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
__________________________