Tenant, any portion of the Security Deposit remaining at the time of such termination shall immediately inure to the benefit of Landlord as partial compensation for the costs and expenses incurred by Landlord in connection with this Lease and shall be in addition to any other damages to which Landlord is otherwise entitled. ARTICLE SIX Use and Care of Leased Premises 6.1 Use. Tenant shall in good faith continuously throughout the Term of this Lease conduct and carry on in the entire Leased Premises the type of business described in Section 1.1 (p) and the Leased Premises shall not be used for any other purpose. Tenant shall use Tenant's Trade Name in the transaction of business in the Leased Premises. Tenant shall not sell, display or solicit sales in the Common Areas. Tenant shall not use or permit the use of any vending machines or public telephones on, at, or about the Leased Premises except any located in nonpublic areas for the benefit of Tenant's employees, without the prior written consent of Landlord. Tenant shall not commit waste, perform any acts or carry on any practices which may injure the Building or be a nuisance or menace to other tenants in the Building. 6.2 Compliance With Law. In the use and occupancy of the Leased Premises, Tenant shall comply with all laws and ordinances and all valid rules and regulations of the United States; all governmental units or agencies having jurisdiction and any other applicable government or agency thereof and all requirements of any public or private agency having authority over insurance rates 6.3 Temperature. Tenant shall at all times keep the Leased Premises at a temperature sufficiently high to prevent freezing of water pipes and fixtures. 6.4 Hazardous Materials. Tenant agrees that Tenant, its agents and contractors, licensees, or invitees shall not handle, use, manufacture, store or dispose of any flammables, explosives, radioactive materials, hazardous wastes or materials, toxic wastes or materials, or other similar substances, petroleum products or derivatives (collectively "Hazardous Materials") on, under, or about the Leased Premises, without Landlord's prior written consent (which consent may be given or withheld in Landlord's sole discretion), provided that Tenant may handle, store, use or dispose of products containing small quantities of Hazardous Materials, which products are of a type customarily found in offices and households (such is aerosol cans containing insecticides, toner for copies, paints, paint remover, and the like), provided further that Tenant shall handle, store, use and dispose of any such Hazardous Materials in a safe and lawful manner and shall not allow such Hazardous Materials to contaminate the Leased Premises or the environment. 6.5 Hold Harmless. Without Limiting the above, Tenant shall reimburse, defend, indemnifv and hold Landlord harmless from and against any and all claims, losses, liabilities, damages, costs and expenses, including without limitation, loss of rental income, loss due to business interruption, and attorneys' fees and costs, arising out of or in any way connected with the use, manufacture, storage, or disposal of Hazardous Materials by Tenant, its agents or contractors on, under or about the Leased Premises, including without limitation the costs of any required or necessary investigation, repair, cleanup or detoxification and the preparation of any closure or other required plans in connection herewith, whether voluntary or compelled by governmental authority. The indemnity obligations of Tenant under this clause shall survive any termination of the Lease. 6.6 Third Parties. Notwithstanding anything set forth in this Lease, Tenant's obligation under Paragraph 6.5 shall apply only to hazardous Materials brought on the Leased Premises by Tenant or the agents or contractors during the Lease Term and during any other period of time during which Tenant is in actual or constructive possession of the Leased Premises. Tenant shall take reasonable precautions to prevent the contamination of the Leased Premises with Hazardous Materials by third parties. ARTICLE SEVEN Tenant's Covenant 7.1 Conduct of Business. Tenant shall use space as stated in accordance with Section 1.1 (p). 7.2 Nuisance. Tenant (i) will keep all mechanical apparatus free of vibration or noise which may be transmitted beyond the confines of the Leased Premises; (ii) will not cause or permit odors to eliminate from the Leased Premises; (iii) will not load or unload or permit the loading or unloading of merchandise, supplies or other property except within the area designated by Landlord from time to time; and (iv) will not permit the parking or standing outside of such designated area, of trucks, trailers or other vehicles or equipment engaged in such loading or unloading; (v) Tenant has the right to ship small to medium freight from the Leased Premises via overnight carriers. 7.3 Cleanliness. Tenant (i) will keep clean the inside and pay through the Cam Fee for all cleaning of outside glass in the doors and windows of the Leased Premises; (ii) will replace promptly at its own expense with glass of like kind and quality any plate or window glass that is broken by the Tenant, Tenant's permitted assignees, sublessees, customers, invitees, employees licensees or concessionaires; (iii) will replace doors or door hardware of the Leased Premises which may become cracked or broken as a result of misuse or abuse by the Tenant, Tenant's permitted assignees, sublessees, customers, invitees, employees licensees or concessionaires; (iv) will maintain the Leased Premises in a clean, orderly and sanitary condition and free of insects, rodents, vermin, and other pests; (v) will not permit undue accumulation of garbage, trash, rubbish or other refuse in the Leased Premises; (vi) will keep such refuse in proper containers inside the Leased Premises until such time as same is called for to be removed, and (vii) will cause diffusers and grease traps (if any) to be cleaned not less frequently than monthly and fire extinguisher to be checked not less frequently than annually. ARTICLE EIGHT Maintenance and Repair of Leased Premises, Alterations and Landlord's Right of Access 8.1 (a) Landlord's Responsibility. Landlord shall keep the foundation, the roof and the exterior walls of the Leased Premises (except plate glass doors, door closures, door frames, store fronts, windows and window frames located in exterior building walls) in good repair, except that Landlord shall not be required to make any repairs occasioned by the act or neglect of Tenant, its permitted assignees, sublessees, servants, agents, employees, licensees, or concessionaires or the servants, agents, employees, licensees, or concessionaires of Tenants permitted assignees or sublessees or any damage caused by or as a result of Tenant's occupancy of Leased Premises, or any damage caused by break-in, burglary, or other similar acts in or to the Leased Premises. In the event that the Leased Premises shall become in need of repairs required to be made by Landlord hereunder, Tenant shall give prompt written notice thereof to Landlord, and Landlord shall not be responsible in any way for failure to make any such repairs until a reasonable time shall have elapsed after the giving of such written notice. (b) Landlord's Responsibility (covered under "CAM") Landlord shall at its sole cost and expense and discretion of the CAM fee, keep the Leased Premises in a safe, sightly, and serviceable condition, and hereof, make all needed maintenance, repairs. ,and replacements for the proper operation of Tenant's business within the leased Premises, including, but not limited to, all maintenance, repairs, and replacements to (i) the heating, ventilating, and air conditioning system serving the Leased Premises; (ii) the exterior portion of all doors, windows, window frames, plate glass, door closures, door frames, and store fronts; (iii) all plumbing and sewage facilities within the Leased Premises, including free flow up to the connection to the main sewer line; (iv) all electrical systems serving the Leased Premises (whether or not located within the Leased Premises); (v) all sprinkler systems serving the Leased Premises; (vi) all repairs, replacements, or alterations required by any governmental authority (including, but not limited to), alterations as shall be required for compliance with the Americans with Disabilities Act of 1990, as now or hereafter amended, and the rules and regulations from time to time promulgated thereunder. 8.2 Tenant Responsibility. Tenant shall at its sole cost and expense, keep the Leased Premises in a safe, sightly, and serviceable condition hereof, make all needed maintenance, repairs, and replacements for the proper operation of Tenant's business within the Leased Premises, including, but not limited to, all maintenance, repairs, and replacements to (i) all trade fixtures within the Leased Premises; (ii) all interior walls, floors, and ceilings; (iii) any of Tenant's Work; (iv) all necessary repairs and replacement of Tenant's trade fixtures required for the proper conduct and operation of Tenant's business. 8.3 Tenant Alterations and Repairs. Tenant shall not make any alterations, additions, or replacements to the Leased Premises, or any repairs required of Landlord under Paragraph 8. 1 of this Lease, without the prior written consent of Landlord, except for Tenant's Work and the installation of unattached moveable fixtures which may be installed without drilling, cutting, otherwise defacing the Leased Premises. All alterations, additions and improvements made in and to the Leased Premises and all floor covering that is cemented or adhesively fixed to the floor and all fixtures (other than trade fixtures) which are installed in the Leased Premises shall remain in and be surrendered with the Leased Premises and shall become the property of Landlord at the expiration or earlier termination of this Lease. So long as Tenant is not in default hereunder, Tenant shall have the right to remove its trade fixtures from the Leased Premises, provided that Tenant shall repair and restore any damage to the Leased Premises, caused or occasioned by such removal. 8.4 Approval of Work. All Tenants work and all repairs, alterations, additions and improvements done by Tenant within the Leased Premises shall be performed in a good and workmanlike manner, in compliance with all governmental requirements, and at such times and in such manner as will cause a minimum of interference with other construction in progress and with the transaction of other Tenants in the Building. Whenever Tenant proposes to do any construction work within the Leased Premises, Tenant shall first furnish to Landlord plans and specifications covering such work in such detail as Landlord may reasonably request. Such plan and specifications shall comply with such requirements as Landlord may from time to time prescribe to construction within the Building and shall be in compliance with all applicable laws and governmental and quasi-governmental rules and regulations, including without limitation, the Americans with Disabilities Act of 1990, as now or hereafter amended. In no event shall any construction work be commenced within the Leased Premises without Landlord's written approval of such plans and specifications. Landlord's approval shall be conclusively deemed given unless Landlord objects or comments within thirty (30) days following tender of said plans and specifications. At least thirty (30) days prior to the commencement of any approved construction work, Tenant agrees to deliver or cause to be delivered to Landlord, policies or certificates of insurance in companies licensed to do business in the state in which the Building is located, and in a form satisfactory to Landlord, providing public liability insurance coverage of not less than $2,000,000 single limit coverage, said policy or policies naming Tenant, its general contractor, all subcontractors, Landlord and its employees as insured parties and covering any and all liability arising out of or in any manner connected with the work to be performed on the Leased Premises by Tenant and additionally Tenant shall deliver a policy or certificate of insurance evidencing worker's compensation coverage. All such certificates and policies shall provide that Landlord shall be given a minimum of thirty (30) days written notice by any insurance company prior to cancellation, termination or change of any coverage. 8.5 Inspection. Landlord shall have the right, but not the duty, to enter the Leased Premises at any time for the purpose of inspecting the same, or of making repairs to the Leased Premises, or of making repairs, alterations, or additions to adjacent property, or of showing the Leased Premises to lenders or prospective lenders or to prospective purchaser of tenants with (24) hours notice, except in the case of emergency. Landlord may place "For Rent" signs on the windows of the Leased Premises ninety (90) days prior to the expiration of the Lease. 8.6 Liens. Tenant shall not suffer or permit any materialmen's, mechanics' artisans' or other liens to be filed or placed or exist against the land or building or which the Leased Premises are a part, or Tenant's interest in the Leased Premises by reason of work, services or materials supplied or claimed to have been supplied to Tenant or anyone holding the Leased Premises or any part thereof through or under the Tenant, and nothing contained in this Lease shall be deemed or construed in any way as constituting the consent or request of Landlord, expressed or implied, to any contractor, subcontractor, laborer or materialman to the performance of any labor or the furnishing of any materials for any improvements, alterations or repairs of the Leased Premises or any part thereof, nor as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of a materialmen's, mechanics' or other lien against the Leased Premises or the Building. If any such lien should, at any time, be filed, Tenant shall cause the same to be discharged of record within fifteen (15) days after the date of filing the same. If Tenant shall fail to discharge such lien within such period, then, in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or by procuring the discharge of such lien by a deposit in court or by posting a bond. Any amount paid by Landlord by any of the aforesaid purposes, or for the satisfaction of any other lien not caused by Landlord, and all reasonable expenses of Landlord in defending any such action or in procuring the discharge of such lien, shall be deemed additional rent hereunder and shall be repaid by Tenant to Landlord on demand. 8.7 Landlord Liability. Landlord shall not be liable to Tenant for any interruption of Tenant's business or inconvenience caused Tenant or Tenant's permitted assignees, sublessees, customers, invitees, employees, licensees or concessionaires in the Leased Premises on account of Landlord's performance of any repair, maintenance or replacement in the Leased Premises or any other work therein pursuant to Landlord's right or obligations under the Lease. The Landlord will, however, be liable to the Tenant, if the Landlord, or Landlord's assignees, agents, employees, licensees, or invitees are guilty of willful misconduct or are found to be grossly negligent in the interruption of the Tenant's business or inconvenience caused Tenant or Tenant's permitted assignees, sublessees, customers, invitees, employees, licensees or concessionaires. ARTICLE NINE SIGNS 9.1 Modifications Prohibited. Tenant shall not (i) paint, decorate or make any changes to the front of the Leased Premises, (ii) install any exterior lighting, awning, or protrusions, or any exterior signs, advertising matter, decorations or painting, (iii) install ,any drapes, blinds, shades or other coverings on exterior windows and doors, (iv) affix any window or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Leased Premises, excepting only dignified displays of customary type. All approved signs or letterings on doors shall be printed, painted and affixed at the sole cost of Tenant by a person approved by Landlord, and shall comply with the requirements of the governmental authorities having jurisdiction over the Building. Tenant shall at all times keep all signs in good condition, in proper operating order and in accordance with all applicable government regulations. Landlord may, at Tenant's cost, and without notice or liability to Tenant, enter the Leased Premises and remove any item erected in violation of this Paragraph 9. 1. Landlord may establish rules and regulations governing the size, type and design of all such items and Tenant shall abide by such rules and regulations. Use of roof of the Leased Premises is reserved to Landlord, and Landlord may install upon the roof equipment, signs, antenna, displays, and other objects and may construct additional space above the Leased Premises, provided any such use does not unreasonably interfere with Tenant's occupancy of the Leased Premises. If Landlord should undertake any remodeling or renovation of the Building, which requires modification of Tenant's signs, then Tenant shall, if required by Landlord, conform to the standard Sign Criteria used for such remodeling or renovation. ARTICLE TEN Utilities 10.1 Landlord Provider. Landlord agrees to cause to be provided such mains, conduits and other facilities necessary to supply electricity, water, sewer, telephone and gas (if available) to the Leased Premises, in accordance with and subject to any special provisions contained in Exhibit "B". 10.2 Tenant Responsibility. Tenant shall promptly pay all changes for telephone furnished to the Leased Premises, including any and all connection fees, or a portion thereof, attributable to Tenant's use of such services. Tenant shall pay for all other utilities to the unit through the monthly CAM assessment. 10.3 Interruption. Landlord shall not be liable in the event of any interruption in the supply of any utilities. The Landlord will however, be liable to the Tenant, if the Landlord, or Landlord's assignees, agents, employees, licensees, or invitees are guilty of misconduct or are found to be grossly negligent in the interruption of utilities that are provided to the Tenant's business. Tenant agrees that it will not install any equipment which will exceed or overload the capacity of any utility facilities serving the Leased Premises and that if any equipment installed by Tenant shall require additional utility facilities, the same shall be installed at Tenant's expense in accordance with plans and specifications to be approved in writing by Landlord. 10.4 Deleted. ARTICLE ELEVEN Indemnity and Non-Liability 11.1 Hold Harmless. Tenant does hereby agree to indemnify and hold harmless Landlord from and against any and all liability for any injury or the death of any person or persons or any damage to property in any way arising out of or connected with the condition, use or occupancy of the Leased Premises, or in any way arising out of the activities of Tenant, its permitted assigns or sublessees or of the respective agents, employees, licensees, concessionaires or invitees of Tenant in the Leased Premises, Common Areas or other portions of the Building and from all costs, expenses and liabilities, including but not limited to court costs and reasonable attorney's fees, incurred by Landlord in connection therewith, excepting however, liability caused by Landlord, or Landlord's assignees, agents, employees, licensees, or invitees, gross negligence and or willful misconduct. 11.2 Non-Liability. Tenant covenants and agrees that Landlord shall not be liable to Tenant for any injury to or death of any person or persons or for damage to any property of Tenant, or any person claiming through Tenant, arising out of any accident or occurrence in the Leased Premises or any other portion of the Building, including, without limiting the generality of the foregoing, injury, death or damage caused by the Leased Premises or other portions of the Building becoming out of repair or caused by any defect in or failure of equipment, pipes, or wiring, or caused by broken glass, or caused by the backing tip of drains, or caused by gas, water, steam, electricity, or on leaking, escaping or flowing into the Leased Premises, or caused by fire or smoke, or caused by the acts of emissions of other tenants of the Building, excepting however, liability caused by Landlord, or Landlord's assignees, agents, employees, licensees, or invitees, gross negligence or willful misconduct. 11.3 Loss. Landlord shall not be responsible or liable at any time for any loss or damage to Tenant's merchandise, equipment, fixtures or other personal property or to Tenant's business. ARTICLE TWELVE Insurance 12.1 Party. As used in this Article, the term "Insuring party" shall mean the party who has the obligation to obtain the insurance required hereunder. Where the insuring party is Tenant, Tenant shall pay the cost of such insurance directly, where the insuring party is Landlord, such cost shall be included in the Operating Expenses, unless otherwise provided herein. 12.2 (a) Landlord Responsibility. Landlord, as insuring party, under this Article, shall obtain and keep in force during the Term of this Lease an insurance policy or policies of all-risk fire, extended coverage, theft, vandalism, malicious mischief and other casualty, covering loss or damages to the Building and the Common Areas, as well as all improvements thereto, structural improvements to and permanent fixtures in the Leased Premises, including the heating, air-conditioning and ventilation system originally installed in the Leased Premises ("HVAC") to the extent of at least eighty percent (80%) of their replacement cost. Landlord shall not be responsible for insuring carpeting installed in the Leased Premises. Landlord shall provide insurance policy information as reasonably requested by Tenant. (b) Common Areas. Landlord, as the insuring party under this Article, shall also obtain and keep in force during the Term of this Lease such other insurance in such amounts and with such policy provisions as if shall deem necessary or appropriate, including without limitation, the following: Comprehensive commercial general liability insurance pertaining to the Building death and property damage arising or occurring therein, worker's compensation insurance covering Landlord's personnel, fidelity bonds for Landlord's personnel; insurance against liability for assault and battery, defamation and claims of false arrest; and plate glass insurance for glass exclusively securing the Common Areas or not otherwise payable by particular tenants. (c) Reimbursement. Tenant shall reimburse Landlord for any increase in the cost of any of Landlord's insurance pertaining to the Building if said increase is caused by or results from Tenant's use or occupancy of the Leased Premises, the breach of this Lease by Tenant, or the acts, omissions, or negligence of Tenant, its agents, employees, officers, concessionaires, licensees, assignees, subtenants, customers, invitees, contractors or subcontractors. 12.3 Tenant's Responsibility. Tenant shall, at Tenant's sole cost and expense, obtain and maintain in force during the Term of this Lease the following insurance coverage with respect to the insurable losses contemplated by this section, insuring Landlord, Tenant and any lender of record encumbering the Leased Premises. (a) All Risk. Against fire, extended coverage, vandalism, numerous mischief perils, and standard "all risk" protection with replacement cost endorsement on Tenant's personally and trade fixtures in the Leased Premises including but not limited to carpeting, furnishings, equipment, excluding HVAC equipment, furniture, inventory, and stock, "all risk" protection includes, but is not limited to, sprinkler leakage, vandalism and malicious mischief perils. (b) Electrical. Coverage under this section shall also extend to miscellaneous electrical apparatus and all other insurable objects owned or operated by Tenant or by others (other than Landlord) on behalf of Tenant in the Leased Premises, or relating to or serving the Leased Premises. (c) Liability. Against any liability arising out of the ownership, use, occupancy, operation, or conduct of business from, or maintenance of, the Premises and all areas appurtenant thereto; such insurance shall be on an occurrence rather than a claims-made basis and shall be in the form of a combined single limit comprehensive commercial general liability insurance policy in an amount as stated in Paragraph 1.1 (s), and to insure performance by Tenant of the indemnity provisions of the Lease, and to contain a broad form general liability endorsement, it being further understood and agreed to by Tenant that reasonable opinion of Landlord, the amount of liability insurance required hereunder is not adequate; provided, however, that in no event shall the amount of the liability insurance increase by more than fifty percent (50%) the amount thereof during the preceding year of the Term of this Lease, and provided further, the failure of Landlord to require additional insurance coverage shall not be deemed to relieve Tenant from any obligations under this Lease. (d) Interruptions. Business interruption insurance in such amount as will reimburse Tenant for direct or indirect loss of earnings attributable to all such perils insured against and cover Tenant's obligation to the Base Rent, Percentage Rent, and Operating Expenses due Landlord during said interruption, and, (e) Worker's Compensation. Worker's compensation insurance in the statutorily required amounts covering all Tenant's employees working in the Leased Premises. 12.4 Reimbursement. The limits of Tenant's insurance shall not limit the liability of Tenant under this Lease. If Tenant shall fail to procure or maintain any insurance required of Tenant hereunder, Landlord may, at its sole option, but shall not be required to, procure and maintain the same at the cost and expense of Tenant, and Tenant agrees to reimburse Landlord for same as additional rent due hereunder within fifteen (15) days after receiving notice of the amount thereof from Landlord. 12.5 Standard. All insurance required hereunder shall be by companies holding a "General Policyholders Rating" of A or better as set forth in the most current issue of "Best's Insurance Guide". The insuring party shall deliver to the other party copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with loss payable clauses satisfactory to Landlord. No insurance policy of Tenant shall be cancelable, non-renewed, or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Landlord. If Tenant is the insuring party, Tenant shall, within fifteen (15) days prior to the expiration of such policies, furnish Landlord with renewals or "binders" thereof. Tenant shall not do or permit to be done anything which shall invalidate the insurance policies Tenant is required to maintain under this Lease. 12.6 Waiver. All fire and extended coverage insurance carried by Landlord on Tenant covering losses arising out of destruction of or damage to the Leased Premises or its contents or to other portions of the Building shall, to the extent reasonably obtainable, without additional premium, provide for waiver of subrogation against Landlord, Tenant and other Tenants in the Building, on the part of the insurance carrier. Should an addition premium be charged, the party benefitting from said waiver shall reimburse the party obtaining said waiver for the cost of said additional premium, failing which there shall be no obligation to obtain the waiver of subrogation otherwise required hereunder. Evidence of the existence of such waiver will be furnished by either party to the other party on request. 12.7 Lender Coverage. Notwithstanding any provisions to the contrary contained in this Lease, the insuring party shall also provide insurance against damage by such other perils as any party holding a mortgage, deed to secure debt, deed of trust or other instrument in the nature thereof on the Building including the Leased Premises, may from time to time require. 12.8 Applicable. If at any time during the Term of this Lease the insuring party shall have in full force and effect a blanket policy of general liability insurance and/or property insurance as applicable, which complies with the requirements described above applicable to such insuring party, as well as coverage of other premises and properties of the insuring party or in which the insuring party has some interest, such blanket insurance shall satisfy the requirements hereof ARTICLE THIRTEEN Damage by Casualty 13.1 Notice, Restoration. Tenant shall give immediate written notice to Landlord of any damage to the Leased Premises caused by fire or other casualty, and if Landlord does not elect to terminate the Lease as hereinafter provided, Landlord shall proceed with reasonable diligence and at its sole cost and expense to rebuild and repair the Leased Premises. Notwithstanding the foregoing, in the event that (i) the insurance proceeds collected by Landlord in connection with such damage and destruction shall be insufficient to make such restoration, (ii) the building in which the Leased Premises are located shall be destroyed or substantially damaged by casualty not covered by standard fire or extended coverage insurance, (iii) said building, in which the Leased Premises are located shall be destroyed or rendered untenantable by any casualty to the extent of at least fifty percent (50%) of the Gross Rentable Area of said building, (iv) Landlord shall not have actual and unconditional receipt of the insurance proceeds payable in connection with such damage and destruction, (v) the holder of any mortgage deed to secure debt, deed of trust, or other instrument in the nature thereof which encumbers Landlord's interest hereunder or in the Leased Premises shall require that such proceeds shall be applied against any indebtedness owed to such holder, or (vi) there shall be less than two (2) years remaining in the Term, or any extension or renewal thereof, then, in any of such events, Landlord may elect either, to terminate the Lease or to proceed to rebuild and repair the Leased Premises. Landlord shall give written notice to Tenant of such election within ninety (90) days after the occurrence of such casualty. 13.2 Liability of Parties. Landlord's obligation to rebuild and repair the Leased Premises under this Article Thirteen shall in any event be limited to restoring Landlord's Work to substantially the condition in which the same existed prior to the casualty and Tenant agrees that promptly after the completion of such work by Landlord, Tenant will proceed with reasonable diligence and at its sole cost and expense to restore Tenant's Work to substantially the condition in which the same existed prior to the casualty. 13.3 Reconstruction. Tenant agrees that during any period of reconstruction or repair of the Leased Premises, it will continue the operation of its business within the Leased Premises to the extent practicable. During the period from the occurrence of a casualty until Landlord's repairs are completed, the Base Rent shall be reduced and abated in proportion to the amount of Gross Rentable Area of the Leased Premises which is tendered untenantable as a result of such casualty, provided, however, that if such damage or destruction is caused by the intentional or negligent acts or omissions by Tenant, its permitted assignees, sublessees, servants, agents, employees, licensees, or concessionaires, or the servants, agents, employees, licensees, or concessionaires of Tenants permitted assignees or sublessees, the, and in that event, the Base Rent shall not abate. Tenant shall not be entitled to and hereby waives, releases, and relinquishes any and all claims against Landlord, (except for any damage caused by the gross negligence or willful misconduct of Landlord, or Landlord's assignees, agents, employees, licensees, or invitees), for any compensation or damage for loss of use of all or any part of the Leased Premises or for any inconvenience or annoyance occasioned by any such damage, destruction, repair, or restoration of the Leased Premises. 13.4 Termination. In the event that fifty percent (50%) or more of the Gross Rentable Area of the Building shall be destroyed or substantially damaged by any casualty, notwithstanding that the Leased Premises may be unaffected by such casualty, Landlord may terminate this Lease by giving to Tenant thirty (30) days prior written notice of Landlord's election to do so, which notice shall be given if at all, within ninety (90) days following the date of said occurrence. Rent shall be adjusted as of the date of such termination. ARTICLE FOURTEEN Eminent Domain 14.1 Termination Upon Taking. If more than ten percent (10%) of the Gross Rentable Area of the Leased Premises is taken for any public or quasi-public use under any governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase under threat thereof, this Lease shall terminate upon the election of either party effective on the date possession of a portion of the Leased Premises is taken by the condemning authority. 14.2 Rent Reduction. If less than ten percent (10%) of the Gross Rentable Area of the Leased Premises is taken for any public or quasi-public use under any governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase under threat thereof, this Lease shall not terminate, or if more than ten percent (10%) of the Gross Rentable Area of the Leased Premises is so taken and the Lease is not terminated in accordance with Section 13. 1, then in either of such events the Base Rent (but not Percentage Rental) payable hereunder during the unexpired portion of the Term shall be reduced by the percentage which the area taken bears to the area of the Leased Premises prior to the date possession of such portion of the Leased Premises is taken by the condemning authority. 14.3 Common Area. If any portion of the Common Areas should be taken for any public or quasi-pubic use under any governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase under threat thereof, this Lease shall not terminate, nor shall the rent payable hereunder be reduced, noir shall Tenant be entitled to any part of the award to such taking, except that either Landlord or Tenant may terminate this Lease if the area of the Common Areas remaining following such taking, plus any additional parking area provided within a reasonable time by Landlord in reasonable proximity to the Building, shall be less than as stated in Paragraph 14. 1. If Common Areas should be taken under the above stated conditions, and if Common Area expenses are reduced by such a taking, then the reduction will be passed on to the 'Tenant as a reduction in CAM fees. 14.4 Notice. Any election to terminate this Lease following condemnation, shall be evidenced by written notice of termination, delivered to the other party within thirty (30) days after the date by which both Landlord and Tenant are notified of such taking or such sale, and, in the event that neither Landlord nor Tenant shall so exercise such election to terminate the Lease, then this Lease shall continue in full force and effect. 14.5 Repairs. If this Lease is not terminated following any condemnation, Landlord shall make all necessary repairs or alterations within the scope of Landlord's Work, necessary to make the Leased Premises an architectural whole, and Tenant agrees that promptly after completion of such work by Landlord, Tenant will proceed with reasonable diligence and at its sole cost and expense to make all necessary repairs or alterations within the scope of Tenant's work necessary to make the Leased Premises an architectural whole. 14.6 Compensation. All compensation awarded for any taking (or the proceeds of private sale under threat thereof), whether for the whole or a part of the Leased Premises, shall be the property of Landlord, whether such award is compensation for damage to Landlord's or Tenant's interest in the Leased Premises, and Tenant hereby assigns all of its interest or any such award to Landlord, provided, however, Landlord shall have no interest in any award made to Tenant for loss of business, for the taking of Tenant's fixtures and personal property within the Leased Premises, or for moving expenses, if a separate award for such items is made to Tenant. ARTICLE FIFTEEN Assignment and Subletting 15.1 Consent Required. Tenant, for itself, its heirs, its distributees, executors, administrators, legal representatives, successors, and assigns, covenants that it will not assign, mortgage or encumber the Lease, nor sublease or permit the Leased Premises or any part of the Leased Premises to be used or occupied by others, without the prior written consent of Landlord in such instance. Landlord shall not unreasonably delay or withhold said approval. Tenant shall give Landlord prior written notice of the transfer of control or of a majority of the issued and outstanding capital stock of Tenant. The transfer of outstanding capital stock of any corporate tenant for purposes of this Article, will not include any sale of such stock by persons other than those deemed "insiders" within the meaning of the Securities Exchange Act of 1934 as amended , and which sale is effected through the "over-the-counter-market" or through any recognized stock exchange. 15.2 Conditions. Landlord and Tenant hereby agree that the granting of consent by Landlord shall be preconditioned upon the fulfillment of the following, and other reasonable, requirements of Landlord. (a) Landlord shall be provided with at least thirty (30) days written notice prior to any proposed assignment or subletting. (b) Tenant shall remain liable under this Lease until released from obligations of this Lease in writing by the Landlord. (c) Any proposed assignee or sublessee shall assume in a writing acceptable to Landlord, all of the obligation of Tenant hereunder. (d) No use shall be employed in connection with the Leased Premises other than the permitted use set forth in this Lease. (e) The Leased Premises shall remain intact. Any alterations must be approved in writing by the landlord, which approval will not be unreasonably delayed or withheld. (f) The use of the Leased Premises by the proposed subtenant/assignee will not violate or create any potential violation of any laws, nor will it violate any other agreements affecting the Leased Premises, Landlord or other tenants of the Building, and (g) The proposed assignee or sublessee will not create traffic congestion or an unreasonable burden on existing parking. 15.3 Hazardous Materials. It shall not be unreasonable for Landlord to withhold its consent to any proposed assignment or sublease if (i) the proposed assignee's or sublessee's anticipated use of the Leased Premises involves the generation, storage, use, treatment or disposal of Hazardous Materials; (ii) the proposed assignee or sublessee has been required by any prior Landlord, lender, or governmental authority to take remedial action in connection with Hazardous Materials contaminating a property if the contamination resulted from such assignee's or sublessee's actions or use of the property in question; or (iii) the proposed assignee or sublessee is subject to an enforcement order issued by any governmental authority in connection with the use, disposal, or storage of Hazardous Material. 15.4 Tenant Responsible. Any assignment or sublease in violation of this Article shall be void. If this Lease is assigned, or if the Leased Premises or any part of the Leased Premises are subleased or occupied by anyone other than Tenant, Landlord may, after default by Tenant collect rent from the assignee, subtenant or occupant, and apply the net amount collected to Base Rent. No assignment, sublease, occupancy, or collection will be deemed (a) a waiver of the provisions of this Article or (b) the acceptance of the assignee, subtenant, or occupant as Tenant, or (c) release Tenant from the further performance by Tenant of covenants on the part of Tenant contained in this Lease. The consent by Landlord to an assignment or sublease will not be construed to relieve Tenant from obtaining Landlord's prior written consent in writing to any further assignment or sublease. No permitted subtenant will assign or encumber its sublease of further sublease all or any portion of its subleased space, or otherwise permit the subleased space or any part of its subleased space to be used or occupied by others, without Landlord's prior written consent in each instance. 15.5 Waiver. Tenant will not be entitled to make, or will Tenant make, any claim, and Tenant by this Paragraph 16 waives any claim, for money damages (nor will Tenant claim any money damages by way of set-off, counterclaim or defense) based upon any claim connected with Landlord's non-granting of consent to a proposed assignee or sublessee of Tenant. Tenant's sole remedy will be an action or proceeding to enforce any such provision, or for specific performance, injunction, or declaratory judgment. ARTICLE SIXTEEN Taxes 16.1 Personal Property Taxes. Tenant shall be liable to and shall pay all taxes levied against its personal property, fixtures, and Tenant's Work in the Leased Premises. If taxes to which Tenant is liable hereunder are levied against Landlord of Landlord's property and if Landlord elects to pay the same or if the assessed value of Landlord's property is increased by inclusion of any such terms and Landlord elects to pay the taxes based on such increase, Tenant shall pay to Landlord an additional rent, upon demand that part of such taxes to which Tenant is liable hereunder. 16.2 Real Property Taxes. Tenant agrees to pay as Tenant's Percentage of Operating Expenses, its share of general real estate taxes, assessments, and governmental charges levied against the Building for each calendar year beginning with the Rental Commencement Date and during the Lease Term and any renewals or extensions thereof. Said taxes, assessments, and governmental charges shall be appropriately pro-rated during the first and last years of the Lease Term if such years are less thin full calendar years. The proportionate share to be paid by Tenant shall be that percentage of said general real estate taxes, assessments, and governmental charges which the Gross Rental Area of the Leased Premises bears to the Gross Rentable Area of the Building. Landlord may, at its option, make monthly or other periodic charges based upon the estimated annual taxes, payable in advance, but subject to adjustment after receipt of the tax statement by Landlord. Landlord shall have the sole, absolute and unrestricted right, but not the obligation, to contest the validity or amount of any tax, assessment to governmental charge to appropriate proceedings, and Tenant shall pay its proportionate share of the costs incurred by Landlord in the course of such proceedings as additional rent. 16.3 Rental Taxes. Tenant agrees to pay as additional rent, any rent tax or other tax imposed upon rent payments or imposed upon Landlord based upon rent payments by Tenant to Landlord; however, Tenant shall not be required to pay any income tax of Landlord. ARTICLE SEVENTEEN Defaults and Remedies 17.1 Interest. Any installment of rent or any other charge or money obligation herein required to be paid by Tenant which is not paid when due shall be subject to a late fee of (4%) of the late payment to be assessed on the Fifth day such payment is due. All unpaid amounts overdue (30) days shall bear interest at the rate of eighteen percent (18%) per annum or at the maximum rate allowed by law, whichever is less, from the due date until paid and the Landlord may treat any such charge or money obligation as additional rent hereunder. Tenant shall either pay interest on the late rent or pay the late fee, which ever is the greater amount. 17.2 Events of Default. The occurrence of any of the following shall constitute an event of default hereunder by Tenant: (a) The rent payable under this Lease (including Base Rent, and any additional rent) or any other sum of money due hereunder is not paid when due and such failure to pay continues to more than five (5) days after Tenant's receipt of notice thereof from Landlord. Provided however, that Landlord shall not be required to provide Tenant with the notice and five-day period set forth in the Subparagraph 17.2(a) more than three (3) times during one calendar year, and the fourth and each subsequent failure to timely pay such items shall immediately constitute an event of default hereunder. (b) The Leased Premises are deserted, vacated, or not used is regularly or consistently is would normally be expected for similar premises put to the same or similar purposes as set forth herein, and if the Tenant discontinues to pay the stipulated rent, and such condition is not corrected within (10) days of Tenant's receipt of notice thereof from Landlord. Provided however, that Landlord shall not be required to provide Tenant with the notice and ten day period set forth in this Subparagraph 17.2(b) more than once during one calendar year and the second and each subsequent occurrence of such condition shall immediately constitute an event of default hereunder. (c) Tenant files any petition for debt relief under any section or chapter of the national or federal Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency or other similar act. (d) Any petition is filed against Tenant under any section or chapter of the national or federal Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency or other similar act, and such petition is not dismissed within ninety (90) days after the date of such filing. (e) Tenant shall become insolvent or transfer property to defraud creditors. (f) Tenant makes material misrepresentations to Landlord prior to or contemporaneously with the execution of this Lease. (g) Tenant shall make an assignment to the benefit of creditors. (h) A receiver is appointed to any of Tenant's assets and such receiver is not removed within (90) days of Tenant's receipt of notice from Landlord to obtain such removal. (i) A lien is filed against the Leased Premises or landlord's estate therein by reason of any work, labor, services or materials performed or furnished or alleged to have been performed or furnished, for or to Tenant or anyone holding the Leased Premises by, through or under Tenant, and Tenant fails to cause the same to be vacated and cancelled of record, or bonded off in accord with the provisions of this Lease, within thirty (30) days after the filing date thereof, or, (j) Tenant fails to observe, perform and keep each and every one of the covenants, agreements, provisions, stipulations, and conditions contained in this Lease to be observed, performed and kept by Tenant, including without limitation the "Rules and Regulations" for the project of which the Leased Premises is a part, and unless otherwise specified herein, Tenant persists in such failure for thirty (30) days after receipt of notice by Landlord requiring that Tenant correct such failures. 17.3 Landlord Options. Upon the occurrence of an event of default, Landlord shall have the option to do and perform any one or more of the following, in addition to, and not in limitation of, any other right or remedy available to Landlord at law or in equity or elsewhere under the Lease. (a) Terminate. Termination of this Lease, in which event Tenant shall immediately surrender the Leased Premises to Landlord, but if Tenant shall fail to do so, Landlord may, without further notice and without prejudice to any other remedy Landlord may have for possession or arrearages in rent, enter upon the Leased Premises and expel or remove Tenant and Tenant's effects, by force if necessary, without being subject to prosecution or liable for any claim for damages therefore and Tenant agrees to indemnify Landlord for all loss and damage which Landlord may suffer by reason of such termination, whether through inability to relet the Leased Premises or through decrease in rent, or otherwise, and/or (b) Enter. Terminate Tenant's right of possession of the Leased Premises without terminating this Lease, and enter the Leased Premises as the agent of Tenant, by force if necessary, without being subject to prosecution or liable for any claim for damages therefore and relet the Leased Premises as the agent of Tenant without advertisement and by private negotiations and to any term landlord deems proper, and receive the rent thereto, and Tenant shall pay Landlord upon demand any deficiency that may arise by, reason of such reletting, but Tenant shall not be entitled to any surplus funds generated by such reletting. Tenant shall reimburse Landlord for all costs of reletting the Leased Premises including, but not limited to, advertising expenses and commissions and/or (c) Meet Provisions of Lease. As agent of Tenant, do whatever Tenant is obligated to do by the provisions of this Lease and enter the Leased Premises, by force if necessary, without being subject to prosecution or liable for any claims for damages therefore, in order to accomplish the purpose. Tenant agrees to reimburse Landlord immediately upon demand for any expenses which Landlord may incur in thus effecting compliance with the Lease on behalf of Tenant, and Tenant further agrees that Landlord shall not be liable for any damages resulting to Tenant from such action, whether caused by the negligence of Landlord or otherwise, and/or (d) Damages. In addition to all rent and other amounts previously due and unpaid under the terms and conditions of this Lease, Landlord shall be entitled to collect actual damages associated with termination of the lease. (e) Recover Costs. If the Landlord exercises any of the remedies set forth in Subparagraphs (a), (b), or (c) of this Paragraph 17.3 in addition to all other costs and expenses Landlord shall be entitled to recover under this Lease. Landlord shall also be entitled to recover (i) all sums expended by Landlord and not previously reimbursed to Landlord by Tenant in connection with improving or repairing the Lease Premises to Tenants specifications, and (ii) all costs and expenses incurred by Landlord in connection with the termination of this Lease and eviction of Tenant, including attorney's fees. (f) Store Property. In the event that Landlord elect to terminate this Lease, or to terminate Tenant's right of possession of the Leased Premises without terminating the Lease, as provided in this Paragraph 17.3 or the Lease is terminated by authority of law, Landlord shall be entitled, but not required to store in a commercially reasonable manner any personal property of Tenant or any subtenant which shall remain in the Leased Premises after the termination of this Lease and the removal of Tenant or subtenant from the Leased Premises. Landlord shall have a lien on such properly, which may be discharged by Tenant upon payment of arrearage due under the Lease, plus payment of Landlord's storage and administrative costs. At the end of the sixty (60) day period following termination of the Lease, or termination of Tenant's right of possession, such property shall be conclusively deemed to have been abandoned by Tenant. The foregoing provisions of this Paragraph 17.3 shall be without prejudice to any election by Landlord that Tenant's failure to remove its property constitutes a holding over by Tenant. 17.4 Other Remedies. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law, nor shall pursuit of any remedy, herein provided constitute a forfeiture or waiver of any rent or other sum due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the covenants and provisions herein contained. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such definite 17.5 Bankruptcy. It is understood and agreed that the following shall apply in the event of the bankruptcy or insolvency of Tenant. (a) Chapter 7. If a petition is filed by, or an order for relief is entered against Tenant under Chapter 7 of the Bankruptcy Code, and the trustee of Tenant elects to assume this Lease for the purpose of assigning it, such election or assignment or both may be made only if all of the terms and conditions of Subparagraphs 17.5(b) and (d) below are satisfied. To be effective, an election to assume this Lease must be in writing and addressed to Landlord and in Landlord's business judgement, all of the conditions hereinafter stated, which Landlord and Tenant acknowledge to be commercially reasonable, must have been satisfied. If the trustee fails so to elect to assume this Lease within sixty (60) days after the bankruptcy petition is filed, this Lease will be deemed to have been rejected and Landlord shall then immediately be entitled to possession of the Leased Premises without further obligation to Tenant or the trustee, and the Lease shall be terminated. Landlord's right to be compensated to damage in the bankruptcy proceeding, however, shall survive such termination. (b) Chapter 11. If Tenant files a petition for reorganization under Chapters 11 or 13 of the Bankruptcy Code, or if a proceeding filed by or against Tenant under any other chapter of the Bankruptcy Code is converted to a Chapter 11 or 13 proceeding, and Tenant's trustee, or Tenant as debtor-in- possession, fails to assume this Lease within sixty (60) days from the date of the filing of such petition or conversion, then the trustee or the debtor-in- possession shall be deemed to have rejected the Lease. To be effective, any election to assume this Lease must be in writing addressed to Landlord and in Landlord's business judgement, all of the following conditions which Landlord and Tenant acknowledge to be commercially reasonable, must have been satisfied. (i) The trustee of the debtor-in-possession has cured, or has provided to Landlord adequate assurance, as hereinafter defined, that the trustee cure, all monetary defaults under this Lease within ten (10) days from the date of assumption, and will compensate Landlord for all pecuniary losses it has incurred as a result of the Tenant's default. (ii) The trustee or the debtor-in-possession has provided Landlord with adequate assurance of the future performance of each of Tenant's obligations under this Lease (iii) For purposes of this Subparagraph, "adequate assurance" shall mean that: (1) Landlord determines that the debtor-in-possession has and will continue to have, sufficient unencumbered assets, after the payment of all secured obligations and administrative expenses, to assure Landlord that the trustee or the debtor-in-possession will have sufficient funds to fulfill, in a timely manner, Tenant's obligations under this lease, and, (2) An order shall have been entered segregating sufficient cash payable to Landlord, and/or a valid and perfected first lien on and security interest in property of Tenant, trustee, or debtor-in-possession shall have been granted, which is acceptable in value and kind to Landlord, to secure to Landlord the obligation of the trustee or debtor-in-possession to cure all monetary and nonmonetary defaults under this Lease within the time period set forth above. (c) Trustee. In the event this Lease is assumed by a trustee appointed for Tenant, or by Tenant as debtor-in-possession, under the provisions of Subparagraph 17.5 (b) above, and thereafter Tenant is either adjudicated bankrupt, or files a subsequent petition for arrangement under Chapters 11 or 13 of the Bankruptcy Code, then Landlord may, at its option, terminate this Lease and all the Tenant's rights under it, by giving written notice of Landlord's election so to terminate. (d) Assignment. Pursuant to Subparagraph 17.5 (a) or (b) above, if the trustee or the debtor-in-possession has assumed this Lease to assign or elect to assign Tenant's interest under this lease, or the estate created by that interest, to any other person, such interest or estate may be assigned only if the intended assignee has provided adequate assurance of future performance, as defined below, of all of the terms, covenants, and conditions of this Lease. For the purposes of this Subparagraph 17.5 (d), "adequate assurance of future performance" means that Landlord has ascertained that each of the following conditions has been satisfied: (i) The assignee has submitted to Landlord a current financial statement, audited by a certified public accountant, which shows a net worth and working capital in amounts determined by Landlord to be sufficient to assure the future performance by the assignee of the Tenant's obligations under this Lease. (ii) If requested by Landlord, the assignee will obtain guarantees, in form and substance satisfactory to Landlord, from one or more persons who satisfy Landlord's standards of credit worthiness, and, (iii) To enable Landlord to permit such assignment, Landlord has obtained consents or waivers from any third parties which may be required under any lease, mortgage, financing arrangement or other agreement by which Landlord is bound. (e) Use Fees. When pursuant to the Bankruptcy Code, the trustee or the debtor-in-possession is obligated to pay reasonable use and occupancy charges for the use of all or part of the Leased Premises, it is agreed that such charges will not be less than the Base Rent as defined in this Lease, plus additional rents and other monetary obligations of Tenant included herein. (f) Consent. Neither Tenant's interest in this Lease or any estate of Tenant created in this Lease, shall pass to any trustee, receiver, or assignee for the benefit of creditors, or any person or entity, nor otherwise by operation of law under the laws of the state having jurisdiction of the person or property of Tenant, unless Landlord consents in writing to such transfer. Landlord's acceptance of rent or any other payments from any trustee, receiver, assignee, person, or other entity will not be deemed to have waived or waive either the requirement of Landlord's consent or, in the event of any transfer of Tenant's interest, in the Lease without such consent, the Landlord's right to terminate this Lease. 17.6 Writing Required. No act or thing done by Landlord or Landlord's agents during the Term shall be deemed an acceptance of a surrender of the Leased Premises, and no agreement to accept a surrender of the Leased Premises shall be valid unless the same is in writing and executed by Landlord. Any waiver of or redress to any violation of any covenant or condition contained in this Lease or any of the Rules and Regulations now, or hereafter adopted by Landlord, shall not prevent a subsequent act, which should have originally constituted a violation, from having all the force and effect of an original violation. 17.7 Deleted. 17.8 Deposit. Landlord hereby acknowledges receipt from Tenant of the Advance Deposit set forth in Section 1.1 (i), which shall be applied to the first accruing instruments of rent. Landlord further acknowledges receipt from Tenant of the Security Deposit as set forth in Section 1.1 (j) which shall be held by Landlord without interest as security for the Lease, it being expressly understood that such deposit is not an advance payment of rent or a measure of Landlord's damages in case of default by Tenant. Upon the occurrence of any event of default by Tenant, Landlord may, from time to time, without prejudice to any other remedy provided herein, or provided by law, use the Security Deposit to the extent necessary, to make good any arrears of rent and any other damage, injury, expense or liability caused to Landlord by such event of default. Following any such application of the Security Deposit, Tenant shall pay to Landlord on demand the amount so applied in order to restore the Security Deposit to its original amount. If Tenant is not then in default hereunder, any remaining balance of the Security Deposit shall be returned by Landlord to Tenant upon termination of this Lease and surrender of possession of the Leased Premises to Landlord as herein provided. ARTICLE EIGHTEEN Holding Over Expiration or Termination 18.1 Deleted. 18.2 Surrender. On the expiration of the Term or earlier termination of this Lease, Tenant shall at Tenant's own cost, (a) promptly and peaceably surrender the Leased Premises to Landlord "broom clean," in good order and condition, (b) repair any damage to the Building caused by or in connection with the removal of any property from the Leased Premises by or at the direction of Tenant, (c) repair, patch and paint in a good and workmanlike manner satisfactorily to Landlord all holes and other marks in the floors, walls and ceilings of the Leased Premises, and, (d) deliver all keys to the Leased Premises to Landlord. Before surrendering the Leased Premises, Tenant shall at Tenant's sole cost, remove Tenant's moveable personal property and trade fixtures (including signage) only, and all other property shall, unless otherwise directed by Landlord, remain in the Leased Premises as the property of Landlord without compensation, however, Tenant shall not remove any personal property or trade fixtures from the Leased Premises without Landlord's prior written consent if such removal will impair the structure of the Building or Tenant is in default under this Lease. If Tenant is in default under this Lease, Landlord shall take a lien on such personnel property, trade fixtures and other property as set forth in Section 38-3-1, et seq, of the Utah Code Ann. (or any replacement provision). Landlord may require Tenant to remove any personnel property, trade fixtures, or other property, alterations, additions and improvements made to the Leased Premises by Tenant or by Landlord for Tenant, and to restore he Leased Premises to their condition at the date of this Lease. All personal property, trade fixtures and other property of Tenant not removed from the Leased Premises on the abandonment of the Leased Premises or on the expiration of the Term or earlier termination of this Lease for any cause shall conclusively be deemed to have been abandoned and may be appropriated, sold, stored, destroyed or otherwise disposed of by Landlord without notice to, and without any obligation to account to Tenant or any other person. Tenant shall pay to Landlord all expenses incurred in connection with the disposition of such property in excess of any amount received by Landlord from such disposition. No surrender of Leased Premises share be effected by Landlord's acceptance of the keys or of the rent or by any other reasons without Landlord's written acknowledgment of such acceptance as a surrender. Tenant shall not be released from Tenants obligations under this Lease in connection with surrender of the Leased Premises until Landlord has inspected the Leased Premises and delivered to Tenant a written release. ARTICLE NINETEEN Subordination 19.1 First Priority. This Lease and all rights of Tenant hereunder are and shall be subject and subordinate to the lien of any first priority mortgage, deed to secure debt, deed of trust, or other instrument in the nature thereof which may now or hereafter affect Landlords fee title to the Leased Premises or Landlord's interest hereunder and to any modifications, renewals, consolidations, extensions, or replacements of any of the foregoing. This clause shall be self-operative and no further instrument of subordination shall be required by any mortgages. In confirmation of such subordination, Tenant shall, upon demand at any time or times, execute, seal and deliver to Landlord, without expense to Landlord, any and all instruments in recordable form that may be requested by Landlord to evidence the subordination of this Lease and all rights hereunder to the lien of any such mortgage, deed to secure debt, deed of trust or other instrument in the nature thereof, and each renewal, modification, consolidation, replacement, and extension thereof, and if Tenant shall fail at any time to execute, seal and deliver any such instrument, Landlord in addition to any other remedies available to it in consequence thereof, may execute, seal and deliver the same as the attorney in fact of Tenant and in Tenant's name, place and stead and Tenant hereby irrevocably makes, constitutes, and appoints Landlord, its successors and assigns, as such attorney in fact for that purpose. In addition Tenant shall upon Landlord's request, at any time or times, execute, seal and deliver to Landlord without expense to Landlord, any and all instruments that may be necessary to make this Lease superior to the lien of any such mortgage, deed to secure debt, deed of trust, or other instrument in the nature thereof, and such renewal, modification, consideration, replacement, and extension thereof, and, if Tenant shall fail at any time to execute, seal and deliver such instrument, Landlord in addition to any other remedies available to it in place and stead, and Tenant hereby irrevocably makes, constitutes, and appoints Landlord its successors and assigns such attorney in fact for that purpose. 19.1 (a) Lease to Continue - Attornment. If the holder of any mortgage, deed to secure debt, deed of trust, or other instrument in the nature thereof, shall hereafter succeed to the rights of Landlord, under this Lease, then, at the option of such holder this Lease shall remain in effect. Tenant shall attorn to and recognize such successor as Tenant's Landlord under this Lease, and shall promptly execute and deliver any instrument that may be necessary to evidence such attornment. (b) Advance Rent. Upon the attornment provided for in subsection (a) above, this Lease shall continue in full force and effect as a direct Lease between such successor Landlord and Tenant subject to all the terms, covenants, and conditions of this Lease, Including advance rent. ARTICLE TWENTY Miscellaneous 20.1 Notices. Tenant agrees that upon the request of either Landlord or the holder of any first priority mortgage, deed to secure debt, deed of trust, or other security instrument in the nature thereof encumbering Landlord's interest hereunder or in the Leased Premises, Tenant shall send to such holder copies of all notices sent to Landlord, such copies to be forwarded to such holder as and when such notices are sent to Landlord and at the retailing address front time to time provided to Tenant by either Landlord or such holder. In addition, Tenant agrees that it may not exercise any of its remedies on account of a default by Landlord under this Lease unless and until such holder shall have received written notice of such default from Tenant and a period of thirty (30) days after receipt of such notice for curing such default shall thereafter have elapsed. 20.2 Captions. The captions and the table of contents used in this Lease are for convenience only and do not in any way limit or amplify the terms and provisions hereof. Whenever the singular number is used the same shall include the plural, and words, of any gender shall include each other gender. 20.3 Waiver. One or more waivers of any covenant, term or condition of this Lease by either party shall not be constituted as a waiver of any subsequent breach of the same covenant, term or condition. The consent or approval by either party to or of any act by the other party requiring such consent or approval shall not be deemed to waived or render unnecessary consent to or approval of any subsequent similar act. 20.4 Quiet Enjoyment. Landlord hereby covenants and agrees that if Tenant shall perform all of the covenants and agreements herein required to be performed on the part of Tenant, Tenant shall subject to the terms of this Lease, at all times during the continuance of this Lease have the peaceable and quiet enjoyment and possession of the Leased Premises. 20.5 Entire Agreement. This Lease contains and exhibits the entire agreement between the parties and no agreement, representation or inducement shall be effective to change, modify, or terminate this Lease in whole or in part unless in writing and signed by the parties. 20.6 Deleted. 20.7 Estoppel Certificate. At any time and from time to time, Tenant shall, within five (5) days after Landlord's request, execute and deliver to Landlord an estoppel certificate in favor of Landlord and other persons as Landlord shall request setting forth the following: (a) a ratification of the Lease, (b) the Commencement Date and Expiration Date, (c) that this Lease is in full force and effect and has not been assigned, modified, supplemented or amended (except by such writing as shall be stated), (d) that all conditions under this Lease to be performed by Landlord have been satisfied, or in the alternative, those claimed by Tenant, (f) The amount of advance rent, if any (or none if such is the case), paid by Tenant, (g) the date to which rent has been paid, (h) the amount of the Security Deposit, and (i) such other information as Landlord may request; Landlord's mortgage lenders and purchasers shall be entitled to rely on any estoppel certificate. Each certificate delivered pursuant to this Section 20.7 may be relied on by any prospective purchaser or transferee of the Building or of Landlord's interest hereunder or by any mortgage of the Building or of Landlord's interest hereunder or by any assignee of any such mortgage. 20.8 Binding. The terms, provisions and covenants contained in this Lease shall apply to, inure to the benefit of, and be binding upon the parties hereto and if permitted hereunder their respective heirs, assigns, successors in interest and legal representatives, 20.9 Time. Time is of the essence in this agreement. 20.10 Applicable Law. The laws of the state in which the Building is located shall govern the interpretation, validity, performance, and enforcement of this Lease. If any provision of this Lease shall be held to be invalid or unenforceable, the validity and enforceability of the remaining provisions of this Lease shall not be affected thereby. 20.11 Surrender. Tenant shall, on or before the last day of the Term or if the Lease is terminated prior thereto as herein provided, peaceably and quietly leave, surrender and yield up onto Landlord the Leased Premises, together with all alterations, additions, improvements, betterments, fixtures and equipment installed therein or pertaining thereto but excluding non- attached trade fixtures and other personal property of Tenant, any permitted assignee, sublessee, licensee or concessionaire of Tenant, or any other occupant of the Leased Premises. Such alterations, additions, improvements, betterments, fixtures and equipment to be in good order and repair; ordinary wear and tear, obsolescence, damage by fire or other casualty, acts of God, condemnation, civil riot and commotion excepted. All such trade fixtures and other personal property shall be removed by Tenant on or before the last day of the Term thereof, and all such property not so removed shall be deemed abandoned by Tenant and conveyed to Landlord unless Landlord shall give notice to Tenant to remove all or any part thereof, in which event Tenant shall promptly at its expense remove same, or Landlord may do so at Tenant's expense. 20.12 Agency. Nothing herein contained shall be deemed or construed by the parties hereto, not by any third party, as creating the relationship of principal and agent or of partnership or joint venture between the parties hereto, it being understood and agreed that neither the method of computation of rent, nor any other provision contained herein, nor any acts of the parties hereto, shall be deemed to create any relationship between the parties hereto other than the relationship of Landlord and Tenant. 20.13 Controlling. To the extent that the Special Stipulations, if any, set forth in Exhibit "E" conflict with any of the printed provisions of this Lease, such Special Stipulations shall control. 20.14 Execution Required. The submission of this Lease for examination does not constitute a reservation of or option for the Leased Premises and the Lease becomes effective as a Lease only upon execution and delivery thereof by Landlord and Tenant. If Tenant is a corporation or partnership, Tenant shall furnish Landlord with such evidence as Landlord reasonably requires to evidence the binding effect on Tenant of the execution and delivery of this Lease. 20.15 Limitation of Actions. In the event Landlord commences any summary proceedings or actions for nonpayment of rent or other charges provided for in this Lease, Tenant and Landlord both waive a trial by jury of any or all issues arising in any action or proceeding between the parties hereto or their successors, under or connected with this Lease, or any of its provisions. 20.16 Representations. Tenant acknowledges that neither Landlord nor Landlord's agents, employees or contractors have made any representations or promises with respect to the Leased Premises, the Building or this Lease except as expressly set forth herein. 20.17 Deleted. 20.18 Deleted. 20.19 Deleted. IN WITNESS WHEREOF the parties have executed this Lease, or caused this Lease to be executed by their duly authorized officers, and have sealed this Lease as of the day and year first written above. LANDLORD: TENANT: SLT, III, LLC, a Utah Limited WordCruncher Internet Technologies, Liability Company Inc."WCTI" By: /s/ Stephen L Tripp By: Kenneth W. Bell Its Its: Sr. V.P and CEO EX-10.2 10 EXCLUSIVE MASTER LICENSE AGREEMENT BETWEEN BRIGHAM YOUNG UNIVERSITY AND REDSTONE PUBLISHING, INC. 1 Definitions .................................................. 1 2 BYU Grant .................................................... 3 3 Licensee Grant ............................................. 4 4 Exclusive Use................................................. 5 5 Performance Requirements....................................... 5 6 License Fees and Royalties.................................... 6 7 BYU's Equity Ownership of Licensee............................. 7 8 Reports, Records, Penalties and Interest........................8 9 Confidentiality................................................ 9 10 Separate Service Agreement.................................... 10 11 Export Controls............................................... 10 12 Patent Marking and Copyright Notice........................... 10 13 Patent Maintenance and Copyright Registration .................10 14 Infringement.................................................. 10 15 Warranty and Limitation of Remedy............................. 12 16 Product Liability and General Indemnification................. 12 17 Term and Termination.......................................... 13 18 Negotiations, Mediation and Arbitration....................... 14 19 Licensee Assignment........................................... 15 20 Non Use of BYU Name........................................... 15 21 Publication................................................... 15 22 Payment, Notices and Other Communications..................... 16 23 Miscellaneous Provisions...................................... 16 Exhibit A -- WordCruncher Technology ............................. 19 Exhibit B -- BYU Licenses of Technology .......................... 28 Exhibit C -- Non-Disclosure of Confidential Information Agreement..30 EXCLUSIVE MASTER LICENSE AGREEMENT BRIGHAM YOUNG UNIVERSITY This Agreement is made, entered into, and effective as of 14th of February, 1997 between Brigham Young University, a Utah non-profit corporation and educational institution, with its principal campus and place of business located at Provo, Utah 84602 (referred to in this Agreement as "BYU") and Redstone Publishing, Inc., a Utah corporation with its principal place of business located at Alpine, UT, (referred to in this Agreement as "LICENSEE"). RECITALS A. BYU is the sole owner of certain intellectual property rights known as "WordCruncher" and has the right to grant licenses with respect to these rights. B. BYU is an institution of higher education and is not in the business of commercially developing ideas, inventions, or other types of intellectual property, but it does desire to have WordCruncher available to the public and is willing to grant a license for this purpose. C. LICENSEE has represented to BYU that LICENSEE has the technical and commercial ability, and the technical, financial and other resources necessary to develop and sell products or services based upon WordCruncher. LICENSEE desires to obtain a master license to WordCruncher upon the terms and conditions of this Agreement. In consideration of the promises and mutual covenants contained in this Agreement the parties agree as follows: TERMS OF AGREEMENT 1.Definitions For the purposes of this Agreement, the following terms, words and phrases shall have the meaning ascribed to them in this Section. 1.1 "ADJUSTED GROSS SALES" shall mean LICENSEE's gross sales price or the fair market monetary equivalent value of consideration received for LICENSED PRODUCTS or PROCESSES, including product or process IMPROVEMENTS, sold, leased, licensed or otherwise transferred by LICENSEE or a SUBLICENSEE to a third party, including fees separately billed and specifically identified as consideration for, maintenance, service or subscriptions which include providing upgrades or improvements, less qualifying costs directly attributable to such sale, lease, license or transfer actually allowed and borne by LICENSEE or an AFFILIATE. Such qualifying costs shall be limited to the costs of the following: 1 A. Trade or quantity discounts actually allowed and taken in such amounts as are customary in the trade; B. Sales, import and export duties and/or use and excise taxes directly imposed with reference to particular sales; C. Outbound transportation expenses prepaid or allowed; D. Amounts allowed or credited by reason of timely rejections or returns; and E. Fees separately billed and specifically identified as "installation fees" or "support fees" (not including upgrades), which are consistent with those normally charged in the trade. F. Amounts reasonably determined by LICENSEE to be uncollectible notwithstanding the LICENSEE's best efforts to collect the same. No deductions shall be made for commissions paid to individuals, whether they be regularly employed by LICENSEE or by independent sales agents, or for the cost of collections. For purposes of calculating "ADJUSTED GROSS SALES" a LICENSED PRODUCT or PROCESS shall be considered sold, leased, licensed or transferred when billed, invoiced, shipped, paid for or transferred, whichever event occurs first. 1.2 "AFFILIATE" shall mean any person or entity owned or controlled directly or indirectly by LICENSEE or any person or other entity controlled by, controlling, or under common control with LICENSEE. The term "control" means possession, direct or indirect, of the powers to direct or cause the direction of the management and policies of a person or entity; whether through ownership, voting securities, beneficial interests; by contract; by agreement; or otherwise. 1.3 END USER" means any person or entity to which LICENSED PRODUCTS or LICENSED PROCESSES are sold or licensed for personal or business use and not for the purpose of licensing or selling to other persons or entities. 1.4 "IMPROVEMENT(S)" means any invention, idea, trade secret, know-how or derivative work which is in some manner dependent upon, or which includes any portion of or utilizes any portion of the LICENSED TECHNOLOGY, LICENSED PRODUCTS or LICENSED PROCESSES, whether or not patentable, copyrightable, or otherwise protectable as intellectual property which is subsequently acquired or developed by LICENSEE during the term of this Agreement. 1.5 "LICENSED PROCESS(ES)" means and includes any process, procedure, technique, method or service the use or practice of which incorporates or makes use of any part of the LICENSED TECHNOLOGY or IMPROVEMENTS, but does not include independent technology designed to merely interface with the LICENSED TECHNOLOGY or IMPROVEMENTS. 1.6 "LICENSED PRODUCT(S)" means and includes any product or IMPROVEMENTS which are developed, or enhanced in whole or in part by LICENSEE, the production, manufacture, sale, lease, license, transfer or use of which incorporates or makes use of any part 2 of the LICENSED TECHNOLOGY or IMPROVEMENTS, but does not include independent technology designed to interface with the LICENSED TECHNOLOGY or IMPROVEMENTS. In the event such a product forms an integral part or component of a larger product, such larger product shall be considered a "LICENSED PRODUCT," for purposes of this Agreement. 1.7 "LICENSED TECHNOLOGY" means and includes all of BYU's technology and intellectual property referred to in this Agreement as WordCruncher and related know-how, information and enhancements generated at BYU as specifically identified and limited on Exhibit "A", which is attached to this Agreement and by reference is incorporated and made part of this Agreement. 1.8 "LICENSEE" is Licensee, and its AFFILIATES. 1.9 "SUBLICENSEE" is any person or entity including, but not limited to, publishers, value added resellers or other individuals or entities who have previously received licenses from BYU to the LICENSED TECHNOLOGY, or which are licensed pursuant to this Agreement by LICENSEE with rights to the LICENSED TECHNOLOGY to market to END USERS LICENSED PRODUCTS or LICENSED PROCESSES which are developed, enhanced, improved or manufactured by said person or entity. 2. BYU Grant 2.1 BYU hereby grants LICENSEE an exclusive, worldwide, right and license to utilize the LICENSED TECHNOLOGY, to develop LICENSED PRODUCTS and LICENSED PROCESSES to manufacture, sell, lease and otherwise transfer LICENSED PRODUCTS and to practice LICENSED PROCESSES as authorized in this Agreement until such time as this Agreement is terminated. This grant will extend to the manufacture, sale, lease, transfer or other disposition of LICENSED PRODUCTS or LICENSED PROCESSES through an AFFILIATE or through LICENSEE's use of any retail outlet or distributor and shall authorize any END USERS' use of the LICENSED PRODUCTS and LICENSED PROCESSES sold or transferred by LICENSEE or its AFFILIATES, retail outlets or distributors. 2.2 The grants provided under this Agreement shall specifically include the right for LICENSEE to grant sublicenses to the LICENSED TECHNOLOGY to SUBLICENSEES. All sublicenses granted by LICENSEE shall be subject to the terms and conditions of this Agreement and the sublicense agreement shall have an express provision to this effect. No sublicense shall relieve LICENSEE of any of its obligations under this Agreement. 2.3 BYU assigns to LICENSEE, effective April 1, 1997, all of BYU's current Publisher and Value Added Reseller (VAR) licenses for the LICENSED TECHNOLOGY as specifically identified and limited on Exhibit B attached to and made part of this Agreement. BYU further represents and warrants that Exhibit B identifies all BYU licenses of the LICENSED TECHNOLOGY existing as of the effective date of this Agreement. BYU will notify in writing all such licensees of this assignment within ten (10) days of the effective date of this Agreement and will at such time provide to LICENSEE copies of the license agreements, together with accurate information concerning the financial status of the licenses. These license agreements shall become sublicense agreements subject to the Pass Through Royalty provisions of Paragraph 6.3. 2.4 Nothing in this Agreement shall be considered as granting any rights, express or implied, in BYU's technology, patents, patent applications, inventions, methods, technical, confidential or proprietary information, expertise, know-how, trade secrets or knowledge not specifically licensed in this Agreement, and all rights not expressly granted by this Agreement to LICENSEE are expressly reserved by BYU. The license granted by this Agreement shall not be construed to confer any rights upon LICENSEE by implication, estoppel or otherwise as to any existing, or new technology not specifically licensed by this Agreement. The reservation of rights described in this Section is intended to be broadly construed and not to be limited by the definitions set forth in this Agreement. 2.5 In the event that BYU faculty employees James S. Rosenvall and/or Monte F. Shelley create any technology, patents, patent applications, inventions, methods, technical, confidential or proprietary information, expertise, know-how, trade secrets or knowledge in the course and scope of their employment at BYU which is not specifically licensed in this Agreement, but which is derived from the WordCruncher technology licensed in this Agreement, BYU will so notify LICENSEE and will begin good faith negotiations with LICENSEE to enter into an exclusive license agreement to such upon terms and conditions mutually acceptable to BYU and LICENSEE. 2.6 Notwithstanding the exclusive license granted pursuant to this Agreement, BYU, The Church of Jesus Christ of Latter-day Saints and the Church Education System shall have the right to make, have made or use the LICENSED TECHNOLOGY, LICENSED PRODUCTS, LICENSED PROCESSES and IMPROVEMENTS internally for continuing research and non-commercial academic and ecclesiastical uses without cost, and without any support by LICENSEE. In such case, any resulting products or processes shall be clearly marked in such a way as not to be confused with the LICENSED PRODUCTS and LICENSED PROCESSES subject of this Agreement. Moreover, should BYU, The Church of Jesus Christ of Latter- day Saints or any educational institution within the Church Education System wish to purchase any LICENSED PRODUCTS or PROCESSES from LICENSEE, or its AFFILIATES, LICENSEE agrees to sell such at the price given by LICENSEE to its most favored customers. 3. Licensee Grant LICENSEE hereby grants to BYU all of LICENSEE's right, title and interest to any IMPROVEMENTS to the LICENSED TECHNOLOGY which are incorporated into the LICENSED PRODUCTS or LICENSED PROCESSES of any kind or description created or developed by LICENSEE or its SUBLICENSEES. This grant shall be absolute and irrevocable, shall survive the termination of this Agreement and is intended to entitle BYU, the Church of Jesus Christ of Latter-day Saints and the Church Education System to use said 4 IMPROVEMENTS for their academic and ecclesiastical purposes as more fully described in Section 2.6 of this Agreement, to entitle BYU to license the LICENSED TECHNOLOGY and IMPROVEMENTS to third parties subsequent to termination of this Agreement and to entitle BYU to collect royalties. 4. Exclusive Use 4.1 Licensee shall use only the LICENSED TECHNOLOGY and IMPROVEMENTS subject of this License Agreement for the purpose of marketing or commercializing WordCruncher or related technology and LICENSEE shall be expressly prohibited from using any other inferior or functionally equivalent technology which is not subject of this Agreement for such purpose without the express written consent of BYU, which shall not be unreasonably withheld, and being subject to the provisions of Section 4.2 of this Agreement. 4.2 In the event LICENSEE believes that its use or substitution of any alternative functionally inferior or equivalent technology not subject of this Agreement would be in its best business interests, it may request the written consent of BYU, which consent shall not be unreasonably withheld, to use such substitute technology provided that the royalty provisions of this Agreement shall extend to LICENSEE'S use of any technology which performs any functions inferior to, or substantially equivalent to the LICENSED TECHNOLOGY and IMPROVEMENTS subject of this License Agreement. 4.3 The restrictions described in this Section 4 "Exclusive Use" shall not apply to LICENSEE'S use of collateral technology or intellectual property which interfaces with or operates in conjunction with or independently from the LICENSED TECHNOLOGY and IMPROVEMENTS but which does not perform a function substantially equivalent to the LICENSED TECHNOLOGY or IMPROVEMENTS. 4.4 In the event this Agreement is terminated, LICENSEE, and its officers, directors and shareholders, shall not for a period of two (2) years thereafter use, develop, market or commercialize, directly or indirectly, any alternative functionally equivalent technology to the technology subject of this Agreement. 5. Performance Requirements 5.1 LICENSEE shall, during the term of this Agreement, use its best efforts to bring one or more LICENSED PRODUCTS or LICENSED PROCESSES to market in order to maximize the ADJUSTED GROSS SALES through a thorough, vigorous and diligent commercial program. 5.2 Within three months from the effective date of this agreement and for the following nine months, LICENSEE shall initiate and maintain the following or an equivalent alternative minimum level of operations: James S. Rosenvall 100% for 3 months, 25% thereafter 5 Monte F. Shelley 25% for three months, 10% thereafter Three programmers 100% One customer support personnel 100% Management, marketing and sales support 5.3 Beginning one year from the effective date of this agreement LICENSEE shall maintain the minimum level of operations specified in paragraph 5.2 above and initiate an increase of fifty percent (50%) of resources in each category except for the employment of James S. Rosenvall and Monte F. Shelley. 5.4 LICENSEE's failure to perform in accordance with this Section of the Agreement to the reasonable satisfaction of BYU may be considered by BYU to be a material breach of this Agreement. (See Section 17 for termination procedure.) 6. License Fees and Royalties In consideration of the license granted under this Agreement, LICENSEE shall pay to BYU, in the manner designated below until the Agreement shall be terminated, as follows: 6.1 Earned Royalties: An earned royalty in the amount equal to three (3.0%) of the ADJUSTED GROSS SALES of the LICENSED PRODUCTS, LICENSED PROCESSES or IMPROVEMENTS subject of this Agreement used, leased, licensed, sold or otherwise transferred to an END USER by or for LICENSEE, its AFFILIATES or pursuant to any SUBLICENSEE agreement arising subsequent to the execution of this Agreement. 6.2 Minimum Royalties: An annual minimum royalty for each calendar year as identified on Table 1. In the event that LICENSEE's earned royalty payment to BYU during any particular calendar year shall fall below that sum indicated in Table 1, then LICENSEE shall pay a minimum royalty to BYU with its last report of the year in the amount indicated in Table 1 less any earned royalties paid for the calendar year. Earned royalties for any given calendar year shall only be credited against minimum royalties for that same calendar year. Table 1 Calendar Year Minimum Royalty -------------- --------------- 1997 $ 20,000 1998 $ 50,000 1999 $100,000 2000 and each year thereafter $150,000 6.3 Pass Through Royalties: A "pass through royalty" shall be levied on all license fees and any and all other consideration of any kind or description received by LICENSEE or any AFFILIATE from (i) all Publisher and VAR licenses assigned to LICENSEE as described in Section 2.3 of this Agreement and as specifically identified and limited on Exhibit B, and (ii) any third party which is not an AFFILIATE, distributor, retail outlet or END USER and to which LICENSEE has granted, assigned, transferred or sold all or a substantial portion of the LICENSED TECHNOLOGY and which is not otherwise subject to the earned and minimum royalty provisions of this Agreement. The pass through royalty shall be paid on all such license fees or consideration which exceed the royalties to which BYU is entitled pursuant to Sections 6.1 and 6.2 of this Agreement. A. The "pass through royalty" shall be fifty percent (50%) of all applicable consideration subject to the pass through royalty. B. Pass through royalty payments shall be payable to BYU quarterly in addition to and contemporaneously with earned royalty payments. Such pass through royalty payments shall be based on all consideration paid during the applicable three months. Reporting of such consideration shall be made following the same criteria set forth for earned royalty payments in this Agreement. In no event shall BYU be entitled to receive both an "earned royalty" and a "pass through royalty" on the same transaction. 6.4 Any royalty amount due to BYU arising out of this Agreement shall accrue at the time of use, sale, lease, license or transfer of the LICENSED PRODUCT or LICENSED PROCESS and shall be deemed to be held in trust for the benefit of BYU until actual payment of such amounts is made pursuant to this Agreement. 7. BYU's Equity Ownership of Licensee 7.1 LICENSEE shall, within one year of the execution of this Agreement but no sooner than January 1, 1998, issue to BYU certificates of ownership interest equivalent to ten percent (10.0%) of all of the total issued and outstanding common stock or other classes of ownership securities or options which are convertible to such common stock or securities . With regard to the issuance of new stock or securities, the granting of options to purchase such stock or securities or any other act or transaction under which BYU's percent of ownership of LICENSEE would be diluted or devaluated; stock or securities shall be contemporaneously conveyed by LICENSEE to BYU to maintain BYU's ownership interest at ten percent (10.0%). This obligation shall terminate in the event LICENSEE receives cumulative funding in an amount of one million dollars ($1,000,000) or more, or LICENSEE has achieved an annual gross sales of five million dollars ($5,000,000) or more. 7.2 BYU may, at its sole discretion, require LICENSEE to issue portions of BYU's certificates of ownership interest granted in paragraph 7.1 as follows: 2.25% to James S. Rosenvall 2.25% to Monte F. Shelley 5.5% to BYU 7 7.3 All voting rights associated with the equity ownership of BYU or James S. Rosenvall and Monte F. Shelley shall be exercisable respectively by BYU and these individuals or by their proxies. LICENSEE recognizes that BYU and these individuals are in the position of minority stockholder, will not be involved in the management or operation of LICENSEE and will not be liable for any liabilities incurred by LICENSEE. 8. Reports, Records, Penalties and Interest 8.1 LICENSEE shall keep and shall require all SUBLICENSEES, AFFILIATES, and any other party responsible by the terms of this Agreement to make payments to BYU to keep, at their own expense, accurate books of account, using generally accepted accounting principles and practices, detailing all data necessary to calculate and easily audit any payments due to BYU under this Agreement. These books of account shall be kept at LICENSEE's, AFFILIATE's or SUBLICENSEE's principal place of business. These books and supporting data shall be open at all reasonable times, upon ten (10) calendar days written notice, for a period of five (5) years following the end of the calendar year to which they pertain, to the inspection by BYU or its agents for the purpose of verifying LICENSEE's royalty statements or other compliance with this Agreement. 8.2 LICENSEE, within thirty (30) days after the last day of each full calendar quarter subsequent to the effective date of this Agreement, shall deliver to BYU an accurate written report summarizing in sufficient detail to allow BYU to verify all payment amounts, the data used during the preceding three-month period under this Agreement to calculate the payments due to BYU during the applicable accounting period. These records and reports shall include at least the following information for the accounting period: A. Calculation of ADJUSTED GROSS SALES itemized as to the number and the identity of the LICENSED PRODUCTS or PROCESSES sold. B. All qualifying deductible costs claimed as offsets as applicable. C. Total royalties due broken down by applicable category. D. Minimum royalty amounts in excess of earned royalty amounts (fourth quarterly reports only). E. Pass through royalty amounts. F. Names and address of all AFFILIATES and SUBLICENSEES and full reports from them complying with the reporting requirements of 8.2 A-E. 8.3 With each such report submitted, LICENSEE shall pay to BYU all fees, royalties and all other amounts due, payable and arising pursuant to this Agreement. If no amounts shall be due, LICENSEE shall so report. 8.4 A penalty will be assessed in an amount equal to three percent (3%) of any payment due to BYU arising out of this Agreement if the payment is made more than thirty (30) days late. Interest will accrue from the thirtieth day after the payment was due at a rate of eighteen percent (18%) per annum and the interest payment shall be due and payable every thirty (30) days 8 thereafter. It is the intention of the parties to this Agreement that any unpaid interest or penalty shall be subject to monthly compounded interest at the rate of eighteen percent (18%) per annum. Accordingly, the parties expressly agree that any unpaid interest or penalty shall be added on a monthly basis to the unpaid principle and such total amount shall accrue interest at the rate of eighteen percent (18%) per annum. 8.5 Should LICENSEE elect to retain an independent auditor, the auditor shall prepare a certified report which shall analyze the accuracy of the quarterly reports required in Section 7.2 and deliver a copy of the report to BYU within thirty (30) days of its completion. 9. Confidentiality 9.1 The parties agree that as they receive material provided by the other which is marked as confidential, or is verbally so designated and confirmed in writing as such within thirty (30) days of the receipt of the materials, the receiving party shall take reasonable precautions to protect such material and to preserve its confidential, proprietary or trade secret status during the term of this Agreement and for a period of five (5) years after termination of this Agreement. 9.2 In determining whether or not information is confidential, the burden of proof shall be upon the receiving party to establish by competent proof and by preponderance of the evidence that such information to be nonconfidential was: A. Already known to the receiving party at the time of disclosure, or B. Was generally available to the public or otherwise part of the public domain at the time of its disclosure, or C. Became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving party in breach of this Agreement, or D. Was subsequently, lawfully disclosed to the receiving party by a third party. 9.3 A party receiving Confidential Information may disclose the same only to the extent it is authorized in writing to do so by the disclosing party and such disclosure is reasonably necessary to further the objectives of this Agreement. 9.4 All of LICENSEE's and SUBLICENSEE's employees and independent contractors with access to BYU's source code relating to the LICENSED TECHNOLOGY shall be bound in writing, copies of which shall be retained by LICENSEE and submitted to BYU upon request of BYU, to make no unauthorized use or disclosure of the confidential information. The form of the writing to be signed is described on attached Exhibit "C", which is incorporated by reference into this Agreement. 9 9.5 Each party agrees that a breach of its obligation to protect the other's confidential information shall cause immediate and irreparable harm which cannot be adequately compensated by monetary damages. Accordingly, any breach or threatened breach of confidentiality shall entitle the aggrieved to preliminary and permanent injunctive relief in addition to such remedies as may be otherwise available. 10. Separate Service Agreement If BYU shall agree to supply technical and engineering services required to effectively transfer to LICENSEE the LICENSED TECHNOLOGY licensed herein, LICENSEE shall reimburse BYU for its expenses incurred in furnishing such technical and engineering services pursuant to the terms and conditions of a separate written agreement. 11. Export Controls It is understood that the LICENSED TECHNOLOGY may be subject to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes and other commodities (including the Arms Export Control Act, as amended, and the Export Administration Act of 1979), and LICENSEE's obligations under this Agreement may be contingent upon compliance with applicable United States export laws and regulations. The transfer of certain technical data and commodities may require a license from the cognizant agent of the United States Government and/or written assurances by LICENSEE that LICENSEE shall not export data or commodities to certain foreign countries without prior approval of such agency. BYU neither represents that a license shall not be required nor that, if required, it shall be issued. LICENSEE shall observe and obey all export laws in countries in which it shall do business. 12. Patent Marking and Copyright Notice LICENSEE agrees to mark the LICENSED PRODUCTS sold in the United States with all applicable United States patent numbers and copyright notices. All LICENSED PRODUCTS shipped to or sold in other countries shall be marked in such a manner as to conform with the patent and/or copyright laws and practice of the country of manufacture or sale. 13. Patent Maintenance and Copyright Registration LICENSEE shall promptly reimburse BYU for all patent maintenance fees and associated costs and for any copyright registration fees with respect to the intellectual property set forth in Exhibit A incurred by BYU after the effective date of this Agreement within thirty (30) days of receipt of an appropriate invoice from BYU. 10 14. Infringement 14.1 The parties to this Agreement shall inform the other promptly in writing of any alleged infringement or misuse of the intellectual property rights subject of this Agreement by a third party and of any available evidence of such infringement or misuse. 14.2 During the term of this Agreement, BYU shall have the right, but shall not be obligated, to prosecute at its own expense any infringements or misuse and, in furtherance of such right, LICENSEE agrees that BYU may require LICENSEE to participate as a party plaintiff in any such suit, without expense to LICENSEE. The total cost of any such infringement action commenced solely by BYU shall be paid by BYU and BYU shall be entitled to retain any recovery or damages arising from the infringement or misuse. 14.3 If within sixty (60) days after having been notified of any alleged misuse or infringement, BYU does not intend on prosecuting an infringement action, BYU shall notify LICENSEE of its intention not to bring suit. In such event only, LICENSEE shall have the right, at its own expense, to prosecute a suit to remedy the infringement or misuse of the intellectual property rights subject of this Agreement. LICENSEE may, for such purposes, use the name of BYU as party plaintiff. However, the right to bring an infringement action shall remain only for so long as this Agreement remains in effect. No settlement, consent judgment or other voluntary final disposition of the suit may be entered into without the express written consent of BYU, which consent shall not be unreasonably withheld. LICENSEE shall indemnify BYU against any order or settlement for costs or attorneys' fees that may be made against BYU in such proceedings prosecuted by LICENSEE. 14.4 In the event that LICENSEE shall undertake the enforcement of intellectual property rights by litigation, LICENSEE may withhold up to 50% of any royalty payment otherwise due BYU and apply the same toward reimbursement of a cumulative maximum of fifty percent (50%) of its reasonable and paid outside attorneys fees, court costs and fees of expert witnesses. Any recovery of damages by LICENSEE for such suit shall be applied first to satisfaction of any unreimbursed litigation expenses and legal fees of LICENSEE relating to the suit and next toward reimbursement of BYU for any royalties withheld. The balance remaining from any such recovery shall be divided equally between LICENSEE and BYU. 14.5 In the event that a declaratory judgment or other action alleging unlawful infringement of any intellectual property rights of a third party is brought against LICENSEE, BYU, at its sole option, shall have the right within thirty (30) days after the commencement of such action to intervene and assume the sole defense of the action at its sole expense. Should BYU elect not to defend, LICENSEE shall have the right to defend the suit at its sole expense. 14.6 If a third party is successful in prevailing against LICENSEE in an adjudicated lawsuit demonstrating that the LICENSED TECHNOLOGY as delivered to LICENSEE by BYU unlawfully infringed upon such third party's intellectual property rights, LICENSEE shall be entitled to offset against future earned royalties the full amount of LICENSEE's court costs, attorney fees and damages awarded. 11 14.7 In any infringement suit, the other party shall, at the request and expense of the party initiating the suit, cooperate in all respects and, to the extent possible, make its employees reasonably available to testify when requested and make available relevant records, papers, information, samples, specimens, and the like. 15. Warranty and Limitation of Remedy 15.1 BYU represents and warrants that to the best of its knowledge it is the owner of the entire right, title, and interest in and to and has the sole right to grant licenses under this Agreement to the LICENSED TECHNOLOGY as described on Exhibit "A". BYU makes no warranty or representation with respect to the application of the LICENSED TECHNOLOGY to any particular purpose. 15.2 BYU makes no representation that the manufacture, use, lease, or sale of the LICENSED TECHNOLOGY will not infringe a copyright or patent granted to others, other than to state that it knows of no such copyright, patent or other proprietary interests which would be so infringed. 15.3 Each party represents and warrants to the other that it has all of the requisite power and authority to enter into this Agreement and to perform each and every term, provision and obligation of this Agreement and that neither the execution nor delivery of this Agreement will conflict with or result in a breach of the terms, provisions or obligations of, or constitute a default pursuant to any other Agreement or instrument under which each party is obligated. 15.4 ALL WARRANTIES MADE IN THIS AGREEMENT ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR ANY OTHER WARRANTY WHETHER EXPRESS OR IMPLIED. 15.5 BYU will not be liable for any loss of profits or for any claim or demand against LICENSEE by any other party. BYU's liability, if any, for any damages to LICENSEE shall not exceed in any event the total earned royalties which have been paid by LICENSEE to BYU during the term of this Agreement. IN NO EVENT WILL BYU BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES EVEN IF BYU HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. No action, regardless of form, arising out of the transaction subject of this Agreement may be brought against BYU more than one year after the cause of action is discovered. 12 16. Product Liability and General Indemnification 16.1 BYU does not warrant the effectiveness or operation of any of the LICENSED PRODUCTS or LICENSED PROCESSES and the parties to this Agreement agree and understand that BYU shall have no liability to an END USER. LICENSEE, therefore, agrees to hold BYU harmless and indemnify BYU, its trustees, officers, employees and agents from and against any and all litigation, claims, damages or actions (including reasonable attorneys' fees) that may be instituted against BYU arising out of LICENSEE's marketing, distribution, sale, production, manufacture, lease, consumption or advertisement of the LICENSED TECHNOLOGY, LICENSED PRODUCTS or LICENSED PROCESSES or arising from any obligation of LICENSEE under this Agreement, including, but not limited to, claims resulting from any alleged type of defect in the LICENSED PRODUCTS or LICENSED PROCESSES or damages allegedly caused by any breach of contract by LICENSEE, its AFFILIATES or SUBLICENSEES or the use or misuse of the LICENSED PRODUCTS and LICENSED PROCESSES, notwithstanding any third-party allegation that their claims, injuries or damages were proximately caused in part or wholly by BYU's negligence. In the event BYU is sued as a party defendant or otherwise pursuant to claims identified in this Section as being subject to indemnification, LICENSEE agrees to defend BYU at LICENSEE's sole expense in such action. Should any award or decree be made against BYU, it shall be the obligation of LICENSEE to (a) appeal the decision and pay if the appeal is lost or (b) pay such award or make any settlement as may be warranted before or after the decision on appeal. BYU may, at its own option, conduct its own defense in such actions and all expenses and attorneys' fees for such defense shall be paid by LICENSEE. 16.2 Each party to this Agreement shall promptly notify the other of any litigation in which there is a reasonable possibility that this Agreement will be affected and to afford reasonable cooperation should the other party elect to make its own defense. 17. Term and Termination This Agreement shall remain in force for the longest period of time allowed by law or until properly terminated as provided in this Section. 17.1 The Agreement may be terminated automatically without prior notice by BYU at its election in the event of the occurrence of any one of the following circumstances: A. In the event LICENSEE is placed in the hands of a receiver or makes a general assignment for the benefit of creditors; or B. In the event that substantial assets of LICENSEE or its successor-in-interest are seized or attached in conjunction with any action brought against it by a third party creditor and LICENSEE does not regain possession and control of its assets within ninety (90) days of such involuntary seizure or attachment. 17.2 This Agreement may be terminated effective upon thirty (30) days written notice from BYU and the failure of LICENSEE to cure any breach or default prior to the expiration of the fifteen-day notice period in any of the following circumstances: A. In the event LICENSEE becomes insolvent or shall cease to carry on its business in the normal course; or B. In the event there is a transfer or sale of LICENSEE's business purporting to transfer or assign this Agreement or LICENSED TECHNOLOGY without the prior express written consent of BYU; or C. Disclosure of confidential information in violation of the confidentiality provisions of this agreement. 17.3 In the case of breach or default arising from LICENSEE's failure to pay BYU royalties or other costs or expenses pursuant to the Agreement when due and payable, failure to complete the performance requirements of Section 5 of this Agreement or from any other material breach or default of this Agreement other than those described in Section 17.1 and Section 17.2, BYU shall have the right to terminate this Agreement upon sixty (60) days notice to LICENSEE. Termination shall become effective upon the failure of LICENSEE to cure such breach or default within such sixty (60) day period. 17.4 Upon termination of this Agreement, for any reason, the parties shall not be released from any obligation that has matured prior to the effective date of the termination. LICENSEE may, however, after the effective date of such termination, sell all LICENSED PRODUCTS and complete LICENSED PROCESSES in its inventory or in process as of the time of such termination, provided that LICENSEE shall pay to BYU the royalties and other consideration on these products as required by this Agreement and shall submit the reports as required. 17.5 Upon the termination of this Agreement, any SUBLICENSEE which has not breached in any material way its sublicense agreement may be granted the right to receive a license directly from BYU, at BYU's sole discretion, granting license rights to the LICENSED TECHNOLOGY. 17.6 Upon the termination of this Agreement, LICENSEE shall return to BYU all equipment, enhancements and all other materials, documents and information as may have been provided by BYU pursuant to this Agreement, which contain information which is confidential or proprietary to BYU and shall grant back to BYU all of LICENSEE's right, title and interest to all IMPROVEMENTS, with applicable documentation, made by LICENSEE in relation to the LICENSED TECHNOLOGY. 17.7 Nothing herein shall be construed to limit BYU's legal or equitable remedies in the event of a default by LICENSEE and subsequent termination of this Agreement by BYU. 18. Negotiations, Mediation and Arbitration 18.1 With respect to any and all claims, disputes or controversies arising out of the 14 performance of or in connection with this Agreement, except with respect to enforcement of the LICENSEE's obligations specified in Sections 6, hereof for which BYU may seek any legal or equitable remedy available through a court of competent jurisdiction, the parties agree to attempt in good faith to resolve those claims, disputes or controversies by negotiations between the parties. In the event either party believes the negotiation discussions are likely not to result in settlement, the parties must, in good faith, participate in mediation sessions with a professional mediator to be mutually selected by the parties and the expense of which is to be paid fifty percent (50%) by each party. In the event, after one or more mediation sessions, either party believes the mediation process is not likely to resolve the dispute by mutual agreement, the dispute shall be resolved by final and binding arbitration in Provo, Utah. Each party shall choose one arbitrator and these two arbitrators shall in turn select a third arbitrator, which three arbitrators shall constitute the arbitration panel. The arbitrators shall have no power to add to, subtract from or modify any of the terms or conditions of this Agreement. Any award rendered in such arbitration may be enforced by either party in either the courts of the State of Utah or in the United States District Court for the District of Utah in which jurisdiction for such purposes BYU and LICENSEE hereby irrevocably consent and submit. The arbitration proceedings shall be conducted in all matters not specifically identified in this Agreement pursuant to the rules of the American Arbitration Association, unless otherwise expressly agreed in writing by the parties. Each party shall bear its own costs. 18.2 Claims, disputes or controversies concerning the validity, construction or effect of any patent subject of this License Agreement shall be resolved in any court having competent jurisdiction. 18.3 In the event in any arbitration proceeding any issue shall arise concerning the validity, construction or effect of any patent licensed, the arbitrator shall assume the validity of all claims as set forth in the patent. Except with reference to a prior determination by a court of competent jurisdiction, neither party shall raise any issue concerning the validity, construction or effect of any patent licensed under this Agreement in any arbitration proceeding, in any proceeding to enforce the arbitration award or in any proceeding arising out of such arbitration award. 18.4 Nothing in this Section shall be construed to waive any rights of timely performance of any obligation existing under the Agreement. 19. Licensee Assignment Neither this Agreement nor the LICENSED TECHNOLOGY is assignable by either party without the express written consent of the other party, which consent shall not be unreasonably withheld, and any attempt to do so without such written consent shall be void. 15 20. Non Use of BYU Name LICENSEE shall not use the name of Brigham Young University nor of any of its employees, nor any adaptation thereof, in any advertisement, promotion or sales literature without the express prior written consent from BYU in each case, except that LICENSEE may state that it is licensed by BYU. 21. Publication BYU shall have the right to publish any academic paper, article or learned treatise and make public disclosure at professional meetings or seminars regarding any portion of the LICENSED TECHNOLOGY which has been or may be invented, conceived or developed by BYU provided, however, that BYU shall provide LICENSEE with reasonable prior notice of its intent to publish or disclose, describing with particularity the nature of the publication or disclosure, and LICENSEE shall have the right to object to any Confidential Information which it wishes not be published or disclosed. LICENSEE must provide BYU with notice of its objections within thirty (30) days of receiving BYU's notification or LICENSEE shall be deemed to have authorized the publication or disclosure. Upon receiving notice of any objection, BYU will attempt in good faith to remove the Confidential Information identified by LICENSEE without changing the essential nature of the proposed publication or disclosure. LICENSEE shall, in its discretion, determine whether or not the final proposed publication or disclosure as modified will reveal Confidential Information and may preclude publication of the identified Confidential Information. 22. Payment, Notices and Other Communications Any payment, notice or other communication pursuant to this Agreement shall be sufficiently made or given on the date of mailing if sent by certified first-class mail, postage prepaid, addressed to the receiving party at its address designated below or such address as shall be designated by written notice given to the other party. BYU: Technology Transfer Office A-268 ASB Brigham Young University P.O. Box 21231 Provo, Utah 84602-1231 (801) 378-6266 FAX (801) 378-2138 LICENSEE: Redstone Publishing, Inc. 50 W Canyon Crest Dr. Alpine, UT 84004 (801) 756-8833 FAX (801) 756-8188 16 23. Miscellaneous Provisions 23.1 Independence of Parties. BYU and LICENSEE are independent parties engaged in independent business and neither party nor any respective agent or employee of either party shall be regarded as an agent or an employee of the other. Nothing in this Agreement shall be construed as reserving to either party the right to control the other in the conduct of its business, nor shall either party have the authority to make any promise, guarantee, warranty or reservation which will create any obligation or liability whether express or implied on behalf of the other. 23.2 Attorneys' Fees. In the event a suit or an arbitration proceeding is commenced to construe or enforce any provision of this Agreement, the prevailing party, in addition to all other amounts to which such party may be entitled, shall be paid by the other party a reasonable sum for attorneys' fees and reasonable costs related to the dispute resolution. 23.3 Waiver. No waiver by either party, whether express or implied, of any provisions of this Agreement or of any breach or default of either party, shall constitute a continuing waiver of such provision or a wavier of any other provisions of this Agreement. 23.4 Governing Law. This Agreement shall be interpreted and construed in accordance with the laws of the State of Utah. Venue for any legal disputes shall be in Utah County, Utah. 23.5 Partial Invalidity. Should any Section or any part of a Section of this Agreement be held unenforceable or in conflict with the law of any jurisdiction, the validity of the remaining Sections and Subsections shall not be affected by the invalidity of any other part of the Agreement. 23.5 Force Majeure. Neither party to this Agreement shall be in default because of a delay or failure to perform which is not the result of the defaulting party's intentional or negligent acts or omissions, but results from causes beyond the reasonable control of such party such as acts of God, civil disobedience and war. 23.6 Entire Agreement. This Agreement constitutes the entire Agreement and understanding between the parties and supersedes all prior agreements and understandings with respect to the LICENSED TECHNOLOGY, whether written or oral. No modification or claimed waiver of any of the provisions of this Agreement shall be valid unless in writing and signed by authorized representatives of the party against whom such modification or wavier was sought to be enforced. 23.7 Binding Effect. This License Agreement shall be binding upon and shall inure to the benefit of the successors, assigns and legal representatives of the parties. 23.8 Headings. The paragraph and subparagraph headings contained in this Agreement are for convenience and reference only. They are not intended to define and limit the scope of the provisions of this Agreement. 19 IN WITNESS WHEREOF, the parties have entered into this Agreement and it is effective this 14th day of February, 1997. BRIGHAM YOUNG UNIVERSITY /s/ Gary Hooper 2/12/97 _____________________________________________________ __________ By: Gary R. Hooper Date Associate Academic Vice President REDSTONE PUBLISHING, INC. /s/ M. Daniel Lunt 2/10/97 _____________________________________________________ _________ By: M. Daniel Lunt Date President EXHIBIT "A" WordCruncher Technology The LICENSED TECHNOLOGY includes U.S. Patent Number 5,345,551, "Method and System for Synchronization of Simultaneous Displays of Related Data Sources", as well as all continuations, continuations-in-part, divisions and renewals thereof, and all reissues, reexaminations, extensions, patents of addition, improvement patents and patents of importation thereof; and the WordCruncher U.S. trademark and logo registration, copyrights; trade secrets; and know-how which trade secrets and know-how are in existence upon the effective date of the Agreement. The LICENSED TECHNOLOGY also includes the WordCruncher software consisting of the documentation (including flowcharts, descriptions of the code architecture, procedures for maintenance and modification, build procedures for the object code, and end-user documentation or manuals), executable object code and source code as more fully defined by the following listing of programs, routines, subroutines and resources: ________________________________________________________________________ Product Name:WCV v4.6 (WordCruncher View for DOS) Description: This software is used for viewing files that have been indexed by WCI v4.6. It allows for searching by words in context and by reference. It supports output to the WordPerfect Shell clipboard output, file output and printer output. It will also create a KWIC concordance of words or phrases. Modules of Code 1. Special Modules (Assembly and Pascal Implementation modules): View, ViewUtil, Utility, Keytouch, ReadDisk, Writeutl, VidUtl, 4BitUndo, ScanB, CRC, Tone, DeCmprs, WPShell, TSRutil 2. Modules in WCV.EXE: (all the special modules above), ViewInit, ViewColr, ViewTune, ViewHelp, ViewParm 3. Modules in WCV.OVL: ViewPick, ViewPart, ViewMerg, ViewLook, HiliteWD, ViewList, Invert, ViewWind, ViewBook, ViewAloc, ViewRead, ViewOutl 4. Modules in WCV.TXT: ViewRelt, ViewFreq, ViewDict, ViewDisk 5. Modules in WCV.IDX: ViewIndx, ViewIPrm 6. Modules in WCV.UTL: ViewForm, ViewText, ViewOvly 7. Modules in WCV.MNU: ViewMenu Screen Files and Data Files 1. WCVSCRN.BYS 2. WCVATRB.BYS 3. Specialized Screen Files for NETWORKS 20 __________________________________________________________________________ Product Name:WCI v4.6 (WordCruncher Index for DOS) Description: This software indexes a BYB file to create companion files: BYA, BYC, BYX. It uses template BYC files (see below) as input. Modules of Code CONCORD.PAS, CONDPARM.PAS, CONDPARS.PAS, CONDFILE.PAS, CONDPREP.PAS, CONDAPN1.PAS, CONDAPN2.PAS, CONDDISK.PAS, CONDDICT.PAS, CONDINIT.PAS, CONDUTIL.IMP, UTILITY.IMP Screen Files and Data Files 1. WCISCRN.BYS 2. BENGLISH.BYC 3. BFRENCH.BYC 4. BSPANISH.BYC 5. BGERMAN.BYC 6. BMAORI.BYC 7. BDANISH.BYC 21 ___________________________________________________________________________ Product Name: WCLINK v4.6 (WordCruncher for DOS) Description: It appends indexed BYB/BYX files together to create a larger BYB/BYX master file. Modules of Code CONCORD.PAS, CONDPARM.PAS, CONDAPN1.PAS, CONDAPN2.PAS, CONDDISK.PAS, CONDINIT.PAS, CONDUTIL.IMP, UTILITY.IMP 22 ____________________________________________________________________________ Product Name: WCVWIN v5.2 (WordCruncher View for Windows) Description: This is view software for indexed files created by WCIWIN. See the WCFEAT.DOC file for details on all the features supported by this software. Multiple instances of the software can be running at the same time. It is possible to synchronize the display of data between separate instances. Modules of Code used to make WCVWIN.EXE 8. Modules and Header Files in WCVWIN\COMMON: B4COMP.C B4COMP.H BIT4DEFS.H BIT4PACK.H, BIT4UNDO.H, CBOOKIN2.CPP, CBOOKINI.CPP, CBOOKINI.H, CDEFINE.H, CFRAMER.CPP, CFRAMER.H, CGLOBALS.C, CGLOBALS.H, CGRPHSP2.CPP, CGRPHSUP.CPP, CGRPHSUP.H, CIO.CPP, CIO.H, CJPEG.CPP, CJPEG.H, CLIBSUP.H, CLOGLIB.H, CLZW.C, COMPRESS.C, COMPRESS.H, CPACKBIT.CPP, CPACKBIT.H, CPACKET.H, CPERCENT.CPP, CPERCENT.H, CSOCKET.CPP, CSOCKET.H, CSRCHSUP.H, CSTDAFX.CPP, CSTDAFX.H, CTEXTOUT.H, CTL3D.H, DISPLAY.C, DISPLAY.H, ERRMSG.H, ETB.H, ETG.H, FRAME.H, HUGE.H, ICTRL.H, IDEFINE.H, IPOPUP.H, ISORT.C, ISORT.H, ISWAP.C, ISWAP.H, PARSEWRD.C, PARSEWRD.H, SEARCHWD.C, SEARCHWD.H, VSUBSTR.H, VTRACE.H, WCCRES.H, WCCRES.RC, WCIOFNC.CPP, WCIOFNC.H, WCIRES.H, WCVRES.H, WCVWIN.H, WINIO.H 9. Modules and resources in WCVWIN: VAPP.CPP, VAUXBOOK.CPP, VCHSTYLE.CPP, VDDEAPP.C, VDEFAULT.CPP, VEDTBIDI.CPP, VERRMSG.C, VFINDIT.CPP, VFRQDIST.C, VFRQINIT.C, VFMTIO.CPP, VFMTTXT.CPP, VGETCITE.C, VGLOBALS.C, VGRAPH.CPP, VFMTDISP.CPP, VFMTINIT.CPP, PCTL.CPP, VHOTSPOT.CPP, VINIT.C, VKEYBD.CPP, VLEXICON.C, VLEXSUP.CPP, VLIBEDIT.CPP, VLIBIPD.CPP, VLIBRARY.CPP, VLIBSUP.CPP, VLIBUSER.CPP, VLNGEDIT.CPP, VLOGLIB.C, VMENULNG.C, VMERGE.C, VMRGCTRL.C, VOPEN.C, VOPEN2.C, VPUBDLG.CPP, VRNGNAME.CPP, VRBAREA.CPP, VREFFILT.C, VREFLIST.C, VREFSEL.CPP, VREFSOR2.C, VREFSORT.C, VRESIDNT.C, VSBKDLG.CPP, VSEARCH.C, VSELREF.C, VSELREF2.C, VSELWORD.C, VSHOWCIT.C, VSLIST.C, VSLIST1.C, VSLIST2.C, VSRCHLEX.CPP, VSRCHLIB.C, VSRCHSNT.CPP, VSRCHSUB.CPP, VSRCHWSS.CPP VSYNC.C, VSYNCDLG.CPP, VTEXTOUT.C, VTOCMRG.C, VTOFLTR.CPP, VTOGRAPH.CPP, VTORUN.CPP, VTOTEXT.CPP, VTRACE.C, VTXTWND.C, VTXTWND2.C, VTXTWND3.C, VTXTWND4.C, VWDWHEEL.C, VWDWHFNC.C, VWORDPAT.C, WCVWIN.DEF, WCVWIN.RC 10. Header files in WCVWIN\H: VAPP.H, VAUXBOOK.H , VCHSTYLE.H , VDDEAPP.H, VDEFAULT.H, VEDITWND.H, VEDTBIDI.H, VFINDIT.H, VFMTTXT.H, VGLOBALS.H, VGRAPH.H, VHELPCTL.H, VKEYBD.H, VLIBEDIT.H, VLIBIPD.H, VLIBRARY.H, VLIBSUP.H, VLIBUSER.H, VLNGEDIT.H, VLOGLIB.H, VPUBDLG.H, VREFLIST.H, VREFSEL.H, VRESIDNT.H, VRNGNAME.H, VSBKDLG.H, VSEARCH.H, VSELREF.H, VSRCHLEX.H, VSRCHSNT.H, VSRCHSUB.H, VSRCHWSS.H, VSYNCDLG.H, VTOFLTRD.H, VTORUN.H, VTXTWND.H, VWDWHEEL.H, WCTFLT.H 23 Product Name: WCIWIN v5.2 (WordCruncher Index for Windows) Description: Software that imports an ETA file with markup codes (that references an SIF that defines the codes), template ETX files defining language sort order and reference level markup codes, and exports an ETX file that contains reference code indexes and word indexes. Modules of Code used to make WCIWIN.EXE 1. Modules and resources in WCIWIN\COMMON: BATCHINI.C, CAUTION.ICO, CONVERT.C, CVT.ICO, EDITLST.C, EDITLST2.C, EDITLST3.C, EDITXHDR.C, FREEDLG.C, GO.ICO, GRAPH.ICO, HOTSPOT.CUR, IBATCH.C, ICONVERT.C, ICREATE.C, ICTRL.C, IDEFRAG.C, IDEFRAG2.C, IDEFRAG3.C, IEDIT.C, IERRMSG.C, IETXINIT.C, IEXETG.CPP, IGLOBALS.C, IINDEX.C, ILINKETG.CPP, ILINKSUP.C, ILINKVOL.C, INDEXCVT.C, INIT.C, IOCR.C, IRESIDNT.C, IWORD.C, LN.ETN, MENULANG.C, SFMAKER.C, SFMSCRN.C, STOP.ICO, STYLEINI.C, STYLES.SDF, VIEW.ICO, WCI.ICO, WCIWIN.DEF, WCIWIN.RC, WORKING.C, WPTOWC.C 2. Modules and resources in WCIWIN: BATCHINI.C, CAUTION.ICO, CONVERT.C, CVT.ICO, EDITLST.C, EDITLST2.C, EDITLST3.C, EDITXHDR.C, FREEDLG.C, GO.ICO, GRAPH.ICO, HOTSPOT.CUR, IBATCH.C, ICONVERT.C, ICREATE.C, ICTRL.C, IDEFRAG.C, IDEFRAG2.C, IDEFRAG3.C, IEDIT.C, IERRMSG.C, IETXINIT.C, IEXETG.CPP, IGLOBALS.C, IINDEX.C, ILINKETG.CPP, ILINKSUP.C, ILINKVOL.C, INDEXCVT.C, INIT.C, IOCR.C, IRESIDNT.C, IWORD.C, LN.ETN, MENULANG.C, SFMAKER.C, SFMSCRN.C, STOP.ICO, STYLEINI.C, STYLES.SDF, VIEW.ICO, WCI.ICO, WCIRES52.DLL, WCIWIN.DEF, WCIWIN.RC, WORKING.C, WPTOWC.C 3. Header Files in WCIWIN\H: CONVERT.H, CPROC.H, EDITLST.H, IBATCH.H, IDEFRAG.H, IDXFILE.H, IGLOBALS.H, IHOTSPOT.H, ILINK.H, IOCR.H, IPROC.H, ITRACE.H, LSTRCDEF.H, SFM.H, SFM.L, STYLEINI.H, WCIWIN.H, WORKING.H, WPTOWC.L ____________________________________________________________________________ Product Name: WCVRES52.DLL (Resources for WCVWIN v5.2) Description: The resource DLL is a WordCruncher feature that allows us to support many languages with one executable. VARs are given these files so they can customize their own resources. Files used in building this resource DLL: DLLMAIN.CPP, DLLMAIN.OBJ, DLLMAIN.SBR, MSVC.PDB, WCCRES.H, WCCRES.RC, WCVRES.APS, WCVRES.CLW, WCVRES.H, WCVRES.RC, WCVRES.RES, WCVRES.WSP, WCVRES52.BSC, WCVRES52.DEF, WCVRES52.LIB, WCVRES52.MAK, WCVRES52.MAP, WCVRES52.PDB, WCVRES52.VCW, WCVRES52.WSP 24 Product Name: WCIRES51.DLL (Resources for WCIWIN v5.2) Description: Resource files that could be translated. Presently, these files are not distributed to VARs because there has been little pressure to make this software available to the public. Files used in building this resource DLL: IDEFINE.H, WINIO.H, ISTRCDEF.H, WCIRES.H, WCIRES.RC, WCIRES.RES, WCIRES.WSP, WCIRES51.BSC, WCIRES51.DEF, WCIRES51.LIB, WCIRES51.MAK WCIRES51.MAP, WCIRES51.PDB, WCIRES51.VCW, WCIRES51.WSP, DLLMAIN.CPP, DLLMAIN.OBJ, DLLMAIN.SBR, MSVC.PD ____________________________________________________________________________ Product name: WCGWIN.EXE v5.2 (WordCruncher Graphics Editor) Description: This editor is for building WordCruncher Graphics files (ETG). Specifically, this editor allows for compression and inserting of hyperlink hotspots. The ETG file has a TIFF structure. Modules of Code used to make WCGWIN.EXE 1. Modules, Header files and Resources in WCGWIN\COMMON: B4COMP.C, B4COMP.H, BIT4DEFS.H, BIT4PACK.H, BIT4UNDO.H, CBOOKIN2.CPP, CBOOKINI.CPP, CBOOKINI.H, CDEFINE.H, CFRAMER.CPP, CFRAMER.H, CGLOBALS.C, CGLOBALS.H, CGRPHSP2.CPP, CGRPHSUP.CPP, CGRPHSUP.H, CJPEG.CPP, CJPEG.H, CLIBSUP.H, CLZW.C, COMPRESS.C, COMPRESS.H, CPACKBIT.CPP, CPACKBIT.H, CPACKET.H, CPERCENT.CPP, CPERCENT.H, CSOCKET.CPP, CSOCKET.H, CSTDAFX.CPP, CSTDAFX.H, CTEXTOUT.H, CTL3D.H, DISPLAY.C, DISPLAY.H, ERRMSG.H, ETB.H, ETG.H, FRAME.H, HUGE.H, ICTRL.H, IDEFINE.H, IPOPUP.H, ISORT.C, ISORT.H, ISWAP.C, ISWAP.H, PARSEWRD.C, PARSEWRD.H, SEARCHWD.C, SEARCHWD.H, VSUBSTR.H, VTRACE.H, WCCRES.H, WCCRES.RC, WCIOFNC.CPP, WCIOFNC.H, WCIRES.H, WCVRES.H, WINIO.H 2. Modules and Resources in WCGWIN: ATTRDLG.CPP, DIBDOC.CPP, EDITRES.CPP, ELLIPMRK.CPP, EMPTYATT.CPP, GETCITE.CPP, GIFDOC.CPP, GLOBALS.CPP, HLNKBRWS.CPP, HLNKCNFG.CPP, HLNKGRPH.CPP, HLNKMRK.CPP, HLNKXREF.CPP, IMGFRAME.CPP, IMGVIEW.CPP, INSEMPTY.CPP, JPEGDOC.CPP, JPEGOPTD.CPP, MAINFRM.CPP, MARKUP.CPP, MEM.CPP, PCXDOC.CPP, TIFFDOC.CPP, TITLEWND.CPP, WCGAPP.CPP, WCGDOC.CPP, WCGFILE.CPP, WCGICON.CPP, WCGMAIN.CPP, WCGTEMPL.CPP, WCGVIEW.CPP, WCGVWFRM.CPP, WCGWIN.DEF, WCGWIN.HPJ, WCGWIN.RC, WCW3D.DLL 3. Header files in WCGWIN\H: ATTRDLG.H, DIBDOC.H, EDITRES.H, ELLIPMRK.H, EMPTYATT.H, GETCITE.H, GIFDOC.H, GLOBALS.H, HLNKBRWS.H, HLNKCNFG.H, HLNKGRPH.H, HLNKMRK.H, HLNKXREF.H, IMGFRAME.H, IMGVIEW.H, INSEMPTY.H, JPEGDOC.H, JPEGOPTD.H, MAINFRM.H, MARKUP.H, MEM.H, PCXDOC.H, PRCNTBOX.H, RESOURCE.H, STDAFX.H, TIFFDOC.H, TITLEWND.H, WCGAPP.H, WCGDOC.H, WCGFILE.H, WCGICON.H, WCGTEMPL.H, WCGVIEW.H, WCGVWFRM.H 25 Product Name: WCCDLL.DLL (for WCVWIN v5.2 and CopyLock) Description: This special DLL is used to interface WCVWIN with Link Software copylock technology. Modules of Code and resources used to make WCCDLL.DLL CLOSE.C, WCCDLL.C, WCCDLL.DEF, WCCDLL.DLL, WCCDLL.H, WCCDLL.LIB, WCCDLL.MAK, WCCDLL.MAP, WCCDLL.PDB, WCCDLL.VCW, WCCDLL.WSP, WCCRES.H, WCCRES.RC _____________________________________________________________________________ Product Names: WCVINST.DLL WCINST.EXE (for VAR setups) Description: WCVINST.DLL is distributed to VARs for use with InstallShield setup software. WCINST.EXE is used to text WCVINST.DLL. Modules of Code and resources used to make WCINST.DLL GLOBALS.H, INSTALL.PDB, INSTTEST.BSC, RESOURCE.H, SCRIPT.INI, WCINST.BSC, WCINST.CPP, WCINST.DEF, WCINST.EXE, WCINST.MAK, WCINST.PDB, WCINST.SBR, WCINST.VCW, WCINST.WSP, WCVINST.APS, WCVINST.CPP, WCVINST.DEF, WCVINST.DLL, WCVINST.H, WCVINST.LIB, WCVINST.MAK, WCVINST.MAP, WCVINST.RC, WCVINST.RES, WCVINST.VCW, WCVINST.WSP _____________________________________________________________________________ Product Name: RTFConvert.EXE (32bit Import Utility) Description: This stand-alone utility program is designed to import RTF coded files and output WordCruncher ETA files with their accompanying SIF. Modules of Code and resources used to make RTFConvert.EXE CHILDFRAME.CPP, CHILDFRAME.H, MAINFRAME.CPP, MAINFRAME.H, MSSCCPRJ.SCC, RESOURCE.H, RTFCONVERT.APS, RTFCONVERT.CLW, RTFCONVERT.CPP, RTFCONVERT.H, RTFCONVERT.MAK, RTFCONVERT.MDP, RTFCONVERT.NCB, RTFCONVERT.RC, RTFCONVERT.REG, RTFCONVERTDOC.CPP, RTFCONVERTDOC.H, RTFCONVERTVIEW.CPP, RTFCONVERTVIEW.H, RTFPARSE.BAK, RTFPARSE.CPP, RTFPARSE.H, STDAFX.CPP, STDAFX.H SPECIAL NOTE: THIS UTILITY ONLY RUNS IN WINDOWS 95 AND NT 4.0 26 _____________________________________________________________________________ Product Name: WCS51 (32bit TCPIP Remote Library Server) Description: This program acts as a remote library server. It allows users who have access to the Internet to connect to a remote library in a central location. Special Note: This product is in the process of being changed Modules of Code in current product: mssccprj.scc, resource.h, SAuxBookDlg.cpp, SAuxBookDlg.h, SBookDoc.cpp, SBookDoc.h, SChildFrame.cpp, SChildFrame.h, SDoc.cpp, SDoc.h, SGlobals.cpp, SGlobals.h, SHelpControl.cpp, SHelpControl.h, SLibEditDlg.cpp, SLibEditDlg.h, SLibrary.h, SLibraryDlg.cpp, SLibraryDlg.h, SLibraryDoc.cpp, SLibraryDoc.h, SMainFrame.cpp, SMainFrame.h, SNoSpaceEdit.cpp, SNoSpaceEdit.h, SPacket.h, SSocket.cpp, SSocket.h, SSyncDlg.cpp, SSyncDlg.h, StdAfx.cpp, StdAfx.h, STitleWnd.cpp, STitleWnd.h, SUser.h, SUserEditDlg.cpp, SUserEditDlg.h, SUsersDlg.cpp, SUsersDlg.h, SView.cpp, SView.h, SWCFile.cpp, SWCFile.h, WCS51.APS, WCS51.clw, WCS51.cpp, WCS51.h, Wcs51.ini, WCS51.iwz, Wcs51.mak, Wcs51.mdp, WCS51.ncb, WCS51.rc _____________________________________________________________________________ Product Name: VAR Setup scripts Description: This script is used in the VAR distribution setup program. Files used in building this script: WC2.IWZ __________________________________________________________________________ Product Name: TrueType fonts for WordCruncher Hyperlinks Description: These two files are the truetype fonts for displaying WordCruncher Icons are characters on the screen Files furnished: WCVICON.TTF, WCVICONS.TTF 27 Product Name: Help Files for WCVWIN v5.2 Description: These files are used to build the WordCruncher contextual help files. Files used in building the help resource: D2HCOMP.BAT, D2H_ERR.BMK, D2H_ERR.TXT, D2H_EXCL.TXT, DOC2HELP.INF, DOC2HELP.INI, HLP.ERR, WCV-APPX.DOC, WCV-APPX.RTF, WCV1-USE.DOC, WCV1-USE.RTF, WCV10ANA.DOC, WCV10ANA.RTF, WCV11TXT.DOC, WCV11TXT.RTF, WCV12LOG.DOC, WCV12LOG.RTF, WCV2-INS.DOC, WCV2-INS.RTF, WCV3-SCR.DOC, WCV3-SCR.RTF, WCV4- NAV.DOC, WCV4-NAV.RTF, WCV5-BOO.DOC, WCV5-BOO.RTF, WCV51MAN.DOC, WCV6-MAI.DOC, WCV6-MAI.RTF, WCV7-TOC.DOC, WCV7-TOC.RTF, WCV8-SEA.DOC, WCV8-SEA.RTF, WCV9- REF.DOC, WCV9-REF.RTF, WCVHELP.HLP, WCVHELP.HPJ, WCVHELP.PH, WCVINTRO.DOC, WCVINTRO.RTF, HELP0001.BMP, HELP0002.BMP, HELP0003.BMP, HELP0004.BMP, HELP0005.BMP, HELP0006.BMP, HELP0007.BMP, HELP0008.BMP, HELP0009.BMP, HELP0010.BMP, HELP0011.BMP, HELP0012.BMP, HELP0013.BMP, HELP0014.BMP, HELP0015.BMP, HELP0016.BMP, HELP0017.BMP, HELP0018.BMP, HELP0019.BMP, HELP0020.BMP, HELP0021.BMP, HELP0022.BMP, HELP0023.BMP, HELP0024.BMP, HELP0025.BMP, HELP0026.BMP, HELP0027.BMP, HELP0028.BMP, HELP0029.BMP, HELP0030.BMP, HELP0031.BMP, HELP0032.BMP, HELP0033.BMP, HELP0034.BMP, HELP0035.BMP, HELP0036.BMP, HELP0037.BMP, HELP0038.BMP, HELP0039.BMP, HELP0040.BMP, HELP0041.BMP, HELP0042.BMP, HELP0043.BMP, HELP0044.BMP, HELP0045.BMP, HELP0046.BMP, HELP0047.BMP, HELP0048.BMP, HELP0049.BMP, HELP0050.BMP, HELP0051.BMP, HELP0052.BMP, HELP0053.BMP, HELP0054.BMP, HELP0055.BMP, HELP0056.BMP, HELP0057.BMP, HELP0058.BMP, HELP0059.BMP, HELP0060.BMP, HELP0061.BMP, HELP0062.BMP, HELP0063.BMP, HELP0064.BMP, HELP0065.BMP, HELP0066.BMP, HELP0067.BMP, HELP0068.BMP 28 Product Name: 32bit WC60 (v6.0 For Windows 95 and NT4.0) Description: This is the prototype we have been using during the design phase for WordCruncher v6.0 Files used in building this prototype software EllipseMarkup.cpp, EllipseMarkup.h, HLinkMarkup.cpp, HLinkMarkup.h, ImageDescriptor.cpp, ImageDescriptor.h, ImageDescriptor2.cpp, ImageDocument.cpp, ImageDocument.h, ImageView.cpp, ImageView.h, ImageWindow.cpp, ImageWindow.h, LZW.cpp, LZW.h, MainWindow.cpp, MainWindow.h, MakeHelp.bat, Markup.cpp, Markup.h, mssccprj.scc, Outline.cpp, Outline.h, PackBits.cpp, PackBits.h, PaletteCtrl.cpp, palettectrl.h, PubDocument.cpp, PubDocument.h, PubImageDocument.cpp, PubImageDocument.h, PubImageView.cpp, PubImageView.h, PubImageWindow.cpp, PubImageWindow.h, PubView.cpp, PubView.h, PubWindow.cpp, PubWindow.h, resource.h, StdAfx.cpp, StdAfx.h, TabView.cpp, TabView.h, TitleWindow.cpp, TitleWindow.h, ToolBar.cpp, ToolBar.h, WC60.APS, WC60.clw, wc60.cpp, WC60.h, WC60.MAK, WC60.MDP, WC60.ncb, WC60.rc, WC60.reg, WCDocument.cpp, WCDocument.h Existing Development Plans for WC60 1. Allow editing of documents in the WordCruncher mode. Support of shadow file changes to read-only files. 2. Reveal codes to assist publishers 3. MDI for presentation of multiple texts in single instance of WC60 4. Indexing on-the-fly 5. Notes attached to document with appropriate indexing techniques. 6. Index and Viewing software in the same module 7. User friendly a. All dialog boxes would use the tab structure b. SIF would be built with a wizard c. Status bar at bottom of window d. Help subsystem will support coaches 8. Improved import capabilities 9. TextOut to include KWIC concordance option 10. Finish implementing any remaining DOS features. 11. Implement additional features found in presentation, word processing, and multimedia software. 12. Implement other new features available in Visual C++ 4.0 (animated controls, toolbars, etc.). 13.Additional search front-ends. 14.Further enhancements to thesaurus and lexicon. 15.A collocation based search for missing data (use collocation data to broaden search). 16.Additional text analysis features (like word print analysis). More graphical representation of data. Explore additional statistical or data analysis features. ___________________________________________________________________________ Product Names: Documentation Files furnished as documentation: 1. MANUAL complete documentation for v4.6 in BYB format 2. ETA 5.2 Specification.DOC . Complete ETA specification (including the codes used in an SIF). 3. WCFEAT.DOC list of the features of WordCruncher 4. WCGWIN Documentation 5. Sample files, lexicons, and thesauruses. 29 EXHIBIT "B" Summary of Word Cruncher Licensees Current WordCruncher Licenses: ----------------------------- Publisher License Agreements: AGLL Brad Steuart P.O. Box 329 Bountiful UT 84011-0329 Phone: 801/298-5358 Ext. 511 Chadwick, Michael 335 West Main St. Weiser, ID 83672 Phone: 208/549-1598 Covenant Communications Lew Kofford Covenant Communications, Inc. P.O. Box 416 American Fork UT 84003-0416 Phone: 801/756-9966 Transnational Network, Inc. David L. Neubert 862 East 2070 North Lehi UT 84043 Phone: 801/768-4030 Visual Concepts Jean Tappan 8784 S. Russell Park Rd., Suite A Salt Lake City UT 84121-6143 Phone: 801/942-1264 Value Added Reseller (VAR) License Agreements: --------------------------------------------- Applications Technology, Inc. Mohammad Shihadah 1420 Beverly Road, Suite 350 McLean, VA 20101 Phone: 703/821-5000 CD-Danmark A/S Peter Taarnhoj CD-Danmark A/S Palaegade 4 DK-1261 Copenhagen DENMARK Phone: 33 11 04 31 30 Foundation for Ancient Research and Mormon Studies (FARMS) Steve Booras P.O. Box 7113 University Station Provo UT 84602 Phone: 801/343-3350 MultiLing International Daniel Oswald P.O. Box 169 Provo UT 84601 Phone: 801/377-2000 Portals Project Jamie Johnston Phone: 801/756-8833 Terminated Agreements: ----------------------- Summit Aviation Jan Woelhalf P.O. Box 759 Golden CO 80402 Phone: 303/425-5994 SCANTEXT Christoff Schnelle P.O. Box E169 St James 2000 185 Elizabeth Street Sydney NSW 2000 Phone: 61 2 261 4511 Serenity, Inc. Stanley M. Dratler 1945 N.E. 23rd Terrace Cape Coral FL 33909 Phone: 813/575-2828 ext 209 31 EXHIBIT "C" NON-DISCLOSURE OF CONFIDENTIAL INFORMATION AGREEMENT This Agreement is entered into between _________________________________, a _______________ corporation with its principal place of business located at _______ ________________________________________________________________ (referred to in this Agreement as "Licensee") and __________________________________________, an employee or contractor of Licensee (referred to in this Agreement as "Disclosee"). Licensee and Disclosee agree that they are voluntarily entering into this Agreement for the express benefit of Brigham Young University, a Utah nonprofit corporation and educational institution with its principal campus and place of business located at Provo, Utah 84602 (referred to in this Agreement as "BYU") and further agree to abide by the terms of this Agreement as follows: RECITALS 1.BYU is the sole owner of certain intellectual property rights known as _____________________________________________________ and has entered into an Exclusive License Agreement (referred to in this Agreement as the "License Agreement") with Licensee to allow for its development and commercialization. 2.Disclosee is an employee or contractor employed by or doing work for hire for Licensee. 3.Pursuant to the License Agreement, Licensee will receive material and information from BYU which is confidential or proprietary to BYU and Licensee has agreed with BYU to take reasonable precautions to preserve the confidential or proprietary status of this material and information during the term of the License Agreement and for a period of five (5) years after termination of the License Agreement. 4.Licensee has also agreed with BYU that all of its employees and independent contractors with access to BYU's confidential or proprietary information will be bound in writing to make no unauthorized use or disclosure of the confidential information. The purpose of this Agreement is to affect compliance with Licensee's obligation to protect BYU's confidential information. 1.Definitions 1.1"Licensed Technology" means and includes all of BYU's technology and intellectual property referred to in this Agreement as ____________________ and related enhancements generated at BYU or improvements developed by Licensee as specifically identified on Exhibit "A" to the License Agreement which exhibit is incorporated by reference and made a part of this Agreement. 1.2"Confidential Information" shall mean and include all material and information provided by BYU to Licensee which is marked as confidential, or is verbally so designated and confirmed in writing by BYU within thirty (30) days of receipt of the materials or information by Licensee, or which Licensee would at the time of disclosure reasonably understand under the circumstances to be considered by BYU to be confidential, proprietary or to constitute a trade secret. 32 Disclosure and Acknowledgment 2.1 The parties acknowledge that, from time to time during the term of the License Agreement between BYU and Licensee, it may be necessary for Confidential Information to be disclosed by BYU to Licensee and from BYU or Licensee to Disclosee. The parties acknowledge the provisions of this Agreement are necessary to protect the confidentiality, value, and secrecy of BYU's Confidential Information concerning the Licensed Technology and to protect BYU's patent and ownership rights to the Licensed Technology. 2.2 Nothing in this Agreement shall be construed as conferring upon Disclosee by implication, estoppel, or otherwise any right, title or interest in, or any license under, any Licensed Technology, intellectual property, patent or trade secret now or subsequently owned by BYU. 2.3 Disclosee agrees to take all precautions reasonably necessary to maintain the confidential nature of the Confidential Information disclosed to him or her by BYU or Licensee or otherwise obtained by him or her in connection with any dealings with BYU or Licensee. 3.Use of Confidential Information Disclosee agrees as follows: 3.1 Not to use the Confidential Information on his or her own behalf or on the behalf of others and to hold in trust for BYU the Confidential Information and any related information, test data, and benefits which arise during the course of employment or work for hire with Licensee. 3.2 Not to copy, duplicate or in any way record any Confidential Information disclosed to him or her under the terms of this Agreement. 3.3 That all ideas, developments, inventions, or improvements relating to the Confidential Information which are discovered by Disclosee or which Disclosee and others conceive during the term of this Agreement shall be promptly disclosed to Licensee and to BYU. 3.4 That all such ideas, developments or inventions shall be the sole property of BYU and Licensee subject to the terms of the License Agreement and to irrevocably assign, transfer and set over to BYU and Licensee all rights, title and interest in and to all such ideas, developments or inventions, regardless of whether they may or may not be patentable, as directed by the License Agreement. 3.5 To execute, acknowledge and deliver any and all documents, instruments and papers and to do any and all other things that may be deemed to be reasonably necessary by BYU and/or Licensee to carry out the provisions of Section 3 of this Agreement. 3.6 To render all reasonable assistance to BYU and Licensee in preparing copyrights or patent applications and in protecting the rights of BYU and/or Licensee and/or their designees in and to any matter which BYU and/or Licensee desire to protect under any patent or copyright laws of this or any other country. 3.7 In the event that BYU and/or Licensee is unable, after reasonable effort, to secure Disclosee's signature on any document or documents needed to apply for or prosecute any patent, copyright or other right or protection relating to any idea or invention, whether because of Disclosee's physical or mental incapacity or for any other reason whatever, Disclosee hereby irrevocably designates and appoints BYU and its duly authorized officers 33 and agents as attorney-in-fact to act in Disclosee's behalf and stead to execute and file any required documents, and to do all other lawfully permitted acts to further prosecution and issuance of patents, copyrights or other similar protections with the same legal force and effect as if executed by Disclosee. 4.Term and Termination 4.1 Disclosee's obligation of confidence, nondisclosure and non-use pursuant to this Agreement shall be effective for a period of the term of the License Agreement and for a period of five (5) years after termination of the License Agreement provided, however, that Disclosee shall have no obligation of confidence, nondisclosure or non-use with respect to information: 4.1.1 Already known to Disclosee at the time of the disclosure by BYU to Licensee; or 4.1.2 Was generally available to the public or otherwise part of the public domain at the time of disclosure from BYU to Licensee; or 4.1.3 Became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of Licensee or Disclosee in breach of the License Agreement or of this Agreement; or 4.1.4 Was subsequently and lawfully disclosed to Licensee or Disclosee by a third party. 4.1.5 Notwithstanding the above subparts of Section 4 of this Agreement, information shall not be considered to be generally known to the public or in the trade if, in order to acquire such information from publicly available sources, Disclosee used Confidential Information to guide him or her in reviewing such sources or to select therefrom a series of unconnected items which may be fit together to match the Confidential Information first learned from BYU and/or Licensee. 4.2 Upon termination of the License Agreement or at the conclusion of Disclosee's employment relationship with Licensee, or at any time upon receiving written request from BYU or Licensee, Disclosee shall return all Confidential Information as well as any and all blueprints, drawings, diagrams, manuals, memoranda, notes, records, books, files, software, data, instruments, paper or any other documents or things pertaining to the Confidential Information and any copies, summaries or compilation of such. 5.Miscellaneous 5.1 In the event Disclosee is in breach of any of its obligations pursuant to this Agreement, both BYU and Licensee shall have the right and standing, in addition to any other remedies available to them at law or in equity, to preliminary injunctive relief to enforce the obligation of confidence hereunder until such time as a final adjudication by a court of competent jurisdiction is secured. 5.2 In the event a suit is commenced to enforce any obligations of this Agreement, the prevailing party, in addition to any other amounts or remedies to which it may be entitled, shall be paid by the non-prevailing party a reasonable sum for attorneys fees and reasonable costs related to the dispute resolution. 5.3 This Agreement is subject to and shall be interpreted under the laws of the State of Utah and the venue for any dispute resolution shall be in the State of Utah, County of Utah in the State District Court to which jurisdiction the parties to this Agreement irrevocably consent. 34 5.4 The parties to this Agreement agree that this Agreement is made and entered into for the benefit of BYU and that BYU is a third party beneficiary to this Agreement and has standing to enforce the terms of this Agreement and to avail itself of all other equitable and legal remedies allowable by law as if it were a direct party to this Agreement. 5.6 This Agreement is divisible and separable so that if any provision or provisions shall be held invalid, such holding shall not impair the remaining provisions. 5.5 This Agreement constitutes the entire agreement and understanding between the parties and supersedes all prior agreements and understandings with respect to the subject matter, whether written or oral. IN WITNESS WHEREOF, the parties have entered into this Agreement and it is effective as of the __________ day of ____________________, 199____. LICENSEE: By:_________________________________ Its:_________________________________ Date:_______________________________ DISCLOSEE: Name:________________________________ Date:_______________________________ EX-10.3 11 PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (the "Agreement") is made and entered into as of this 28th day of December, 1998 (the "Effective Date") by and among WORDCRUNCHER INTERNET TECHNOLOGIES, INC. ("WCTI"), hereinafter sometimes referred to as the "Purchaser," and JEFFREY B. PETERSEN ("Petersen"), hereinafter sometimes referred to as the "Seller." RECITALS -------- A. Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, all of Seller's rights, titles, licenses, and interests in and to certain intellectual property and products described on Exhibit "A" attached hereto and by this reference made a part hereof, hereinafter referred to as the "Subject Property." B. Purchaser and Seller desire hereby to set forth all of their agreements and understandings relative to the purchase and sale of the Subject Property. AGREEMENT --------- NOW, THEREFORE, for the consideration hereinafter stated, the mutual covenants herein contained, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Purchase and Sale. Subject to the terms and conditions herein contained, Seller hereby sells to Purchaser, and Purchaser hereby purchases from Seller, all of Seller's rights, titles, licenses, and interests in and to the Subject Property. In addition to the Subject Property, and as additional consideration for the purchase price payable hereunder, Petersen hereby agrees to dedicate one hundred fifty (150) hours of consulting services to WCTI for purposes of integrating the Subject Property into the WCTI system and such other consulting services as may be required by WCTI, which consulting services shall be rendered in the manner and at the times determined by WCTI in its reasonable discretion. 2. Purchase Price. The purchase price for the Subject Property is as follows: (a) the amount of ten thousand dollars ($10,000.00) paid to Petersen upon execution of this Agreement, the receipt of which is hereby acknowledged by Petersen; (b) the amount of five thousand dollars ($5,000.00) payable to Petersen within thirty (30) calendar days from the date of this Agreement; (c) certain shares of WCTI restricted common stock (rounded to the nearest whole share) equal in value to thirty five thousand dollars ($35,000.00) as determined by the price quoted for said shares on the NASDAQ Electronic Bulletin Board Exchange at the end of the business day next preceding the Effective Date of this Agreement, which shares of restricted WCTI common stock shall be delivered to Petersen as soon as practicable after execution of this Agreement. 3. Representations and Warranties of Seller. Seller hereby represents that it owns the Subject Property without limitation, liens or encumbrances, and that Seller has the right to sell the Subject Property to Purchaser in the manner and for the purposes contemplated herein. 4. Sales or Transfers of the Subject Property. Except as stated below in this paragraph, WCTI shall have the exclusive right to own, use, transfer, sell and/or otherwise deal with the Subject Property. Accordingly, all sales, licenses, transfers and use of the Subject Property must be approved in advance and in writing by WCTI before the same shall be binding or effective, which approval shall not be unreasonably withheld. Petersen may refer potential purchasers or users of the Subject Property to WCTI. Should WCTI, in its sole discretion, elect to proceed to closing any such transaction referred to it by Petersen, the parties hereto shall negotiate in good faith a referral commission or fee to be paid to Petersen for such services. WCTI acknowledges that Petersen has previously sold a search engine with some similar functionality to that of the Subject Property to another company not specifically in competition with WCTI. WCTI further acknowledges that consistent with the terms of that sale, WCTI is prohibited from using the Subject Property in the development of any telephone directory related software. 5. Access to Source Code. Purchaser hereby grants to Seller conditional access to the source code applicable to the Subject Property; provided, however, that Seller shall not make any changes, modifications, or additions to the source code without first having obtained the written consent of an authorized officer of Purchaser to do so. Any violation of the foregoing, at the discretion of the Purchaser, shall result in denial of any future access to the source code applicable to the Subject Property and shall constitute a material breach of this Agreement. 6. Cooperation. The parties hereto agree to cooperate fully and in good faith to effectuate the transfer of the Subject Property to Purchaser and to effectuate the purposes and intents set forth in this Agreement. 7. Notices. Any written notices or other communications permitted or required hereunder shall be deemed delivered upon actual hand delivery or three (3) days after the same are placed in the U. S. Mail, postage prepaid, and addressed as follows: 2 If to Purchaser: WordCruncher Internet Technologies, Inc. 50 West Canyon Crest Road Alpine, Utah 84004 Attention: President If to Petersen: Jeffrey B. Petersen 875 East 1150 North Pleasant Grove, Utah 84062 Any party may change its address by notifying the other parties hereto in the manner provided herein. 8. Binding Agreement. This Agreement supercedes all previous agreements and understanding, whether written or oral, between or among the parties hereto and shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors, and assigns. 9. Entire Agreement; Amendments. This Agreement constitutes the entire agreement of the parties relative to the subject matter hereof, and the same shall not be modified, added to, or amended in any respect without such modification, addition, or amendment being in writing and executed by all parties hereto. 10. Assignment. No party hereto shall have the right to assign or otherwise transfer this Agreement or any right or obligation hereunder without having received the prior written consent of the other parties hereto, which consent shall not be unreasonably withheld. Any assignment or other transfer of this Agreement or of any of the rights or obligations herein contained in violation of this paragraph shall not be effective and shall constitute a default hereunder by the offending party. Notwithstanding the foregoing, nothing in this paragraph 10 shall in any way restrict WCTI, as owner of the Subject Property, from dealing with the Subject Property in any manner in which it determines, in its sole discretion. 11. Enforcement. In the event it is necessary for any party hereto to bring legal action to enforce any provision hereof, such party shall have all rights and remedies available in law and equity against the defaulting party or parties. In addition, the defaulting party or parties shall be liable for and shall pay all costs, expenses, and fees, including attorneys' fees, incurred by the non-defaulting party in enforcing this Agreement against such defaulting party or parties. 12. Governing Law. This Agreement is made and entered into in the State of Utah and shall be governed and construed in accordance with the laws of said State. 3 IN WITNESS WHEREOF, the parties hereto have executed or caused these presents to be executed by their duly authorized officer as of the Effective Date first above written. WORDCRUNCHER INTERNET TECHNOLOGIES, INC. By: /s/ Kenneth W. Bell --------------------------------- Name: Kenneth W. Bell Title: Sr. V.P. & CFO /s/ Jeffrey B. Peterson ---------------------------------- JEFFREY B. PETERSEN EXHIBIT "A" DESCRIPTION OF THE SUBJECT PROPERTY EX-10.4 12 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 1st day of September, 1998, by and between WordCruncher Internet Technologies, Inc. a Nevada corporation ("Employer"), and Kenneth W. Bell ("Executive"). For and in consideration of the mutual covenants contained herein and of the mutual benefits to be derived hereunder, the parties agree as follows: 1. Employment. Employer hereby employs Executive to perform those duties generally described in this Agreement, and Executive hereby accepts and agrees to such employment on the terms and conditions hereinafter set forth. 2. Term. The term of this Agreement shall commence on September 1, 1998, and end on August 31, 2001. 3. Duties. During the term of this Agreement, Executive shall be employed by Employer and shall initially occupy the office of Senior Vice President, Treasurer and Chief Financial Officer of Employer. Executive agrees to serve in such offices or positions with Employer or any subsidiary of Employer and such substitute or further offices or positions of substantially consistent rank and authority as shall, from time to time, be determined by Employer's board of directors. Executive agrees to continue to serve as a member of the board of directors of Employer, and to serve as a director of any subsidiary of Employer, for no additional compensation subject to removal by the shareholders of Employer. Executive shall devote substantially all of his working time and efforts to the business of Employer and its subsidiaries and shall not during the term of this Agreement be engaged in any other substantial business activities which will significantly interfere or conflict with the reasonable performance of his duties hereunder. 4. Compensation. For all services rendered by Executive, Employer shall pay to Executive a salary of $102,000.00 per year, in equal monthly installments of $8,500.00 each. All salary payments shall be subject to withholding and other applicable taxes. To compensate for cost of living increases, the rate of salary shall be increased annually effective September 1, 1999 and on each anniversary thereafter, as the board of directors, on the recommendation of its compensation committee, may determine or, in the absence of such determination, in the amount of 8% over the applicable salary rate during the preceding 12-month period. In the event Executive resigns from his position with Employer and not otherwise under the circumstances set forth at paragraphs 14 or 15 herein, compensation payments to Executive shall be limited to compensation for services rendered by Executive. 5. Incentive Compensation. Employer shall provide Executive with incentive compensation in the form of cash bonuses not less often than once each year during the term of this Agreement. The amount of such bonuses shall be determined by the board of directors of Employer or a compensation committee thereof taking into consideration the relative contribution by Executive to the business of Employer, the economy in general, and such other factors as the board of directors or compensation committee deems relevant. 6. Employment Benefits. Employer shall provide health and medical insurance for Executive in a form and program to be chosen by Employer for its full-time employees. Executive shall be entitled to participate in any retirement, pension, profit sharing, or other plan approved by the board of directors. 7. Working Facilities. Employer shall provide to Executive at Employer's principal executive offices suitable executive offices and facilities appropriate for his position and suitable for the performance of his responsibilities. 8. Vacations. Executive shall be entitled each year to a paid vacation of at least 3 weeks. Vacation shall be taken by Executive at a time and with starting and ending dates mutually convenient to Employer and Executive. Vacation or portions of vacations not used in one employment year shall carry over to the succeeding employment year, but shall thereafter expire if not used within such succeeding year. 9. Expenses. Employer will reimburse Executive for expenses incurred in connection with Employer's business, including expenses for travel, lodging, meals, beverages, entertainment, and other items upon Executive's periodic presentation of an account of such expenses as required by Employer's policies and procedures. 10. Covenant Not to Disclose Proprietary Information. For a period of three years after termination of executive's employment, executive agrees that he will not directly or indirectly use, employ, publish or otherwise disclose any procedures, policies, practices, trade secrets, computer software, formulas, client opportunities or other information of a proprietary nature in the establishment, opening or operation of a business, or in connection with engaging in business with, serving as an officer, director, employee or agent of, or owning any equity interest (other than ownership of ten percent or less of the outstanding stock of any corporation listed on the New York or American Stock Exchange or included in the National Association of Security Dealers Automated Quotation System) in any person, firm, corporation or business entity, that engages in any activity in the United States or around the world that is the same as, similar to or competitive with the development, implementation or operation of a search engine software company.. The parties intend that this covenant not to disclose proprietary information shall be construed as a series of separate covenants. If in any judicial proceeding a court shall refuse to enforce any of the separate covenants deemed included in this paragraph, then the unenforceable covenants shall be deemed eliminated from these provisions for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants to be enforced. This covenant not to disclose proprietary information shall not be construed as restricting the executive's right to own shares in any company or limited partnership or business entity, provided they do not perform services, or participate in any way in the management of, a business entity which competes in the manner outlined above. This covenant shall survive the termination of this Agreement. 11. Nondisclosure of Information. In further consideration of employment and the continuation of employment by Employer, Executive will not, directly or indirectly, during or after the term of employment disclose to any person not authorized by Employer to receive or use such information, except for the sole benefit of Employer, any of Employer's confidential or proprietary data, information, or techniques, or give to any person not authorized by Employer to receive it any information that is not generally known to anyone other than Employer or that is designated by Employer as "Limited," Private," or "Confidential," or similarly designated. 12. Disability. If Executive is unable to perform his services by reason of illness or incapacity for a period of more than 9 consecutive months, the compensation thereafter payable to him during the second consecutive 9-month period shall be one-half of the compensation provided for in paragraph 4 hereof, and during the third consecutive 9-month period, one-half of the salary provided for in paragraph 4; provided, however, that no such compensation shall be payable after the termination of this Agreement. During such 27-consecutive-month period, Executive shall be entitled to receive incentive compensation in the same proportion as Executive's incentive compensation to his annual salary set forth in paragraph 4 paid to Executive, if any, for the fiscal year last preceding the date such illness or incapacity commenced. Notwithstanding the foregoing, if such illness or incapacity does not cease to exist within such 27-consecutive-month period, Executive shall not be entitled to receive any further compensation nor any payments set forth in paragraph 14 herein from Employer and Employer may thereupon terminate this Agreement. 13. Termination for Cause. Except as set forth in the foregoing paragraph, Employer may not terminate this Agreement during its term without cause ("Cause"). Employer, however, may terminate this Agreement for Cause by showing that Executive has materially breached its terms; that Executive, in determination of the board has been grossly negligent in the performance of his duties; that he has substantially failed to meet written standards established by Employer for the performance of his duties; or that he has engaged in material willful or gross misconduct in the performance of his duties hereunder. If employer terminates this Agreement for Cause, all of Employer's obligations hereunder shall terminate. 14. Payments for Termination Without Cause. In the event that Employer terminates this Agreement without Cause and not as the direct result of a change in control, as that phrase is defined in paragraph 18 hereof, Executive shall be compensated by Employer in a single lump sum payment, payable within 30 days after termination of employment, of the following amounts: (a) The amount of his salary, as provided in paragraph 4; and (b) Incentive compensation in the same proportion as Executive's incentive compensation to his annual salary set forth in paragraph 4, paid to Executive, if any, for the fiscal year last preceding the year during which his employment terminates, but prorated to reflect the number of full months of his employment during the year of termination. In addition, Executive's coverage under the Employer's insured employee benefit plan, as provided in paragraph 6, shall continue through the term of this Agreement. 15. Termination Payment for Change in Control. If Executive resigns or is discharged by Employer (or is deemed to be discharged pursuant to paragraph 17 below) as the direct and sole result of a change in control, or in reasonable anticipation of a change in control, then, in lieu of any payment otherwise payable to Executive under paragraph 14 hereof, Employer shall pay to Executive an amount equal to 5.0 times the average of the sum of amounts paid to Executive for salary, bonus and profit sharing for the five fiscal years immediately preceding the date of the change in control or for such fewer fiscal years if Executive has been employed by Employer for less than five fiscal years. Any amounts paid to Executive pursuant to this paragraph 15, shall be subject to any applicable federal, state and local tax withholdings and shall be payable in a lump sum to Executive as soon as practicable after Executive's resignation or discharge, but subject to the terms of paragraph 16 herein. 16. Tax Limitation. If Employer reasonably determines that the payment provided for in paragraph 15 hereof (the "Termination Payment") will likely result in a loss of a deduction to Employer as provided under Section 28OG of the Internal Revenue code of 1986, or any successor provision thereto, and the imposition of the excise tax payable by Executive as provided under Section 4999 of the Internal Revenue Code of 1986, or any successor provision thereto, such Termination Payment shall be reduced by the least amount required to avoid such loss of deduction and imposition of excise tax (collectively referred to hereinafter as the "Tax Penalties"). Employer shall make no Termination Payment to Executive prior to determining whether the Tax Penalties will apply to the Termination Payment. Employer shall make such determination within a reasonable time after Executive's resignation or discharge, but not to exceed 90 days thereafter. 17. Deemed Termination of Employment. For purposes of paragraph 15 hereof, Executive shall be deemed to have been discharged by Employer if Executive voluntarily resigns before the end of the term of this Agreement, but after a change in control has occurred, provided that Executive could not be discharged by Employer for Cause, has given Employer at least 30 days prior written notice of such resignation, and such resignation occurs after any of the following: (a) Executive is removed or released from any of his titles, positions or offices in effect immediately prior to the occurrence of a change in control, or Executive's duties and responsibilities in such titles, positions or offices are materially changed; (b) Executive's base salary in effect immediately before the change in control is reduced; (c) Executive is removed from participation in any of Employer's bonus or profit sharing programs, or any such bonus of profit sharing programs in which Executive was or was entitled to participate in immediately prior to the change in control are discontinued; (d) Executive's office is based more than 50 miles ftom the location of the principle office at which Executive was based immediately prior to the occurrence of the change in control; or (e) Employer deprives Executive of or otherwise reduces any material fringe benefit, including perquisites, provided to Executive by Employer immediately prior to the occurrence of a change in control. 18. Definition of Change in Control. For purposes of this Agreement, a "change in control" will be deemed to have occurred on the first to occur of the following events: (a) As a result of a cash tender offer, stock exchange offer or other takeover device, any person, as that term is used in Section 13(d) and 14(b)(2) of the Securities Exchange Act of 1934, is or becomes a beneficial owner, directly or indirectly, of stock of Employer representing thirty percent (30%) or more of the total voting power of Employer's then outstanding securities; (b) Any material realignment of the Board of Directors of Employer or change in officers of Employer resulting from a concerted shareholder action, including without limitation a proxy fight, voting trusts or pooling arrangements; (c) Any sale by Employer of thirty percent (30%) or more of its assets to a single purchaser or to a group of associated purchasers; or (d) Any merger, consolidation or other reorganization of Employer with any entity, other than its affiliates, whereby Employer is not the surviving entity or the shareholders of Employer otherwise fail to retain substantially the same direct or indirect ownership in Employer or its affiliates immediately after any such merger, consolidation or reorganization. 19. Death During Employment. If Executive dies during the term of this Agreement, Employer shall pay to the estate, trustee or other legally constituted third party designated by Executive in six equal monthly installments commencing on the first day of the month immediately following the month in which Executive dies, an amount equal to one year's salary provided for in paragraph 4 of this Agreement, and payment of incentive compensation in the same proportion as Executive's incentive compensation to his annual salary set forth in paragraph 4 paid to Executive for the fiscal year last preceding the year in which Executive dies, but prorated for the number of full months of his employment during the year of his death. 20. Stock Registration Provisions. During the term of this Agreement, Executive shall have the following rights and obligations with respect to registration under the Securities Act of 1933 and applicable blue sky laws of shares of common stock ("Shares") of Employer owned of record by Executive: (a) Company Registration. Employer shall notify Executive, at least thirty (30) days prior to the filing of any Registration Statement on forms S-1, S-2, S-3, or any successor forms under the Securities Act of 1933 covering any class of stock of the Employer and will upon the written request of Executive delivered at least fifteen (15) days prior to such filing, include in any such Registration Statement such information as may be required to register such number of Executive's Shares as Executive may request. Executive and Employer shall each include customary representations, warranties, indemnification, and contribution provisions in any underwriting agreement entered into in connection with such registration. If the managing underwriters for such registration advise Employer in writing that in their opinion the total amount of securities to be included in such registration statement exceeds the amount which should reasonably be included in that offering to achieve the Employer's financing goals, Employer may limit the amount of stock to be included as follows: (i) first, all securities Employer proposes to sell may be included, (ii) second, the Shares of common stock requested to be included in such registration by all executives and employees pursuant to registration rights may be reduced and adjusted among participating executives and employees on the basis of the amount of shares owned of record by each employee, and (iii) third, if applicable, other stock requested to be included in such registration may be similarly and ratably adjusted with all executives' and employees' stock pro rata according to the amount of stock owned of record by any proposed seller. All incremental expenses of such registration will be allocated pro rata according to the number of shares included for Executive. There shall be no limit on the number of registrations so requested, but each such request shall cover an amount of Shares having a proposed offering price of not less than one hundred thousand dollars ($100,000). (b) Registration on Request. In addition, Executive's Shares may be registered on not more than two (2) separate occasions, in such amounts as may be requested, in the following circumstances: (i) within one year following the death or the commencement of disability of Executive or (ii) at any time in a reasonable amount and for a bona fide business purpose with the approval of a majority of the independent, outside members of the board of directors of Employer. Within thirty (30) days after the receipt of a request for such registration by Executive's estate or personal representative pursuant to phrase (i) of the preceding sentence or the approval by the independent outside directors pursuant to phrase (ii) of the preceding sentence, Employer will commence the process of preparing for filing a Registration Statement covering the Shares and use its best efforts to cause such Registration Statement to become effective. Employer and Executive shall use commercially reasonable efforts to obtain an underwriter to firmly underwrite any such offering; in the event that no underwriter reasonably acceptable to Employer is willing to make a firm commitment, Employer shall have no obligation to file the Registration Statement. Employer may delay for up to ninety (90) days the filing of such a Registration Statement if the board of directors of Employer in good faith and for a bona fide corporate purpose determines that a filing at a requested time would be adverse to Employer's interests. Employer shall not be obligated to file any such Registration Statement at any time during which it is impossible or impracticable to include the required financial statements. Employer and Executive shall provide all information required for inclusion in such Registration Statement and any underwriting agreement entered into in connection therewith shall contain the customary representations, warranties, indemnification, and contribution provisions. All expenses of such registration shall be allocated pro rata according to the total number of Shares included therein. (c) General. In connection with each of the foregoing registrations and subject to the provisions concerning expenses, Employer shall also (i) use its best efforts to qualify the Shares for public sale under the blue sky laws of such jurisdictions as Executive may reasonably request, (ii) provide such number of preliminary and final prospectuses as Executive may reasonably request, and (iii) keep the final prospectus in any such registration current for a reasonable period of time. In connection with the indemnification and contribution to be provided by Executive to any underwriter or Employer pursuant to this paragraph 20, the aggregate liability of Executive shall not exceed the aggregate net proceeds received by Executive from the sale of the registered Shares, and, in connection with contribution, shall also take into consideration the relative fault of each contributing person. 21. Nontransferability. Neither Executive, his spouse, his designated contingent beneficiary, nor their estates shall have any right to anticipate, encumber, or dispose of any payment due under this Agreement. Such payments and other rights are expressly declared nonassignable and nontransferable except as specifically provided herein. 22. Indemnification. Employer shall indemnify executive and hold him harmless from liability for acts or decisions made by him while performing services for Employer to the greatest extent permitted by applicable law. Employer shall use its best efforts to obtain coverage for Executive under any insurance policy now in force or hereafter obtained during the term of this Agreement insuring officers and directors of Employer against such liability. 23. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other party. 24. Entire Agreement. This Agreement is and shall be considered to be the only agreement or understanding between the parties hereto and supersedes and is controlling over any and all other prior existing agreements between the parties with respect to the employment of Executive by Employer. All negotiations, commitments, and understandings acceptable to both parties have been incorporated herein. No letter, telegram, or communication passing between the parties hereto covering any matter during this contract period, or any plans or periods thereafter, shall be deemed a part of this Agreement; nor shall it have the effect of modifying or adding to this Agreement unless it is distinctly stated in such letter, telegram, or communication that it is to constitute a part of this Agreement and is to be attached as a rider to this Agreement and is signed by the parties to this Agreement. 25. Enforcement. Executive acknowledges that any remedy at law for breach of paragraphs IO and I I would be inadequate, acknowledges that Employer would be irreparably damaged by an actual or threatened breach thereof, and agrees that Employer shall be entitled to an injunction restraining Executive from any actual or threatened breach of paragraphs 10 and 11 as well as any further appropriate equitable relief without any bond or other security being required. In addition to the foregoing, each of the parties hereto shall be entitled to any remedies available in equity or by statute with respect to the breach of the terms of this Agreement by the other party. 26. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the state of Utah. 27. Severability. If and to the extent that any court of competent jurisdiction holds any provision or any part thereof of this Agreement to be invalid or unenforceable, such holding shall in no way affect the validity of the remainder of this Agreement. 28. Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement, or condition of this Agreement or to exercise any right or remedy consequent upon a breach hereof shall constitute a waiver of any such breach or of any other covenant, agreement, term, or condition. 29. Litigation Expenses. In the event that it shall be necessary or desirable for the Executive to retain legal counsel and/or incur other costs and expenses in connection with the enforcement of any and all of his rights under this Agreement, he shall be entitled to recover from the Employer reasonable attorney's fees, costs and expenses incurred by him in connection with the enforcement of said rights. Payment shall be made to the Executive by the Employer at the time these attorney's fees, costs, and expenses are incurred by the Executive. If, however, the Executive does not prevail in such enforcement actions, he shall repay any such payments to the Employer. AGREED AND ENTERED INTO as of the date first above written. EMPLOYER: WORDCRUNCHER INTERNET TECHNOLOGIES, INC. /s/ M. Daniel Lunt By: __________________________ President EXECUTIVE: /s/ Kenneth W. Bell __________________________ EX-10.5 13 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 1st day of September, 1998, by and between WordCruncher Internet Technologies, Inc. a Nevada corporation ("Employer"), and James W. Johnston ("Executive"). For and in consideration of the mutual covenants contained herein and of the mutual benefits to be derived hereunder, the parties agree as follows: 1. Employment. Employer hereby employs Executive to perform those duties generally described in this Agreement, and Executive hereby accepts and agrees to such employment on the terms and conditions hereinafter set forth. 2. Term. The term of this Agreement shall commence on September 1, 1998, and end on August 31, 2001. 3. Duties. During the term of this Agreement, Executive shall be employed by Employer and shall initially occupy the office of Executive Vice President of Employer. Executive agrees to serve in such offices or positions with Employer or any subsidiary of Employer and such substitute or further offices or positions of substantially consistent rank and authority as shall, from time to time, be determined by Employer's board of directors. Executive agrees to continue to serve as a member of the board of directors of Employer, and to serve as a director of any subsidiary of Employer, for no additional compensation subject to removal by the shareholders of Employer. Executive shall devote substantially all of his working time and efforts to the business of Employer and its subsidiaries and shall not during the term of this Agreement be engaged in any other substantial business activities which will significantly interfere or conflict with the reasonable performance of his duties hereunder. 4. Compensation. For all services rendered by Executive, Employer shall pay to Executive a salary of $102,000.00 per year, in equal monthly installments of $8,500.00 each. All salary payments shall be subject to withholding and other applicable taxes. To compensate for cost of living increases, the rate of salary shall be increased annually effective September 1, 1999 and on each anniversary thereafter, as the board of directors, on the recommendation of its compensation committee, may determine or, in the absence of such determination, in the amount of 8% over the applicable salary rate during the preceding 12-month period. In the event Executive resigns from his position with Employer and not otherwise under the circumstances set forth at paragraphs 14 or 15 herein, compensation payments to Executive shall be limited to compensation for services rendered by Executive. 5. Incentive Compensation. Employer shall provide Executive with incentive compensation in the form of cash bonuses not less often than once each year during the term of this Agreement. The amount of such bonuses shall be determined by the board of directors of Employer or a compensation committee thereof taking into consideration the relative contribution by Executive to the business of Employer, the economy in general, and such other factors as the board of directors or compensation committee deems relevant. 6. Employment Benefits. Employer shall provide health and medical insurance for Executive in a form and program to be chosen by Employer for its full-time employees. Executive shall be entitled to participate in any retirement, pension, profit sharing, or other plan approved by the board of directors. 7. Working Facilities. Employer shall provide to Executive at Employer's principal executive offices suitable executive offices and facilities appropriate for his position and suitable for the performance of his responsibilities. 8. Vacations. Executive shall be entitled each year to a paid vacation of at least 3 weeks. Vacation shall be taken by Executive at a time and with starting and ending dates mutually convenient to Employer and Executive. Vacation or portions of vacations not used in one employment year shall carry over to the succeeding employment year, but shall thereafter expire if not used within such succeeding year. 9. Expenses. Employer will reimburse Executive for expenses incurred in connection with Employer's business, including expenses for travel, lodging, meals, beverages, entertainment, and other items upon Executive's periodic presentation of an account of such expenses as required by Employer's policies and procedures. 10. Covenant Not to Disclose Proprietary Information. For a period of three years after termination of executive's employment, executive agrees that he will not directly or indirectly use, employ, publish or otherwise disclose any procedures, policies, practices, trade secrets, computer software, formulas, client opportunities or other information of a proprietary nature in the establishment, opening or operation of a business, or in connection with engaging in business with, serving as an officer, director, employee or agent of, or owning any equity interest (other than ownership of ten percent or less of the outstanding stock of any corporation listed on the New York or American Stock Exchange or included in the National Association of Security Dealers Automated Quotation System) in any person, firm, corporation or business entity, that engages in any activity in the United States or around the world that is the same as, similar to or competitive with the development, implementation or operation of a search engine software company.. The parties intend that this covenant not to disclose proprietary information shall be construed as a series of separate covenants. If in any judicial proceeding a court shall refuse to enforce any of the separate covenants deemed included in this paragraph, then the unenforceable covenants shall be deemed eliminated from these provisions for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants to be enforced. This covenant not to disclose proprietary information shall not be construed as restricting the executive's right to own shares in any company or limited partnership or business entity, provided they do not perform services, or participate in any way in the management of, a business entity which competes in the manner outlined above. This covenant shall survive the termination of this Agreement. 11. Nondisclosure of Information. In further consideration of employment and the continuation of employment by Employer, Executive will not, directly or indirectly, during or after the term of employment disclose to any person not authorized by Employer to receive or use such information, except for the sole benefit of Employer, any of Employer's confidential or proprietary data, information, or techniques, or give to any person not authorized by Employer to receive it any information that is not generally known to anyone other than Employer or that is designated by Employer as "Limited," Private," or "Confidential," or similarly designated. 12. Disability. If Executive is unable to perform his services by reason of illness or incapacity for a period of more than 9 consecutive months, the compensation thereafter payable to him during the second consecutive 9-month period shall be one-half of the compensation provided for in paragraph 4 hereof, and during the third consecutive 9-month period, one-half of the salary provided for in paragraph 4; provided, however, that no such compensation shall be payable after the termination of this Agreement. During such 27-consecutive-month period, Executive shall be entitled to receive incentive compensation in the same proportion as Executive's incentive compensation to his annual salary set forth in paragraph 4 paid to Executive, if any, for the fiscal year last preceding the date such illness or incapacity commenced. Notwithstanding the foregoing, if such illness or incapacity does not cease to exist within such 27-consecutive-month period, Executive shall not be entitled to receive any further compensation nor any payments set forth in paragraph 14 herein from Employer and Employer may thereupon terminate this Agreement. 13. Termination for Cause. Except as set forth in the foregoing paragraph, Employer may not terminate this Agreement during its term without cause ("Cause"). Employer, however, may terminate this Agreement for Cause by showing that Executive has materially breached its terms; that Executive, in determination of the board has been grossly negligent in the performance of his duties; that he has substantially failed to meet written standards established by Employer for the performance of his duties; or that he has engaged in material willful or gross misconduct in the performance of his duties hereunder. If employer terminates this Agreement for Cause, all of Employer's obligations hereunder shall terminate. 14. Payments for Termination Without Cause. In the event that Employer terminates this Agreement without Cause and not as the direct result of a change in control, as that phrase is defined in paragraph 18 hereof, Executive shall be compensated by Employer in a single lump sum payment, payable within 30 days after termination of employment, of the following amounts: (a) The amount of his salary, as provided in paragraph 4; and (b) Incentive compensation in the same proportion as Executive's incentive compensation to his annual salary set forth in paragraph 4, paid to Executive, if any, for the fiscal year last preceding the year during which his employment terminates, but prorated to reflect the number of full months of his employment during the year of termination. In addition, Executive's coverage under the Employer's insured employee benefit plan, as provided in paragraph 6, shall continue through the term of this Agreement. 15. Termination Payment for Change in Control. If Executive resigns or is discharged by Employer (or is deemed to be discharged pursuant to paragraph 17 below) as the direct and sole result of a change in control, or in reasonable anticipation of a change in control, then, in lieu of any payment otherwise payable to Executive under paragraph 14 hereof, Employer shall pay to Executive an amount equal to 5.0 times the average of the sum of amounts paid to Executive for salary, bonus and profit sharing for the five fiscal years immediately preceding the date of the change in control or for such fewer fiscal years if Executive has been employed by Employer for less than five fiscal years. Any amounts paid to Executive pursuant to this paragraph 15, shall be subject to any applicable federal, state and local tax withholdings and shall be payable in a lump sum to Executive as soon as practicable after Executive's resignation or discharge, but subject to the terms of paragraph 16 herein. 16. Tax Limitation. If Employer reasonably determines that the payment provided for in paragraph 15 hereof (the "Termination Payment") will likely result in a loss of a deduction to Employer as provided under Section 28OG of the Internal Revenue code of 1986, or any successor provision thereto, and the imposition of the excise tax payable by Executive as provided under Section 4999 of the Internal Revenue Code of 1986, or any successor provision thereto, such Termination Payment shall be reduced by the least amount required to avoid such loss of deduction and imposition of excise tax (collectively referred to hereinafter as the "Tax Penalties"). Employer shall make no Termination Payment to Executive prior to determining whether the Tax Penalties will apply to the Termination Payment. Employer shall make such determination within a reasonable time after Executive's resignation or discharge, but not to exceed 90 days thereafter. 17. Deemed Termination of Employment. For purposes of paragraph 15 hereof, Executive shall be deemed to have been discharged by Employer if Executive voluntarily resigns before the end of the term of this Agreement, but after a change in control has occurred, provided that Executive could not be discharged by Employer for Cause, has given Employer at least 30 days prior written notice of such resignation, and such resignation occurs after any of the following: (a) Executive is removed or released from any of his titles, positions or offices in effect immediately prior to the occurrence of a change in control, or Executive's duties and responsibilities in such titles, positions or offices are materially changed; (b) Executive's base salary in effect immediately before the change in control is reduced; (c) Executive is removed from participation in any of Employer's bonus or profit sharing programs, or any such bonus of profit sharing programs in which Executive was or was entitled to participate in immediately prior to the change in control are discontinued; (d) Executive's office is based more than 50 miles ftom the location of the principle office at which Executive was based immediately prior to the occurrence of the change in control; or (e) Employer deprives Executive of or otherwise reduces any material fringe benefit, including perquisites, provided to Executive by Employer immediately prior to the occurrence of a change in control. 18. Definition of Change in Control. For purposes of this Agreement, a "change in control" will be deemed to have occurred on the first to occur of the following events: (a) As a result of a cash tender offer, stock exchange offer or other takeover device, any person, as that term is used in Section 13(d) and 14(b)(2) of the Securities Exchange Act of 1934, is or becomes a beneficial owner, directly or indirectly, of stock of Employer representing thirty percent (30%) or more of the total voting power of Employer's then outstanding securities; (b) Any material realignment of the Board of Directors of Employer or change in officers of Employer resulting from a concerted shareholder action, including without limitation a proxy fight, voting trusts or pooling arrangements; (c) Any sale by Employer of thirty percent (30%) or more of its assets to a single purchaser or to a group of associated purchasers; or (d) Any merger, consolidation or other reorganization of Employer with any entity, other than its affiliates, whereby Employer is not the surviving entity or the shareholders of Employer otherwise fail to retain substantially the same direct or indirect ownership in Employer or its affiliates immediately after any such merger, consolidation or reorganization. 19. Death During Employment. If Executive dies during the term of this Agreement, Employer shall pay to the estate, trustee or other legally constituted third party designated by Executive in six equal monthly installments commencing on the first day of the month immediately following the month in which Executive dies, an amount equal to one year's salary provided for in paragraph 4 of this Agreement, and payment of incentive compensation in the same proportion as Executive's incentive compensation to his annual salary set forth in paragraph 4 paid to Executive for the fiscal year last preceding the year in which Executive dies, but prorated for the number of full months of his employment during the year of his death. 20. Stock Registration Provisions. During the term of this Agreement, Executive shall have the following rights and obligations with respect to registration under the Securities Act of 1933 and applicable blue sky laws of shares of common stock ("Shares") of Employer owned of record by Executive: (a) Company Registration. Employer shall notify Executive, at least thirty (30) days prior to the filing of any Registration Statement on forms S-1, S-2, S-3, or any successor forms under the Securities Act of 1933 covering any class of stock of the Employer and will upon the written request of Executive delivered at least fifteen (15) days prior to such filing, include in any such Registration Statement such information as may be required to register such number of Executive's Shares as Executive may request. Executive and Employer shall each include customary representations, warranties, indemnification, and contribution provisions in any underwriting agreement entered into in connection with such registration. If the managing underwriters for such registration advise Employer in writing that in their opinion the total amount of securities to be included in such registration statement exceeds the amount which should reasonably be included in that offering to achieve the Employer's financing goals, Employer may limit the amount of stock to be included as follows: (i) first, all securities Employer proposes to sell may be included, (ii) second, the Shares of common stock requested to be included in such registration by all executives and employees pursuant to registration rights may be reduced and adjusted among participating executives and employees on the basis of the amount of shares owned of record by each employee, and (iii) third, if applicable, other stock requested to be included in such registration may be similarly and ratably adjusted with all executives' and employees' stock pro rata according to the amount of stock owned of record by any proposed seller. All incremental expenses of such registration will be allocated pro rata according to the number of shares included for Executive. There shall be no limit on the number of registrations so requested, but each such request shall cover an amount of Shares having a proposed offering price of not less than one hundred thousand dollars ($100,000). (b) Registration on Request. In addition, Executive's Shares may be registered on not more than two (2) separate occasions, in such amounts as may be requested, in the following circumstances: (i) within one year following the death or the commencement of disability of Executive or (ii) at any time in a reasonable amount and for a bona fide business purpose with the approval of a majority of the independent, outside members of the board of directors of Employer. Within thirty (30) days after the receipt of a request for such registration by Executive's estate or personal representative pursuant to phrase (i) of the preceding sentence or the approval by the independent outside directors pursuant to phrase (ii) of the preceding sentence, Employer will commence the process of preparing for filing a Registration Statement covering the Shares and use its best efforts to cause such Registration Statement to become effective. Employer and Executive shall use commercially reasonable efforts to obtain an underwriter to firmly underwrite any such offering; in the event that no underwriter reasonably acceptable to Employer is willing to make a firm commitment, Employer shall have no obligation to file the Registration Statement. Employer may delay for up to ninety (90) days the filing of such a Registration Statement if the board of directors of Employer in good faith and for a bona fide corporate purpose determines that a filing at a requested time would be adverse to Employer's interests. Employer shall not be obligated to file any such Registration Statement at any time during which it is impossible or impracticable to include the required financial statements. Employer and Executive shall provide all information required for inclusion in such Registration Statement and any underwriting agreement entered into in connection therewith shall contain the customary representations, warranties, indemnification, and contribution provisions. All expenses of such registration shall be allocated pro rata according to the total number of Shares included therein. (c) General. In connection with each of the foregoing registrations and subject to the provisions concerning expenses, Employer shall also (i) use its best efforts to qualify the Shares for public sale under the blue sky laws of such jurisdictions as Executive may reasonably request, (ii) provide such number of preliminary and final prospectuses as Executive may reasonably request, and (iii) keep the final prospectus in any such registration current for a reasonable period of time. In connection with the indemnification and contribution to be provided by Executive to any underwriter or Employer pursuant to this paragraph 20, the aggregate liability of Executive shall not exceed the aggregate net proceeds received by Executive from the sale of the registered Shares, and, in connection with contribution, shall also take into consideration the relative fault of each contributing person. 21. Nontransferability. Neither Executive, his spouse, his designated contingent beneficiary, nor their estates shall have any right to anticipate, encumber, or dispose of any payment due under this Agreement. Such payments and other rights are expressly declared nonassignable and nontransferable except as specifically provided herein. 22. Indemnification. Employer shall indemnify executive and hold him harmless from liability for acts or decisions made by him while performing services for Employer to the greatest extent permitted by applicable law. Employer shall use its best efforts to obtain coverage for Executive under any insurance policy now in force or hereafter obtained during the term of this Agreement insuring officers and directors of Employer against such liability. 23. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other party. 24. Entire Agreement. This Agreement is and shall be considered to be the only agreement or understanding between the parties hereto and supersedes and is controlling over any and all other prior existing agreements between the parties with respect to the employment of Executive by Employer. All negotiations, commitments, and understandings acceptable to both parties have been incorporated herein. No letter, telegram, or communication passing between the parties hereto covering any matter during this contract period, or any plans or periods thereafter, shall be deemed a part of this Agreement; nor shall it have the effect of modifying or adding to this Agreement unless it is distinctly stated in such letter, telegram, or communication that it is to constitute a part of this Agreement and is to be attached as a rider to this Agreement and is signed by the parties to this Agreement. 25. Enforcement. Executive acknowledges that any remedy at law for breach of paragraphs IO and I I would be inadequate, acknowledges that Employer would be irreparably damaged by an actual or threatened breach thereof, and agrees that Employer shall be entitled to an injunction restraining Executive from any actual or threatened breach of paragraphs 10 and 11 as well as any further appropriate equitable relief without any bond or other security being required. In addition to the foregoing, each of the parties hereto shall be entitled to any remedies available in equity or by statute with respect to the breach of the terms of this Agreement by the other party. 26. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the state of Utah. 27. Severability. If and to the extent that any court of competent jurisdiction holds any provision or any part thereof of this Agreement to be invalid or unenforceable, such holding shall in no way affect the validity of the remainder of this Agreement. 28. Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement, or condition of this Agreement or to exercise any right or remedy consequent upon a breach hereof shall constitute a waiver of any such breach or of any other covenant, agreement, term, or condition. 29. Litigation Expenses. In the event that it shall be necessary or desirable for the Executive to retain legal counsel and/or incur other costs and expenses in connection with the enforcement of any and all of his rights under this Agreement, he shall be entitled to recover from the Employer reasonable attorney's fees, costs and expenses incurred by him in connection with the enforcement of said rights. Payment shall be made to the Executive by the Employer at the time these attorney's fees, costs, and expenses are incurred by the Executive. If, however, the Executive does not prevail in such enforcement actions, he shall repay any such payments to the Employer. AGREED AND ENTERED INTO as of the date first above written. EMPLOYER: WORDCRUNCHER INTERNET TECHNOLOGIES, INC. /s/ M. Daniel Lunt By: __________________________ President EXECUTIVE: /s/ James W. Johnston __________________________ EX-10.6 14 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 1st day of September, 1998, by and between WordCruncher Internet Technologies, Inc. a Nevada corporation ("Employer"), and M. Daniel Lunt ("Executive"). For and in consideration of the mutual covenants contained herein and of the mutual benefits to be derived hereunder, the parties agree as follows: 1. Employment. Employer hereby employs Executive to perform those duties generally described in this Agreement, and Executive hereby accepts and agrees to such employment on the terms and conditions hereinafter set forth. 2. Term. The term of this Agreement shall commence on September 1, 1998, and end on August 31, 2001. 3. Duties. During the term of this Agreement, Executive shall be employed by Employer and shall initially occupy the office of President and Chief Executive Officer of Employer. Executive agrees to serve in such offices or positions with Employer or any subsidiary of Employer and such substitute or further offices or positions of substantially consistent rank and authority as shall, from time to time, be determined by Employer's board of directors. Executive agrees to continue to serve as a member of the board of directors of Employer, and to serve as a director of any subsidiary of Employer, for no additional compensation subject to removal by the shareholders of Employer. Executive shall devote substantially all of his working time and efforts to the business of Employer and its subsidiaries and shall not during the term of this Agreement be engaged in any other substantial business activities which will significantly interfere or conflict with the reasonable performance of his duties hereunder. 4. Compensation. For all services rendered by Executive, Employer shall pay to Executive a salary of $102,000.00 per year, in equal monthly installments of $8,500.00 each. All salary payments shall be subject to withholding and other applicable taxes. To compensate for cost of living increases, the rate of salary shall be increased annually effective September 1, 1999 and on each anniversary thereafter, as the board of directors, on the recommendation of its compensation committee, may determine or, in the absence of such determination, in the amount of 8% over the applicable salary rate during the preceding 12-month period. In the event Executive resigns from his position with Employer and not otherwise under the circumstances set forth at paragraphs 14 or 15 herein, compensation payments to Executive shall be limited to compensation for services rendered by Executive. 5. Incentive Compensation. Employer shall provide Executive with incentive compensation in the form of cash bonuses not less often than once each year during the term of this Agreement. The amount of such bonuses shall be determined by the board of directors of Employer or a compensation committee thereof taking into consideration the relative contribution by Executive to the business of Employer, the economy in general, and such other factors as the board of directors or compensation committee deems relevant. 6. Employment Benefits. Employer shall provide health and medical insurance for Executive in a form and program to be chosen by Employer for its full-time employees. Executive shall be entitled to participate in any retirement, pension, profit sharing, or other plan approved by the board of directors. 7. Working Facilities. Employer shall provide to Executive at Employer's principal executive offices suitable executive offices and facilities appropriate for his position and suitable for the performance of his responsibilities. 8. Vacations. Executive shall be entitled each year to a paid vacation of at least 3 weeks. Vacation shall be taken by Executive at a time and with starting and ending dates mutually convenient to Employer and Executive. Vacation or portions of vacations not used in one employment year shall carry over to the succeeding employment year, but shall thereafter expire if not used within such succeeding year. 9. Expenses. Employer will reimburse Executive for expenses incurred in connection with Employer's business, including expenses for travel, lodging, meals, beverages, entertainment, and other items upon Executive's periodic presentation of an account of such expenses as required by Employer's policies and procedures. 10. Covenant Not to Disclose Proprietary Information. For a period of three years after termination of executive's employment, executive agrees that he will not directly or indirectly use, employ, publish or otherwise disclose any procedures, policies, practices, trade secrets, computer software, formulas, client opportunities or other information of a proprietary nature in the establishment, opening or operation of a business, or in connection with engaging in business with, serving as an officer, director, employee or agent of, or owning any equity interest (other than ownership of ten percent or less of the outstanding stock of any corporation listed on the New York or American Stock Exchange or included in the National Association of Security Dealers Automated Quotation System) in any person, firm, corporation or business entity, that engages in any activity in the United States or around the world that is the same as, similar to or competitive with the development, implementation or operation of a search engine software company.. The parties intend that this covenant not to disclose proprietary information shall be construed as a series of separate covenants. If in any judicial proceeding a court shall refuse to enforce any of the separate covenants deemed included in this paragraph, then the unenforceable covenants shall be deemed eliminated from these provisions for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants to be enforced. This covenant not to disclose proprietary information shall not be construed as restricting the executive's right to own shares in any company or limited partnership or business entity, provided they do not perform services, or participate in any way in the management of, a business entity which competes in the manner outlined above. This covenant shall survive the termination of this Agreement. 11. Nondisclosure of Information. In further consideration of employment and the continuation of employment by Employer, Executive will not, directly or indirectly, during or after the term of employment disclose to any person not authorized by Employer to receive or use such information, except for the sole benefit of Employer, any of Employer's confidential or proprietary data, information, or techniques, or give to any person not authorized by Employer to receive it any information that is not generally known to anyone other than Employer or that is designated by Employer as "Limited," Private," or "Confidential," or similarly designated. 12. Disability. If Executive is unable to perform his services by reason of illness or incapacity for a period of more than 9 consecutive months, the compensation thereafter payable to him during the second consecutive 9-month period shall be one-half of the compensation provided for in paragraph 4 hereof, and during the third consecutive 9-month period, one-half of the salary provided for in paragraph 4; provided, however, that no such compensation shall be payable after the termination of this Agreement. During such 27-consecutive-month period, Executive shall be entitled to receive incentive compensation in the same proportion as Executive's incentive compensation to his annual salary set forth in paragraph 4 paid to Executive, if any, for the fiscal year last preceding the date such illness or incapacity commenced. Notwithstanding the foregoing, if such illness or incapacity does not cease to exist within such 27-consecutive-month period, Executive shall not be entitled to receive any further compensation nor any payments set forth in paragraph 14 herein from Employer and Employer may thereupon terminate this Agreement. 13. Termination for Cause. Except as set forth in the foregoing paragraph, Employer may not terminate this Agreement during its term without cause ("Cause"). Employer, however, may terminate this Agreement for Cause by showing that Executive has materially breached its terms; that Executive, in determination of the board has been grossly negligent in the performance of his duties; that he has substantially failed to meet written standards established by Employer for the performance of his duties; or that he has engaged in material willful or gross misconduct in the performance of his duties hereunder. If employer terminates this Agreement for Cause, all of Employer's obligations hereunder shall terminate. 14. Payments for Termination Without Cause. In the event that Employer terminates this Agreement without Cause and not as the direct result of a change in control, as that phrase is defined in paragraph 18 hereof, Executive shall be compensated by Employer in a single lump sum payment, payable within 30 days after termination of employment, of the following amounts: (a) The amount of his salary, as provided in paragraph 4; and (b) Incentive compensation in the same proportion as Executive's incentive compensation to his annual salary set forth in paragraph 4, paid to Executive, if any, for the fiscal year last preceding the year during which his employment terminates, but prorated to reflect the number of full months of his employment during the year of termination. In addition, Executive's coverage under the Employer's insured employee benefit plan, as provided in paragraph 6, shall continue through the term of this Agreement. 15. Termination Payment for Change in Control. If Executive resigns or is discharged by Employer (or is deemed to be discharged pursuant to paragraph 17 below) as the direct and sole result of a change in control, or in reasonable anticipation of a change in control, then, in lieu of any payment otherwise payable to Executive under paragraph 14 hereof, Employer shall pay to Executive an amount equal to 5.0 times the average of the sum of amounts paid to Executive for salary, bonus and profit sharing for the five fiscal years immediately preceding the date of the change in control or for such fewer fiscal years if Executive has been employed by Employer for less than five fiscal years. Any amounts paid to Executive pursuant to this paragraph 15, shall be subject to any applicable federal, state and local tax withholdings and shall be payable in a lump sum to Executive as soon as practicable after Executive's resignation or discharge, but subject to the terms of paragraph 16 herein. 16. Tax Limitation. If Employer reasonably determines that the payment provided for in paragraph 15 hereof (the "Termination Payment") will likely result in a loss of a deduction to Employer as provided under Section 28OG of the Internal Revenue code of 1986, or any successor provision thereto, and the imposition of the excise tax payable by Executive as provided under Section 4999 of the Internal Revenue Code of 1986, or any successor provision thereto, such Termination Payment shall be reduced by the least amount required to avoid such loss of deduction and imposition of excise tax (collectively referred to hereinafter as the "Tax Penalties"). Employer shall make no Termination Payment to Executive prior to determining whether the Tax Penalties will apply to the Termination Payment. Employer shall make such determination within a reasonable time after Executive's resignation or discharge, but not to exceed 90 days thereafter. 17. Deemed Termination of Employment. For purposes of paragraph 15 hereof, Executive shall be deemed to have been discharged by Employer if Executive voluntarily resigns before the end of the term of this Agreement, but after a change in control has occurred, provided that Executive could not be discharged by Employer for Cause, has given Employer at least 30 days prior written notice of such resignation, and such resignation occurs after any of the following: (a) Executive is removed or released from any of his titles, positions or offices in effect immediately prior to the occurrence of a change in control, or Executive's duties and responsibilities in such titles, positions or offices are materially changed; (b) Executive's base salary in effect immediately before the change in control is reduced; (c) Executive is removed from participation in any of Employer's bonus or profit sharing programs, or any such bonus of profit sharing programs in which Executive was or was entitled to participate in immediately prior to the change in control are discontinued; (d) Executive's office is based more than 50 miles ftom the location of the principle office at which Executive was based immediately prior to the occurrence of the change in control; or (e) Employer deprives Executive of or otherwise reduces any material fringe benefit, including perquisites, provided to Executive by Employer immediately prior to the occurrence of a change in control. 18. Definition of Change in Control. For purposes of this Agreement, a "change in control" will be deemed to have occurred on the first to occur of the following events: (a) As a result of a cash tender offer, stock exchange offer or other takeover device, any person, as that term is used in Section 13(d) and 14(b)(2) of the Securities Exchange Act of 1934, is or becomes a beneficial owner, directly or indirectly, of stock of Employer representing thirty percent (30%) or more of the total voting power of Employer's then outstanding securities; (b) Any material realignment of the Board of Directors of Employer or change in officers of Employer resulting from a concerted shareholder action, including without limitation a proxy fight, voting trusts or pooling arrangements; (c) Any sale by Employer of thirty percent (30%) or more of its assets to a single purchaser or to a group of associated purchasers; or (d) Any merger, consolidation or other reorganization of Employer with any entity, other than its affiliates, whereby Employer is not the surviving entity or the shareholders of Employer otherwise fail to retain substantially the same direct or indirect ownership in Employer or its affiliates immediately after any such merger, consolidation or reorganization. 19. Death During Employment. If Executive dies during the term of this Agreement, Employer shall pay to the estate, trustee or other legally constituted third party designated by Executive in six equal monthly installments commencing on the first day of the month immediately following the month in which Executive dies, an amount equal to one year's salary provided for in paragraph 4 of this Agreement, and payment of incentive compensation in the same proportion as Executive's incentive compensation to his annual salary set forth in paragraph 4 paid to Executive for the fiscal year last preceding the year in which Executive dies, but prorated for the number of full months of his employment during the year of his death. 20. Stock Registration Provisions. During the term of this Agreement, Executive shall have the following rights and obligations with respect to registration under the Securities Act of 1933 and applicable blue sky laws of shares of common stock ("Shares") of Employer owned of record by Executive: (a) Company Registration. Employer shall notify Executive, at least thirty (30) days prior to the filing of any Registration Statement on forms S-1, S-2, S-3, or any successor forms under the Securities Act of 1933 covering any class of stock of the Employer and will upon the written request of Executive delivered at least fifteen (15) days prior to such filing, include in any such Registration Statement such information as may be required to register such number of Executive's Shares as Executive may request. Executive and Employer shall each include customary representations, warranties, indemnification, and contribution provisions in any underwriting agreement entered into in connection with such registration. If the managing underwriters for such registration advise Employer in writing that in their opinion the total amount of securities to be included in such registration statement exceeds the amount which should reasonably be included in that offering to achieve the Employer's financing goals, Employer may limit the amount of stock to be included as follows: (i) first, all securities Employer proposes to sell may be included, (ii) second, the Shares of common stock requested to be included in such registration by all executives and employees pursuant to registration rights may be reduced and adjusted among participating executives and employees on the basis of the amount of shares owned of record by each employee, and (iii) third, if applicable, other stock requested to be included in such registration may be similarly and ratably adjusted with all executives' and employees' stock pro rata according to the amount of stock owned of record by any proposed seller. All incremental expenses of such registration will be allocated pro rata according to the number of shares included for Executive. There shall be no limit on the number of registrations so requested, but each such request shall cover an amount of Shares having a proposed offering price of not less than one hundred thousand dollars ($100,000). (b) Registration on Request. In addition, Executive's Shares may be registered on not more than two (2) separate occasions, in such amounts as may be requested, in the following circumstances: (i) within one year following the death or the commencement of disability of Executive or (ii) at any time in a reasonable amount and for a bona fide business purpose with the approval of a majority of the independent, outside members of the board of directors of Employer. Within thirty (30) days after the receipt of a request for such registration by Executive's estate or personal representative pursuant to phrase (i) of the preceding sentence or the approval by the independent outside directors pursuant to phrase (ii) of the preceding sentence, Employer will commence the process of preparing for filing a Registration Statement covering the Shares and use its best efforts to cause such Registration Statement to become effective. Employer and Executive shall use commercially reasonable efforts to obtain an underwriter to firmly underwrite any such offering; in the event that no underwriter reasonably acceptable to Employer is willing to make a firm commitment, Employer shall have no obligation to file the Registration Statement. Employer may delay for up to ninety (90) days the filing of such a Registration Statement if the board of directors of Employer in good faith and for a bona fide corporate purpose determines that a filing at a requested time would be adverse to Employer's interests. Employer shall not be obligated to file any such Registration Statement at any time during which it is impossible or impracticable to include the required financial statements. Employer and Executive shall provide all information required for inclusion in such Registration Statement and any underwriting agreement entered into in connection therewith shall contain the customary representations, warranties, indemnification, and contribution provisions. All expenses of such registration shall be allocated pro rata according to the total number of Shares included therein. (c) General. In connection with each of the foregoing registrations and subject to the provisions concerning expenses, Employer shall also (i) use its best efforts to qualify the Shares for public sale under the blue sky laws of such jurisdictions as Executive may reasonably request, (ii) provide such number of preliminary and final prospectuses as Executive may reasonably request, and (iii) keep the final prospectus in any such registration current for a reasonable period of time. In connection with the indemnification and contribution to be provided by Executive to any underwriter or Employer pursuant to this paragraph 20, the aggregate liability of Executive shall not exceed the aggregate net proceeds received by Executive from the sale of the registered Shares, and, in connection with contribution, shall also take into consideration the relative fault of each contributing person. 21. Nontransferability. Neither Executive, his spouse, his designated contingent beneficiary, nor their estates shall have any right to anticipate, encumber, or dispose of any payment due under this Agreement. Such payments and other rights are expressly declared nonassignable and nontransferable except as specifically provided herein. 22. Indemnification. Employer shall indemnify executive and hold him harmless from liability for acts or decisions made by him while performing services for Employer to the greatest extent permitted by applicable law. Employer shall use its best efforts to obtain coverage for Executive under any insurance policy now in force or hereafter obtained during the term of this Agreement insuring officers and directors of Employer against such liability. 23. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other party. 24. Entire Agreement. This Agreement is and shall be considered to be the only agreement or understanding between the parties hereto and supersedes and is controlling over any and all other prior existing agreements between the parties with respect to the employment of Executive by Employer. All negotiations, commitments, and understandings acceptable to both parties have been incorporated herein. No letter, telegram, or communication passing between the parties hereto covering any matter during this contract period, or any plans or periods thereafter, shall be deemed a part of this Agreement; nor shall it have the effect of modifying or adding to this Agreement unless it is distinctly stated in such letter, telegram, or communication that it is to constitute a part of this Agreement and is to be attached as a rider to this Agreement and is signed by the parties to this Agreement. 25. Enforcement. Executive acknowledges that any remedy at law for breach of paragraphs IO and 11 would be inadequate, acknowledges that Employer would be irreparably damaged by an actual or threatened breach thereof, and agrees that Employer shall be entitled to an injunction restraining Executive from any actual or threatened breach of paragraphs 10 and 11 as well as any further appropriate equitable relief without any bond or other security being required. In addition to the foregoing, each of the parties hereto shall be entitled to any remedies available in equity or by statute with respect to the breach of the terms of this Agreement by the other party. 26. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the state of Utah. 27. Severability. If and to the extent that any court of competent jurisdiction holds any provision or any part thereof of this Agreement to be invalid or unenforceable, such holding shall in no way affect the validity of the remainder of this Agreement. 28. Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement, or condition of this Agreement or to exercise any right or remedy consequent upon a breach hereof shall constitute a waiver of any such breach or of any other covenant, agreement, term, or condition. 29. Litigation Expenses. In the event that it shall be necessary or desirable for the Executive to retain legal counsel and/or incur other costs and expenses in connection with the enforcement of any and all of his rights under this Agreement, he shall be entitled to recover from the Employer reasonable attorney's fees, costs and expenses incurred by him in connection with the enforcement of said rights. Payment shall be made to the Executive by the Employer at the time these attorney's fees, costs, and expenses are incurred by the Executive. If, however, the Executive does not prevail in such enforcement actions, he shall repay any such payments to the Employer. AGREED AND ENTERED INTO as of the date first above written. EMPLOYER: WORDCRUNCHER INTERNET TECHNOLOGIES, INC. /s/ James W. Johnston By: __________________________ Chairman EXECUTIVE: /s/ M. Daniel Lunt __________________________ EX-10.7 15 Company Confidential ___________________________________________________________________________ EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this April 6, 1999 (the "Effective Date"), by and between WordCruncher Internet Technologies, Inc., a Nevada corporation, with a principal office at 405 East 12450 South, Suite B, Draper, Utah 84020 ("Company"), and Peter T. Stoop ("Employee"). RECITALS 1. Company is engaged in the process of developing, manufacturing and marketing Internet technologies and other products and services. 2. Employee is or will be a vice president or executive of Company. 3. In consideration of the benefits of new or continued employment by Company, as well as other good and valuable consideration set forth herein, Employee agrees to enter into this Agreement. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants herein contained and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto intending to be legally bound, hereby agree as follows 1. DEFINITIONS. The following terms shall have the definitions stated below: a. Cause - shall mean Employee's termination only upon: i. Employee's continued violations of Employee's obligations which are demonstrably willful or deliberate on Employee's part after there has been delivered to Employee a written demand for performance from Company which describes the basis for Company's belief that Employee has not substantially performed his or her duties; ii. Employee's engaging in willful misconduct which is injurious to Company or its affiliates; iii. Employee's committing a felony, an act of fraud against or the misappropriation of property belonging to Company or its affiliates; iv. Employee's breaching, in any material respect, the terms of this Agreement or any confidentiality or proprietary information agreement between Employee and Company; or v. A determination by Company, acting in good faith upon information then available to Company, that Employee has committed a material violation of the standards of employee conduct, which standards may be altered from time to time by Company, as defined in the most current version of Company's Employee Handbook. Page 1