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. [ ]
<PAGE>
Calculation of Registration Fee
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 2,693,137 $5.50 $14,812,253 $4,118
- ------------------------------------------------------------------------------------------------
</TABLE>
(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.
<PAGE>
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
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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
<PAGE>
Summary and Operating Data
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------- --------------------------
1997 1998 1998 1999
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
Actual
----------------
<S> <C>
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
</TABLE>
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
<PAGE>
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
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<PAGE>
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
<PAGE>
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.
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<PAGE>
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
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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
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<PAGE>
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).
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<PAGE>
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.
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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
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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".
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------- --------------------------
1997 1998 1998 1999
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
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
</TABLE>
See Notes to Financial Statements for information concerning the computation
of per share amounts.
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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
----------- ---------- --------------
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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.
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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
<PAGE>
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
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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.
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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
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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.
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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
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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
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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.
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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.
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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.
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<PAGE>
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
- --------------------------------------------
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<PAGE>
(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.
<TABLE>
<CAPTION>
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
- ------------------------ --------------- --------- -------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
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 *
</TABLE> 28
<PAGE>
<TABLE>
<CAPTION>
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
- ------------------------ -------------- --------- -------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
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 - -
- -----------------------------------
</TABLE>
* 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.
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<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.]
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
WordCrunchers Internet Technologies, Inc.
Consolidated Statements of Stockholders' Equity
From Inception on November 5, 1996 through December 31, 1998
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-in Earnings
Shares Amount Capital (Deficit)
-------------- --------- ------------ ------------
<S> <C> <C> <C> <C>
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 -
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
WordCruncher Internet Technologies, Inc.
<S> <C> <C> <C> <C>
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)
============== ========= ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
F-16
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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
- --------------------- ---------------------
<November 24, 1997 Date Stamp
for the Secretary of State of the
State of Nevada appears here>
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
- ---------------
<Notary Public Stamp appears here>
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
<June 26, 1998 Date Stamp for
the Secretary of State for the
State of Nevada appears here>
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
<Notary Public stamp appears here>
<July 15, 1998 Date Stamp for
the Secretary of State for the
State of Nevada appears here>
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
<September 10, 1998 Date Stamp for
the Secretary of State for the
State of Utah appears here>
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
<Notary Stamp appears here>
<Expedite Stamp appears here>
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
<August 18, 1998 Date Stamp
from the Secretary of State for
the State of Utah appears here>
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
<February 1, 1999 Date Stamp for
the Secretary of State for the
State of Nevada appears here>
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
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.
<PAGE>
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
<PAGE>
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,
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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;
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(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
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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
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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.
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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.
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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;
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(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
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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.
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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.
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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.
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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.
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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;
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(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.
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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
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
<PAGE>
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)
<PAGE>
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
<PAGE>
(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
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
<PAGE>
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:
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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
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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
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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
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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
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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
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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.
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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
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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
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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.
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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
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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
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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
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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.
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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
<PAGE>
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
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__________________________________________________________________________
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
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___________________________________________________________________________
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
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____________________________________________________________________________
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
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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
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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
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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
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_____________________________________________________________________________
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:_______________________________
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;
<PAGE>
(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:
<PAGE> 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.
<PAGE> 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
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
__________________________
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
__________________________
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
__________________________
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.
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b. Change of Control shall be deemed to have occurred if:
i. Company sells or otherwise disposes of all or substantially
all of its assets;
ii. There is a merger or consolidation of Company with any other
corporation or corporations, provided that the shareholders of Company, as a
group, do not hold, immediately after such event, at least 50% of the voting
power of the surviving or successor corporation;
iii. Any person or entity, including any "person" as such term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), becomes the "beneficial owner" (as defined in the
Exchange Act) of Common Stock of Company representing 50% or more of the
combined voting power of the voting securities of Company (exclusive of
persons who are now officers or directors of Company).
c. Code - shall mean the Internal Revenue Code of 1986, as amended.
d. Constructive Termination - shall mean that the Employee has
terminated employment with Company or its affiliated entities because
Employee, without his or her consent, has incurred:
i. A comprehensive, material and substantial reduction in all or
most of Employee's duties, authority, and responsibilities as compared with
those duties, authority, and responsibilities existing immediately prior to
such termination; or
ii. A material and significant reduction in annual base salary.
For purposes of this Agreement, a reduction of twenty percent (20%) or more in
Employee's annual base salary in effect immediately prior to such reduction
will be deemed to be a significant reduction. A reduction in the Employee's
annual base salary that is part of an overall reduction in compensation also
applied to other executives of Company as a result of decreased profitability
or decreased business performance by Company or one of its business units
shall not constitute a Constructive Termination.
iii. A required and permanent relocation of Employee's office.
For purposes of this section, "permanent" shall mean a single period of time
of at least two (2) months, and "relocation" shall mean a distance of more
than 40 miles from Employee's then current office location.
e. Restricted Business - shall mean:
i. The design, development, manufacture, marketing or support
of Internet search technology, related services, or any other software
products of the type designed, developed, manufactured, sold or supported by
Company or as proposed to be designed, developed, manufactured, sold or
supported by Company pursuant to a development project which is actually being
pursued during the Term of this Agreement; and
ii. Any business which competes directly or indirectly with
the products or services of Company.
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f. Restricted Territory shall mean the geographies within the United
States, European Community, and Canada.
g. Term - shall have the meaning set forth in Section 2.a.
2. EMPLOYMENT AND TERM.
a. This Agreement shall commence as of the Effective Date and shall
terminate two (2) years from the Effective Date, unless sooner terminated in
the event of termination of Employee's employment with Company or otherwise in
accordance with the provisions hereof (hereinafter referred to as the "Term"
or "Term of this Agreement").
b. Notwithstanding the foregoing, during the Term hereof, and subject to
other provisions set forth herein, Company may terminate Employee's employment
for Cause or without Cause.
c. If Employee's employment is terminated for Cause or if Employee
resigns his or her employment, no compensation or severance payments or other
payments will be paid or provided to Employee pursuant to this Agreement for
the period following the date when such a termination of employment is
effective.
d. If Company terminates Employee's employment other than for Cause or
if a Constructive Termination occurs: (i) Employee shall be entitled to
receive a severance payment from Company in an amount equal to 90 days of
Employee's base salary; and <the following has been struckout: (ii) Employee
shall be entitled to receive an amount equal to the cost of COBRA continuation
for a period of one year after termination;> (ii) Company agrees to accelerate
the vesting of that portion of Employee's stock options, if any, which would
have vested after the date of Employee's termination; The payments outlined in
Sections 2.d.i.. shall be payable in three (3) equal monthly installments and
are expressly subject to the conditions set forth in Section 3.
e. At the Effective Date of this Agreement, Employee's job title shall
be as specified in the attached Exhibit A.
f. From the Effective Date of this Agreement and continuing until such
amount shall be changed by Company, or until termination of this Agreement,
Company will pay Employee according to the annual base salary set forth in
Exhibit A. The parties agree that the annual base salary set forth in Exhibit
A shall be reviewed not less often than annually. Company shall pay Employee
in installments in accordance with Company's standard payroll practices.
g. In addition to Employee's base salary, Employee will participate in
Company's then current incentive bonus program under which Employee will be
entitled to earn incentive bonus compensation of up to the percentage of
Employee's base salary set forth in Exhibit A. Employee's eligibility to
participate in Company's incentive bonus program is determined by the terms
and conditions of the then current Company incentive bonus program. To the
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extent that Employee's receipt of any incentive bonus is based, at least in
part, upon the satisfaction of certain performance objectives, such
performance objectives will be mutually determined and reviewed by Employee's
immediate supervisor in consultation with Employee. It is within the
discretion of Employee's immediate supervisor to increase or decrease
Employee's bonus percentage based upon performance.
h. Employee will be entitled to receive Company's employee benefits made
available to other employees and officers to the full extent of Employee's
eligibility therefor. During Employee's employment, Employee shall be
permitted, to the extent eligible, to participate in any group medical,
dental, life insurance and disability insurance plans, or similar benefit
plans of Company that are available to other comparable employees.
Participation in any such plan shall be consistent with Employee's rate of
compensation to the extent that compensation is a determinative factor with
respect to coverage under any such plan.
i. Employee is subject to the Company policies set forth in the most
current version of the Employee Handbook, which policies may be altered from
time to time by Company. In the event provisions of this Agreement are in
conflict with the Employee Handbook, the provisions of this Agreement shall
govern.
3. WAIVER. As a condition of receiving severance or other termination
benefits under this Agreement, Employee must sign a general waiver and release
in a form provided by the Company.
4. EMPLOYEE RESPONSIBILITIES. During the Term of this Agreement, Employee
agrees to devote his or her business time, skill and attention to his or her
duties and to performing them faithfully, diligently and competently, using
his or her best efforts to further the business of Company. Employee agrees
to perform such responsibilities and duties as may be required by Company from
time to time.
5. COVENANTS NOT TO COMPETE AND NOT TO SOLICIT.
a. Employee shall not during the Term of this Agreement and for a period
of one (1) year thereafter, directly or indirectly, engage in (whether as an
employee, consultant, proprietor, partner, director or otherwise), or have any
ownership interest in, or participate in the financing, operation, management
or control of, any person, firm, corporation or business that is a Restricted
Business in a Restricted Territory without the prior written consent of
Company. It is agreed that ownership of (i) no more than .5% of the
outstanding voting stock of a publicly traded corporation, or (ii) any stock
presently owned by Employee, shall not constitute a violation of this
provision.
b. Employee agrees that for a period of one (1) year after the
termination of this Agreement, Employee shall not:
i. Solicit, encourage, or take any other action which is intended
to induce any other employee of Company to terminate his or her employment
with Company; or
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ii. Interfere in any manner with the contractual or employment
relationship between Company and any employee of Company.
The foregoing shall not prohibit Employee or any entity with
which Employee may be affiliated from hiring a former employee of Company;
provided that such hiring results exclusively from such former employee's
affirmative response to a general recruitment effort.
c. The parties intend that the covenants contained in the preceding
paragraphs shall be construed as a series of separate covenants, one for each
county, city and state or other political subdivision of the Restricted
Territory. Except for geographic coverage, each such separate covenant shall
be deemed identical in terms to the covenant contained in the preceding
paragraphs. If, in any judicial proceeding, a court shall refuse to enforce
any of the separate covenants (or any part thereof) deemed included in said
paragraphs, then such unenforceable covenant (or such part) shall be deemed
eliminated from this Agreement for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants (or portions
thereof) to be enforced.
d. In the event that the provisions of this Section 5 should ever be
deemed to exceed the time, scope or geographic limitations permitted by
applicable laws, then such provisions shall be reformed to the maximum time,
scope or geographic limitations, as the case may be, permitted by applicable
laws.
6. REASONABLENESS OF COVENANTS. Employee represents that he or she: (a) is
familiar with the covenants not to compete and not to solicit, and (b) is
fully aware of and acknowledges his or her obligations hereunder, including
without limitation the reasonableness of the length of time and scope of these
covenants. Employee acknowledges that breach of Employee's covenants not to
compete and not to solicit in Section 5 would cause irreparable injury to
Company, and agrees that in the event of such breach Company shall be entitled
to seek injunctive relief under applicable law without the necessity of
proving actual damages.
7. COMPANY AGREEMENTS. Employee has previously signed or will sign
Company's Intellectual Property Agreement as well as Company's Conflicts
Disclosure Form, and Employee agrees to execute and provide such other
reasonable documentation as Company may require. As a further condition of
employment, Employee must comply with Company's reasonable requests to execute
anew the aforementioned Company Agreements and provide Company with updated
documentation with those Company Agreements.
8. CHANGE OF CONTROL. In the event that Employee's employment with Company
is terminated without Cause following a Change of Control or Employee
experiences a Constructive Termination following a Change of Control:
a. Employee shall receive a severance payment in an amount equal to one
(1) times Employee's rate of annual base salary at the time of termination;
b. Company agrees to accelerate the vesting of that portion of
Employee's stock options, if
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any, which would have vested after the date of Employee's termination;
c. The payments set forth in Sections 8.a and 8.b shall be payable in
three (3) equal monthly installments.
Termination of employment without Cause, including Constructive
Termination, shall be presumed to be "following a Change of Control" if it
takes place at any time within two (2) months before or one (1) year after a
Change of Control.
9. AT-WILL EMPLOYMENT. Company and Employee acknowledge that Employee's
employment is and shall continue to be at-will, as defined under applicable
law. If Employee's employment terminates for any reason, Employee shall not
be entitled to any payments, benefits, damages, awards or compensation other
than as provided by this Agreement or other written Company benefit plans
10. BEST PAYMENT PROVISION. In the event that any payment or benefit
received or to be received by Employee upon a Change of Control would result
in all or a portion of such payment to be subject to excise tax under Section
4999 of the Internal Revenue Code, then the Employee's payment shall be either
(i) the full payment or (ii) such lesser amount which would result in no
portion of the payment being subject to excise tax under Section 4999 of the
Internal Revenue Code, whichever of the foregoing amounts, taking into account
the applicable Federal, state, and local employment taxes, income taxes, and
the excise tax imposed by Section 4999 of the Internal Revenue Code, results
in the receipt by Employee, on an after-tax basis, of the greatest amount of
the payment notwithstanding that all or some portion of the payment may be
taxable under Section 4999 of the Internal Revenue Code. All determinations
required to be made under this Section 10 shall be made by a [INSERT COMPANY'S
OUTSIDE AUDITOR'S NAME] or any other nationally recognized accounting firm
which is Company's outside auditor at the time of such determination, which
firm must be reasonably acceptable to Employee (the "Accounting Firm").
Company shall cause the Accounting Firm to provide detailed supporting
calculations of its determinations to Company and Employee. Notice must be
given to the Accounting Firm within fifteen (15) business days after an event
entitling Employee to a payment under this Agreement. All fees and expenses
of the Accounting Firm shall be borne solely by Company. The Accounting
Firm's determinations must be made with substantial authority (within the
meaning of Section 6662 of the Internal Revenue Code).
11. DISABILITY OR DEATH.
If Employee's employment terminates by reason of the Employee's death or total
and permanent disability (as defined in Section 22(e)(3) of the Code), then
such termination shall be treated as if it were a termination without Cause.
12. AMOUNTS PAYABLE SUBJECT TO WITHHOLDING. Any amounts payable hereunder,
including any amounts to be paid in the event of a termination without Cause
or a Constructive Termination, shall be subject to applicable tax withholding.
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13. REMEDIES UPON DEFAULT.
a. If either party to this Agreement shall be prevented from curing a
default or breach hereunder within the time periods set forth, by cause or
causes beyond its control, such as labor disputes, civil commotion, war,
government regulations or controls, casualty, inability to obtain materials or
service, or acts of God, such defaulting party shall be excused from
performance for the period of the delay and for a reasonable time thereafter
in which to cure such default.
b. In the event that Company shall be adjudicated as bankrupt or
insolvent, then this Agreement shall be null and void and the rights of the
parties hereunder shall be terminated.
14. ARBITRATION. Any claim, dispute or controversy arising out of this
Agreement, the interpretation, validity or enforceability of this Agreement or
the alleged breach thereof shall be submitted by the parties to binding
arbitration by the American Arbitration Association in Salt Lake City, Utah;
provided, however, that this arbitration provision shall not preclude Company
from seeking injunctive relief from any court having jurisdiction with respect
to any disputes or claims relating to or arising out of the misuse or
misappropriation of Company's trade secrets or confidential and proprietary
information. Arbitrators shall award costs and fees, including reasonable
attorneys' fees, to the prevailing party, or they shall be free to apportion
costs and fees as they deem reasonable under the circumstances.
15. INTEGRATION. This Agreement, including the documents referenced in
Section 7 of this Agreement, sets forth the entire understanding of the
parties hereto with respect to the subject matter hereof and supersedes all
previous communications, negotiations and agreements among the parties,
whether written or oral. No waiver, alteration, or modification, if any, of
the provisions of this Agreement shall be binding unless in writing and signed
by duly authorized representatives of the parties hereto. Termination of this
Agreement shall not terminate the documents referenced in Section 7 of this
Agreement.
16. SUCCESSORS. Company shall require any successor or assignee, in
connection with any sale, transfer or other disposition of all or
substantially all of Company's assets or business, whether by purchase,
merger, consolidation or otherwise, expressly to assume and agree to perform
Company's obligations under this Agreement in the same manner and to the same
extent that Company would be required to perform if no such succession or
assignment had taken place.
17. SURVIVAL OF TERMS. The terms of this Agreement shall survive Employee's
termination of employment with Company.
18. SEVERABILITY. If any term or provision of this Agreement shall be held
to be invalid or unenforceable for any reason, such term or provision shall be
ineffective to the extent of such invalidity or unenforceability without
invalidating the remaining terms and provisions hereof, and this Agreement
shall be construed as if such invalid or unenforceable term or provision had
not been contained herein.
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19. NOTICES. Any notice pursuant to the Agreement shall be deemed validly
given or served if given in writing and delivered personally or ten (10)
calendar days after being sent by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of Employee, mailed
notices shall be addressed to him or her at the home address which he or she
most recently communicated to Company in writing. In the case of Company,
mailed notices shall be addressed to the attention of Company's President or
CEO, with a copy directed to the attention of Company's General Counsel.
20. TITLE AND CAPTIONS. Section titles or captions to this Agreement are for
convenience only and shall not be deemed part of this Agreement or in no way
define, limit, augment, extend, or describe the scope, content, or intent of
any part or part of parts of this Agreement.
21. PRONOUNS AND PLURALS. Whenever the context may require, any pronoun used
herein shall include the corresponding masculine, feminine, or neuter forms
and the singular form of nouns, pronouns, and verbs shall include the plural
and vice versa. Each of the foregoing genders and plurals is understood to
refer to a corporation, partnership, or other legal entity when the context so
requires.
22. FURTHER ACTION. The parties shall execute and deliver all documents or
instruments, provide all information, and take or forebear from all such
action as may be necessary or appropriate to achieve the purposes of this
Agreement.
23. APPLICABLE LAW. This Agreement shall be construed in accordance with and
governed by the laws of the State of Utah.
24. 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 thereof shall constitute a waiver
of any such breach or of such or any other covenant, agreement, term, or
condition. Any party may, by notice delivered in the manner provided in this
Agreement, but shall be under no obligation to, waive any of its rights or
any conditions to its obligations hereunder, or any duty, obligation or
covenant of the other party. No waiver shall affect or alter the remainder of
this Agreement but each and every other covenant, agreement, term, and
condition hereof shall continue in force and effect with respect to any other
then existing or subsequently occurring breach.
25. EXHIBITS. All Exhibits annexed to this Agreement and any documents to be
delivered herewith are expressly made a part of this Agreement as fully as
though completely set forth herein.
26. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same Agreement.
27. EMPLOYEE ACKNOWLEDGMENT. Employee acknowledges that before signing this
Agreement, Employee was given an opportunity to read it, evaluate it, and
consult with an attorney and other personal advisors.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
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WordCruncher Internet Technologies, Inc.
Name: M Daniel Lunt Employee: Peter T. Stoop
Signature: /s/ M. Daniel Lunt Signature: /s/ Peter T. Stoop
Title: President Title: Vice President, Product Marketing
And Management
Date: 4/27/99 Date: 4/27/99
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EXHIBIT A
EMPLOYEE INFORMATION
Employee Name: Peter T. Stoop
Employee Title: Vice President, Product Marketing and Management
Initial Annual Base Salary: $84,000
Stock:
Employee will receive an initial stock option program of 300,000 options of
Company's common stock over the first three (3) years of employment. The
shares will vest equally on an annual basis over a period of three (3) years
on the anniversary of Employee's employment date pursuant to the Company's
Stock Plan.
Additional Terms:
- - Company acknowledges that Employee's current cellular phone is Employee's
personal and exclusive property. Employee will be treated no less favorably
than other comparable employees with respect to payment of cellular phone
expenses. Company and Employee acknowledge that Company's current policy for
directors and vice presidents is to reimburse Employee $50 per month toward
cellular phone expense.
- - Employee will be entitled to fifteen (15) days of vacation annually, which
will be accrued in accordance with Company's policies.
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SERIES A PREFERRED STOCK PURCHASE AGREEMENT
February 8, 1999
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SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT, dated as of February 8,
1999 (the "Agreement"), between the entities listed on Schedule A attached
hereto (collectively referred to as the "Investors"), and WORDCRUNCHER
INTERNET TECHNOLOGIES, INC. (OTC Bulletin Board symbol "WCTI"), a corporation
organized and existing under the laws of the State of Nevada (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Investors, and the Investors shall purchase up to an aggregate principal
amount of $15,000,000 of Preferred Stock (as defined below) pursuant to the
terms set forth herein and Warrants (as defined below) to purchase Warrant
Shares (as defined below) in two separate tranches; and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with
respect to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Additional Shares" shall have that meaning set forth in
Section 2.5 below.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported
by Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Business Day" means any day except Saturday, Sunday and
any day which shall be a Federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or
other government actions to close.
Section 1.4 "Capital Shares" shall mean the Common Stock and any shares
of any other class of Common Stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.5 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for, or
giving any right to, subscribe for any Capital Shares of the Company or any
warrants, options or other rights to subscribe for or purchase Capital Shares
or any such convertible or exchangeable securities.
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Section 1.6 "Certificate of Designation" shall mean the Company's
Certificate of Designation setting forth all of the rights, privileges and
preferences of the Preferred Stock, as annexed hereto as Exhibit A.
Section 1.7 "Closing" shall mean one of the closings of the purchase
and sale of the Preferred Stock and Warrants pursuant to Article II below.
Section 1.8 "Closing Date" shall mean the date of the closing(s) of the
purchase and sale of the Preferred Stock and Warrants pursuant to Article II
below.
Section 1.9 "Common Stock" shall mean the Company's common stock,
$0.001 par value per share.
Section 1.10 "Company Documents" shall mean the Company's Issuer
Information Statement Pursuant to SEC Rule 15c2-11 dated August 1, 1998.
Section 1.11 "Damages" shall mean any loss, claim, damage, liability,
costs and expenses which shall include, but not be limited to, reasonable
attorney's fees, disbursements, costs and expenses of expert witnesses and
investigation.
Section 1.12 "Effective Date" shall mean the date on which the SEC
first declares effective the Registration Statement.
Section 1.13 "Escrow Agent" shall mean the law firm of The Goldstein
Law Group, P.C., pursuant to the terms of the Escrow Agreement attached as
Exhibit B.
Section 1.14 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.15 "First Tranche Purchase Price" shall mean up to
$10,000,000.
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Section 1.16 "Initial Shares" shall mean the shares of Preferred Stock
issuable upon a Closing of the First Tranche as contained in Section 2.7
below.
Section 1.17 "Legend" shall have the meaning set forth in Article
VIII below.
Section 1.18 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, earnings, prospects, Bid Price, trading
volume of the Common Stock, or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates, taken
as a whole, and/or any condition, circumstance, or situation that would
prohibit or otherwise in any material respect interfere with the ability of
the Company to enter into and perform any of its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, or the
Warrants in any material respect.
Section 1.19 "NASD" shall mean the National Association of Securities
Dealers, Inc.
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Section 1.20 "Outstanding" when used with reference to shares of
Common Stock, or Capital Shares (collectively the "Shares"), shall mean, at
any date as of which the number of such Shares is to be determined, all issued
and outstanding Shares, and shall include all such Shares issuable in respect
of outstanding scrip or any certificates representing fractional interests in
such Shares; provided, however, that Outstanding shall not mean any such
Shares then directly or indirectly owned or held by or for the account of the
Company.
Section 1.21 "Person" shall mean an individual, a corporation, a
partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.22 "Preferred Stock" shall mean the Company's Series A
Preferred Stock with the rights, privileges and preferences, as set forth in
the Certificate of Designation.
Section 1.23 "Principal Market" shall mean the OTC Bulletin Board,
Nasdaq National Market, the Nasdaq Small Cap Stock Market, the American Stock
Exchange, or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.
Section 1.24 "Purchase Price" shall mean collectively the First
Tranche Purchase Price, and the Second Tranche Purchase Price.
Section 1.25 "Registrable Securities" shall have the definition set
forth in the Registration Rights Agreement.
Section 1.26 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company, and the Investors on
the Subscription Date annexed hereto as Exhibit C.
Section 1.27 "Registration Statement" shall mean a registration
statement on Form SB-2, for the registration of the resale by the Investors of
the Registrable Securities under the Securities Act.
Section 1.28 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.29 "Reset Period" shall have the meaning set forth in the
Certificate of Designation.
Section 1.30 "Reset Price" shall have the meaning set forth in the
Certificate of Designation..
Section 1.31 "Reset Shares" shall have the meaning set forth in the
Certificate of Designation.
Section 1.32 "SEC" shall mean the Securities and Exchange Commission.
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Section 1.33 "Second Tranche Purchase Price" shall mean that dollar
amount set forth in the option notice for the Secondary Shares which shall be
a minimum of $2,000,000 and a maximum of $5,000,000.
Section 1.34 "Secondary Shares" shall mean the shares of Preferred
Stock issuable upon the Closing of the Second Tranche as contained in Section
2.7 below.
Section 1.35 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.36 "Securities" shall mean the Initial Shares, Secondary
Shares, Additional Shares, Underlying Shares, and Warrant Shares.
Section 1.37 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.38 "Subscription Date" shall mean the date on which this
Agreement and all Exhibits and attachments hereto, are executed and delivered
by the parties hereto and all of the conditions relating to the issuance of
the Initial Shares and Warrants shall have been fulfilled.
Section 1.39 "Trading Day" shall mean any day during which the New
York Stock Exchange shall be open for business.
Section 1.40 "Underlying Shares" shall mean all shares of Common Stock
or other securities issued or issuable pursuant to conversion of the Preferred
Stock.
Section 1.41 "Warrant A" shall mean the Common Stock Purchase Warrant
A annexed hereto as Exhibit D.
Section 1.42 "Warrant B" shall mean the Common Stock Purchase Warrant
B annexed hereto as Exhibit E.
Section 1.43 "Warrant C" shall mean the Common Stock Purchase Warrant
C annexed hereto as Exhibit F.
Section 1.44 "Warrants" shall mean collectively the Warrant A, the
Warrant B, and the Warrant C.
Section 1.45 "Warrant Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to the exercise of the Warrants.
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ARTICLE II
Purchase and Sale of the Preferred Stock and Warrants
Section 2.1 Closings. The Company will sell, and the Investors will
buy, on the Closing Dates of the two tranches as set forth in Section 2.7
below, an aggregate of up to $15,000,000 principal amount of Preferred Stock,
and shall acquire Warrants to purchase that number of Warrant Shares as set
forth in Section 2.4 below in exchange for the Purchase Price, provided each
of the conditions set forth in Section 2.7 below have been satisfied or waived
in writing.
Section 2.2 Form of Payment. The Investors shall pay the Purchase
Price by delivering good funds in United States Dollars by wire transfer to
the Escrow Agent, against delivery of the original shares of Preferred Stock
and Warrants. The parties have entered into an Escrow Agreement annexed
hereto as Exhibit B.
Section 2.3 Wire Instructions. Wire instructions for the Escrow
Agent are as follows:
Chase Manhattan Bank, N.A.
ABA No. 021000021
For the Account of:
United States Trust Company of New York
Account No. 920-1-073195
In favor of:
The Goldstein Law Group, P.C. Attorney Escrow Account
Account No. 59-01405
Section 2.4 Warrants. On each Closing Date for the First Tranche,
the Company will issue to the Investors (pro rata based upon each Investor's
investment amount) (i) Warrant A's exercisable beginning on the applicable
Closing Date and then exercisable any time over the five year period
thereafter, to purchase an aggregate of that number of Warrant Shares at the
Exercise Price contained in the Warrant A equal to the sum of: (the First
Tranche Purchase Price divided by the Bid Price on the Trading Day immediately
preceding the applicable Closing Date for the First Tranche) multiplied by .3,
and (ii) Warrant B's exercisable beginning on the applicable Closing Date and
then exercisable any time
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over the five year period thereafter, to purchase an aggregate of that number
of Warrant Shares at the Exercise Price contained in the Warrant B equal to
the sum of: (the First Tranche Purchase Price divided by the Bid Price on the
Trading Day immediately preceding the applicable Closing Date for the First
Tranche) multiplied by .2. On the Closing Date for the Second Tranche, the
Company will issue to the Investors (pro rata based upon each Investor's
investment amount) (i) Warrant A's exercisable beginning on the Closing Date
for the Second Tranche and then exercisable any time over the five year period
thereafter, to purchase that number of Warrant Shares at the Exercise Price
contained in the Warrant A, equal to the sum of: (the Second Tranche Purchase
Price divided by the Bid Price on the Trading Day immediately preceding the
Closing Date for the Second Tranche) multiplied by .3, and (ii) Warrant B's
exercisable beginning on the Closing Date for the Second Tranche and then
exercisable any time over the five year period thereafter, to purchase that
number of Warrant Shares at the Exercise Price contained in the Warrant B,
equal to the sum of: (the Second Tranche Purchase Price divided by the Bid
Price on the Trading Day immediately preceding the Closing Date for the Second
Tranche) multiplied by .2. The Warrants shall be delivered by the Company to
the Escrow Agent, and delivered to the Investors pursuant to the terms of this
Agreement and the Escrow Agreement. The Warrant Shares shall be registered
for resale pursuant to the Registration Rights Agreement.
Section 2.5 Additional Shares. In the event that a "blackout period"
occurs which is defined as any period in which the effectiveness of the
Registration Statement is suspended for any reason whatsoever, and (b) the Bid
Price on the Trading Day immediately preceding such "blackout period" (the
"Old Bid Price") is greater than the Bid Price on the first Trading Day
following such "blackout period" (the "New Bid Price"), the Company shall
issue to the Investors the number of additional shares equal to the difference
between (y) the product of the number of Securities held by the Investors
during such "blackout period" that are or were not otherwise freely tradeable
and the Old Bid Price, divided by the New Bid Price and (z) the number of
Securities held by the Investors during such "blackout period" that were not
otherwise freely tradeable during such Blackout Period. In the event the
Company is obligated to issue these shares of Common Stock but such Investor
then owns more than five percent of the then outstanding shares of Common
Stock, the Company will issue such shares at such time as such Investor owns
less than five percent of the then outstanding shares of Common Stock.
Section 2.6 Liquidated Damages. In addition to any other provisions
for liquidated damages in this Agreement or any Exhibit annexed hereto, in the
event that the Company does not deliver unlegended Common Stock in connection
with the sale of such Common Stock by the Investor(s) as set forth in Article
VIII below within six Business Days of surrender by the Investor(s) of the
Common Stock certificate in accordance with the terms and conditions set forth
in Article VIII below (such date of receipt is referred to as the "Receipt
Date"), the Company shall pay to the Investor(s), in immediately available
funds, upon demand, as liquidated damages for such failure and not as a
penalty, one half of one percent of the value of the Common Stock undelivered
(based upon the Bid Price on the Receipt Date) for every day thereafter
through the tenth Business Day late, and one percent for every day thereafter
that the unlegended shares of Common Stock are not delivered, which liquidated
damages shall run from the seventh Business Day after the Receipt Date. The
parties hereto acknowledge and agree that the sum payable pursuant to the
Registration Rights Agreement and as set forth above, and the obligation to
issue Registrable Securities, shall constitute liquidated damages and not
penalties. The parties further acknowledge that the amount of loss or damages
likely to be incurred is incapable or is difficult to precisely estimate, and
the parties are sophisticated business parties and have been represented by
sophisticated and able legal and financial counsel and negotiated this
Agreement at arm's length. Any and all payments required pursuant to this
paragraph shall be payable only in cash, and any payment hereunder shall not
relieve the Company of its delivery obligations under this Section.
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Section 2.7 Closings. The Company agrees to sell and the Investors
agree to purchase up to an aggregate of $15,000,000 principal amount of
Preferred Stock and Warrants in two separate tranches of up to $10,000,000,
and up to $5,000,000, as is more fully set forth in (a) and (b) below. The
number of shares of Preferred Stock issuable upon the Closing(s) of each
tranche shall be determined by dividing the applicable Purchase Price by the
Stated Value of each share of Preferred Stock as defined in the Certificate of
Designation (the "Issuance Price").
(a) First Tranche. On each Closing Date for the First Tranche,
the Company will sell and the Investors will buy (in the amounts set forth on
Schedule A), in reliance upon the representations and warranties contained in
this Agreement, and upon the terms and satisfaction of each of the conditions
set forth below, that number of Initial Shares derived from dividing the First
Tranche Purchase Price by the Stated Value (as defined in the Certificate of
Designation), Warrant A's to purchase that number of Warrant Shares as set
forth in Section 2.4 above, and), Warrant B's to purchase that number of
Warrant Shares as set forth in Section 2.4 above. The conditions precedent to
each Closing of the First Tranche are as follows:
(i) Acceptance by each of the Investors of this Purchase
Agreement and due execution by all parties of this Agreement and the Exhibits
annexed hereto;
(ii) Delivery into escrow by the Company of the original
Initial Shares, original Warrant A's, and original Warrant B's as more fully
set forth in the Escrow Agreement attached hereto;
(iii) Delivery into escrow by the Investors of the Purchase
Price as set forth in the Escrow Agreement annexed hereto;
(iv) All representations, covenants, and warranties of the
Company contained herein shall remain true and correct in all material
respects as of the applicable Closing Date for the First Tranche;
(v) Each of the Investors shall have received an opinion of
counsel substantially in the form of Exhibit G annexed hereto dated as of the
applicable Closing Date for the First Tranche and the Instruction Letter to
the Transfer Agent annexed hereto as Exhibit H;
(vi) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Initial
Shares, Warrant A's, and Warrant B's (which permits and qualifications shall
remain in full force and effect as of the applicable Closing Date for the
First Tranche), or shall have the availability of exemptions therefrom. At
each Closing Date for the First Tranche, the sale and issuance of the Initial
Shares, Warrant A's, and Warrant B's shall be legally permitted by all laws
and regulations to which the Company and each of the Investors are subject;
and
(vii) Written proof that the Certificate of Designation has
been filed with the Secretary of State of the State of Nevada, and remains in
full effect as of each Closing Date for the First Tranche.
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(b) Second Tranche. At any time after 30 days after the
Effective Date (but in no event later than 90 days after the Effective Date)
at the Company's option (which must be in the form of written notice to the
Investors at least five Business Days prior to the Closing of the Second
Tranche setting forth the dollar amount which shall be a minimum of $2,000,000
and a maximum of $5,000,000) the Company will sell and the Investors will buy,
in reliance upon the terms, representations and warranties contained in this
Agreement, and upon the satisfaction of each of the conditions set forth
below, that number of Secondary Shares derived from dividing the dollar amount
set forth in the aforementioned option notice by the Stated Value (as defined
in the Certificate of Designation) (pro rata amongst the Investors based upon
each Investor's portion of the First Tranche Purchase Price), Warrant A's to
purchase that number of Warrant Shares equal to the sum of: (the Second
Tranche Purchase Price divided by the Bid Price on the Trading Day immediately
preceding the Closing Date for the Second Tranche) multiplied by .3, and
Warrant B's to purchase that number of Warrant Shares equal to the sum of:
(the Purchase Price divided by the Bid Price on the Trading Day immediately
preceding the Closing Date for the Second Tranche) multiplied by .2. The
conditions precedent to the Closing of the Second Tranche are as follows:
(i) Delivery into escrow by the Company of the original
Secondary Shares, Warrant A's, and Warrant B's, as more fully set forth in the
Escrow Agreement attached hereto;
(ii) Each of the Investors shall have received an opinion of
counsel of the Company as set forth in Exhibit F annexed to this Agreement,
dated on the Closing Date for the Second Tranche and the Instruction Letter to
the Transfer Agent shall remain in full force and effect;
(iii) Delivery into escrow by the Investors of the Purchase
Price as set forth in the Escrow Agreement annexed hereto;
(iv) The Registration Statement (which includes at least 200%
of the Initial Shares, 200% of the Secondary Shares, and 100% of the Warrant
Shares) has previously become effective and remains effective for at least 30
calendar days and during the ten (10) Trading Days immediately prior to the
Company's notice for the Second Tranche and the Closing Date for the Second
Tranche, and (A) neither the Company nor any of the Investors shall have
received notice that the SEC has issued or intends to issue a stop order with
respect to the Registration Statement or that the SEC otherwise has suspended
or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC's concerns have been addressed and the Investors are reasonably satisfied
that the SEC no
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longer is considering or intends to take such action), and (B) no other
suspension of the use or withdrawal of the effectiveness of the Registration
Statement or related prospectus shall exist;
(v) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Secondary
Shares, Warrant A's, and Warrant B's, or shall have the availability of
exemptions therefrom (which permits and qualifications shall remain in full
force and effect as of the Closing Date for the Second Tranche). The sale and
issuance of the Secondary Shares shall be legally permitted by all laws and
regulations to which the Company is subject;
(vi) The Investors shall have received written certification
that the representations, covenants, and warranties of the Company contained
in this Agreement and all Exhibits annexed hereto are true and correct in all
material respects as of the Closing Date for the Second Tranche as though made
at each such time (except for representations and warranties specifically made
as of a particular date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including the Closing Date for the
Second Tranche;
(vii) The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and
conditions required by this Agreement, the Certificate of Designation, the
Escrow Agreement, the Registration Rights Agreement and the Warrants, to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date for the Second Tranche;
(viii) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the transactions
contemplated by this Agreement or the Exhibits annexed hereto, and no
proceeding shall have been commenced that may have the effect of prohibiting
or adversely affecting any of the transactions contemplated by this Agreement
or the Exhibits annexed hereto;
(ix) The trading of the Common Stock is not suspended by the
SEC or the Principal Market, the Common Stock shall not have been delisted
from the OTC Bulletin Board, and the Company currently meets all applicable
listing requirements of the Principal Market;
(x) No change of control in the Company shall have occurred.
Change of Control shall mean the occurrence of any of (a) an acquisition after
the Subscription Date by a Person of in excess of 50% of the voting securities
of the Company, (b) a replacement of more than one half of the board of
directors in place as of the Subscription Date which is not approved by those
individuals who are members of the board of directors on the Subscription Date
in one or a series of transactions, (c) the merger of the Company with, or
into another entity, consolidation or sale of all or substantially all of the
assets of the
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Company in one or a series of related transactions, or (d) the execution by
the Company of an agreement to which the Company is a party or by which it is
bound, providing for any of the events set forth in (a), (b) or (c) herein;
(xi) The average Bid Price for the 20 consecutive Trading
Days immediately preceding the notice by the Company of its intention to
proceed with the Second Tranche and the 20 Trading Days immediately preceding
the Closing Date for the Second Tranche shall be greater than $10;
(xii) The average daily trading volume for the Common Stock
as reported by Bloomberg, LP for the 20 Trading Days immediately preceding the
Company's notice for the Second Tranche and for the 20 Trading Days
immediately preceding the Closing for the Second Tranche shall be a minimum of
150,000;
(xiii) Since the first Closing Date for the First Tranche no
Material Adverse Effect shall have occurred;
(xiv) As a result of the Closing of the Second Tranche none
of the Investor's would own or be deemed beneficially deemed to own, more than
4.99% of the outstanding shares of Common Stock. If any Investor would own,
or be deemed beneficially deemed to own, more than 4.99% of the outstanding
shares of Common Stock as a result of the Closing of the Second Tranche, such
Investor shall not be obligated to participate in the Second Tranche; and
(xv) Written proof that the Certificate of Designation is
filed with the Secretary of State of the State of Nevada and remains in full
effect as of the Closing of the Secondary Shares.
Notwithstanding the foregoing, the Investors will not be obligated to purchase
the Secondary Shares in the event the Registration Statement has not been
declared effective by the SEC prior to nine months after the first Closing
Date for the First Tranche.
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ARTICLE III
Representations and Warranties of the Investors
Each of the Investors represents and warrants to the Company that:
Section 3.1 Intent. Each of the Investors is entering into this
Agreement for its own account and has no present arrangement (whether or not
legally binding) at any time to sell the Common Stock to, or through any
person or entity; provided, however, that by making the representations
herein, the Investors do not agree to hold the Common Stock for any minimum or
other specific term and reserves the right to dispose of the Common Stock at
any time in accordance with federal and state securities laws applicable to
such disposition.
Section 3.2 Sophisticated Investors. Each of the Investors is a
sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D)
and an accredited investor (as defined in Rule 501 of Regulation D), and each
of the Investors has such experience in business and financial matters that it
is capable of evaluating the merits and risks of an investment in the Initial
Shares, Secondary Shares, Reset Shares, Additional Shares, and Warrants. Each
of the Investors acknowledges that an investment in the Common Stock is
speculative and involves a high degree of risk.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by each of the Investors and is a valid and
binding agreement of the Investors enforceable against each of them in
accordance with its terms, subject to applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of general
application.
Section 3.4 Not an Affiliate. None of the Investors is an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
Section 3.5 Organization and Standing. Each of the Investors is
duly organized, validly existing, and in good standing under the laws of the
countries and/or states of their incorporation or organization.
Section 3.6 Absence of Conflicts. The execution and delivery of
this Agreement and any other document or instrument executed in connection
herewith, and the consummation of the transactions contemplated thereby, and
compliance with the requirements thereof, will not violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on
Investors, or, to the Investors knowledge, (a) violate any provision of any
indenture, instrument or agreement to which any of the Investors are a party
or are subject, or by which any of the Investors or any of their assets is
bound; (b) conflict with or constitute a material default thereunder; (c)
result in the creation or imposition of any lien pursuant to the terms of any
such indenture, instrument or agreement, or constitute a breach of any
fiduciary duty owed by Investors to any third party; or (d) require the
approval of any third-party (which has not been
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obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which any of the Investors is subject or
to which any of their assets, operations or management may be subject.
Section 3.7 Disclosure; Access to Information. Each of the
Investors has received all documents, records, books and other information
pertaining to Investors investment in the Company that have been requested by
Investors, including the opportunity to ask questions and receive answers.
Each of the Investors has reviewed or received copies of any such reports that
have been requested by it. Each of the Investors represents that it has
reviewed the Company Reports.
Section 3.8 Manner of Sale. At no time were any of the Investors
presented with or solicited by or through any leaflet, public promotional
meeting, television advertisement or any other form of general solicitation or
advertising.
Section 3.9 Registration or Exemption Requirements. Each of the
Investors further acknowledges and understands that the Securities may not be
transferred, resold or otherwise disposed of except in a transaction
registered under the Securities Act and any applicable state securities laws,
or unless an exemption from such registration is available. Each of the
Investors understands that the certificate(s) evidencing the Initial Shares,
Secondary Shares, Reset Shares, Additional Shares, and Warrants will be
imprinted with a legend that prohibits the transfer of these securities unless
(i) they are registered or such registration is not required, or (ii) if the
transfer is pursuant to an exemption from registration (with no limitations).
Section 3.10 No Legal, Tax or Investment Advice. Each of the
Investors understands that nothing in this Agreement or any other materials
presented to the Investors in connection with the purchase and sale of the
Initial Shares, Secondary Shares, Reset Shares, Additional Shares, and
Warrants constitutes legal, tax or investment advice. The Investors have
relied on, and have consulted with, such legal, tax and investment advisors as
they, in their sole discretion, have deemed necessary or appropriate in
connection with their purchase of the Initial Shares, Secondary Shares, Reset
Shares, Additional Shares, and Warrants.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investors that:
Section 4.1 Organization of the Company. The Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of Nevada and has all requisite corporate authority to own its
properties and to carry on its business as now being conducted except as
described in the Company Documents. The Company is duly qualified to do
business as a foreign corporation and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned
by it makes such qualification necessary, other than those in which the
failure so to qualify would not reasonably be expected to have a Material
Adverse Effect.
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Section 4.2 Authority. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement, and all Exhibits annexed hereto, and to issue the Initial Shares,
Secondary Shares, Reset Shares, Warrants, Underlying Shares, Additional
Shares, and the Warrant Shares, (ii) the execution, issuance and delivery of
this Agreement, and all Exhibits annexed hereto, by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors, and (iii) this
Agreement, and all Exhibits annexed hereto, have been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of general
application. Upon their issuance and delivery pursuant to this Agreement, the
Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant Shares,
Underlying Shares, and Additional Shares, will be validly issued, fully paid
and nonassessable and will be free of any liens or encumbrances other than
those created hereunder or by the actions of the Investors; provided, however,
that the Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant
Shares, Underlying Shares, and Additional Shares are subject to restrictions
on transfer under state and/or federal securities laws. The issuance and sale
of the Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant
Shares, Underlying Shares, and Additional Shares hereunder will not give rise
to any preemptive right or right of first refusal or right of participation on
behalf of any person.
Section 4.3 Capitalization. The authorized capital stock of the
Company consists of 60,000,000 shares of Common Stock, $0.001 par value per
share, of which approximately 11,877,000 shares are issued and outstanding,
and 50,000 shares of Preferred Stock, of which 15,000 have been designated as
Series A Preferred Stock and none are issued and outstanding. All of the
outstanding shares of Common Stock and Preferred Stock of the Company have
been duly and validly authorized and issued and are fully paid and
nonassessable. No shares of Common Stock are entitled to preemptive or
similar rights. Except for the proposed issuance of warrants to Columbia
Financial Group, Inc., as otherwise specifically disclosed in the Company
Documents, and pursuant to the Company's employee benefit plan, there are no
outstanding options, warrants, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or, except as a result of the purchase
and sale of the Initial Shares, Secondary Shares, Reset Shares, Underlying
Shares, Additional Shares, and the Warrants, securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
subsidiary is or may become bound to issue additional shares of Common Stock
or securities or rights convertible or exchangeable into shares of Common
Stock. To the knowledge of the Company, other than as stated on Schedule 4.3
annexed hereto, no Person or group of Persons beneficially owns (as determined
pursuant to Rule 13d-3 promulgated under the Exchange Act) or has the right to
acquire by agreement with or by obligation binding upon the Company beneficial
ownership of in excess of five percent of the Common Stock.
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Section 4.4 Common Stock. The Common Stock has not been registered
pursuant to Section 12(g) of the Exchange Act. The Common Stock is currently
listed or quoted on the OTC Bulletin Board.
Section 4.5 Company Documents. The Company has delivered or made
available to the Investors true and complete copies of the Company Documents.
The Company has not provided to any of the Investors any information that,
according to applicable law, rule or regulation, should have been disclosed
publicly prior to the date hereof by the Company, but which has not been so
disclosed. None of the Company Documents contain any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company Documents comply as to form
in all material respects with applicable accounting requirements. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed
or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended.
Section 4.6 Valid Issuances. When issued and payment has been made
therefor, Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant
Shares, Underlying Shares, and the Additional Shares, sold to the Investors
will be duly and validly issued, fully paid, and nonassessable. Neither the
issuance of the Initial Shares, Secondary Shares, Reset Shares, Warrants,
Warrant Shares, Underlying Shares, and Additional Shares, to the Investors,
pursuant to, nor the Company's performance of its obligations under this
Agreement, and all Exhibits annexed hereto will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances
upon the Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant
Shares, Underlying Shares, or Additional Shares, issued to the Investors, or
any of the assets of the Company, or (ii) entitle the holders of Outstanding
Capital Shares to preemptive or other rights to subscribe to or acquire the
Capital Shares or other securities of the Company.
Section 4.7 No General Solicitation or Advertising in Regard to
this Transaction. Neither the Company nor any of its affiliates nor any
distributor or any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to any of the Initial
Shares, Secondary Shares, Reset Shares, Additional Shares, Warrants,
Underlying Shares, or Warrant Shares, or (ii) made any offers or sales of any
security or solicited any offers to buy any security under any circumstances
that would require registration of the Initial Shares, Secondary Shares, Reset
Shares, Additional Shares, Warrants, Underlying Shares, or Warrant Shares
under the Securities Act.
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Section 4.8 Corporate Documents. The Company has furnished or
made available to each of the Investors true and correct copies of the
Company's Articles of Incorporation, as amended and in effect on the date
hereof, and the Company's by-laws, as amended and in effect on the date hereof
(the "By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant Shares,
Underlying Shares, and Additional Shares, do not and will not (i) result in a
violation of the Company's Articles of Incorporation or By-Laws, or (ii)
conflict with, or constitute a material default (or an event that with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture, instrument or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (iii) result in a violation of any federal, state or local law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, conflict with or in default under any of the
foregoing as would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in
the aggregate would not reasonably be expected to have a Material Adverse
Effect. The Company is not required under federal, state or local law, rule
or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it
to execute, deliver or perform any of its obligations under this Agreement
(including all Exhibits annexed hereto) or to issue and sell the Initial
Shares, Secondary Shares, Reset Shares, Warrants, Warrant Shares, Underlying
Shares, or Additional Shares in accordance with the terms hereof; provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investors herein.
Section 4.10 No Material Adverse Change. Since August 1, 1998, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as publicly announced.
Section 4.11 No Undisclosed Liabilities. The Company has no
liabilities or obligations which are material, individually or in the
aggregate, that are not disclosed in the Company Documents or otherwise
publicly announced, other than those set forth in the Company's financial
statements or as incurred in the ordinary course of the Company's businesses
since August 1, 1998, and which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
Section 4.12 No Undisclosed Events or Circumstances. Since August
1, 1998, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has not been so publicly announced or disclosed in the Company Documents.
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Section 4.13 No Integrated Offering. To the Company's knowledge,
neither the Company, nor any of its affiliates, nor any person acting on its
or their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, other than pursuant to
this Agreement or pursuant to the Company's existing employee benefit plan,
under circumstances that would cause the offering of the Initial Shares,
Secondary Shares, Reset Shares, and Warrants pursuant to this Agreement to be
integrated with prior or future offerings by the Company for purposes of the
Securities Act or any applicable stockholder approval provisions.
Section 4.14 Litigation and Other Proceedings. There are no
lawsuits or proceedings pending or to the knowledge of the Company threatened,
against the Company, nor has the Company received any written or oral notice
of any such action, suit, proceeding or investigation, which would reasonably
be expected to have a Material Adverse Effect. Except as set forth in the
Company Documents, no judgment, order, writ, injunction or decree or award has
been issued by or, so far as is known by the Company, requested of any court,
arbitrator or governmental agency which would be reasonably expected to result
in a Material Adverse Effect.
Section 4.15 Acknowledgment of Dilution. The Company is aware and
acknowledges that issuance of Initial Shares, Secondary Shares, Reset Shares,
Underlying Shares, Additional Shares, and/or Warrant Shares, may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue the Additional Shares, Warrant Shares, and
Underlying Shares is unconditional and absolute regardless of the effect of
any such dilution.
Section 4.16 Employee Relations. The Company is not involved in any
labor dispute, nor, to the knowledge of the Company, is any such dispute
threatened which could reasonably be expected to have a Material Adverse
Effect. None of the Company's employees is a member of a union and the
Company believes that its relations with its employees are good.
Section 4.17 Environmental Laws. The Company is (i) in compliance
with any and all foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants and which
the Company know is applicable to them ("Environmental Laws"), (ii) has
received all permits, licenses or other approvals required under applicable
Environmental Laws to conduct its business, and (iii) is in compliance with
all terms and conditions of any such permit, license or approval.
Section 4.18 Insurance. The Company is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in
the businesses in which the Company is engaged. The Company has no notice to
believe that it will not be able to renew its existing insurance coverage
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as and when such coverage expires, or obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
materially and adversely affect the condition, financial or otherwise, or the
earnings, business or operation, of the Company.
Section 4.19 Board Approval. The board of directors of the Company
has concluded, in its good faith business judgment, that the issuances of the
securities of the Company in connection with this Agreement are in the best
interests of the Company.
Section 4.20 Integration. The Company shall not and shall use its
best efforts to ensure that no affiliate shall sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security of the Company
that would be integrated with the offer or sale of the Initial Shares,
Secondary Shares, Reset Shares, Additional Shares, and Warrants in a manner
that would require the registration under the Securities Act of the issue,
offer or sale of the Initial Shares, Secondary Shares, Reset Shares, and
Warrants to the Investors. The Initial Shares, Secondary Shares, Reset
Shares, Additional Shares, Warrants and Warrant Shares are being offered and
sold pursuant to the terms hereunder, are not being offered and sold as part
of a previously commenced private placement of securities.
Section 4.21 Patents and Trademarks. The Company has, or has rights
to use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses, trade secrets and other
intellectual property rights which are necessary for use in connection with
its business or which the failure to so have would have a Material Adverse
Effect (collectively, the "Intellectual Property Rights"). To the best
knowledge of the Company, none of the Intellectual Property Rights infringe on
any rights of any other Person, and the Company either owns or has duly
licensed or otherwise acquired all necessary rights with respect to the
Intellectual Property Rights. The Company has not received any notice from
any third party of any claim of infringement by the Company of any of the
Intellectual Property Rights, and has no reason to believe there is any basis
for any such claim. To the best knowledge of the Company, there is no
existing infringement by another Person on any of the Intellectual Property
Rights.
Section 4.22 Use of Proceeds. The Company represents that the net
proceeds from this offering will be used for working capital purposes, and not
for the repayment of any outstanding judgments against the Company (including
any affiliate or subsidiary) or any officer, director or employee of the
Company.
Section 4.23 Subsidiaries. Except as disclosed in the Company
Reports, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, association or
other business entity.
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ARTICLE V
Covenants of the Investors
Section 5.1 4.99% Limitation. The number of shares of Common Stock
which may be acquired by any of the Investors pursuant to the terms of this
Agreement shall not exceed the number of such shares which, when aggregated
with all other shares of Common Stock then owned by any of the Investors,
would result in any of the Investors owning more than 4.99% of the then issued
and outstanding Common Stock.
The preceding paragraph shall not interfere with any Investor's right to
convert Preferred Stock or exercise the Warrants over time which in the
aggregate totals more than 4.99% of the then outstanding shares of Common
Stock so long as such Investor does not own more than 4.99% of the then
outstanding Common Stock at any given time.
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect so long as
any Registrable Securities remain outstanding and the Company shall comply in
all material respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has authorized and reserved and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, shares of Common
Stock for the purpose of enabling the Company to satisfy any obligation to
issue the Additional Shares, Initial Shares, Secondary Shares, Reset Shares,
and Warrant Shares. The number of shares so reserved shall be increased or
decreased to reflect potential increases or decreases in the Common Stock that
the Company may thereafter be so obligated to issue by reason of adjustments
to the Warrants.
Section 6.3 Listing of Common Stock. If required by the Principal
Market, the Company shall (a) not later than the fifth Business Day following
the date the Principal Market requires, prepare and file with the Principal
Market (as well as any other national securities exchange, market or trading
facility on which the Common Stock is then listed) an additional shares
listing application covering at least the sum of (i) Initial Shares, Secondary
Shares, Reset Shares, Additional Shares, and (ii) the Warrant Shares issuable
upon exercise in full of the Warrants, (b) take all steps necessary to cause
such shares to be approved for listing on the Principal Market (as well as on
any other national securities exchange, market or trading facility on which
the Common Stock is then listed) as soon as possible thereafter, and (c)
provide to the Investors evidence of such listing, and the Company shall
maintain the listing of its Common Stock on such exchange or market. In
addition, if at any time the number of shares of Common Stock issuable
hereunder, and upon exercise in full of the Warrants is greater than the
number of shares of Common Stock theretofore listed with the Principal Market
(and any such other national securities exchange, market or trading facility),
the Company shall promptly take such action (including the actions described
in the preceding sentence) to file an additional shares listing application
with the Principal Market (and any such other national securities exchange,
market or trading facility) covering such number
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of shares of Common Stock as would be necessary. Except as set forth in
Schedule 6.3, the Company (i) has not received any notice, oral or written,
affecting its continued listing on the OTC Bulletin Board, and (ii) is in full
compliance with the requirements for continued listing on the OTC Bulletin
Board. The Company will take no action which would impact its continued
listing or eligibility of the Company for such listing (except as set forth in
Section 6.11 below). The Company will comply with the listing and trading
requirements of its Common Stock on a Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market. In the event the Company receives
notification from the Principal Market or any other controlling entity stating
that the Company is not in compliance with the listing qualifications of such
Principal Market, the Company will take all action necessary to bring the
Company within compliance with all applicable listing standards of the
Principal Market.
Section 6.4 Exchange Act Registration. The Company agrees that,
once the Company is required by the Principal Market, or otherwise by law, it
will maintain the registration of its Common Stock under the Exchange Act, and
will not take any action or file any document (whether or not permitted by
Exchange Act or the rules thereunder) to terminate or suspend such
registration for so long as the Registrable Securities are owned by the
Investors.
Section 6.5 Legends. The Initial Shares, Secondary Shares,
Warrants, Warrant Shares, Underlying Shares, and Additional Shares to be
issued by the Company pursuant to this Agreement shall be free of legends,
except as set forth in Article VIII.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Notice of Certain Events Affecting Registration. The
Company will immediately notify each of the Investors within three Business
Days after the occurrence of any of the following events in respect of a
registration statement or related prospectus in respect of an offering of
Registrable Securities: (i) receipt of any request for additional information
by the SEC or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement for amendments or
supplements to the Registration Statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of
any stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in the Registration Statement,
related prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and that in the case of the related
prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading (the Company shall not be required to
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notify the Investors in this case in the event such notification would be
deemed the release of nonpublic information); and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate. The Company will, within three Business Days of when
filed with the SEC make available to the Investors any such supplement or
amendment to the related prospectus.
Section 6.8 Consolidation; Merger. The Company shall not, at any
time after the date hereof, effect any merger or consolidation of the Company
with or into, or a transfer of all or substantially all of the assets of the
Company to, another entity (a "Consolidation Event") unless the resulting
successor or acquiring entity (if not the Company) assumes by written
instrument the obligation to deliver to the Investors such shares of stock
and/or securities as the Investors are entitled to receive pursuant to this
Agreement.
Section 6.9 Issuance of Underlying Shares and Warrant Shares. The
issuance of the Underlying Shares and Warrant Shares shall be made in
accordance with the provisions and requirements of Section 4(2) of the
Securities Act, or Regulation D and any applicable state securities law.
Section 6.10 Legal Opinion. The Company's independent counsel shall
deliver to the Investors on or prior to the Closing Dates for the First
Tranche and Second Tranche, an opinion in the form of Exhibit G annexed
hereto. The Company will obtain for the Investors, at the Company's expense,
any and all opinions of counsel which may be reasonably required in order to
remove the Legend from the Initial Shares, Secondary Shares, Reset Shares,
Additional Shares, Underlying Shares, and Warrant Shares. The Company will
obtain for the Investors, at the Company's expense, any and all opinions of
counsel which may be reasonably required in order to convert the Preferred
Stock and/or exercise the Warrants, including, but not limited to, obtaining
for the Investors an opinion of counsel, subject only to receipt of a notice
of conversion (the "Notice of Conversion") in the form of Exhibit I, and/or
subject only to a receipt of a notice of exercise in the form annexed to the
Warrant, directing the Transfer Agent to remove the legend from such
certificate.
Section 6.11 20% Rule Limitation. In the event the Principal Market
requires shareholder approval, the Company shall call a meeting of its
shareholders, to be held no later than 60 calendar days after the such date,
seeking shareholder approval of the below market issuances of shares of Common
Stock (and securities convertible into and exercisable for Common Stock) to
the Investors of an aggregate of 20% or more of the number of shares of Common
Stock outstanding as of Subscription Date. In the event that the
aforementioned proposal is not so approved within such 60 calendar day period,
or if no shareholder meeting is held, the Company shall seek a waiver from the
Principal Market for such below market issuances. In the event the Company
does not receive such waiver within the earlier of (the "Deadline Date"): (i)
ten calendar days after the aforementioned shareholders meeting, or (ii) 70
calendar days after Company becomes subject to a Principal Market that has
such a 20% limitation, the Company shall either delist the Common Stock from
the Principal Market and immediately (within two Trading Days thereafter) list
the Common Stock on a market or exchange that does not have such a
requirement, or the Company agrees that it will pay to the Investors the
Economic Benefit (as defined below) of that number of shares of Common Stock
issuable to the Investors above said twenty (20%) percent. The "Economic
Benefit" is defined
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as the number of shares of Common Stock issuable to the Investors pursuant to
the terms hereunder in excess of twenty (20%) percent of the outstanding
Common Stock as of the Subscription Date multiplied by the Bid Price on the
Deadline Date.
Section 6.12 Conversion of Preferred Stock and Exercise of Warrants.
The Company will permit the Investors to exercise their right to convert the
Preferred Stock, and/or exercise the Warrants, by telecopying an executed and
completed Notice of Conversion, and Notice of Exercise (along with payment of
the applicable Exercise Price) to the Company as is set forth in the
Certificate of Designation, and Warrant respectively.
Section 6.13 Increase in Authorized Shares. At such time as the
Company would be, if a notice of exercise were to be delivered on such date,
precluded from honoring (i) the exercise in full of the Warrants, (ii) the
conversion in full of the Preferred Stock, and/or (iii) the Company's
obligation to issue Reset Shares and/or Additional Shares, due to the
unavailability of a sufficient number of shares of authorized but unissued or
re-acquired Common Stock, the Board of Directors of the Company shall promptly
(and in any case within 60 calendar days from such date) hold a shareholders
meeting in which the shareholders would vote for authorization to amend the
Company's certificate of incorporation to increase the number of shares of
Common Stock which the Company is authorized to issue to at least a number of
shares equal to the sum of (i) all shares of Common Stock then outstanding,
(ii) the number of shares of Common Stock issuable on account of all
outstanding warrants, options and convertible securities (other than the
Warrants) and on account of all shares reserved under any stock option, stock
purchase, warrant or similar plan, (iv) such number of Warrant Shares as would
then be issuable upon the exercise in full of the Warrants, (v) such number of
underlying Shares as would then be issuable upon conversion in full of the
Preferred Stock, and (vi) all Reset Shares and Additional Shares as would be
issuable on such date. In connection therewith, the Board of Directors shall
promptly (x) adopt proper resolutions authorizing such increase, (y) recommend
to and otherwise use its best efforts to promptly and duly obtain shareholder
approval to carry out such resolutions and (z) within three Business Days of
obtaining such shareholder authorization, file an appropriate amendment to the
Company's certificate of incorporation to evidence such increase. In no way
shall the aforementioned be deemed a waiver of the Company's obligations
contained in Section 6.2 above.
Section 6.14 Notice of Breaches. Each of the Company on the one
hand, and the Investors on the other, shall give prompt written notice to the
other of any breach by it of any representation, covenant, warranty or other
agreement contained in this Agreement or any Exhibit annexed hereto, as well
as any events or occurrences arising after the date hereof, which would
reasonably be likely to cause any representation, covenant, or warranty or
other agreement of such party, as the case may be, contained in this Agreement
or any Exhibit annexed hereto, to be incorrect or breached as of such date.
However, no disclosure by either party pursuant to this Section shall be
deemed to cure any breach of any representation, warranty or other agreement
contained in this Agreement or any Exhibit annexed hereto. Notwithstanding
the generality of the foregoing, the Company shall promptly notify each
Investor of any notice or claim (written or oral) that it receives from any
lender of the Company to the effect that the consummation of the transactions
contemplated by this Agreement or any Exhibit annexed hereto, violates or
would violate any written agreement or understanding between such lender and
the Company, and the Company shall promptly furnish by
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facsimile to each Investor a copy of any written statement in support of or
relating to such claim or notice.
Section 6.15 Restrictions on Future Financings/Right of First
Refusal. The Company agrees that it will not enter into any equity or debt
financing in the form of any security convertible into Common Stock or any
below market issuance of Common Stock (but not including any secondary public
offering of Common Stock) until at least 90 calendar days after the Effective
Date, unless the Company has obtained the express written approval by all of
the Investors. The Company agrees that should it elect to enter into a
private transaction for convertible debt or equity financing at any time prior
to six months after the Effective Date, the Company will give each of the
Investors written notice of the terms and conditions of such offer (the "ROFR
Notice") via facsimile. The Investors shall have a right of first refusal to
commit to provide the funds pursuant to the terms as outlined in the ROFR
Notice. Each Investor shall have three Business Days to reply in writing
after receipt of the ROFR Notice from the Company. In the event such written
reply is not received by the Company within such three Business Day period,
the Company shall have the right to conclude a transaction with another
investor or investors provided the transaction is not materially different
from that outlined to the Investors as was provided in the ROFR Notice. In
the event the Company enters into a private financing through the sale of
Common Stock at a discount to the then current market price, or the Company
enters into a private financing through the sale of any security convertible
into shares of Common Stock within six months after the Effective Date, the
Company agrees that the Investors shall receive the benefit of any terms of
such offering which the Investors deem to be more beneficial than the terms
contained herein the Registration Rights Agreement, and in the Certificate of
Designation and Warrants. In such case the Company agrees to immediately take
all action necessary to amend this Agreement, the Registration Rights
Agreement, the Certificate of Designation and the Warrants.
Section 6.16 Transfer of Intellectual Property Rights. Except in
the ordinary course of the Company's business consistent with past practice or
in connection with the sale of all or substantially all of the assets of the
Company, the Company shall not transfer, sell or otherwise dispose of, any
Intellectual Property Rights, or allow the Intellectual Property Rights to
become subject to any liens, or fail to renew such Intellectual Property
Rights (if renewable and would otherwise expire).
Section 6.17 Additional Issuances of Preferred Stock. The Company
agrees that it will only issue shares of Preferred Stock to the Investors
listed on Schedule A annexed hereto.
ARTICLE VII
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 7.1 Due Diligence Review. The Company shall make available
for inspection and review by the Investors, advisors to and representatives of
the Investors (who may or may not be affiliated with the Investors), any
underwriter participating in any disposition of the Registrable Securities on
behalf of the Investors pursuant to the Registration Statement, any such
registration statement or amendment or supplement thereto or any blue sky,
NASD or other filing, all financial
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and other records, all Company Documents, and all other corporate documents
and properties of the Company as may be reasonably necessary for the purpose
of such review, and cause the Company's officers, directors and employees to
supply all such information reasonably requested by any of the Investors or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investors and such
representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 7.2 Non-Disclosure of Non-Public Information
(a) The Company has not disclosed, and hereafter shall not
disclose non-public information to the Investors, advisors to, or
representatives of, the Investors unless prior to disclosure of such
information the Company identifies such information as being non-public
information and provides each Investor, and its advisors and representatives
with the opportunity to accept or refuse to accept such non-public information
for review. The Company may, as a condition to disclosing any non-public
information hereunder, require each of the Investors advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose non-
public information to any of the Investors or their advisors or
representatives, and the Company represents that it does not disseminate non-
public information to any investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts, provided,
however, that notwithstanding anything herein to the contrary, the Company
will, as hereinabove provided, immediately notify the advisors and
representatives of the Investors and, if any, underwriters, of any event or
the existence of any circumstance (without any obligation to disclose the
specific event or circumstance) of which it becomes aware, constituting non-
public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration
Statement would cause such prospectus to include a material misstatement or to
omit a material fact required to be stated therein in order to make the
statements, therein, in light of the circumstances in which they were made,
not misleading. Nothing contained in this Section shall be construed to mean
that such persons or entities other than the Investors (without the written
consent of the Investors prior to disclosure of such information) may not
obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent
any such persons or entities from notifying the Company of their opinion that
based on such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of a material fact or omits a material
fact required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading.
ARTICLE VIII
Legends
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Section 8.1 Legends. The Investors agree to the imprinting, so long
as is required by this Section, of the following legend (or such substantially
similar legend as is acceptable to the Investors and their counsel, the
parties agreeing that any unacceptable legended securities shall be replaced
promptly by and at the Company's cost) on the securities:
[FOR WARRANTS, INITIAL SHARES AND SECONDARY SHARES] NEITHER THESE SECURITIES
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
[ONLY FOR RESET SHARES, ADDITIONAL SHARES AND WARRANT SHARES TO THE EXTENT THE
RESALE THEREOF IS NOT COVERED BY AN EFFECTIVE REGISTRATION STATEMENT AT THE
TIME OF ISSUANCE OR EXERCISE] THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
The Warrant Shares, Reset Shares and Additional Shares shall not contain the
legend set forth above or any other restrictive legend if the issuance of such
occurs at any time while a Registration Statement is effective under the
Securities Act in connection with the resale of the shares of Common Stock or,
in the event there is not an effective Registration Statement at such time, if
in the opinion of counsel to the Company such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission).
The Company agrees that it will provide the Investors, upon request, with a
certificate or certificates representing the Warrant Shares, Reset Shares and
Additional Shares free from such legend at such time as such legend is no
longer required hereunder. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company which
enlarge the restrictions of transfer set forth in this Section.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the
form of Exhibit H hereto. Such instructions shall be irrevocable by the
Company
24
<PAGE>
from and after the date hereof or from and after the issuance thereof to any
such substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investors to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and
under the following circumstances and except as provided below, without
consultation by the transfer agent with the Company or its counsel and without
the need for any further advice or instruction or documentation to the
transfer agent by or from the Company or its counsel or the Investors:
(a) at any time after the Effective Date, upon surrender of one
or more certificates evidencing the Warrants, Initial Shares, Secondary
Shares, Underlying Shares, Warrant Shares, Reset Shares and Additional Shares,
that bear the aforementioned Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the aforementioned legend
to replace those surrendered; provided that (i) the Registration Statement
shall then be effective; (ii) the Investor(s) confirm to the transfer agent
that it has sold, pledged or otherwise transferred or agreed to sell, pledge
or otherwise transfer such Common Stock in a bona fide transaction to a third
party that is not an affiliate of the Company; and (iii) the Investor(s)
confirm to the transfer agent that the Investor(s) have complied with the
prospectus delivery requirement.
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities, that bear the aforementioned legend, to the
extent accompanied by a notice requesting the issuance of new certificates
free of such legend to replace those surrendered and containing
representations that (i) the Investor(s) is permitted to dispose of such
Registrable Securities, without limitation as to amount or manner of sale
pursuant to Rule 144(k) under the Securities Act or (ii) the Investor(s) has
sold, pledged or otherwise transferred or agreed to sell, pledge or otherwise
transfer such Registrable Securities, in a manner other than pursuant to an
effective registration statement, to a transferee who will upon such transfer
be entitled to freely tradeable securities. The Company shall have counsel
provide any and all opinions necessary for the sale under Rule 144, as
permitted under applicable law.
Any of the notices referred to above in this Section may be sent by
facsimile to the Company's transfer agent.
Section 8.2 No Other Legend or Stock Transfer Restrictions. No
legend other than the one specified in this Article has been or shall be
placed on the share certificates representing the Common Stock, and no
instructions or "stop transfer orders," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set
forth in this Article.
Section 8.3 Investor's Compliance. Nothing in this Article shall
affect in any way any of the Investors obligations under any agreement to
comply with all applicable securities laws upon resale of the Common Stock.
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<PAGE>
ARTICLE IX
Choice of Law
Section 9.1 Choice of Law; Venue; Jurisdiction. This Agreement will
be construed and enforced in accordance with and governed by the laws of the
State of New York, except for matters arising under the Securities Act,
without reference to principles of conflicts of law. Each of the parties
consents to the exclusive jurisdiction of the United States District Court for
the Northern District of Georgia, Atlanta Division in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions.
Each party hereby agrees that if another party to this Agreement obtains a
judgment against it in such a proceeding, the party which obtained such
judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained,
and each party hereby waives any defenses available to it under local law and
agrees to the enforcement of such a judgment. Each party to this Agreement
irrevocably consents to the service of process in any such proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
such party at its address set forth herein. Nothing herein shall affect the
right of any party to serve process in any other manner permitted by law.
Each party waives its right to a trial by jury.
ARTICLE X
Assignment; Entire Agreement, Amendment; Termination
Section 10.1 Assignment. The Investor's interest in this Agreement
and its ownership of Preferred Stock and Warrants may be assigned or
transferred at any time, in whole or in part, to any other person or entity
(including any affiliate of the Investors) who agrees to, and truthfully can,
make the representations and warranties contained in Article III, and who
agrees to be bound by the covenants of Article V. The provisions of this
Agreement shall inure to the benefit of, and be enforceable by, any transferee
of any of the shares of Preferred Stock and/or Warrants purchased or acquired
by the Investors hereunder with respect to the Common Stock held by such
person.
Section 10.2 Termination. This Agreement shall terminate upon the
earliest of (i) the date that all the Registrable Securities have been sold by
the Investors pursuant to the Registration Statement; (ii) the date the
Investors receive an opinion from counsel to the Company that all of the
Registrable Securities may be sold under the provisions of Rule 144, without
volume limitation; or (iii) five years after the last Closing Date; provided,
however, that the provisions of Articles III, IV, V, VI, VII, VIII, IX, X, XI,
and XII herein, and the registration rights provisions for the Registrable
Securities held by the Investors set forth in this Agreement, and the
Registration Rights Agreement, shall survive the termination of this
Agreement.
ARTICLE XI
Notices
Section 11.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be
in writing and, unless otherwise specified
26
<PAGE>
herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most
recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand
delivery or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day during normal business hours where such notice is
to be received), or the first Business Day following such delivery (if
delivered other than on a Business Day during normal business hours where such
notice is to be received), or (b) on the second Business Day following the
date of mailing by reputable courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
If to the Company:
WordCruncher Internet Technologies, Inc.
12450 South 405 East, Suite B
Draper, Utah 84020
Attention: Chief Financial Officer
Telephone: (801) 816-9904
Facsimile: (801) 816-9840
27
<PAGE>
If to the Investors, at the addresses listed on Schedule A.
with a copy to:
The Goldstein Law Group, P.C.
65 Broadway, 10th Floor
New York, NY 10006
Attention: Scott H. Goldstein, Esq.
Telephone: (212) 809-4220
Facsimile: (212) 809-4228
and Cardinal Capital Management, Inc.
3340 Peachtree Road, N.E., Suite 620
Atlanta, Georgia 30326
Attention: Scott Koch
Telephone: (404) 264-0777
Facsimile: (404) 264-0007
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 11.1 by giving at least ten calendar
days' prior written notice of such changed address or facsimile number to the
other party hereto.
Section 11.2 Indemnification. The Company agrees to indemnify and
hold harmless each of the Investors and each officer, director of the
Investors or person, if any, who controls the Investors within the meaning of
the Securities Act against any losses, claims, damages or liabilities, joint
or several (which shall, for all purposes of this Agreement, include, but not
be limited to, all costs of defense and investigation and all attorneys'
fees), to which the Investors may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon the breach of any term of
this Agreement by the Company. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
Each Investor agrees that it will indemnify and hold harmless the Company, and
each officer, director of the Company or person, if any, who controls the
Company within the meaning of the Securities Act, against any losses, claims,
damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such officer, director or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the breach of any term of this
Agreement by the Investor. This indemnity agreement will be in addition to
any liability which the Investors or any subsequent assignee may otherwise
have.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section, notify the indemnifying party of the commencement thereof; but
the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified
party otherwise than
28
<PAGE>
as to the particular item as to which indemnification is then being sought
solely pursuant to this Section. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, assume the defense thereof, subject to the
provisions herein stated and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that if the indemnified party is one of the Investors, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Investors and the
indemnifying party and the Investors shall have been advised by such counsel
that there may be one or more legal defenses available to the indemnifying
party in conflict with any legal defenses which may be available to the
Investors (in which case the indemnifying party shall not have the right to
assume the defense of such action on behalf of the Investors, it being
understood, however, that the indemnifying party shall, in connection with any
one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable only for the reasonable fees and expenses of one
separate firm of attorneys for the Investor(s), which firm shall be designated
in writing by the Investor(s)). No settlement of any action against an
indemnified party shall be made without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld.
Section 11.3 Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 11.2 hereof but is
judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that the express provisions of Section 11.2
hereof provide for indemnification in such case, or (ii) contribution under
the Securities Act may be required on the part of any indemnified party, then
the Company and the applicable Investor shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), in either such
case (after contribution from others) on the basis of relative fault as well
as any other relevant equitable considerations. The amount paid or payable by
an indemnified party as a result of the losses, claims, damages or liabilities
(or actions in respect thereof) referred to above in Section 11.2 shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation
29
<PAGE>
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contributions from any person who was not guilty of such fraudulent
misrepresentation.
ARTICLE XII
Miscellaneous
Section 12.1 Counterparts; Facsimile; Amendments. This Agreement
may be executed in multiple counterparts, each of which may be executed by
less than all of the parties and shall be deemed to be an original instrument
which shall be enforceable against the parties actually executing such
counterparts and all of which together shall constitute one and the same
instrument. Except as otherwise stated herein, in lieu of the original
documents, a facsimile transmission or copy of the original documents shall be
as effective and enforceable as the original. This Agreement may be amended
only by a writing executed by the Company on the one hand, and the Investors,
on the other hand.
Section 12.2 Entire Agreement. This Agreement, the Exhibits or
attachments hereto, which include, but are not limited to the Warrant, the
Certificate of Designation, the Escrow Agreement, and the Registration Rights
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The
terms and conditions of all Exhibits to this Agreement are incorporated herein
by this reference and shall constitute part of this Agreement as if fully set
forth herein.
Section 12.3 Survival; Severability. The representations,
warranties, covenants and agreements of the parties hereto shall survive each
Closing hereunder. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective
if it materially changes the economic benefit of this Agreement to any party.
Section 12.4 Title and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 12.5 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading
volume of the Common Stock on any given Trading Day for the purposes of this
Agreement and all Exhibits shall be Bloomberg, L.P. or any successor thereto.
The written mutual consent of the Investors and the Company shall be required
to employ any other reporting entity.
30
<PAGE>
Section 12.6 Replacement of Certificates. Upon (i) receipt of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of a certificate representing the Initial Shares,
Secondary Shares, Reset Shares, Warrants, Warrant Shares, or Additional
Shares, and (ii) in the case of any such loss, theft or destruction of such
certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or (iii) in the case of any
such mutilation, on surrender and cancellation of such certificate, the
Company at its expense will execute and deliver, in lieu thereof, a new
certificate of like tenor.
Section 12.7 Fees and Expenses. Each of the parties shall pay its
own fees and expenses (including the fees of any attorneys, accountants,
appraisers or others engaged by such party) in connection with this Agreement
and the transactions contemplated hereby, except that the Company shall pay
(i) on the first Closing Date for the First Tranche $15,000, and on the
Closing Date for the Second Tranche $5,000, in cash, out of the escrowed
funds, to the Escrow Agent for legal, administrative, and escrow fees, and
(ii) shall pay to the placement agent, out of escrow, on each Closing Date for
the First Tranche, and the Closing Date for the Second Tranche the sum of six
percent (6%) of the amount funded to the Company by the Investors, and issue
Warrant C's, exercisable beginning on the applicable Closing Date of each
tranche and then exercisable any time over the five year period thereafter, to
purchase 30,000 warrant shares per each one million dollars funded by the
Investors pursuant to this Agreement at an exercise price equal to one hundred
and five percent (105%) of the Bid Price on the Trading Day immediately
preceding the applicable Closing Date for each tranche.
Section 12.8 Publicity. The Company and the Investors shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and no party
shall issue any such press release or otherwise make any such public statement
without the prior written consent of the other parties, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other parties with prior notice of such
public statement. Notwithstanding the foregoing, the Company shall not
publicly disclose the names of the Investors without the prior written consent
of the Investors, except to the extent required by law or in response to a
written SEC request, in which case the Company shall provide the Investors
with prior written notice of such public disclosure.
31
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Exhibits:
A. Certificate of Designation
B. Escrow Agreement
C. Registration Rights Agreement
D. Warrant A
E. Warrant B
F. Warrant C
G. Opinion of Counsel
H. Instructions to Transfer Agent
I. Notice of Conversion
Schedules:
A. List of Investors
4.3 Beneficial Ownership
6.3 Listing of Common Stock
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<PAGE>
[Signature page follows]
IN WITNESS WHEREOF, the parties hereto have caused this Series A Preferred
Stock Purchase Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
By /s/ Kenneth W. Bell
Name: Kenneth W. Bell
Title: Chief Financial Officer /s/ Tajunnisah Owesh
-----------------------------
MS. TAJUNNISAH OWESH
/s/ Ohoud F. Shargatly
------------------------------
OHOUD F. SHARBATLY
/s/ Khaled A. AlMubarak
-----------------------------
KHALED A. ALMUBARAK
/s/ Mohammad A. Al-Quaiz
-----------------------------
MOHAMMAD A. AL-QUAIZ
/s/ Abdulaziz A. Kamel
------------------------------
URBAN DEVELOPMENT ESTABLISHMENT
/s/ Yasser M. Zaldan
------------------------------
YASSER M. ZAIDAN
/s/ Signature illegible
-------------------------------
GIBRALTAR WORLDWIDE , INC.
/s/ Abdulwahhab A.Abdulwasea
--------------------------------
ABDULWAHHAB ABDULWASEA
<PAGE>
SCHEDULE 4.3
Persons owning more than five percent (5%) of the Common Stock
James W. & Catherine F. Johnston
M. Daniel & Lori Lunt
Kenneth W. & Roberta L. Bell
<PAGE>
Schedule 6.3
<PAGE>
SCHEDULE A
Tajunnisah Owesh
House No. 6, 5th Main
Bilal Manzil
Jayamahal Extn
Bangalore 560046, Karnataka
Telephone: 01191803430312
Facsimile: 01191803331555
First Tranche Investment Amount: $2,500,000
Ohoud F. Sharbatly
P.O. Box 14322
Jeddah 21424
Saudi Arabia
Telephone: (9662) 698-80
Facsimile: (9662) 698-5523
First Tranche Investment Amount: $1,000,000
Mohammad A. Al-Quaiz
P.O. Box 51266
Jeddah 21543
Saudi Arabia
Telephone: (9661) 642-1755
Facsimile: (9662) 642-4075
First Tranche Investment Amount: $1,000,000
Urban Development Est.
P.O. Box 1032
Jeddah 21431
Saudi Arabia
Telephone: (9662) 698-7777
Facsimile: (9662) 662-3187
First Tranche Investment Amount: $500,000
Yasser M. Zaidan
P.O. Box 14322
Jeddah 21424
Saudi Arabia
Telephone: (9662) 698-8049
Facsimile: (9662) 698-5523
First Tranche Investment Amount: $500,000
Khaled A. Al-Mubarak
P.O. Box 51266
Jeddah 21543
Saudi Arabia
Telephone: (9662) 669-6533
Facsimile: (9662) 661-0037
First Tranche Investment Amount: $100,000
Gibraltor Worldwide, Inc.
P.O. Box 1522
Jeddah 21441
Saudi Arabia
Telephone: (9662) 698-0000
Facsimile: (9662) 698-1238
First Tranche Investment Amount: $500,000
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
WORDCRUNCHER INTERNET TECHNOLOGIES, Inc., a corporation organized
and existing under the General Corporation Law of the State of Nevada (the
"Company"), hereby certifies that on January , 1999, the Board of
Directors of the Company (the "Board"), in accordance with Section 78.1955 of
the General Corporation Law and the Company's Certificate of Incorporation
(the "Certificate of Incorporation"), adopted resolutions creating out of the
50,000 shares of Preferred Stock, par value $0.01 per share, authorized in
Article II of the Certificate of Incorporation (the "Preferred Stock"), a
series of the Preferred Stock of the Company, par value $0.01 per share, and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
I. Designation and Amount. The shares of such series of Preferred Stock
shall be designated as "Series A Convertible Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 15,000. The Series A Preferred Stock shall have a stated value
(the "Stated Value") of $1,000 per share.
II. Dividends.
A. The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefore,
prior to, and in preference to, any declaration or payment of any dividend on
the Common Stock of this Company, at a per share rate equal to six percent per
annum of the amount of the Stated Value of the Series A Preferred Stock, which
is payable upon conversion (including upon Redemption and Automatic
Conversion) as set forth below. Dividends shall begin to accrue as of the
Issuance Date and are based upon a 360 calendar day year. Any dividends
payable pursuant to the provisions of this paragraph shall, at the Company's
option, be payable in cash, or shares of Common Stock subject to an effective
registration statement within five Business Days of when due. The number of
shares of Common Stock to be issued by the Company in lieu of a cash payment
for dividends due as set forth herein shall be equal to the number of shares
of Common Stock resulting from dividing the dollar amount of dividends owed by
the Closing Bid Price of the Common Stock (as defined below) on such date as
the dividends are payable (if such date is not a Trading Day, then the next
Trading Day immediately thereafter).
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B. Such dividends shall accrue on each share of Series A Preferred
Stock from the Issuance Date, and shall accrue from day to day whether or not
earned or declared. Such dividends shall be cumulative so that if such
dividends in respect of any previous or current annual dividend period, at the
annual rate specified above, shall not have been paid or declared and a sum
sufficient for the payment thereof set apart, for all Series A Preferred Stock
at the time outstanding, the deficiency shall first be fully paid before any
dividend or other distribution shall be paid on or declared or set apart for
the Series A Preferred Stock or Common Stock. Dividends on the Series A
Preferred Stock shall be non-participating and the holders of the Series A
Preferred Stock shall not be entitled to participate in any other dividends
beyond the cumulative dividends specified herein.
III. Liquidation, Dissolution or Winding Up.
A. In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, before any distribution may be made
with respect to the Company's Common Stock or any other class or series of
capital stock, holders of each share of Series A Preferred Stock shall be
entitled to receive out of the assets available for distribution to
shareholders $1,000 plus six percent per annum thereon from the Issuance Date
(as defined below) to the Trading Day (as defined below) immediately prior to
such liquidation, dissolution or winding up of the Company (the "Liquidation
Amount").
B. If the assets of the Company available for distribution to
shareholders shall be insufficient to pay the holders of shares of Series A
Preferred Stock the full Liquidation Amount to which they shall be entitled,
then any such distribution of assets of the Company shall be distributed
ratably to the holders of shares of Series A Preferred Stock.
C. After the payment of the Liquidation Amount shall have been made
in full to the holders of the Series A Preferred Stock or funds necessary for
such payment shall have been set aside by the Company in trust for the account
of holders of the Series A Preferred Stock so as to be available for such
payments, the holders of the Series A Preferred Stock shall be entitled to no
further participation in the distribution of the assets of the Company, and
the remaining assets of the Company legally available for distribution to
shareholders shall be distributed among the holders of Common Stock and any
other classes or series of Preferred Stock of the Company in accordance with
their respective terms.
IV. Voting. Holders of Series A Preferred Stock shall have no voting
rights except as expressly required by law or as expressly provided herein.
V. Conversion of Series A Preferred Stock. The holders of Series A
Preferred Stock shall have the right, at such holder's option, to convert the
Series A Preferred Stock into shares of Common Stock, on the following terms
and conditions:
A. At any time or times, upon the earlier to occur of (i) June 1,
1999, or (ii) the Effective Date, any holder of the Series A Preferred Stock
shall be entitled to convert any whole number of shares of Series A Preferred
Stock into that number of fully paid and nonassessable shares of Common Stock,
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subject to the limitations below, which is determined (per share of Series A
Preferred Stock) by dividing (x) $1,000, by (y) the Conversion Price (as
defined below).
B. Each holder of the Series A Preferred Stock shall only be
entitled to convert 20% of the number of shares of Series A Preferred Stock
initially issued to such holder per calendar month subject to the conditions
of Section XI below. This shall be cumulative such that in the event the
holder chooses not to convert any shares of Series A Preferred Stock in one
calendar month it may convert that 20% in another month.
C. There will be three Reset Periods (as defined below). The first
Reset Period will commence on the 150th calendar day following the Issuance
Date (if such date is not a Trading Day, then the next subsequent Trading
Day). The second Reset Period shall commence on the 240th calendar day
following the Issuance Date (if such date is not a Trading Day, then the next
subsequent Trading Day). The third Reset Period shall commence on the 360th
calendar day following the Issuance Date (if such date is not a Trading Day,
then the next subsequent Trading Day).
In the event the Adjustment Price is less than the Reset Price then the
Company shall issue the number of shares of Common Stock (the "Reset Shares")
upon the expiration of each Reset Period calculated by the following formula:
[((Reset Price) - Adjustment Price) x (((1/3) x Stated Value of all
outstanding shares of Series A Preferred Stock) / 10.08) ] / Adjustment Price
Upon the expiration of each Reset Period the Company agrees to issue that
number of Reset Shares (if any) resulting from the above formula. Such shares
shall be delivered within five Business Days following the expiration of the
applicable Reset Period. In the event that the Company does not deliver
unlegended Reset Shares within six (6) Business Days after the expiration of a
Reset Period (if so required pursuant to the terms herein), the Company shall
pay to the holder(s), in immediately available funds, upon demand, as
liquidated damages for such failure and not as a penalty, one half of one
percent of the value of the Reset Shares undelivered (based upon the Bid Price
of the Common Stock on the Receipt Date) for every day after the sixth
Business Day through the tenth Business Day after the Reset Period, and one
percent per Business Day after the tenth Business Day after the Reset Period
that the unlegended Reset Shares are not delivered, which liquidated damages
shall run from the seventh Business Day after the expiration of the applicable
Reset Period. The sum payable herein shall constitute liquidated damages and
not penalties. Any payment by the Company of liquidated damages under this
paragraph shall not relieve the Company of its obligation to issue Reset
Shares or their cash equivalent (as provided below). The amount of loss or
damages likely to be incurred is incapable or is difficult to precisely
estimate. Any and all payments required pursuant to this paragraph shall be
payable only in cash, and any payment hereunder shall not relieve the Company
of its obligations under this Section to deliver Reset Shares. All Reset
Shares shall be included in the Registration Statement.
Notwithstanding the foregoing, in lieu of issuing Reset Shares as set
forth above, the Company may elect, at its option, to pay the holders the cash
value of the Reset Shares based upon
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the Adjustment Price of the Common Stock during the applicable Reset Period.
The Company shall be required to pay to the holders the cash value of the
Reset Shares in the event the Company is unable to issue Reset Shares that are
included in an effective registration statement. This cash payment must be
made within the time limits for delivery of Reset Shares as set forth above in
immediate funds, and the Company shall be liable for liquidated damages as set
forth above if payment is not made in as set forth herein.
D. For purposes of this Certificate of Designation, the following
terms shall have the following meanings:
The "Adjustment Price" shall mean the average Closing Bid Prices of
the Common Stock during the Reset Period.
A "Business Day" shall be any day except Saturday, Sunday and any day
which shall be a Federal legal holiday or a day on which banking institutions
in the State of New York are authorized or required by law or other government
actions to close.
The "Closing Bid Price" shall mean, for any security as of any date,
the closing bid price for such security for the Trading Day on the OTC
Electronic Bulletin Board as reported by Bloomberg L.P. ("Bloomberg"), or, if
the OTC Electronic Bulletin Board is not the principal trading market for such
security, the closing bid price of such security for the Trading Day on the
principal securities exchange or trading market where such security is listed
or traded as reported by Bloomberg, or if no closing bid or trade price is
reported for such security by Bloomberg, the Closing Bid Price shall be
determined by reference to the closing bid price for the Trading Day as
reported on the Principal Market, and if not so reported shall be determined
from the bid price of any market makers for such security as reported in the
"pink sheets" published by the National Quotation Bureau, Inc. If the Closing
Bid Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually agreed by the Company and the holders of two
thirds of the outstanding shares of Series A Preferred Stock.
The "Conversion Price" shall mean, as to each share of Series A
Preferred Stock, $10.08.
"Effective Date" shall mean the date on which the Securities and
Exchange Commission (the "SEC") first declares effective a registration
statement registering the resale of 200% of the number of shares of Common
Stock issuable (irrespective of any shareholder approval requirement) upon
conversion of all of the Series A Preferred Stock, and 100% of the number of
shares of Common Stock issuable upon exercise of all warrants of the Company
then held by any holder of the Series A Preferred Stock, outstanding on the
Trading Day immediately preceding the day such Registration Statement is filed
(the "Registration Statement").
The "Issuance Date" shall mean, with respect to each share of
Series A Preferred Stock, the date of issuance of the applicable share of
Series A Preferred Stock.
A "Reset Period" shall mean ten consecutive Trading Days.
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The "Reset Price" shall mean $12.096.
A "Trading Day" shall mean a day on which the OTC Electronic
Bulletin Board is open.
The "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq Small Cap Stock Market, the American Stock Exchange, the OTC Electronic
Bulletin Board operated by the National Association of Securities Dealers,
Inc., or the New York Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock.
E. Holders of Series A Preferred Stock may exercise their right to
convert the Series A Preferred Stock by telecopying an executed and completed
notice of conversion (the "Notice of Conversion") to the Company and
delivering to the Company the original Notice of Conversion and the
certificate representing the Series A Preferred Stock being converted by
reputable overnight courier. Each Business Day (between the hours of 9:00
a.m. and 5:00 p.m. Eastern Time) on which a Notice of Conversion is telecopied
to and received by the Company shall be deemed a "Conversion Date". The
Company will deliver the certificates representing shares of Common Stock
issuable upon conversion of any share of Series A Preferred Stock (the
"Conversion Shares") (together with the certificates representing the share or
shares of Series A Preferred Stock not so converted) to the holder thereof via
reputable overnight courier, by electronic transfer or otherwise within six
Business Days after the Conversion Date, provided the Company has received the
original Notice of Conversion and Series A Preferred Stock certificate being
so converted on or before the close of business of the fifth Business Day
after the Conversion Date. In addition to any other remedies which may be
available to the holders of shares of Series A Preferred Stock, in the
event that the Company fails to deliver such shares of Common Stock within
such six Business Day period, the holder will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and such holder shall each be restored to their
respective positions immediately prior to delivery of such Notice of
Conversion. The Notice of Conversion and Series A Preferred Stock
certificates representing the portion of the Series A Preferred Stock
converted shall be delivered as follows:
To the Company:
WordCruncher Internet Technologies, Inc.
12450 South 405 East, Suite B
Draper, Utah 84020
Attention: Chief Financial Officer
Telephone: (801) 816-9904
Facsimile: (801) 816-9840
In the event that shares representing the Common Stock issuable upon
conversion of the Series A Preferred Stock (the "Conversion Shares") are not
delivered by the Company within six Business Days after the Conversion Date,
in addition to all other available remedies which such holder may be entitled,
the Company shall pay to the holders thereof, in immediately available funds,
upon demand, as liquidated damages for such failure and not as a penalty, on
each date after such sixth Business Day
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up to and including the tenth Business Day that delivery of the Conversion
Shares is not timely effected, an amount equal to one half of one percent of
the Stated Value of the Series A Preferred Stock subject to such conversion
and one percent of the Stated Value of the Series A Preferred Stock subject to
such conversion for every Business Day after such tenth Business Day. In the
event the Company fails to timely pay the liquidated damages as set forth
above, then such payment shall bear interest at the rate of two percent per
month (pro rated for partial months) until such payments are made. Any and
all payments required pursuant to this paragraph shall be payable only in
cash. Any payment required by the Company pursuant to this paragraph shall
not relieve the Company of its obligations to deliver Conversion Shares
pursuant to a Notice of Conversion.
F. If the nature and/or character of the Common Stock issuable upon
the conversion of the Series A Preferred Stock shall be changed into the same
or different number of shares of any class or classes of stock, whether by
capital reorganization, reclassification or otherwise, then and in each such
event, the holders of Series A Preferred Stock shall have the right thereafter
to convert such shares into the kind and amount of shares of stock and other
securities and property receivable upon such capital reorganization,
reclassification or other change which such holders would have received had
their shares of Series A Preferred Stock been converted immediately prior to
such capital reorganization, reclassification or other change. In such event
the holder may elect to waive the restrictions contained in Section XI below.
G. If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section)
or a merger or consolidation of the Company with or into another corporation
pursuant to which the Company is not the acquiring entity and pursuant to
which the stockholders of the Company are requested to exchange or convert
their securities for securities of an acquiring entity, or the sale of all or
substantially all of the Company's properties and assets to any other person
(any of which events is herein referred to as a "Reorganization"), then as a
part of such Reorganization, provision shall be made so that the holders of
the Series A Preferred Stock shall thereafter be entitled to receive upon
conversion of the Series A Preferred Stock, the number of shares of Common
Stock or other securities or property of the Company, or of the successor
corporation resulting from such Reorganization, to which such holder would
have been entitled if such holder had converted its shares of Series A
Preferred Stock immediately prior to such Reorganization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section with respect to the rights of the holders of the Series A
Preferred Stock after the Reorganization, to the end that the provisions of
this Section (including adjustment of the number of shares issuable upon
conversion of the Series A Preferred Stock) shall be applicable after that
event in as nearly equivalent a manner as may be practicable.
H. Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series A Preferred Stock, the Company, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of such Series A Preferred
Stock a certificate executed by the president and chief financial officer (or
in the absence of a person designated as the chief financial officer, by the
treasurer) setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment are based. The Company
shall, upon written request at any time of any holder of Series A Preferred
Stock, furnish
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or cause to be furnished to such holder a certificate setting forth (A) the
Conversion Price at the time in effect, and (B) the number or shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Series A Preferred Stock.
I. Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of any Series A Preferred Stock certificate(s), and
(in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon the cancellation of the
Series A Preferred Stock certificate(s), if mutilated, the Company shall
execute and deliver new certificates for Series A Preferred Stock of like
tenure and date. However, the Company shall not be obligated to reissue such
lost or stolen certificates for shares of Series A Preferred Stock if the
holder contemporaneously requests the Company to convert such shares of Series
A Preferred Stock into Common Stock.
J. The Company shall not issue any fraction of a share of Common
Stock upon any conversion. The Company shall round such fraction of a share
of Common Stock up to the nearest whole share.
K. In the event some but not all of the shares of Series A Preferred
Stock represented by a certificate or certificates surrendered by a holder are
converted, the Company shall execute and deliver to or on the order of the
holder, at the expense of the Company, a new certificate representing the
number of shares of Series A Preferred Stock which were not converted.
L. Each share of Series A Preferred Stock outstanding three years
from the Issuance Date shall automatically be converted into Common Stock on
such date, pursuant to the conversion terms set forth herein, with such date
being deemed a Conversion Date (referred to as "Automatic Conversion").
M. The Company shall pay any and all original issue and/or transfer
expenses which may be imposed upon it with respect to the issuance and
delivery of Common Stock upon conversion of the Series A Preferred Stock.
VI. No Reissuance of Series A Preferred Stock. No share or shares of
Series A Preferred Stock acquired by the Company by reason of purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Company shall be
authorized to issue. The Company may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Series A Preferred Stock accordingly.
VII. Reservation of Shares. The Company shall, so long as any of the
Series A Preferred Stock are outstanding reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Stock, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the Series A Preferred Stock then outstanding; provided that the number of
shares of Common Stock so reserved shall at no time be less than the number of
shares of Common Stock for which the Series A Preferred Stock are at any time
convertible and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to maintain such number of shares of
Common Stock, the Company shall take such corporate action as may be necessary
to increase its authorized but unissued shares of Common Stock to such number
of shares as shall be sufficient for such purpose.
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VIII. Restrictions and Limitations.
A. Except as expressly provided herein or as required by law, so
long as any shares of Series A Preferred Stock remain outstanding, the Company
shall not, without the approval by vote or written consent by the holders of
at least two thirds of the then outstanding shares of Series A Preferred
Stock, voting as a separate class, take any action that would have a material
adverse effect on the rights, preferences or privileges of the holders of
Series A Preferred Stock as set forth herein.
B. Without limiting the generality of the preceding paragraph, the
Company shall not so long as any shares of Series A Preferred Stock remain
outstanding amend its Certificate of Incorporation without the approval by the
holders of all of the then outstanding shares of Series A Preferred Stock
if such amendment would:
1. create any other class or series of capital stock entitled to
seniority as to the payment of dividends in relation to the holders of Series
A Preferred Stock;
2. reduce the amount payable to the holders of Series A
Preferred Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Company, or change the relative seniority of the liquidation
preferences of the holders of Series A Preferred Stock to the rights upon
liquidation of the holders of other capital stock of the Company,
3. cancel or modify the conversion rights of the holders of
Series A Preferred Stock provided for in Section V herein;
4. cancel or modify the rights of the holders of the Series A
Preferred Stock provided for in this Section.
IX. No Dilution or Impairment. The Company shall not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Certificate of Designation set forth herein, but
shall at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate in
order to protect the rights of the holders of the Series A Preferred Stock
against impairment. Without limiting the generality of the foregoing, the
Company (a) shall not establish a par value of any shares of stock receivable
on the conversion of the Series A Preferred Stock above the amount payable
therefor on such conversion, (b) shall take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of stock on the conversion of all
Series A Preferred Stock from time to time outstanding, and (c) shall not
consolidate with or merge into any other person or entity, or permit any such
person or entity to consolidate with or merge into the Company (if the Company
is not the surviving person), unless such other person or entity shall
expressly assume in writing and will be bound by all of the terms of the
Series A Preferred Stock set forth herein.
X. Notices of Record Date. In the event of:
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1. any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, or
2. any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger of the Company where the Company is not the surviving entity, or any
transfer of all or substantially all of the assets of the Company to any other
corporation, or any other entity or person, the result of any of such merger
is that the Holder is requested to convert or exchange its certificates
representing Series A Preferred Stock, or
3. any voluntary or involuntary dissolution, liquidation or
winding up of the Company, then and in each such event the Company shall mail
or cause to be mailed to each holder of Series A Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right and a description of such
dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer, merger,
dissolution, liquidation or winding up is expected to become effective and
(iii) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, merger, dissolution, liquidation or winding up. Such notice shall
be mailed at least ten Business Days prior to the date specified in such
notice on which such action is to be taken.
XI. 4.99% Limitation. The number of shares of Common Stock which may be
acquired by any holder upon conversion pursuant to the terms herein shall not
exceed the number of such shares which, when aggregated with all other shares
of Common Stock then owned by holder, not inclusive of all other shares of
Common Stock or securities convertible or exercisable into Common Stock, would
result in any holder owning more than 4.99% of the then issued and outstanding
Common Stock. The preceding shall not interfere with any holder's right to
convert the Series A Preferred Stock over time which in the aggregate totals
more than 4.99% of the then outstanding shares of Common Stock so long as such
Investor does not own more than 4.99% of the then outstanding Common Stock at
any given time. The foregoing limitation shall not apply to the Automatic
Conversion provision contained herein.
XII. Redemption. At any time after 60 calendar days after the Effective
Date, the Company shall have the right to redeem up to fifty percent of the
then outstanding shares of Series A Preferred Stock, in whole or in part, in
cash, at the Redemption Price (as defined below), by thereafter providing two
Business Days prior written notice (the "Redemption Notice") to the holder(s)
of the Series A Preferred Stock. The Company must exercise its right to
redeem pro rata amongst all holders of the Series A Preferred Stock. The
Company shall wire transfer the appropriate amount of funds into an escrow
account to complete the redemption which shall be on the second Business Day
after the Redemption Notice was served upon the holder of the Series A
Preferred Stock (the "Redemption Date"). On the Redemption Date, provided the
Company has fully complied with the redemption provisions contained herein,
the holder's right to convert the Series A Preferred Stock which is subject to
the Redemption Notice shall terminate and be canceled immediately.
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The Redemption Notice shall set forth (i) the Redemption Date, (ii) the
redemption price, which shall be, for each share of Series A Preferred Stock
being redeemed, equal to 150% of Stated Value of such share of Series A
Preferred Stock, plus all accrued and unpaid interest (the "Redemption
Price"), (iii) a statement that interest on the shares of Series A Preferred
Stock being redeemed will cease to accrue on such Redemption Date, and (iv) a
statement of or reference to the conversion right set forth in this
Certificate of Designation (including that the right to give a notice of
conversion in respect of any shares to be redeemed shall terminate on the
Redemption Date). The Redemption Notice shall be irrevocable, and it shall be
mailed, postage prepaid, at least seven Business Days prior to the Redemption
Date to the holder of the Series A Preferred Stock at their address as the
same shall appear on the books of the Company. If fewer than all of the
shares of Series A Preferred Stock owned by such holder are then to be
redeemed, the notice shall specify the number of shares thereof that is to be
redeemed and, if practicable, the numbers of such certificates.
At any time up to the date immediately prior to the Redemption Date, the
holder shall have the right to convert the Series A Preferred Stock into
Common Stock as more fully provided hereof. Unless so converted, at the close
of business on the Redemption Date, subject to the satisfaction of each of the
conditions described herein, the shares of Series A Preferred Stock being
redeemed shall be automatically canceled and converted into a right to receive
the Redemption Price, and all rights of the Series A Preferred Stock,
including the right to conversion shall cease without further action.
Immediately following the Redemption Date, provided that the Company has
satisfied each of the conditions set forth herein, the holder shall surrender
their original shares of Series A Preferred Stock at the office of the
Company, and the Company shall issue to the holder a new Series A Preferred
Stock Certificate for the any shares that remain outstanding.
The Redemption Price shall be adjusted proportionally upon any adjustment
of the Conversion Price under the terms hereof in the event of any stock
dividend, stock split, combination of shares or similar event.
The Company shall not be entitled to send any Redemption Notice and begin
the redemption procedure hereunder unless it has:
(i) the full amount of the Redemption Price in cash,
available in a demand or other immediately available account in a bank or
similar financial institution, specifically allotted for such redemption;
(ii) immediately available credit facilities, in the
full amount of the Redemption Price with a bank or similar financial
institution specifically allotted for such redemption; or
(iii) a combination of the items set forth in (a) and
(b) above, aggregating the full amount of the Redemption Price specifically
allotted for such redemption.
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Upon delivery of the Redemption Notice, the Company and the holder
shall agree on reasonable arrangements for a closing of the redemption of the
shares of Series A Preferred Stock.
In the event the Company does not wire transfer the appropriate amount of
funds into the escrow account on or before the Redemption Date and authorize
the release to the holder, or shall otherwise fail to comply with the
redemption provisions set forth herein, then it shall have must wait at least
45 calendar days until it may serve another Notice of Redemption.
XIII. Forced Conversion. In the event, at any time 60 days after the
Effective Date, the Closing Bid Price of the Common Stock is greater than
US$20.16 (the "Strike Price") per share for twenty (20) consecutive Trading
Days (the "Call Period"), and such registration statement remains effective
during the period commencing on the first Trading Day of the Call Period and
ending on the Call Date (as defined below), the Company shall have the right
to "Call" the shares of Series A Preferred Stock, in whole or in part, thereby
forcing conversion by the holder. The Strike Price shall be adjusted
proportionately to reflect any adjustments due to the payment of a stock
dividend, stock split, combination of shares or any other similar event. The
Company may exercise its right to Call by telecopying written notice (the
"Call Notice") to the holder within three Trading Days after the Call Period.
Once the Company has exercised its right to Call by giving written notice
to the holder it shall be deemed irrevocable. Each Trading Day on which the
Call Notice is telecopied to, and received by, the holder shall be deemed a
Conversion Date for the purposes of completing this Call and calculating the
number of shares of Common Stock to be issued upon conversion. The Company
will transmit the certificates representing shares of Common Stock issuable
pursuant to the Call (together with the certificates representing the shares
of Series A Preferred Stock not Called, if any) to the holder via express
courier, by electronic transfer or otherwise within six Business Days after
the Call Notice was served upon the holder (the "Call Date").
The Call Notice shall set forth (i) a calculation referencing the
conversion formula contained herein showing the number of shares of Common
Stock being issued pursuant to this Call, (ii) a calculation referencing all
accrued and unpaid interest which shall be payable by the Company on or before
the Call Date, and (iii) a statement that interest on the Series A Preferred
Stock being Called will cease to accrue on such Call Date. If fewer than all
of the shares of Series A Preferred Stock owned by the holder are then to be
Called, the Call Notice shall specify the amount thereof that is to be Called
and, if practicable, the numbers of the certificates representing such Series
A Preferred Stock.
The portion of this Series A Preferred Stock being Called shall be
canceled and converted into a right to receive the shares of Common Stock, and
all rights of the Series A Preferred Stock, including the right to conversion
shall cease without further action immediately following the completion of the
Call. Immediately following the Call Date, assuming full compliance with the
terms of the Call, the holder shall surrender their original Series A
Preferred Stock being called at the office of the Company, and the Company
shall issue to the holder a new Series A Preferred Stock certificate for the
principal amount that remains outstanding, if any.
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The number of shares of Common Stock issuable upon the Call of the
Series A Preferred Stock shall be adjusted proportionately to reflect any
adjustments due to the payment of a stock dividend, stock split, combination
of shares or any other similar event.
Any Call pursuant to this Section shall not be deemed to affect or
otherwise reduce the holder's conversion rights set forth in this Certificate
of Designation. In the event the Company fails to comply with the Call
provisions set forth herein in any manner whatsoever, it shall waive its right
to perform a call in the future.
RESOLVED, FURTHER, that the appropriate officers of the Company hereby
are authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, all in
accordance with the requirements of Section 78.1955 of the General Corporation
Law of the State of Nevada.
IN WITNESS WHEREOF, WordCruncher Internet Technologies, Inc., has
caused this Certificate to be signed by its Chief Executive Officer, and
attested to by its Assistant Secretary, this 27th day of January, 1999.
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
/s/ M. Daniel Lunt /s/ Kenneth W. Bell
- -------------------------- --------------------------
M. Daniel Lunt, President Kenneth W. Bell, Secretary
13
<PAGE>
EXHIBIT G
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
[Date]
Address
Re: Series A Preferred Stock Purchase Agreement dated February 8, 1999
Ladies and Gentlemen:
This opinion is furnished to you pursuant to the Series A Preferred
Stock Purchase Agreement by and between, the entities (the "Investors") listed
on Schedule A, and WordCruncher Internet Technologies, Inc. (the "Company"),
dated February 8, 1999 (the "Purchase Agreement"), which provides for the
issuance of Preferred Stock, and, certain additional shares upon the
occurrence of certain events as set forth thereof (the "Additional Shares",
and the "Reset Shares"), and a warrant to purchase shares of Common Stock of
the Company (the "Warrant", and the shares of Common Stock issued or issuable
pursuant to exercise of the Warrant, the "Warrant Shares"). All terms used
herein have the meanings defined for them in the Purchase Agreement unless
otherwise defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Purchase Agreement, the Warrant, the Certificate of
Determination, and the Registration Rights Agreement (the "Registration Rights
Agreement") between the Investors, and the Company, dated February 8, 1999,
and the Escrow Agreement between the Investors, the Placement Agent, the
Company and the Escrow Agent, dated February 8,1999 (the "Escrow Agreement",
and together with the Purchase Agreement and the Registration Rights
Agreement, the "Agreements"). As counsel, we have made such legal and factual
examinations and inquires as we have deemed advisable or necessary for the
purpose of rendering this opinion. In addition, we have examined, among other
things, originals or copies of such corporate records of the Company,
certificates of public officials and such other documents and questions of
law that we consider necessary or advisable for the purpose of rendering this
opinion. In such examination we have assumed the genuineness of all
signatures on original documents, the authenticity and completeness of all
documents submitted to us as originals, the conformity to original documents
of all copies submitted to us as copies thereof, the legal capacity of natural
persons, and the due execution and delivery of all documents (except as to due
execution and delivery by the Company) where due execution and delivery are a
prerequisite to the effectiveness thereof.
As used in this opinion, the expression "to our knowledge" refers to the
current actual knowledge of the attorneys of this firm who have worked on
matters for the Company solely in connection with the Agreements and the
Warrant and the transactions contemplated thereby.
For purposes of this opinion, we have assumed that you have all
requisite power and authority, and have taken any and all necessary corporate
action, to execute and deliver the Agreements, and we are assuming that the
representations and warranties made by the Investor in the Agreements and
pursuant thereto are true and correct.
The opinions hereinafter expressed are subject to the following
qualifications:
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada and has all
requisite power and authority (corporate and other) to carry on its business
and to own, lease and operate its properties and assets as described in the
Company Documents and in the Agreements. To our knowledge, the Company does
not own or control any other business entity. The Company is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which the Company owns or leases property, other than those in
which the failure so to qualify would not have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Agreements, the Certificate
of Determination, and the Warrants and to issue the Preferred Stock, the
Additional Shares, the Reset Shares, the Warrants, the Warrant Shares, and the
Underlying Shares. The execution and delivery of the Agreements, and the
execution, issuance and delivery of the Preferred Stock, and the Warrants, by
the Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors or
stockholders is required. Each of the Agreements has been duly executed and
delivered, and the Warrants, and Preferred Stock has been duly executed,
issued and delivered, by the Company and each of the Agreements, the
Certificate of Determination, the Preferred Stock, and the Warrants
constitutes valid and binding obligations of the Company enforceable against
the Company in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws relating to, or affecting generally the enforcement of, creditors' rights
and remedies or by other equitable principles of general application.
3. The execution, delivery and performance of the Agreements, the
Certificate of Determination, the Preferred Stock, and the Warrants by the
Company and the consummation by the Company of the transactions contemplated
thereby, including, without limitation, the issuance of the Additional Shares,
the Warrants, the Warrant Shares, the Preferred Stock, the Underlying Shares,
and the Reset Shares, do not and will not (i) result in a violation of the
Company's Articles or By-Laws; (ii) to our knowledge, conflict with, or
constitute a material default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture, instrument or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party, except for
such conflicts, defaults, terminations, amendments, accelerations and
cancellations as would not, individually or in the aggregate, have a Material
Adverse Effect; or (iii) result in a violation of any federal or state law,
rule or regulation applicable to the Company or by which any property or asset
of the Company is bound or affected, except for such violations as would not,
individually or in the aggregate, have a Material Adverse Effect. To our
knowledge, the Company is not in violation of any terms of its Articles or
Bylaws.
4. The issuance of the Additional Shares, the Warrants, the Warrant
Shares, the Preferred Stock, the Underlying Shares, and the Reset Shares in
accordance with the Purchase Agreement will be exempt from registration under
the Securities Act of 1933 and will be in compliance with Nevada state
securities laws. When so issued, subject to sufficient reserved authorized
shares of Common Stock, the Additional Shares, the Reset Shares, the Warrants,
the Warrant Shares, the Preferred Stock, and the Underlying Stock, will be
duly and validly issued, fully paid and nonassessable, and free of any liens,
encumbrances and preemptive or similar rights contained in the Company's
Articles of Incorporation (the "Articles") or Bylaws or, to our knowledge, in
any agreement to which the Company is party.
5. To our knowledge, except as disclosed in the Company Documents
and the Agreements, there are no claims, actions, suits, proceedings or
investigations that are pending against the Company or its properties, or
against any officer or director of the Company in his or her capacity as such,
nor has the Company received any written threat of any such claims, actions,
suits, proceedings, or investigations which are required to be and have not
been disclosed in the Company Documents and the Agreements.
6. To our knowledge, there are no outstanding options, warrants,
calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving any
right to subscribe for or acquire any shares of Common Stock or contracts,
commitments, understanding, or arrangements by which the Company is or may
become bound to issue additional shares of Common Stock, or securities or
rights convertible or exchangeable into shares of Common Stock, except as
described in the Company Documents and the Agreements. To our knowledge, the
Company is not a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.
7. The issuance of the Securities will not violate the applicable
listing agreement between the Company and any securities exchange or market on
which the Company's securities are listed. The Company is in full compliance
with the listing and maintenance requirements of the OTC Bulletin Board.
8. The authorized capital stock of the Company consists of
shares of Common Stock, $0.001 par value per share, and shares of
Preferred Stock, par value $___ per share.
This opinion is furnished to the Investors solely for their benefit in
connection with the transactions described above and may not be relied upon by
any other person or for any other purpose without our prior written consent.
Very truly yours,
<PAGE>
Exhibit H
INSTRUCTIONS TO TRANSFER AGENT
WordCruncher Internet Technologies, Inc.
_______________, 1999
Standard Register
Dear Sirs:
Reference is made to the Series A Preferred Stock Purchase Agreement and all
Exhibits and Attachments thereto (the "Agreement") dated as of February 8,
1999, between the entities referred to on Schedule A annexed hereto (the
"Investors"), and WordCruncher Internet Technologies, Inc. (the "Company").
Pursuant to the Agreement, and subject to the terms and conditions set forth
in the Agreement, the Investors have agreed to purchase from the Company and
the Company has agreed to sell to the Investors from time to time during the
term of the Agreement shares of Series A Preferred Stock of the Company, $0.01
par value per share (the "Preferred Stock"), and (ii) the Company has agreed
to issue to the Investors, and to the Cardinal Capital Management, Inc.
("Cardinal") warrants to purchase Common Stock (the "Warrant"). As a
condition to the effectiveness of the Agreement, the Company has agreed to
issue to you, as the transfer agent for the Common Stock (the "Transfer
Agent"), these instructions relating to the Preferred Stock, and Warrants to
be issued to the Investors and Cardinal pursuant to the Agreement, and Common
Stock upon conversion of the Preferred Stock, and/or upon exercise of the
Warrants. All terms used herein and not otherwise defined shall have the
meaning set forth in the Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Agreement, the Company is required to prepare and file with
the Commission, and maintain the effectiveness of, a registration statement or
registration statements registering the resale of the Common Stock to be
acquired by the Investors and Cardinal (i) under the Agreement and (ii) upon
exercise of the Warrants. The Company will advise the Transfer Agent in
writing of the effectiveness of any such registration statement promptly upon
its being declared effective. The Transfer Agent shall be entitled to rely on
such advice and shall assume that the effectiveness of such registration
statement remains in effect unless the Transfer Agent is otherwise advised in
writing by the Company and shall not be required to independently confirm the
continued effectiveness of such registration statement. In the circumstances
set forth in the following two paragraphs, the Transfer Agent shall deliver to
the Investors and Cardinal certificates representing Common Stock not bearing
the Legend without requiring further advice or instruction or additional
documentation from the Company or its counsel or the Investors or its counsel
or any other party (other than as described in such paragraphs).
At any time after the effective date of the applicable registration statement
(provided that the Company has not informed the Transfer Agent in writing that
such registration statement is not effective) upon any surrender of one or
more certificates which bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace
those surrendered, the Transfer Agent shall deliver to the Investors (and/or
Cardinal) the certificates representing the Common Stock not bearing the
Legend, in such names and denominations as the Investors, and/or Cardinal
shall request.
In the event a registration statement is not filed by the Company, or for any
reason the registration statement which is filed by the Company is not
declared effective by the Commission the Investors and/or Cardinal, or its
permitted assignee, or either of their brokers confirms to the Transfer Agent
that (i) the Investors and/or Cardinal has held the shares of Common Stock (or
the Warrants) for at least one year, (ii) counting the shares surrendered as
being sold upon the date the unlegended Certificates would be delivered to the
Investors and/or Cardinal (or the Trading Day immediately following if such
date is not a Trading Day), the Investors and/or Cardinal will not have sold
more than the greater of (a) one percent of the total number of outstanding
shares of Common Stock or (b) the average weekly trading volume of the Common
Stock for the preceding four weeks during the three months ending upon such
delivery date (or the Trading Day immediately following if such date is not a
Trading Day), and (iii) the Investors and/or Cardinal has complied with the
manner of sale and notice requirements of Rule 144 under the Securities Act,
and the Company shall give an opinion to the extent available, authorizing the
removal of the Legend.
Any advice, notice, or instructions to the Transfer Agent required or
permitted to be given hereunder may be transmitted via facsimile to the
Transfer Agent's facsimile number of ( ) ___-____.
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON STOCK
In connection with any Closing pursuant to which the Investors acquires Common
Stock under the Agreement, the Transfer Agent shall deliver to the Investors
as defined in the Agreement certificates representing Common Stock (with or
without the Legend, as appropriate) immediately.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees to
indemnify the Transfer Agent and its officers, employees and agents, against
any losses, claims, damages or liabilities, joint or several, to which it or
they become subject based upon the performance by the Transfer Agent of its
duties in accordance with the Irrevocable Instructions.
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the Investors is
an express third party beneficiary of these Irrevocable Instructions and shall
be entitled to rely upon, and enforce, the provisions thereof.
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
By__________________________
Name: Kenneth W. Bell
Title: Chief Financial Officer
AGREED:
STANDARD REGISTER
By:__________________________
Name:
Title:
<PAGE>
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert Series a Preferred Stock
Certificate No. ___ into shares of Common Stock of WORDCRUNCHER INTERNET
TECHNOLOGIES, INC. (the "Company") according to the conditions hereof, as of
the date written below.
The undersigned represents and warrants that:
(i) that all offers and sales by the undersigned of the shares of Common
Stock issuable to the undersigned upon conversion of the Series A Preferred
Stock shall be made pursuant to an exemption from registration under the
Securities Act of 1933, as amended (the "Act"), or pursuant to registration of
the Common Stock under the Act;
(ii) the undersigned has not engaged in any transaction or series of
transaction that is a part of or a plan or scheme to evade the registration
requirements of the Act; and
(iii) upon conversion pursuant to this Notice of Conversion, the
undersigned will not own 4.99% or more of the then issued and outstanding
shares of Common Stock of the Company.
__________________________________ _________________________________
Date of Conversion Applicable Conversion Price
__________________________________ _________________________________
Number of Common Shares upon Conversion Shares of Preferred Stock Converted
__________________________________ _________________________________
Signature Name
Address: Delivery of Shares to:
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert Series a Preferred Stock
Certificate No. ___ into shares of Common Stock of WORDCRUNCHER INTERNET
TECHNOLOGIES, INC. (the "Company") according to the conditions hereof, as of
the date written below.
The undersigned represents and warrants that:
(i) that all offers and sales by the undersigned of the shares of Common
Stock issuable to the undersigned upon conversion of the Series A Preferred
Stock shall be made pursuant to an exemption from registration under the
Securities Act of 1933, as amended (the "Act"), or pursuant to registration of
the Common Stock under the Act;
(ii) the undersigned has not engaged in any transaction or series of
transaction that is a part of or a plan or scheme to evade the registration
requirements of the Act; and
(iii) upon conversion pursuant to this Notice of Conversion, the
undersigned will not own 4.99% or more of the then issued and outstanding
shares of Common Stock of the Company.
__________________________________ _________________________________
Date of Conversion Applicable Conversion Price
__________________________________ _________________________________
Number of Common Shares upon Conversion Shares of Preferred Stock Converted
__________________________________ _________________________________
Signature Name
Address: Delivery of Shares to:
<Letterhead of Parsons Behle & Latimer appears here>
201 South Main Street Scott Carpenter
Suite 1800 Attorney at Law
Salt Lake City, Utah
84111-2218
Post Office Box 45898
Salt Lake City, Utah
84145-0898
Telephone 801-532-1234
Facsimile 801-536-8111
April 21, 1999
VIA FACSIMILE
Ms. Tajunnisah Owesh
Ohoud F. Sharbatly
Khaled A. Almubarak
Mohammad A. Al-Quaiz
Abdulaziz A. Kamel (Urban)
Yasser M. Zaidan
Urban Development Est.
Gibraltor Worldwide, Inc.
Abdulwahhab A. Abdulwasea
c/o SCOTT KOCH
CARDINAL CAPITAL MANAGEMENT, INC.
3340 Peachtree Rd. N.E., Suite 620
Atlanta, Georgia 30326
Re: WordCruncher Series A Preferred Stock Purchase Agreement
Dear Mr. Koch:
We have been retained by WordCruncher Internet Technologies, Inc.
(the "Company") to assist it in the preparation and filing of the
registration statement contemplated by the Series A Preferred Stock
Purchase Agreement dated February 8, 1999 by and among the Company and
certain investors (the "Agreement"). The Company has made substantial
progress towards the filing of the registration statement, and I will
send you a draft copy for your review in the next few days. I would
appreciate it if you would review the draft carefully to make sure the
descriptions of the persons who acquired the Series A Preferred Stock
(the "Stockholders") and the description of the terms of the Agreement,
the Series A Preferred Stock and the warrants the Stockholders acquired
in connection with their Series A Preferred Stock reflect the
Stockholders' understanding of those items.
In particular, we would like the Stockholders to confirm the
description of the Agreement and the fact that, after their acquisition
of the 6,300 shares of the Series A Preferred Stock in February and
March, the Company has no obligation to sell additional shares of the
Series A Preferred Stock to the Stockholders, and the Stockholders have
no further obligation to buy additional shares of Series A Preferred
Stock from the Company. Essentially, we are asking the Stockholders to
confirm that their investment in the Series A Preferred Stock under the
terms of the Agreement is complete. Since the Agreement speaks in terms
of the Stockholders' ability to acquire up to 15,000 shares of Series A
Preferred Stock and the Company's obligation to sell up to that number of
shares, I want to make sure all of the parties agree that the Company's
offering of the Series A Preferred Stock under the Agreement is complete.
I would appreciate it if each of the Stockholders would execute this
letter in the spaces provided below to confirm their agreement to the
foregoing.
These signatures will be deemed to amend the Agreement as
contemplated herein and evidence their willingness to execute any
additional instruments which may be reasonably necessary to effect these
amendments.
If you have any questions regarding this matter, please feel free to
call me or Michael J. Ziouras, another attorney with the firm, at the
number listed above or you may call Ken Bell at the Company number (801)
816-9904.
Sincerely,
/s/ Scott R. Carpenter
Scott R. Carpenter
SERIES A PREFERRED STOCKHOLDERS
/s/ Tajunnisah Owesh
-----------------------------
Ms. Tajunnisah Owesh
Dated: 5/27/99
/s/ Ohoud F. Sharbatly
-----------------------------
Ohoud F. Sharbatly
Dated: 5/20/99
/s/ Khaled A. Almubarak
-----------------------------
Khaled A. Almubarak
Dated: April 21, 1999
Mohammad A. Al-Quaiz
-----------------------------
Mohammad A. Al-Quaiz
Dated: 5-22-99
/s/ Abdulwahhab A. Abdulwasea
------------------------------
Abdulwahhab A. Abdulwasea
Dated: 5/22/99
/s/ Yasser M. Zaidan
------------------------------
Yasser M. Zaidan
Dated: 5/20/99
Urban Development Est.
By: /s/ Abdulaziz A. Kamel
-----------------------------
Its:
Dated:
Gibraltor Worldwide, Inc.
By: /s/Tariqdahlawi
----------------------------
Its: Director
Dated: May 22, 1999
ESCROW AGREEMENT
THIS AGREEMENT is made as of the 8th day of February, 1999 by and between
WORDCRUNCHER INTERNET TECHNOLOGIES, Inc., with its principal office at 12450
South 405 East, Suite B, Draper, Utah 84020, (hereinafter the "Company"), the
entities listed on Schedule A (hereinafter collectively referred to as the
"Investors"), Cardinal Capital Management, Inc. ("Cardinal") with its
principal office at 3340 Peachtree Road, N.E., Suite 620, Atlanta, Georgia,
and THE GOLDSTEIN LAW GROUP, P.C., located at 65 Broadway, 10th Floor, New
York, NY 10006 (hereinafter the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Series A Preferred Stock Purchase Agreement
dated as of February 8, 1999 (the "Purchase Agreement"), the Investors will be
purchasing Preferred Stock and Warrants of the Company (the "Securities") in
two separate tranches at purchase prices as set forth in the Purchase
Agreement and the Company shall be issuing Warrants to Cardinal; and
WHEREAS, the Company has requested that the Escrow Agent hold the funds
of the Investors in escrow until the Escrow Agent has received the original
Securities. The Escrow Agent will then immediately wire transfer or otherwise
deliver at the Company's direction immediately available funds to the Company
or the Company's account and arrange for delivery of the Securities to each
Investor per each Investor's written instructions, and delivery of the
Warrants, and payment of fees, to Cardinal.
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE I
TERMS OF THE ESCROW FOR THE PURCHASE
OF THE INITIAL SHARES AND WARRANTS
1.1 Upon Escrow Agent's receipt of the First Tranche Purchase Price from
the Investors, into its attorney escrow account, it shall notify the Company,
or the Company's designated attorney or agent, of the amount of funds it has
received into its account.
1.2 The Company, upon receipt of said notice and acceptance of the
Purchase Agreement (including all Exhibits annexed thereto) by all parties, as
evidenced by the Company, and all of the Investor's execution thereof, shall
deliver to the Escrow Agent the original Securities being purchased by the
Investors in connection with each applicable Closing for the First Tranche,
and the original Warrants issued to Cardinal. Escrow Agent shall then
communicate with the Company to confirm such receipt.
1
<PAGE>
1.3 Once Escrow Agent confirms receipt of the Securities and Warrants,
and receives all other documentation precedent to the applicable Closing of
the First Tranche, he shall immediately wire that amount of funds necessary to
purchase the Securities in connection with the such First Tranche Closing Date
per the written instructions of the Company net of all fees. The Company will
furnish Escrow Agent with a "Net Letter" directing payment of (i) fees per the
terms of the Purchase Agreement to Cardinal; and (ii) legal, administrative,
and escrow costs as per the terms of the Purchase Agreement to the Escrow
Agent. Such fees are to be remitted in accordance with wire instructions that
will be sent to Escrow Agent from the Company, with the net balance payable to
the Company. Once the funds (as set forth above) have been received per the
Company's instructions, the Escrow Agent shall then arrange to have (i) the
Securities delivered as per instructions from the Investors, and (ii) the
Warrants and cash fee delivered as per the instructions of Cardinal.
ARTICLE 2
TERMS OF THE ESCROW FOR THE PURCHASE
OF THE SECONDARY SHARES AND WARRANTS
2.1 The Company shall certify in writing to the Escrow Agent and each of
the Investors that it has satisfied all of the terms and conditions precedent
to the Closing Date for the Second Tranche contained in the Purchase Agreement
and the Registration Rights Agreement, and that the Registration Statement
including the shares of Common Stock underlying the Securities has been
effective for thirty days. The Company shall then deliver to the Escrow Agent
the Securities being purchased by the Investors in the Second Tranche and the
original Warrants being issued to Cardinal. Upon receipt of such notice the
Investors shall wire the Second Tranche Purchase Price to the Escrow Agent's
attorney trustee account. The Escrow Agent shall notify the Company, or the
Company's designated attorney or agent, of the amount of funds it has received
into its attorney escrow account in connection with the Closing Date for the
Second Tranche, and the Company shall thereafter confirm the receipt of the
issuance of the Securities and Warrants.
2.2 Once Escrow Agent confirms receipt of the Securities, he shall
immediately wire that amount of funds necessary to purchase the Securities per
the written instructions of the Company net of all fees. The Company will
furnish Escrow Agent with a "Net Letter" directing payment of (i) fees per the
terms of the Purchase Agreement to Cardinal; and (ii) legal, administrative,
and escrow costs as per the terms of the Purchase Agreement to the Escrow
Agent. Such fees are to be remitted in accordance with wire instructions that
will be sent to Escrow Agent from the Company, with the net balance payable to
the Company. Once the funds (as set forth above) have been received per the
Company's instructions, the Escrow Agent shall then arrange to have (i) the
Securities delivered as per instructions from the Investors, and (ii) the
Warrants and fees delivered as per the instructions of Cardinal.
2
<PAGE>
ARTICLE 3
MISCELLANEOUS
3.1 This Agreement may be altered or amended only with the consent of all
of the parties hereto. Should any party attempt to change this Agreement in a
manner which, in the Escrow Agent's discretion, shall be undesirable, the
Escrow Agent may resign as Escrow Agent by notifying the Company and the
Investors in writing. The parties may remove the Escrow Agent as escrow agent
in writing signed by each of the parties, which writing must be delivered to
the Escrow Agent via reputable overnight courier and shall be effective upon
receipt by the Escrow Agent. In the case of the Escrow Agent's resignation or
removal pursuant to the foregoing, his only duty, until receipt of notice from
the Company and the Investors or their agent that a successor escrow agent
shall have been appointed, shall be to hold and preserve the Securities and/or
funds. Upon receipt by the Escrow Agent of said notice from the parties of
the appointment of a successor escrow agent, the name of a successor escrow
account and a direction to transfer the Securities and/or funds, the Escrow
Agent shall promptly thereafter transfer all of the Securities and/or funds
held in escrow to said successor escrow agent. Immediately after said
transfer of Securities, the Escrow Agent shall furnish the Company and the
Investors with proof of such transfer. The Escrow Agent is authorized to
disregard any notices, requests, instructions or demands received by it from
the Company or the Investors after notice of resignation or removal shall have
been given, unless the same shall be the aforementioned notice from the
Company and the Investors to transfer the Securities and funds to a successor
escrow agent or to return same to the respective parties.
3.2 The Escrow Agent shall be reimbursed by the Company and the Investors
for any reasonable expenses incurred in the event there is a conflict between
the parties and the Escrow Agent shall deem it necessary to retain counsel.
3.3 The Escrow Agent shall not be liable for any action taken or omitted
by him in good faith in accordance with the advice of the Escrow Agent's
counsel; and in no event shall the Escrow Agent be liable or responsible
except for the Escrow Agent's own gross negligence or willful misconduct.
3.4 The Company and each of the Investors warrant to and agree with the
Escrow Agent that, unless otherwise expressly set forth in this Agreement:
(i) there is no security interest in the Securities or any part
thereof;
(ii) no financing statement under the Uniform Commercial Code is on
file in any jurisdiction claiming a security interest or in describing
(whether specifically or generally) the Securities or any part thereof; and
(iii) the Escrow Agent shall have no responsibility at any time to
ascertain whether or not any security interest exists in the Securities or any
part thereof or to file any financing statement under the Uniform Commercial
Code with respect to the Securities or any part thereof.
3
<PAGE>
3.5 The Escrow Agent has no liability hereunder to either party other
than to hold the Securities and funds and to deliver them under the terms
hereof. Each party hereto agrees to indemnify and hold harmless the Escrow
Agent from and with respect to any suits, claims, actions or liabilities
arising in any way out of this transaction including the obligation to defend
any legal action brought which in any way arises out of or is related to this
Escrow.
3.6 No waiver or any breach of any covenant or provision herein contained
shall be deemed a waiver of any preceding or succeeding breach thereof, or of
any other covenant or provision herein contained. No extension of time for
performance of any obligation or act shall be deemed any extension of the time
for performance of any other obligation or act.
3.7 All notices or other communications required or permitted hereunder
shall be in writing, and shall be sent by fax, overnight courier, registered
or certified mail, postage prepaid, return receipt requested, and shall be
deemed received upon receipt thereof, as follows, or as set forth on Schedule
A (with a copy of all notice that are sent to the Investors to go to Cardinal:
(i) WordCruncher Internet Technologies, Inc.
12450 South 405 East, Suite B
Draper, Utah 84020
Attention: Chief Financial Officer
Telephone: (801) 816-9904
Facsimile: (801) 816-9840
(ii) The Goldstein Law Group, P.C.
65 Broadway, 10th Floor
New York, NY 10006
Attention: Scott H. Goldstein, Esq.
Telephone: (212) 809-4220
Facsimile: (212) 809-4228
(iii) Cardinal Capital Management, Inc.
3340 Peachtree Road, N.E., Suite 620
Atlanta, Georgia 30326
Attention: Scott Koch
Telephone: (404) 264-0777
Facsimile: (404) 264-0007
3.8 This Agreement shall be binding upon and shall inure to the benefit
of the permitted successors and assigns of the parties hereto.
3.9 This Agreement is the final expression of, and contains the entire
Agreement between, the parties with respect to the subject matter hereof and
supersedes all prior understandings with respect thereto. This Agreement may
not be modified, changed, supplemented or terminated, nor may any obligations
hereunder be waived, except by written instrument signed
4
<PAGE>
by the parties to be charged or by its agent duly authorized in writing or as
otherwise expressly permitted herein.
3.10 Whenever required by the context of this Agreement, the singular
shall include the plural and masculine shall include the feminine. This
Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless
otherwise indicated, all references to Articles are to this Agreement.
3.11 The Company acknowledges and confirms that it is not being
represented in a legal capacity by The Goldstein Law Group, P.C. and it has
had the opportunity to consult with its own legal advisors prior to the
signing of this Agreement.
3.12 The parties hereto expressly agree that this Agreement shall be
governed by, interpreted under and construed and enforced in accordance with
the laws of the State of New York. Each of the parties consents to the
exclusive jurisdiction of the federal courts for the Southern District of the
State of New York, in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions. Each party hereby agrees that if
another party to this Agreement obtains a judgment against it in such a
proceeding, the party which obtained such judgment may enforce same by summary
judgment in the courts of any state or country having jurisdiction over the
party against whom such judgment was obtained, and each party hereby waives
any defenses available to it under local law and agrees to the enforcement of
such a judgment. Each party to this Agreement irrevocably consents to the
service of process in any such proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its address
set forth herein. Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to
beduly executed, on the day and year first above written.
WORDCRUNCHER INTERNET TECHNOLOGIES, Inc.
By: /s/ Kenneth W. Bell
----------------------
Name: Kenneth W. Bell
Title: Chief Financial Officer
CARDINAL CAPITAL MANAGEMENT, INC.
By /s/ Scott Koch
------------------------------
THE GOLDSTEIN LAW GROUP, P.C.
By /s/ Scott Goldstein
------------------------------
/s/ Tajunnisah Owesh
--------------------------------
MS. TAJUNNISAH OWESH
/s/ Ohoud F. Sharbatly
--------------------------------
OHOUD F. SHARBATLY
/s/ Khaled A. AlMubarak
--------------------------------
KHALED A. ALMUBARAK
/s/ Mohammad A. Al-Quaiz
--------------------------------
MOHAMMAD A. AL-QUAIZ
/s/ Abdulaziz A. Kamel
--------------------------------
URBAN DEVELOPMENT ESTABLISHMENT
/s/ Yasser M. Zaidan
--------------------------------
YASSER M. ZAIDAN
/s/ signature illegible
---------------------------------
GIBRALTAR WORLDWIDE INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 8th day of February, 1999,
between the entities listed on Schedule A attached hereto (referred to as a
the "Investors"), CARDINAL CAPITAL MANAGEMENT, INC. (the "Placement Agent",
and together with the Investors is also hereinafter referred to as the
"Holder" or "Holders") located at 3340 Peachtree Road, N.E., Suite 620,
Atlanta, Georgia 30326, and WORDCRUNCHER INTERNET TECHNOLOGIES, INC., a
corporation incorporated under the laws of the State of Nevada, and having its
principle place of business at 12450 South 405 East, Suite B, Draper, Utah
84020, (the "Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement and from time to time thereafter, the Investors are purchasing from
the Company, pursuant to the Series A Preferred Stock Purchase Agreement dated
the date hereof (the "Purchase Agreement"), shares of Preferred Stock and
Warrants (hereinafter collectively referred to as the "Securities" of the
Company); All capitalized terms not hereinafter defined shall have that
meaning assigned to them in the Purchase Agreement; and
WHEREAS, simultaneously with the execution and delivery of this
Agreement and from time to time thereafter, the Company shall issue Warrants
(in addition to fees set forth in the Purchase Agreement) to the Placement
Agent, in return for services rendered, from time to time as provided in the
Purchase Agreement; and
WHEREAS, the Company desires to grant to the Holders the registration rights
set forth herein with respect to the securities set forth in the Purchase
Agreement.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Underlying Shares, the Additional Shares, the
Reset Shares, and the Warrant Shares; provided, however, that with respect to
any particular Registrable Security, such security shall cease to be a
Registrable Security when, as of the date of determination, (i) it has been
effectively registered under the Securities Act of 1933, as amended (the "1933
Act") and disposed of pursuant thereto, (ii) registration under the 1933 Act
is no longer required for the immediate public distribution of such security
as a result of the provisions of Rule 144 promulgated under the 1933 Act, or
(iii) it has ceased to be outstanding. The term "Registrable Securities"
means any and/or all of the securities falling within the foregoing definition
of a Registrable Security. In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure
affecting the Common Stock, such adjustment shall be made in the definition of
Registrable Security as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Section.
1
<PAGE>
Section 2. Restrictions on Transfer. The Holders acknowledge and
understand that prior to the registration of the Registrable Securities as
provided herein, the Registrable Securities and the Securities are "restricted
securities" as defined in Rule 144 promulgated under the Act. The Holders
understand that no disposition or transfer of the Registrable Securities or
the Securities may be made by the Holders in the absence of (i) an opinion of
counsel to the Holders that such transfer may be made without registration
under the 1933 Act, or (ii) such registration.
Section 3. Registration Rights.
(a) The Company agrees that it will prepare and file
with the Securities and Exchange Commission ("SEC"), on or prior to April 30,
1999, a registration statement (on Form SB-2, or other appropriate
registration statement) under the 1933 Act (the "Registration Statement"), at
the sole expense of the Company (except as provided in Section 3(c) hereof),
in respect of all holders of Registrable Securities, so as to permit a public
offering and sale of the Registrable Securities under the Act. The Company
shall use its best efforts to cause the Registration Statement to become
effective on or before June 30, 1999. The number of shares of Common Stock
designated in the Registration Statement to be registered shall be not less
than (i) 200% of the number of Underlying Shares that would be required if all
of the Preferred Stock were issued and converted on the Trading Day
immediately preceding the filing of the Registration Statement, plus (ii) 100%
of the number of Warrant Shares issuable assuming all of the Warrants had been
issued pursuant to the Purchase Agreement. The Company agrees that it will
only include in the Registration Statement, in addition to the shares referred
to in the preceding sentence, the shares contained in Schedule 3 (a) annexed
hereto.
(b) The Company will maintain the Registration
Statement, or post-effective amendment filed under this Section 3 hereof
current under the 1933 Act until the earlier of (i) the date that all of the
Registrable Securities have been sold pursuant to the applicable Registration
Statement, (ii) the date the holders thereof receive an opinion of counsel
that the Registrable Securities may be sold under the provisions of Rule 144
(without limitation) or (iii) five years after the Subscription Date.
(c) All fees, disbursements and out-of-pocket expenses
and costs incurred by the Company in connection with the preparation and
filing of the Registration Statement under subparagraph 3(a) and in complying
with applicable securities and blue sky laws (including, without limitation,
all attorneys' fees) shall be borne by the Company. The Holders shall bear
the cost, pro rata, of underwriting discounts and commissions, if any,
applicable to the Registrable Securities being registered and the fees and
expenses of its counsel. The Company shall qualify any of the securities for
sale in such states as such Holder reasonably designates and shall furnish
indemnification in the manner provided in Section 6 hereof. The Company at
its expense will supply the Holders with copies of the Registration Statement
and the prospectus or offering circular included therein and other related
documents in such quantities as may be reasonably requested by the Holders.
(d) The Company shall not be required by this Section 3
to include a Holder's Registrable Securities in any Registration Statement
which is to be filed if, in the opinion
2
<PAGE>
of counsel for both the Holder and the Company (or, should they not agree, in
the opinion of another counsel experienced in securities law matters
acceptable to counsel for the Holder and the Company) the proposed offering or
other transfer as to which such registration is requested is exempt from
applicable federal and state securities laws and would result in all
purchasers or transferees obtaining securities which are not "restricted
securities", as defined in Rule 144 under the 1933 Act.
(e) In the event the Registration Statement to be filed
by the Company pursuant to Section 3(a) above is not filed with the SEC on or
before April 30, 1999 and/or the Registration Statement is not declared
effective by the SEC on or before June 30, 1999, then the Company will pay the
Holders (pro rated on a daily basis), as liquidated damages for such failure
and not as a penalty, two percent of the purchase price of the then
outstanding Securities for every 30 calendar day period until the Registration
Statement has been filed and/or declared effective. Such payment of the
liquidated damages shall be made to the Holders in cash, immediately upon
demand, provided, however, that the payment of such liquidated damages shall
not relieve the Company from its obligations to register the Registrable
Securities. If the Company does not remit the damages to the Holder as set
forth above, the Company will pay the Holders reasonable costs of collection,
including attorneys fees, in addition to the liquidated damages. The
registration of the Securities pursuant to this provision shall not affect or
limit Holder's other rights or remedies as set forth in this Agreement.
(f) The Company agrees that it shall declare the
Registration Statement effective within three Business Days after being
informed by the SEC that it may do so. The Company also agrees that it shall
respond to any questions and/or comments from the SEC which relate to the
Registration Statement within five Business Days of receipt of such question
or comment.
Section 4. Cooperation with Company. Each of the Holders will
cooperate with the Company in all respects in connection with this Agreement,
including timely supplying all information reasonably requested by the Company
and executing and returning all documents reasonably requested in connection
with the registration and sale of the Registrable Securities.
Section 5. Registration Procedures. If and whenever the Company
is required by any of the provisions of this Agreement to effect the
registration of any of the Registrable Securities under the Act, the Company
shall (except as otherwise provided in this Agreement), as expeditiously as
possible:
(a) prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such registration
3
<PAGE>
statement effective and to comply with the provisions of the Act with respect
to the sale or other disposition of all securities covered by such
registration statement whenever the Holder shall desire to sell or otherwise
dispose of the same (including prospectus supplements with respect to the
sales of securities from time to time in connection with a registration
statement pursuant to Rule 415 promulgated under the Act);
(b) furnish to each Holder such numbers of copies of a
summary prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus, in conformity with the
requirements of the Act, and such other documents, as such Holder may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such Holder;
(c) register and qualify the securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Holders shall reasonably request, and do any and all
other acts and things which may be necessary or advisable to enable each
Holder to consummate the public sale or other disposition in such jurisdiction
of the securities owned by such Holder, except that the Company shall not for
any such purpose be required to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified or to file
therein any general consent to service of process;
(d) list such securities on the Principal Market on
which any securities of the Company are then listed, if the listing of such
securities is then permitted under the rules of such Principal Market;
(e) enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in
usual and customary form, with the managing underwriter or underwriters of
such underwritten offering;
(f) notify each Holder of Registrable Securities
covered by the Registration Statement any time when a prospectus relating
thereto covered by the Registration Statement is required to be delivered
under the Act, and of the happening of any event of which it has knowledge as
a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
Section 6. Information by Holder. Each Holder of Registrable
Securities included in any registration statement shall furnish to the Company
such information regarding such Holder and the distribution proposed by such
Holder as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Section.
Section 7. Assignment. The rights granted the Holders under this
Agreement shall not be assigned without the written consent of the Company,
which consent shall not be unreasonably withheld. This Agreement is binding
upon and inures to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns.
4
<PAGE>
Section 8. Termination of Registration Rights. The rights granted
pursuant to this Agreement shall terminate as to each Holder (and permitted
transferee under Section 7 above) upon the occurrence of any of the following:
(a) all such Holder's securities subject to this
Agreement have been registered;
(b) all of such Holder's securities subject to this
Agreement may be sold without such registration pursuant to Rule 144
promulgated by the SEC pursuant to the Securities Act;
(c) all of such Holder's securities subject to this
Agreement can be sold pursuant to Rule 144(k) without volume limitation; or
(d) five years from the issuance of the Registrable
Securities.
Section 9. Indemnification.
(a) In the event of the filing of any Registration
Statement with respect to Registrable Securities pursuant to Section 3 hereof,
the Company agrees to indemnify and hold harmless the Holders, and each
officer, director of the Holders or person, if any, who controls the Holders
within the meaning of the Securities Act ("Distributing Holders") against any
losses, claims, damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), to which the Distributing
Holders may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any such Registration Statement or
any related preliminary prospectus, final prospectus, offering circular,
notification or amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such Registration Statement, preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by the Distributing Holders, specifically
for use in the preparation thereof. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) In the event of the filing of any Registration
Statement with respect to Registrable Securities pursuant to Section 3 hereof,
each Distributing Holder agrees that it will indemnify and hold harmless the
Company, and each officer, director of the Company or person, if any, who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such
officer, director or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
a Registration Statement, requested by such Distributing Holder, or any
related preliminary prospectus, final prospectus, offering circular,
notification or amendment or supplement thereto, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but in each case only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
Registration Statement, preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto in reliance upon,
and in conformity with, written information furnished to the Company by such
Distributing Holder, specifically for use in the preparation thereof and,
provided further, that the indemnity agreement contained in this Section 9(b)
shall not inure to the benefit of the Company with respect to any person
asserting such loss, claim, damage or liability who purchased the Registrable
Securities which are the subject thereof if the Company failed to send or give
(in violation of the Securities Act or the rules and regulations promulgated
thereunder) a copy of the prospectus contained in such Registration Statement
to such person at or prior to the written confirmation to such person of the
sale of such Registrable Securities, where the Company was obligated to do so
under the Securities Act or the rules and regulations promulgated thereunder.
This indemnity agreement will be in addition to any liability which the
Distributing Holders may otherwise have.
5
<PAGE>
(c) Promptly after receipt by an indemnified party
under this Section of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against
the indemnifying party under this Section, notify the indemnifying party of
the commencement thereof; but the omission so to notify the indemnifying party
will not relieve the indemnifying party from any liability which it may have
to any indemnified party otherwise than as to the particular item as to which
indemnification is then being sought solely pursuant to this Section. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall not be at
the expense of the indemnifying party if the indemnifying party has assumed
the defense of the action with counsel reasonably satisfactory to the
indemnified party; provided that if the indemnified party is the Distributing
Holder, the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party, or (ii) the named parties to
any
6
<PAGE>
such action (including any impleaded parties) include both the Distributing
Holder and the indemnifying party and the Distributing Holder shall have been
advised by such counsel that there may be one or more legal defenses available
to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which case the
indemnifying party shall not have the right to assume the defense of such
action on behalf of the Distributing Holder, it being understood, however,
that the indemnifying party shall, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable only
for the reasonable fees and expenses of one separate firm of attorneys for the
Distributing Holder, which firm shall be designated in writing by the
Distributing Holder). No settlement of any action against an indemnified
party shall be made without the prior written consent of the indemnified
party, which consent shall not be unreasonably withheld.
Section 10. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the
Distributing Holder makes a claim for indemnification pursuant to Section 9
hereof but is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding the fact that the express
provisions of Section 9 hereof provide for indemnification in such case, or
(ii) contribution under the Securities Act may be required on the part of any
Distributing Holder, then the Company and the applicable Distributing Holder
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the applicable
Distributing Holder, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Holder agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this Section shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
Section 11. Notices. Any notice pursuant to this Agreement by the
Company or by the Holders shall be in writing and shall be deemed to have been
duly given if delivered by (i) hand, (ii) by facsimile and followed by mail
delivery or (iii) if mailed by certified mail, return receipt requested,
postage prepaid, addressed as follows:
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(a) If to the Company:
WordCruncher Internet Technologies, Inc.
12450 South 405 East, Suite B
Draper, Utah 84020
Attention: Chief Financial Officer
Telephone: (801) 816-9904
Facsimile: (801) 816-9840
(b) If to the Placement Agent:
Cardinal Capital Management, Inc.
3340 Peachtree Road, N.E., Suite 620
Atlanta, Georgia
Telephone: (404) 264-0777
Facsimile: (404) 264-0007
(c) If to the Investors, to their address set forth on
Schedule A annexed to the Purchase Agreement, with a copy to Cardinal Capital
Management, Inc. at the address set forth above.
Notices shall be deemed given at the time they are delivered personally
or five calendar days after they are mailed in the manner set forth above. If
notice is delivered by facsimile to the Company and followed by mail, delivery
shall be deemed given two calendar days after such facsimile is sent.
Section 12. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 14. Choice of Law; Venue; Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the
State of New York, except for matters arising under the Securities Act,
without reference to principles of conflicts of law. Each of the parties
consents to the jurisdiction of the U.S. District Court sitting in the State
of Georgia, for the Northern District of Georgia, Atlanta Division in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if another party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of
any country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under
local
8
<PAGE>
law and agrees to the enforcement of such a judgment. Each party to this
Agreement irrevocably consents to the service of process in any such
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to such party at its address set forth herein. Nothing
herein shall affect the right of any party to serve process in any other
manner permitted by law. Each party waives its right to a trial by jury.
Section 15. Severability. If any provision of this Agreement shall for
any reason be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof and this
Agreement shall be construed as if such invalid or unenforceable provision had
never been contained herein.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, on the day and year first above written.
Attest: WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
By:_____________________ By: /s/ Kenneth W. Bell
Name: -----------------------------
Title: Name: Kenneth W. Bell
Title: Chief Financial Officer
CARDINAL CAPITAL MANAGEMENT
By: /s/ Scott Koch
------------------------------
/s/ Tajunnisah Owesh
----------------------------
MS. TAJUNNISAH OWESH
/s/ Ohoud F. Sharbatly
----------------------------
OHOUD F. SHARBATLY
/s/ Khaled A. AlMubarak
----------------------------
KHALED A. ALMUBARAK
/s/ Mohammad A. AL-Quaiz
----------------------------
MOHAMMAD A. AL-QUAIZ
By: /s/ Abdulaziz A. Kamel
----------------------------
URBAN DEVELOPMENT ESTABLISHMENT
/s/ Yasser M. Zaidan
-----------------------------
YASSER M. ZAIDAN
By: /s/ signature illegible
------------------------------
GIBRALTAR WORLDWIDE, INC.
10
<PAGE>
SCHEDULE 3(a)
List of Shares to be Registered with the
Registrable Securities in the
Registration Statement
Name of Shareholder # of Shares
James W. & Catherine F. Johnston 300,000
M. Daniel & Lori Lunt 300,000
Kenneth W. & Roberta L. Bell 300,000
Brigham Young University 100,000
Monte Shelley 65,000
James Rosenval 65,000
Daryl K. Gibb 50,000
James S. Roberts 50,000
Jason W. Dzubak 40,000
Richard H. Bennett, Jr. 40,000
Cory Henderson 40,000
David P. Hirschi 36,894
LeRoi H. Stone 22,137
Timothy J. Riker 29,000
Jeffrey Peterson 13,000
J. Todd Ashman 18,447
James K. Ericson 7,380
Terry Brown 8,853
Allen Advertising 8,853
Peter Stoop 5,000
Mike Schouten 5,000
Robert Stevens 5,000
Universal Insurance 5,000
Shane Smit 4,000
Brett Bell 2,000
Alexis Lee 2,000
Shane Jackson 2,000
Andrew Blum 3,690
Randy Nelson 2,214
Jeff Acerson 2,214
Conrad Gottfredson 500
LeGrand Johnston 1,476
Mutual Ventures 150,000
Capital Communications 100,000
Miscellaneous (yet to be determined) 200,000
TOTAL 1,984,658
EXHIBIT 10.12
FORM OF WARRANT ISSUED TO CERTAIN SERIES A PREFERRED INVESTORS
ON FEBRUARY 8, 1999
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR
TRANSFERRED EXCEPT AS PERMITTED UNDER THE Act PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM.
COMMON STOCK PURCHASE WARRANT A
No.
To Purchase _____ Shares of Common Stock of
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
THIS CERTIFIES that, for value received, __________ or its assigns, (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof and on or prior
to 5:00 p.m. Eastern Time on February 7, 2004 (the "Termination Date"), but
not thereafter, to subscribe for and purchase from WORDCRUNCHER INTERNET
TECHNOLOGIES, INC., a Nevada corporation (the "Company"), _____ ( ) shares of
Common Stock (the "Warrant Shares"). The purchase price of one share of
Common Stock (the "Exercise Price") under this Warrant shall be $34.53 (equal
to one hundred and twenty five percent (125%) of the Bid Price on the Trading
Day immediately preceding the Closing Date for the applicable tranche)(the
Exercise Price shall be reduced to $32.80 in the event the Company exercises
its redemption rights in connection with shares of Series A Preferred Stock
then held by the original Investor). The Exercise Price and the number of
shares for which this Warrant is exercisable shall be subject to adjustment as
provided herein. This Warrant is being issued in connection with the Series A
Preferred Stock Purchase Agreement dated February 8, 1999 (the "Agreement")
entered into between the Company, the Investor and other entities not a party
to this Warrant.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by
the holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant together with the Assignment Form annexed hereto properly
endorsed.
<PAGE>
2. Authorization of Shares. The Company covenants that all Warrant Shares
which may be issued upon the exercise of rights represented by this Warrant
will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof.
3. Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made at any time or times, in whole or in part, after the
date hereof and before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, by the surrender on any business day of this Warrant and the Notice of
Exercise annexed hereto duly completed and executed, at the principal office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the address
of such holder appearing on the books of the Company), and upon payment of the
Exercise Price of the Warrant Shares thereby purchased (the "Exercise Date");
whereupon the holder of this Warrant shall be entitled to receive a Common
Stock certificate for the number of Warrant Shares so purchased. Certificates
for Warrant Shares purchased hereunder shall be delivered to the holder hereof
within five Business Days after the date on which this Warrant shall have been
exercised as aforesaid. Payment of the Exercise Price shall be by certified
check or cashier's check or by wire transfer (of same day funds) to an
account designated by the Company in an amount equal to the Exercise Price
multiplied by the number of Warrant Shares being purchased.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for Warrant
Shares upon the exercise of this Warrant shall be made without charge to the
holder hereof for any issue, transfer, or other incidental expense in respect
of the issuance of such certificate, all of which expenses shall be paid by
the Company, and such certificates shall be issued in the name of the holder
of this Warrant or in such name or names as may be directed by the holder of
this Warrant; provided, however, that in the event certificates for shares of
Common Stock are to be issued in a name other than the name of the holder of
this Warrant, this Warrant when surrendered for exercise shall be accompanied
by the Assignment Form attached hereto duly executed by the holder hereof; and
provided further, that upon any transfer involved in the issuance or delivery
of any certificates for shares of Common Stock, the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer expenses incidental thereto.
6. Closing of Books. The Company will at no time close its shareholder
books or records in any manner which interferes with the timely exercise of
this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not entitle
the holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise thereof. If, however, at the time of the
surrender of this Warrant and purchase the holder hereof shall be entitled to
exercise this Warrant, the shares so purchased shall be and be deemed to be
issued to such holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been exercised.
8. Assignment and Transfer of Warrant. This Warrant may be assigned by
the surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company);
provided, however, that this Warrant may not be resold or otherwise
transferred except (i) in a transaction registered under the Securities Act of
1933, as amended, or (ii) in a transaction pursuant to an exemption, if
available, from such registration and whereby, if requested by the Company, an
opinion of counsel reasonably satisfactory to the Company is obtained by the
holder of this Warrant to the effect that the transaction is so exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Warrant or stock certificate, and in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to it, and upon reimbursement
to the Company of all reasonable expenses incidental thereto, and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of this Warrant or stock
certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Effect of Certain Events. If at any time the Company proposes (i) to
sell or otherwise convey all or substantially all of its assets or (ii) to
effect a transaction (by merger or otherwise) in which more than 50% of the
voting power of the Company is disposed of (collectively, a "Sale or Merger
Transaction"), in which the consideration to be received by the Company or its
shareholders consists solely of cash, and in case the Company shall at any
time effect a Sale or Merger Transaction in which the consideration to be
received by the Company or its shareholders consists in part of consideration
other than cash, the holder of this Warrant shall have the right thereafter to
purchase, by exercise of this Warrant and payment of the aggregate Exercise
Price in effect immediately prior to such action, the kind and amount of
shares and other securities and property which it would have owned or have
been entitled to receive after the happening of such transaction had this
Warrant been exercised immediately prior thereto. In the event the holder
chooses to exercise its purchase rights, at the holder's option, the holder
may elect to waive Section 16 below in its entirety.
12. Adjustments of Exercise Price and Number of Warrant Shares.
The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to
time upon the happening of any of the following: in case the Company shall (i)
declare or pay a dividend in shares of Common Stock or make a distribution in
shares of Common Stock to holders of its outstanding Common Stock, (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock or (iv) issue any shares of its capital stock in a reclassification of
the Common Stock, the number of Warrant Shares purchasable upon exercise of
this Warrant immediately prior thereto shall be adjusted so that the holder of
this Warrant shall be entitled to (in the event the holder so chooses) receive
the kind and number of Warrant Shares or other securities of the Company which
he would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Any adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event. In such event the
holder, at its option may elect to waive Section 16 below in its entirety.
13. Voluntary Adjustment by the Company. The Company may at its option,
at any time during the term of this Warrant, reduce the then current Exercise
Price to any amount and for any period of time deemed appropriate by the Board
of Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise
of this Warrant, or the Exercise Price is adjusted, as herein provided, the
Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth computation
by which such adjustment was made. Such notice, in absence of manifest error,
shall be conclusive evidence of the correctness of such adjustment.
15. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding and exercisable, it will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase rights under
this Warrant. The Company further covenants that its issuance of this Warrant
shall constitute full authority to its officers who are charged with the duty
of executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase rights
under this Warrant. The Company will take all such reasonable action as may
be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of the securities exchange and/or market upon which the Common
Stock may be listed.
16. 4.99% Limitation. The number of shares of Common Stock which may be
acquired by the Investor upon exercise pursuant to the terms herein shall not
exceed the number of such shares which, when aggregated with all other shares
of Common Stock then owned by the holder, not including all securities
convertible or exercisable into Common Stock, would result in the Investor
owning more than 4.99% of the Company's then issued and outstanding shares of
Common Stock. The preceding sentence shall not interfere with the Investor's
right to exercise this Warrant or convert other securities over time which in
the aggregate totals more than 4.99% of the then outstanding shares of Common
Stock so long as such Investor does not own more than 4.99% of the then
outstanding Common Stock at any given time.
17. Call. In the event, at any time six months after the date hereof,
the closing bid price of the Common Stock is greater than US$20.16 (the
"Strike Price") per share for ten consecutive trading days (the "Call
Period"), the Company shall have the right to "Call" this Warrant, in whole or
in part, thereby forcing exercise by the Investor. The Strike Price shall be
adjusted proportionately to reflect any adjustments due to the payment of a
stock dividend, stock split, combination of shares or any other similar event
as provided herein. The Company may exercise its right to Call by telecopying
written notice (the "Call Notice") to the Investor within three (3) trading
days after the expiration of the Call Period.
Once the Company has exercised its right to Call by giving written notice to
the Investor it shall be deemed irrevocable. The Investor will transmit the
Exercise Price to the Company for that number of Warrant Shares which are the
subject of the Call Notice within three business days after receipt of the
Call Notice. The Company will transmit the certificates representing Warrant
Shares issuable pursuant to the Call (together with the certificates
representing the remainder of the Warrant not Called, if any) to the Investor
via express courier, by electronic transfer or otherwise within five business
days after the Exercise Price was received by the Company (the "Call Date").
The Call Notice shall set forth (i) the number of Warrant Shares being Called,
and (ii) a calculation referencing the aggregate Exercise Price due to the
Company.
All rights of this Warrant, including the right to exercise, shall be canceled
upon the completion of the exercise of this Warrant upon a Call for the
Warrant Shares that were subject to such Call. Immediately following the Call
Date, the Investor shall surrender their original Warrant being called to the
Company, and the Company shall issue to the Investor a new Warrant Certificate
for the Warrant Shares that remain outstanding, if any. The number of shares
of Warrant Shares issuable upon the Call of this Warrant shall be adjusted in
accordance with the provisions set forth herein.
Any Call pursuant to this Section shall not be deemed to affect
or otherwise reduce the Investor's exercise rights set forth in this Warrant,
except for the portion of the Warrant Shares being Called. The Company shall
not have the right to Call this Warrant if the Company exercises its
redemption rights in connection with shares of Series A Preferred Stock held
by the Investor. In the event the Company fails to comply with the Call
provisions set forth herein in any manner whatsoever, it shall waive its right
to perform a call in the future.
18. Miscellaneous.
(a) Issue Date; Choice of Law; Venue; Jurisdiction. The provisions of
this Warrant shall be construed and shall be given effect in all respects as
if it had been issued and delivered by the Company on the date hereof. This
Warrant shall be binding upon any successors or assigns of the Company. This
Warrant will be construed and enforced in accordance with and governed by the
laws of the State of New York, except for matters arising under the Act,
without reference to principles of conflicts of law. Each of the parties
consents to the exclusive jurisdiction of the U.S. District Court for the
Northern District of Georgia, Atlanta Division in connection with any dispute
arising under this Warrant and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens,
to the bringing of any such proceeding in such jurisdiction. Each party
hereby agrees that if the other party to this Warrant obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Warrant irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party
waives its right to a trial by jury.
(b) Modification and Waiver. This Warrant and any provisions hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought. Any
amendment effected in accordance with this paragraph shall be binding upon the
Investor, each future holder of the Warrants and the Company. No waivers of,
or exceptions to, any term, condition or provision of this Warrant, in any one
or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
(c) Notices. Any notice, request or other document required or permitted
to be given or delivered to the Investor or future holders hereof or the
Company shall be personally delivered or shall be sent by certified or
registered mail, postage prepaid, to the Investor or each such holder at its
address as shown on the books of the Company or to the Company at the address
set forth in the Agreement. All notices under this Warrant shall be deemed to
have been given (i) in the case of personal delivery, on the date of such
delivery and (ii) in the case of mailing, on the fifth business day following
the date of such mailing. A party may from time to time change the address to
which notices to it are to be delivered or mailed hereunder by notice in
accordance with the provisions of this Section 18(c).
(d) Severability. Whenever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in
any jurisdiction, such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of any other provision of this
Warrant in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Warrant
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
IN WITNESS WHEREOF, the Company has caused this Warrant A to be executed by
its officers thereunto duly authorized.
Dated: February 8, 1999
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
By ______________________________
Name: Kenneth W. Bell
Title: Chief Financial Officer
<PAGE>
NOTICE OF EXERCISE
To: WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
(1) The undersigned hereby elects to purchase ________ shares of Common
Stock of WORDCRUNCHER INTERNET TECHNOLOGIES, INC. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below:
___________________________________
(Name)
____________________ ___________________________________
(Date) (Signature)
___________________________________
(Address)
Dated:
______________________________
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________,
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in an fiduciary or other
representative capacity should file proper evidence of authority to assign the
foregoing Warrant.
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR
TRANSFERRED EXCEPT AS PERMITTED UNDER THE Act PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM.
COMMON STOCK PURCHASE WARRANT B
No.
To Purchase _____ Shares of Common Stock of
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
THIS CERTIFIES that, for value received, __________ or its assigns, (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof and on or prior
to 5:00 p.m. Eastern Time on February 7, 2004 (the "Termination Date"), but
not thereafter, to subscribe for and purchase from WORDCRUNCHER INTERNET
TECHNOLOGIES, INC., a Nevada corporation (the "Company"), _____ ( ) shares of
Common Stock (the "Warrant Shares"). The purchase price of one share of
Common Stock (the "Exercise Price") under this Warrant shall be $41.44 (equal
to one hundred and fifty percent (150%) of the Bid Price on the Trading Day
immediately preceding the Closing Date for the applicable tranche) (the
Exercise Price shall be reduced to $39.37 in the event the Company exercises
its redemption rights in connection with shares of Series A Preferred Stock
then held by the original Investor). The Exercise Price and the number of
shares for which this Warrant is exercisable shall be subject to adjustment as
provided herein. This Warrant is being issued in connection with the Series A
Preferred Stock Purchase Agreement dated February 8, 1999 (the "Agreement")
entered into between the Company, the Investor and other entities not a party
to this Warrant.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by
the holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant together with the Assignment Form annexed hereto properly
endorsed.
<PAGE>
2. Authorization of Shares. The Company covenants that all Warrant Shares
which may be issued upon the exercise of rights represented by this Warrant
will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof.
3. Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made at any time or times, in whole or in part, after the
date hereof and before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, by the surrender on any business day of this Warrant and the Notice of
Exercise annexed hereto duly completed and executed, at the principal office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the address
of such holder appearing on the books of the Company), and upon payment of the
Exercise Price of the Warrant Shares thereby purchased (the "Exercise Date");
whereupon the holder of this Warrant shall be entitled to receive a Common
Stock certificate for the number of Warrant Shares so purchased. Certificates
for Warrant Shares purchased hereunder shall be delivered to the holder hereof
within five Business Days after the date on which this Warrant shall have been
exercised as aforesaid. Payment of the Exercise Price shall be by certified
check or cashier's check or by wire transfer (of same day funds) to an
account designated by the Company in an amount equal to the Exercise Price
multiplied by the number of Warrant Shares being purchased.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for Warrant
Shares upon the exercise of this Warrant shall be made without charge to the
holder hereof for any issue, transfer, or other incidental expense in respect
of the issuance of such certificate, all of which expenses shall be paid by
the Company, and such certificates shall be issued in the name of the holder
of this Warrant or in such name or names as may be directed by the holder of
this Warrant; provided, however, that in the event certificates for shares of
Common Stock are to be issued in a name other than the name of the holder of
this Warrant, this Warrant when surrendered for exercise shall be accompanied
by the Assignment Form attached hereto duly executed by the holder hereof; and
provided further, that upon any transfer involved in the issuance or delivery
of any certificates for shares of Common Stock, the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer expenses incidental thereto.
6. Closing of Books. The Company will at no time close its shareholder
books or records in any manner which interferes with the timely exercise of
this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not entitle
the holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise thereof. If, however, at the time of the
surrender of this Warrant and purchase the holder hereof shall be entitled to
exercise this Warrant, the shares so purchased shall be and be deemed to be
issued to such holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been exercised.
8. Assignment and Transfer of Warrant. This Warrant may be assigned by
the surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company);
provided, however, that this Warrant may not be resold or otherwise
transferred except (i) in a transaction registered under the Securities Act of
1933, as amended, or (ii) in a transaction pursuant to an exemption, if
available, from such registration and whereby, if requested by the Company, an
opinion of counsel reasonably satisfactory to the Company is obtained by the
holder of this Warrant to the effect that the transaction is so exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Warrant or stock certificate, and in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to it, and upon reimbursement
to the Company of all reasonable expenses incidental thereto, and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of this Warrant or stock
certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Effect of Certain Events. If at any time the Company proposes (i) to
sell or otherwise convey all or substantially all of its assets or (ii) to
effect a transaction (by merger or otherwise) in which more than 50% of the
voting power of the Company is disposed of (collectively, a "Sale or Merger
Transaction"), in which the consideration to be received by the Company or its
shareholders consists solely of cash, and in case the Company shall at any
time effect a Sale or Merger Transaction in which the consideration to be
received by the Company or its shareholders consists in part of consideration
other than cash, the holder of this Warrant shall have the right thereafter to
purchase, by exercise of this Warrant and payment of the aggregate Exercise
Price in effect immediately prior to such action, the kind and amount of
shares and other securities and property which it would have owned or have
been entitled to receive after the happening of such transaction had this
Warrant been exercised immediately prior thereto. In the event the holder
chooses to exercise its purchase rights, at the holder's option, the holder
may elect to waive Section 16 below in its entirety.
12. Adjustments of Exercise Price and Number of Warrant Shares.
The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to
time upon the happening of any of the following: in case the Company shall (i)
declare or pay a dividend in shares of Common Stock or make a distribution in
shares of Common Stock to holders of its outstanding Common Stock, (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock or (iv) issue any shares of its capital stock in a reclassification of
the Common Stock, the number of Warrant Shares purchasable upon exercise of
this Warrant immediately prior thereto shall be adjusted so that the holder of
this Warrant shall be entitled to (in the event the holder so chooses) receive
the kind and number of Warrant Shares or other securities of the Company which
he would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Any adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event. In such event the
holder, at its option may elect to waive Section 16 below in its entirety.
13. Voluntary Adjustment by the Company. The Company may at its option,
at any time during the term of this Warrant, reduce the then current Exercise
Price to any amount and for any period of time deemed appropriate by the Board
of Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise
of this Warrant, or the Exercise Price is adjusted, as herein provided, the
Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth computation
by which such adjustment was made. Such notice, in absence of manifest error,
shall be conclusive evidence of the correctness of such adjustment.
15. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding and exercisable, it will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase rights under
this Warrant. The Company further covenants that its issuance of this Warrant
shall constitute full authority to its officers who are charged with the duty
of executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase rights
under this Warrant. The Company will take all such reasonable action as may
be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of the securities exchange and/or market upon which the Common
Stock may be listed.
16. 4.99% Limitation. The number of shares of Common Stock which may be
acquired by the Investor upon exercise pursuant to the terms herein shall not
exceed the number of such shares which, when aggregated with all other shares
of Common Stock then owned by the holder, not including all securities
convertible or exercisable into Common Stock, would result in the Investor
owning more than 4.99% of the Company's then issued and outstanding shares of
Common Stock. The preceding sentence shall not interfere with the Investor's
right to exercise this Warrant or convert other securities over time which in
the aggregate totals more than 4.99% of the then outstanding shares of Common
Stock so long as such Investor does not own more than 4.99% of the then
outstanding Common Stock at any given time.
17. Call. In the event, at any time six months after the date hereof,
the closing bid price of the Common Stock is greater than US$20.16 (the
"Strike Price") per share for ten consecutive trading days (the "Call
Period"), the Company shall have the right to "Call" this Warrant, in whole or
in part, thereby forcing exercise by the Investor. The Strike Price shall be
adjusted proportionately to reflect any adjustments due to the payment of a
stock dividend, stock split, combination of shares or any other similar event
as provided herein. The Company may exercise its right to Call by telecopying
written notice (the "Call Notice") to the Investor within three (3) trading
days after the expiration of the Call Period.
Once the Company has exercised its right to Call by giving written notice to
the Investor it shall be deemed irrevocable. The Investor will transmit the
Exercise Price to the Company for that number of Warrant Shares which are the
subject of the Call Notice within three business days after receipt of the
Call Notice. The Company will transmit the certificates representing Warrant
Shares issuable pursuant to the Call (together with the certificates
representing the remainder of the Warrant not Called, if any) to the Investor
via express courier, by electronic transfer or otherwise within five business
days after the Exercise Price was received by the Company (the "Call Date").
The Call Notice shall set forth (i) the number of Warrant Shares being Called,
and (ii) a calculation referencing the aggregate Exercise Price due to the
Company.
All rights of this Warrant, including the right to exercise, shall be canceled
upon the completion of the exercise of this Warrant upon a Call for the
Warrant Shares that were subject to such Call. Immediately following the Call
Date, the Investor shall surrender their original Warrant being called to the
Company, and the Company shall issue to the Investor a new Warrant Certificate
for the Warrant Shares that remain outstanding, if any. The number of shares
of Warrant Shares issuable upon the Call of this Warrant shall be adjusted in
accordance with the provisions set forth herein.
Any Call pursuant to this Section shall not be deemed to affect or
otherwise reduce the Investor's exercise rights set forth in this Warrant,
except for the portion of the Warrant Shares being Called. The Company shall
not have the right to Call this Warrant if the Company exercises its
redemption rights in connection with shares of Series A Preferred Stock held
by the Investor. In the event the Company fails to comply with the Call
provisions set forth herein in any manner whatsoever, it shall waive its right
to perform a call in the future.
18. Miscellaneous.
(a) Issue Date; Choice of Law; Venue; Jurisdiction. The provisions
of this Warrant shall be construed and shall be given effect in all respects
as if it had been issued and delivered by the Company on the date hereof.
This Warrant shall be binding upon any successors or assigns of the Company.
This Warrant will be construed and enforced in accordance with and governed by
the laws of the State of New York, except for matters arising under the Act,
without reference to principles of conflicts of law. Each of the parties
consents to the exclusive jurisdiction of the U.S. District Court for the
Northern District of Georgia, Atlanta Division in connection with any dispute
arising under this Warrant and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens,
to the bringing of any such proceeding in such jurisdiction. Each party
hereby agrees that if the other party to this Warrant obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Warrant irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party
waives its right to a trial by jury.
(b) Modification and Waiver. This Warrant and any provisions hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
Any amendment effected in accordance with this paragraph shall be binding upon
the Investor, each future holder of the Warrants and the Company. No waivers
of, or exceptions to, any term, condition or provision of this Warrant, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
(c) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Investor or future holders hereof or
the Company shall be personally delivered or shall be sent by certified or
registered mail, postage prepaid, to the Investor or each such holder at its
address as shown on the books of the Company or to the Company at the address
set forth in the Agreement. All notices under this Warrant shall be deemed to
have been given (i) in the case of personal delivery, on the date of such
delivery and (ii) in the case of mailing, on the fifth business day following
the date of such mailing. A party may from time to time change the address to
which notices to it are to be delivered or mailed hereunder by notice in
accordance with the provisions of this Section 18(c).
(d) Severability. Whenever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in
any jurisdiction, such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of any other provision of this
Warrant in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Warrant
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
IN WITNESS WHEREOF, the Company has caused this Warrant B to be executed by
its officers thereunto duly authorized.
Dated: February 8, 1999
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
By ______________________________
Name: Kenneth W. Bell
Title: Chief Financial Officer
<PAGE>
NOTICE OF EXERCISE
To: WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
(1) The undersigned hereby elects to purchase ________ shares of Common
Stock of WORDCRUNCHER INTERNET TECHNOLOGIES, INC. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
___________________________________
(Name)
____________________ ___________________________________
(Date) (Signature)
___________________________________
(Address)
Dated:
______________________________
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________,
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in an fiduciary or other
representative capacity should file proper evidence of authority to assign the
foregoing Warrant.
<PAGE>
EXHIBIT 10.13
WARRANT ISSUED TO PLACEMENT AGENT, DATED FEBRUARY 8, 1999
COMMON STOCK PURCHASE WARRANT C
No. C-1
To Purchase 180,000 Shares of Common Stock of
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
THIS CERTIFIES that, for value received, CARDINAL CAPITAL MANAGEMENT, INC. or
its assigns, (the "Investor"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time on or after the date hereof and
on or prior to 5:00 p.m. Eastern Time on February 7, 2004 (the "Termination
Date"), but not thereafter, to subscribe for and purchase from WORDCRUNCHER
INTERNET TECHNOLOGIES, INC., a Nevada corporation (the "Company"), one hundred
fifty thousand (150,000) shares of Common Stock (the "Warrant Shares"). The
purchase price of one share of Common Stock (the "Exercise Price") under this
Warrant shall be $29.01. The Exercise Price and the number of shares for
which this Warrant is exercisable shall be subject to adjustment as provided
herein. This Warrant is being issued in connection with the Series A
Preferred Stock Purchase Agreement dated February 8, 1999 (the "Agreement")
entered into between the Company, the Investor and other entities not a party
to this Warrant.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by
the holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant together with the Assignment Form annexed hereto properly
endorsed.
2. Authorization of Shares. The Company covenants that all Warrant Shares
which may be issued upon the exercise of rights represented by this Warrant
will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof.
3. Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made at any time or times, in whole or in part, after the
date hereof and before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in paragraph 11
below, by the surrender on any business day of this Warrant and the Notice of
Exercise annexed hereto duly completed and executed, at the principal office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the address
of such holder appearing on the books of the Company), and upon payment of the
Exercise Price of the Warrant Shares thereby purchased (the "Exercise Date");
whereupon the holder of this Warrant shall be entitled to receive a Common
Stock certificate for the number of Warrant Shares so purchased. Certificates
for Warrant Shares purchased hereunder shall be delivered to the holder hereof
within five Business Days after the date on which this Warrant shall have been
exercised as aforesaid. Payment of the Exercise Price shall be by certified
check or cashier's check or by wire transfer (of same day funds) to an
account designated by the Company in an amount equal to the Exercise Price
multiplied by the number of Warrant Shares being purchased.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for Warrant
Shares upon the exercise of this Warrant shall be made without charge to the
holder hereof for any issue, transfer, or other incidental expense in respect
of the issuance of such certificate, all of which expenses shall be paid by
the Company, and such certificates shall be issued in the name of the holder
of this Warrant or in such name or names as may be directed by the holder of
this Warrant; provided, however, that in the event certificates for shares of
Common Stock are to be issued in a name other than the name of the holder of
this Warrant, this Warrant when surrendered for exercise shall be accompanied
by the Assignment Form attached hereto duly executed by the holder hereof; and
provided further, that upon any transfer involved in the issuance or delivery
of any certificates for shares of Common Stock, the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer expenses incidental thereto.
6. Closing of Books. The Company will at no time close its shareholder
books or records in any manner which interferes with the timely exercise of
this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not entitle
the holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise thereof. If, however, at the time of the
surrender of this Warrant and purchase the holder hereof shall be entitled to
exercise this Warrant, the shares so purchased shall be and be deemed to be
issued to such holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been exercised.
8. Assignment and Transfer of Warrant. This Warrant may be assigned by
the surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company);
provided, however, that this Warrant may not be resold or otherwise
transferred except (i) in a transaction registered under the Securities Act of
1933, as amended, or (ii) in a transaction pursuant to an exemption, if
available, from such registration and whereby, if requested by the Company, an
opinion of counsel reasonably satisfactory to the Company is obtained by the
holder of this Warrant to the effect that the transaction is so exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Warrant or stock certificate, and in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to it, and upon reimbursement
to the Company of all reasonable expenses incidental thereto, and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of this Warrant or stock
certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Effect of Certain Events. If at any time the Company proposes (i) to
sell or otherwise convey all or substantially all of its assets or (ii) to
effect a transaction (by merger or otherwise) in which more than 50% of the
voting power of the Company is disposed of (collectively, a "Sale or Merger
Transaction"), in which the consideration to be received by the Company or its
shareholders consists solely of cash, and in case the Company shall at any
time effect a Sale or Merger Transaction in which the consideration to be
received by the Company or its shareholders consists in part of consideration
other than cash, the holder of this Warrant shall have the right thereafter to
purchase, by exercise of this Warrant and payment of the aggregate Exercise
Price in effect immediately prior to such action, the kind and amount of
shares and other securities and property which it would have owned or have
been entitled to receive after the happening of such transaction had this
Warrant been exercised immediately prior thereto. In the event the holder
chooses to exercise its purchase rights, at the holder's option, the holder
may elect to waive Section 16 below in its entirety.
12. Adjustments of Exercise Price and Number of Warrant Shares.
The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to
time upon the happening of any of the following: in case the Company shall (i)
declare or pay a dividend in shares of Common Stock or make a distribution in
shares of Common Stock to holders of its outstanding Common Stock, (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock or (iv) issue any shares of its capital stock in a reclassification of
the Common Stock, the number of Warrant Shares purchasable upon exercise of
this Warrant immediately prior thereto shall be adjusted so that the holder of
this Warrant shall be entitled to (in the event the holder so chooses) receive
the kind and number of Warrant Shares or other securities of the Company which
he would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Any adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event. In such event the
holder, at its option may elect to waive Section 16 below in its entirety.
13. Voluntary Adjustment by the Company. The Company may at its option,
at any time during the term of this Warrant, reduce the then current Exercise
Price to any amount and for any period of time deemed appropriate by the Board
of Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise
of this Warrant, or the Exercise Price is adjusted, as herein provided, the
Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth computation
by which such adjustment was made. Such notice, in absence of manifest error,
shall be conclusive evidence of the correctness of such adjustment.
15. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding and exercisable, it will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase rights under
this Warrant. The Company further covenants that its issuance of this Warrant
shall constitute full authority to its officers who are charged with the duty
of executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase rights
under this Warrant. The Company will take all such reasonable action as may
be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of the securities exchange and/or market upon which the Common
Stock may be listed.
16. 4.99% Limitation. The number of shares of Common Stock which may be
acquired by the Investor upon exercise pursuant to the terms herein shall not
exceed the number of such shares which, when aggregated with all other shares
of Common Stock then owned by the holder, not including all securities
convertible or exercisable into Common Stock, would result in the Investor
owning more than 4.99% of the Company's then issued and outstanding shares of
Common Stock. The preceding sentence shall not interfere with the Investor's
right to exercise this Warrant or convert other securities over time which in
the aggregate totals more than 4.99% of the then outstanding shares of Common
Stock so long as such Investor does not own more than 4.99% of the then
outstanding Common Stock at any given time.
17. Call. In the event, at any time six months after the date hereof,
the closing bid price of the Common Stock is greater than US$20.16 (the
"Strike Price") per share for ten consecutive trading days (the "Call
Period"), the Company shall have the right to "Call" this Warrant, in whole or
in part, thereby forcing exercise by the Investor. The Strike Price shall be
adjusted proportionately to reflect any adjustments due to the payment of a
stock dividend, stock split, combination of shares or any other similar event
as provided herein. The Company may exercise its right to Call by telecopying
written notice (the "Call Notice") to the Investor within three (3) trading
days after the expiration of the Call Period.
Once the Company has exercised its right to Call by giving written notice to
the Investor it shall be deemed irrevocable. The Investor will transmit the
Exercise Price to the Company for that number of Warrant Shares which are the
subject of the Call Notice within three business days after receipt of the
Call Notice. The Company will transmit the certificates representing Warrant
Shares issuable pursuant to the Call (together with the certificates
representing the remainder of the Warrant not Called, if any) to the Investor
via express courier, by electronic transfer or otherwise within five business
days after the Exercise Price was received by the Company (the "Call Date").
The Call Notice shall set forth (i) the number of Warrant Shares being Called,
and (ii) a calculation referencing the aggregate Exercise Price due to the
Company.
All rights of this Warrant, including the right to exercise, shall be canceled
upon the completion of the exercise of this Warrant upon a Call for the
Warrant Shares that were subject to such Call. Immediately following the Call
Date, the Investor shall surrender their original Warrant being called to the
Company, and the Company shall issue to the Investor a new Warrant Certificate
for the Warrant Shares that remain outstanding, if any. The number of shares
of Warrant Shares issuable upon the Call of this Warrant shall be adjusted in
accordance with the provisions set forth herein.
Any Call pursuant to this Section shall not be deemed to affect or otherwise
reduce the Investor's exercise rights set forth in this Warrant, except for
the portion of the Warrant Shares being Called. The Company shall not have
the right to Call this Warrant if the Company exercises its redemption rights
in connection with shares of Series A Preferred Stock held by the Investor. In
the event the Company fails to comply with the Call provisions set forth
herein in any manner whatsoever, it shall waive its right to perform a call in
the future.
18. Miscellaneous.
(a) Issue Date; Choice of Law; Venue; Jurisdiction. The provisions
of this Warrant shall be construed and shall be given effect in all respects
as if it had been issued and delivered by the Company on the date hereof.
This Warrant shall be binding upon any successors or assigns of the Company.
This Warrant will be construed and enforced in accordance with and governed by
the laws of the State of New York, except for matters arising under the Act,
without reference to principles of conflicts of law. Each of the parties
consents to the exclusive jurisdiction of the U.S. District Court for the
Northern District of Georgia, Atlanta Division in connection with any dispute
arising under this Warrant and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens,
to the bringing of any such proceeding in such jurisdiction. Each party
hereby agrees that if the other party to this Warrant obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Warrant irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party
waives its right to a trial by jury.
(b) Modification and Waiver. This Warrant and any provisions hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
Any amendment effected in accordance with this paragraph shall be binding upon
the Investor, each future holder of the Warrants and the Company. No waivers
of, or exceptions to, any term, condition or provision of this Warrant, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
(c) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Investor or future holders hereof or
the Company shall be personally delivered or shall be sent by certified or
registered mail, postage prepaid, to the Investor or each such holder at its
address as shown on the books of the Company or to the Company at the address
set forth in the Agreement. All notices under this Warrant shall be deemed to
have been given (i) in the case of personal delivery, on the date of such
delivery and (ii) in the case of mailing, on the fifth business day following
the date of such mailing. A party may from time to time change the address to
which notices to it are to be delivered or mailed hereunder by notice in
accordance with the provisions of this Section 18(c).
(d) Severability. Whenever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in
any jurisdiction, such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of any other provision of this
Warrant in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Warrant
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
IN WITNESS WHEREOF, the Company has caused this Warrant C to be executed by
its officers thereunto duly authorized.
Dated: February , 1999
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
By _____________________________
Name: Kenneth W. Bell
Title: Chief Financial Officer
<PAGE>
NOTICE OF EXERCISE
To: WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
(1) The undersigned hereby elects to purchase ________ shares of Common
Stock of WORDCRUNCHER INTERNET TECHNOLOGIES, INC. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below:
___________________________________
(Name)
____________________ ___________________________________
(Date) (Signature)
___________________________________
(Address)
Dated:
______________________________
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________,
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in an fiduciary or other
representative capacity should file proper evidence of authority to assign the
foregoing Warrant.
EXHIBIT 11.1
WordCruncher Internet Technologies, Inc.
Statement re Computation of Earnings Per Share
Year ended December 31,
1997 1998
-------------- ------------
Average shares outstanding 545,535 6,100,679
Dilutive common stock equivalents:
Conversion of preferred stock 0 0
Exercise of options and warrants 0 484,000
-------------- ------------
Total shares 545,535 6,584,679
Net Income (loss) ($335,218) ($482,909)
Earnings (loss) per share (.61) (.07)
<Letterhead of Parsons Behle & Latimer appears here>
201 South Main Street
Suite 1800
Salt Lake City, Utah
84111-2218
Post Office Box 45898
Salt Lake City, Utah
84145-0898
Telephone 801-532-1234
Facsimile 801-536-8111
Consent of Counsel
The undersigned hereby consents to the reference to the firm of Parsons
Behle & Latimer under the caption "Legal Matters" in the Registration
Statement on Form S-1 of WordCruncher Internet Technologies, Inc.
PARSONS BEHLE & LATIMER
By: /s/ Scott R. Carpenter
-----------------------------
Scott R. Carpenter
Salt Lake City, Utah
May 28, 1999
<Letterhead of Crouch, Bierwolf & Chisholm>
Certified Public Accountants
50 West Broadway, Suite 1130
Salt Lake City, Utah 84101
CONSENT OF CROUCH, BIERWOLF & CHISHOLM
INDEPENDENT AUDITORS
We hereby consent to the reference of our firm under the captions
"Selected Financial Data" and "Experts" and to the use of our report dated
January 21, 1999, with respect to the consolidated financial statements
included in the Registration Statement (Form S-1) and related prospectus of
WordCruncher Internet Technologies, Inc. for the registration of its common
stock.
/s/ Crouch, Bierwolf & Chisholm
Crouch, Bierwolf & Chisholm
By: /s/ Todd D. Chisholm
--------------------------
Todd D. Chisholm
Salt Lake City, Utah
May 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements for the three month period ended March 31, 1999
for WordCruncher Internet Technologies, Inc. and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 5,745,679
<SECURITIES> 0
<RECEIVABLES> 589
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,813,396
<PP&E> 309,071
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,122,467
<CURRENT-LIABILITIES> 147,464
<BONDS> 0
0
63
<COMMON> 11,877
<OTHER-SE> 7,155,171
<TOTAL-LIABILITY-AND-EQUITY> 6,122,467
<SALES> 10,097
<TOTAL-REVENUES> 36,284
<CGS> 22,714
<TOTAL-COSTS> 433,528
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (397,245)
<INCOME-TAX> 0
<INCOME-CONTINUING> (397,245)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (397,245)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
