<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File No. 001-12629
September 26, 1997 -----------
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OLYMPIC CASCADE FINANCIAL CORPORATION
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(Exact Name of Registrant as specified in its charter)
DELAWARE 36-4128138
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 Fourth Avenue, Suite 2200, Seattle, WA 98154
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 622-7200
Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common stock $.02 par value
---------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405) of this chapter is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
Yes X No
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As of December 1, 1997, 1,018,456 shares of the Company's common stock were held
by non-affiliates, having an aggregate market value of $5,092,000.
Number of common shares outstanding as of December 1, 1997 was 1,444,205 at a
par value of $.02.
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<PAGE>
PART I
ITEM 1 - BUSINESS
GENERAL
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN
THIS REPORT CONTAIN CERTAIN FORWARD-LOOKING INFORMATION THAT INVOLVE RISKS AND
UNCERTAINTIES THAT COULD CAUSE RESULTS TO DIFFER MATERIALLY, INCLUDING CHANGING
MARKET CONDITIONS AND OTHER RISKS DETAILED IN THIS ANNUAL REPORT OR FORM 10-K
AND OTHER DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION FROM TIME TO TIME.
Olympic Cascade Financial Corporation ("Olympic" or the "Company") is a
diversified financial services organization, operating through its four wholly
owned subsidiaries, National Securities Corporation ("National"), L. H. Friend,
Weinress, Frankson & Presson, Inc. ("Friend"), WestAmerica Investment Group
("WestAmerica") and Travis Capital, Inc. ("Travis"). Olympic is committed to
establishing a significant presence in the financial services industry by
providing financing options for emerging, small and middle capitalization
companies through institutional research and sales and investment banking
services for both public offerings and private placements, and also provides
retail brokerage and trade clearance operations.
In November 1996, the shareholders of National approved a restructuring whereby,
National's shareholders exchanged their shares on a one-for-one basis for shares
of Olympic resulting in National becoming a wholly owned subsidiary of Olympic.
This restructuring became effective in February 1997, accordingly, Olympic is
the successor Registrant to National.
In March 1997, the Company acquired all of the outstanding stock of Friend, a
Southern California based broker-dealer specializing in investment banking,
institutional brokerage, research and trading activities for middle market
companies. Friend was acquired in exchange for 250,000 unregistered shares of
Olympic common stock.
In June 1997, the Company acquired all of the outstanding stock of WestAmerica,
a Scottsdale, Arizona based broker-dealer specializing in retail brokerage
services. WestAmerica was acquired for $443,000 in cash and an agreement that
provides for the payment of bonus compensation to certain brokers.
In July 1997, the Company acquired all of the outstanding stock of Travis, a
Salt Lake City, Utah based broker-dealer focusing on private placement of
securities for emerging and middle market companies in the U.S. and
internationally. Travis was acquired in exchange for 20,000 unregistered shares
of Olympic common stock.
National conducts a national securities brokerage business through its main
office in Seattle, Washington and in 35 other offices located in 17 states. Its
business includes securities brokerage for individual and institutional clients,
market-making trading activities, asset management and corporate finance
services. National concentrates upon retail brokerage with an emphasis on
personalized service. National's executive office, which is also its largest
sales office, is located in Seattle, Washington. The majority of National's
transactions with the public involves solicited trades and approximately 70% of
these involve sales of securities to customers.
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<PAGE>
ITEM 1 - BUSINESS (CONTINUED)
GENERAL (Continued)
Friend is a registered securities broker-dealer specializing in investment
banking, institutional brokerage, research and trading activities for middle
market companies. Friend has its main office in Irvine, California and a branch
office in Century City, California.
WestAmerica, based in Scottsdale, Arizona is a registered securities broker-
dealer providing primarily retail brokerage operations. The majority of
WestAmerica's transactions with the public involves solicited trades with 80%
involving sales of securities to customers.
Travis, based in Salt Lake City, Utah is a registered broker-dealer specializing
in private placement of securities for emerging and middle market companies in
the U.S. and internationally.
The Company's plan is the concept of growth using the currency and liquidity of
this public vehicle to purchase and roll-up complementary businesses.
Management believes that consolidation within the industry is inevitable.
Concerns attributable to the longevity of the current bull market help explain
the increasing number of acquisition opportunities continuously introduced to
the Company. The Company is focused on maximizing the profitability of the
acquisitions that have been consummated to date, while it continues to seek
additional selective strategic acquisitions.
BROKERAGE SERVICES
Brokerage services to retail clients are provided through the Company's sales
force of investment executives at National and WestAmerica.
NATIONAL SECURITIES CORPORATION
National is registered as a broker-dealer with the Securities and Exchange
Commission ("SEC") and licensed in 50 states, the District of Columbia and
Puerto Rico. National is also a member of the National Association of
Securities Dealers, Inc. ("NASD"), the Municipal Securities Rulemaking Board
("MSRB") the Securities Investor Protection Corporation ("SIPC"), and the
Chicago Stock Exchange ("CSE").
National is organized to meet the needs of its investment executives and their
clients. To foster individual service, flexibility and efficiency, and to
reduce fixed costs, investment executives at National act as independent
contractors responsible for providing their own office facilities, sales
assistants, telephone service, supplies and other items of overhead. Investment
executives are given broad discretion to structure their own practices and to
specialize in different areas of the securities market subject to supervisory
procedures. In addition, investment executives have direct access to research
materials, management, traders, and all levels of support personnel.
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<PAGE>
ITEM 1 - BUSINESS (CONTINUED)
BROKERAGE SERVICES (Continued)
It is not National's policy to recommend particular securities to customers.
Recommendations to customers are determined by individual investment executives
based upon their own research and analysis, and subject to applicable NASD
customer suitability standards. Most investment executives perform fundamental
(as opposed to technical) analysis. Solicitations may be by telephone, seminars
or newsletters. Investment executives may request trading to acquire an
inventory position to facilitate sales to customers (subject to the investment
executive's own risk). Supervisory personnel review trading activity from
inventory positions to ensure compliance with applicable standards of conduct.
Salespersons in the brokerage industry are traditionally compensated on the
basis of set percentages of total commissions and mark-ups generated. Most
brokerage firms bear substantially all of the costs of maintaining their sales
forces, including providing office space, sales assistants, telephone service
and supplies. The average commission paid to the salespersons in the brokerage
industry generally ranges from 30% to 40% of total commissions generated.
Since National requires most of its investment executives to absorb their own
overhead and expenses, it is able to pay an average of 70% of commissions and
mark-ups generated by the investment executive. This arrangement also reduces
fixed costs and lowers risk of operational losses for non-production.
National's operations include execution of orders, processing of transactions,
receipt, identification and delivery of funds and securities, custody of
customer securities, internal financial controls and compliance with regulatory
and legal requirements.
National's data processing is supplied by an independent vendor on a time-
sharing basis to process orders, reports, confirmations and statements as well
as to maintain the general ledger and files of customers, and other market data.
National owns other computers which are used for investment executive payroll
and telephone cost allocation, including word processing and other office
applications.
National clears approximately 90% of its own securities transactions and posts
its books and records daily, with the remaining 10% of the transactions clearing
through Bear Stearns Securities Corporation. Periodic reviews of controls are
conducted, and administrative and operations personnel meet frequently with
management to review operating conditions. Operations personnel monitor
compliance with applicable laws, rules and regulations.
WESTAMERICA INVESTMENT GROUP
WestAmerica is registered as a broker-dealer with the SEC and licensed in 36
states and the District of Columbia. WestAmerica is also a member of the NASD,
the MSRB and the SIPC. WestAmerica, offers traditional securities brokerage and
financial planning business and fee based investment management business to its
retail clients.
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<PAGE>
ITEM 1 - BUSINESS (CONTINUED)
BROKERAGE SERVICES (Continued)
Unlike National, the majority of WestAmerica's investment executives are
employees. As such the average commission payout is approximately 20-30% lower
than National's commission payout of approximately 70%. Since the commission
payout is much lower WestAmerica provides office space, equipment, supplies and
other resources for its investment executives.
WestAmerica operates pursuant to the exemptive provisions of SEC
Rule 15c3-3(k)(2)(ii) and clears all transactions with and for customers on
a fully disclosed basis.
WestAmerica has a clearing arrangement with Correspondent Services Corporation
("CSC"), a wholly owned subsidiary of PaineWebber Incorporated. CSC provides
WestAmerica with back office support, transaction processing services on all
principal national securities exchanges and access to many other financial
services and products. This agreement with CSC allows WestAmerica to offer a
range of products and services that is generally offered only by firms that are
larger or have more capital.
INVESTMENT BANKING
The Company through its subsidiaries National, Friend and Travis provide
investment banking, research and institutional sales
NATIONAL SECURITIES CORPORATION
National provides corporate finance and investment banking services, including
underwriting the sale of securities to the public and arranging for the private
placement of securities with investors. National is expanding its corporate
finance operations to provide a broader range of financial and corporate
advisory services, including mergers and acquisitions, project financing,
capital structure and specific financing opportunities. National has
underwritten both equity securities and convertible corporate bonds as initial
or secondary public offerings.
National will manage, underwrite and sell shares of each underwriting. National
collects fees from the underwriting proceeds for providing these services,
including non-accountable expenses. Additionally, National participates as an
underwriter in the syndicate group of other underwritings which it does not
manage. All of these activities require a substantial commitment of capital and
expose National to additional risk. Accordingly, National maintains a
commitment committee that reviews every proposed underwriting and must approve
each underwriting in order for it to proceed. Additionally, such activities are
periodically reviewed by members of the Board of Directors.
National's corporate finance department is headquartered in Chicago, Illinois.
This office includes investment executives, investment bankers and employees.
The office and the corporate finance department is under the direction of the
Company's Chairman Steven A. Rothstein.
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<PAGE>
ITEM 1 - BUSINESS (CONTINUED)
INVESTMENT BANKING (Continued)
L. H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
Friend is registered as a broker-dealer with the SEC and licensed in nine
states. Friend is also a member of the NASD, the MSRB and the SIPC. Friend
provides corporate finance services to middle market companies including
underwriting the sale of securities both publicly and privately, institutional
sales, merger and acquisition services, advisory services and investment
research.
Friend will co-manage, underwrite and sell shares of each underwriting.
Additionally, Friend participates as an underwriter in the syndicate group of
other underwritings which it does not manage. Friend markets its research to a
variety of institutional investors including pension funds, mutual funds,
insurance companies and other investment managers located throughout the United
States and Europe.
Friend operates pursuant to the exemptive provisions of SEC
Rule 15c3-3(k)(2)(ii) and clears all transactions with and for customers on a
fully disclosed basis.
Friend's corporate finance department is headquartered in Irvine, California.
This office includes investment bankers, research analysts and institutional
brokers. Additionally, Friend has an institutional sales and research office in
Chicago, Illinois. Friend's institutional trades are cleared through Bear
Stearns Securities Corporation.
TRAVIS CAPITAL, INC.
Travis is registered as a broker-dealer with the SEC and licensed in Utah.
Travis is also a member of the NASD and the SIPC. Travis' business focus is on
private placements for emerging and middle market companies in the United States
and internationally. Funding for these placements is arranged principally with
institutions and other accredited investors. Additionally, Travis provides
merger and acquisition related services.
Travis operates pursuant to the exemptive provisions of SEC Rule 15c3-3(k) and
does not carry customer accounts, hold customer funds or securities, or owe
money or securities to customers.
PRINCIPAL AND AGENCY TRANSACTIONS
The Company buys and maintains inventories in equity securities as a "market-
maker" for sale of those securities to other dealers and to customers through
National and Friend. The Company also maintains inventories in corporate and
municipal debt securities for sale to customers.
At National a staff of seven traders and assistants at its Seattle headquarters,
and three traders and assistants in its Spokane, Washington office, manage an
inventory of securities, and conduct market-making activities. As of September
26, 1997, National made a market in approximately 114 equity securities, the
majority of which are quoted on the NASDAQ system. This includes all companies
for which National managed or co-managed a public offering.
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<PAGE>
ITEM 1 - BUSINESS (CONTINUED)
PRINCIPAL AND AGENCY TRANSACTIONS (Continued)
With a staff of four traders and assistants, Friend manages an inventory of
securities and conducts market making activities. As of September 26, 1997,
Friend made a market in approximately 22 equity securities, the majority of
which are quoted on the NASDAQ system, including companies for which Friend co-
managed a public offering.
The Company's trading departments require a substantial commitment of capital.
Most principal transactions place the Company's capital at risk. Profits and
losses are dependent upon the skill of the traders, price movement, trading
activity and the size of inventories. Because the Company's trading activities
occasionally may involve speculative and thinly capitalized stock, including
stabilizing the market for securities which it has underwritten, the Company
imposes position limits to reduce its potential for loss.
In executing customer orders to buy or sell a security in which the Company
makes a market, the Company may sell or purchase from customers at a price which
is substantially equal to the current inter-dealer market price plus or minus a
mark-up or mark-down. The Company may also act as agent and execute a
customer's purchase or sale order with another broker-dealer market-maker at the
best inter-dealer market price available and charge a commission. The Company's
mark-ups, mark-downs and commissions are competitive based on the services it
provides to its customers.
In executing customers' orders to buy or sell listed and over-the-counter
securities in which it does not make a market, the Company generally acts as
agent and charges commissions which the Company believes are competitive based
on the services the Company provides to its customers.
SUPERVISION
The Securities Exchange Act of 1934, as amended, and the NASD Conduct Rules
require the Company's subsidiaries to supervise the activities of its investment
executives. As part of providing such supervision, the subsidiaries maintain an
Operations and Procedures Manual. Compliance personnel conduct inspections of
branch offices no less frequently than annually to review compliance with the
Company's procedures. A registered principal provides continuous supervision at
each of the Company's larger offices. The other offices (averaging two
investment executives per office) are not required by NASD rules to have a
registered principal on site and are therefore supervised by registered
principals of the subsidiaries. Traders and other personnel review each
investment executive's order tickets to ensure compliance with the NASD Conduct
Rules including mark-up guidelines.
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<PAGE>
ITEM 1 - BUSINESS (CONTINUED)
EMPLOYEES
As of September 26, 1997, the Company and its subsidiaries had approximately 185
employees and 250 independent contractors. Of these totals, approximately 360
were registered representatives. Persons who have entered into independent
contractor agreements are not considered employees for purposes of determining
the Company's obligations for federal and state withholding, unemployment and
social security taxes. The Company's independent contractor arrangements
conform with accepted industry practice and therefore the Company does not
believe there is a material risk of an adverse determination from the tax
authorities which would have a significant effect on the Company's ability to
recruit and retain investment executives, or on the Company's current operations
and financial results of operations. No employees are covered by collective
bargaining agreements and the Company believes its relations are good with both
its employees and independent contractors.
COMPETITION
The Company is engaged in a highly competitive business. With respect to one or
more aspects of its business, its competitors include member organizations of
the New York Stock Exchange, Inc. and other registered securities exchanges in
the United States and Canada, and members of the NASD. Many of these
organizations have substantially greater personnel and financial resources and
more sales offices than the Company. Discount brokerage firms affiliated with
commercial banks provide additional competition as well as companies which
provide electronic on-line trading. In many instances, the Company is also
competing directly for customer funds with investment opportunities offered by
real estate, insurance, banking, and savings and loans industries.
ITEM 2 - PROPERTIES
The Company owns no real property. Its corporate headquarters are shared with
National in leased space in Seattle, Washington and Chicago, Illinois.
Additionally, through its subsidiaries, the Company leases office space in
Century City and Irvine, California, Scottsdale, Arizona, Spokane, Washington
and Salt Lake City, Utah. The branch offices which are run by independent
contractors are leased by those contractors.
Leases expire at various times through October 2003. The Company believes the
rent at each of its locations is at current market rates. At current production
levels, the Company believes its leased space is suitable and adequate, however,
increased activity could require additional space to be leased.
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<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
1. THE MAXAL TRUST, ET AL. V. NATIONAL SECURITIES CORPORATION ET AL., United
States District Court, Central District of California, Case No. CV-97-4392
ABC (Shx). In April 1997, the plaintiffs brought action against the
Company and its subsidiary National, alleging National breached an
agreement to purchase their shares of Interact Medical Technologies Corp.
("Interact"). The plaintiffs alleged claims under section 10(b) of the
Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder,
for common law fraud and misrepresentation, for breach of express and
implied contract, and for negligence and are seeking damages in excess of
$4,000,000.
The Company and National moved to dismiss the plaintiffs' claims on various
grounds, and the plaintiffs moved for partial summary judgment on their
claims of breach of contract. In late October 1997 the Court (i) dismissed
all of plaintiffs' claims against the Company; (ii) dismissed plaintiffs'
Securities law claims against National; and (iii) denied plaintiffs' motion
entirely. Consequently, the case is proceeding against National on
theories of common law fraud, misrepresentation, breach of contract and
negligence.
National denies all liability to the plaintiffs and believes it has
meritorious defenses to plaintiffs' claims. National presently intends to
continue its vigorous defense of this action.
2. MAYNARD MALL REALTY TRUST V. NATIONAL SECURITIES CORPORATION, ET AL.,
United States District Court, Western District of Washington, Case No. 97-
CV-00967. In May 1997, the plaintiffs brought action against the Company,
its subsidiary National, and several officers and directors of the Company
and National, originally alleging fraud, breach of fiduciary duties and
state securities law violations in connection with the share exchange
between the Company and National (the "Share Exchange") and otherwise. The
plaintiff, prosecuting the case both individually and derivatively, seeks
monetary damages, corporate dissolution of the Company and National,
recission of the Share Exchange, and the fair value of its shares in an
appraisal proceeding. In an amended pleading, plaintiff dropped all
allegations of fraud and the claim for recission of the Share Exchange, and
alleged that the defendants breached fiduciary duties by, among other
things, secretly receiving excessive and otherwise inappropriate overrides
and other compensation, and that defendants traded in the Company's stock
with knowledge of material, non-public information. The second amended
complaint also alleges that the proxy statement underlying the Share
Exchange wrongly failed to disclose that shareholders' rights would be
governed by Delaware, and not Washington law, and that the plaintiff was
wrongly denied access to the Company's books and records.
National denies all liability to the plaintiffs and believes it has
meritorious defenses to plaintiffs' claims. National presently intends to
continue its vigorous defense of this action as well.
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ITEM 3 - LEGAL PROCEEDINGS (CONTINUED)
3. CASULL ARMS CORPORATION V. NATIONAL SECURITIES CORP. AND ROBERT A. SHUEY,
III., United States District Court, District of Wyoming, 97CV-229B. In
October 1997, plaintiffs served National with a complaint alleging National
and a former National representative, Robert A. Shuey, III. ("Shuey"),
breached a contract and committed various torts by failing to perform an
alleged promise to raise capital for plaintiff through an initial public
offering of stock. The plaintiff sought not less than $8.5 million in
actual damages and not less than $42.5 million in punitive damages.
National negotiated an agreement whereby applicable statutes of limitations
would be tolled through calendar 1997 and all claims against it would be
dismissed. On November 4, 1997, all claims against National were dismissed
without prejudice.
In the event plaintiffs' claims against it are renewed, National believes
it has meritorious defenses to plaintiffs' claims, and further believes it
is not legally responsible for any alleged conduct of Shuey. If this
lawsuit is again raised, National presently intends to vigorously contest
liability.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's initial public offering of its common stock was completed in
September 1986. From the initial offering to June 22, 1987, the Company's
common stock was traded over-the-counter and was not quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ").
Effective June 23, 1987, the Company's common stock became eligible to list on
NASDAQ. The Company's common stock trades on the NASDAQ Small-Cap Market using
the symbol NATS. As of September 26, 1997, the Company had approximately 400
shareholders of record. This amount includes those shareholders holding stock
in street name and trust accounts. Currently, there are five market makers in
the Company's stock, including National.
Delaware law authorizes the Board of Directors to declare and pay dividends with
respect to the Company's common stock either out of its surplus (as defined in
the Delaware Corporation Law) or, in case there is no such surplus, out of its
net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year; provided, however, that no dividend may be paid out of
net profits unless the Company's capital exceeds the aggregate amount
represented by the issued and outstanding stock of all classes having a
preference in the distribution of assets. As of this time, no shareholder holds
preferential rights in liquidation. The Company has never declared a cash
dividend, and does not presently foresee declaring one in the coming fiscal
year. The Company did, however, declare 5% stock dividends for all shareholders
of record on June 4, 1996, September 5, 1996, January 27, 1997, May 20, 1997 and
August 29, 1997. Additionally, the Company declared a 5% stock dividend for all
shareholders of record on December 8, 1997.
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ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS (CONTINUED)
High and low bid quotations from September 30, 1995 to September 26, 1997 have
been obtained from NASDAQ. The range of market prices for each quarter of
fiscal years ended September 26, 1997 and September 27, 1996 are as follows:
Period High Low
- ------ ---- ---
September 28, 1996/December 31, 1996 $8.75 $7.00
January 1, 1997/March 27, 1997 $9.50 $6.50
March 28, 1997/June 27, 1997 $8.25 $4.75
June 28, 1997/September 26, 1997 $6.50 $4.75
September 30, 1995/December 29, 1995 $4.88 $3.25
December 30, 1995/March 29, 1996 $4.62 $3.76
March 30, 1996/June 28, 1996 $7.88 $4.13
June 29, 1996/September 27, 1996 $9.25 $6.50
These past stock prices have not been adjusted for the recent stock dividends.
The closing bid of the Company's common stock on December 1, 1997 as reported on
the NASDAQ Small Cap Market was $5.00 per share.
ITEM 6 - SELECTED FINANCIAL DATA
Set forth below is the historical financial data with respect to the Company for
the fiscal years ended 1997, 1996, 1995, 1994 and 1993. This information has
been derived from, and should be read in conjunction with, the audited financial
statements which appear elsewhere in this report. All information is expressed
in thousands of dollars except per share information.
<TABLE>
<CAPTION>
Fiscal Year
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1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues $ 39,994 $ 34,899 $ 14,275 $ 11,487 $ 11,438
Net income after tax 101 1,735 257 510 680
Net income per common share 0.07 1.45 0.32 0.64 0.77
Total assets 63,774 57,955 41,891 18,627 18,259
Long-term obligations - - - - 79
Subordinated debt - - - - 200
Stockholders' equity 7,604 5,316 3,180 2,509 1,936
Cash dividends - - - - -
</TABLE>
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<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN
THIS REPORT CONTAIN CERTAIN FORWARD-LOOKING INFORMATION THAT INVOLVE RISKS AND
UNCERTAINTIES THAT COULD CAUSE RESULTS TO DIFFER MATERIALLY, INCLUDING CHANGING
MARKET CONDITIONS AND OTHER RISKS DETAILED IN THIS ANNUAL REPORT OR FORM 10-K
AND OTHER DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION FROM TIME TO TIME.
During its fiscal year 1997, the Company continued implementation of the largest
growth program in its 50-year history. In the course of restructuring,
acquiring subsidiary broker-dealers and forming new branch offices, the Company
incurred certain non-recurring, non-operating expenses.
The Company's plan is the concept of growth using the currency and liquidity of
this public vehicle to purchase and roll-up complementary businesses.
Management believes that consolidation within the industry is inevitable.
Concerns attributable to the longevity of the current bull market help explain
the increasing number of acquisition opportunities continuously introduced to
the Company. The Company is focused on maximizing the profitability of the
acquisitions that have been consummated to date, while it continues to seek
additional selective strategic acquisitions.
As of fiscal year ended September 26, 1997, total assets were $63,774,000, and
stockholders' equity was $7,604,000, compared to total assets of $57,955,000 and
stockholders' equity of $5,316,000 as of September 27, 1996. This represents a
10% increase in total assets and a 43% increase in stockholders' equity during
the 12-month period.
The Company's fiscal year 1997 resulted in net income of $101,000 or $.07 per
share fully diluted as compared with net income of $1,735,000 or $1.45 per share
fully diluted for 1996. Revenues increased 15% in 1997 to $39,994,000 from
$34,899,000 in 1996, however, expenses increased nearly 23% during the same
period. This increase in expenses is due to additional costs relating to the
increased level of operations and certain non-recurring, non-operating expenses
incurred relating to the corporate restructuring, the acquisition of three
broker-dealers, the addition of two significant branch offices, and continued
growth in brokerage operations (discussed below).
In November 1996, the shareholders of National approved a restructuring whereby,
National shareholders exchanged their shares on a one-for-one basis for shares
of Olympic resulting in National becoming a wholly owned subsidiary of Olympic.
In March 1997, the Company acquired Friend, a Southern California based broker-
dealer specializing in investment banking, institutional brokerage, research and
trading activities for middle market companies.
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<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (Continued)
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996 (Continued)
In June 1997, the Company completed the acquisition of WestAmerica, a
Scottsdale, Arizona based broker-dealer specializing in retail brokerage
services.
In July 1997, the Company acquired Travis, a Salt Lake City, Utah based broker-
dealer focusing on private placement of securities of emerging and middle market
companies.
National added two significant branch offices in 1997. In March, National opened
a branch office in Melville, New York and in April, National opened a branch
office in Southern California. These two branches have added approximately 60
registered representatives.
Due to these events the Company incurred non-recurring, non-operating expenses
of approximately $900,000 during the year. These expenditures were a necessary
element of management's long-term goal to establish a significant market
presence in retail and institutional trading and to provide financing options
for small and mid-sized companies.
During fiscal year 1997 commission revenue increased $3,006,000 or 21% to
$17,496,000 from $14,490,000 in 1996. National, Friend and WestAmerica were
equally responsible for the increase in commission revenue. Inventory gains
increased $1,531,000 or 47% to $4,782,000 from $3,251,000. This increase was
primarily due to the acquisition of Friend, which accounted for $1,072,000 of
the gain.
Underwriting revenue decreased $354,000 or 3% to $12,837,000 in 1997 from
$13,191,000 in 1996. National's underwriting revenue decrease of $2,885,000 to
$10,306,000 in 1997 from $13,191,000 in 1996 was substantially offset by
Friend's $2,452,000 of underwriting revenue. Although National managed eight
underwritings in 1997, which totaled approximately $161 million of gross
proceeds raised, whereas in 1996 National managed 12 underwritings, which
totaled approximately $150 million of gross proceeds raised, net underwriting
revenues decreased due to lower percentage payouts for commissions and fees in
1997 compared to 1996.
In October 1997, National gave notice to Ray Dirks Research, a New York branch
office, that it wished to sever its relationship. It is anticipated that Ray
Dirks Research will no longer be an office of National effective by the end of
December 1997. This will negatively impact National's underwriting revenues and
net income in fiscal 1998, however, the Company is currently implementing plans
to replace both these revenues and net income as the current year progresses.
-13-
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (Continued)
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996 (Continued)
The overall increase in expenses was due in large part to increases in revenues.
The two largest components of expense are (i) commission expense and (ii)
salaries and benefits expense, both of which vary directly with securities
related revenue. In the 1997 these expenses totaled $28,381,000 or a 12%
increase from $25,436,000 in 1996. Commission expense increased $781,000 or 4%
in 1997 from $21,236,000 in 1996 to $22,017,000. Commission expense as a
percentage of commission related revenues (commissions, inventory gains and
underwriting fees), was approximately 63% in 1997 down from approximately 69% in
1996. This is primarily due to the acquisition of Friend and WestAmerica, which
have a lower commission payout than National. Conversely, employee compensation
and benefits increased $2,164,000 or 52% to $6,364,000 in 1997 from $4,200,000
in 1996 because certain commission salespeople with a lower payout also receive
salaries, as well as the increase in management, operating and administrative
salaries for Olympic and the additional subsidiaries. The additional salaries
for Olympic and the newly acquired subsidiaries totaled approximately $2,132,000
in 1997.
Interest expense increased $459,000 in 1997, or 25% to $2,265,000 from
$1,806,000, primarily because of increased customer deposits, on which the
Company pays interest. However, this expense was more than offset by the
increased interest income of $854,000, or 29% to $3,775,000 from $2,921,000.
The Company realized record levels of net interest income (interest income less
interest expense) of $1,510,000 in 1997, a 35% increase from the prior record
levels reached a year earlier. The Company earns the majority of this interest
through National from its investments in U.S. Government obligations and U.S.
Government agency obligations and interest received on customer margin debits.
National earns a spread between what it pays customers on free credit balances
and what it earns investing these balances. As a result of this spread, as the
overall customer debits and credits increase, the Company is able to earn more
interest income.
With the additional subsidiaries the Company has acquired, and the additional
branch offices opened by National during the year, communications and occupancy
expenses have increased $1,974,000 or 81% to $4,426,000 in 1997 from $2,452,000
in 1996.
Clearing expenses increased $279,000 or 41% in 1997. These increases are
attributable to Friend and WestAmerica, which combined, accounted for $354,000
of clearing expenses, offset by a decrease in National's clearing expenses of
$75,000.
Finally, other expenses increased $1,351,000 or 142% to $2,300,000 in 1997 from
$949,000 in 1996. The largest components include an increase in travel of
$630,000, an increase in printing of $100,000 and an increase in insurance of
$190,000. These increases are attributable to the Company's growth.
-14-
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (Continued)
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996 (Continued)
The Company's financial success is greatly influenced by the strength of the
securities markets. During fiscal 1997, the securities markets continued to be
strong, although there was some weaknesses experienced in the market for initial
public offerings. While management is optimistic that the financial markets
will remain healthy, a downturn in these markets would have an adverse effect on
future profitability. Management believes a market downturn may provide the
opportunity to acquire additional sources of production at a reasonable cost.
Management is hopeful that the operational investments it made during the last
fiscal year will allow the Company to weather any downturn and make potential
acquisitions accretive to future earnings.
FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995
The Company's fiscal year 1996 exhibited an exceptional increase in revenues and
net income as compared to the prior year. Net income grew to $1,735,000 from
$257,000 in 1995, an increase of 575%, while fully diluted earnings per share
grew to $1.45 in 1996 from $0.32 in 1995. Revenues increased $20,624,000, or
144% to a record $34,899,000 from $14,275,000. The increase in earnings was
largely the result of increased underwriting activity and increased commission
production from additional investment executives.
Revenues earned on commissions and trading inventory gains increased to
$17,741,000 from $11,631,000 or 53%. These increases were due to favorable
market conditions and the production by additional investment executives hired
during the fiscal year.
Revenues earned on underwritings had the most significant impact on the overall
increase in revenues. Because the Company began its corporate finance department
in the fourth quarter of 1995, related revenues for fiscal 1995 were minimal.
However, during fiscal 1996, the Company managed or co-managed 12 underwritings
which generated the majority of this revenue. These underwritings ranged in
size from $3,000,000 of proceeds to over $40,000,000. The fee revenue and
concessions generated from underwritings aggregated to $13,191,000 in 1996, up
3265% from 1995 revenues and concessions of $392,000.
Interest and dividend income increased $1,311,000 or 81% from $1,610,000 in 1995
to $2,921,000 in 1996. The Company realized net interest income (interest
income less interest expense) of $1,115,000 in 1996, almost doubling the
previous high of $564,000 in 1995. The Company earns the majority of this
interest from its investments in U.S. Government obligations and U.S. Government
agency obligations and interest received on customer margin debits. The Company
earns a spread between what it pays customers on free credit balances and what
it earns investing these balances. As a result of this spread, as the overall
customer debits and credits increase, the Company is able to earn more interest
income. Correspondingly, combined customer debits and credits increased
$14,639,000 to $64,560,000 in 1996, or 29%, from $49,921,000 in 1995.
-15-
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (Continued)
FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995 (Continued)
As anticipated overall expenses increased dramatically. Total expenses
increased $18,464,000 from $13,892,000 in fiscal 1995 to $32,356,000 in fiscal
1996 or approximately 133%. The majority of the increase in expenses both in
dollars and as a percent was commission expense.
The Company pays commissions on brokerage transactions as well as on the fees
earned on underwritings. Commission expense amounted to $21,236,000 in 1996, up
$13,472,000 or 174%, from $7,764,000 in 1995. The Company's commission payout
as a percentage of commission generated revenue (this includes commission
revenue, net dealer inventory gains and underwriting revenue) grew to
approximately 69% in 1996, or 4%, from approximately 65% in 1995. The Company's
pay out varies with the type of product or transaction involved, and therefore,
this percentage increased as more mutual fund purchases and underwritings
(transactions with generally higher commission payouts) were processed.
LIQUIDITY AND CAPITAL RESOURCES
As with most financial firms, substantial portions of the Company's assets are
liquid, consisting mainly of cash or assets readily convertible into cash.
These assets are financed primarily by National's interest bearing and non-
interest bearing customer credit balances, other payables and equity capital.
Occasionally, National utilizes short-term bank financing to supplement its
ability to meet day-to-day operating cash requirements. Such financing has been
used to maximize cash flow and is regularly repaid. National has a $3,000,000
revolving unsecured credit facility with Seafirst Bank and may borrow up to 70%
of the market value of eligible securities pledged through an unrelated broker-
dealer. These borrowings are short-term and have not extended beyond a few days.
Although at times National has not satisfied and may not in the future satisfy a
minor loan covenant, the bank has continued to provide all necessary borrowings.
At September 26, 1997 there were no borrowings outstanding.
On September 16, 1997 the Company executed a promissory note with Seafirst Bank
for $900,000. The proceeds of this loan were used to repay a previous note with
an unrelated company. The note is to be repaid in six equal installments
commencing on May 1, 1998 through October 1, 1998. The note bears annual
interest at 8.95% with accrued interest to be paid monthly, beginning on October
1, 1997.
On November 17, 1997, the Company executed two promissory notes totaling
$925,000. The notes bear interest at 8% and the principal is to be repaid in 24
monthly installments commencing on December 31, 2000. In addition, warrants for
the purchase of 120,000 shares at an exercise price of $5.625 per share of the
Company's common stock were issued. The warrants are valued at $120,000 and
have been recorded as original issue discount.
-16-
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
National, as a registered broker-dealer is subject to the SEC's Uniform Net
Capital Rule 15c3-1, which requires the maintenance of minimum net capital.
National has elected to use the alternative standard method permitted by the
rule. This requires that National maintain minimum net capital equal to the
greater of $250,000 or 2% of aggregate debit items. At September 26, 1997,
National's net capital exceeded the requirement by $1,654,000.
Friend and WestAmerica, as registered broker-dealers are also subject to the
SEC's Net Capital Rule 15c3-1, which, under the standard method, requires that
each company maintain minimum net capital equal to the greater of $100,000 or 6
2/3% of aggregate indebtedness. At September 30, 1997, Friend and WestAmerica's
net capital exceeded the requirement by $290,000 and $121,000, respectively.
Travis, also subject to the SEC's Net Capital Rule, is required to maintain the
greater of $5,000 or 6 2/3% of aggregate indebtedness. As of September 30,
1997, Travis had a net capital deficit of $7,000. This deficit was corrected
promptly in October following discovery.
Advances, dividend payments and other equity withdrawals from National, Friend,
WestAmerica or Travis are restricted by the regulations of the SEC, and other
regulatory agencies. These regulatory restrictions may limit the amounts that
these subsidiaries may dividend or advance to Olympic.
The objective of liquidity management is to ensure the Company has ready access
to sufficient funds to meet commitments, fund deposit withdrawals and
efficiently provide for the credit needs of customers. Cash flow from
operations and earnings contribute significantly to liquidity.
Unlike the Company's other subsidiaries, National requires its investment
executives to be responsible for substantially all of the overhead expenses
associated with their sales efforts, including their office furniture, sales
assistants, telephone service and supplies.
The Company believes its internally generated liquidity, together with access to
external capital and debt resources will be sufficient to satisfy existing
operations. However, if the Company continues to expand its operations and
acquire other businesses the Company will require additional capital.
INFLATION
The Company believes that the effect of inflation on its assets, consisting of
cash, securities, office equipment, leasehold improvements and computers has not
been significant.
-17-
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
INFLATION (Continued)
Whereas inflation has not had a materially adverse impact on the costs or the
operations of the Company, inflation does have an effect on the Company's
business. Increases in inflation rates may be accompanied by increases in
interest rates, which may adversely affect short-term stock prices and, thereby,
adversely affect the Company's performance. Additionally, as inflation
increases the effect on corporate finance activities may change. If interest
rates rise the demand for underwritings may decrease, however, other corporate
financing activities may become more readily pursued, such as financial advisory
services. It is, therefore, difficult to predict the net impact of inflation on
the Company.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128. The new standard
replaces primary and fully diluted earnings per share with basic and diluted
earnings per share. SFAS No. 128 is required to be adopted by the Company in
the year ending September 25, 1998. Had the Company been required to adopt SFAS
No. 128 for the periods presented, the adoption would not have materially
impacted primary or fully diluted earnings per share.
In June 1997, the FASB issued SFAS Nos. 130 and 131. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components.
SFAS No. 131 establishes standards for reporting about operating segments,
products and services, geographic areas, and major customers. The standards
become effective for fiscal years beginning after December 15, 1997. Management
plans to adopt these standards in the year ending September 25, 1998.
Management believes that the provisions of SFAS Nos. 130 and 131 will not have a
material effect on its financial condition or reported results of operation.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on a recent assessment, the Company determined that material costs and
resources will not be required to modify or replace significant portions of its
software so that its computer systems will properly utilize dates beyond
December 31, 1999.
-18-
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
IMPACT OF THE YEAR 2000 ISSUE (Continued)
The Company has initiated formal communications with its significant data
processing vendors to determine the extent to which the Company is vulnerable to
those third parties' failure to remediate their own Year 2000 Issue. These
vendors have represented to the Company they will be compliant with the
requirements of the year 2000.
The costs of the project and the date on which the Company plans to complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
ITEM 8 - FINANCIAL STATEMENTS
See part III, Item 13(a)(1) for a list of financial statements filed as part of
this report.
-19-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors
Olympic Cascade Financial Corporation
We have audited the accompanying consolidated statement of financial condition
of Olympic Cascade Financial Corporation and subsidiaries as of September 26,
1997 and September 27, 1996 and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for each of the
years in the three-year period ended September 26, 1997. These consolidated
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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 Olympic Cascade
Financial Corporation and subsidiaries as of September 26, 1997 and September
27, 1996, and the results of its consolidated operations and cash flows for each
of the years in the three-year period ended September 26, 1997, in conformity
with generally accepted accounting principles.
Seattle, Washington
November 14, 1997
-20-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 26, 1997 AND SEPTEMBER 27, 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
------------- -------------
<S> <C> <C>
CASH, SUBJECT TO IMMEDIATE WITHDRAWAL $ 979,000 $ 2,727,000
CASH, CASH EQUIVALENTS AND SECURITIES 30,934,000 33,005,000
DEPOSITS 1,292,000 777,000
RECEIVABLES
Customers 22,114,000 16,172,000
Brokers and dealers 1,847,000 879,000
Other 481,000 443,000
Refundable federal income tax 597,000 -
SECURITIES HELD FOR RESALE, AT MARKET 2,066,000 3,367,000
------------- --------------
60,310,000 57,370,000
FIXED ASSETS, net 1,528,000 534,000
GOODWILL, net of accumulated amortization of $37,000 1,391,000 -
OTHER ASSETS 545,000 51,000
------------- --------------
$ 63,774,000 $ 57,955,000
------------- --------------
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
PAYABLES
Customers $ 48,828,000 $ 48,388,000
Brokers and dealers 1,752,000 87,000
Federal income tax - 429,000
SECURITIES SOLD, BUT NOT YET PURCHASED, AT MARKET 1,047,000 1,337,000
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND
OTHER LIABILITIES 3,634,000 2,398,000
NOTE PAYABLE 909,000 -
------------- --------------
56,170,000 52,639,000
------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 13 and 14)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 2,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.02 par value, 5,000,000 shares authorized,
1,444,205 and 845,248 shares issued and outstanding, 29,000 17,000
respectively
Additional paid-in capital 5,045,000 1,825,000
Retained earnings 2,530,000 3,474,000
------------- --------------
7,604,000 5,316,000
------------- --------------
$ 63,774,000 $ 57,955,000
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-21-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND
SEPTEMBER 29, 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
REVENUES
Commissions $ 17,496,000 $ 14,490,000 $ 9,014,000
Net dealer inventory gains 4,782,000 3,251,000 2,617,000
Underwriting 12,837,000 13,191,000 392,000
Interest and dividends 3,775,000 2,921,000 1,610,000
Transfer fees and clearance services 620,000 576,000 401,000
Other 484,000 470,000 241,000
------------- ------------- -------------
39,994,000 34,899,000 14,275,000
------------- ------------- -------------
EXPENSES
Commissions 22,017,000 21,236,000 7,764,000
Employee compensation and related expenses 6,364,000 4,200,000 1,856,000
Occupancy and equipment costs 2,927,000 1,730,000 1,085,000
Interest 2,265,000 1,806,000 1,046,000
Clearance fees 965,000 686,000 520,000
Communications 1,499,000 722,000 400,000
Taxes, licenses, registration 874,000 609,000 283,000
Professional fees 589,000 418,000 354,000
Other operating expenses 2,300,000 949,000 584,000
------------- ------------- -------------
39,800,000 32,356,000 13,892,000
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 194,000 2,543,000 383,000
PROVISION FOR INCOME TAXES (93,000) (808,000) (126,000)
------------- ------------- -------------
NET INCOME $ 101,000 $ 1,735,000 $ 257,000
------------- ------------- -------------
------------- ------------- -------------
EARNINGS PER SHARE OF COMMON STOCK
Primary $ 0.07 $ 1.74 $ 0.32
------------- ------------- -------------
------------- ------------- -------------
Fully diluted $ 0.07 $ 1.45 $ 0.32
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-22-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND
SEPTEMBER 29, 1995
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Retained
Shares Amount Capital Earnings Total
---------- ---------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, September 30, 1994 597,688 $ 12,000 $ 400,000 $ 2,097,000 $ 2,509,000
Issuance of common stock 100,000 2,000 498,000 - 500,000
Exercise of stock options, including
$16,000 income tax benefit 25,750 1,000 69,000 - 70,000
Redemption and retirement of
common stock (46,500) (1,000) (49,000) (106,000) (156,000)
Net income - - - 257,000 257,000
---------- ---------- ------------ ------------- --------------
BALANCE, September 29, 1995 676,938 14,000 918,000 2,248,000 3,180,000
Issuance of common stock
related to transfer of registered
representatives and customer
accounts including $90,000
income tax benefit 60,000 1,000 299,000 - 300,000
Exercise of stock options, including
$26,000 income tax benefit 32,586 - 101,000 - 101,000
Stock dividends 75,724 2,000 507,000 (509,000) -
Net income - - - 1,735,000 1,735,000
---------- ---------- ------------ ------------- --------------
BALANCE, September 27, 1996 845,248 17,000 1,825,000 3,474,000 5,316,000
Exercise of stock options, including
$78,000 income tax benefit 153,978 3,000 719,000 - 722,000
Stock dividends 174,979 4,000 1,041,000 (1,045,000) -
Common stock issued in
connection with acquisitions 270,000 5,000 1,460,000 - 1,465,000
Net income - - - 101,000 101,000
---------- ---------- ------------ ------------- --------------
BALANCE, SEPTEMBER 26, 1997 1,444,205 $ 29,000 $ 5,045,000 $ 2,530,000 $ 7,604,000
---------- ---------- ------------ ------------- --------------
---------- ---------- ------------ ------------- --------------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-23-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND
SEPTEMBER 29, 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 101,000 $ 1,735,000 $ 257,000
Adjustments to reconcile net income to net cash from
operating activities
Depreciation and amortization 498,000 390,000 171,000
Loss on disposal of fixed assets 2,000 - 68,000
Deferred income tax benefit (45,000) - -
Gain on foreign currency translation (43,000) - -
Changes in assets and liabilities
Cash, cash equivalents and securities 2,071,000 (7,611,000) (16,235,000)
Deposits (515,000) (598,000) (120,000)
Receivables (6,900,000) (2,910,000) (7,779,000)
Federal income tax receivable/payable (948,000) 585,000 (39,000)
Securities held for resale 1,350,000 (2,538,000) (272,000)
Other assets (439,000) 42,000 5,000
Payables 2,105,000 10,986,000 22,029,000
Securities sold, but not yet purchased (290,000) 1,142,000 74,000
Accounts payable, accrued expenses and other liabilities 1,181,000 1,476,000 411,000
------------ ------------- -----------
(1,872,000) 2,699,000 (1,430,000)
------------ ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (1,313,000) (251,000) (324,000)
Deferred cost payments - - (100,000)
Purchase of goodwill (83,000) - -
------------ ------------- -----------
(1,396,000) (251,000) (424,000)
------------ ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 724,000 - 500,000
Redemption and retirement of common stock - - (156,000)
Exercise of stock options 644,000 75,000 54,000
Proceeds from notes payable 1,805,000 - -
Payments on notes payable (1,653,000) - (11,000)
------------ ------------- -----------
1,520,000 75,000 387,000
------------ ------------- -----------
INCREASE (DECREASE) IN CASH (1,748,000) 2,523,000 (1,467,000)
CASH BALANCE
Beginning of year 2,727,000 204,000 1,671,000
------------ ------------- -----------
End of year $ 979,000 $ 2,727,000 $ 204,000
------------ ------------- -----------
------------ ------------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $ 2,265,000 $ 1,806,000 $ 1,046,000
------------ ------------- -----------
------------ ------------- -----------
Income tax $ 1,117,000 $ 223,000 $ 165,000
------------ ------------- -----------
------------ ------------- -----------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Deferred cost and issuable common stock (Note 9) $ - $ 210,000 $ 105,000
------------ ------------- -----------
------------ ------------- -----------
Tax effect of common stock issued and stock options exercised $ 78,000 $ 116,000 $ 16,000
------------ ------------- -----------
------------ ------------- -----------
Acquisition of subsidiaries
Fair value of assets acquired, other than cash $ 1,596,000 $ - $ -
Liabilities assumed 855,000 - -
------------ ------------- -----------
Common stock issued $ 741,000 $ - $ -
------------ ------------- -----------
------------ ------------- -----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-24-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Olympic Cascade Financial Corporation ("Olympic" or
the "Company") is a diversified financial services organization, operating
through its four wholly owned subsidiaries, National Securities Corporation
("National"), L. H. Friend, Weinress, Frankson & Presson, Inc. ("Friend"),
WestAmerica Investment Group ("WestAmerica") and Travis Capital, Inc.
("Travis"). Olympic is committed to establishing a significant presence in the
financial services industry by providing financing options for emerging, small
and middle capitalization companies through institutional research and sales and
investment banking services for both public offerings and private placements,
and also provides retail brokerage and trade clearance operations.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Olympic and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
ACCOUNTING METHOD - Customer security transactions and the related
commission income and commission expense are recorded on a settlement date
basis. The Company's financial condition and results of operations using the
settlement date basis are not materially different from that of the trade date
basis. Revenue from consulting services and investment banking activities is
recognized as the services are performed.
DEPRECIATION - Fixed assets are stated at cost and are depreciated over
their estimated useful lives of three to seven years. Depreciation is computed
using the straight-line method.
EARNINGS PER SHARE - Primary earnings per common share is based upon the
net income for the year divided by the weighted average number of common shares
and common stock equivalents outstanding during the year. For fiscal years
ended 1997, 1996 and 1995, the number of shares used in the primary earnings per
share calculation was 1,357,258, 997,934, and 811,851, respectively. The
weighted average number of shares outstanding, assuming full dilution, includes
common stock equivalents which would arise from the exercise of stock options
and assumes that all have been converted to common shares using the treasury
stock method at the beginning of the year. For fiscal years 1997, 1996 and
1995, the number of shares used in the fully diluted earnings per share
calculation was 1,357,258, 1,197,158 and 811,851, respectively. All shares used
in primary and fully diluted calculations have been restated to show the effect
of the stock dividends as described in Note 15.
-25-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES - The Company utilizes an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on currently enacted tax laws and rates.
FISCAL YEAR - The Company has a 52 or 53 week year, ending on the last
Friday in September.
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows,
the Company considers only cash subject to immediate withdrawal. Cash, cash
equivalents and securities as discussed in Note 4 are not considered a change in
cash for this purpose.
NEW ACCOUNTING STANDARDS - In February 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 128. The new standard replaces primary and fully diluted earnings per share
with basic and diluted earnings per share. SFAS No. 128 is required to be
adopted by the Company in the year ending September 25, 1998. Had the Company
been required to adopt SFAS No. 128 for the periods presented, the adoption
would not have materially impacted primary or fully diluted earnings per share.
In June 1997, the FASB issued SFAS Nos. 130 and 131. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components. SFAS No. 131 establishes standards for reporting about operating
segments, products and services, geographic areas, and major customers. The
standards become effective for fiscal years beginning after December 15, 1997.
Management plans to adopt these standards in the year ending September 25, 1998.
Management believes that the provisions of SFAS Nos. 130 and 131 will not have a
material effect on its financial condition or reported results of operation.
NOTE 2 - CORPORATE RESTRUCTURING AND ACQUISITIONS
CORPORATE RESTRUCTURING - In November 1996, the Company's stockholders
approved a restructuring whereby National's stockholders exchanged their shares
of common stock on a one-for-one basis for shares of common stock of the Company
resulting in National becoming a wholly owned subsidiary of Olympic. This
restructuring became effective in February 1997 and was accounted for as a
pooling of interests.
-26-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 2 - CORPORATE RESTRUCTURING AND ACQUISITIONS (CONTINUED)
ACQUISITIONS - In March 1997, the Company acquired all of the
outstanding stock of Friend, a Southern California based broker-dealer
specializing in investment banking, institutional brokerage, research and
trading activities for middle market companies. Friend was acquired in exchange
for 250,000 unregistered shares of Olympic common stock valued at $1,375,000.
The Company recorded this transaction under the purchase method of accounting
and has recorded goodwill of $1,300,000 for the purchase price and direct costs
in excess of the net fair value of the assets acquired.
In June 1997, the Company acquired all of the outstanding stock of
WestAmerica, a Scottsdale, Arizona based broker-dealer specializing in retail
brokerage services. WestAmerica was acquired for $443,000 in cash and an
agreement that provides for the payment of bonus compensation to certain
brokers. The Company recorded this transaction under the purchase method of
accounting and has recorded goodwill of $83,000 for the purchase price and
direct costs in excess of the net fair value of the assets acquired.
In June 1997, the Company acquired all of the outstanding stock of
Travis, a Salt Lake City, Utah based broker-dealer focusing on private placement
of securities for emerging and middle market companies in the U.S. and
internationally. Travis was acquired in exchange for 20,000 unregistered shares
of Olympic common stock valued at $90,000. The Company recorded this transaction
under the purchase method of accounting and has recorded goodwill of $45,000 for
the purchase price and direct costs in excess of the net fair value of the
assets acquired.
The operating results of these acquired companies are included in the
consolidated statement of income from their respective acquisition dates.
Goodwill resulting from these transactions is being amortized over 5 to 25
years.
The following unaudited summary, prepared on a pro forma basis, combines
the consolidated condensed results of operations as if Friend, WestAmerica and
Travis had been acquired as of the beginning of the fiscal year ended September
29, 1995. There are no material adjustments which impact the summary.
1997 1996 1995
------------- ------------ -------------
Total revenues $ 45,203,000 $ 44,174,000 $ 22,765,000
Income (loss) before income taxes $ (323,000) $ 2,875,000 $ 828,000
Net income (loss) $ (223,000) $ 2,062,000 $ 698,000
Earnings (loss) per share of
common stock $ (0.15) $ 1.38 $ 0.63
Weighted average shares
outstanding during the period 1,512,083 1,493,783 1,108,482
-27-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 2 - CORPORATE RESTRUCTURING AND ACQUISITIONS (CONTINUED)
The pro forma results are not necessarily indicative of the actual
results of operations that would have occurred had the transactions been
consummated as indicated nor are they intended to indicate results that may
occur in the future.
NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Substantially all of the Company's financial instruments are carried at
fair value. Assets, including cash, cash equivalents and securities, deposits,
certain receivables, securities held for resale and other assets, are carried at
fair value or contracted amounts which approximate fair value. Similarly,
liabilities, including certain payables, securities sold but not yet purchased
and notes payable are carried at fair value or contracted amounts approximating
fair value.
NOTE 4 - CASH, CASH EQUIVALENTS AND SECURITIES
Cash, cash equivalents, and securities have been segregated in special
reserve bank accounts for the exclusive benefit of customers under Rule 15c3-3
of the Securities and Exchange Commission and consist of:
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
-------------- --------------
United States Government obligations $ 29,158,000 $ 31,426,000
Reverse repurchase agreement 1,770,000 1,579,000
Cash 6,000 -
-------------- --------------
$ 30,934,000 $ 33,005,000
------------- --------------
------------- --------------
The United States Government and agencies obligations mature at various
dates through February 2027 and are stated at current market values. The
reverse repurchase agreements are carried at cost which approximates market
value. The Company purchases these obligations at fixed, variable and
adjustable interest rates in order to reduce exposure to interest rate changes.
-28-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 5 - CUSTOMER RECEIVABLES AND PAYABLES
The Company seeks to protect itself from the risks associated with
customer activities by requiring customers to maintain margin collateral in
compliance with regulatory and its own internal guidelines, which are more
stringent than regulatory margin requirements. Margin levels are monitored
daily and additional collateral must be deposited as required. Where customers
cannot meet collateral requirements, the Company will liquidate underlying
financial instruments sufficient to bring the accounts in compliance.
Exposure to credit risk is affected by the markets for financial
instruments, which can be volatile and may impair the ability of clients to
satisfy their obligations to the Company. Credit limits are established and
closely monitored for customers and broker-dealers engaged in transactions
deemed to be credit-sensitive.
Included in amounts receivable from and payable to customers are
balances in accounts of officers and directors totaling:
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
------------- -------------
Receivable $ - $ 28,000
------------- -------------
------------- -------------
Payable $ 659,000 $ 558,000
------------- -------------
------------- -------------
NOTE 6 - BROKER-DEALER RECEIVABLES AND PAYABLES
Amounts receivable from and payable to brokers and dealers include:
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
-------------- --------------
Due from clearing organization $ 708,000 $ 347,000
Deposits paid for securities borrowed 588,000 284,000
Commissions receivable 470,000 -
Securities failed to deliver 81,000 248,000
------------- ------------
Total receivable $ 1,847,000 $ 879,000
------------- ------------
------------- ------------
Due to clearing organization $ 1,518,000 $ -
Securities failed to receive 234,000 87,000
------------- ------------
Total payable $ 1,752,000 $ 87,000
------------- ------------
------------- ------------
-29-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 6 - BROKER-DEALER RECEIVABLES AND PAYABLES (CONTINUED)
Securities borrowed are recorded at the amount of cash collateral
advanced or received. The Company monitors the market value of securities
borrowed and loaned on a daily basis and obtains additional collateral from
counterparties as necessary.
The Company has receivables and payables for financial instruments sold
to and purchased from broker-dealers. The Company is exposed to risk of loss
from the inability of broker-dealers to pay for purchases or to deliver
financial instruments sold, in which case the Company would have to sell or
purchase the financial instruments at prevailing market prices.
NOTE 7 - SECURITIES HELD FOR RESALE
Securities held for resale and securities sold, but not yet purchased
consist of the following:
SEPTEMBER 26, 1997 SEPTEMBER 27, 1996
------------------------ -------------------------
SOLD, BUT SOLD, BUT
NOT YET NOT YET
OWNED PURCHASED OWNED PURCHASED
---------- ---------- ---------- -----------
Government bonds $ - $ - $ 5,000 $ -
State and municipal
obligations 71,000 - 132,000 -
Corporate obligations 5,000 - 6,000 -
Corporate stocks 1,990,000 1,047,000 3,224,000 1,337,000
---------- ---------- ---------- -----------
$2,066,000 $1,047,000 $3,367,000 $ 1,337,000
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Securities held for resale and securities sold, but not yet purchased
are recorded at fair value. Fair value is generally based upon quoted market
prices. If quoted market prices are not available, or if liquidating the
Company's position is reasonably expected to impact market prices, fair value is
determined based upon other relevant factors, including dealer price quotations,
price activity of similar instruments and pricing models. Pricing models
consider the time value and volatility factors underlying the financial
instruments and other economic measurements.
-30-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 7 - SECURITIES HELD FOR RESALE (CONTINUED)
Securities sold, but not yet purchased commit the Company to deliver
specified securities at predetermined prices. The transactions may result in
market risk since, to satisfy the obligation, the Company must acquire the
securities at market prices, which may exceed the values reflected on the
Consolidated Statement of Financial Condition.
NOTE 8 - FIXED ASSETS
Fixed assets, at cost, consist of the following:
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
------------- -------------
Office machines $ 427,000 $ 255,000
Furniture and fixtures 1,542,000 500,000
Electronic equipment 1,333,000 892,000
Leasehold improvements 212,000 54,000
----------- ------------
3,514,000 1,701,000
Less accumulated depreciation
and amortization 1,986,000 1,167,000
----------- ------------
$ 1,528,000 $ 534,000
----------- ------------
----------- ------------
NOTE 9 - DEFERRED COST AND ISSUABLE COMMON STOCK
During 1995, National entered into an agreement with a brokerage firm
and its principal stockholder. Under the terms of the agreement, the principal
stockholder assisted in causing the transfer of the registered representatives
and the customer accounts to National. National obtained no assets, tangible or
intangible, and assumed no liabilities, with the exception of a short-term
office lease. In exchange, National paid cash of $100,000 and issued 60,000
unregistered shares of National's stock plus options to purchase an additional
50,000 shares. An additional 40,000 shares were to be issued during 1997
contingent upon certain obligations and the registered representatives meeting
certain revenue criteria.
At September 26, 1997, the requirements of the contingency related to
the issuance of 40,000 shares common stock had not been satisfied and no stock
was issued. National has no further obligation under the agreement.
-31-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 10 - LINE OF CREDIT
National has an unsecured line of credit of up to $3,000,000. The line
is subject to renewal in March 1998. Borrowings bear interest at the bank's
prime rate. Interest is payable monthly. These borrowings are short-term and
have not extended beyond a few days. Although at times National has not
satisfied and may not in the future satisfy a minor loan covenant, the bank has
continued to provide all necessary borrowings. At September 26, 1997 there were
no borrowings outstanding.
NOTE 11 - NOTES PAYABLE
At September 26, 1997, the Company has a note payable to a bank with
outstanding principal and interest of $909,000. Principal is payable in monthly
installments of $150,000 from May through October of 1998. Accrued interest at
8.95% is to be paid monthly beginning October 1997.
On November 17, 1997, the Company executed two promissory notes totaling
$925,000. The notes bear interest at 8% and the principal is to be repaid in 24
monthly installments commencing on December 31, 2000. In addition, warrants for
the purchase of 120,000 shares at an exercise price of $5.625 per share of the
Company's common stock were issued. The warrants are valued at $120,000 and
have been recorded as original issue discount.
NOTE 12 - FEDERAL INCOME TAX
The income tax benefit (provision) consists of:
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 29,
1997 1996 1995
------------- ------------- -------------
Current Federal income tax $ (56,000) $ (808,000) $ (126,000)
Deferred federal income tax 45,000 - -
Current state income tax (82,000) - -
------------- ------------- -------------
$ (93,000) $ (808,000) $ (126,000)
------------- ------------- -------------
------------- ------------- -------------
-32-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 12 - FEDERAL INCOME TAX (CONTINUED)
The income tax provision varies from the federal statutory rate as
follows:
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 29,
1997 1996 1995
------------- ------------- -------------
Statutory Federal rate $ (66,000) $ (865,000) $ (130,000)
State income taxes, net of
federal income tax benefit (54,000) - -
Other 27,000 57,000 4,000
------------- ------------- -------------
$ (93,000) $ (808,000) $ (126,000)
------------- ------------- -------------
------------- ------------- -------------
The Company has net operating loss (NOL) carryforwards for Federal
income tax purposes of approximately $100,000, the benefit of which expires in
the tax year 2012. The NOL's created by the Company's subsidiaries prior to
their acquisition have limitations related to the amount of usage by each
subsidiary or the consolidated group as described in the Internal Revenue Code.
Significant components of the Company's deferred tax assets are as
follows at September 26, 1997:
Net operating losses $ 34,000
Other 11,000
---------
Total deferred tax asset $ 45,000
---------
---------
There were no deferred tax assets or liabilities at September 27, 1996.
Management believes it is more likely than not that the benefits
resulting from the deferred tax assets will be realized through future taxable
earnings.
-33-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 13 - COMMITMENTS
As of September 26, 1997, the Company is committed under operating
leases to future minimum lease payments as follows:
Fiscal Year Ending
------------------
1998 $ 1,605,000
1999 988,000
2000 601,000
2001 550,000
2002 444,000
Thereafter 325,000
------------
$ 4,513,000
------------
------------
Rental expense for operating leases for the years ended September 26,
1997, September 27, 1996 and September 29, 1995 was $1,113,000, $672,000 and
$369,000, respectively.
UNDERWRITINGS - During fiscal 1997, the Company participated in
underwriting securities for private placements, initial and secondary public
offerings. At September 26, 1997, the Company has no outstanding commitments
relating to underwriting transactions.
NOTE 14 - CONTINGENCIES
In April 1997, certain minority stockholders brought action against the
Company and its subsidiary National, alleging National breached an agreement to
purchase their shares of Interact Medical Technologies Corp. ("Interact"). The
plaintiffs alleged claims under section 10(b) of the Securities Exchange Act of
1934 and SEC Rule 10b-5 promulgated thereunder, for common law fraud and
misrepresentation, for breach of express and implied contract, and for
negligence and are seeking damages in excess of $4,000,000.
The Company and National moved to dismiss the plaintiffs' claims on
various grounds, and the plaintiffs moved for partial summary judgment on their
claims of breach of contract. In late October 1997 the Court (i) dismissed all
of plaintiffs' claims against the Company; (ii) dismissed plaintiffs' Securities
law claims against National; and (iii) denied plaintiffs' motion entirely.
Consequently, the case is proceeding against National on theories of common law
fraud, misrepresentation, breach of contract and negligence.
-34-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 14 - CONTINGENCIES (CONTINUED)
In May 1997, a Trust brought action against the Company, its subsidiary
National, and several officers and directors of the Company and National,
originally alleging fraud, breach of fiduciary duties and state securities law
violations in connection with the share exchange between the Company and
National (the "Share Exchange") and otherwise. The plaintiff, prosecuting the
case both individually and derivatively, seeks monetary damages, corporate
dissolution of the Company and National, recission of the Share Exchange, and
the fair value of its shares in an appraisal proceeding. In an amended
pleading, plaintiff dropped all allegations of fraud and the claim for recission
of the Share Exchange, and alleged that the defendants breached fiduciary duties
by, among other things, secretly receiving excessive and otherwise inappropriate
overrides and other compensation, and that defendants traded in the Company's
stock with knowledge of material, non-public information. The second amended
complaint also alleges that the proxy statement underlying the Share Exchange
wrongly failed to disclose that stockholders' rights would be governed by
Delaware, and not Washington law, and that the plaintiff was wrongly denied
access to the Company's books and records.
In October 1997, a corporation served National with a complaint alleging
National and a former National representative breached a contract and committed
various torts by failing to perform an alleged promise to raise capital for
plaintiff through an initial public offering of stock. The plaintiff sought not
less than $8.5 million in actual damages and not less than $42.5 million in
punitive damages. National negotiated an agreement whereby applicable statutes
of limitations would be tolled through calendar 1997 and all claims against it
would be dismissed. On November 4, 1997, all claims against National were
dismissed without prejudice.
The Company is a defendant in various other arbitrations and
administrative proceedings, lawsuits and claims which arise out of the normal
course of business.
The Company intends to vigorously defend itself in these actions, and in
any event, does not believe these actions singularly or combined would have a
material adverse effect on the Company's financial statements or business
operations.
-35-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 15 - CONCENTRATIONS OF CREDIT RISK
The Company is actively involved in securities underwriting, brokerage,
distribution and trading. These and other related services are provided on a
national basis to a large and diversified group of clients and customers,
including corporations, governments, financial institutions and individual
investors. The Company's exposure to credit risk associated with the non-
performance of these customers and counterparties in fulfilling their
contractual obligations can be directly impacted by volatile or illiquid trading
markets which may impair the ability of customers and counterparties to satisfy
their obligations to the Company.
Substantially all of the securities held for the exclusive benefit of
customers, pursuant to SEC Rule 15c3-3, consisted of issues by the U.S.
Government or federal agencies. The Company's most significant counterparty
concentrations are other brokers and dealers, commercial banks, institutional
clients and other financial institutions. This concentration arises in the
normal course of the Company's business.
NOTE 16 - STOCKHOLDERS' EQUITY
STOCK OPTIONS - The Company's stock option plans provide for the
granting of stock options to certain key employees, directors and investment
executives. Generally, options outstanding under the Company's stock option
plan are granted at prices equal to or above the market value of the stock on
the date of grant, vest either immediately or ratably over up to five years, and
expire five years subsequent to award.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. FASB Statement No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123") was issued by the FASB and, if fully adopted, changes
the methods for recognition of cost on plans similar to those of the Company.
Had compensation cost for the Company's stock option plans been determined base
upon the fair value at the grant date for awards under these plans consistent
with the methodology prescribed under SFAS 123, the Company's net income and
earnings per share would have been reduced by approximately $779,000, or $0.54
per share in 1997, $282,000, or $0.33 per share in 1996, and $49,000, or $0.07
per share in 1995. The fair value of the options granted during 1997, 1996 and
1995 is estimated as $960,000, $620,000 and $463,000, respectively, on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions:
-36-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 16 - STOCKHOLDERS' EQUITY (CONTINUED)
1997 1996 1995
---- ---- ----
Volatility 63.39% 63.64% 77.10%
Risk-free interest rate 6.31% 6.31% 6.77%
Expected life 5 years 5 years 5 years
A summary of the status of the Company's stock options is presented below:
<TABLE>
<CAPTION>
Weighted
Average
Price Per
Authorized Granted Available Share
---------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, September 30, 1994 471,609 124,969 346,640 $1.78
Granted - 257,658 (257,658) $4.29
Exercised (29,809) (29,809) - $1.76
---------- -------- ----------
Balance, September 29, 1995 441,800 352,818 88,982 $2.99
Creation of new plan 405,169 - 405,169
Granted - 293,544 (293,544) $4.08
Exercised (37,726) (37,726) - $2.00
---------- -------- ----------
Balance, September 27, 1996 809,243 608,636 200,607 $3.79
Creation of a new plan 538,126 - 538,126
Granted - 289,275 (289,275) $6.09
Exercised (153,978) (153,978) - $3.59
---------- -------- ----------
Balance, September 26, 1997 1,193,391 743,933 449,458 $4.88
---------- -------- ----------
---------- -------- ----------
</TABLE>
-37-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 16 - STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options
outstanding at September 26, 1997:
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Cont. Life Prices Exercisable Prices
- ------------ ----------- ---------- -------- ----------- --------
$3.56 - 3.92 454,658 2.82 $ 3.82 321,773 $ 3.78
$4.00 - 4.76 37,800 4.00 $ 4.76 - $ -
$5.00 - 5.95 97,125 4.00 $ 5.72 86,625 $ 5.72
$7.00 - 7.47 154,350 4.00 $ 7.47 154,350 $ 7.47
---------- ----------
743,933 562,748
---------- ----------
---------- ----------
STOCK WARRANTS - During 1997, the Company issued 31,500 stock warrants
with an exercise price of $5.00 per share expiring five years from the award
date to a lender. The warrants were valued at $20,000, net of tax benefit,
which has been recorded as a discount on the note payable. The discount will be
amortized to operations as the note payable is repaid.
STOCK DIVIDENDS - During fiscal year 1997, the Company declared three 5%
stock dividends to all common stockholders. The stock dividends were issued on
January 27, 1997, May 30, 1997 and September 10, 1997. The stock dividends in
1997 increased the number of issued and outstanding shares by 174,979. During
fiscal year 1996, the Company declared two 5% stock dividends to all common
stockholders. The stock dividends were issued on June 4, 1996 and September 16,
1996. The stock dividends in 1996 increased the number of issued and
outstanding shares by 75,724. All references in the accompanying financial
statements to the number of stock options and warrants, and earnings per share
have been restated to reflect the dividends.
-38-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 17 - NET CAPITAL REQUIREMENTS
National, as a registered broker-dealer is subject to the SEC's Uniform
Net Capital Rule 15c3-1, which requires the maintenance of minimum net capital.
National has elected to use the alternative standard method permitted by the
rule. This requires that National maintain minimum net capital equal to the
greater of $250,000 or 2% of aggregate debit items. At September 26, 1997,
National's net capital exceeded the requirement by $1,654,000.
Friend and WestAmerica, as registered broker-dealers are also subject to
the SEC's Net Capital Rule 15c3-1, which, under the standard method, requires
that each company maintain minimum net capital equal to the greater of $100,000
or 6 2/3% of aggregate indebtedness. At September 26, 1997, Friend and
WestAmerica's net capital exceeded the requirement by $290,000 and $121,000,
respectively.
Travis, also subject to the SEC's Net Capital Rule, is required to
maintain the greater of $5,000 or 6 2/3% of aggregate indebtedness. As of
September 26, 1997, Travis had a net capital deficit of $7,000. This deficit
was corrected promptly in October following discovery.
Advances, dividend payments and other equity withdrawals from National,
Friend, WestAmerica or Travis are restricted by the regulations of the SEC, and
other regulatory agencies. These regulatory restrictions may limit the amounts
that these subsidiaries may dividend or advance to the Company.
NOTE 18 - EMPLOYEE BENEFITS
The Company's subsidiaries have defined 401(k) profit sharing plans
which cover substantially all of their employees. Under the terms of the plans,
employees can elect to defer up to 25% of eligible compensation, subject to
certain limitations, by making voluntary contributions to their respective
plans. Each company's annual contributions are made at the discretion of the
respective Board of Directors. During the fiscal year September 26, 1997 the
Company charged $82,000 to operations in connection with the plans. During the
fiscal years September 27, 1996 and September 29, 1995, the Company made no such
contributions.
-39-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 19 - FINANCIAL INFORMATION - OLYMPIC
Olympic was formed February 6, 1997. The following Olympic (parent
company only) financial information should be read in conjunction with the other
notes to the consolidated financial statements.
STATEMENT OF FINANCIAL CONDITION
ASSETS
September 26,
1997
-------------
Cash, subject to immediate withdrawal $ 11,000
Receivable from subsidiaries 545,000
-------------
556,000
Investment in subsidiaries 9,134,000
Other assets 68,000
-------------
$ 9,758,000
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 68,000
Payable to subsidiaries 1,177,000
Note payable 909,000
-------------
2,154,000
-------------
Stockholders' equity 7,604,000
-------------
$ 9,758,000
-------------
-------------
-40-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 19 - FINANCIAL INFORMATION - OLYMPIC (CONTINUED)
STATEMENT OF OPERATIONS
Period from
February 6, 1997
(Inception) to
September 26, 1997
------------------
Operating expenses $ 696,000
Other income (expense)
Gain on foreign currency translation 43,000
Loss on investment in subsidiaries (159,000)
-----------
Loss before income tax (812,000)
Income tax benefit 270,000
-----------
Net loss $ (542,000)
-----------
-----------
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-In Retained
Shares Amount Capital Earnings Total
--------- --------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
FORMATION, February 6, 1997 $ - $ - $ - $ - $ -
Common stock issued in
connection with acquisitions 1,203,930 24,000 7,648,000 - 7,672,000
Exercise of stock options, including
$25,000 income tax benefit 109,175 2,000 472,000 - 474,000
Stock dividends 131,100 3,000 701,000 (704,000) -
Net loss - - - (542,000) (542,000)
--------- --------- -------------- ------------- ------------
BALANCE, September 26, 1997 1,444,205 $ 29,000 $ 8,821,000 * $ (1,246,000) * $ 7,604,000
--------- --------- -------------- ------------- ------------
--------- --------- -------------- ------------- ------------
</TABLE>
* Additional paid-in capital and retained earnings for the parent company
differ from consolidated amounts due to accounting for the merger with
National using the pooling of interests method in the consolidated
financial statements.
-41-
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(CONTINUED)
NOTE 19 - FINANCIAL INFORMATION - OLYMPIC (CONTINUED)
STATEMENT OF CASH FLOWS
Period From
February 6, 1997
(Inception) to
September 26, 1997
------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (542,000)
Adjustments to reconcile net income to net cash
from operating activities
Gain of foreign currency translation (43,000)
Loss on investment in subsidiaries 159,000
Changes in assets and liabilities
Receivable from subsidiaries (545,000)
Payable to subsidiaries 1,177,000
-----------
206,000
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiaries (443,000)
Capital contributions to subsidiaries (1,177,000)
-----------
(1,620,000)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options 474,000
Proceeds from notes payable 1,805,000
Payments on notes payable (854,000)
-----------
1,425,000
-----------
NET CHANGE IN CASH 11,000
CASH BALANCE
Beginning of year -
-----------
End of year $ 11,000
-----------
-----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $ 43,000
-----------
-----------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Investment in subsidiaries through issuance
of common stock $ 7,672,000
-----------
-----------
-42-
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following sets forth the names and ages of all directors and executive
officers of the Company, all positions and offices held with the Company by such
persons, and the principal occupations of each during the past five years.
Steven A. Rothstein 47 Director, Chairman, and Chief Executive Officer of
the Company, Director, Chairman, and Chief
Executive Officer of National
Mr. Rothstein became a member of the Board of National in May 1995 and was
appointed Chairman on August 1, 1995. From 1979 through 1989, Mr. Rothstein was
a registered representative, and Limited Partner at Bear Stearns & Co., Inc. in
Chicago, Illinois and Los Angeles, California. From 1989 to 1992, Mr. Rothstein
was a Senior Vice President in the Chicago office of Oppenheimer and Company,
Inc. In December 1992 he joined Rodman and Renshaw, Inc., a Chicago-based
broker-dealer serving as Managing Director, and joined H.J. Meyers, Inc. in
Beverly Hills, California, a New York Stock Exchange member firm in March 1994.
He resigned from H.J. Meyers and Company in March 1995 to associate with
National. Mr. Rothstein is a 1972 graduate of Brown University, Providence,
Rhode Island. Presently, Mr. Rothstein is a board member of American Craft
Brewing International Limited, Gateway Data Sciences, Inc., Home Security
International, Inc., New World Coffee, Inc., Sigmatron International, Inc. and
Vita Food Products, Inc.
Robert I. Kollack 51 Director of the Company
Director and Vice Chairman of National
Mr. Kollack was elected to the Board and was appointed Chief Executive Officer
of National in August 1987. He served in those capacities until February, 1997,
when he was appointed Vice-Chairman. From February 1981 to August 1987,
Mr. Kollack acted as President and a Director of National. He joined National
as an investment executive in 1972. From 1968 to 1972, he was an investment
executive for Foster & Marshall, Inc., which at that time was a Seattle-based
brokerage firm.
-43-
<PAGE>
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS (CONTINUED)
Gary A. Rosenberg 57 Director and President of the Company
Director of National
Mr. Rosenberg was appointed to the Board of National in December, 1996. Mr.
Rosenberg was Chairman and CEO of UDC Homes, Inc. (and its predecessors) from
1968 to 1994, and the Chairman (non-management) from 1994 to 1996. UDC Homes,
Inc. filed a petition for relief under Chapter 11 of the Bankruptcy Code in May,
1995. Presently, Mr. Rosenberg is Chairman, Chief Executive Officer and
Director of Canterbury Development Corporation, a family held company with
financial, technology, entertainment and real estate interests. He is also a
Director and Chairman of Dimyon Multimedia, Ltd., an Israeli multimedia and
software company; Chairman and Director of the Rosenberg Foundation; Founder and
Chairman of the Real Estate Research Center; member of the Board at the J. L.
Kellogg Graduate School of Management at Northwestern University; and a Trustee
of St. Norbert College. Mr. Rosenberg received his B.S. and M.B.A. from
Northwestern University and his J.D. from the University of Wisconsin.
EXECUTIVE OFFICERS
Robert H. Daskal 56 Senior Vice President, Chief Financial Officer and
Treasurer of the Company
Mr. Daskal was appointed Senior Vice President, Chief Financial Officer and
Treasurer of the Company in January, 1997. From 1994 to 1997 Mr. Daskal was a
Director, Executive Vice President and Chief Financial Officer of Inco Homes
Corporation, and from 1985 to 1994 he was a Director, Executive Vice President-
Finance and Chief Financial Officer of UDC Homes, Inc. (and its predecessors).
UDC Homes, Inc. filed a petition for relief under Chapter 11 of the Bankruptcy
Code in May, 1995. Mr. Daskal, a former Tax Partner with Arthur Andersen & Co.,
became a CPA in Illinois in 1967. He received his B.B.A. and J.D. from the
University of Michigan in Ann Arbor. Mr. Daskal is presently a director of Inco
Homes Corporation.
Mark Roth 36 Secretary and General Counsel of the Company
Secretary and General Counsel of National
Mr. Roth was appointed General Counsel of National in October 1995, and was
appointed Secretary in March, 1997. Mr. Roth was appointed Secretary and
General Counsel of the Company in February 1997. He received his B.S. in 1984
from the University of California, Irvine, and his J.D. in 1989 from Pepperdine
University School of Law. Mr. Roth began the private practice of law in
Southern California in 1989. Among other clients, he has represented National
in transactional and litigation matters since moving to Seattle in September
1992.
-44-
<PAGE>
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS (CONTINUED)
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's bylaws provide that the Company shall indemnify and advance the
expenses of individual directors, officers, employees and agents against costs,
judgments and other financial liability resulting from any action alleged to
have been taken or omitted by such individual. The bylaws permit such
indemnification if, among other things, the proposed indemnity acted in good
faith with reasonable belief that the conduct was in, or at least not opposed
to, the best interests of the Company, and in the case of a criminal proceeding,
with a reasonable belief that the conduct was not unlawful. The Company has
obtained insurance on behalf of any person who is or was a director, officer or
employee or agent of the Company or is or was serving at the request of the
Company as an officer, employee, or agent of another corporation, partnership,
joint venture, trust other enterprise or employee benefit plan, against any
liability arising out of that person's status as such, whether or not the
Company would have the power to indemnify that person against such liability.
ITEM 11 - EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company to each
of its most highly compensated officers (the "Named Executive Officers") during
the fiscal years ended 1997, 1996, and 1995:
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------------------- Securities
Year Other Underlying
Name and Capacity Ended Salary Bonus Compensation * Options
- ------------------------ ----- ---------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Steven A. Rothstein 1997 $ 24,000 $ 32,000 $ 1,364,000 ** 81,375
Chairman and Chief 1996 $ 24,000 $ 194,000 $ 1,775,000 ** 110,581
Executive Officer 1995 $ 48,000 $ - $ 138,000 49,700
Robert I. Kollack 1997 $ 150,000 $ 32,000 $ 497,000 18,900
Vice Chairman and Director 1996 $ 150,000 $ 193,000 $ 495,000 -
1995 $ 170,000 $ 58,000 $ 27,000 75,000
Robert H. Daskal 1997 $ 82,000 $ - $ - 21,525
Senior Vice President,
Chief Financial Officer and
Treasurer
Mark Roth 1997 $ 120,000 $ 7,000 $ - -
Secretary and General Counsel 1996 $ 120,000 $ 43,000 $ 9,000 7,350
</TABLE>
* Amounts relate to commissions earned in the normal course of business, fees
received for Corporate Finance services and profit from the sale during the
year of the Company's stock obtained through the exercise of stock options.
-45-
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION (CONTINUED)
** This compensation paid to Mr. Rothstein by the Company represents a
percentage of business generated or supervised by Mr. Rothstein as follows:
he is paid 50% of the commission generated on retail trades (compared to
the 70% typically paid to National's brokers), and 70% of the compensation
collected by the firm (including warrants) on corporate finance
transactions which he introduces and executes. Mr. Rothstein also collects
an override on fees collected from all other corporate finance transactions
as well as on business he creates for the firm.
The Company has granted options to certain officers, directors, employees, and
investment executives. The options granted during the last fiscal year
(adjusted for stock dividends) to the Named Executive Officers are as follows:
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
--------------------------------------------------------------------------------------------
Potential Realized Value
Number of % of Total at Assumed Annual Rates
Securities Options of Stock Price Appreciation
Underlying Granted to for Option Term
Options Employees Exercise Expiration -----------------------------
Name Granted in Fiscal Year Price Date 5% 10%
- ------------------- ---------- -------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Steven A. Rothstein 55,125 20.96% $ 7.47 02/06/02 $ 169,000 $ 321,000
26,250 9.99% $ 5.71 06/17/02 $ 34,000 $ 92,000
Robert I. Kollack 11,025 4.20% $ 7.47 02/06/02 $ 34,000 $ 64,000
7,875 3.00% $ 5.71 06/17/02 $ 10,000 $ 27,000
Robert H. Daskal 11,025 4.20% $ 7.47 02/06/02 $ 34,000 $ 64,000
10,500 4.00% $ 5.71 06/17/02 $ 14,000 $ 37,000
Mark Roth 7,350 2.80% $ 5.94 08/13/02 $ 15,000 $ 30,000
</TABLE>
The options exercised by the Named Executive Officers, and the fiscal year and
value of unexercised options, are as follows:
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
-------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Fiscal Year End at Fiscal Year End
Acquired Value ------------------------------- ---------------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ----------- ---------- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven A. Rothstein - - 272,818 - $ 315,000 -
Robert I. Kollack 42,000 $ 160,000 67,876 - $ 71,000 -
Robert H. Daskal - - 21,525 - - -
Mark Roth - - - 7,350 - $ 3,000
</TABLE>
-46-
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION (CONTINUED)
The Company has employment agreements with the four Named Executive Officers.
None of the Named Executive Officers may be terminated against his will without
a finding of fraud, theft or defalcation. The agreements generally provide that
the officers will devote their entire time and attention to the business of the
Company, will refrain during employment and for a period of one year thereafter
from competing with the Company, and will not disclose confidential or trade
secret information belonging to the Company. Of the four agreements, Mr.
Daskal's and Mr. Rothstein's provide for a cash severance payment. Mr.
Rothstein's severance payment is contingent upon National's net capital, as
defined under the SEC's Uniform Net Capital Rule 15c3-1, exceeds $3,500,000
after honoring the severance obligation.
COMPENSATION COMMITTEE
In lieu of a formal compensation committee, the Company's board of directors,
listed under Item 10 - Directors, Executive Officers, Promoters and Control
Persons, Compliance with Section 16(a) of the Exchange Act, determine executive
officer compensation.
The Company believes the compensation paid to its executive officers is
competitive with companies within its industry that are comparable in size and
by companies outside the industry with which the Company competes for executive
talent.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following compares cumulative total stockholder return on the Company's
common stock with the cumulative total stockholder return on the common equity
of the companies in the NASDAQ U.S. Index and the NASDAQ Financial Index (the
"Peer Group") for the period from October 1, 1992 to September 26, 1997.
Olympic NASDAQ
Measurement Period Cascade NASDAQ Financial
(Fiscal Year Covered) Financial U.S.Index Index
--------------------- --------- --------- ---------
1992 100.00 100.00 100.00
1993 346.67 130.98 137.10
1994 346.67 132.06 144.50
1995 373.33 182.40 182.84
1996 1,029.00 216.44 226.35
1997 714.70 297.11 356.45
The above assumes a $100 investment on October 1, 1992, in each of Olympic
Cascade Financial Corporation Common Stock, NASDAQ U.S. Index and the NASDAQ
Financial Index (the "Peer Group"), and further assumes the reinvestment of all
dividends.
-47-
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
CERTAIN BENEFICIAL OWNERS
The following information is furnished as of December 1, 1997, as to any person
who the Company knows to be the beneficial owner of more than 5% of the
Company's common stock:
Amount of
Name/Address of Beneficial Percent
Title of Class Beneficial Owner Ownership(1) of Class
- -------------- ------------------------- ------------ --------
Common stock Steven A. Rothstein 559,954(2) 26.13%
2737 Illinois Road
Wilmette, IL 60091
Common stock Larry H. Friend 118,125(3) 5.52%
2 Barrenger Court
Newport Beach, CA 92660
Common stock Marshall S. Geller 117,371(3) 5.48%
1875 Century Park East
Suite 2200
Los Angeles, CA 90067
Common stock Gary A. Rosenberg 116,375(4) 5.43%
1427 North State Pkwy.
Chicago, IL 60610
(1) All securities are beneficially owned directly by the persons listed in the
table (except as otherwise indicated).
(2) Includes 26,236 shares owned by direct family members, 46,866 shares owned
by retirement plans and 307,818 shares of vested unexercised stock options.
(3) Includes 15,750 shares of vested unexercised warrants to purchase common
stock owned by Geller & Friend Capital Partners whereby Mr. Friend and Mr.
Geller are each 50% partners. Accordingly, each are allocated 7,875
shares.
(4) Includes 116,375 shares of vested unexercised stock options.
-48-
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (CONTINUED)
MANAGEMENT
The following information is furnished as of December 1, 1997 as to each class
of equity securities of the Company beneficially owned by all directors and
officers of the Company as a group.
Amount of
Beneficial Percent
Name and Title of Beneficial Owner Ownership of Class
- ---------------------------------------------------------- --------- --------
Steven A. Rothstein - Chairman and Chief Executive Officer 559,954(1) 26.13%
Robert I. Kollack - Vice Chairman and Director 67,876(2) 3.17%
Gary A. Rosenberg - President and Director 116,375(2) 5.43%
Robert H. Daskal - Senior Vice President, Chief Financial
Officer and Treasurer 21,525(2) 1.01%
Mark Roth - Secretary and General Counsel 348(3) -
All officers and directors of the Company as a group
(five persons) 766,078(4) 35.74%
(1) Includes 26,236 shares owned by direct family members, 46,866 shares owned
by retirement plans and 307,818 shares of vested unexercised stock options.
(2) Includes only shares of vested unexercised stock options.
(3) Excludes 7,350 shares of unvested stock options.
(4) Includes 513,594 shares of vested unexercised stock options.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year 1997 the Company through National advanced certain monies
to Steven A. Rothstein, its Chairman and Chief Executive Officer. The largest
aggregate amount outstanding to the Company during the fiscal year was
approximately $162,000. At September 26, 1997 the balance outstanding was
approximately $30,000. Subsequent to year end the balance owing was paid in
full. The Company has not charged Mr. Rothstein interest on these advances.
-49-
<PAGE>
ITEM 14 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements are included in Part II Item 7:
1. FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Financial Statements
Financial Condition, September 26, 1997 and September 27,
1996
Operations, Years Ended September 26, 1997, September 27,
1996 and September 29, 1995
Changes in Stockholders' Equity, Years ended September 26,
1997, September 27, 1996 and September 29, 1995
Cash Flows, Years ended September 26, 1997, September 27,
1996 and September 29, 1995
Notes to Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because they are not
applicable or have been included in footnotes to the consolidated
financial statements.
(b) REPORTS ON FORM 8-K
None
(c) EXHIBITS
See Exhibit Index
-50-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OLYMPIC CASCADE FINANCIAL CORPORATION
(Registrant)
Date: December 23, 1997 By: Steven A. Rothstein
-------------------------- ----------------------------------
Steven A. Rothstein, Chairman and
Chief Executive Officer
Date: December 23, 1997 By: Robert H. Daskal
-------------------------- ----------------------------------
Robert H. Daskal, Senior Vice
President, Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: December 23, 1997 By: Steven A. Rothstein
-------------------------- ----------------------------------
Steven A. Rothstein, Chairman and
Chief Executive Officer
Date: December 23, 1997 By: Robert I. Kollack
-------------------------- ----------------------------------
Robert I. Kollack, Vice Chairman
and Director
Date: December 23, 1997 By: Gary A. Rosenberg
------------------------- ----------------------------------
Gary A. Rosenberg, President and
Director
-51-
<PAGE>
EXHIBIT INDEX
3.1* The Company's Articles of Incorporation
3.2* The Company's Bylaws
3.3* Amendment to the Articles of Incorporation dated February 25, 1992
5.1* Opinion of legal counsel
10.1* Line of credit arrangements between the Company and Seattle-First Bank
dated May 1, 1989
10.2* Lease agreement between the Company and 1001 Fourth Avenue Associates
dated January 31, 1989
10.3* Lease agreement between the Company and Sixth Colonial Property
Investments, Inc. dated May 1, 1989
10.4* Lease agreement between the Company and United States Leasing
Corporation dated December 28, 1988
10.5* Agreement between the Company and Computer Research, Inc. dated
December 5, 1988
10.6* Agreement between the Company and Midwest Clearing Corporation dated
May 13, 1987
10.7* Agreement between the Company and Jeffrey Pritchard dated November 20,
1990
10.8* Secured demand note collateral agreement between Mary Judith Block and
the Company dated August 25, 1989
10.9* Secured demand note collateral agreement between Howard W. Jones Jr.
and the Company dated July 25, 1989
10.10* Secured demand note collateral agreement between Robert I. Kollack and
the Company dated July 25, 1989
10.11* Secured demand note collateral agreement between Jeffrey J. Pritchard
and the Company dated August 2, 1989
10.12* Master repurchase agreement between Seattle-First National Bank and
the Company
10.13* Secured demand note collateral agreement between Block Foundation,
Inc. and the Company dated September 20, 1991
10.14* Secured demand note collateral agreement between Esther I. Block and
the Company dated September 24, 1991
10.15* Extension of secured demand note collateral agreement between Block
Foundation, Inc. and the Company dated October 22, 1992
10.16* Extension of secured demand note collateral agreement between Esther
I. Block and the Company dated October 22, 1992
10.17* Lease agreement between the Company and Tucker Leasing - Capital
Corporation dated July 31, 1992
10.18* Agreement with G.R. Stuart
10.19* Contract dated March 15, 1995
10.20* Contract dated May 22, 1995
10.21* Contract dated October 27, 1995
10.22* Contract dated October 15, 1996
10.23* National Asset Management Articles of Incorporation
10.24* National Asset Management Bylaws
-52-
<PAGE>
EXHIBIT INDEX
(CONTINUED)
10.25* SeaFirst Bank amended line of credit
10.26* Olympic Cascade Financial Corporation S-4 filing
10.27* Office lease, Chicago, Illinois
10.28* Office lease, Spokane Washington
10.29* Amended office lease, Chicago, Illinois
10.30 Purchase agreement between shareholders of Friend and the Company
10.31 Purchase agreement between shareholders of WestAmerica and the Company
10.32 Purchase agreement between shareholders of Travis and the Company
10.33 Borrowing agreement between Seattle-First National Bank and the
Company
10.34 Note payable agreement
10.35 Note payable agreement
11. Computation of Earnings per Share
21. Subsidiaries of Registrant
27. Financial Data Schedule
*Previously filed.
-53-
<PAGE>
EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION
Among
OLYMPIC CASCADE FINANCIAL CORPORATION,
a Delaware corporation
L. H. FRIEND, WEINRESS, FPANKSON & PRESSON, INC.,
a California corporation
and
THE SHAREHOLDERS
OF
L. H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
Dated: as of February 12, 1997
<PAGE>
EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION
This EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") dated
as of February 12, 1997, is entered into by and among Olympic Cascade Financial
Corporation, a Delaware corporation ("Olympic"), L. H. Friend. Weinress,
Frankson & Presson, Inc. a California corporation ("LHF"), and the shareholders
of LHF listed on the signature page hereof (individually, a "Shareholder" and
collectively, the "Shareholders").
RECITALS
WHEREAS, LHF's authorized shares of capital stock consist of 100,000 shares
of common stock, no par value (the "LHF Common Stock");
WHEREAS, the Shareholders own 18,250 shares (the "LHF Shares") of LHF
Common Stock, constituting all of LHF's issued and outstanding shares of capital
stock;
WHEREAS, LHF is a broker-dealer duly registered with the Securities and
Exchange Commission (the "SEC") and is a member in good standing with the
National Association of Securities Dealers, Inc. (the "NASD") engaged in the
general securities business;
WHEREAS, National Securities Corporation, a Washington corporation
("National Securities"), is a broker-dealer duly registered with the SEC and a
wholly-owned subsidiary of Olympic;
WHEREAS, the Shareholders desire to exchange all of the LHF Shares owned by
the Shareholders solely for shares of Olympic's common stock, par value S.02 per
share (the "Olympic Common Stock") pursuant to the provisions contained herein
(the "Exchange"), which Exchange is intended to qualify as a tax free
reorganization pursuant to Section 368(a)(1)(B) of the Internal Revenue Code of
1986, as amended (the "Code"); and
WHEREAS, Olympic desires to consummate the Exchange pursuant to the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein made, and in
consideration of the representations, warranties and covenants herein contained,
the parties hereto agree as follows:
<PAGE>
ARTICLE I
EXCHANGE OF STOCK; CLOSING
1.1 EXCHANGE OF STOCK. Subject to the terms and conditions herein
stated and in reliance upon the representations and warranties herein set forth,
(i) the Shareholders agree to transfer, convey, assign and deliver to Olympic at
the Closing (as defined in Section 1.4 below) all of the LHF Shares, and (ii)
Olympic agrees to acquire and accept the LHF Shares from the Shareholders, and
in exchange therefore, further agrees to issue and deliver to the Shareholders
an aggregate of Two Hundred Fifty Thousand (250,000) shares of Olympic Common
Stock (the "Olympic Shares") to be apportioned among the Shareholders in
accordance with their relative percentage ownership interests in LHF immediately
prior to the Closing as set forth on Schedule 1.1 hereto.
1.2 PURCHASE PRICE. The consideration for the LHF Shares shall be the
Olympic Shares.
1.3 TRANSFER TAXES. With respect to the payment of any and all foreign,
federal, state and local taxes, impositions, liens, levies, assessments and
similar charges due and owing as a result of the Exchange, the Shareholders
shall be solely responsible therefor.
1.4 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Loeb & Loeb LLP,
1000 Wilshire Boulevard, Suite 1800, Los Angeles, California 90017, on the first
business day following the satisfaction or waiver of all conditions to the
obligations of the parties to consummate the transactions contemplated hereby,
or at such other time and date as the parties hereto shall by written instrument
designate. Such time and date are herein referred to as the "Closing Date."
Notwithstanding the actual date of Closing, the effective date of the transfer
of the LHF Shares and the applicable date for proration of liabilities shall be
February 25, 1997 (the "Deemed Closing Date").
1.4.1 All personal property taxes and assessments, real property
taxes and utility payments with respect to the Remaining Assets (as defined in
Section 8.9), all rental payments under any leases comprising the Remaining
Assets, and all other costs and expenses paid by LHF which relate to the
operation of LHF's business after the Deemed Closing Date, which will benefit
LHF in the operation of its business after the Deemed Closing Date, shall be
prorated as of 12:01 a.m. on the Deemed Closing Date on the basis of the number
of days of the relevant tax year or period which have elapsed through the Deemed
Closing Date, with the Shareholders being responsible for that portion arising
prior to the Deemed Closing Date (the "Shareholders Portion") and LHF being
responsible for that portion arising subsequent thereto. In addition, the
Shareholders shall be credited in full for all security and other deposits paid
by LHF to
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lessors under any leases comprising the Remaining Assets, which credit shall
apply against the Shareholders Portion. All such security and other deposits
are set forth in SCHEDULE 1.4.1.
1.5 DELIVERY BY THE SHAREHOLDERS AT CLOSING. On the Closing Date, the
Shareholders shall deliver to Olympic all certificates representing the LHF
Shares duly endorsed or accompanied by a stock power duly executed in form
for transfer, which LHF Shares shall be duly authorized, fully paid and
non-assessable.
1.6 DELIVERY BY OLYMPIC AT CLOSING. On the Closing Date, Olympic shall,
or shall cause its transfer agent, if any, to issue the Olympic Shares in the
names of each of the Shareholders and to deliver to each of them a stock
certificate dated as of the Closing Date representing the number of Olympic
Shares to which such Shareholder is entitled to receive, as set forth on
Schedule 1.1.
1.7 LEGEND. The following legend shall be placed on certificates for
the Olympic Shares delivered to the Shareholders:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO OLYMPIC CASCADE FINANCIAL CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED."
Each of the Shareholders further consents to Olympic instructing its transfer
agent to place a "stop transfer" instruction on its transfer books as to all
certificates representing the Olympic Shares until such times as instructions
may be legally removed.
ARTICLE II
REPRESENTATIONS OF LHF
LHF hereby represents and warrants to Olympic that:
2.1 LHF STOCK. The LHF Shares constitute one hundred percent (100%) of
the issued and outstanding shares of stock of all classes of LHF. The LHF
Shares are duly authorized, fully paid and nonassessable.
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2.2 EXISTENCE AND GOOD STANDING. LHF is a corporation duly organized,
validly existing and in good standing under laws of the State of California.
LHF has the full corporate power and authority to own its property and to carry
on its business all as and in the places where such properties are now owned or
operated or such business is now being conducted. Except as set forth on
Schedule 2.2, (i) LHF has not qualified to do business as a foreign corporation
in any jurisdiction, and (ii) neither the character nor location of the
properties owned or leased by LHF, nor the nature of the business conducted by
LHF, requires such qualification in any jurisdiction other than in those set
forth on Schedule 2.2 and other than such jurisdictions where the failure to so
qualify would not have a material adverse effect on the assets, liabilities,
business, condition (financial or otherwise), or the results of operation of
Olympic. LHF is in good standing in each jurisdiction in which it is qualified
to do business as a foreign corporation as set forth on Schedule 2.2.
2.3 CAPITAL STOCK. The authorized capital stock of LHF consists of
100,000 shares of common stock, no par value, of which 18,250 shares are issued
and outstanding. All outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable. No other class of capital stock
of LHF is authorized or outstanding. Except as set forth on Schedule 2.3, there
are no outstanding options, warrants, rights, calls, commitments, conversion
rights, rights of exchange, plans or other agreements of any character providing
for the purchase, issuance or sale of any shares of the capital stock of LHF.
2.4 SUBSIDIARIES, AFFILIATES AND INVESTMENTS. Except as set forth in
Schedule 2.4, LHF does not own any capital stock or other equity or ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity.
2.5 FINANCIAL STATEMENTS AND NO MATERIAL CHANGES.
2.5.1 LHF has heretofore furnished to Olympic true and correct
copies of a draft of the audited statement of financial condition of LHF as at
December 31, 1996 (the "Balance Sheet") and the related statements of income,
changes in shareholders' equity, changes in liabilities subordinated to the
claims of general creditors, and cash flows for the year ended December 31, 1996
(the "Financial Statements").
2.5.2 The Balance Sheet fairly presents the financial condition of
LHF at the date thereof and, the Financial Statements fairly present the results
of operations of LHF and cash flows for the period indicated.
2.5.3 Since December 31, 1996 (the "Balance Sheet Date"), there
has been no material adverse change in the assets, liabilities, business,
condition (financial
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or otherwise), or the results of operations of LHF, except as contemplated by
this Agreement.
2.5.4 The Balance Sheet and the Financial Statements (including
the notes thereto) have been prepared in accordance with generally accepted
accounting principles, applied on a consistent basis throughout the period
covered thereby and are consistent with the books and records of LHF.
2.6 BOOKS AND RECORDS. All accounts, books, ledgers and official and
other records material to the business of LHF have been properly and accurately
kept and completed in all material respects, and there are no material
inaccuracies or discrepancies of any kind contained or reflected therein. True
and complete copies of the charter documents and bylaws of LHF, and all
amendments thereto, have been delivered to Olympic.
2.7 TITLE TO PROPERTIES: ENCUMBRANCES. Except as set forth in Schedule
2.7, LHF has good and marketable title to (a) all of the material Remaining
Assets (as defined in Section 8.9), (b) all the material Remaining Assets
purchased by LHF since the Balance Sheet Date (except in each case for Remaining
Assets reflected in the Balance Sheet or acquired since the Balance Sheet Date
that have been sold or otherwise disposed of in the ordinary course of
business); in each case subject to no encumbrance, lien, charge or other
restriction of any kind or character, except for liens reflected in the Balance
Sheet.
2.8 LEASES. SCHEDULE 2.8 contains an accurate and complete list of all
real property leases and all equipment leases to which LHF is a party (as lessee
or lessor). Each lease set forth in SCHEDULE 2.8 (or required to be set forth
on SCHEDULE 2.8) is in full force and effect; all rents and additional rents due
to date on each such lease have been paid; in each case, the lessee is in
peaceable possession of the lease and is not in default thereunder, and no
waiver, indulgence or postponement of the lessee' s obligations thereunder has
been granted by the lessor; and, except as set forth in Schedule 2.8, there
exists no default or event of default by LHF or to the knowledge of LHF, by any
other party to such lease. No consent of any party to such leases is required
to consummate the Exchange.
2.9 CONTRACTS. Except as set forth in SCHEDULE 2.9, LHF is not party to
or bound by (a) any agreement, contract or commitment relating to any bonus,
deferred compensation, pension, profit sharing, stock option, employee stock
purchase, retirement or other employee benefit plan, (b) any agreement,
indenture or other instrument which contains restrictions with respect to
payment of dividends or any other distribution in respect of its capital stock,
(c) any agreement, contract or commitment relating to capital expenditures, (d)
any loan or advance to, or investment in, any other Person (as defined in
Section 10.3) or any agreement, contract or
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commitment relating to the making of any such loan advance or investment, (e)
any guarantee or other contingent liability in respect of any indebtedness or
obligation of any other Person (other than the endorsement of negotiable
instruments for collection in the ordinary course of business), (f) any
management service, employment, consulting or any other similar type of
contract, (g) any agreement, contract or commitment which involves Fifty
Thousand Dollars ($50,000) or more and is not cancelable without penalty
within thirty (30) days, (h) any agreement with any officer or director of
LHF, or (i) any contract with any Shareholder. Except as set forth in
SCHEDULE 2.9, each contract or agreement set forth on SCHEDULE 2.9 is in full
force and effect, and there exists no material default or event of default by
LHF or to the knowledge of LHF, by any other party. Notwithstanding anything
herein to the contrary, the parties acknowledge and agree that SCHEDULE 2.9
does not contain a list of existing agreements with clients, it being
understood that such list will be delivered at Closing.
2.10 VALID AGREEMENTS: NO CONFLICTS. LHF has full authority to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement has been duly and validly authorized, executed and delivered
by LHF and constitutes a valid and binding agreement of LHF, enforceable
against LHF in accordance with its terms except as the enforcement thereof
may be limited by bankruptcy, reorganization, moratorium, insolvency and
other laws of general applicability relating to or affecting creditors'
rights or general principles of equity. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not violate, conflict with or result in the breach
of (i) any provision of the articles of incorporation or bylaws of LHF; (ii)
subject to obtaining necessary consents specified in Schedule 2.20, any of
the terms of, or constitute a default under any material obligation,
contract, agreement, or other instrument to which LHF is a party or by which
LHF or any of its assets or properties is bound or subject; (iii) any order,
writ, judgment, injunction, award or decree of any court, arbitrator or
governmental or regulatory body against, or binding upon, LHF or upon the
assets of LHF; or (iv) any statute, law or regulation to which LHF or any of
its assets is subject.
2.11 LITIGATION. Except as set forth in SCHEDULE 2.11, there is no
action, suit, proceeding at law or in equity by any Person, or any
arbitration or any administrative or other proceeding by or before any
governmental or other instrumentality or agency, pending or, to the knowledge
of LHF, threatened, against or affecting LHF, or its officers, directors,
employees, registered representatives or registered principals, or any of its
properties or rights, which, if adversely determined would have a material
adverse effect on the assets, liabilities, business, condition (financial or
otherwise), or the results of operations of LHF. LHF is not subject to any
judgment, order or decree entered in any lawsuit or proceeding.
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2.12 TAXES PAYABLE BY LHF. LHF and the Shareholders have elected for
LHF as of December 29, 1987, to be treated as an S corporation under Section
1361(a) of the Code and under California Revenue and Taxation Code Section
17087.5. LHF has filed, or caused to be filed, in the manner prescribed by
law, all federal, state, local and foreign returns, reports, declarations,
claims for refunds, or information returns or statements relating to Taxes
(as defined below), including any schedule or attachment thereto, and any
amendment thereof ("Tax Returns") which are required to be filed by, or with
respect to, LHF. Such Tax Returns reflect accurately taxable income and all
liability for Taxes of LHF for the periods covered thereby. LHF has paid all
federal, state, local and foreign income, profits, franchise, sales, use,
occupancy, excise, payroll, accumulated earnings, gross receipts, license,
employment, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Section 59A of the Code), customs
duties, capital stock, withholding, social security (or similar),
unemployment, disability, personal property, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax or assessment
of any kind whatsoever, including any interest, penalty, or addition thereto,
other than those which are being disputed in good faith ("Taxes") that have
become due and payable. No examination of any return of LHF by any taxing
authority is currently in progress and LHF has not received notice of any
proposed audit, proceeding, investigation or examination. There are no
outstanding agreements or waivers extending the statutory period of
limitation applicable to any Tax Return of LHF. No claim has ever been made
by an authority in a jurisdiction where LHF does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. There are no liens,
encumbrances or other security interests on any of the assets of LHF that
arose in connection with any failure (or alleged failure) to pay any Taxes.
LHF has withheld and paid all Taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee, independent
contractor, shareholder or other third party. LHF has filed on a timely
basis a Form 1099 for each of the four individuals set forth on SCHEDULE 2.12
classified by LHF as an independent contractor for the period in which such
individual performed Devices for LHF. LHF has not filed a consent under
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign tax law) concerning collapsible corporations. LHF has not made any
payments, is not obligated to make any payments, or is not party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Section 280G of the Code. LHF has
not been a United States real property holding corporation within the meaning
of Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(A)(ii) of the Code. LHF has disclosed on each of its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662 of the Code. LHF (A) has not been a member of an affiliated
group filing a consolidated federal income Tax Return (other than a group the
common parent of which was LHF) or (B) does not have any liability for the
Taxes of any person (other than LHF) under Treas. Reg. Section 1.1502-6 (or
any
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similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
2.13 LIABILITIES. Except as set forth on SCHEDULE 2.13, LHF has no
outstanding claims, liabilities or indebtedness, contingent or otherwise, except
as set forth in the Balance Sheet, other than (i) liabilities incurred
subsequent to the Balance Sheet Date in the ordinary course of business not
involving borrowing by LHF and which ate consistent with past practice and,
individually or in the aggregate, are not material to the business, operations,
properties, or condition (financial or otherwise) of LHF, (ii) liabilities set
forth on any schedule hereto or which are not required to be set forth on any
schedule hereto because such liabilities are specifically excluded from
disclosure on the schedules provided for by the provisions of this Agreement, or
(iii) any other liabilities provided for in this Agreement. SCHEDULE 2.13 sets
forth a list of all current arrangements of LHF for borrowed money and all
outstanding balances as of the date hereof with respect thereto. LHF is not in
default in respect of the terms or conditions of any indebtedness.
2.14 INSURANCE. SCHEDULE 2.14 is a schedule of all insurance policies
(including life insurance) or binders maintained by LHF. All such policies are
in full force and effect and are such amounts, and insure against such losses
and risks, as are generally maintained by comparable businesses and all premiums
that have become due have been currently paid. None of such policies or binders
shall lapse or terminate by reason of the transactions contemplated hereby. LHF
has received no notice of cancellation or nonrenewal of any such policy or
binder.
2.15 INTELLECTUAL PROPERTIES. SCHEDULE 2.15 contains an accurate and
complete list of all trade names, trademarks, copyrights, service marks,
trademark registrations and applications (including those which are pending),
service mark registrations and applications, copyright registrations and
applications (whether pending or abandoned), owned or used by LHF in the
operation of its business (collectively, the "Intellectual Property") . No claim
of infringement or misappropriation of intellectual property has been made
against LHF and to the knowledge of LHF, LHF is not infringing or
misappropriating any Intellectual Property.
2.16 COMPLIANCE WITH LAWS. LHF is in compliance in all material
respects with all applicable laws, regulations, orders, judgments and decrees
("Requirements of Law"). LHF (i) has not been charged with, (ii) is not
under any investigation with respect to, and (iii) has not been threatened
with, any charge concerning any violation of any Requirements of Law.
Without limiting the generality of the foregoing, except as set forth on
Schedule 2.16, there is no investigation of, complaint against or inquiry
regarding LHF pending before the National Association of Securities Dealers.
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2.17 LICENSES. LHF has all licenses and permits and other governmental
certificates, authorizations and approvals (collectively, "Licenses") required
by any governmental or regulatory body for the operation of its business and the
use of its properties as presently operated or used, except where the failure to
have such Licenses would not have a material adverse effect on the assets,
liabilities, business, condition (financial or otherwise), or the results of
operations of LHF. All of the Licenses are in full force and effect and no
action or claim is pending, nor to the knowledge of LHF, is threatened, to
revoke or terminate any of the Licenses.
2.18 ERISA.
2.18.1 The name of each plan, program, arrangement, agreement or
commitment sponsored or maintained by or on behalf of LHF or any ERISA
Affiliate (as defined below) or to which LHF or any ERISA Affiliate makes or
is obligated to make contributions or to which LHF or any ERISA Affiliate
made or %,as obligated to make contributions during the five (5) year period
ending on the date hereof, which is a pension, profit sharing, savings,
thrift or other retirement plan, deferred compensation, stock purchase, stock
option, performance share, bonus or other incentive plan, severance pay plan,
policy or procedure, life, health, disability or accident insurance plan,
(including, without limitation, each "employee benefit plan" as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or vacation or other employee benefit plan, program,
arrangement, agreement or commitment, whether or not written) (all of the
foregoing being hereinafter referred to individually as a "Plan" and
collectively as the "Plans") is set forth on SCHEDULE 2.18 hereto. LHF has
substantially complied with all of the provisions of each Plan and all
applicable provisions of ERISA and the Code, has administered each such Plan
(including the payment of benefits thereunder) in all material respects in
accordance with the provisions of each such Plan and all applicable
provisions of ERISA and the Code, and no penalties under ERISA or any other
applicable law or regulation are and at the Deemed Closing Date will be owed
to any Plan participant and/or beneficiary and/or any governmental body with
respect to the failure to file any reports or other information required
under EIUSA or any other applicable law or regulation or to distribute or
make available any such reports or other information. LHF has and at the
Deemed Closing Date will have timely made all required contributions to each
such Plan.
2.18.2 No such Plan is a "defined benefit plan' within the meaning
of Section 3(35) of ERISA nor a "multi-employer plan' within the meaning of
Section 3(37) of ERISA.
2.18.3 As of the date hereof and as of the Deemed Closing Date, LHF
is entitled to cease its participation in each Plan referred to in this Section
2.18 and
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each such Plan, by its provisions, permits LHF to amend to terminate, in whole
or in part, such Plan without default, penalty, premium or any additional cost
to LHF.
2.18.4 The transactions contemplated by this Agreement will not
result in any payment or series of payments by Olympic or LHF of a "parachute
payment" within the meaning of Section 280G of the Code.
2.18.5 With respect to each Plan maintained or sponsored by LHF
which is an "employee welfare benefit plan" within the meaning of Section
3(1) of ERISA (a "Welfare Plan"): (i) the applicable requirements of Part III
of Subchapter 8B of Chapter I of the Code are satisfied if benefits under
such Welfare Plan are intended to qualify for tax-favored treatment; (ii)
there is no disqualified benefit which would subject Olympic to tax under
Section 4976(a) of the Code; and (iii) each such Welfare Plan which is a
group health plan within the meaning of Section 4980B of the Code is and has
at all times been in compliance in all material respects with the applicable
requirements of Sections 601 through 608 of ERISA, and LHF is not now and has
never been liable for any tax under Section 4980B of the Code.
2.18.6 None of the Plans is and, at the Deemed Closing Date, none
will be under investigation or audit by either the United States Department
of Labor or the Internal Revenue Service.
2.18.7 None of the Plans provides benefits including, without
limitation, death or medical benefits (whether or not insured) with respect
to any current or former employee of LHF beyond their retirement or other
termination of service other than (i) coverage mandated by applicable law,
(ii) disability benefits under any "employee welfare benefit plan" (as
defined in Section 3(l) of ERISA) that have been fully provided for by
insurance or otherwise, (iii) deferred compensation benefits accrued as
liabilities on the books of LHF or (iv) benefits in the nature of severance
pay.
2.18.8 For purposes of this Section 2.18, the term "ERISA
Affiliate" shall mean all members of a controlled group of corporations and
all trades and businesses (whether or not incorporated) under common control
and all other entities which, together with LHF are treated as a single
employer under any or all of Sections 414(b), (c), (m), (n) or (o) of the
Code at any time during the period of five (5) years ending on the Deemed
Closing Date.
2.19 NO CHANGES SINCE THE BALANCE SHEET DATE. Since the Balance Sheet
Date (a) except as specifically stated on SCHEDULE 2.19 or contemplated by
this Agreement, LHF has not (i) incurred any liability or obligation of any
nature (whether accrued, absolute, contingent or otherwise), except in the
ordinary course of business, (ii) permitted any of the material Remaining
Assets to be subjected to any mortgage,
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pledge, lien, security interest, encumbrance, restriction or charge of any
kind, (iii) sold, transferred or otherwise disposed of any of the Remaining
Assets except in the ordinary course of business, (iv) made any commitment
for any capital expenditure, except in the ordinary course of business, (v)
written down the value of any work in process except write-downs in the
ordinary course of business, none of which, individually or in the aggregate,
is material to LHF, (vi) except as set forth in the Employment Agreements (as
defined in Section 6.4), granted any increase in the rate of wages, salaries,
bonuses or other remuneration of any employee who after giving effect to such
increase or prior thereto receives compensation at an annual rate of Fifty
Thousand Dollars ($50,000) or more, (vii) made any change in any method of
accounting or auditing practice, (viii) otherwise conducted its business or
entered into any transaction, except in the usual and ordinary manner and in
the ordinary course of its business, (ix) amended or terminated any agreement
which is material to the business of LHF, (x) renewed, extended or modified
any lease of real property, or except in the ordinary course of business, any
lease of personal property, or (xi) agreed, whether or not in writing, to do
any of the foregoing, and (b) there has been no material adverse change in
the assets, liabilities, business, condition (financial or otherwise), or the
results of operations of LHF.
2.20 REQUIRED APPROVALS, NOTICES AND CONSENTS. Except as set forth on
SCHEDULE 2.20, no consent or approval of, other action by, or notice to, any
governmental body or agency, domestic or foreign, or any third party to a
material contract to which LHF is a party is required in connection with the
execution and delivery by the Shareholders and LHF of this Agreement or the
consummation by the Shareholders and LHF of the transactions contemplated
hereby.
2.21 BROKER-DEALER REGISTRATION. LHF is a Broker-Dealer having duly
registered with the SEC pursuant to Section 15 of the Securities Exchange Act
of 1934, as amended (the "1934 Act"). Attached hereto as SCHEDULE 2.21 is a
full and complete copy of LHF's Broker-Dealer application as amended through
December 31, 1996. Neither the application for registration nor any
amendment thereto contains any' untrue statement of a material fact or omits
any statement of a material fact required to be stated or necessary in order
to make statements contained therein not misleading.
2.22 NO THREATENED SEC PROCEEDINGS. LHF's registration as a
Broker-Dealer is in good standing and, there is not currently pending or to
the knowledge of the shareholders, threatened any inquiry, investigation,
administrative proceeding, or civil action undertaken or initiated by the SEC
concerning LHF or its officers, directors, or registered representatives.
2.23 NET CAPITAL. LHF is not in violation of the applicable net
capital provisions of the 1934 Act and the general rules and regulations
thereunder.
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2.24 NASD MEMBERSHIP. LHF is a member in good standing with the NASD and
there has not been for the most recent three years, nor is there currently
pending or to the knowledge of LHF, threatened, any inquiry investigation or
disciplinary proceeding undertaken by the NASD concerning LHF or any of its
officers, directors, registered principals, or registered representatives,
except as set forth on SCHEDULE 2.16.
2.25 FEES AND ASSESSMENTS. As of December 31, 1996 there are no, and as
of the Deemed Closing Date, there shall not be, any fees or assessments owed to
the NASD or the Security Investors Protection Corporation ("SIPC") for which
bills have been received by LHF.
2.26 NASD RESTRICTIONS. There are no special restrictions or
limitations imposed by the NASD relating to the conduct by LHF of the
business of a Broker-Dealer which have a material adverse effect on the
business or operations of LHF as currently conducted.
2.27 CRD REGISTRATION. LHF is registered with the Central Registration
Depository under CRD Number 14152.
2.28 STATE BROKER-DEALER REGISTRATIONS. LHF is registered as a
Broker-Dealer in the states and jurisdictions enumerated in SCHEDULE 2.28,
and all of such registrations are current, and LHF is in good standing as a
registered Broker-Dealer in each such state or jurisdiction. As of the
Deemed Closing Date, no renewal or registration fee for which bills have been
received will be due or owing to any state. Also set forth in SCHEDULE 2.28
are all states and jurisdictions in which applications for registration of
LHF as a Broker-Dealer are currently pending.
2.29 NO STATE INQUIRIES. LHF's state Broker-Dealer registrations are
in good standing and for the most recent three year period, there has not
been, nor is there currently pending, or to LHF's knowledge, threatened, any
inquiry, investigation, administrative proceeding, or civil action undertaken
or initiated by such state or jurisdictions concerning LHF or its officers,
directors, registered principals or registered representatives.
2.30 STATE NET CAPITAL COMPLIANCE. LHF is not in violation of the net
capital provisions required to be maintained by each state or jurisdiction in
which LHF is registered as a Broker-Dealer.
2.31 REGISTERED REPRESENTATIVES. Attached hereto as SCHEDULE 2.31 is a
list of all registered representatives of LHF and each state or jurisdiction
in which each individual is registered.
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2.32 BROKERS BOND. LHF currently has in effect a blanket Broker-Dealer
fidelity bond as summarized in SCHEDULE 2.32.
2.33 SIPC REGISTRATION. LHF is duly registered with SIPC. LHF has paid
or has made adequate provision for the payment of all SIPC assessments as of
December 31, 1996.
2.34 CLEARING AGREEMENT. LHF presently has a clearing agreement, as
amended and to be effective on and after the Closing, with Bear, Steams & Co.
Inc. ("Bear Stearns"), a true copy of which has been provided to Olympic. As of
December 31, 1996, there was, and as of the Deemed Closing Date there will be,
no amount due and owing to Bear Steams, nor was there as of December 31, 1996,
nor will there be as of the Deemed Closing Date, any unsecured debts of
customers for which LHF may be or become responsible.
2.35 DISCLOSURE.
2.35.1 None of this Agreement, the Financial Statements, the
Balance Sheet, or any schedule hereto, or any certificate, document or statement
in writing to be delivered as required under this Agreement by or on behalf of
cLHF or the Shareholders, contains, or will contain, any untrue statement of a
material fact, or omits, or will omit, any statement of a material fact required
to be stated or necessary' in order to make statements contained herein or
therein not misleading.
2.35.2 Notwithstanding specific cross references in the schedules
hereto (each a "Schedule") , any disclosure under any Schedule shall be deemed
to be a disclosure applicable to all representations and warranties of LHF and
the Shareholders under this Agreement and under all other Schedules. To the
extent that the Schedules contain exceptions to the representations and
warranties set forth in Article II and III of this Agreement, the inclusion of
an item in any Schedule shall not be deemed an admission by LHF or any
Shareholder that such item is material to LHF or such Shareholder or that it
will have a material adverse effect on the assets, liabilities, business,
condition (financial or otherwise), or the results of operations of LHF.
2.36 REPRESENTATIONS TRUE AT CLOSING. All representations by LHF in
this Article II or in any document delivered pursuant hereto in connection
with the transactions contemplated hereby shall be true and accurate in all
material respects as of the date when made and shall be deemed to be made
again at the Closing as of the Closing Date and shall then be true and
accurate in all material respects, except as affected by the transactions
contemplated by this Agreement.
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ARTICLE III
INDIVIDUAL REPRESENTATIONS OF THE SHAREHOLDERS
Each Shareholder hereby represents and warrants, individually on such
Shareholder's own behalf, to Olympic that:
3.1 OWNERSHIP OF STOCK. The Shareholder is the record and beneficial
owner of the LHF Shares specified in SCHEDULE 3.1 hereto, free and clear of all
liens, encumbrances, restrictions and claims of every kind; the Shareholder has
full legal right, power and authority to enter into this Agreement and has full
legal right, power and authority to transfer and convey such Shareholder's LHF
Shares pursuant to this Agreement; the delivery to Olympic of the LHF Shares
pursuant to this Agreement will transfer to Olympic such Shareholder's valid
title thereto, free and clear of all liens, encumbrances, restrictions and
claims of every kind.
3.2 VALID AGREEMENTS; NO CONFLICTS. The Shareholder has full legal
right and capacity to execute and deliver this Agreement and to perform such
Shareholder's obligations hereunder. This Agreement has been duly executed and
delivered by Shareholder and constitutes the valid and binding obligation of the
Shareholder, enforceable against the Shareholder in accordance with its terms
except as the enforcement thereof may be limited by bankruptcy, reorganization,
moratorium, insolvency and other laws of general applicability relating to or
affecting creditors' rights or general principles of equity. The execution,
delivery and performance of this Agreement by the Shareholder and the
consummation of the transactions contemplated hereby by such Shareholder will
not (i) violate any order, writ, judgment, injunction, award or decree of any
court, arbitrator or governmental or regulatory body against, or binding upon
the Shareholder or upon the assets of the Shareholder; or (ii) violate any
statute, law or regulation to which such Shareholder or such Shareholder's
assets is subject.
3.3 INVESTMENT INTENT. The Olympic Shares being acquired by the
Shareholder hereunder are being acquired for such Shareholder's own account and
not with a view to, or for resale in connection with, any distribution other
than resales made in compliance with the registration and prospectus delivery
requirements of Securities Act of 1933, as amended (the "Act"). The Shareholder
understands that the Olympic Shares have not been registered under the Act by
reason of available exemptions from the registration and prospectus delivery
requirements of the Act that such Olympic Shares must be held indefinitely
unless such Olympic Shares are registered under the Act or until any transfer is
exempt from registration, and that reliance of Olympic upon these exemptions is
predicated in part upon these representations and warranties by the Shareholder.
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3.4 QUALIFICATION AS AN INVESTOR.
3.4.1 The Shareholder hereby represents and warrants that such
Shareholder has. the requisite knowledge and experience in financial and
business matters to assess the relative merits and risks of investment in the
Olympic Shares.
3.4.2 The Shareholder has received certain information concerning
Olympic and has had the opportunity to obtain additional information as desired
in order to evaluate the merits and risks of holding the Olympic Shares, and is
able to bear the economic risk and lack of liquidity inherent in holding the
Olympic Shares. Furthermore, the Shareholder has had the full opportunity to
discuss with Olympic all material aspects of an investment in the Olympic
Shares, including the opportunity to ask, and to receive answers to such
Shareholder's full satisfaction, regarding such questions as such Shareholder
has deemed necessary to evaluate such Shareholder's opportunity to invest.
3.4.3 The Shareholder has had full opportunity to seek advice of'
independent counsel respecting this investment and the tax risks and
implications of the Exchange and all transactions consummated in connection
therewith.
ARTICLE IV
REPRESENTATIONS OF OLYMPIC
Olympic hereby represents and warrants to LHF and the Shareholders that:
4.1 EXISTENCE AND GOOD STANDING. Olympic is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Olympic has the full corporate power and authority to own its
property and to carry on its business all as and in the places where such
properties are now owned or operated or such business is now being conducted.
Except in those states in which Olympic is qualified to do business as a foreign
corporation, Olympic has not otherwise qualified to do business as a foreign
corporation, and neither the character nor location of the properties owned or
leased by Olympic, nor the nature of the business conducted by Olympic, requires
such additional qualification in any jurisdiction except for such jurisdictions
where the failure to so qualify would not have a material adverse effect on the
assets, liabilities, business, condition (financial or otherwise), or the
results of operation of Olympic. Olympic is in good standing in each
jurisdiction in which it is qualified to do business as a foreign corporation.
4.2 OLYMPIC SHARES. The Olympic Shares when delivered to the
Shareholders will have been duly authorized and validly issued and be fully paid
and non-assessable.
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4.3 VALID AGREEMENT; NO CONFLICTS. Olympic has full authority to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement has been duly and validly authorized, executed and delivered by
Olympic and constitutes a valid and binding agreement of Olympic, enforceable
against Olympic in accordance with its terms except as the enforcement hereof
may be limited by bankruptcy, reorganization, moratorium, insolvency and other
laws of general applicability relating to or affecting creditors' rights or
general principles of equity. Execution, delivery and performance of this
Agreement and consummation of the transactions contemplated hereby will not
violate, conflict with or result in the breach of any of the terms of, or
constitute a default under (i) the Certificate of Incorporation or the Bylaws of
Olympic, (ii) any material obligation, contract, agreement, or other instrument
to which Olympic is a party or by or to which Olympic or its assets may be bound
or subject; (iii) any order, writ, judgment, injunction, award or decree of any
court, arbitrator or governmental or regulatory body against, or binding upon,
Olympic or its assets; or (iv) any statute, law or regulation to which Olympic
or any of its assets is subject.
4.4 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. No consent,
approval or authorization of, or declaration or registration with, any
governmental or regulatory authority is required in connection with the
execution and delivery of this Agreement by Olympic or the consummation by
Olympic of the transactions contemplated hereby.
4.5 LITIGATION. Except as set forth in SCHEDULE 4.5, there is no
action, suit, proceeding at law or in equity by any Person, or any arbitration
or administrative or other proceeding by or before any governmental or other
instrumentality or agency (including, without limitation, the National
Association of Securities Dealers), pending or, to the knowledge of Olympic,
threatened against or affecting Olympic or any of its properties or rights,
which, if adversely determined would have a material adverse effect on the
assets, liabilities, business, condition (financial or otherwise), or the
results of operations of Olympic. Olympic is not subject to any judgment order
or decree entered in any lawsuit or proceeding.
4.6 CAPITALIZATION. The authorized capital of Olympic consists of
10,000,000 shares of Olympic Common Stock, of which 876,051 shares are issued
and outstanding as of the date of this Agreement and 2,000,000 shares of
preferred stock, none of which are outstanding as of the date of this
Agreement. All of the outstanding shares of Olympic Common Stock have been
duly authorized and validly issued and are fully paid and non-assessable.
Except as set forth in SCHEDULE 4.6, there are no outstanding options,
warrants, fights, calls, commitments, conversion rights, rights of exchange,
plans or other agreements of any character providing for the purchase,
issuance or sale of any shares of the capital stock of Olympic.
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4.7 FINANCIAL STATEMENTS. Olympic has or will deliver to the
Shareholders copies of the audited balance sheets of National Securities (the
predecessor to Olympic) as of September 29, 1995 and as of September 27, 1996
and the related statements of income, changes in shareholders' equity and cash
flows for the years then ended, and the unaudited balance sheet of National
Securities as at December 31, 1996 and the related statements of income, changes
in shareholders' equity and cash flows for the three-month period then ended
(collectively, the "Olympic Financials"). The Olympic Financials were prepared
in accordance with generally accepted accounting principles consistently applied
and fairly present the financial position of Olympic as of the dates thereof and
the results of operations and changes in financial position of Olympic as of the
dates thereof and the results of operations and changes in financial position
for the periods then ended. Since December 31, 1996, there has not been any
material adverse change in the assets, liabilities, business, condition
(financial or otherwise), or the results of operations of Olympic.
4.8 CONTRACTS. Every contract that is material to the business of
Olympic, taken as a whole, is in full force and effect, and there exists no
material default or any event of default by Olympic or to the knowledge of
Olympic, by any other party.
4.9 COMPLIANCE WITH LAWS. Olympic is in compliance in all material
respects with all Requirements of Law. Olympic (i) has not been charged
with, (ii) is not under any investigation with respect to, and (iii) has not
been threatened with, any charge concerning any violation of any Requirements
of Law. Without limiting the generality of the foregoing, there is no
investigation of, complaint against or inquiry regarding Olympic pending
before the National Association of Securities Dealers.
4.10 SEC MATTERS. The Olympic Common Stock has been registered pursuant
to Section 12(g) of the Securities Exchange Act of 1934. Since January 1, 1995,
Olympic and National Securities have timely filed and, as required by Section 13
of the Securities Exchange Act of 1934, will continue to timely file, all the
required forms, reports and other documents with the Securities and Exchange
Commission ("SEC"). As of the date hereof, and at the Closing Date, all
reports, forms and other documents so filed (including, without limitation,
Olympic's Registration Statement on Form S-4, SEC File No. 333-12907, declared
effected by the SEC on February 3, 1997) complied in all material respects with
all of the statutes, rules and regulations enforced or promulgated by the SEC,
and do not, and will not, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
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4.11 BROKER-DEALER REGISTRATION. National Securities is a Broker-Dealer
having duly registered with the SEC pursuant to Section 15 of the 1934 Act.
4.12 NO THREATENED SEC PROCEEDINGS. National Securities' registration as
a Broker-Dealer is in good standing and, there is not currently pending or to
the knowledge of Olympic, threatened any inquiry, investigation, administrative
proceeding, or civil action undertaken or initiated by the SEC concerning
National Securities or its officers, directors, or registered representatives.
4.13 NET CAPITAL. National Securities is not in violation of the
applicable net capital provisions of the 1934 Act and the general rules and
regulations thereunder.
4.14 NASD MEMBERSHIP. National Securities is a member in good standing
with the NASD and there has not been for the most recent three years, nor is
there currently pending or to the knowledge of Olympic, threatened, any material
inquiry investigation or disciplinary proceeding undertaken by the NASD
concerning National Securities or any of its officers, directors, registered
principals, or registered representatives.
4.15 NASD RESTRICTIONS. There are no special restrictions or limitations
imposed by the NASD relating to the conduct by National Securities of the
business of a Broker-Dealer which have a material adverse effect on the business
or operations of' National Securities as currently conducted.
4.16 STATE BROKER-DEALER REG2ISTRATIONS. National Securities is
registered as a Broker-Dealer in all the states and jurisdictions in which the
nature of the business conducted by National Securities requires such
registration, all of such registrations are current, and National Securities is
in good standing as a registered Broker-Dealer in each such state or
jurisdiction.
4.17 NO STATE INQUIRIES. National Securities' state Broker-Dealer
registrations are in good standing and for the most recent three year period,
there has not been, nor is there currently pending, or to Olympic's knowledge,
threatened, any inquiry, investigation, administrative proceeding, or civil
action undertaken or initiated by such state or jurisdictions concerning
National Securities or its officers, directors, registered principals or
registered representatives.
4.18 STATE NET CAPITAL COMPLIANCE. National Securities is not in
violation of the net capital provisions required to be maintained by each state
or jurisdiction in which National Securities is registered as a Broker-Dealer.
4.19 SIPC REGISTRATION. National Securities is duly registered with SIPC.
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4.20 DISCLOSURE
4.20.1 None of this Agreement, the Olympic Financials, or any
schedule hereto, or any certificate, document or statement in writing to be
delivered as required under this Agreement by or on behalf of Olympic,
contains, or will contain, any untrue statement of a material fact, or omits,
or will omit, any statement of a material fact required to be stated or
necessary in order to make statements contained herein or therein not
misleading.
4.20.2 Notwithstanding specific cross references in the
Schedules, any disclosure under any Schedule shall be deemed to be a
disclosure applicable to all representations and warranties of Olympic under
this Agreement and under all other Schedules. To the extent that the
Schedules contain exceptions to the representations and warranties set forth
in Article IV of this Agreement, the inclusion of an item in any Schedule
shall not be deemed an admission by Olympic that such item is material to
Olympic or that it will have a material adverse effect on the assets,
liabilities, . business, condition (financial or otherwise), or the results
of operations of Olympic.
4.21 REPRESENTATIONS TRUE AT CLOSING. All representations by Olympic
in this Article IV or in any document delivered pursuant hereto in connection
with the transactions contemplated hereby shall be true and accurate in all
material respects as of the date when made and shall be deemed to be made
again at the Closing and shall then be true and accurate in all material
respects except as affected by the transactions contemplated by this
Agreement.
ARTICLE V
CONDUCT OF BUSINESS; REVIEW
5.1 CONDUCT OF BUSINESS OF LHF. From the date hereof through the
Closing, each of Olympic and LHF shall (i) conduct its business in the ordinary
course and in such a manner so that the representations and warranties contained
herein shall continue to be true and correct as of the Closing as if made at and
as of the Closing and (ii) not enter into any transaction or incur any liability
except in the ordinary course of business.
5.2 REVIEW OF LHF. Prior to the Closing, Olympic shall be entitled,
through its employees and representatives, to make such investigations and
examination of the books, records and financial condition of LHF as Olympic may
request. LHF shall furnish Olympic and its representatives during such period
with all such information concerning the affairs of LHF as Olympic or its
representatives may request and cause LHF's officers, employees, consultants,
agents, accountants and attorneys to cooperate fully with Olympic or its
representatives in connection with
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such review and examination. Any such investigations and examinations shall
be conducted at reasonable times and under reasonable circumstances.
5.3 REVIEW OF OLYMPIC. Prior to the Closing, LHF shall be entitled,
through its employees and representatives, to make such investigations and
examination of the books, records and financial condition of Olympic as LHF may
request. Olympic shall furnish LHF and its representatives during such period
with all such information concerning the affairs of Olympic as LHF or its
representatives may request and cause Olympic's officers, employees,
consultants, agents, accountants and attorneys to cooperate fully with LHF or
its representatives in connection with such review and examination. Any such
investigations and examinations shall be conducted at reasonable times and under
reasonable circumstances.
5.4 COOPERATION: CONSENTS. Prior to the Closing Date, each party
shall cooperate with the other party to the end that the parties shall (i) in
a timely manner make all necessary filings with, and conduct negotiations
with, all governmental ' authorities and other Persons the consent or
approval of which, or a license or permit from which, is required for the
consummation of the transactions contemplated by this Agreement and (ii)
provide to each other party such information as the other party may
reasonably request in order to enable it to prepare such filings and to
conduct such negotiations. The parties shall also use their respective best
efforts to expedite the review process and to obtain all such necessary
consents, approvals, licenses and permits as promptly as practicable.
5.5 LITIGATION. From the date hereof through the Closing, each party
hereto shall promptly notify the other parties of any lawsuits, claims,
proceedings or investigations which after the date hereof are threatened or
commenced against such party or any of its affiliates or any officer,
director, employee, consultant, agent or shareholder thereof, in their
capacities as such, which, if decided adversely, could reasonably be expected
to have a material adverse effect upon the assets, liabilities, business,
condition (financial or otherwise), or the results of operations of such
party.
5.6 NOTICE OF DEFAULT. From the date hereof through the Closing, each
party hereto shall give to the other parties prompt written notice of the
occurrence or existence of any event, condition or circumstance occurring
which would constitute a violation or breach of this Agreement by such party
or which would render inaccurate in any material respect any of the other
party's representations or warranties contained herein.
5.7 NO SHOP. LHF agrees that for a period from the date hereof through
the earliest of (a) April 30, 1997, (b) the consummation of the transactions
contemplated hereby, or (c) the termination of this Agreement pursuant to the
terms hereof, LHF will not, directly or indirectly: (i) initiate contact with
any person or
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entity in an effort to solicit any Alternative Proposal (as defined below),
(ii) cooperate with, or furnish or cause to be furnished any non-public
information concerning the financial condition, results of operations,
businesses, properties, assets, liability or future prospects of LHF, to any
person or entity in connection with any Alternative Proposal, (iii) negotiate
with any Person with respect to any Alternative Proposal, or (iv) enter into
any agreement or understanding with the intent to effect an Alternative
Proposal. LHF shall immediately give written notice to Olympic of the
details of any Alternative Proposal of which it becomes aware. As used
herein, "Alternative Proposal" shall mean any proposal, other than as
contemplated by this Agreement, for a merger, consolidation, reorganization,
other business combination or recapitalization involving LHF or for the
acquisition of a substantial portion of its assets other than in the ordinary
course of its business, the effect of which may be to prohibit, restrict or
delay the consummation of the Exchange or impair the contemplated benefits to
Olympic of the Exchange. Olympic agrees to give written notice to LHF of any
transaction which is submitted to its stockholders prior to the Closing.
5.8 REGULATORY FILINGS. LHF and Olympic each agree to prepare and file
all required documents, submissions, notices, amended applications or similar
filings with federal, state, and local regulatory authorities and the NASD to
effect and give evidence of the Exchange and to secure the approval of the
Exchange and to obtain the necessary state "blue sky" clearances, if any are
required with respect to the issuance of the Olympic Shares to the Shareholders.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS
OF EACH PARTY TO CLOSE
The obligation of Olympic, LHF and the Shareholders to consummate the
transactions contemplated herein shall be subject to the-fulfillment, at or
prior to the Closing, of all of the conditions set forth below in this Article
VI. Olympic, on the one hand, and LHF and the Shareholders, on the other hand,
may, by written notice, waive any or all of these conditions in whole or in part
without prior notice, provided, however, that no such waiver shall constitute a
waiver by Olympic or LHF and the Shareholders of any other right or remedy if
Olympic or LHF and the Shareholders shall be in default of any of its or their
representations, warranties or covenants under this Agreement.
6.1 THIRD PARTY APPROVALS. Any and all permits and approvals from any
governmental authority or other Person necessary to permit the consummation of
the transactions contemplated herein, including, without limitation, approval of
the NASD, shall have been obtained.
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6.2 INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement in the form
attached hereto as Exhibit A (the "Investor Rights Agreement"), shall have been
duly executed by Olympic and each of the Shareholders.
6.3 EMPLOYMENT AGREEMENTS. Employment Agreements, in the form of
Exhibit B (the "Employment Agreements"), shall have been duly executed by LHF,
Olympic and each of the following senior executive officers of LHF: Larry H.
Friend, Gregory E. Presson and Carl Frankson, Jr.
6.4 UPDATED FOCUS REPORTS. LHF shall have delivered to Olympic and
National Securities shall have delivered to LHF copies of all focus reports
filed by it with the SEC.
ARTICLE VII
CONDITIONS TO OLYMPIC'S OBLIG TIONS
The obligation of Olympic to consummate the transactions contemplated
herein shall be subject to the fulfillment, at or prior to the Closing, of all
of the conditions set forth below in this Article VII. Olympic may, by written
notice, waive any or all of these conditions in whole or in part without prior
notice, provided, however, that no such waiver shall constitute a waiver by
Olympic of any other right or remedy if LHF or the Shareholders shall be in
default of any of its or their representations, warranties or covenants under
this Agreement
7.1 GOOD STANDING AND TAX CERTIFICATES. LHF or the Shareholders shall
have delivered to Olympic: (a) a copy of LHF's Articles of incorporation,
including all amendments, certified by the Secretary of State of the State of
California; (b) a certificate from the Secretary of State of the State of
California and each state in which LRF is qualified as a foreign corporation to
do business, to the effect that such corporation is in good standing in such
state; and (c) a certificate as to the tax status of LHF in the State of
California and each state in which it is qualified as a foreign corporation to
do business.
7.2 NO MATERIAL ADVERSE CHANGE. Between the date hereof and the Closing
Date, there shall be, except as provided for in this Agreement, no material
adverse change in the as-sets, liabilities, business, condition (financial or
otherwise), or the results of operations of LHF, and LHF shall have delivered to
Olympic a certificate, dated the Closing Date, to such effect.
7.3 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of LHF and the Shareholders contained in this Agreement or in any
schedule delivered pursuant hereto shall be true and correct in all material
respects on
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and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and LHF
and the Shareholders shall have delivered to Olympic a certificate, dated the
Closing Date, to such effect.
7.4 PERFORMANCE OF AGREEMENTS. Each and all of the agreements of LHF
and the Shareholders to be performed pursuant to the terms hereof on or before
the Closing Date shall have been duly performed in all material respects, and
LHF and the Shareholders shall have each delivered to Olympic a certificate,
dated the Closing Date, to such effect.
7.5 VOTING AGREEMENT. Olympic shall have received a copy of the Voting
Agreement (the "Voting Agreement"), in the form of Exhibit C, duly executed by
each of the Shareholders.
7.6 OPINION. Olympic shall have received an opinion from Loeb & Loeb
LLP, in form and substance satisfactory to Olympic's counsel.
7.7 RESOLUTIONS. Olympic shall have received a copy of the
resolutions of the Board of Directors of LHF and the Shareholders approving
the transactions contemplated by this Agreement, certified by the Secretary
of LHF.
7.8 LIABILITIES. Either (a) the Shareholders shall have assumed all
of the liabilities of LHF existing immediately prior to the Deemed Closing
Date, other than the Remaining Liabilities (as defined below), jointly, in
accordance with their percentage ownership of the LHF Shares, or (b) the
Shareholders shall have agreed to indemnify LHF, jointly, in accordance with
their percentage ownership of the LHF Shares, for all payments made by LHF
after the Closing on account of any liabilities of LHF existing immediately
prior to the Closing, other than the Remaining Liabilities. As used herein,
"Remaining Liabilities" means the LHF Transaction Costs (as defined in
Section 10.1), PLUS all liabilities and obligations relating to and arising
from the Remaining Assets (as defined in Section 8.9), from and after the
Deemed Closing Date. Without limiting the generality of the foregoing, LHF
shall have paid in full all subordinated debt.
7.9 LOAN. Certain of the Shareholders shall have funded a loan (the
"Loan") to Olympic in the principal amount of $800,000, which Loan shall have
been funded (a) in cash, (b) in the form of marketable securities (the
marketability of which shall be determined by mutual agreement) with a fair
market value (based upon the mid-point between the closing bid price and the
closing ask price on the prior trading day) of the amount of the Loan, or (c)
any combination of cash and marketable securities, the sum of such cash and
the fair market value of such marketable securities is equal to $800,000.
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7.10 CERTIFICATE OF NON-FOREIGN STATUS. Each Shareholder shall deliver to
Olympic a certificate pursuant to Section 1445(b)(2) of the Code which
states, under penalty of perjury, the Shareholder's taxpayer identification
number and address as well as a statement that the Shareholder is not a
"foreign person" within the meaning of Section 1445(f)(3) of the Code.
7.11 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted or, to the knowledge of LHF, shall have been threatened, before a
court or other governmental body or by any public authority to restrain or
prohibit LHF from consummating any of the transactions contemplated hereby, and
a duly authorized officer of LHIP shall have delivered to Olympic a certificate,
dated the Closing Date, to such effect.
7.12 AUDITED FINANCIAL STATEMENTS. LHF shall have delivered to Olympic
the final version of the audited statement of financial condition of LHF as
at December 31, 1996 and the related statements of income, changes in
shareholders' equity, changes in liabilities subordinated to the claims of
general creditors, and cash flows for the year ended December 31, 1996, which
shall not be materially different from the draft referenced in Section 2.5.1.
7.13 GELLER & FRIEND AGREEMENT. LHF and Geller & Friend Capital
Partners Inc., a California corporation ("G&F") shall have entered into an
agreement in form acceptable to Olympic, pursuant to which G&F shall provide
(i) for the reimbursement by G&F of its portion of the expenses of LHF's
Century City office arising from G&F's occupation of space in that office,
and (ii) that G&F, to the extent reasonably practicable, shall offer to
Affiliates of Olympic the opportunity to pursue business opportunities
relevant to the business of a Broker-Dealer, prior to offering such
opportunities to other Broker-Dealers, subject to the capacity and reasonable
business judgment of G&F and reasonable compensation to G&F.
ARTICLE VIII
CONDITIONS TO THE SHAREHOLDERS' OBLIGATIONS
The obligation of LHF and the Shareholders to consummate the transactions
contemplated herein shall be subject to the fulfillment, at or prior to the
Closing, of all of the conditions set forth below in this Article VIII. LHF and
the Shareholders may, by written notice, waive any or all of these conditions in
whole or in part without prior notice, provided, however, that no such waiver
shall constitute a waiver by LHF or the Shareholders of any other right or
remedy if Olympic shall be in default of any of its representations, warranties
or covenants under this Agreement.
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8.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Olympic contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date, and a duly authorized officer of Olympic shall have delivered to the
Shareholders a certificate, dated the Closing Date, to such effect.
8.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements of
Olympic to be performed on or before Closing Date pursuant to the terms
hereof shall have been duly performed in all material respects, and a duly
authorized officer of Olympic shall have delivered to the Shareholders a
certificate, dated the Closing Date, to such effect.
8.3 NO LITIGATION THREATENED. No action or proceedings shall have
been instituted or, to the knowledge of Olympic, shall have been threatened,
before a court or other governmental body or by any public authority to
restrain or prohibit Olympic from consummating any of the transactions
contemplated hereby, and a duly authorized officer of Olympic shall have
delivered to the Shareholders a certificate, dated the Closing Date, to such
effect.
8.4 GOOD STANDING AND TAX CERTIFICATES. Olympic shall have delivered
to the Shareholders: (a) a copy of Olympic's Certificate of Incorporation,
including all amendments, certified by the Secretary of State of the State of
Delaware; (b) a certificate from the Secretary of State of the State of
Delaware and each state in which Olympic is qualified as a foreign
corporation to do business, to the effect that Olympic is in good standing in
such state, and (c) a certificate as to the tax status of Olympic in the
State of Delaware and each state in which it is qualified as a foreign
corporation to do business.
8.5 NO MATERIAL ADVERSE CHANGE. Between the date hereof and the
Closing Date, there shall be, except as provided for in this Agreement, no
material adverse change in the assets, liabilities, business, condition
(financial or otherwise), or the results of operations of Olympic, and a duly
authorized officer of Olympic shall have delivered to the Shareholders a
certificate dated the Closing Date, to such effect.
8.6 PROMISSORY NOTE. The Shareholders of LHF shall have received a
copy of the Senior Subordinated Promissory Note, reflecting the Loan, in the
form of Exhibit D (the "Promissory Note"), duly executed by Olympic.
8.7 OPINION. The Shareholders shall have received an opinion from
Camhy Karlinsky & Stein LLP, in form and substance satisfactory to LHF's
counsel.
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8.8 RESOLUTIONS. The Shareholders shall have received a copy of the
resolutions of the Board of Directors of Olympic approving the transactions
contemplated by this Agreement, certified by the Secretary of Olympic.
8.9 TRANSFER OF ASSETS. LHF shall have transferred to a limited
liability company wholly-owned by the Shareholders, all of the assets of LHF
other than (a) furniture, fixtures and equipment, (b) work in progress,
including, but not limited to, all agreements with clients, including, but
not limited to, those set forth on SCHEDULE 8.9(a) (but excluding those which
appear on SCHEDULE 8.9(b)), (c) equipment and real property leases and the
other agreements set forth on SCHEDULE 8.9(a), and (d) the name of LHF, the
service mark described on SCHEDULE 2.15 and the pending application for
registration described therein, and all goodwill relating thereto
(collectively, the "Remaining Assets"). Remaining Assets shall not include
the property listed on SCHEDULE 8.9(b).
8.10 CAPITAL CONTRIBUTION. Olympic shall have contributed to the
capital of LHF (a) an amount of no less than $200,000, PLUS (b) all of the
proceeds of the Loan.
8.11 BONUS PLAN. LRF shall have adopted the Key Executive Bonus Plan
in the form of EXHIBIT E (the "Bonus Plan').
8.12 DEIFICATION OF PROMISSORY NOTE. The issuance of the Promissory
Note shall have been qualified pursuant to the California Corporate
Securities Law of 1968.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS; INDEMNITY
AND OTHER POST-CLOSING COVENANTS
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF LHF AND THE
SHAREHOLDERS. All representations, warranties, covenants and agreements of LHF
and the Shareholders contained in this Agreement shall survive the execution and
delivery of this Agreement and the Closing hereunder, and shall thereafter
terminate and expire and any claim based thereon shall be brought one year from
the Closing Date, except as to matters as to which an Indemnitee (as defined in
Section 9.5.1) has made a claim for indemnification or made a Claims Notice,
pursuant to Section 9.5 hereafter, on or prior to such date, in which case the
rights to indemnification shall survive until such claim is finally resolved and
any obligations with respect thereto are fully satisfied, and except for the
representations and warranties set forth in Sections 2.1, 2.3, 2.12 and 3.1,
which shall survive until the third anniversary of the date of the Closing.
26
<PAGE>
9.2 OBLIGATION OF THE SHAREHOLDERS TO INDEMNIFY
9.2.1 Subject to Section 9.2.3, the Shareholders (other than
Marjorie E. Goddard and Kenneth L. Fader) agree jointly and severally, and
Marjorie E. Goddard and Kenneth L. Fader agree jointly in accordance with their
percentage ownership of the LHF Shares, to indemnify, defend and hold hurtles s
Olympic, its respective Affiliates, officers, directors, employees, agents,
attorneys and representatives, and any of its successors and assigns from, and
against any and all losses, liabilities, damages, deficiencies, demands, claims,
actions, judgments or causes of action, assessments, costs or expenses
(including, without limitation, interest, penalties and reasonable attorneys'
fees and disbursements) ("Losses"), based upon, .raising out of or otherwise in
respect of (i) any inaccuracy in or any breach of any representation, warranty,
covenant or agreement of LHF and/or the Shareholders contained in this
Agreement, any schedule hereof or any other document executed pursuant to the
terms hereof, and (ii) the operation of LHF prior to the Closing.
9.2.2 Notwithstanding Section 9.2.1 above, the obligation of the
Shareholders to indemnify Olympic under Section 9.2 shall apply (i) only if the
cumulative aggregate amount of Losses thereunder exceeds $40,000 (the "Minimum")
and (ii) only to the amounts in excess of such total; PROVIDED, HOWEVER, that
the Minimum shall not apply either to the breach by LHF of the representations
and warranties set forth in Section 2.13 or the breach by the Shareholders of
any agreement entered into in satisfaction of the condition to Closing set forth
in Section 7.8.
9.2.3 Any claim of indemnification made by Olympic pursuant to this
Section 9.2 with respect to a breach by any Shareholder of such Shareholder's
representations, warranties or agreements contained in Article III shall be made
only against the breaching Shareholder, and Olympic shall not be entitled to
make a claim against or otherwise pursue any other Shareholder.
9.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF OLYMPIC. All
representations, warranties, covenants and agreements of Olympic contained in
this Agreement shall survive the execution and delivery of this Agreement and
the Closing hereunder, and shall thereafter terminate and expire, except for
Olympic's covenants in Sections 9.8, 9.10 and 9.12, and any claim based thereon
shall be brought one year from the Closing Date, except as to matters as to
which an Indemnitee (as defined in Section 9.5. 1) has made a claim for
indemnification or given a Claims Notice under Section 9.5 hereafter on or prior
to such date, in which case the rights to indemnification shall survive until
such claim is finally resolved and any obligations with respect thereto are
fully satisfied, and except for the representations and warranties set forth in
Sections 4.2 and 4.6 which shall survive until the third
27
<PAGE>
anniversary of the date of the Closing and the covenants set forth in
Sections 9.14 and 10.8 which shall survive until the second anniversary of
the date of the Closing.
9.4 OBLIGATION OF OLYMPIC TO INDEMNIFY. Olympic agrees to indemnify,
defend and hold harmless the Shareholders, their Affiliates, employees, agents,
attorneys and representatives and their successors and assigns from and against
any and all Losses based upon, arising out of or otherwise in respect of (i) any
inaccuracy in or any breach of any representation, warranty, covenant or
agreement of Olympic contained in this Agreement or in any other document
executed pursuant to the terms hereof, and (ii) the operation of LHF after the
Closing.
9.5 NOTICE AND OPPORTUNITY TO DEFEND.
9.5.1 NOTICE OF ASSERTED LIABILITY. Promptly after receipt by any
party hereto (the "Indemnitee") of notice of any demand, claim or circumstances
which, with the lapse of time, would or might give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in any Losses, the
Indemnitee, shall promptly give notice thereof (a "Claims Notice") to any other
party obligated to provide indemnification pursuant to the terms of this
Agreement (the "Indemnifying Party"). The Claims Notice shall describe the
Asserted Liability in reasonable detail, and shall indicate the amount
(estimated, if necessary and to the extent feasible) of the Losses that have
been or may be suffered by the Indemnitee.
9.5.2 OPPORTUNITY TO DEFEND. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to
so, and the Indemnitee shall cooperate, at the expense of Indemnifying Party, in
the compromise of, or defense against, the Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify Indemnitee of its election as herein provided, or contests its '
obligation to indemnify under this Agreement the Indemnitee may pay, compromise
or defend such Asserted Liability at the expense of the Indemnifying Party.
Subject to the limitations contained in Section 9.6 on the obligations of the
Indemnifying Party in respect of proposed settlements, the Indemnitee shall have
the fight to employ its own counsel with respect to any Asserted Liability, but
the fees and expenses of such counsel shall be at the expense of such Indemnitee
unless (a) the employment of such counsel shall have been authorized in writing
by the Indemnifying Party in connection with the defense of such action, or (b)
such Indemnifying Party shall not have, as provided above, promptly employed
counsel reasonably satisfactory to such Indemnitee to take charge of the defense
of such action, or (c) such Indemnitee shall have reasonably concluded based on
an
28
<PAGE>
opinion of counsel that there may be one or more legal defenses available to
it which are different from or additional to those available to such
Indemnifying Party, in any of which events such reasonable fees and expenses
shall be borne by the Indemnifying Party and the Indemnifying Party shall not
have the right to direct the defense of such action on behalf of the Indemnitee
in respect of such different or additional defenses. If the Indemnifying Party
chooses to defend any claim, the Indemnitee shall make available to the
Indemnifying Party any books, records or other documents within its control that
are necessary or appropriate for such defense.
9.6 SETTLEMENT. Notwithstanding the provisions of Section 9.5.2,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
claim for which indemnification has been sought and is available hereunder, over
the objection of the other; provided, however, that consent to settlement or
compromise shall not be unreasonably withheld or delayed. If, however, the
Indemnitee refuses to consent to a bona fide offer of settlement which the
Indemnifying Party wishes to accept, the Indemnitee may continue to pursue such
matter, free of any participation by Indemnifying Party, at the sole expense of
the Indemnitee. In such event, the obligation of the Indemnifying Party to the
Indemnitee shall be equal to the lesser of (i) the amount of the offer of
settlement which the Indemnitee refused to accept plus the costs and expenses of
the Indemnitee prior to the date the Indemnifying Party notified the Indemnitee
of the offer of settlement and (ii) the actual out-of-pocket amount the
Indemnitee is obligated to pay as a result of the Indemnitee continuing to
pursue such matter.
9.7 COMPUTATION OF LOSSES. For purposes of calculating any Losses
suffered by an indemnified party pursuant to this Article IX, the amount of the
Losses suffered by the indemnified party shall be the net amount of damage so
suffered after giving effect to any insurance proceeds and tax benefit received
with respect to such matter.
9.8 ACCOUNTS RECEIVABLE. Following the Closing, LHF shall act as agent
for the Shareholders with respect to the collection of LHF's accounts receivable
and all other claims owing to LHF of any nature whatsoever, in existence as of
the Deemed Closing Date, including, without limitation, the accounts receivable
set forth on Schedule 9.8 to be delivered by LHF to Olympic at the Closing, and
shall use best efforts to collect the same. All such payments received by LHF
following the Closing shall be held by LHF in trust for the benefit of the
Shareholders, and LHF shall promptly remit the same to LHFCO, LLC, a California
limited liability company, after receipt thereof.
9.9 LISTING. Olympic shall use its best efforts to list the Olympic
Shares and any other shares of Olympic's common stock issued to the
Shareholders pursuant to the Promissory Note on any national securities
exchange on which the common
29
<PAGE>
stock of Olympic is listed, or if not listed on a national securities
exchange, to qualify such shares for inclusion on The NASDAQ Small Cap Market.
9.10 CONDUCT OF BUSINESS. Until the later of the payment and
performance in full of the Promissory Note or the termination of the Bonus
Plan, Olympic shall cause LHF to conduct its business in the ordinary course,
substantially consistent with past practices. Without limiting the
generality of the foregoing, until the later of the payment and performance
in full of the Promissory Note or the termination of the Bonus Plan, Olympic
shall not permit LHF to change its name.
9.11 OLYMPIC BOARD MEETINGS. Until payment and performance in full of
the Promissory Note, Olympic shall permit any one of Larry Friend, Gregory
Presson or Carl Frankson to attend any meetings of Olympic's Board of
Directors.
9.12 BONUS PLAN. Olympic shall cause the Bonus Plan to remain in full
force and effect so long as any two (2) of the following remain employees of
LHF: Larry H. Friend, Gregory E. Presson and Carl Frankson, Jr.
9.13 TAXES FOR SHORT YEAR. The parties understand that the year in which
the Closing occurs will be treated as an S termination year within the meaning
of Section 1362(e)(4) of the Code. The portion of the S termination year ending
at the close of the day prior to the termination shall be treated as a short
taxable year for which LHF is an S corporation (the "S short year"). LHF shall
close its books as of the close of the day prior to the Deemed Closing Date.
Olympic will afford to the Shareholders access, upon reasonable prior notice, to
the books and records of LHF for purposes of preparing the S short year federal
income tax return for LHF, and the Shareholders shall prepare an S short year
federal income tax return for LHF, as well as any other Tax Returns of or with
respect to LHF, for the S short year, in an orderly manner, and shall provide a
copy of such Tax Returns to Olympic. The Shareholders will report all income
allocable to them in accordance with such Tax Returns, and will pay (or
reimburse Olympic or LHF for) any and all Taxes relating to the S short year.
9.14 401(k) PLAN. For the balance of the calendar year following the
Closing Date and for one additional calendar year thereafter, Olympic shall
not cause or permit without the prior written consent of Larry H. Friend and
Gregory E. Presson, LHF's 401(k) Plan which exists as of the date hereof (the
"401(k) Plan"), to be modified in any manner whatsoever, terminated or merged
into another 401(k) Plan, except as may be required by law. Additionally,
during such period, Olympic shall permit the 401(k) Plan to be administered
by an Advisory Committee, as provided in the 401(k) Plan, composed of Larry
H. Friend, Gregory E. Presson and Kenneth L. Fader; PROVIDED, that in the
event that any of the foregoing three individuals ceases to be employed by
LHF, the remaining individuals may appoint a replacement, and in the
30
<PAGE>
event that all three cease to be employed by LHF, Olympic may appoint the
members of the Advisory Committee.
ARTICLE X
MISCELLANEOUS
10.1 EXPENSES. Except as otherwise provided herein and except for the
legal fees of LHF from Loeb & Loeb LLP incurred solely in connection with and
directly related to the transactions contemplated by this Agreement which are
to be shared equally by LHF, on the one hand, and the Shareholders, on the
other, the parties hereto shall pay all of their own expenses relating to the
transactions contemplated by this Agreement, including, without limitation,
the fees and expenses of their respective counsel and financial advisers (the
'LHF Transaction Costs").
10.2 GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of
the State of California without reference to any conflict of laws provisions.
10.3 CERTAIN DEFINITIONS.
10.3.1 "AFFILIATE" shall mean any Person that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with such Person.
10.3.2 "KNOWLEDGE" shall mean in the case of a Person which is
not an individual, the knowledge of all executive officers and directors of
such Person after due inquiry, and in the case of an individual, the actual
knowledge of such individual.
10.3.3 "PERSON" shall mean and include an individual, a
partnership, a joint venture, a corporation, a limited liability company, a
trust, an unincorporated organization and a government or other department or
agency thereof.
10.3.4 "TRANSACTION DOCUMENTS" shall mean this Agreement, the
Investor Rights Agreement the Employment Agreements, the Voting Agreement and
the Promissory Note.
10.4 JURISDICTION. Any judicial proceeding brought against any of the
parties to this Agreement on any dispute arising out of this Agreement or any
matter related hereto shall be brought in the courts of the State of
California in Los Angeles County or in United States District Court located
in Los Angeles, California, and by execution and delivery of this Agreement,
each of the parties to this Agreement accepts for itself or himself the
jurisdiction of the aforesaid courts, irrevocably consents to the service
31
<PAGE>
of any and all process in any action or proceeding by the mailing of copies
of such process to such party at its or his address as set forth in Section
10.6, and irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement. Each party hereto irrevocably waives to
fullest extent permitted by law any objection that it or he may now or
hereafter have to the laying of the venue of any judicial proceeding brought
in such courts and any claim that any such judicial proceeding has been
brought in an inconvenient forum. the foregoing consent to jurisdiction shall
not constitute general consent to service of process in the State of
California for any purpose except as provided above and shall not be deemed
to confer rights on any Person other than the respective parties to this
Agreement.
10.5 CAPTIONS. The article and section captions used herein are for
reference purposes only, and shall not in any way affect the meaning, or
interpretation of this Agreement.
10.6 NOTICES. Any notice or other communications required or permitted
hereunder shall be in writing and shall be deemed effective (a) upon personal
delivery, if delivered by hand, (b) three days after the date of deposit in the
mails, if mailed by certified or registered mail (return receipt requested), or
(c) on the next business day, if mailed by an overnight mail service to the
parties or sent by facsimile transmission, and in each case, postage prepaid,
addressed to a party at its or his address set forth on the signature page
hereof, or such other address as shall be furnished in writing by like notice by
any such party. A copy of each notice sent to either LHF or any Shareholder
should also be sent to David L. Ficksman, Esq., Loeb & Loeb LLP, 1000 Wilshire
Boulevard, Suite 1800, Los Angeles, California 90017, and a copy of each notice
sent to Olympic should also be sent to Alan 1. Annex, Esq., Camhy Karlinsky &
Stein LLP, 1740 Broadway, 16th Floor, New York, New York 10019.
10.7 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date:
10.7.1 By mutual agreement of Olympic and the Shareholders holding
a majority of the LHF Shares;
10.7.2 Olympic if (i) there has been a material misrepresentation,
breach of warranty or breach of covenant by any Shareholder under this Agreement
or (ii) any of the conditions precedent to the Closing set forth in Articles VI
or VII have not been satisfied on the Closing Date, and, in each case, Olympic
is not then in default of its obligations hereunder; and'
10.7.3 By the Shareholders if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by Olympic under
this Agreement or (ii) any of the conditions precedent to the Closing set
forth in
32
<PAGE>
Articles VI or VIII have not been satisfied on the Closing Date, and, in each
case, the Shareholders are not in default of their obligations hereunder.
In the event of termination of this Agreement as provided in Section
10.7.1., this Agreement shall become void and there shall be no liability
hereunder on the part of any party hereto. In the event of termination of this
Agreement as provided in Section 10.7.2, such termination shall be without
prejudice to any of the rights that Olympic may have against the Shareholders or
any other Person under the terms of this Agreement or otherwise. In the event
of termination of this Agreement as provided in Section 10.7.3, such termination
shall be without prejudice to any of the rights that the Shareholders may have
against Olympic or any other Person under the terms of this Agreement or
otherwise.
10.8 TAX RETURNS. Each of Olympic and each Shareholder agrees to report
the Exchange in a manner consistent with a reorganization as described in
Section 368(a)(1)(B) of the Code, in all income tax returns and other filings
which describe the Exchange; PROVIDED, HOWEVER, that Olympic makes no
representation or warranty that the Exchange will qualify as a reorganization
described in Section 368(a)(1)(B)of the Code. Olympic shall not, and shall not
permit LHF after the Closing, to take any action (other than as contemplated by
this Agreement) which would jeopardize treatment of the Exchange in a manner
consistent with a reorganization as described in Section 368(a)(1)(B) of the
Code, including, without the limitation, the liquidation of or the sale of all
or substantially all of the assets of LHF.
10.9 ASSIGNMENTS. This Agreement may not be transferred, assigned,
pledged or hypothecated by any party hereto, other than by operation of law. No
assignment or transfer shall be effective unless the assignee agrees in writing
to assume such assignor's obligations under the Agreement. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and assigns.
10.10 PRESS RELEASES AND ANNOUNCEMENTS. No party to this Agreement shall
issue any press release or public announcement relating to the subject matter of
this Agreement without the prior approval of the other parties to this
Agreement; provided, however, that any party to this Agreement may make any
public disclosure it believes in good faith is required by law or regulation,
including any state or federal securities laws (in which case the disclosing
party will advise the other parties prior to making the disclosure).
10.11 FURTHER ASSURANCES. The parties hereby agree from time to time to
execute and deliver such further documents and to do all matters and things
which may be convenient or necessary to more effectively and completely carry
out the intentions of this Agreement.
33
<PAGE>
10.12 CONSTRUCTION. The language used in this Agreement will be deemed to
be the language chosen by all of the parties hereto to express their mutual
intent, 'and no rule of construction shall be specified against any party.
10.13 SEVERABILITY. In the event any provision of this Agreement is found
to be void and unenforceable by a court of competent jurisdiction or arbitration
panel, the remaining provisions of this Agreement shall nevertheless be binding
upon the parties with the same effect as though the void or unenforceable part
had been severed and deleted.
10.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
10.15 ENTIRE AGREEMENT. This Agreement, including the documents referred
to herein which form a part hereof, contains entire understanding of the parties
hereto with respect to the subject matter contained herein and therein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
10.16 AMENDMENTS. This Agreement may not be changed orally, but only by
an agreement in writing signed by Olympic, LHF and each Shareholder.
10.17 THIRD-PARTY BENEFICIARIES. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any Person other than the parties hereto and their respective
Affiliates, officers, directors, employees, agents, attorneys, representatives,
successors and assigns as permitted under Section 10.9.
10.18 CONFIDENTIALITY. Subject to any obligation to comply with any law,
rule or regulation of any governmental authority or any subpoena or other legal
process to make information available to the persons entitled thereto, Olympic
shall, and shall cause its Affiliates, employees, attorneys, accountants and
representatives to keep confidential and Olympic shall not use, or permit its
Affiliates, attorneys, accountants and representatives to use, in any manner
other than for the purpose of evaluating the transaction contemplated herein any
information obtained from LHF or any of the Shareholders, whether or not
obtained or acquired pursuant to the terms of this Agreement, unless such
information is readily ascertainable from public or published information, from
trade sources, or is already known to Olympic. If the transactions contemplated
herein fail to close for any reason whatsoever, Olympic shall immediately return
or cause to be returned to LHF or the Shareholders, as the case may be, all
written data, software, encoded data information, files, records and copies of
documents, worksheets and other materials obtained by Olympic in connection with
the transactions contemplated herein.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Exchange
Agreement and Plan of Reorganization as of the date first above written.
"OLYMPIC" OLYMPIC CASCADE FINANCIAL
CORPORATION, a Delaware corporation
By: /s/ Steven A. Rothstein
---------------------------------
Steven A. Rothstein
Chairman of the Board
Address:
1001 Fourth Avenue, Suite 2200
Seattle, Washington 98154
Attention: General Counsel
Fax: (206) 343-6132
"LHF" L.H. FRIEND, WEINRESS, FRANKSON
& PRESSON, INC., a California corporation
By:
-----------------------------------
Larry H. Friend
Chairman of the Board and
Chief Executive Officer
Address:
3333 Michelson Drive, Suite 650
Irvine, California 92612-1686
Fax: (714) 852-0430
S-1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Exchange
Agreement and Plan of Reorganization as of the date first above written.
"OLYMPIC" OLYMPIC CASCADE FINANCIAL
CORPORATION, a Delaware corporation
By:
---------------------------------
Steven A. Rothstein
Chairman of the Board
Address:
1001 Fourth Avenue, Suite 2200
Seattle, Washington 98154
Attention: General Counsel
Fax: (206) 343-6132
"LHF" L.H. FRIEND, WEINRESS, FRANKSON
& PRESSON, INC., a California corporation
By: /s/ Larry H. Friend
-----------------------------------
Larry H. Friend
Chairman of the Board and
Chief Executive Officer
Address:
3333 Michelson Drive, Suite 650
Irvine, California 92612-1686
Fax: (714) 852-0430
S-1
<PAGE>
"SHAREHOLDERS"
/s/ Larry H. Friend
------------------------------
Larry H. Friend
Address:
3333 Michelson Drive, Suite 650
Irvine, California 92612-1686
Fax: (714) 852-0430
/s/ Darren Friend
------------------------------
Darren Friend
Address:
3333 Michelson Drive, Suite 650
Irvine, California 92612-1686
Fax: (714) 852-0430
------------------------------
Marshall S. Geller
Address:
1875 Century Park East, Suite 2200
Los Angeles, California 90067
Fax: (310) 553-0257
S-2
<PAGE>
"SHAREHOLDERS"
------------------------------
Larry H. Friend
Address:
3333 Michelson Drive, Suite 650
Irvine, California 92612-1686
Fax: (714) 852-0430
------------------------------
Darren Friend
Address:
3333 Michelson Drive, Suite 650
Irvine, California 92612-1686
Fax: (714) 852-0430
/s/ Marshall S. Geller
------------------------------
Marshall S. Geller
Address:
1875 Century Park East, Suite 2200
Los Angeles, California 90067
Fax: (310) 553-0257
S-2
<PAGE>
/s/ Stephen D. Weinress
------------------------------
Stephen D. Weinress, Trustee of the
Weinress Family Living Trust dated
March 26, 1996
Address:
1875 Century Park East, Suite 2200
Los Angeles, California 90067
Fax: (310) 229-3740
/s/ Catherine M. Weinress
------------------------------
Catherine M. Weinress, Trustee of
the Weinress Family Living Trust
dated March 26, 1996
Address:
1875 Century Park East, Suite 2200
Los Angeles, California 90067
Fax: (310) 229-3740
------------------------------
Carl Frankson, Jr.
Address:
333 Michelson Drive, Suite 650
Irvine, California 92612-1686
Fax: (714) 852-0430
S-3
<PAGE>
------------------------------
Stephen D. Weinress, Trustee of the
Weinress Family Living Trust dated
March 26, 1996
Address:
1875 Century Park East, Suite 2200
Los Angeles, California 90067
Fax: (310) 229-3740
------------------------------
Catherine M. Weinress, Trustee of
the Weinress Family Living Trust
dated March 26, 1996
Address:
1875 Century Park East, Suite 2200
Los Angeles, California 90067
Fax: (310) 229-3740
/s/ Carl Frankson, Jr.
------------------------------
Carl Frankson, Jr.
Address:
333 Michelson Drive, Suite 650
Irvine, California 92612-1686
Fax: (714) 852-0430
S-3
<PAGE>
/s/ Gregory E. Presson
------------------------------
Gregory E. Presson
Address:
3333 Michelson Drive, Suite 650
Irvine, California 92612-1686
Fax: (714) 852-0430
------------------------------
Marjorie E. Goddard
Address:
1875 Century Park East, Suite 2200
Los Angeles, California 90067
Fax: (310) 229-3740
------------------------------
Kenneth L. Fader
Address:
3333 Michelson Drive, Suite 650
Irvine, California 92612-1686
Fax: (714) 842-0430
S-4
<PAGE>
------------------------------
Gregory E. Presson
Address:
3333 Michelson Drive, Suite 650
Irvine, California 92612-1686
Fax: (714) 852-0430
/s/ Marjorie E. Goddard
------------------------------
Marjorie E. Goddard
Address:
1875 Century Park East, Suite 2200
Los Angeles, California 90067
Fax: (310) 229-3740
------------------------------
Kenneth L. Fader
Address:
3333 Michelson Drive, Suite 650
Irvine, California 92612-1686
Fax: (714) 842-0430
S-4
<PAGE>
------------------------------
Gregory E. Presson
Address:
3333 Michelson Drive, Suite 650
Irvine, California 92612-1686
Fax: (714) 852-0430
------------------------------
Marjorie E. Goddard
Address:
1875 Century Park East, Suite 2200
Los Angeles, California 90067
Fax: (310) 229-3740
/s/ Kenneth L. Fader
------------------------------
Kenneth L. Fader
Address:
3333 Michelson Drive, Suite 650
Irvine, California 92612-1686
Fax: (714) 842-0430
S-4
<PAGE>
STOCK PURCHASE AGREEMENT
BETWEEN
OLYMPIC CASCADE FINANCIAL CORPORATION
AND
WESTAMERICA CORPORATION
RELATING TO ALL OF THE ISSUANCE
AND OUTSTANDING CAPITAL STOCK
OF
WESTAMERICA INVESTMENT GROUP, INC.
MAY 28, 1997
<PAGE>
TABLE OF CONTENTS
I. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 TERMS OF PURCHASE AND SALE . . . . . . . . . . . . . . . 2
Section 1.2 CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 OTHER TRANSACTIONS AT CLOSING. . . . . . . . . . . . . . 2
II. REPRESENTATIONS AND WARRANTIES OF THE SELLER. . . . . . . . . . . . . . 3
Section 2.1 ORGANIZATION AND QUALIFICATION . . . . . . . . . . . . . 3
Section 2.2 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . 4
Section 2.3 FINANCIAL CONDITION. . . . . . . . . . . . . . . . . . . 5
Section 2.4 TAX AND OTHER LIABILITIES. . . . . . . . . . . . . . . . 6
Section 2.5 LITIGATION AND CLAIMS. . . . . . . . . . . . . . . . . . 9
Section 2.6 PROPERTIES OF WAIG . . . . . . . . . . . . . . . . . . . 9
Section 2.7 CONTRACTS AND OTHER INSTRUMENTS. . . . . . . . . . . . . 11
Section 2.8 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.9 PATENTS, TRADEMARKS, ET CETERA . . . . . . . . . . . . . 14
Section 2.10 QUESTIONABLE PAYMENTS. . . . . . . . . . . . . . . . . . 14
Section 2.11 BROKER-DEALER REGISTRATION.. . . . . . . . . . . . . . . 15
Section 2.12 NO THREATENED SEC PROCEEDINGS. . . . . . . . . . . . . . 15
Section 2.13 NET CAPITAL. . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.14 NASD MEMBERSHIP. . . . . . . . . . . . . . . . . . . . . 16
Section 2.15 FEES AND ASSESSMENTS.. . . . . . . . . . . . . . . . . . 16
Section 2.16 NASD RESTRICTIONS. . . . . . . . . . . . . . . . . . . . 16
Section 2.17 CRD REGISTRATION.. . . . . . . . . . . . . . . . . . . . 16
Section 2.18 STATE BROKER-DEALER REGISTRATIONS. . . . . . . . . . . . 16
Section 2.19 NO STATE INQUIRIES. . . . . . . . . . . . . . . . . . . 17
Section 2.20 REGISTERED REPRESENTATIVES.. . . . . . . . . . . . . . . 17
Section 2.21 BROKERS BOND.. . . . . . . . . . . . . . . . . . . . . . 17
Section 2.22 SIPC REGISTRATION. . . . . . . . . . . . . . . . . . . 17
Section 2.23 CLEARING AGREEMENT.. . . . . . . . . . . . . . . . . . . 18
III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . 18
Section 3.1 ORGANIZATION AND QUALIFICATION.. . . . . . . . . . . . . 18
Section 3.2 AUTHORITY TO BUY . . . . . . . . . . . . . . . . . . . . 18
Section 3.3 DISCLOSURE OF INFORMATION. . . . . . . . . . . . . . . . 19
IV. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. . . . . . . . . . . . . . . 19
Section 4.1 ACCURACY OF REPRESENTATIONS AND
COMPLIANCE WITH CONDITIONS . . . . . . . . . . . . . . . 19
Section 4.2 OPINION OF COUNSEL . . . . . . . . . . . . . . . . . . . 20
Section 4.3 THIRD PARTY APPROVALS. . . . . . . . . . . . . . . . . . 20
Section 4.4 UPDATED FOCUS REPORTS. . . . . . . . . . . . . . . . . . 20
Section 4.5 OTHER CLOSING DOCUMENTS. . . . . . . . . . . . . . . . . 20
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Section 4.6 LEGAL ACTION . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.7 NO GOVERNMENTAL ACTION . . . . . . . . . . . . . . . . . 21
Section 4.8 CONTRACTUAL CONSENTS NEEDED. . . . . . . . . . . . . . . 21
Section 4.9 MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . . . 22
V. CONDITIONS TO OBLIGATIONS OF SELLER.. . . . . . . . . . . . . . . . . . 22
Section 5.1 ACCURACY OF REPRESENTATIONS AND COMPLIANCE
WITH CONDITIONS. . . . . . . . . . . . . . . . . . . . . 22
Section 5.2 LEGAL ACTION . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.3 CONTRACTUAL CONSENTS . . . . . . . . . . . . . . . . . . 22
VI. COVENANTS OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.1 ACCESS . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.2 CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . 23
Section 6.3 ADVICE OF CHANGES. . . . . . . . . . . . . . . . . . . . 24
Section 6.4 PUBLIC STATEMENTS. . . . . . . . . . . . . . . . . . . . 24
Section 6.5 OTHER PROPOSALS. . . . . . . . . . . . . . . . . . . . . 25
Section 6.6 VOTING BY STOCKHOLDERS . . . . . . . . . . . . . . . . . 25
VII. COVENANTS OF PURCHASER. . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.1 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . 26
VIII. INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY. . . . . . . . 27
Section 8.1 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . 27
Section 8.2 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . 28
IX. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.1 BROKERAGE FEES . . . . . . . . . . . . . . . . . . . . . 29
Section 9.2 REGULATORY FILINGS . . . . . . . . . . . . . . . . . . . 29
Section 9.3 FURTHER ACTIONS. . . . . . . . . . . . . . . . . . . . . 29
Section 9.4 SUBMISSION TO JURISDICTION . . . . . . . . . . . . . . . 29
Section 9.5 MERGER; MODIFICATION . . . . . . . . . . . . . . . . . . 30
Section 9.6 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.7 WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.8 BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . 31
Section 9.9 NO THIRD-PARTY BENEFICIARIES . . . . . . . . . . . . . . 31
Section 9.10 SEPARABILITY . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.11 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.12 COUNTERPARTS; GOVERNING LAW. . . . . . . . . . . . . . . 32
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), is being made this
28th day of May, 1997, by and between OLYMPIC CASCADE FINANCIAL CORPORATION, a
Delaware corporation (the "Purchaser" or "Olympic"), with offices at 1001 Fourth
Avenue, Suite 2200, Seattle, Washington 98154-1100; and WESTAMERICA CORPORATION,
an Oklahoma corporation with offices at 4141 N. Scottsdale Road, Suite 100,
Scottsdale, Arizona 85251 (the "Seller").
W I T N E S S E T H :
WHEREAS, the Seller owns beneficially and of record all of the
issued and outstanding capital stock (the "Acquired Securities") of West
America Investment Group, Inc., an Arizona corporation ("WAIG"), which
capital stock consists of 467,257.20 shares of common stock, par value
$0.7795 per share (the "WAIG Common Stock").
WHEREAS, WAIG is a broker-dealer duly registered with the Securities
and Exchange Commission (the "SEC") and is a member in good standing with the
National Association of Securities Dealers, Inc. (the "NASD") engaged in the
general securities business.
WHEREAS, the Purchaser desires to acquire the Acquired Securities from
the Seller and the Seller desires to sell the Acquired Securities to the
Purchaser, subject to the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises, representations,
warranties, and covenants contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
<PAGE>
I. PURCHASE AND SALE.
Section 1.1 TERMS OF PURCHASE AND SALE.
(a) At the Closing (as defined in Section 1.4 below), the Seller
shall sell, assign, transfer, and convey to the Purchaser the Acquired
Securities. The Seller shall deliver to the Purchaser at the Closing
certificates representing the Acquired Securities, duly endorsed in blank or
accompanied by stock powers duly endorsed in blank, in each case in proper form
for transfer, with signatures guaranteed, and, if applicable, with all stock
transfer and any other required documentary stamps affixed thereto.
(b) In consideration for the Acquired Securities, the Purchaser
shall deliver to the Seller, at the Closing, by bank check, certified check, or
wire transfer, the sum of Four Hundred and Forty Three Thousand Dollars
($443,000).
Section 1.2 CLOSING.
The Closing (the "Closing") of the transactions contemplated by
this Agreement shall take place at the offices of WAIG on the third (3rd)
business day following the receipt of all applicable regulatory approvals (the
"Closing Date") or such other time or date as the parties may mutually agree,
but in no event later than June 15, 1997.
Section 1.3 OTHER TRANSACTIONS AT CLOSING.
In addition to the transactions referred to in this Sections 1.1,
1.2, and 1.3 above, at the Closing, the Seller shall deliver to the Purchaser
the following:
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(a) The minute books, stock certificate books, stock transfer
ledgers, and corporate seals of WAIG and of West America Investment
Company, a California corporation d/b/a WestAmerica Investment Group, a
wholly-owned subsidiary of WAIG ("WAIC");
(b) Resignations of all officers and directors of the WAIG and
WAIC, except as mutually agreed;
(c) The Written Consent of any applicable regulatory authority.
(d) Certificates of Good Standing as to WAIG issued by the
appropriate governmental authorities of the State of Arizona and each state
in which the WAIG is qualified to do business;
(e) Certified copy of the Certificate of Incorporation of WAIG
and WAIC, and all amendments thereto, certified by the Secretary of State
of the State of Arizona; and
(f) A copy of by-laws of WAIG and WAIC, certified by the
secretary or assistant secretary thereof as being true, complete, and
correct.
II. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
The Seller represents and warrants to the Purchaser as follows:
Section 2.1 ORGANIZATION AND QUALIFICATION.
WAIG does not own any capital stock of any corporation or any
interest in any joint venture, partnership, association, trust, or other entity
except that WAIG owns all of the issued and outstanding capital stock of WAIC.
Schedule 2.1 correctly sets forth as to WAIG and WAIC its place of
incorporation, principal place of business, and jurisdictions in which it is
qualified to do business.
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Each of WAIG and WAIC is a corporation duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation, will all
requisite power and authority, and all necessary consents, authorizations,
approvals, orders, licenses, certificates, and permits of and from, and
declarations and filings with, all federal, state, local, and other governmental
authorities, and all courts and other tribunals, to own, lease, license, and use
its properties and assets and to carry on the business in which it is now
engaged and the business in which it contemplates engaging. Each of WAIG and
WAIC is duly qualified to transact the business in which it is now engaged and
is in good standing as a foreign corporation in every jurisdiction where the
failure to so qualify would have material adverse effect upon the businesses
assets, properties, prospectus, or financial condition of WAIG.
Section 2.2 CAPITALIZATION.
The authorized capital stock of WAIG consists of 1,000,000
shares of common stock, par value $0.7795 per share, of which 467,257.20
shares are outstanding. The authorized capital stock of WAIC consists of
1,000,000 shares of common stock, par value $0.7795 per share (the "WAIC
Common Stock"), of which 531,512.68 shares are outstanding. Each of such
outstanding shares of WAIG Common Stock and WAIC Common Stock is validly
authorized, validly issued, fully paid, and nonassessable, has not been
issued and is not owned or held in violation of any preemptive right of
stockholders, and is owned of record and beneficially by the Seller, in the
case of WAIG and by WAIG in the case of WAIC. The Acquired Securities are
owned by the Seller and the WAIC Common Stock is owned by WAIG free and clear
of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts. There is no outstanding
security or other instrument convertible into or exchangeable for capital
stock of WAIG or WAIC nor is there any commitment, plan, or arrangement to
issue, and no outstanding option, warrant, or other right calling for the
issuance of,
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any share of capital stock of WAIG or WAIC or any security or other
instrument convertible into, exercisable for, or exchangeable for capital
stock of WAIG or WAIC.
Section 2.3 FINANCIAL CONDITION.
The Seller has delivered to the Purchaser true and correct
copies of the following: the unaudited balance sheet of WAIG as of March 31,
1997, the audited balance sheet of WAIG as of March 31, 1996 and December 31,
1994, the unaudited statements of income, statements of retained earnings,
and statements of cash flows of WAIG for the year ended March 31, 1997, and
the audited statements of income, statements of retained earnings and
statements of cash flows for the fifteen (15) months ended March 31, 1996,
and the year ended December 31, 1994. Each such balance sheet presents
fairly the financial conditions, assets, liabilities, and stockholders'
equity of WAIG as of its date; each such statement of income and statement of
retained earnings presents fairly the results of operations of WAIG for the
period indicated and their retained earnings as of the date indicated; and
each such statement of cash flows presents fairly the information purported
to be shown therein. The financial statements referred to in this Section
2.3 have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved and are in
accordance with the books and records of WAIG. Since March 31, 1997:
(a) There has at no time been a material adverse change in the
financial condition, results of operations, business, properties, assets,
liabilities, or, to the Seller's knowledge, the future prospects of WAIG.
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(b) WAIG has not authorized, declared, paid, or effected any dividend
or liquidating or other distribution in respect of its capital stock or any
direct or indirect redemption, purchase, or other acquisition of any stock
of WAIG.
(c) The operations and business of the WAIG have been conducted in
all respects only in the ordinary course.
(d) WAIG has not suffered an extraordinary loss (whether or not
covered by insurance) or waived any right of substantial value.
(e) WAIG has not paid any expense resulting from the preparation of,
or the transactions contemplated by, this Agreement, it being understood
that the Seller shall have paid or will pay all such expenses (including,
without limitation, its legal expenses resulting from this Agreement or the
transactions contemplated hereby).
There is no fact known to the Seller, which materially and adversely affects or
in the future (as far as the Seller can reasonably foresee) may materially and
adversely affect the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of WAIG; PROVIDED, HOWEVER,
that the Seller express no opinion as to political or economic matters of
general applicability.
Section 2.4 TAX AND OTHER LIABILITIES.
(a) WAIG has no liability of any nature, accrued or contingent,
including without limitation liabilities for Taxes (as defined in Section
2.4(f)) and liabilities to customers or suppliers, other than the following:
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(b) Liabilities for which full provision has been made on the
balance sheet (the "Last Balance Sheet") as of March 31, 1997 (the "Last Balance
Sheet Date"); and
(c) Other liabilities arising since the Last Balance Sheet Date
and prior to the Closing in the ordinary course of business which are not
inconsistent with the representations and warranties of any Seller or any other
provision of this Agreement.
(d) Without limiting the generality of Section 2.4(a):
(i) WAIG and any combined, consolidated, unitary or
affiliated group of which WAIG is or has been a member
prior to the Closing Date: (i) has paid all Taxes
required to be paid on or prior to the Closing Date
(including, without limitation, payments of estimated
Taxes) for which WAIG could be held liable, except for
Taxes which are being contested in good faith and by
appropriate proceedings; and (ii) has accurately and
timely filed (or filed an extension for), all federal,
state, local, and foreign tax returns, reports, and
forms with respect to such taxes required to be filed
by them on or before the Closing Date.
(ii) The amount set up as provisions for Taxes on the Last
Balance Sheet are sufficient for all accrued and unpaid
Taxes of WAIG, whether or not due and payable and
whether or not in dispute, under tax laws as in effect
on the Last Balance Sheet Date or now in effect, for
the period ended on such date and for all periods prior
thereto.
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<PAGE>
(e) There is no material dispute or claim concerning any
liability for Taxes of WAIG either (i) claimed or raised by any authority in
writing, or (ii) as to which WAIG has knowledge based upon personal contact with
any agent of such authority.
(f) Schedule 2.4 sets forth all federal, state, local and
foreign income tax returns filed with respect to WAIG for taxable periods on or
after January 1, 1994 ("Tax Returns"), indicates those Tax Returns that
currently are subject to audit. WAIG has delivered or made available to
Purchaser complete and correct copies of all Tax Returns, examination reports,
and statements of deficiencies assessed against, or agreed to by WAIG since
January 1, 1994. WAIG has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to any Tax assessment or
deficiency.
(g) WAIG has not filed a consent under Section 341(f) of the
Internal Revenue Code of 1986, as amended (the "Code"). Neither WAIG has made
any payments, is obligated to make any payments, or is a party to any agreement
that under certain circumstances could obligate it to make any payment that will
not be deductible under Section 280G of the Code. WAIG will not have any
liability on or after the Closing Date pursuant to any tax sharing or tax
allocation agreement. Neither WAIG has any liability for the Taxes of any other
person under Treasury Regulation 1.1502-6 (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract, or otherwise.
(h) For purposes of this Agreement, "Taxes" shall mean all
federal, state, local or foreign taxes, assessments, duties which are payable or
remittable by WAIG or levied upon WAIG or any property of WAIG, or levied with
respect to either of their assets, franchises, income, receipts, including,
without limitation, import duties, excise, franchise, gross receipts, utility,
real property,
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<PAGE>
capital, personal property, withholding, FICA, unemployment compensation, sales
or use, withholding, governmental charges (whether or not requiring the filing
of a return), and all additions to tax, penalties and interest relating thereto.
Section 2.5 LITIGATION AND CLAIMS.
To the knowledge of Seller there is no litigation, arbitration,
claim, governmental or other proceeding (formal or informal), or investigation
pending, threatened, or in prospect (or any basis therefor known to the Seller)
with respect to the WAIG, or any of their respective businesses, properties, or
assets. WAIG is not affected by any present or threatened strike or other labor
disturbance nor to the knowledge of Seller is any union attempting to represent
any employee of WAIG as collective bargaining agent. WAIG is not in violation
of, or in default with respect to, any law, rule, regulation, order, judgment,
or decree; nor is the Company required to take any action in order to avoid such
violation or default which would have a material adverse effect upon the
businesses, assets, properties, prospects or financial condition of WAIG.
Section 2.6 PROPERTIES OF WAIG.
(a) Set forth on Schedule 2.6(a) is a list of all real property
owned or leased by WAIG. With respect to real property that is owned by WAIG,
WAIG has good and marketable title to all such property and such property is
clear of all liens, mortgages, security interests, or encumbrances, except as
otherwise disclosed on Schedule 2.6(a).
(b) Set forth in Schedule 2.6(b) is a true and complete list of
all personal properties and assets (other than real property) owned by WAIG or
leased or licensed by WAIG from or to a third party. All such properties and
assets owned by WAIG are reflected on the Last Balance Sheet (except
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<PAGE>
for acquisitions subsequent to the Last Balance Sheet Date which are noted on
Schedule 2.6(b)). All such properties and assets owned, leased, or licensed by
WAIG are in good and usable condition (reasonable wear and tear which is not
such as to affect adversely the operation of the business of WAIG excepted).
(c) All accounts and notes receivable reflected on the Last
Balance Sheet, or arising since the Last Balance Sheet Date, have been collected
in the ordinary course of WAIG's customary practices, or are and will be good
and collectible, without right or recourse, defense, deduction, return of
goods, counterclaim, offsets, or set-off.
(d) No real property owned, leased, or licensed by WAIG lies in
an area which is, or to the knowledge of Seller will be, subject to zoning, use,
or building code restrictions that would prohibit the continued effective
ownership, leasing, licensing, or use of such real property in the business
which the WAIG is now engaged.
(e) WAIG has not to its knowledge caused or permitted its
respective businesses, properties, or assets to be used to generate,
manufacture, refine, transport, treat, store, handle, dispose of, transfer,
produce, or process any Hazardous Substance (as such term is defined in this
Section 2.6(e)) except in compliance with all applicable laws, rules,
regulations, orders, judgments, and decrees, and has not caused or permitted the
Release (as such term is defined in this Section 2.6(e)) of any Hazardous
Substance on or off the site of any property of WAIG. The term "Hazardous
Substance" shall mean any hazardous waste, as defined by 42 U.S.C. Section
6903(5), any hazardous substance, as defined by 42 U.S.C. Section 9601(14), any
pollutant or contaminant, as defined by 42 U.S.C. Section 9601(33), and all
toxic substances, hazardous materials, or other chemical substances regulated by
any other law, rule, or regulation. The term "Release" shall have the meaning
set forth in 42 U.S.C. Section 9601(22).
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<PAGE>
Section 2.7 CONTRACTS AND OTHER INSTRUMENTS.
Schedule 2.7 accurately and completely sets forth a list of all
material contracts, agreements, loan agreements, instruments, leases, licenses,
arrangements, or understandings with respect to WAIG. The Seller has furnished
to the Purchaser, the certificate of incorporation (or other charter document)
and by-laws of WAIG and all amendments thereto, as presently in effect,
certified by the Secretary of such corporation. Each such contract, agreement,
loan agreement, instrument, lease, or license is in full force and is the legal,
valid, and binding obligation of WAIG, and (subject to applicable bankruptcy,
insolvency, and other laws affecting the enforceability of creditors' rights
generally) is enforceable as to it in accordance with its terms. WAIG, is not
in violation, in breach of, or in default with respect to any material terms of
any such contract, agreement, loan agreement, instrument, lease, or license.
Except for employment agreements and as disclosed in Schedule 2.7, WAIG is not a
party to any contract, agreement, loan agreement, instrument, lease, license,
arrangement, or understanding with, any Seller or any director, officer, or
employee of WAIG, or any relative or affiliate of any Seller or of any such
director, officer, or employee. The stock ledgers and stock transfer books and
the minute book records of WAIG relating to all issuances and transfers of the
stockholders of the Board of Directors and committees thereof of WAIG since its
incorporation made available to the Purchaser are the original stock ledgers and
stock transfer books and minute book records of WAIG or exact copies thereof.
Section 2.8 ERISA.
(a) The name of each plan, program, arrangement, agreement or
commitment sponsored or maintained by or on behalf of WAIG or any ERISA
Affiliate (as defined below) or to which WAIG or any ERISA Affiliate makes or is
obligated to make contributions or to which WAIG or any ERISA Affiliate made or
was obligated to make contributions during the five (5) year period ending on
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the date hereof, which is a pension, profit sharing, savings, thrift or other
retirement plan, deferred compensation, stock purchase, stock option,
performance share, bonus or other incentive plan, severance pay plan, policy or
procedure, life, health, disability or accident insurance plan, (including,
without limitation, each "employee benefit plan" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
vacation or other employee benefit plan, program, arrangement, agreement or
commitment, whether or not written) (all of the foregoing being hereinafter
referred to individually as a "Plan" and collectively as the "Plans") is set
forth on Schedule 2.8 hereto. WAIG has substantially complied with all of the
provisions of each Plan and all applicable provisions of ERISA and the Code, has
administered each such Plan (including the payment of benefits thereunder) in
all material respects in accordance with the provisions of each such Plan and
all applicable provisions of ERISA and the Code, and no penalties under ERISA or
any other applicable law or regulation are and at the Deemed Closing Date will
be owed to any Plan participant and/or beneficiary and/or any governmental body
with respect to the failure to file any reports or other information required
under ERISA or any other applicable law or regulation or to distribute or make
available any such reports or other information. WAIG has and at the Deemed
Closing Date will have timely made all required contributions to each such Plan.
(b) No such Plan is a "defined benefit plan" within the meaning
of Section 3(35) of ERISA nor a "multi-employer plan" within the meaning of
Section 3(37) of ERISA.
(c) As of the date hereof and as of the Deemed Closing Date,
WAIG is entitled to cease its participation in each Plan referred to in this
Section 2.8 and each such Plan, by its provisions, permits WAIG to amend to
terminate, in whole or in part, such Plan without default, penalty, premium or
any additional cost to WAIG.
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<PAGE>
(d) The transactions contemplated by this Agreement will not
result in any payment or series of payments by Olympic or WAIG of a "parachute
payment" within the meaning of Section 280G of the Code.
(e) With respect to each Plan maintained or sponsored by WAIG
which is an "employee welfare benefit plan" within the meaning of Section 3(1)
of ERISA (a "Welfare Plan"): (i) the applicable requirements of Part III of
Subchapter 8B of Chapter 1 of the Code are satisfied if benefits under such
Welfare Plan are intended to qualify for tax-favored treatment; (ii) there is no
disqualified benefit which would subject Olympic to tax under Section 4976(a) of
the Code; and (iii) each such Welfare Plan which is a group health plan within
the meaning of Section 4980B of the Code is and has at all times been in
compliance in all material respects with the applicable requirements of Sections
601 through 608 of ERISA, and WAIG is not now and has never been liable for any
tax under Section 4980B of the Code.
(f) None of the Plans is and, at the Deemed Closing Date, none
will be under investigation or audit by either the United States Department of
Labor or the Internal revenue Service.
(g) None of the Plans provides benefits including, without
limitation, death or medical benefits (whether or not insured) with respect to
any current or former employee of WAIG beyond their retirement or other
termination of service other than (i) coverage mandated by applicable law, (ii)
disability benefits under any "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA) that have been fully provided for by insurance or
otherwise, (ii) deferred compensation benefits accrued as liabilities on the
books of WAIG or (iv) benefits in the nature of severance pay.
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(h) For purposes of this Section 2.8, the term "ERISA Affiliate"
shall mean all members of a controlled group of corporations and all trades and
businesses (whether or not incorporated) under common control and all other
entities which, together with WAIG are treated as a single employer under any or
all of sections 414(b), (c), (m), (n) or (o) of the code at any time during the
period of five (5) years ended on March 31, 1997.
Section 2.9 PATENTS, TRADEMARKS, ET CETERA.
Except as disclosed on Schedule 2.9, WAIG does not own or has
pending, or is licensed under, any patent, patent application, trademark,
trademark application, trade name, service mark, copyright, franchise, or other
intangible property or asset (all of the foregoing being herein called
"Intangibles"). Those Intangibles listed on Schedule 2.9 are in good standing
and uncontested. Neither any Seller, any director, officer, or employee of
WAIG, nor any relative or affiliate of any Seller or of any such director,
officer, or employee, possesses any Intangible which relates to the business of
WAIG. "WestAmerica" is a trademark used by the WAIG to identify its products,
and such trademark is protected by registration in the name of WAIG on the
principal register in the United States Patent Office. There is no right under
any Intangible necessary to the business of WAIG as presently conducted, except
such as are so designated in Schedule 2.9. WAIG has not infringed, is
infringing, or has received notice of infringement with asserted Intangibles of
others. To the knowledge of the Seller, there is no infringement by others of
Intangibles of WAIG.
Section 2.10 QUESTIONABLE PAYMENTS.
No WAIG director, officer, agent, employee, or other person
associated with or acting on behalf of the WAIG has, directly, or indirectly:
used any corporate funds for unlawful contributions, gifts, entertainment, or
other unlawful expenses relating to political activity; made any unlawful
payment
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to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds; established or
maintained any unlawful or unrecorded fund of corporate monies or other assets;
made any false or fictitious entry on the books or records of the WAIG; or made
any bribe, kickback, or other payment of a similar or comparable nature, whether
lawful or not, to any person or entity, private or public, regardless of form,
whether in money, property, or services, to obtain favorable treatment in
securing business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special concessions already obtained.
Section 2.11 BROKER-DEALER REGISTRATION.
WAIG is a Broker-Dealer duly registered with the SEC pursuant to
Section 15 of the Securities Exchange Act of 1934 as amended, ("the 1934 Act").
Attached hereto as Schedule 2.21 is a full and complete copy of WAIG's Form BD
as amended through March 31, 1997 (the "Form BD"). To the knowledge of Seller,
neither the Form BD nor the application for registration nor any amendment
thereto contains any untrue statement of a material fact or omits to state a
material fact required to be stated or necessary in order to make the statements
contained therein not misleading.
Section 2.12 NO THREATENED SEC PROCEEDINGS.
To the knowledge of Seller, there is not currently pending or to
the knowledge of the shareholders, threatened any inquiry, investigation,
administrative proceeding, or civil action undertaken or initiated by the SEC
concerning WAIG or its officers, directors, or registered representatives.
Section 2.13 NET CAPITAL.
WAIG is not in violation of the applicable net capital provisions
of the 1934 Act and the general rules and regulations thereunder.
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Section 2.14 NASD MEMBERSHIP.
WAIG is a member in good standing the with NASD, and, to the
knowledge of Seller, there has not been for the most recent three years, nor is
there currently pending or to the shareholders knowledge threatened, any inquiry
investigation or disciplinary proceeding undertaken by the NASD concerning WAIG
or any of its officers, directors, registered principals, or registered
representatives.
Section 2.15 FEES AND ASSESSMENTS.
As of March 31, 1997 there are no fees or assessments owed to the
NASD or SIPIC for which bills have been received by WAIG, other than as set
forth in Section 2.3.
Section 2.16 NASD RESTRICTIONS.
There are no special restrictions or limitations imposed by the
NASD relating to the conduct by WAIG of the business of a Broker-Dealer, except
as set forth on Schedule 2.16 or the Form BD.
Section 2.17 CRD REGISTRATION.
WAIG is registered with the Central Registration Depository under
CRD Number 6626.
Section 2.18 STATE BROKER-DEALER REGISTRATIONS.
WAIG is registered as a Broker-Dealer in the states and
jurisdictions enumerated in Form BD, and all of such registrations are current,
and except as set forth on Schedule 2.18, WAIG is in good standing as a
registered Broker-Dealer in each such state or jurisdiction where such
registration or qualification is required. As of March 31, 1997, no renewal or
registration fee for which bills have been received is due or owing to any state
othere than as set forth in Section 2.3. Also set forth on the Form
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BD are all states and jurisdictions in which applications for registration of
WAIG as a Broker-Dealer are currently pending.
Section 2.19 NO STATE INQUIRIES.
WAIG's state Broker-Dealer registrations have not been terminated
and to the knowledge of Seller there has not been, nor is there currently
pending to or WAIG's knowledge threatened, any inquiry, investigation,
administrative proceeding, or civil action undertaking or initiated by such
states or jurisdictions concerning WAIG or its officers, directors, registered
principals or registered representatives.
Section 2.20 REGISTERED REPRESENTATIVES.
Attached hereto as Schedule 2.20 is a list of all registered
representatives of WAIG and each state or jurisdiction in which each individual
is registered.
Section 2.21 BROKERS BOND.
WAIG currently has in effect a blanket Broker-Dealer fidelity
bond as summarized in Schedule 2.21.
Section 2.22 SIPC REGISTRATION.
WAIG is duly registered with the Security Investors Protection
Corporation ("SIPC"). WAIG has paid or has made adequate provision for the
payment of all SIPC assessments as of December 31, 1996.
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Section 2.23 CLEARING AGREEMENT.
WAIG presently has a clearing agreement, as amended and to be
effective on and after the closing, with Correspondent Services Corporation
("CSC"), a true copy of which has been provided to Olympic. As of March 31,
1997, except as shown on Schedule 2.23 and except for unsecured debit balances
of less than $1,000.00 for which WAIG has made adequate provision on its
financials dated March 31, 1997, there will be no amount due and owing to CSC,
nor will there by any unsecured debts of customers for which WAIG may be or
become responsible.
III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser represents and warrants to Seller as follows:
Section 3.1 ORGANIZATION AND QUALIFICATION.
The Purchaser is a corporation duly organized, validly existing,
and in good standing under the laws of its jurisdiction of incorporation, with
all requisite power and authority to own, lease, license, and use its properties
and assets and to carry on the business in which it is now engaged and in which
it contemplates engaging.
Section 3.2 AUTHORITY TO BUY.
The Purchaser has all requisite power and authority to execute,
deliver, and perform this Agreement. All necessary corporate proceedings of the
Purchaser have been duly taken to authorize the execution, delivery, and
performance of this Agreement by the Purchaser. This Agreement has been duly
authorized, executed and delivered by the Purchaser, is the legal, valid, and
binding obligation of the Purchaser.
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Section 3.3 DISCLOSURE OF INFORMATION.
The Purchaser has received all the information it considers
necessary or appropriate for deciding whether to purchase the Acquired
Securities. The Purchaser further represents that it has had the opportunity to
ask questions and receive answers from the Seller and WAIG regarding the
Acquired Securities and the businesses, assets, properties, prospects and
financial condition of WAIG. The foregoing, however, does not limit or modify
the representations and warranties of the Seller in Section 2 of this Agreement
and the right of Purchaser to rely thereon, and is enforceable as to it in
accordance with its terms.
IV. CONDITIONS TO OBLIGATIONS OF THE PURCHASER.
The obligations of the Purchaser under this Agreement are
subject, at the option of the Purchaser, to the following conditions:
Section 4.1 ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH
CONDITIONS.
All representations and warranties of the Seller contained in
this Agreement shall be accurate as of the Closing as though such
representations and warranties were then made in exactly the same language by
Seller and regardless of knowledge or lack thereof on the part of Seller or
changes beyond its or his control; as of the Closing, the Seller shall have
performed and complied with all covenants and agreements and satisfied all
conditions required to be performed and complied with by any of them at or
before such time by this Agreement; and the Purchaser shall have received a
certificate executed by each of the Seller, dated the date of the Closing, to
that effect.
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Section 4.2 OPINION OF COUNSEL.
The Seller have delivered to the Purchaser on the date of the
Closing the opinion of counsel to WAIG and the Seller, dated as of the Closing
Date, in form and substance satisfactory to counsel for the Purchaser.
Section 4.3 THIRD PARTY APPROVALS.
Any and all permits and approvals from any governmental authority
or other person necessary to permit the consummation of the transactions
contemplated herein, including, without limitation, approval of the NASD, shall
have been obtained.
Section 4.4 UPDATED FOCUS REPORTS.
WAIG shall have delivered to Olympic copies of all 1997 focus
reports filed by it.
Section 4.5 OTHER CLOSING DOCUMENTS.
The Seller shall have delivered to the Purchaser at or prior to
the Closing such other documents as the Purchaser may reasonably request in
order to enable the Purchaser to determine whether the conditions to its
obligations under this Agreement have been met and otherwise to carry out the
provisions of this Agreement.
Section 4.6 LEGAL ACTION.
There shall not have been instituted or threatened any legal
proceeding relating to, or seeking to prohibit or otherwise challenge the
consummation of, the transactions contemplated by this Agreement, or to obtain
substantial damages with respect thereto.
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Section 4.7 NO GOVERNMENTAL ACTION.
There shall not have been any action taken, or any law, rule,
regulation, order, judgment, or decree proposed, promulgated, enacted, entered,
enforced, or deemed applicable to the transactions contemplated by this
Agreement by any federal, state, local, or other governmental authority or by
any court or other tribunal, including the entry of a preliminary or permanent
injunction, which, in the sole judgment of the Purchaser, (a) makes any of the
transactions contemplated by this Agreement, illegal, (b) results in a delay in
the ability of the Purchaser to consummate any of the transactions contemplated
by this Agreement, (c) requires the divestiture by the Purchaser of any of the
shares of the Common Stock to be sold pursuant to this Agreement or of a
material portion of the business of either the Purchaser and its subsidiaries
taken as a whole, or of the Company (d) imposes material limitations on the
ability of the Purchaser effectively to exercise full rights of ownership of
such shares or (e) otherwise prohibits, restricts, or delays consummation of any
of the transactions contemplated by this Agreement or impairs the contemplated
benefits to the Purchaser of any of the transactions contemplated by this
Agreement.
Section 4.8 CONTRACTUAL CONSENTS NEEDED.
The parties to this Agreement shall have obtained at or prior to
the Closing all consents required for the consummation of the transactions
contemplated by this Agreement from any party to any contract, agreement,
instrument, lease, license, arrangement, or understanding to which any of them
is a party, or to which any of them or any of their respective businesses,
properties, or assets are subject.
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Section 4.9 MATERIAL ADVERSE CHANGE.
Since March 31, 1997 there has been no event or development or
combinations of changes or developments, individually or in the aggregate, that
could be reasonably expected to have a material adverse effect on the business,
operations, or future prospects of WAIG.
V. CONDITIONS TO OBLIGATIONS OF SELLER.
Section 5.1 ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH
CONDITIONS.
All representations and warranties of the Purchaser contained in
this Agreement shall be accurate when made and, in addition, shall be accurate
as of the Closing as though such representations and warranties were then made
in exactly the same language by the Purchaser and regardless of the knowledge or
lack thereof on the part of the Purchaser or changes beyond its control; as of
the Closing, the Purchaser shall have performed and complied with all conditions
required to be performed and complied with by it at or before such time by this
Agreement, and the Seller shall have received a certificate executed an
executive officer of the Purchaser, dated the date of the Closing, to that
effect.
Section 5.2 LEGAL ACTION.
There shall not have been instituted or threatened any legal
proceeding relating to, or seeking to prohibit or otherwise challenge the
consummation of, the transactions contemplated by this Agreement, or to obtain
substantial damages with respect thereto.
Section 5.3 CONTRACTUAL CONSENTS.
The parties to this Agreement shall have obtained at or prior to
the Closing all consents required for the consummation of the transactions
contemplated by this Agreement from any party to any
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contract, agreement, instrument, lease, license, arrangement, or understanding
to which any of them is a party, or to which any of them or any of their
respective businesses, properties, or assets are subject.
VI. COVENANTS OF SELLER.
The Seller covenants and agrees as follows:
Section 6.1 ACCESS.
Until the earlier of the Closing or the termination of this
Agreement on June 15, 1997 for the failure to obtain applicable regulatory
approval (the "Release Time"), the Seller will cause WAIG to afford the
officers, employees, counsel, agents, investment bankers, accountants, and other
representatives of the Purchaser free and full access to the plants, properties,
books, and records of WAIG, will permit them to make extracts from the copies of
such books and records, and will from time to time furnish the Purchaser with
such additional financial and operating data and other information as to the
financial condition, results of operations, businesses, properties, assets,
liabilities, or future prospects of WAIG as the Purchaser from time to time may
reasonably request.
Section 6.2 CONDUCT OF BUSINESS.
Until the Release Time, the Seller will cause WAIG to conduct its
affairs so that at the Closing no representation or warranty of the Seller will
be inaccurate, no covenant or agreement of the Seller will be breached, and no
condition in this Agreement will remain unfulfilled by reason of the actions or
omissions of WAIG. Except as otherwise requested by the Purchaser in writing,
until the Release Time, the Seller will cause WAIG to use its best efforts to
preserve its business operations intact, to keep available the services of its
present personnel, to preserve in full force and effect the contracts,
agreements, instruments, leases, licenses, arrangements, and understandings of
WAIG, and to preserve
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the good will of its customers, and others having business relations with any of
them. Until the Release Time, the Seller will cause WAIG to conduct its
business and operations in all respects only in the ordinary course.
Section 6.3 ADVICE OF CHANGES.
Until the Release Time, the Seller will immediately advise the
Purchaser in a detailed written notice of any fact or occurrence or any pending
or threatened occurrence of which any of them obtains knowledge and which (if
existing and known at the date of the execution of this Agreement) would have
been required to be set forth or disclosed in this Agreement or a Schedule
hereto, which (if existing and known at any time prior to or at the Closing)
would make the performance by any party of a covenant contained in this
Agreement impossible or make such performance materially more difficult than in
the absence of such fact or occurrence, or which (if existing and known at the
time of the Closing) would cause a condition to any party's obligations under
this Agreement not to be fully satisfied.
Section 6.4 PUBLIC STATEMENTS.
Neither the Seller nor WAIG shall disseminate any information to
the public regarding this Agreement or the transactions contemplated hereby,
without the prior written consent of the Purchaser, unless either Seller or WAIG
are advised by counsel that such disclosure is required and it is not possible
to timely obtain the Purchaser's consent. Notwithstanding the foregoing,
nothing contained herein shall prevent the Seller from releasing any information
to any governmental authority if required to do so by law.
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Section 6.5 OTHER PROPOSALS.
Until the Release Time, the Seller shall not, and shall
neither authorize nor permit any officer, director, employee, counsel, agent,
investment banker, accountant, or other representative of any of them
directly or indirectly, to: (i) initiate contact with any person or entity in
an effort to solicit any Takeover Proposal (as such term is defined in this
Section 6.5); (ii) cooperate with, or furnish or cause to be furnished any
non-public information relating to the financial conditions, results of
operations, business, properties, assets, liabilities, or future prospects of
WAIG to, any person or entity in connection with any Takeover Proposal; (iii)
negotiate with any person or entity with respect to any Takeover Proposal; or
(iv) enter into any agreement or understanding with the intent to effect a
Takeover Proposal of which any of them becomes aware. As used in this
Section 6.5, "Takeover Proposal" shall mean any proposal, other than as
contemplated by this Agreement, (x) for a merger, consolidation,
reorganization, other business combination, or recapitalization involving the
WAIG, for the acquisition of a five (5%) percent or greater interest in the
equity or in any class or series of capital stock of the WAIG, for the
acquisition of the right to cast five (5%) percent or more of the votes on
any matter with respect to WAIG, or for the acquisition of a substantial
portion of any of its assets other than in the ordinary course of its
businesses or (y) the effect of which may be to prohibit, restrict, or delay
the consummation of any of the transactions contemplated by this Agreement or
impair the contemplated benefits to the Purchaser or of any of the
transactions contemplated by this Agreement.
Section 6.6 VOTING BY STOCKHOLDERS.
The Seller agrees that until the Release Time, it will vote all
securities of WAIG which it is entitled to vote against (a) any merger,
consolidation, reorganization, other business combination, or capitalization
WAIG, (b) any sale of assets of WAIG, (c) any stock split, stock dividend, or
reverse
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stock split relating to any class or series of WAIG, (d) any issuance of any
shares of capital stock of WAIG, any option, warrant, or other right calling
for the issuance of any such share of capital stock, or any security
convertible into or exchangeable for any such share of capital stock, (e) any
authorization of any other class or series of stock of WAIG, (f) the
amendment of the certificate of incorporation (or other charter document) or
the by-laws of WAIG, or (g) any other proposition the effect of which may be
to prohibit, restrict, or delay the consummation of any of the transactions
contemplated by this Agreement or to impair materially the contemplated
benefits to the Purchaser of the transactions contemplated by this Agreement.
VII. COVENANTS OF PURCHASER.
The Purchaser covenants and agrees as follows:
Section 7.1 CONFIDENTIALITY.
The Purchaser shall insure that all confidential information
which the Purchaser, any of its respective officers, directors, employees,
counsel, agents, investment bankers, or accountants, may now possess or may
hereafter create or obtain relating to the financial condition, results of
operations, business, properties, assets, liabilities, or future prospects of
WAIG shall not be published, disclosed, or made accessible by any of them to
any other person or entity at any time or used by any of them without the
prior written consent of WAIG, as the case may be, provided, however, that
the restrictions of this sentence shall not apply (a) as may otherwise be
required by law, (b) as may be necessary or appropriate in connection with
the enforcement of this Agreement, or (c) to the extent the information shall
have otherwise become publicly available. This Section 7.1 shall survive
termination of this Agreement.
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VIII. INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY.
Section 8.1 INDEMNIFICATION.
(a) Subject to the terms and conditions set forth in Section
8.2, the Seller agrees to indemnify and hold harmless the Purchaser, its
officers, directors, employees, counsel, and agents, (collectively, the
"Indemnitees"), against and in respect of any and all claims, suits, actions,
proceedings (formal or informal), investigations, judgments, deficiencies,
damages, settlements, liabilities, and reasonable legal and other expenses
related thereto (collectively, "Claims"), as and when incurred, arising out of
or based upon any breach of any covenant or agreement of the Seller contained in
this Agreement or any document or instrument delivered in connection with this
Agreement or any misrepresentation in or omission from any of the
representations or warranties of the Seller in this Agreement.
(b) Each Indemnitee shall give the Seller prompt notice of any
claim asserted or threatened against such Indemnitee on the basis of which such
Indemnitee intends to seek indemnification (but the obligations of the Seller
shall not be conditions upon receipt of such notice, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice).
The Seller shall promptly assume the defense of any Indemnitee, with counsel
reasonably satisfactory to such Indemnitee, and the fees and expenses of such
counsel shall be at the sole cost and expense of the Seller. Notwithstanding
the foregoing, any Indemnitee shall be entitled, at his or its expense, to
employ counsel separate from counsel for the Seller and from any other party in
such action, proceeding, or investigation. No Indemnitee may agree to a
settlement of a claim without the prior written approval of the Seller, which
approval shall not be unreasonably withheld.
(c) Notwithstanding the above, if the claim for indemnification
arises of a breach of the representations set forth in Section 2.4, Purchaser,
at its option, shall have the sole right to represent
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WAIG in any federal, state, local or foreign tax matter, including any audit or
administrative or judicial proceeding or the filing of an amended return.
Seller agrees that it will cooperate fully with Purchaser and its counsel in the
defense or compromise of any such tax matter.
(d) The Seller shall not have any obligation to indemnify any
Indemnitee from and against any loss or claim under this Section 8.1 until the
Indemnitees shall have collectively suffered losses in excess of $5,000.
(e) The Seller shall have no obligation to indemnify any
Indemnitee for any Loss under this Section 8.1 or any other Section of this
Agreement at any time after Seller shall have indemnified Indemnitees in an
amount equal to $650,000.
Section 8.2 SURVIVAL.
(a) Subject to the provisions of Section 8.2(b), the covenants,
agreements, representations, and warranties contained in or made pursuant to
this Agreement shall survive the Closing and the delivery of the purchase price
by the Purchaser, irrespective of any investigation made by or on behalf of any
party.
(b) The liabilities and obligations of the Seller under this
Agreement shall be subject to the following limitations. The Seller shall have
no liability or obligation with respect to any claim for a breach of a
representation or warranty under this Agreement made after eighteen (18) months
from the Closing Date except for claims arising out of a breach of the
representations as to tax liabilities under Section 2.4, with respect to which
the Seller shall remain liable until ninety (90) days after the expiration of
the applicable statute of limitations relating to such tax liabilities.
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IX. MISCELLANEOUS.
Section 9.1 BROKERAGE FEES.
If any person shall assert a claim to a fee, commission, or other
compensation on account of alleged employment as a broker or finder, in
connection with or as a result of any of the transactions contemplated by this
Agreement, the Seller shall (subject to the next sentence) indemnify and hold
harmless the Indemnitees against any and all Claims (as defined in Section 8.1),
as and when incurred, arising out of, based upon, or in connection with such
Claim by such person, except to the extent that it is determined in any suit,
action, or proceeding that the Purchaser or any Indemnitee had engaged such
broker or finder.
Section 9.2 REGULATORY FILINGS.
WAIG and Olympic each agree to prepare and file all required
documents, submissions, notices, amended applications or similar filings with
federal, state, and local regulatory authorities and the NASD to effect and
given evidence of the transaction contemplated by this Agreement.
Section 9.3 FURTHER ACTIONS.
At any time and from time to time, each party agrees, as its or
his expense, to take such actions and to execute and deliver such documents as
may be reasonably necessary to effectuate the purposes of this Agreement.
Section 9.4 SUBMISSION TO JURISDICTION.
Each of the parties hereto irrevocably submits to the
jurisdiction of the courts of the State of Washington, and of any federal court
located in the State of Washington, in connection with any action
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or proceeding arising out of or relating to, or a breach of, this Agreement, or
of any document or instrument delivered pursuant to, in connection with, or
simultaneously with this Agreement.
Section 9.5 MERGER; MODIFICATION.
This Agreement and the Schedules and Exhibits attached hereto set
forth the entire understanding of the parties with respect to the subject matter
hereof, supersede all existing agreements among them concerning such subject
matter, and may be modified only by a written instrument duly executed by each
party to be charged.
Section 9.6 NOTICES.
Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested (or by the most nearly comparable method if mailed from
or to a location outside of the United States) or by Federal Express, Express
Mail, or similar overnight delivery or courier service or delivered (in person
or by telecopy, or similar telecommunications equipment) against receipt to the
party to whom it is to be given at the address of such party set forth in the
preamble to this Agreement (or to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 9.6).
Any notice given to the Purchaser shall be addressed to the attention of Mark
Roth, Esq., and a copy of such notice (which copy shall not constitute notice)
shall also be sent to Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th Floor,
New York, New York 10019-4315 Attention: Alan I. Annex, Esq. Any notice given
to the Seller shall be addressed to the attention of Edward R. Foraker, West
America Corporation, P.O. Box 40, Dewey, Oklahoma 74029. Notice to the estate
of any party shall be sufficient if addressed to the party as provided in this
Section 9.6. Any notice or other communication given by certified mail (or by
such comparable method) shall be deemed given at the time of certification
thereof (or comparable act) except
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for a notice changing a party's address which will be deemed given at the time
of receipt thereof. Any notice given by other means permitted by this Section
9.5 shall be deemed given at the time of receipt thereof.
Section 9.7 WAIVER.
Any waiver by any party of a breach of any terms of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of that term or of any breach of any other term of this Agreement. The
failure of a party to insist upon strict adherence to any term of this Agreement
on one or more occasions will not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing.
Section 9.8 BINDING EFFECT.
The provisions of this Agreement shall be binding upon and inure
to the benefit of the Purchaser, and its successors and assigns and each Seller
and his respective assigns, heirs, and personal representatives, and shall inure
to the benefit of each Indemnitee and its successors and assigns (if not a
natural person) and his assigns, heirs, and personal representatives (if a
natural person).
Section 9.9 NO THIRD-PARTY BENEFICIARIES.
This Agreement does not create, and shall not be construed as
creating, any rights enforceable by any person not a party to this Agreement
(except as provided in 9.7).
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Section 9.10 SEPARABILITY.
If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
Section 9.11 HEADINGS.
The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
Section 9.12 COUNTERPARTS; GOVERNING LAW.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. It shall be governed by, and construed
in accordance with, the laws of the State of Washington, without giving effect
to the rules governing the conflict of laws.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first written above.
WESTAMERICA CORPORATION
By: /s/ Edward R. Foraker
-----------------------------------
Name: Edward R. Foraker
Title: Chairman
OLYMPIC CASCADE FINANCIAL CORPORATION
By: /s/ Steven A. Rothstein
------------------------------------
Name: Steven A. Rothstein
Title: Chairman
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STOCK PURCHASE AGREEMENT
AMONG
OLYMPIC CASCADE FINANCIAL CORPORATION,
ELLIOT R. TRAVIS
AND
SCOTT A. GUTTING
RELATING TO ALL OF THE ISSUANCE
AND OUTSTANDING CAPITAL STOCK
OF
TRAVIS CAPITAL, INC.
JULY 10, 1997
<PAGE>
TABLE OF CONTENTS
I. PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 TERMS OF PURCHASE AND SALE. . . . . . . . . . . . . . . 2
Section 1.2 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 OTHER TRANSACTIONS AT CLOSING . . . . . . . . . . . . . 2
II. REPRESENTATIONS AND WARRANTIES OF THE SELLER . . . . . . . . . . . . . 3
Section 2.1 ORGANIZATION AND QUALIFICATION. . . . . . . . . . . . . 4
Section 2.2 CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . 4
Section 2.3 FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . 5
Section 2.4 TAX AND OTHER LIABILITIES . . . . . . . . . . . . . . . 6
Section 2.5 LITIGATION AND CLAIMS . . . . . . . . . . . . . . . . . 9
Section 2.6 PROPERTIES OF TRAVIS CAPITAL. . . . . . . . . . . . . . 9
Section 2.7 CONTRACTS AND OTHER INSTRUMENTS . . . . . . . . . . . . 11
Section 2.8 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.9 PATENTS, TRADEMARKS, ET CETERA. . . . . . . . . . . . . 14
Section 2.10 QUESTIONABLE PAYMENTS.. . . . . . . . . . . . . . . . . 15
Section 2.11 BROKER-DEALER REGISTRATION. . . . . . . . . . . . . . . 15
Section 2.12 NO THREATENED SEC PROCEEDINGS.. . . . . . . . . . . . . 16
Section 2.13 NET CAPITAL.. . . . . . . . . . . . . . . . . . . . . . 16
Section 2.14 NASD MEMBERSHIP. . . . . . . . . . . . . . . . . . . . 16
Section 2.15 FEES AND ASSESSMENTS. . . . . . . . . . . . . . . . . . 16
Section 2.16 NASD RESTRICTIONS.. . . . . . . . . . . . . . . . . . . 17
Section 2.17 CRD REGISTRATION. . . . . . . . . . . . . . . . . . . . 17
Section 2.18 STATE BROKER-DEALER REGISTRATIONS.. . . . . . . . . . . 17
Section 2.19 NO STATE INQUIRIES. . . . . . . . . . . . . . . . . . 17
Section 2.20 REGISTERED REPRESENTATIVES. . . . . . . . . . . . . . . 18
Section 2.21 BROKERS BOND. . . . . . . . . . . . . . . . . . . . . . 18
Section 2.22 SIPC REGISTRATION. . . . . . . . . . . . . . . . . . . 18
III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. . . . . . . . . . . . 18
Section 3.1 ORGANIZATION AND QUALIFICATION. . . . . . . . . . . . . 18
Section 3.2 AUTHORITY TO BUY. . . . . . . . . . . . . . . . . . . . 18
Section 3.3 DISCLOSURE OF INFORMATION . . . . . . . . . . . . . . . 19
IV. CONDUCT OF THE BUSINESS OF TRAVIS CAPITAL FOLLOWING STOCK PURCHASE . . 19
Section 4.1 LETTER AGREEMENT. . . . . . . . . . . . . . . . . . . . 19
V. INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY. . . . . . . . . . 20
Section 5.1 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . 20
Section 5.2 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . 21
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VI. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 6.1 BROKERAGE FEES. . . . . . . . . . . . . . . . . . . . . 21
Section 6.2 REGULATORY FILINGS. . . . . . . . . . . . . . . . . . . 22
Section 6.3 FURTHER ACTIONS . . . . . . . . . . . . . . . . . . . . 22
Section 6.4 SUBMISSION TO JURISDICTION. . . . . . . . . . . . . . . 22
Section 6.5 MERGER; MODIFICATION. . . . . . . . . . . . . . . . . . 22
Section 6.6 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.7 WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.8 BINDING EFFECT. . . . . . . . . . . . . . . . . . . . . 24
Section 6.9 NO THIRD-PARTY BENEFICIARIES. . . . . . . . . . . . . . 24
Section 6.10 SEPARABILITY. . . . . . . . . . . . . . . . . . . . . . 24
Section 6.11 HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.12 COUNTERPARTS; GOVERNING LAW . . . . . . . . . . . . . . 25
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this
"Agreement"), is being made this 10th day of July, 1997, effective
June 30, 1997, by and among OLYMPIC CASCADE FINANCIAL CORPORATION,
a Delaware corporation (the "Purchaser" or "Olympic"), with offices
at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154-1100;
ELLIOT R. TRAVIS, an individual with an address of 987 Millstream Way,
Bountiful, Utah 84101 , and SCOTT A. GUTTING, an individual with an address
of 4258 Mount Olympic Way, Salt Lake City, Utah 74134 (each a "Seller" and
collectively, the "Sellers").
W I T N E S S E T H :
WHEREAS, the Sellers own beneficially and of record all of the
issued and outstanding capital stock (the "Acquired Securities") of Travis
Capital, Inc. ("TRAVIS CAPITAL"), a Utah corporation with offices at 30
Market Street, Suite 200, Salt Lake City, Utah 84101, which capital stock
consists of 4,475 shares of common stock, par value $0.00 per share (the
"TRAVIS CAPITAL Common Stock").
WHEREAS, TRAVIS CAPITAL is a broker-dealer duly registered with the
Securities and Exchange Commission (the "SEC") and is a member in good
standing with the National Association of Securities Dealers, Inc. (the
"NASD") engaged in the general securities business.
WHEREAS, the Purchaser desires to acquire the Acquired Securities
from the Sellers and the Sellers desire to sell the Acquired Securities to
the Purchaser, subject to the terms and conditions set forth below.
<PAGE>
NOW, THEREFORE, in consideration of the premises, representations,
warranties, and covenants contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
I. PURCHASE AND SALE.
Section 1.1 TERMS OF PURCHASE AND SALE.
(a) At the Closing (as defined in Section 1.2 below), the Sellers
shall sell, assign, transfer, and convey to the Purchaser the Acquired
Securities. The Sellers shall deliver to the Purchaser at the Closing
certificates representing the Acquired Securities, duly endorsed in blank or
accompanied by stock powers duly endorsed in blank, in each case in proper
form for transfer, with signatures guaranteed, and, if applicable, with all
stock transfer and any other required documentary stamps affixed thereto.
(b) In consideration for the Acquired Securities, the Purchaser
shall deliver to the Seller, at the Closing, Twenty Thousand (20,000) shares
of Common Stock of Olympic).
Section 1.2 CLOSING.
The Closing (the "Closing") of the transactions contemplated by this
Agreement shall take place at the offices of L.H. Friend, Weinress, Frankson
& Presson, Inc., 1875 Century Park East, Century City, California, or at such
other location mutually agreed upon by the parties, on the third (3rd)
business day following the receipt of all applicable regulatory approvals
(the "Closing Date") or such other time or date as the parties may mutually
agree, but in no event later than August 31, 1997.
Section 1.3 OTHER TRANSACTIONS AT CLOSING.
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In addition to the transactions referred to in this Sections 1.1 and
1.2 above, at the Closing, the Sellers shall deliver to the Purchaser the
following:
(a) The minute books, stock certificate books, stock transfer
ledgers, and corporate seals of TRAVIS CAPITAL;
(b) Resignations of all officers and directors of the TRAVIS CAPITAL,
except as mutually agreed;
(c) The Written Consent of any applicable regulatory authority.
(d) Certificates of Good Standing as to TRAVIS CAPITAL issued by the
appropriate governmental authorities of the State of Utah and each
state in which the TRAVIS CAPITAL is qualified to do business;
(e) Certified copy of the Certificate of Incorporation of TRAVIS
CAPITAL, and all amendments thereto, certified by the Secretary of State of
the State of Utah; and
(f) A copy of by-laws of TRAVIS CAPITAL, certified by the secretary
or assistant secretary thereof as being true, complete, and correct.
II. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
The Sellers represents and warrants to the Purchaser as follows:
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Section 2.1 ORGANIZATION AND QUALIFICATION.
TRAVIS CAPITAL does not own any capital stock of any corporation or
any interest in any joint venture, partnership, association, trust, or other
entity. Schedule 2.1 correctly sets forth as to TRAVIS CAPITAL its place of
incorporation, principal place of business, and jurisdictions in which it is
qualified to do business. TRAVIS CAPITAL is a corporation duly organized,
validly existing, and in good standing under the laws of its jurisdiction of
incorporation, with all requisite power and authority, and all necessary
consents, authorizations, approvals, orders, licenses, certificates, and
permits of and from, and declarations and filings with, all federal, state,
local, and other governmental authorities, and all courts and other
tribunals, to own, lease, license, and use its properties and assets and to
carry on the business in which it is now engaged and the business in which it
contemplates engaging. TRAVIS CAPITAL is duly qualified to transact the
business in which it is now engaged and is in good standing as a foreign
corporation in every jurisdiction where the failure to so qualify would have
material adverse effect upon the businesses assets, properties, prospectus,
or financial condition of TRAVIS CAPITAL.
Section 2.2 CAPITALIZATION.
The authorized capital stock of TRAVIS CAPITAL consists of 100,000
shares of common stock, par value $000 per share, of which 4,475 shares are
outstanding. Each of such outstanding shares of TRAVIS CAPITAL Common Stock
is validly authorized, validly issued, fully paid, and nonassessable, has not
been issued and is not owned or held in violation of any preemptive right of
stockholders, and is owned of record and beneficially by the Sellers. The
Acquired Securities are owned by the Sellers free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholders' agreements,
and voting trusts. There is no outstanding security or other instrument
convertible into or exchangeable for capital stock of TRAVIS CAPITAL nor is
there any commitment, plan, or arrangement
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to issue, and no outstanding option, warrant, or other right calling for the
issuance of, any share of capital stock of TRAVIS CAPITAL or any security or
other instrument convertible into, exercisable for, or exchangeable for
capital stock of TRAVIS CAPITAL.
Section 2.3 FINANCIAL CONDITION.
The Sellers have delivered to the Purchaser true and correct copies
of the following: the unaudited balance sheet of TRAVIS CAPITAL as of
[June 30, 1997], the audited balance sheet of TRAVIS CAPITAL as of
[January 31, 1997], the audited statements of income, statements of retained
earnings, and statements of cash flows of TRAVIS CAPITAL for the year ended
[January 31, 1997], and the audited statements of income, statements of
retained earnings and statements of cash flows for the years ended
[January 31, 1996 and 1995]. Each such balance sheet presents fairly the
financial conditions, assets, liabilities, and stockholders' equity of TRAVIS
CAPITAL as of its date; each such statement of income and statement of
retained earnings presents fairly the results of operations of TRAVIS CAPITAL
for the period indicated and their retained earnings as of the date
indicated; and each such statement of cash flows presents fairly the
information purported to be shown therein. The financial statements referred
to in this Section 2.3 have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved and are in accordance with the books and records of TRAVIS CAPITAL.
Since June 30, 1997:
(a) There has at no time been a material adverse change in the
financial condition, results of operations, business, properties, assets,
liabilities, or, to the Sellers' knowledge, the future prospects of TRAVIS
CAPITAL.
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(b) TRAVIS CAPITAL has not authorized, declared, paid, or effected
any dividend or liquidating or other distribution in respect of its capital
stock or any direct or indirect redemption, purchase, or other acquisition
of any stock of TRAVIS CAPITAL.
(c) The operations and business of the TRAVIS CAPITAL have been
conducted in all respects only in the ordinary course.
(d) TRAVIS CAPITAL has not suffered an extraordinary loss (whether or
not covered by insurance) or waived any right of substantial value.
(e) TRAVIS CAPITAL has not paid any expense resulting from the
preparation of, or the transactions contemplated by, this Agreement, it
being understood that the Sellers shall have paid or will pay all such
expenses (including, without limitation, its legal expenses resulting from
this Agreement or the transactions contemplated hereby).
There is no fact known to the Sellers, which materially and adversely affects
or in the future (as far as the Sellers can reasonably foresee) may
materially and adversely affect the financial condition, results of
operations, business, properties, assets, liabilities, or future prospects of
TRAVIS CAPITAL; PROVIDED, HOWEVER, that the Sellers express no opinion as to
political or economic matters of general applicability.
Section 2.4 TAX AND OTHER LIABILITIES.
(a) TRAVIS CAPITAL has no liability of any nature, accrued or
contingent, including without limitation liabilities for Taxes (as defined in
Section 2.4(f)) and liabilities to customers or suppliers, other than the
following:
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(b) Liabilities for which full provision has been made on the balance
sheet (the "Last Balance Sheet") as of [June 30, 1997] (the "Last Balance Sheet
Date"); and
(c) Other liabilities arising since the Last Balance Sheet Date and
prior to the Closing in the ordinary course of business which are not
inconsistent with the representations and warranties of any Seller or any other
provision of this Agreement.
(d) Without limiting the generality of Section 2.4(a):
(i) TRAVIS CAPITAL and any combined, consolidated, unitary or
affiliated group of which TRAVIS CAPITAL is or has been a
member prior to the Closing Date: (i) has paid all Taxes
required to be paid on or prior to the Closing Date
(including, without limitation, payments of estimated Taxes)
for which TRAVIS CAPITAL could be held liable, except for
Taxes which are being contested in good faith and by
appropriate proceedings; and (ii) has accurately and timely
filed (or filed an extension for), all federal, state,
local, and foreign tax returns, reports, and forms with
respect to such taxes required to be filed by them on or
before the Closing Date.
(ii) The amount set up as provisions for Taxes on the Last
Balance Sheet are sufficient for all accrued and unpaid
Taxes of TRAVIS CAPITAL, whether or not due and payable and
whether or not in dispute, under tax laws as in effect on
the Last Balance Sheet Date or now in effect, for the period
ended on such date and for all periods prior thereto.
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(e) There is no material dispute or claim concerning any liability
for Taxes of TRAVIS CAPITAL either (i) claimed or raised by any authority in
writing, or (ii) as to which TRAVIS CAPITAL has knowledge based upon personal
contact with any agent of such authority.
(f) Schedule 2.4 sets forth all federal, state, local and foreign
income tax returns filed with respect to TRAVIS CAPITAL for taxable periods on
or after January 1, 1994 ("Tax Returns"), indicates those Tax Returns that
currently are subject to audit. TRAVIS CAPITAL has delivered or made available
to Purchaser complete and correct copies of all Tax Returns, examination
reports, and statements of deficiencies assessed against, or agreed to by TRAVIS
CAPITAL since January 1, 1994. TRAVIS CAPITAL has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to any Tax assessment or deficiency.
(g) TRAVIS CAPITAL has not filed a consent under Section 341(f) of
the Internal Revenue Code of 1986, as amended (the "Code"). TRAVIS CAPITAL has
not made any payments, is not obligated to make any payments, nor is a party to
any agreement that under certain circumstances could obligate it to make any
payment that will not be deductible under Section 280G of the Code. TRAVIS
CAPITAL will not have any liability on or after the Closing Date pursuant to any
tax sharing or tax allocation agreement. TRAVIS CAPITAL has no liability for
the Taxes of any other person under Treasury Regulation 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise.
(h) For purposes of this Agreement, "Taxes" shall mean all federal,
state, local or foreign taxes, assessments, duties which are payable or
remittable by TRAVIS CAPITAL or levied upon TRAVIS CAPITAL or any property of
TRAVIS CAPITAL, or levied with respect to either of their
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<PAGE>
assets, franchises, income, receipts, including, without limitation, import
duties, excise, franchise, gross receipts, utility, real property, capital,
personal property, withholding, FICA, unemployment compensation, sales or
use, withholding, governmental charges (whether or not requiring the filing
of a return), and all additions to tax, penalties and interest relating
thereto.
Section 2.5 LITIGATION AND CLAIMS.
To the knowledge of Sellers there is no litigation, arbitration,
claim, governmental or other proceeding (formal or informal), or
investigation pending, threatened, or in prospect (or any basis therefor
known to the Seller) with respect to the TRAVIS CAPITAL, or any of their
respective businesses, properties, or assets. TRAVIS CAPITAL is not affected
by any present or threatened strike or other labor disturbance nor to the
knowledge of Sellers is any union attempting to represent any employee of
TRAVIS CAPITAL as collective bargaining agent. TRAVIS CAPITAL is not in
violation of, or in default with respect to, any law, rule, regulation,
order, judgment, or decree; nor is the Company required to take any action in
order to avoid such violation or default which would have a material adverse
effect upon the businesses, assets, properties, prospects or financial
condition of TRAVIS CAPITAL.
Section 2.6 PROPERTIES OF TRAVIS CAPITAL.
(a) Set forth on Schedule 2.6(a) is a list of all real property
owned or leased by TRAVIS CAPITAL. With respect to real property that is
owned by TRAVIS CAPITAL, TRAVIS CAPITAL has good and marketable title to all
such property and such property is clear of all liens, mortgages, security
interests, or encumbrances, except as otherwise disclosed on Schedule 2.6(a).
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(b) Set forth in Schedule 2.6(b) is a true and complete list of all
personal properties and assets (other than real property) owned by TRAVIS
CAPITAL or leased or licensed by TRAVIS CAPITAL from or to a third party.
All such properties and assets owned by TRAVIS CAPITAL are reflected on the
Last Balance Sheet (except for acquisitions subsequent to the Last Balance
Sheet Date which are noted on Schedule 2.6(b)). All such properties and
assets owned, leased, or licensed by TRAVIS CAPITAL are in good and usable
condition (reasonable wear and tear which is not such as to affect adversely
the operation of the business of TRAVIS CAPITAL excepted).
(c) All accounts and notes receivable reflected on the Last Balance
Sheet, or arising since the Last Balance Sheet Date, have been collected in
the ordinary course of TRAVIS CAPITAL's customary practices, or are and will
be good and collectible, without right or recourse, defense, deduction,
return of goods, counterclaim, offsets, or set-off.
(d) No real property owned, leased, or licensed by TRAVIS CAPITAL
lies in an area which is, or to the knowledge of Sellers will be, subject to
zoning, use, or building code restrictions that would prohibit the continued
effective ownership, leasing, licensing, or use of such real property in the
business which the TRAVIS CAPITAL is now engaged.
(e) TRAVIS CAPITAL has not to its knowledge caused or permitted its
respective businesses, properties, or assets to be used to generate,
manufacture, refine, transport, treat, store, handle, dispose of, transfer,
produce, or process any Hazardous Substance (as such term is defined in this
Section 2.6(e)) except in compliance with all applicable laws, rules,
regulations, orders, judgments, and decrees, and has not caused or permitted
the Release (as such term is defined in this Section 2.6(e)) of any Hazardous
Substance on or off the site of any property of TRAVIS CAPITAL. The term
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"Hazardous Substance" shall mean any hazardous waste, as defined by 42 U.S.C.
Section 6903(5), any hazardous substance, as defined by 42 U.S.C. Section
9601(14), any pollutant or contaminant, as defined by 42 U.S.C. Section
9601(33), and all toxic substances, hazardous materials, or other chemical
substances regulated by any other law, rule, or regulation. The term
"Release" shall have the meaning set forth in 42 U.S.C. Section 9601(22).
Section 2.7 CONTRACTS AND OTHER INSTRUMENTS.
Schedule 2.7 accurately and completely sets forth a list of all
material contracts, agreements, loan agreements, instruments, leases,
licenses, arrangements, or understandings with respect to TRAVIS CAPITAL.
The Sellers have furnished to the Purchaser, the certificate of incorporation
(or other charter document) and By-Laws of TRAVIS CAPITAL and all amendments
thereto, as presently in effect, certified by the Secretary of such
corporation. Each such contract, agreement, loan agreement, instrument,
lease, or license is in full force and is the legal, valid, and binding
obligation of TRAVIS CAPITAL, and (subject to applicable bankruptcy,
insolvency, and other laws affecting the enforceability of creditors' rights
generally) is enforceable as to it in accordance with its terms. TRAVIS
CAPITAL, is not in violation, in breach of, or in default with respect to any
material terms of any such contract, agreement, loan agreement, instrument,
lease, or license. Except for employment agreements and as disclosed in
Schedule 2.7, TRAVIS CAPITAL is not a party to any contract, agreement, loan
agreement, instrument, lease, license, arrangement, or understanding with any
Seller or any director, officer, or employee of TRAVIS CAPITAL, or any
relative or affiliate of any Seller or of any such director, officer, or
employee. The stock ledgers and stock transfer books and the minute book
records of TRAVIS CAPITAL relating to all issuances and transfers of the
stockholders, of the Board of Directors and committees thereof of TRAVIS
CAPITAL since its incorporation made available to the Purchaser are the
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original stock ledgers and stock transfer books and minute book records of
TRAVIS CAPITAL or exact copies thereof.
Section 2.8 ERISA.
(a) The name of each plan, program, arrangement, agreement or
commitment sponsored or maintained by or on behalf of TRAVIS CAPITAL or any
ERISA Affiliate (as defined below) or to which TRAVIS CAPITAL or any ERISA
Affiliate makes or is obligated to make contributions or to which TRAVIS
CAPITAL or any ERISA Affiliate made or was obligated to make contributions
during the five (5) year period ending on the date hereof, which is a
pension, profit sharing, savings, thrift or other retirement plan, deferred
compensation, stock purchase, stock option, performance share, bonus or other
incentive plan, severance pay plan, policy or procedure, life, health,
disability or accident insurance plan, (including, without limitation, each
"employee benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or vacation or other
employee benefit plan, program, arrangement, agreement or commitment, whether
or not written) (all of the foregoing being hereinafter referred to
individually as a "Plan" and collectively as the "Plans") is set forth on
Schedule 2.8 hereto. TRAVIS CAPITAL has substantially complied with all of
the provisions of each Plan and all applicable provisions of ERISA and the
Code, has administered each such Plan (including the payment of benefits
thereunder) in all material respects in accordance with the provisions of
each such Plan and all applicable provisions of ERISA and the Code, and no
penalties under ERISA or any other applicable law or regulation are and at
the Closing Date will be owed to any Plan participant and/or beneficiary
and/or any governmental body with respect to the failure to file any reports
or other information required under ERISA or any other applicable law or
regulation or to distribute or
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make available any such reports or other information. TRAVIS CAPITAL has and
at the Closing Date will have timely made all required contributions to each
such Plan.
(b) No such Plan is a "defined benefit plan" within the meaning of
Section 3(35) of ERISA nor a "multi-employer plan" within the meaning of
Section 3(37) of ERISA.
(c) As of the date hereof and as of the Closing Date, TRAVIS
CAPITAL is entitled to cease its participation in each Plan referred to in
this Section 2.8 and each such Plan, by its provisions, permits TRAVIS
CAPITAL to amend to terminate, in whole or in part, such Plan without
default, penalty, premium or any additional cost to TRAVIS CAPITAL.
(d) The transactions contemplated by this Agreement will not result
in any payment or series of payments by Olympic or TRAVIS CAPITAL of a
"parachute payment" within the meaning of Section 280G of the Code.
(e) With respect to each Plan maintained or sponsored by TRAVIS
CAPITAL which is an "employee welfare benefit plan" within the meaning of
Section 3(1) of ERISA (a "Welfare Plan"): (i) the applicable requirements of
Part III of Subchapter 8B of Chapter 1 of the Code are satisfied if benefits
under such Welfare Plan are intended to qualify for tax-favored treatment;
(ii) there is no disqualified benefit which would subject Olympic to tax
under Section 4976(a) of the Code; and (iii) each such Welfare Plan which is
a group health plan within the meaning of Section 4980B of the Code is and
has at all times been in compliance in all material respects with the
applicable requirements of Sections 601 through 608 of ERISA, and TRAVIS
CAPITAL is not now and has never been liable for any tax under Section 4980B
of the Code.
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(f) None of the Plans is and, at the Closing Date, none will be
under investigation or audit by either the United States Department of Labor
or the Internal revenue Service.
(g) None of the Plans provides benefits including, without
limitation, death or medical benefits (whether or not insured) with respect
to any current or former employee of TRAVIS CAPITAL beyond their retirement
or other termination of service other than (i) coverage mandated by
applicable law, (ii) disability benefits under any "employee welfare benefit
plan" (as defined in Section 3(1) of ERISA) that have been fully provided for
by insurance or otherwise, (ii) deferred compensation benefits accrued as
liabilities on the books of TRAVIS CAPITAL or (iv) benefits in the nature of
severance pay.
(h) For purposes of this Section 2.8, the term "ERISA Affiliate"
shall mean all members of a controlled group of corporations and all trades
and businesses (whether or not incorporated) under common control and all
other entities which, together with TRAVIS CAPITAL are treated as a single
employer under any or all of sections 414(b), (c), (m), (n) or (o) of the
code at any time during the period of five (5) years ended on March 31, 1997.
Section 2.9 PATENTS, TRADEMARKS, ET CETERA.
Except as disclosed on Schedule 2.9, TRAVIS CAPITAL does not own or
has pending, or is licensed under, any patent, patent application, trademark,
trademark application, trade name, service mark, copyright, franchise, or
other intangible property or asset (all of the foregoing being herein called
"Intangibles"). Those Intangibles listed on Schedule 2.9 are in good
standing and uncontested. Neither any Seller, any director, officer, or
employee of TRAVIS CAPITAL, nor any relative or affiliate of any Seller or of
any such director, officer, or employee, possesses any Intangible which
relates to the business of TRAVIS CAPITAL. There is no right under any
Intangible necessary to the business of TRAVIS
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CAPITAL as presently conducted, except such as are so designated in Schedule
2.9. TRAVIS CAPITAL has not infringed, is infringing, or has received notice
of infringement with asserted Intangibles of others. To the knowledge of the
Sellers, there is no infringement by others of Intangibles of TRAVIS CAPITAL.
Section 2.10 QUESTIONABLE PAYMENTS.
No TRAVIS CAPITAL director, officer, agent, employee, or other
person associated with or acting on behalf of the TRAVIS CAPITAL has,
directly, or indirectly: used any corporate funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political
activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of the TRAVIS CAPITAL; or made any
bribe, kickback, or other payment of a similar or comparable nature, whether
lawful or not, to any person or entity, private or public, regardless of
form, whether in money, property, or services, to obtain favorable treatment
in securing business or to obtain special concessions, or to pay for
favorable treatment for business secured or for special concessions already
obtained.
Section 2.11 BROKER-DEALER REGISTRATION.
TRAVIS CAPITAL is a Broker-Dealer duly registered with the SEC
pursuant to Section 15 of the Securities Exchange Act of 1934 as amended,
("the 1934 Act"). Attached hereto as Schedule 2.11 is a full and complete
copy of TRAVIS CAPITAL's Form BD as amended through June 30, 1997 (the "Form
BD"). To the knowledge of Seller, neither the Form BD nor the application
for registration
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nor any amendment thereto contains any untrue statement of a material fact or
omits to state a material fact required to be stated or necessary in order to
make the statements contained therein not misleading.
Section 2.12 NO THREATENED SEC PROCEEDINGS.
To the knowledge of Seller, there is not currently pending or to the
knowledge of the shareholders, threatened any inquiry, investigation,
administrative proceeding, or civil action undertaken or initiated by the SEC
concerning TRAVIS CAPITAL or its officers, directors, or registered
representatives.
Section 2.13 NET CAPITAL.
TRAVIS CAPITAL is not in violation of the applicable net capital
provisions of the 1934 Act and the general rules and regulations thereunder.
Section 2.14 NASD MEMBERSHIP.
TRAVIS CAPITAL is a member in good standing the with NASD, and, to
the knowledge of Seller, there has not been for the most recent three years,
nor is there currently pending or to the shareholders knowledge threatened,
any inquiry investigation or disciplinary proceeding undertaken by the NASD
concerning TRAVIS CAPITAL or any of its officers, directors, registered
principals, or registered representatives.
Section 2.15 FEES AND ASSESSMENTS.
As of June 30, 1997 there are no fees or assessments owed to the
NASD or SIPC (as defined in Section 2.22) for which bills have been received
by TRAVIS CAPITAL, other than as set forth in Section 2.3.
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<PAGE>
Section 2.16 NASD RESTRICTIONS.
There are no special restrictions or limitations imposed by the NASD
relating to the conduct by TRAVIS CAPITAL of the business of a Broker-Dealer,
except as set forth on Schedule 2.16 or noted on Schedule 2.16 and listed in
the Form BD.
Section 2.17 CRD REGISTRATION.
TRAVIS CAPITAL is registered with the Central Registration Depository
under CRD Number 18186.
Section 2.18 STATE BROKER-DEALER REGISTRATIONS.
TRAVIS CAPITAL is registered as a Broker-Dealer in the states and
jurisdictions enumerated in Form BD, and all of such registrations are
current, and except as set forth on Schedule 2.18, TRAVIS CAPITAL is in good
standing as a registered Broker-Dealer in each such state or jurisdiction
where such registration or qualification is required. As of June 30, 1997,
no renewal or registration fee for which bills have been received is due or
owing to any state other than as set forth in Section 2.3. Also set forth on
the Form BD are all states and jurisdictions in which applications for
registration of TRAVIS CAPITAL as a Broker-Dealer are currently pending.
Section 2.19 NO STATE INQUIRIES.
TRAVIS CAPITAL's state Broker-Dealer registrations have not been
terminated and to the knowledge of Sellers there has not been, nor is there
currently pending to or TRAVIS CAPITAL's knowledge threatened, any inquiry,
investigation, administrative proceeding, or civil action undertaking or
initiated by such states or jurisdictions concerning TRAVIS CAPITAL or its
officers, directors, registered principals or registered representatives.
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<PAGE>
Section 2.20 REGISTERED REPRESENTATIVES.
Attached hereto as Schedule 2.20 is a list of all registered
representatives of TRAVIS CAPITAL and each state or jurisdiction in which
each individual is registered.
Section 2.21 BROKERS BOND.
TRAVIS CAPITAL currently has in effect a blanket Broker-Dealer
fidelity bond as summarized in Schedule 2.21.
Section 2.22 SIPC REGISTRATION.
TRAVIS CAPITAL is duly registered with the Security Investors
Protection Corporation ("SIPC"). TRAVIS CAPITAL has paid or has made
adequate provision for the payment of all SIPC assessments as of December 31,
1996.
III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser represents and warrants to Sellers as follows:
Section 3.1 ORGANIZATION AND QUALIFICATION.
The Purchaser is a corporation duly organized, validly existing, and
in good standing under the laws of its jurisdiction of incorporation, with
all requisite power and authority to own, lease, license, and use its
properties and assets and to carry on the business in which it is now engaged
and in which it contemplates engaging.
Section 3.2 AUTHORITY TO BUY.
The Purchaser has all requisite power and authority to execute,
deliver, and perform this Agreement. All necessary corporate proceedings of
the Purchaser have been duly taken to authorize the
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<PAGE>
execution, delivery, and performance of this Agreement by the Purchaser.
This Agreement has been duly authorized, executed and delivered by the
Purchaser, is the legal, valid, and binding obligation of the Purchaser.
Section 3.3 DISCLOSURE OF INFORMATION.
The Purchaser has received all the information it considers necessary
or appropriate for deciding whether to purchase the Acquired Securities. The
Purchaser further represents that it has had the opportunity to ask questions
and receive answers from the Sellers and TRAVIS CAPITAL regarding the Acquired
Securities and the businesses, assets, properties, prospects and financial
condition of TRAVIS CAPITAL. The foregoing, however, does not limit or modify
the representations and warranties of the Sellers in Section 2 of this Agreement
and the right of Purchaser to rely thereon, and is enforceable as to it in
accordance with its terms.
IV. CONDUCT OF THE BUSINESS OF TRAVIS CAPITAL FOLLOWING STOCK PURCHASE.
Section 4.1 LETTER AGREEMENT.
Following the stock purchase contemplated by this Agreement, the
business of TRAVIS CAPITAL shall be conducted subject to certain covenants
detailed in the paragraphs numbered 5 through 17 of the letter of intent for
this stock purchase between TRAVIS CAPITAL and OLYMPIC, dated June 16, 1997 (the
"June 16 Letter"), as amended by the letter between the same parties, dated June
30, 1997 (the "June 30 Letter"). The June 16 Letter is attached hereto as
Exhibit A. The June 30 Letter is attached hereto as Exhibit B. The paragraphs
numbered 5 through 17 of the June 16 Letter and the corresponding amendments in
the June 30 Letter are hereby incorporated by reference to this document as if
such paragraphs were set out here in there entirety.
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<PAGE>
V. INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY.
Section 5.1 INDEMNIFICATION.
(a) Subject to the terms and conditions set forth in Section 5.2,
the Sellers agree to indemnify and hold harmless the Purchaser, its officers,
directors, employees, counsel, and agents, (collectively, the "Indemnitees"),
against and in respect of any and all claims, suits, actions, proceedings
(formal or informal), investigations, judgments, deficiencies, damages,
settlements, liabilities, and reasonable legal and other expenses related
thereto (collectively, "Claims"), as and when incurred, arising out of or
based upon any breach of any covenant or agreement of the Sellers contained
in this Agreement or any document or instrument delivered in connection with
this Agreement or any misrepresentation in or omission from any of the
representations or warranties of the Sellers in this Agreement as of the date
of this Agreement.
(b) Each Indemnitee shall give the Sellers prompt notice of any
claim asserted or threatened against such Indemnitee on the basis of which
such Indemnitee intends to seek indemnification (but the obligations of the
Sellers shall not be conditioned upon receipt of such notice, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice). The Sellers shall promptly assume the defense of any
Indemnitee, with counsel reasonably satisfactory to such Indemnitee, and the
fees and expenses of such counsel shall be at the sole cost and expense of
the Seller. Notwithstanding the foregoing, any Indemnitee shall be entitled,
at his or its expense, to employ counsel separate from counsel for the
Sellers and from any other party in such action, proceeding, or
investigation. No Indemnitee may agree to a settlement of a claim without
the prior written approval of the Seller, which approval shall not be
unreasonably withheld.
(c) Notwithstanding the above, if the claim for indemnification
arises of a breach of the representations set forth in Section 2.4, Purchaser,
at its option, shall have the sole right to represent
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<PAGE>
TRAVIS CAPITAL in any federal, state, local or foreign tax matter, including
any audit or administrative or judicial proceeding or the filing of an
amended return. Sellers agree that it will cooperate fully with Purchaser and
its counsel in the defense or compromise of any such tax matter.
(d) The Sellers shall not have any obligation to indemnify any
Indemnitee from and against any loss or claim under this Section 5.1 until the
Indemnitees shall have collectively suffered losses in excess of $5,000.
Section 5.2 SURVIVAL.
(a) Subject to the provisions of Section 5.2(b), the covenants,
agreements, representations, and warranties contained in or made pursuant to
this Agreement and the incorporated paragraphs of the June 16 Letter and the
June 30 Letter shall survive the Closing and the delivery of the purchase price
by the Purchaser, irrespective of any investigation made by or on behalf of any
party.
(b) The liabilities and obligations of the Sellers under this
Agreement shall be subject to the following limitations. The Sellers shall
have no liability or obligation with respect to any claim for a breach of a
representation or warranty under this Agreement made after eighteen (18)
months from the Closing Date except for claims arising out of a breach of the
representations as to tax liabilities under Section 2.4, with respect to
which the Sellers shall remain liable until ninety (90) days after the
expiration of the applicable statute of limitations relating to such tax
liabilities.
VI. MISCELLANEOUS.
Section 6.1 BROKERAGE FEES.
If any person shall assert a claim to a fee, commission, or other
compensation on account of alleged employment as a broker or finder, in
connection with or as a result of any of the transactions
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<PAGE>
contemplated by this Agreement, the Sellers shall (subject to the next
sentence) indemnify and hold harmless the Indemnitees against any and all
Claims (as defined in Section 5.1), as and when incurred, arising out of,
based upon, or in connection with such Claim by such person, except to the
extent that it is determined in any suit, action, or proceeding that the
Purchaser or any Indemnitee had engaged such broker or finder.
Section 6.2 REGULATORY FILINGS.
TRAVIS CAPITAL and Olympic each agree to prepare and file all
required documents, submissions, notices, amended applications or similar
filings with federal, state, and local regulatory authorities and the NASD to
effect and given evidence of the transaction contemplated by this Agreement.
Section 6.3 FURTHER ACTIONS.
At any time and from time to time, each party agrees, as its or his
expense, to take such actions and to execute and deliver such documents as
may be reasonably necessary to effectuate the purposes of this Agreement.
Section 6.4 SUBMISSION TO JURISDICTION.
Each of the parties hereto irrevocably submits to the jurisdiction
of the courts of the State of Washington, and of any federal court located in
the State of Washington, in connection with any action or proceeding arising
out of or relating to, or a breach of, this Agreement, or of any document or
instrument delivered pursuant to, in connection with, or simultaneously with
this Agreement.
Section 6.5 MERGER; MODIFICATION.
This Agreement and the Schedules and Exhibits attached hereto set
forth the entire understanding of the parties with respect to the subject
matter hereof, supersede all existing agreements
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<PAGE>
among them concerning such subject matter, and may be modified only by a
written instrument duly executed by each party to be charged.
Section 6.6 NOTICES.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested (or by the most nearly comparable method if mailed from or
to a location outside of the United States) or by Federal Express, Express
Mail, or similar overnight delivery or courier service or delivered (in
person or by telecopy, or similar telecommunications equipment) against
receipt to the party to whom it is to be given at the address of such party
set forth in the preamble to this Agreement (or to such other address as the
party shall have furnished in writing in accordance with the provisions of
this Section 6.6). Any notice given to the Purchaser shall be addressed to
the attention of Mark Roth, Esq., and a copy of such notice (which copy shall
not constitute notice) shall also be sent to Camhy Karlinsky & Stein LLP,
1740 Broadway, 16th Floor, New York, New York 10019-4315 Attention: Alan I.
Annex, Esq. Any notice given to the Sellers shall be addressed to the
attention of Elliot R. Travis, c/o Travis Capital, 30 Market Street, Suite
200, Salt Lake City, Utah 84101. Notice to the estate of any party shall be
sufficient if addressed to the party as provided in this Section 6.6. Any
notice or other communication given by certified mail (or by such comparable
method) shall be deemed given at the time of certification thereof (or
comparable act) except for a notice changing a party's address which will be
deemed given at the time of receipt thereof. Any notice given by other means
permitted by this Section 6.5 shall be deemed given at the time of receipt
thereof.
Section 6.7 WAIVER.
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Any waiver by any party of a breach of any terms of this Agreement
shall not operate as or be construed to be a waiver of any other breach of
that term or of any breach of any other term of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on
one or more occasions will not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing.
Section 6.8 BINDING EFFECT.
The provisions of this Agreement shall be binding upon and inure to
the benefit of the Purchaser, and its successors and assigns and each Seller and
his respective assigns, heirs, and personal representatives, and shall inure to
the benefit of each Indemnitee and its successors and assigns (if not a natural
person) and his assigns, heirs, and personal representatives (if a natural
person).
Section 6.9 NO THIRD-PARTY BENEFICIARIES.
This Agreement does not create, and shall not be construed as
creating, any rights enforceable by any person not a party to this Agreement
(except as provided in 6.8).
Section 6.10 SEPARABILITY.
If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
Section 6.11 HEADINGS.
The headings in this Agreement are solely for convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.
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<PAGE>
Section 6.12 COUNTERPARTS; GOVERNING LAW.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. It shall be governed by, and construed in
accordance with, the laws of the State of Washington, without giving effect to
the rules governing the conflict of laws.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first written above.
/s/ Elliot R. Travis
-------------------------------------
Elliot R. Travis
/s/ Scott A. Gutting
-------------------------------------
Scott A. Gutting
OLYMPIC CASCADE FINANCIAL CORPORATION
By: /s/ Gary A. Rosenberg
---------------------------------
Name: Gary A. Rosenberg
Title: Vice Chairman
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<PAGE>
EXHIBIT 10.33
SEAFIRST BANK
Member FDIC
BUSINESS LOAN AGREEMENT
THIS BUSINESS LOAN AGREEMENT ("AGREEMENT") IS MADE BETWEEN BANK OF AMERICA
NT&SA DBA SEAFIRST BANK ("BANK") AND OLYMPIC CASCADE FINANCIAL CORPORATION
("BORROWER") WITH RESPECT TO THE FOLLOWING:
PART A
I. TERM LOAN: Subject to the terms of this Agreement, Bank agrees to lend
to Borrower as follows:
(a) AMOUNT: $900,000-
(b) This loan matures on October 1, 1998
(c) INTEREST RATE: The Bank's Fixed Rate Index plus 300 basis points.
The interest rate shall be fixed for the term of the loan.
(d) INTEREST RATE BASIS: All interest will be calculated at the per
annum interest rate based on a 360-day year and applied to the
actual number of days elapsed.
(e) REPAYMENT: At the times and in amounts as set forth in note(s)
required under Part B Article 1 of this Agreement. Loan is subject
to an economic prepayment penalty.
(f) LOAN FEE: $2,000 payable when loan is funded. Loan fee is fully
earned and non-refundable upon execution of this Agreement.
(g) OTHER FEE(s) (IDENTIFY): None
(h) COLLATERAL: None
<PAGE>
EXHIBIT 10.33
BUSINESS LOAN AGREEMENT
PART B
1. PROMISSORY NOTE(s). All loans shall be evidenced by promissory notes in
a form and substance satisfactory to Bank.
2. CONDITIONS TO AVAILABILITY OF LOAN/LINE OF CREDIT. Before Bank is
obligated to disburse/make any advance, or at any time thereafter which
Bank deems necessary and appropriate, Bank must receive all of the
following, each of which must be in form and substance satisfactory to
Bank ("loan documents"):
2.1 Original, executed promissory note(s);
2.2 Original executed security agreement(s) and/or deed(s) of trust
covering the collateral described in Part A;
2.3 All collateral described in Part A in which Bank wishes to have a
possessory security interest;
2.4 Financing statement(s) executed by Borrower;
2.5 Such evidence that Bank may deem appropriate that the security
interests and liens in favor of Bank are valid, enforceable, and
prior to the rights and interests of others except those consented
to in writing by Bank;
+ 2.6 The following guaranty(ies) in favor of the Bank: None
+ 2.7 Subordination agreement(s) in favor of Bank executed by: None
2.8 Evidence that the execution, delivery, and performance by Borrower
of this Agreement and the execution, delivery, and performance by
Borrower and any corporate guarantor or corporate subordinating
creditor of any instrument or agreement required under this
Agreement, as appropriate, have been duly authorized;
2.9 Any other document which is deemed by the Bank to be required from
time to time to evidence loans or to effect the provisions of this
Agreement;
2.10 If requested by Bank, a written legal opinion expressed to Bank, of
counsel for Borrower as to the matters set forth in sections 3.1
and 3.2, and to the best of such counsel's knowledge after
reasonable investigation, the matters set forth in sections 3.3,
3.5, 3.6, 3.7, 3.8 and such other matters as the Bank may
reasonably request;
2.11 Pay or reimburse Bank for any out-of-pocket expenses expended in
making or administering the loans made hereunder including without
limitation attorney's fees (including allocated costs of in-house
counsel);
<PAGE>
EXHIBIT 10.33
COMPANY NAME
Business Loan Agreements - Part B
Page 2
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Bank, except as Borrower has disclosed to Bank in writing, as of the
date of this Agreement and hereafter so long as credit granted under
this Agreement is available and until full and final payment of all sums
outstanding under this Agreement and promissory notes that:
+3.1 Borrower is duly organized and existing under the laws of the state
of its organization as a:
General Limited Sole
X Corporation Partnership Partnership Proprietorship dba
--- --- --- --- ----
Borrower is properly licensed and in good standing in each state in
which Borrower is doing business and Borrower has qualified under,
and complied with, where required, the fictitious or trade name
statutes of each state in which Borrower is doing business, and
Borrower has obtained all necessary government approvals for its
business activities; the execution, delivery, and performance of
this Agreement and such notes and other instruments required herein
are within Borrower's powers, have been duly authorized, and, as to
Borrower and any guarantor, are not in conflict with the terms of
any charter, bylaw, or other organization papers of Borrower, and
this Agreement, such notes and the loan documents are valid and
enforceable according to their terms;
3.2 The execution, delivery, and performance of this Agreement, the
loan documents and any other instruments are not in conflict with
any law or any indenture, agreement or undertaking to which
Borrower is a party or by which Borrower is bound or affected;
3.3 Borrower has title to each of the properties and assets as
reflected in its financial statements (except such assets which
have been sold or otherwise disposed of in the ordinary course of
business), and no assets or revenues of the Borrower are subject to
any lien except as required or permitted by this Agreement,
disclosed in its financial statements or otherwise previously
disclosed to Bank in writing;
3.4 All financial information, statements as to ownership of Borrower
and all other statements submitted by Borrower to Bank, whether
previously or in the future, are and will be true and correct in
all material respects upon submission and are and will be complete
upon submission insofar as may be necessary to give Bank a true and
accurate knowledge of the subject matter thereof;
3.5 Borrower has filed all tax returns and reports as required by law
to be filed and has paid all taxes and assessments applicable to
Borrower or to its properties which are presently due and payable,
except those being contested in good faith;
3.6 There are no proceedings, litigation or claims (including unpaid
taxes) against Borrower pending or, to the knowledge of the
Borrower, threatened, before any court or government agency, and no
other event has occurred which may have a material adverse effect
on Borrower's financial condition;
<PAGE>
EXHIBIT 10.33
COMPANY NAME
Business Loan Agreements - Part B
Page 3
3.7 There is no event which is, or with notice or lapse of time, or
both, would be, an Event of Default (as defined in Section 7) under
this Agreement;
3.8 Borrower has exercised due diligence in inspecting Borrower's
properties for hazardous wastes and hazardous substances. Except
as otherwise previously disclosed and acknowledged to Bank in
writing: (a) during the period of Borrower's ownership of
Borrower's properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened
release of any hazardous waste or hazardous substance by any person
in, on, under or about any of Borrower's properties; (b) Borrower
has no actual or constructive knowledge that there has been any
use, generation, manufacture, storage, treatment, disposal, release
or threatened release of any hazardous waste or hazardous substance
by any person in, on, under or about any of Borrower's properties
by any prior owner or occupant of any of Borrower's properties; and
(c) Borrower has no actual or constructive notice of any actual or
threatened litigation or claims of any kind by any person relating
to such matters. The terms "hazardous waste(s)," hazardous
substance(s)," "disposal," "release," and "threatened release" as
used in this Agreement shall have the same meanings as set forth in
the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.,
the Superfund Amendments and Reauthorization Act of 1986, as
amended Pub. L. No. 99-499, the Hazardous Materials Transportation
Act, as amended, 49 U.S. C. Section 1801, et seq., the Resource
Conservation and Recovery Act, as amended, 49 U.S.C. Section 6901,
et seq., or other applicable state or federal laws, rules or
regulations adopted pursuant to any of the foregoing.
4. AFFIRMATIVE COVENANTS. So long as credit granted under this Agreement
is available and until full and final payment of all sums outstanding
under this Agreement and promissory note(s) Borrower will:
4.1 Use the proceeds of the loans covered by this Agreement only in
connection with Borrower's business activities and exclusively for the
following purposes: repay a loan made to Borrower by FAI Overseas LTD
on May 29, 1997.
4.2 Promptly give written notice to Bank of. (a) all litigation and claims
made or threatened affecting Borrower where the amount is $500,000 or
more; (b) any substantial dispute which may exist between Borrower and
any governmental regulatory body or law enforcement authority; (c) any
Event of Default under this Agreement or any other agreement with Bank
or any other creditor or any event which become an Event of Default;
and (d) any other matter which has resulted or might result in a
material adverse change in Borrower's financial condition or
operations;
<PAGE>
EXHIBIT 10.33
COMPANY NAME
Business Loan Agreements - Part B
Page 4
4.3 Borrower shall as soon as available, but in any event within 120
days following the end of Borrower's fiscal years and within 45
days following the end of each quarter provide to Bank, in a form
satisfactory to Bank (including audited statements if required at
any time by Bank), such financial statements and other information
respecting the financial condition and operations of Borrower as
Bank may reasonably request;
4.4 Borrower will maintain in effect insurance with responsible insurance
companies in such amounts and against such risks as is customarily
maintained by persons engaged in businesses similar to that of
Borrower and all policies covering property given as security for the
loans shall have loss payable clauses in favor of Bank. Borrower
agrees to deliver to Bank such evidence of insurance as Bank may
reasonably require and, within thirty (30) days after notice from
Bank, to obtain such additional insurance with an insurer
satisfactory to the Bank;
4.5 Borrower will pay all indebtedness taxes and other obligations for
which the Borrower is liable or to which its income or property is
subject before they shall become delinquent, except any which is
being contested by the Borrower in good faith;
4.6 Borrower will continue to conduct its business as presently
constituted, and will maintain and preserve all rights, privileges
and franchises now enjoyed, conduct Borrower's business in an
orderly, efficient and customary manner, keep all Borrower's
properties in good working order and condition, and from time to time
make all needed repairs, renewals or replacements so that the
efficiency of Borrower's properties shall be fully maintained and
preserved;
4.7 Brrower will maintain adequate books, accounts and records and
prepare all financial statements required hereunder in accordance
with generally accepted accounting principles and practices
consistently applied, and in compliance with the regulations of any
governmental regulatory body having jurisdiction over Borrower or
Borrower's business;
4.8 Brrower will permit representatives of Bank to examine and make
copies of the books and records of Borrower and to examine the
collateral of the Borrower at reasonable times;
4.9 Borrower will perform, on request of Bank, such acts as may be
necessary or advisable to perfect any lien or security interest
provided for herein or otherwise carry out the intent of this
Agreement;
4.10 Borrower will comply with all applicable federal, state and municipal
laws, ordinances, rules and regulations relating to its properties,
charters, businesses and operations, including compliance with all
minimum funding and other requirements related to any of Borrower's
employee benefit plans;
<PAGE>
EXHIBIT 10.33
COMPANY NAME
Business Loan Agreements - Part B
Page 5
4.11 Borrower will permit representatives of Bank to enter onto Borrower's
properties to inspect and test Borrower's properties as Bank, in its
sole discretion, may deem appropriate to determine Borrower's
compliance with section 5.8 of this Agreement; provided however, that
any such inspections and tests shall be for Bank's sole benefit and
shall not be construed to create any responsibility or liability on
the part of Bank to Borrower or to any third party.
5. NEGATIVE COVENANTS. So long as credit granted under this Agreement is
available and until full and final payment of all sums outstanding under
this Agreement and promissory note(s):
5.1 Borrower will not, during any fiscal year, expend or incur more than
$250,000 for any single fixed asset whether or not payable that fiscal
year or later under any purchase agreement or lease;
5.2 Borrower will not, without the prior written consent of Bank, purchase
or lease under an agreement for acquisition, incur any other
indebtedness for borrowed money, mortgage, assign, or otherwise
encumber any of Borrower's assets, nor sell, transfer or otherwise
hypothecate any such assets except in the ordinary course of business.
Borrower shall not guaranty, endorse, co-sign, or otherwise become
liable upon the obligations of others, except by the endorsement of
negotiable instruments for deposit or collection in the ordinary
course of business. For purposes of this paragraph, the sale or
assignment of accounts receivable, or the granting of a security
interest therein, shall be deemed the incurring of indebtedness for
borrowed money;
5.3 Borrower will not, without Bank's prior written consent, declare any
dividends on shares of its capital stock, or apply any of its assets
to the purchase, redemption or other retirement of such shares, or
otherwise amend its capital structure;
5.4 Borrower will not make any loan or advance to any person(s) or
purchase or otherwise acquire the capital stock, assets or obligations
of, or any interest in, any person, except: (a) commercial bank time
deposits maturing within one year, (b) marketable general obligations
of the United States or a State, or marketable obligations fully
guarantied by the United States, (c) short-term commercial paper with
the highest rating of a generally recognized rating service, (d) other
investments related to the Borrower's business. See Exhibit A.
5.5 Borrower will not liquidate or dissolve or enter into any
consolidation, merger, pool, joint venture, syndicate or other
combination, or sell, lease, or dispose of Borrower's business assets
as a whole or such as in the opinion of Bank constitute a substantial
portion of Borrower's business or assets;
5.6 Borrower will not engage in any business activities or operations
substantially different from or unrelated to present business
activities or operations; and
<PAGE>
EXHIBIT 10.33
COMPANY NAME
Business Loan Agreements - Part B
Page 6
5.7 Borrower, and Borrower's tenants, contractors, agents or other parties
authorized to use any of Borrower's properties, will not use,
generate, manufacture, store, treat, dispose of, or release any
hazardous substance or hazardous waste in, on, under or about any of
Borrower's properties, except as previously disclosed to Bank in
writing as provided in section 3.8; and any such activity shall be
conducted in compliance with all applicable federal, state and local
laws, regulations and ordinances, including without limitation those
described in section 3.8.
6. WAIVER, RELEASE AND INDEMNIFICATION. Borrower hereby: (a) releases
and waives any claims against Bank for indemnity or contribution in
the event Borrower becomes liable for cleanup or other costs under any
of the applicable federal, state or local laws, regulations or
ordinances, including without limitation those described in section
3.8, and (b) agrees to indemnify and hold Bank harmless from and
against any and all claims, losses, liabilities, damages, penalties
and expenses which Bank may directly or indirectly sustain or suffer
resulting from a breach of (i) any of Borrower's representations and
warranties with respect to hazardous wastes and hazardous substances
contained in section 3.8, or (ii) section 5.8.
The provisions of this section 6 shall survive the full and final
payment of all sums outstanding under this Agreement and promissory
notes and shall not be affected by Bank's acquisition of any interest
in any of the Borrower's properties, whether by foreclosure or
otherwise.
7. EVENTS OF DEFAULT. The occurrence of any of the following events
("Events of Default") shall terminate any and all obligations on the
part of Bank to make or continue the loan and/or line of credit and,
at the option of Bank, shall make all sums of interest and principal
outstanding under the loan and/or line of credit immediately due and
payable, without notice of default, presentment or demand for payment,
protest or notice of non payment or dishonor, or other notices or
demands of any kind or character, all of which are waived by Borrower,
and Bank may proceed with collection of such obligations and
enforcement and realization upon all security which it may hold and to
the enforcement of all rights hereunder or at law:
7.1 The Borrower shall fail to pay when due any amount payable by it
hereunder on any loans or notes executed in connection herewith;
7.2 Borrower shall fail to comply with the provisions of any other
covenant, obligation or term of this Agreement for a period of fifteen
(15) days after the earlier of written notice thereof shall have been
given to the Borrower by Bank or Borrower or any Guarantor has
knowledge of an Event of Default or an event that can become an Event
of Default;
7.3 Borrower shall fail to pay when due any other obligation for borrowed
money, or to perform any term or covenant on its part to be performed
under any agreement relating to such obligation or any such other debt
shall be declared to be due and payable and such failure shall
continue after the applicable grace period;
<PAGE>
EXHIBIT 10.33
COMPANY NAME
Business Loan Agreements - Part B
Page 7
7.4 Any representation or warranty made by Borrower in this Agreement or
in any other statement to Bank shall prove to have been false or
misleading in any material respect when made;
7.5 Borrower makes an assignment for the benefit of creditors, files a
petition in bankruptcy, is adjudicated insolvent or bankrupt,
petitions to any court for a receiver or trustee for Borrower or any
substantial part of its property, commences any proceeding relating to
the arrangement, readjustment, reorganization or liquidation under any
bankruptcy or similar laws, or if there is commenced against Borrower
any such proceedings which remain undismissed for a period of thirty
(30) days or, if Borrower by any act indicates its consent or
acquiescence in any such proceeding or the appointment of any such
trustee or receiver;
7.6 Any judgment attaches against Borrower or any of its properties for an
amount in excess of $500,000 which remains unpaid, unstayed on appeal,
unbonded, or undismissed for a period of thirty (30) days;
7.7 Loss of any required government approvals, and/or any governmental
regulatory authority takes or institutes action which, in the opinion
of Bank, will adversely affect Borrower's condition, operations or
ability to repay the loan and/or line of credit;
7.8 Failure of Bank to have a legal, valid and binding first lien on, or a
valid and enforceable prior perfected security interest in, any
property covered by any deed of trust or security agreement required
under this Agreement;
7.9 Borrower dies, becomes incompetent, or ceases to exist as a going
concern;
7.10 Occurrence of an extraordinary situation which gives Bank reasonable
grounds to believe that Borrower may not, or will be unable to,
perform its obligations under this or any other agreement between Bank
and Borrower; or
7.11 Any of the preceding events occur with respect to any guarantor of
credit under this Agreement, or such guarantor dies or becomes
incompetent, unless the obligations arising under the guaranty and
related agreements have been unconditionally assumed by the
guarantor's estate in a manner satisfactory to Bank.
8. SUCCESSORS; WAIVERS. Notwithstanding the Events of Default above, this
Agreement shall be binding upon and inure to the benefit of Borrower and
Bank, their respective successors and assigns, except that Borrower may
not assign its rights hereunder. No consent or waiver under this
Agreement shall be effective unless in writing and signed by the Bank
and shall not waive or affect any other default, whether prior or
subsequent thereto, and whether of the same or different type. No delay
or omission on the part of the Bank in exercising any right shall
operate as a waiver of such right or any other right.
9. ARBITRATION.
<PAGE>
EXHIBIT 10.33
COMPANY NAME
Business Loan Agreements - Part B
Page 8
9.1 At the request of either Bank or Borrower any controversy or claim
between the Bank and Borrower, arising from or relating to this
Agreement or any Loan Document executed in connection with this
Agreement or arising from any alleged tort shall be settled by
arbitration in King County Washington. The United States Arbitration
Act will apply to the arbitration proceedings which will be
administered by the American Arbitration Association under its
commercial rules of arbitration except that unless the amount of the
claim(s) being arbitrated exceeds $5,000,000 there shall be only one
arbitrator. Any controversy over whether an issue is arbitrable shall
be determined by the arbitrator(s). Judgement upon the arbitration
award may be entered in any court having jurisdiction. The institution
and maintenance of any action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the
right of either party, including plaintiff, to submit the controversy
or claim to arbitration if such action for judicial relief is
contested.
For purposes of the application of the statute of limitations the
filing of an arbitration as provided herein is the equivalent of
filing a lawsuit and the arbitrator(s) will have the authority to
decide whether any claim or controversy is barred by the statute of
limitations, and if so, to dismiss the arbitration on that basis. The
parties consent to the joinder in the arbitration proceedings of any
guarantor, hypothecator or other party having an interest related to
the claim or controversy being arbitrated.
9.2 Notwithstanding the provisions of Section 9.1, no controversy or claim
shall be submitted to arbitration without the consent of all parties
if at the time of the proposed submission, such controversy or claim
arises from or relates to an obligation secured by real property;
9.3 No provision of this Section 9 shall limit the right of the Borrower
or the Bank to exercise self-help remedies such as setoff, foreclosure
or sale of any collateral, or obtaining any ancillary provisional or
interim remedies from a court of competent jurisdiction before, after
or during the pendency of any arbitration proceeding. The exercise of
any such remedy does not waive the right of either party to request
arbitration. At Bank's option foreclosure under any deed of trust may
be accomplished by exercise of the power of sale under the deed of
trust or judicial foreclosure as a mortgage.
10. COLLECTION ACTIVITIES, LAWSUITS AND GOVERNING LAW. Borrower agrees to
pay Bank all costs and expenses (including reasonable attorney's fees
and the allocated cost for in-house legal services incurred by Bank), to
enforce this Agreement, any notes or any Loan Documents pursuant to this
Agreement, whether or not suit is instituted. If suit is instituted by
Bank to enforce this Agreement or any of these documents, Borrower
consents to the personal jurisdiction of the Courts of the State of
Washington and Federal Courts located in the State of Washington.
Borrower further consents to the venue of this suit, being laid in King
County, Washington. This Agreement and any notes and security
agreements entered into pursuant to this Agreement shall be construed in
accordance with the laws of the State of Washington.
<PAGE>
EXHIBIT 10.33
COMPANY NAME
Business Loan Agreements - Part B
Page 9
11. ADDITIONAL PROVISIONS. Borrower agrees to the additional provisions set
forth immediately following this Section 11 or on any "Exhibit A"
attached to and hereby incorporated into Agreement. This Agreement
supersedes all oral negotiations or agreements between Bank and Borrower
with respect to the subject matter hereof and constitutes the entire
understanding and Agreement of the matters set forth in this Agreement.
11.1 If any provision of this Agreement is held to be invalid or
unenforceable, then (a) such provision shall be deemed modified if
possible, or if not possible, such provision shall be deemed
stricken, and (b) all other provisions shall remain in full force
and effect.
11.2 If the imposition of or any change in any law, rule, or regulation
guideline or the interpretation or application of any thereof by
any court of administrative or governmental authority (including
any request or policy whether or not having the force of law) shall
impose or modify any taxes (except U.S. federal, state or local
income or franchise taxes imposed on Bank), reserve requirements,
capital adequacy requirements or other obligations which would: (a)
increase the cost to Bank for extending or maintaining any loans
and/or line of credit to which this Agreement relates, (b) reduce
the amounts payable to Bank under this Agreement, such notes and
other instruments, or (c) reduce the rate of return on Bank's
capital as a consequence of Bank's obligations with respect to any
loan and/or line of credit to which this Agreement relates, then
Borrower agrees to pay Bank such additional amounts as will
compensate Bank therefor, within five (5) days after Bank's written
demand for such payment, which demand shall be accompanied by an
explanation of such imposition or charge and a calculation in
reasonable detail of the additional amounts payable by Borrower,
which explanation and calculations shall be conclusive, absent
manifest error.
10.3 Bank may sell participations in or assign this loan in whole or in
part without notice to Borrower and Bank may provide information
regarding the Borrower and this Agreement to any prospective
participant or assignee. If a participation is sold or the loan is
assigned the purchaser will have the right of set off against the
Borrower and may enforce its interest in the Loan irrespective of
any claims or defenses the Borrower may have against the Bank.
12. NOTICES. Any notices shall be given in writing to the opposite party's
signature below or as that party may otherwise specify in writing.
13. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
<PAGE>
EXHIBIT 10.33
COMPANY NAME
Business Loan Agreements - Part B
Page 10
This Business Loan Agreement (Parts A and B) executed by the parties on
September 16, 1997. Borrower acknowledges having read all of the provisions
of this Agreement and Borrower agrees to its terms.
<TABLE>
<S> <C>
SEAFIRST BANK OLYMPIC CASCADE FINANCIAL CORPORATION
Metropolitan Wholesale Banking Team 5
By:__________________________ By:________________________________
G. Paul Grohe Steven A. Rothstein, Chairman
Title: Vice President
Address: 1001 Fourth Avenue, 4th Floor Address: 1001 - 4th Avenue,
Seattle, WA 98154 Suite 2200
Seattle, WA 98154
Phone: (206) 358-0098 Phone: (206) 622-7200
Fax: (206) 358-0019 Fax: (206) 343-6244
</TABLE>
<PAGE>
EXHIBIT 10.33
EXHIBIT A
Loan Agreement
Olympic Cascade Financial Corporation
September 16, 1997
Additional Terms, Agreements and Conditions:
1. Borrower agrees that its subsidiaries, now owned or hereafter acquired,
will at all times maintain sufficient net capital per NASD rules 15c3-1
and IM-3130 to permit the advancing of cash, upstreaming of dividends,
or otherwise providing funds to the Borrower in an amount sufficient to
repay the loan.
2. Borrower pledges that its subsidiaries will own and maintain, in
aggregate, an inventory of marketable securities whose market value, as
recorded in their monthly FOCUS and quarterly 10-QSB reports, will not
fall below 120% of the outstanding loan balance, and that it will notify
the Bank if the value falls below 120% at any time during the life of
the loan.
3. Borrower will obtain prior approval from Bank for any subsidiary
acquisitions not to be funded with Borrower's common stock.
Olympic Cascade Financial Corporation
By:
- -----------------------------------
Steven A. Rothstein, Chairman
<PAGE>
EXHIBIT 10.33
BORROWING AGREEMENT
LOAN. By accepting this agreement from OLYMPIC CASCADE FINANCIAL
CORPORATION, a Delaware corporation ("Borrower"), the chief executive office
of which is located at 1001 FOURTH AVE, SUITE 2200 SEATTLE, WA. 98154. BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION DOING BUSINESS AS SEAFIRST
BANK (including its successors and/or assigns "Bank") promises to lend to
Borrower the principal amount of $900,000.00 (the "Loan") in a single advance
to be disbursed to Borrower.
PAYMENT. In return, Borrower promises to pay to the order of Bank the
principal amount of $900,000.00, plus interest at a fixed rate of 8.950% per
year, calculated on the basis of actual number of days elapsed over a year of
360 days (together the "Obligations"), to be paid as follows: in level
principal payments of $150,000.00 dollars each on the 1st day of each month,
beginning the 1st day of May, 1998; accrued interest is to be paid on the 1st
day of each month, beginning the 1st day of October, 1997 with all
outstanding principal and accrued interest to be paid in full on OCTOBER 1,
1998. Bank is authorized to automatically debit each required installment of
principal and/or interest from Borrower's checking account number 10559409 at
Bank, or such other deposit account at Bank as Borrower may authorize in the
future. If a payment is 10 days or more late, Borrower, at Bank's option,
will be charged 5.000% of the regularly scheduled payment or $20.00,
whichever is greater. Borrower shall pay to Bank a loan fee of $2,000.00 upon
execution of this agreement.
COLLATERAL. Unsecured.
CONDITIONS. Bank shall have no obligation to advance funds to Borrower until:
* Borrower and every other party whose signature is required on this
agreement has signed this agreement.
* Bank has received proof satisfactory to Bank that all insurance required
under this agreement is in effect.
COVENANTS. Borrower shall deliver to Bank:
* Such other financial information as Bank may reasonably request from
time to time.
Borrower shall also:
* Maintain replacement value insurance on all tangible Collateral against
all risks, casualties, and losses through extended coverage or
otherwise, with such policy or policies naming Bank as loss payee, as
its interests may appear.
* Give Bank prompt written notice of any material adverse change in
Borrowers financial condition.
* Keep accurate and complete books, accounts, and records, and
during normal business hours, as often as Bank may
reasonably request, permit Bank's authorized agents or
employees to have access to Borrower's premises and
financial records, and to make copies or abstracts of such
records.
REMEDIES. If Borrower violates any promise of this agreement; or if any
guarantor of any of the Obligations shall violate any of its promises to
Bank; or Borrower defaults under any other agreement with Bank; or if
anything should happen which significantly impairs Borrower's financial
condition, the value of the Collateral, or Bank's prospects for repayment of
the Obligations, Bank may refuse to make any further advances of funds to
Borrower, may immediately demand payment in full of all Obligations (which,
at Bank's option, shall bear interest from the date of such demand at a rate
of 4% in excess of the rate otherwise applicable under this agreement), and
may use any one or more of its remedies given under this agreement or by the
laws of Washington State. Borrower shall, if demanded by Bank, pay all of
Bank's costs, expenses, and attorneys' fees (including the cost of in-house
counsel) incurred in collecting the Obligations, or arising out of the
transaction reflected by this agreement, which is governed by the laws of
Washington. If neither party elects or has the right to elect arbitration
under the following paragraph, any lawsuit relating to this agreement may be
brought in a court located in King County, Washington, or at Bank's option
where necessary to obtain jurisdiction over any Borrower, guarantor, or
Collateral.
ARBITRATION. Any dispute relating to this agreement (in contract or tort)
shall be settled by arbitration if requested by Bank, Borrower, or any other
party to the dispute (such as guarantor); PROVIDED, however, that both Bank
and Borrower must consent to a request for arbitration relating to an
obligation secured by real property or a marine vessel. The arbitration
proceedings shall be held in Seattle, Washington by the American Arbitration
Association under its commercial rules of arbitration, by a single
arbitrator. The United States Arbitration Act will apply. Judgment upon the
arbitration award may be entered in any court having jurisdiction.
Commencement of a lawsuit shall not constitute a waiver of the right of any
party to request arbitration if the lawsuit is contested. Likewise, any
party may exercise self-help remedies such as setoff, foreclosure,
repossession, or sale of any collateral before, after, or during arbitration
without waiving the right to request arbitration. At Bank's option,
foreclosure under a deed of trust may be made judicially (as a mortgage) or
nonjudicially (by power of sale).
DEFINITIONS. For purposes of this agreement, terms defined in the Washington
version of the Uniform Commercial Code, R.C.W. 62A.9-101, ET SEQ. ("UCC"),
and not otherwise defined in this agreement, shall have the meaning given in
the UCC; and an accounting term not otherwise defined in this agreement shall
have the meaning assigned to it under generally accepted accounting
principles.
AMENDMENTS. This agreement can only be amended in writing, signed by the
party to be bound by such amendment. If Borrower shall enter into, or has
entered into, other borrowing agreements with Bank, each such agreement shall
supplement the other, and Borrower must comply with each such agreement
independently, unless otherwise agreed in writing by Bank. ORAL AGREEMENTS
OR ORAL COMMITMENTS TO LOAN MONEY, TO EXTEND CREDIT, OR TO FORBEAR FROM
ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
This agreement is dated September 16, 1997
Bank: SEAFIRST BANK
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Borrower: OLYMPIC CASCADE FINANCIAL CORPORATION
Signature:
-------------------------
By: STEVEN A. ROTHSTEIN
--------------------------------
Title: CHAIRMAN & CEO
-----------------------------
<PAGE>
PROMISSORY NOTE
$425,000 Seattle, Washington
November 17, 1997
FOR VALUE RECEIVED, the undersigned, Olympic Cascade Financial
Corporation, a Delaware corporation having an address at 1001 Fourth Avenue,
Suite 2200, Seattle, Washington, 98154, ("Maker"), promises to pay to the order
of James S. Tisch ("Payee") at 667 Madison Avenue, New York, New York 10021, or
at such other place as Payee may from time to time designate by written notice
to Maker, in lawful money of the United States, the sum of Four Hundred Twenty-
Five Thousand Dollars ($425,000), plus interest from the date of this Note on
the unpaid balance. All principal and interest is to be paid as set forth
below. Maker further agrees as follows:
SECTION 1. INTEREST RATE.
(a) Interest shall accrue at a rate equal to eight percent (8%)
per annum.
(b) Interest shall be computed on the basis of a year of 360
days for the actual number of days elapsed. After maturity (whether by
acceleration or otherwise, and before as well as after judgment), all unpaid
principal and interest shall bear interest until it is paid at five percent (5%)
in excess of the rate otherwise applicable to the unpaid balance under this
Note. up to the maximum amount allowable by law.
SECTION 2. PAYMENTS.
(a) Principal shall be due and payable in twenty-four equal
installments (each a "Principal Payment") commencing on December 31, 2000 and
continuing on the last day of each month (each a "Principal Payment Date")
through November 30, 2002 ("Maturity") unless Maker makes demand as set forth
pursuant to Section 2(c) below.
<PAGE>
(b) During the first three years of this Note accrued interest
shall be payable in arrears on a quarterly calendar basis commencing March 30,
1998. Thereafter, accrued interest shall be paid on each Principal Payment
Date.
(c) If Maker completes one or more public offerings or private
placements of debt or equity securities, having gross proceeds in the aggregate
of at least $5,000,000 (a "Financing") Maker shall give notice to Payee within
five (5) days of the closing of such Financing. Payee shall have twenty-five
(25) days from receipt of such notice to demand that the principal and all
accrued interest under this Note be then due and payable.
(d) Maker shall have the right to prepay this Note in full or in
part at any time without penalty.
SECTION 3. DEFAULT.
It shall be an event of default ("Event of Default"), and the
entire unpaid principal of this Note, together with accrued interest, shall
become immediately due and payable, at the election of Payee, upon the
occurrence of any of the following events:
(a) any failure on the part of Maker to make any payment when
due, whether by acceleration or otherwise, and the continuation of such failure
for a period of five (5) business days thereafter;
(b) any failure on the part of Maker to keep or perform any of
the material provisions (other than payment) of this Note or any amendment
thereof, which failure is not cured within ten (10) days;
-2-
<PAGE>
(c) any failure on the part of Maker to pay any material debt
within sixty (60) days of its due date (except where contested in good faith);
(d) Maker shall commence (or take any action for the purpose of
commencing) any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, moratorium or similar law or statute;
(e) a proceeding shall be commenced against Maker under any
bankruptcy, reorganization, arrangement, readjustment of debt, moratorium or
similar law or statute and relief is ordered against it, or the proceeding is
controverted but is not dismissed within sixty (60) days after the commencement
thereof;
(f) Maker consents to or suffers the appointment of a receiver,
trustee or custodian to any substantial part of its assets that is not vacated
within thirty (30) days;
(g) Maker consents to or suffers an attachment, garnishment,
execution or other legal process against any of its assets that is not released
within thirty (30) days;
SECTION 4. SUBORDINATION.
This note shall be subordinated to Maker's loan agreement with
Seafirst Bank, dated September 16, 1997, in the principal amount of $900,000
(the "Seafirst Loan"); provided, however, that Maker may make all payments of
interest and principal hereunder if no event of default under the Seafirst Loan
has occurred and is continuing at the time of such payments. Maker shall not
incur any other indebtedness which is senior to this Note without the prior
written consent of the Payee.
-3-
<PAGE>
SECTION 5. JURISDICTION.
Maker irrevocably submits to the exclusive jurisdiction of the
courts of the State of Washington, and of any federal court located in the State
of Washington, in connection with any action or proceeding arising out of or
relating to, or a breach of, this Note. Maker agrees that such court may award
reasonable legal fees and expenses to the prevailing party.
SECTION 6. WAIVERS.
(a) Maker waives demand, presentment, protest, notice of
protest, notice of dishonor, and all other notices or demands of any kind or
nature with respect to this Note.
(b) Maker agrees that a waiver of rights under this Note shall
not be deemed to be made by Payee unless such waiver shall be in writing, duly
signed by Payee, and each such waiver, if any, shall apply only with respect to
the specific instance involved and shall in no way impair the rights of Payee or
the obligations of Maker in any other respect at any other time.
(c) Maker agrees that in the event Payee demands or accepts
partial payment of this Note, such demand or acceptance shall not be deemed to
constitute a waiver of any right to demand the entire unpaid balance of this
Note at any time in accordance with the terms of this Note.
(d) Maker agrees and acknowledges that Payee may disclose to any
other Obligor confidential information relating to this Note, and waives, to the
full extent permitted
-4-
<PAGE>
by law, any right to privacy or similar right under federal or state laws which
Maker may have with respect to such disclosures.
(e) In any action or proceeding arising out of or relating to
this Note, Maker waives (to the full extent permitted by law) all right to a
trial by jury or to plead as a defense any statute of limitations or any other
similar law or equitable doctrine.
SECTION 7. COLLECTION COSTS.
Maker will upon demand pay to Payee the amount of any and all
reasonable costs and expenses, including, without limitation, the reasonable
fees and disbursements of its counsel (whether or not suit is instituted) and of
any experts and agents, which Payee may incur in connection with the following:
(i) the enforcement of this Note; and (ii) the enforcement of payment of all
obligations of Maker by any action or participation in, or in connection with, a
case or proceeding under Chapters 7, 11, or 13 of the Bankruptcy Code, or any
successor statute thereto.
SECTION 8. ASSIGNMENT OF NOTE.
Maker may not assign or transfer this Note or any of its
obligations under this Note in any manner whatsoever (including, without
limitation, by the consolidation or merger of Maker, if a corporation, with or
into another corporation) without the prior written consent of Payee. The Note
may be assigned at any time by Payee. Maker agrees not to assert against any
assignee of this Note any claim or defense which Maker may have against any
assignor of this Note.
-5-
<PAGE>
SECTION 9. MISCELLANEOUS.
(a) This Note may be altered only by prior written agreement
signed by the party against whom enforcement of any waiver, change,
modification, or discharge is sought. This Note may not be modified by an oral
agreement, even if supported by new consideration.
(b) This Note shall be governed by, and construed in accordance
with, the laws of the State of Washington, without giving effect to such
jurisdiction's principles of conflict of laws.
(c) Subject to Section 8, the covenants, terms, and conditions
contained in this Note apply to and bind the heirs, successors, executors,
administrators and assigns of the parties.
(d) This Note constitutes a final written expression of all the
terms of the agreement between the parties regarding the subject matter hereof,
are a complete and exclusive statement of those terms, and supersede all prior
and contemporaneous agreements, understandings, and representations between the
parties. If any provision or any word, term, clause, or other part of any
provision of this Note shall be invalid for any reason, the same shall be
ineffective, but the remainder of this Note shall not be affected and shall
remain in full force and effect.
(e) The singular includes the plural. If more than one Maker
executes this Note, the term "Maker" shall be deemed to refer to each of the
undersigned Makers as well as to all of them, and their obligations and
agreements under this Note shall be joint and several. The term "Obligor" shall
be deemed to refer to each Maker, endorser, guarantor, or surety of
-6-
<PAGE>
this Note as well as to all of them. The term "Payee" shall include the initial
party to whom payment is designated to be made and, in the event of an
assignment of this Note, the successor assignee or assignees, and, as to each
successive additional assignment, such successor assignee or assignees.
(f) All notices, consents, or other communications provided for
in this Note or otherwise required by law shall be in writing and may be given
to or made upon the respective parties at the addresses set forth in the
preamble hereof. In addition, a copy of all notices to the Payee (which shall
not constitute notice to the Payee) shall also be mailed to Barry L. Bloom at
c/o Tisch Financial Management, 655 Madison Avenue, New York, New York 10021.
Such addresses may be changed by notice given as provided in this subsection.
Notices shall be effective upon the date of receipt; provided, however, that a
notice (other than a notice of a changed address) sent by certified or
registered U.S. mail, with postage prepaid, shall be presumed received not later
than three (3) business days following the date of sending.
(g) Time is of the essence under this Note.
-7-
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note effective as of the date
first set forth above.
OLYMPIC CASCADE FINANCIAL CORPORATION
By: /s/ Steven A. Rothstein
-----------------------------------------
Steven A. Rothstein
Chairman
-8-
<PAGE>
THIS WARRANT AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR
UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD,
ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE PLEDGED,
SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF IS
RESTRICTED AS DESCRIBED HEREIN.
OLYMPIC CASCADE FINANCIAL CORPORATION
Warrant for the purchase of shares of Common Stock,
$.02 par value per share
No. 1
THIS CERTIFIES that, for $25,000 and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Merryl H. Tisch as
custodian for Jessica S. Tisch (the "Holder"), is entitled to subscribe for and
purchase from Olympic Cascade Financial Corporation, a Delaware corporation (the
"Company"), upon the terms and conditions set forth herein, at any time or from
time to time, during the period commencing on the date hereof (November 17,
1997) and expiring at 5:00 p.m. on November 31, 2002 (the "Exercise Period"),
25,000 shares of the Company's common stock, $.02 par value per share ("the
Common Stock"), at a price (the "Exercise Price") per share of Common Stock
equal to $5.625. As used herein, the term "this Warrant" shall mean and include
this Warrant and any Warrant or Warrants hereafter issued as a consequence of
the exercise or transfer of this Warrant in whole or in part. This Warrant is
one of a series of warrants issued to the original Holder in
<PAGE>
connection with the exercise of certain warrants by the original Holder. As
used herein, the term "Holder" shall include any transferee to whom this Warrant
has been transferred in accordance with the terms hereof.
The number of shares of Common Stock issuable upon exercise of the Warrants
(the "Warrant Shares") may be adjusted from time to time as hereinafter set
forth.
1. Subject to the provisions of Section 2, this Warrant may be
exercised during the Exercise Period, as to the whole or any lesser number of
whole Warrant Shares, by transmission by telecopy of the Election to
Exercise, followed within three (3) business days by the surrender of this
Warrant (with the Election to Exercise attached hereto duly executed) to the
Company at its office at 1001 Fourth Avenue, Suite 2200, Seattle, Washington
98154, or at such other place as is designated in writing by the Company,
together with a certified or bank cashier's check payable to the order of the
Company in an amount equal to the product of the Exercise Price and the
number of Warrant Shares for which this Warrant is being exercised (the
"Aggregate Exercise Price"). Alternatively, this Warrant may be exercised in
the manner set forth in the preceding sentence by surrendering this Warrant
in exchange for the number of Warrant Shares equal to the product of (x) the
number of shares of Common Stock as to which this Warrant is being exercised,
multiplied by (y) a fraction, the numerator of which is the Market Price (as
defined below) of the shares of Common Stock minus the Exercise Price of the
shares of Common Stock and the denominator of which is the Market Price per
share of Common Stock. Solely for the purposes of this Section 1 Market Price
shall be calculated either (i) on the date on which the form of election
attached hereto is deemed to have been sent to the Company pursuant to this
Section 1 ("Notice Date") or (ii) as the average of the Market Price for each
of the five trading days immediately preceding the Notice Date, whichever of
(i) or (ii) results in a greater Market Price. As used herein, the phrase
"Market Price" at any date shall be deemed to be the last reported sale
price, or, in case no such reported sale takes place on such day, the average
of the last reported sale prices for the last three (3) trading days, in
either case as officially reported by the principal securities exchange on
which the Common Stock is listed or admitted to trading, or, if the Common
Stock is not listed or admitted to trading on any national securities
exchange, the average closing sale price as furnished by the NASD through The
Nasdaq Stock Market, Inc. ("Nasdaq") or similar organization if Nasdaq is no
longer reporting such information, or if the Common Stock is not quoted on
Nasdaq, as determined in good faith by resolution of the Board of Directors
of the Company, based on the best information available to it.
2. Upon each exercise of the Holder's rights to purchase Warrant Shares,
the Holder shall be deemed to be the holder of record of the Warrant Shares
issuable upon such exercise, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Warrant Shares
shall not then have been actually delivered to the Holder. Within five (5)
business days after each such exercise of this Warrant and receipt by
-2-
<PAGE>
the Company of this Warrant, the Election to Exercise and the Aggregate Exercise
Price, the Company shall issue and deliver to the Holder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the right of the Holder to purchase
the balance of the Warrant Shares (or portions thereof) subject to purchase
hereunder.
3. Any Warrants issued upon the transfer or exercise in part of this
Warrant shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrant on the part of any other person,
and shall not be liable for any registration of transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge of the general counsel of the
Company that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer. In all cases of transfer by an
attorney, executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants to
the person entitled thereto. This Warrant may be exchanged, at the option of
the Holder thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares (or portions thereof), upon surrender
to the Company or its duly authorized agent. Notwithstanding anything contained
herein to the contrary, the Company shall have no obligation to cause Warrants
to be transferred on its books to any person if, in the opinion of counsel to
the Company, such transfer does not comply with the provisions of the Act and
the rules and regulations thereunder.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the rights to purchase all Warrant Shares granted pursuant to
the Warrants, such number of shares of Common Stock as shall, from time to time,
be sufficient therefor. The Company covenants that all shares of Common Stock
issuable upon exercise of this Warrant, upon receipt by the Company of the full
Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
5. (a) The Exercise Price in effect at any time and the number and kind
of securities purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(b) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock, in each case, in shares
of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common
Stock into a greater number
-3-
<PAGE>
of shares, or (iii) combine or reclassify its outstanding shares of Common Stock
into a smaller number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Such adjustment shall be made successively whenever any event listed above shall
occur.
(c) Upon each adjustment of the Exercise Price pursuant to the
provisions of this Section 5, the number of Warrant Shares issuable upon the
exercise at the adjusted Exercise Price of each Warrant shall be adjusted to the
nearest number of whole shares of Common Stock by multiplying a number equal to
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares issuable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
(d) For the purpose of this Warrant, the term "Common Stock" shall
mean (i) the class of stock designated as Common Stock in the Articles of
Incorporation of the Company as amended as of the date hereof, or (ii) any other
class of stock resulting from successive changes or reclassifications of such
Common Stock consisting solely of changes in par value, or from par value to no
par value, or from no par value to par value.
(e) In case of any consolidation of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to the Holder a supplemental warrant agreement providing
that the Holder of this Warrant shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger by a holder of the number of shares of Common Stock
for which such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in this Section 5. The above provision of this subsection shall
similarly apply to successive consolidations or mergers.
(f) No adjustment in the number of Warrant Shares shall be required
if such adjustment is less than one; PROVIDED, HOWEVER, that any adjustments
which by reason of this Section 5(f) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 5 shall be made to the nearest one-thousandth
of a share.
-4-
<PAGE>
(g) In any case in which this Section 5 shall require that an
adjustment in the number of Warrant Shares be made effective as of a record date
for a specified event, the Company may elect to defer, until the occurrence of
such event, issuing to the Holder, if the Holder exercised this Warrant after
the record date, the Warrant Shares, if any, issuable upon such exercise over
and above the Warrant Shares, if any, issuable upon such exercise prior to such
adjustment; PROVIDED, HOWEVER, that the Company shall deliver to the Holder a
due bill or other appropriate instrument evidencing the Holder's right to
receive such additional Warrant Shares upon the occurrence of the event
requiring such adjustment.
(h) Whenever there shall be an adjustment as provided in this Section
5, the Company shall promptly cause written notice thereof to be sent by
certified mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares issuable upon
the exercise of this Warrant if such Warrant were exercisable on the date of
such notice, and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which officer's certificate shall be
conclusive evidence of the correctness of any such adjustment absent manifest
error.
6. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per share
than the most recent such cash dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all holders
of Common Stock entitling them to purchase any additional shares of Common Stock
or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares of
Common Stock, or any consolidation or merger, described in Section 7; or
(d) to effect any liquidation, dissolution, or winding-up of the
Company,
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, or (ii) the date on which
any such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, liquidation, dissolution, or winding-up is expected to
become effective, and the date as of which it is
-5-
<PAGE>
expected that holders of record of shares of Common Stock shall be entitled to
exchange their shares for securities or other property, if any, deliverable upon
such reclassification, change of outstanding shares, consolidation, merger,
sale, lease, conveyance of property, liquidation, dissolution, or winding-up.
7. The issuance of any shares or other securities upon the exercise of
this Warrant, and the delivery of certificates or other instruments representing
such shares or other securities, shall be made without charge to the Holder for
any tax or other charge in respect of such issuance, other than applicable
transfer taxes. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of any certificate in a name other than that of the Holder and the
Company shall not be required to issue or deliver any such certificate unless
and until the person or persons requesting the issue thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
8. If, at any time during the Exercise Period, the Company proposes to
register any of its securities under the Act (other than on a Form S-4 or a Form
S-8 or successor form thereto) it will give written notice by registered mail,
at least thirty (30) days prior to the filing of each such registration
statement, to the Holders of this Warrant or the Warrant Shares of its intention
to do so. If any of the Holders of this Warrant or the Warrant Shares notify
the Company within twenty (20) days after mailing of any such notice of its or
their desire to include any such securities in such proposed registration
statement, the Company shall afford such Holders the opportunity to have any
such Warrant Shares registered under such registration statement. In the event
that the managing underwriter for said offering advises the Company in writing
that in its opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
causing a diminution in the offering price or otherwise adversely affecting the
offering, the Company will include in such registration (a) FIRST, the
securities the Company proposes to sell, (b) SECOND, the securities held by
entities that made have demand registration rights, (c) THIRD, the Warrant
Shares requested to be included in such registration which in the opinion of
such underwriter can be sold, PRO RATA among those persons having registration
rights similar those set forth in this Section 8 who requested such
registration, and (d) FOURTH, other securities requested to be included in such
registration. Notwithstanding the provisions of this Section 8, the Company
shall have the right at any time after it shall have given written notice
pursuant to this SECTION 9.2 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement or to withdraw the same after the filing
but prior to the effective date thereof.
9. Unless registered as contemplated by Section 8 hereof, the Warrant
Shares issued upon exercise of the Warrants shall be subject to a stop transfer
order and the certificate or certificates evidencing such Warrant Shares shall
bear the following legend:
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<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. SUCH
SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER CONTAINED IN A
WARRANT, DATED NOVEMBER 17, 1997, A COPY OF WHICH ARE ON FILE WITH THE
SECRETARY OF THE COMPANY."
10. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses and, if reasonably requested, an indemnity reasonably
acceptable to the Company, the Company shall execute and deliver to the Holder
thereof a new Warrant of like date, tenor, and denomination.
11. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
-7-
<PAGE>
12. This Warrant shall be construed in accordance with the laws of the
State of Delaware applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
Dated: November 17, 1997
OLYMPIC CASCADE FINANCIAL CORPORATION
By: /s/ Steven A. Rothstein
---------------------------------------
Name: Steven A. Rothstein
Title: Chairman
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ______________________________hereby sells, assigns,
and transfers unto ________________ a Warrant to purchase _________ shares of
Common Stock, $.02 par value per share, of Olympic Cascade Financial Corporation
(the "Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint _____________________attorney to
transfer such Warrant on the books of the Company, with full power of
substitution.
Dated:
-----------------------
Signature
----------------------------------
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
<PAGE>
To: Olympic Cascade Financial Corporation
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _______
Warrant Shares covered by the within Warrant and tenders payment herewith
[in the amount of $_________] [in the form of ________ number of Warrant
Shares] in accordance with the terms thereof, certifies that he owns this
Warrant free and clear of any and all claims, liens and/or encumbrances and
requests that certificates for such securities be issued in the name of,
and delivered to:
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the
Warrant Shares covered by the within Warrant be registered in the name of,
and delivered to, the undersigned at the address stated below.
Dated: Name
-------------------- -------------------------------
(Print)
Address:
---------------------------------------------------------------
--------------------------------------
(Signature)
<PAGE>
THIS WARRANT AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR
UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD,
ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE PLEDGED,
SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF IS
RESTRICTED AS DESCRIBED HEREIN.
OLYMPIC CASCADE FINANCIAL CORPORATION
Warrant for the purchase of shares of Common Stock,
$.02 par value per share
No. 2
THIS CERTIFIES that, for $25,000 and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Merryl H. Tisch
as custodian for Benjamin J. Tisch (the "Holder"), is entitled to subscribe for
and purchase from Olympic Cascade Financial Corporation, a Delaware corporation
(the "Company"), upon the terms and conditions set forth herein, at any time or
from time to time, during the period commencing on the date hereof (November 17,
1997) and expiring at 5:00 p.m. on November 31, 2002 (the "Exercise Period"),
25,000 shares of the Company's common stock, $.02 par value per share ("the
Common Stock"), at a price (the "Exercise Price") per share of Common Stock
equal to $5.625. As used herein, the term "this Warrant" shall mean and include
this Warrant and any Warrant or Warrants hereafter issued as a consequence of
the exercise or transfer of this Warrant in whole or in part. This Warrant is
one of a series of warrants issued to the original Holder in
<PAGE>
connection with the exercise of certain warrants by the original Holder. As
used herein, the term "Holder" shall include any transferee to whom this Warrant
has been transferred in accordance with the terms hereof.
The number of shares of Common Stock issuable upon exercise of the Warrants
(the "Warrant Shares") may be adjusted from time to time as hereinafter set
forth.
1. Subject to the provisions of Section 2, this Warrant may be exercised
during the Exercise Period, as to the whole or any lesser number of whole
Warrant Shares, by transmission by telecopy of the Election to Exercise,
followed within three (3) business days by the surrender of this Warrant (with
the Election to Exercise attached hereto duly executed) to the Company at its
office at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, or at such
other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
amount equal to the product of the Exercise Price and the number of Warrant
Shares for which this Warrant is being exercised (the "Aggregate Exercise
Price"). Alternatively, this Warrant may be exercised in the manner set forth
in the preceding sentence by surrendering this Warrant in exchange for the
number of Warrant Shares equal to the product of (x) the number of shares of
Common Stock as to which this Warrant is being exercised, multiplied by (y) a
fraction, the numerator of which is the Market Price (as defined below) of the
shares of Common Stock minus the Exercise Price of the shares of Common Stock
and the denominator of which is the Market Price per share of Common Stock.
Solely for the purposes of this Section 1 Market Price shall be calculated
either (i) on the date on which the form of election attached hereto is deemed
to have been sent to the Company pursuant to this Section 1 ("Notice Date") or
(ii) as the average of the Market Price for each of the five trading days
immediately preceding the Notice Date, whichever of (i) or (ii) results in a
greater Market Price. As used herein, the phrase "Market Price" at any date
shall be deemed to be the last reported sale price, or, in case no such reported
sale takes place on such day, the average of the last reported sale prices for
the last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the average closing sale price as furnished by the
NASD through The Nasdaq Stock Market, Inc. ("Nasdaq") or similar organization if
Nasdaq is no longer reporting such information, or if the Common Stock is not
quoted on Nasdaq, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.
2. Upon each exercise of the Holder's rights to purchase Warrant Shares,
the Holder shall be deemed to be the holder of record of the Warrant Shares
issuable upon such exercise, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Warrant Shares
shall not then have been actually delivered to the Holder. Within five (5)
business days after each such exercise of this Warrant and receipt by the
Company of this Warrant, the Election to Exercise and the Aggregate Exercise
Price, the Company shall issue and deliver to the Holder a certificate or
certificates for the Warrant Shares
<PAGE>
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant for cancellation, execute and deliver a
new Warrant evidencing the right of the Holder to purchase the balance of the
Warrant Shares (or portions thereof) subject to purchase hereunder.
3. Any Warrants issued upon the transfer or exercise in part of this
Warrant shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrant on the part of any other person,
and shall not be liable for any registration of transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge of the general counsel of the
Company that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer. In all cases of transfer by an
attorney, executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants to
the person entitled thereto. This Warrant may be exchanged, at the option of
the Holder thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares (or portions thereof), upon surrender
to the Company or its duly authorized agent. Notwithstanding anything contained
herein to the contrary, the Company shall have no obligation to cause Warrants
to be transferred on its books to any person if, in the opinion of counsel to
the Company, such transfer does not comply with the provisions of the Act and
the rules and regulations thereunder.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the rights to purchase all Warrant Shares granted pursuant to
the Warrants, such number of shares of Common Stock as shall, from time to time,
be sufficient therefor. The Company covenants that all shares of Common Stock
issuable upon exercise of this Warrant, upon receipt by the Company of the full
Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
5. (a) The Exercise Price in effect at any time and the number and kind
of securities purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(b) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock, in each case, in shares
of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common
Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect at the time of the record date for such dividend or distribution
or of the effective date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined by multiplying the
Exercise Price by a
<PAGE>
fraction, the denominator of which shall be the number of shares of Common Stock
outstanding after giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
action. Such adjustment shall be made successively whenever any event listed
above shall occur.
(c) Upon each adjustment of the Exercise Price pursuant to the
provisions of this Section 5, the number of Warrant Shares issuable upon the
exercise at the adjusted Exercise Price of each Warrant shall be adjusted to the
nearest number of whole shares of Common Stock by multiplying a number equal to
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares issuable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
(d) For the purpose of this Warrant, the term "Common Stock" shall
mean (i) the class of stock designated as Common Stock in the Articles of
Incorporation of the Company as amended as of the date hereof, or (ii) any other
class of stock resulting from successive changes or reclassifications of such
Common Stock consisting solely of changes in par value, or from par value to no
par value, or from no par value to par value.
(e) In case of any consolidation of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to the Holder a supplemental warrant agreement providing
that the Holder of this Warrant shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger by a holder of the number of shares of Common Stock
for which such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in this Section 5. The above provision of this subsection shall
similarly apply to successive consolidations or mergers.
(f) No adjustment in the number of Warrant Shares shall be required
if such adjustment is less than one; PROVIDED, HOWEVER, that any adjustments
which by reason of this Section 5(f) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 5 shall be made to the nearest one-thousandth
of a share.
(g) In any case in which this Section 5 shall require that an
adjustment in the number of Warrant Shares be made effective as of a record date
for a specified event, the Company may elect to defer, until the occurrence of
such event, issuing to the Holder, if the Holder exercised this Warrant after
the record date, the Warrant Shares, if any, issuable upon such exercise over
and above the Warrant Shares, if any, issuable upon such exercise prior to such
adjustment; PROVIDED, HOWEVER, that the Company shall deliver to the Holder a
due bill or
<PAGE>
other appropriate instrument evidencing the Holder's right to receive such
additional Warrant Shares upon the occurrence of the event requiring such
adjustment.
(h) Whenever there shall be an adjustment as provided in this Section
5, the Company shall promptly cause written notice thereof to be sent by
certified mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares issuable upon
the exercise of this Warrant if such Warrant were exercisable on the date of
such notice, and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which officer's certificate shall be
conclusive evidence of the correctness of any such adjustment absent manifest
error.
6. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per share
than the most recent such cash dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all holders
of Common Stock entitling them to purchase any additional shares of Common Stock
or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares of
Common Stock, or any consolidation or merger, described in Section 7; or
(d) to effect any liquidation, dissolution, or winding-up of the
Company,
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, or (ii) the date on which
any such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, liquidation, dissolution, or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of shares of Common Stock shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such reclassification,
change of outstanding shares, consolidation, merger, sale, lease, conveyance of
property, liquidation, dissolution, or winding-up.
7. The issuance of any shares or other securities upon the exercise of
this Warrant, and the delivery of certificates or other instruments representing
such shares or other securities, shall be made without charge to the Holder for
any tax or other charge in respect of such issuance, other than applicable
transfer taxes. The Company shall not, however, be required
<PAGE>
to pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of any certificate in a name other than that of the Holder
and the Company shall not be required to issue or deliver any such certificate
unless and until the person or persons requesting the issue thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
8. If, at any time during the Exercise Period, the Company proposes to
register any of its securities under the Act (other than on a Form S-4 or a Form
S-8 or successor form thereto) it will give written notice by registered mail,
at least thirty (30) days prior to the filing of each such registration
statement, to the Holders of this Warrant or the Warrant Shares of its intention
to do so. If any of the Holders of this Warrant or the Warrant Shares notify
the Company within twenty (20) days after mailing of any such notice of its or
their desire to include any such securities in such proposed registration
statement, the Company shall afford such Holders the opportunity to have any
such Warrant Shares registered under such registration statement. In the event
that the managing underwriter for said offering advises the Company in writing
that in its opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
causing a diminution in the offering price or otherwise adversely affecting the
offering, the Company will include in such registration (a) FIRST, the
securities the Company proposes to sell, (b) SECOND, the securities held by
entities that made have demand registration rights, (c) THIRD, the Warrant
Shares requested to be included in such registration which in the opinion of
such underwriter can be sold, PRO RATA among those persons having registration
rights similar those set forth in this Section 8 who requested such
registration, and (d) FOURTH, other securities requested to be included in such
registration. Notwithstanding the provisions of this Section 8, the Company
shall have the right at any time after it shall have given written notice
pursuant to this SECTION 9.2 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement or to withdraw the same after the filing
but prior to the effective date thereof.
9. Unless registered as contemplated by Section 8 hereof, the Warrant
Shares issued upon exercise of the Warrants shall be subject to a stop transfer
order and the certificate or certificates evidencing such Warrant Shares shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. SUCH
SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER CONTAINED IN A
WARRANT, DATED NOVEMBER 17, 1997, A COPY OF WHICH ARE ON FILE WITH THE
SECRETARY OF THE COMPANY."
<PAGE>
10. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses and, if reasonably requested, an indemnity reasonably
acceptable to the Company, the Company shall execute and deliver to the Holder
thereof a new Warrant of like date, tenor, and denomination.
11. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
<PAGE>
12. This Warrant shall be construed in accordance with the laws of the
State of Delaware applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
Dated: November 17, 1997
OLYMPIC CASCADE FINANCIAL CORPORATION
By: /s/ Steven A. Rothstein
------------------------------------------
Name: Steven A. Rothstein
Title: Chairman
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and
transfers unto _____________ a Warrant to purchase _________ shares of Common
Stock, $.02 par value per share, of Olympic Cascade Financial Corporation (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint ___________________ attorney to
transfer such Warrant on the books of the Company, with full power of
substitution.
Dated:
--------------------------
Signature
---------------------------------------
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
<PAGE>
To: Olympic Cascade Financial Corporation
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _______
Warrant Shares covered by the within Warrant and tenders payment herewith
[in the amount of $_________] [in the form of ________ number of Warrant
Shares] in accordance with the terms thereof, certifies that he owns this
Warrant free and clear of any and all claims, liens and/or encumbrances and
requests that certificates for such securities be issued in the name of,
and delivered to:
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the
Warrant Shares covered by the within Warrant be registered in the name of,
and delivered to, the undersigned at the address stated below.
Dated: Name
---------------------- ----------------------------
(Print)
Address:
------------------------------------------------------------
-------------------------------------------
(Signature)
<PAGE>
THIS WARRANT AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR
UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD,
ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE PLEDGED,
SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF IS
RESTRICTED AS DESCRIBED HEREIN.
OLYMPIC CASCADE FINANCIAL CORPORATION
Warrant for the purchase of shares of Common Stock,
$.02 par value per share
No. 3
THIS CERTIFIES that, for $25,000 and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Merryl H. Tisch as
custodian for Samuel A. Tisch (the "Holder"), is entitled to subscribe for and
purchase from Olympic Cascade Financial Corporation, a Delaware corporation (the
"Company"), upon the terms and conditions set forth herein, at any time or from
time to time, during the period commencing on the date hereof (November 17,
1997) and expiring at 5:00 p.m. on November 31, 2002 (the "Exercise Period"),
25,000 shares of the Company's common stock, $.02 par value per share ("the
Common Stock"), at a price (the "Exercise Price") per share of Common Stock
equal to $5.625. As used herein, the term "this Warrant" shall mean and include
this Warrant and any Warrant or Warrants hereafter issued as a consequence of
the exercise or transfer of this Warrant in whole or in part. This Warrant is
one of a series of warrants issued to the original Holder in
<PAGE>
connection with the exercise of certain warrants by the original Holder. As
used herein, the term "Holder" shall include any transferee to whom this Warrant
has been transferred in accordance with the terms hereof.
The number of shares of Common Stock issuable upon exercise of the Warrants
(the "Warrant Shares") may be adjusted from time to time as hereinafter set
forth.
1. Subject to the provisions of Section 2, this Warrant may be exercised
during the Exercise Period, as to the whole or any lesser number of whole
Warrant Shares, by transmission by telecopy of the Election to Exercise,
followed within three (3) business days by the surrender of this Warrant (with
the Election to Exercise attached hereto duly executed) to the Company at its
office at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, or at such
other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
amount equal to the product of the Exercise Price and the number of Warrant
Shares for which this Warrant is being exercised (the "Aggregate Exercise
Price"). Alternatively, this Warrant may be exercised in the manner set forth
in the preceding sentence by surrendering this Warrant in exchange for the
number of Warrant Shares equal to the product of (x) the number of shares of
Common Stock as to which this Warrant is being exercised, multiplied by (y) a
fraction, the numerator of which is the Market Price (as defined below) of the
shares of Common Stock minus the Exercise Price of the shares of Common Stock
and the denominator of which is the Market Price per share of Common Stock.
Solely for the purposes of this Section 1 Market Price shall be calculated
either (i) on the date on which the form of election attached hereto is deemed
to have been sent to the Company pursuant to this Section 1 ("Notice Date") or
(ii) as the average of the Market Price for each of the five trading days
immediately preceding the Notice Date, whichever of (i) or (ii) results in a
greater Market Price. As used herein, the phrase "Market Price" at any date
shall be deemed to be the last reported sale price, or, in case no such reported
sale takes place on such day, the average of the last reported sale prices for
the last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the average closing sale price as furnished by the
NASD through The Nasdaq Stock Market, Inc. ("Nasdaq") or similar organization if
Nasdaq is no longer reporting such information, or if the Common Stock is not
quoted on Nasdaq, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.
2. Upon each exercise of the Holder's rights to purchase Warrant Shares,
the Holder shall be deemed to be the holder of record of the Warrant Shares
issuable upon such exercise, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Warrant Shares
shall not then have been actually delivered to the Holder. Within five (5)
business days after each such exercise of this Warrant and receipt by the
Company of this Warrant, the Election to Exercise and the Aggregate Exercise
Price, the Company shall issue and deliver to the Holder a certificate or
certificates for the Warrant Shares
<PAGE>
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the right of the Holder to purchase the balance of the
Warrant Shares (or portions thereof) subject to purchase hereunder.
3. Any Warrants issued upon the transfer or exercise in part of this
Warrant shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrant on the part of any other person,
and shall not be liable for any registration of transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge of the general counsel of the
Company that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer. In all cases of transfer by an
attorney, executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants to
the person entitled thereto. This Warrant may be exchanged, at the option of
the Holder thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares (or portions thereof), upon surrender
to the Company or its duly authorized agent. Notwithstanding anything contained
herein to the contrary, the Company shall have no obligation to cause Warrants
to be transferred on its books to any person if, in the opinion of counsel to
the Company, such transfer does not comply with the provisions of the Act and
the rules and regulations thereunder.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the rights to purchase all Warrant Shares granted pursuant to
the Warrants, such number of shares of Common Stock as shall, from time to time,
be sufficient therefor. The Company covenants that all shares of Common Stock
issuable upon exercise of this Warrant, upon receipt by the Company of the full
Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
5. (a) The Exercise Price in effect at any time and the number and kind
of securities purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(b) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock, in each case, in shares
of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common
Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect at the time of the record date for such dividend or distribution
or of the effective date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined by multiplying the
Exercise Price by a
<PAGE>
fraction, the denominator of which shall be the number of shares of Common Stock
outstanding after giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
action. Such adjustment shall be made successively whenever any event listed
above shall occur.
(c) Upon each adjustment of the Exercise Price pursuant to the
provisions of this Section 5, the number of Warrant Shares issuable upon the
exercise at the adjusted Exercise Price of each Warrant shall be adjusted to the
nearest number of whole shares of Common Stock by multiplying a number equal to
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares issuable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
(d) For the purpose of this Warrant, the term "Common Stock" shall
mean (i) the class of stock designated as Common Stock in the Articles of
Incorporation of the Company as amended as of the date hereof, or (ii) any other
class of stock resulting from successive changes or reclassifications of such
Common Stock consisting solely of changes in par value, or from par value to no
par value, or from no par value to par value.
(e) In case of any consolidation of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to the Holder a supplemental warrant agreement providing
that the Holder of this Warrant shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger by a holder of the number of shares of Common Stock
for which such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in this Section 5. The above provision of this subsection shall
similarly apply to successive consolidations or mergers.
(f) No adjustment in the number of Warrant Shares shall be required
if such adjustment is less than one; PROVIDED, HOWEVER, that any adjustments
which by reason of this Section 5(f) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 5 shall be made to the nearest one-thousandth
of a share.
(g) In any case in which this Section 5 shall require that an
adjustment in the number of Warrant Shares be made effective as of a record date
for a specified event, the Company may elect to defer, until the occurrence of
such event, issuing to the Holder, if the Holder exercised this Warrant after
the record date, the Warrant Shares, if any, issuable upon such exercise over
and above the Warrant Shares, if any, issuable upon such exercise prior to such
adjustment; PROVIDED, HOWEVER, that the Company shall deliver to the Holder a
due bill or
<PAGE>
other appropriate instrument evidencing the Holder's right to receive such
additional Warrant Shares upon the occurrence of the event requiring such
adjustment.
(h) Whenever there shall be an adjustment as provided in this Section
5, the Company shall promptly cause written notice thereof to be sent by
certified mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares issuable upon
the exercise of this Warrant if such Warrant were exercisable on the date of
such notice, and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which officer's certificate shall be
conclusive evidence of the correctness of any such adjustment absent manifest
error.
6. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per share
than the most recent such cash dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all holders
of Common Stock entitling them to purchase any additional shares of Common Stock
or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares of
Common Stock, or any consolidation or merger, described in Section 7; or
(d) to effect any liquidation, dissolution, or winding-up of the
Company,
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, or (ii) the date on which
any such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, liquidation, dissolution, or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of shares of Common Stock shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such reclassification,
change of outstanding shares, consolidation, merger, sale, lease, conveyance of
property, liquidation, dissolution, or winding-up.
7. The issuance of any shares or other securities upon the exercise of
this Warrant, and the delivery of certificates or other instruments representing
such shares or other securities, shall be made without charge to the Holder for
any tax or other charge in respect of such issuance, other than applicable
transfer taxes. The Company shall not, however, be required
<PAGE>
to pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of any certificate in a name other than that of the Holder
and the Company shall not be required to issue or deliver any such certificate
unless and until the person or persons requesting the issue thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
8. If, at any time during the Exercise Period, the Company proposes to
register any of its securities under the Act (other than on a Form S-4 or a Form
S-8 or successor form thereto) it will give written notice by registered mail,
at least thirty (30) days prior to the filing of each such registration
statement, to the Holders of this Warrant or the Warrant Shares of its intention
to do so. If any of the Holders of this Warrant or the Warrant Shares notify
the Company within twenty (20) days after mailing of any such notice of its or
their desire to include any such securities in such proposed registration
statement, the Company shall afford such Holders the opportunity to have any
such Warrant Shares registered under such registration statement. In the event
that the managing underwriter for said offering advises the Company in writing
that in its opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
causing a diminution in the offering price or otherwise adversely affecting the
offering, the Company will include in such registration (a) FIRST, the
securities the Company proposes to sell, (b) SECOND, the securities held by
entities that made have demand registration rights, (c) THIRD, the Warrant
Shares requested to be included in such registration which in the opinion of
such underwriter can be sold, PRO RATA among those persons having registration
rights similar those set forth in this Section 8 who requested such
registration, and (d) FOURTH, other securities requested to be included in such
registration. Notwithstanding the provisions of this Section 8, the Company
shall have the right at any time after it shall have given written notice
pursuant to this SECTION 9.2 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement or to withdraw the same after the filing
but prior to the effective date thereof.
9. Unless registered as contemplated by Section 8 hereof, the Warrant
Shares issued upon exercise of the Warrants shall be subject to a stop transfer
order and the certificate or certificates evidencing such Warrant Shares shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN NOT
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT, OR AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT. SUCH SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER
CONTAINED IN A WARRANT, DATED NOVEMBER 17, 1997, A COPY OF WHICH ARE ON
FILE WITH THE SECRETARY OF THE COMPANY."
<PAGE>
10. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses and, if reasonably requested, an indemnity reasonably
acceptable to the Company, the Company shall execute and deliver to the Holder
thereof a new Warrant of like date, tenor, and denomination.
11. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
<PAGE>
12. This Warrant shall be construed in accordance with the laws of the
State of Delaware applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
Dated: November 17, 1997
OLYMPIC CASCADE FINANCIAL CORPORATION
By: /s/ Steven A. Rothstein
----------------------------------------
Name: Steven A. Rothstein
Title: Chairman
-8-
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ________________ hereby sells, assigns, and transfers
unto __________________ a Warrant to purchase __________ shares of Common Stock,
$.02 par value per share, of Olympic Cascade Financial Corporation (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint ___________________________ attorney
to transfer such Warrant on the books of the Company, with full power of
substitution.
Dated:
---------------------------
Signature
------------------------------------
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
<PAGE>
To: Olympic Cascade Financial Corporation
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _______
Warrant Shares covered by the within Warrant and tenders payment herewith
[in the amount of $_________] [in the form of ________ number of Warrant
Shares] in accordance with the terms thereof, certifies that he owns this
Warrant free and clear of any and all claims, liens and/or encumbrances and
requests that certificates for such securities be issued in the name of,
and delivered to:
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the
Warrant Shares covered by the within Warrant be registered in the name of,
and delivered to, the undersigned at the address stated below.
Dated: Name
----------------- ------------------------------------
(Print)
Address:
---------------------------------------------------------------
--------------------------------------
(Signature)
<PAGE>
PROMISSORY NOTE
$500,000 Seattle, Washington
November 17, 1997
FOR VALUE RECEIVED, the undersigned, Olympic Cascade Financial Corporation,
a Delaware corporation having an address at 1001 Fourth Avenue, Suite 2200,
Seattle, Washington, 98154, ("Maker"), promises to pay to the order of FAI
Overseas Investments Pty Limited ("Payee") at Level 12, 185 Macquarie Street,
Sydney, New South Wales, Australia, or at such other place as Payee may from
time to time designate by written notice to Maker, in lawful money of the United
States, the sum of Five Hundred Thousand Dollars ($500,000), plus interest from
the date of this Note on the unpaid balance. All principal and interest is to
be paid as set forth below. Maker further agrees as follows:
SECTION 1. INTEREST RATE.
(a) Interest shall accrue at a rate equal to eight percent (8%) per annum.
(b) Interest shall be computed on the basis of a year of 360 days for the
actual number of days elapsed. After maturity (whether by acceleration or
otherwise, and before as well as after judgment), all unpaid principal and
interest shall bear interest until it is paid at five percent (5%) in excess of
the rate otherwise applicable to the unpaid balance under this Note. up to the
maximum amount allowable by law.
SECTION 2. PAYMENTS.
(a) Principal shall be due and payable in twenty-four equal installments
(each a "Principal Payment") commencing on December 31, 2000 and continuing on
the last day of each month (each a "Principal Payment Date") through November
30, 2002 ("Maturity") unless Maker makes demand as set forth pursuant to Section
2(c) below.
<PAGE>
(b) During the first three years of this Note accrued interest shall be
payable in arrears on a quarterly calendar basis commencing March 30, 1998.
Thereafter, accrued interest shall be paid on each Principal Payment Date.
(c) If Maker completes one or more public offerings or private placements
of debt or equity securities, having gross proceeds in the aggregate of at least
$5,000,000 (a "Financing") Maker shall give notice to Payee within five (5) days
of the closing of such Financing. Payee shall have twenty-five (25) days from
receipt of such notice to demand that the principal and all accrued interest
under this Note be then due and payable.
(d) Maker shall have the right to prepay this Note in full or in part at
any time without penalty.
SECTION 3. DEFAULT.
It shall be an event of default ("Event of Default"), and the entire unpaid
principal of this Note, together with accrued interest, shall become immediately
due and payable, at the election of Payee, upon the occurrence of any of the
following events:
(a) any failure on the part of Maker to make any payment when due, whether
by acceleration or otherwise, and the continuation of such failure for a period
of five (5) business days thereafter;
(b) any failure on the part of Maker to keep or perform any of the
material provisions (other than payment) of this Note or any amendment thereof,
which failure is not cured within ten (10) days;
-2-
<PAGE>
(c) any failure on the part of Maker to pay any material debt within sixty
(60) days of its due date (except where contested in good faith);
(d) Maker shall commence (or take any action for the purpose of
commencing) any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, moratorium or similar law or statute;
(e) a proceeding shall be commenced against Maker under any bankruptcy,
reorganization, arrangement, readjustment of debt, moratorium or similar law or
statute and relief is ordered against it, or the proceeding is controverted but
is not dismissed within sixty (60) days after the commencement thereof;
(f) Maker consents to or suffers the appointment of a receiver, trustee or
custodian to any substantial part of its assets that is not vacated within
thirty (30) days;
(g) Maker consents to or suffers an attachment, garnishment, execution or
other legal process against any of its assets that is not released within thirty
(30) days;
SECTION 4. SUBORDINATION.
This note shall be subordinated to Maker's loan agreement with Seafirst
Bank, dated September 16, 1997, in the principal amount of $900,000 (the
"Seafirst Loan"); provided, however, that Maker may make all payments of
interest and principal hereunder if no event of default under the Seafirst Loan
has occurred and is continuing at the time of such payments. Maker shall not
incur any other indebtedness which is senior to this Note without the prior
written consent of the Payee.
-3-
<PAGE>
SECTION 5. JURISDICTION.
Maker irrevocably submits to the exclusive jurisdiction of the courts of
the State of Washington, and of any federal court located in the State of
Washington, in connection with any action or proceeding arising out of or
relating to, or a breach of, this Note. Maker agrees that such court may award
reasonable legal fees and expenses to the prevailing party.
SECTION 6. WAIVERS.
(a) Maker waives demand, presentment, protest, notice of protest, notice
of dishonor, and all other notices or demands of any kind or nature with respect
to this Note.
(b) Maker agrees that a waiver of rights under this Note shall not be
deemed to be made by Payee unless such waiver shall be in writing, duly signed
by Payee, and each such waiver, if any, shall apply only with respect to the
specific instance involved and shall in no way impair the rights of Payee or the
obligations of Maker in any other respect at any other time.
(c) Maker agrees that in the event Payee demands or accepts partial
payment of this Note, such demand or acceptance shall not be deemed to
constitute a waiver of any right to demand the entire unpaid balance of this
Note at any time in accordance with the terms of this Note.
(d) Maker agrees and acknowledges that Payee may disclose to any other
Obligor confidential information relating to this Note, and waives, to the full
extent permitted
-4-
<PAGE>
by law, any right to privacy or similar right under federal or state laws which
Maker may have with respect to such disclosures.
(e) In any action or proceeding arising out of or relating to this Note,
Maker waives (to the full extent permitted by law) all right to a trial by jury
or to plead as a defense any statute of limitations or any other similar law or
equitable doctrine.
SECTION 7. COLLECTION COSTS.
Maker will upon demand pay to Payee the amount of any and all reasonable
costs and expenses, including, without limitation, the reasonable fees and
disbursements of its counsel (whether or not suit is instituted) and of any
experts and agents, which Payee may incur in connection with the following: (i)
the enforcement of this Note; and (ii) the enforcement of payment of all
obligations of Maker by any action or participation in, or in connection with, a
case or proceeding under Chapters 7, 11, or 13 of the Bankruptcy Code, or any
successor statute thereto.
SECTION 8. ASSIGNMENT OF NOTE.
Maker may not assign or transfer this Note or any of its obligations under
this Note in any manner whatsoever (including, without limitation, by the
consolidation or merger of Maker, if a corporation, with or into another
corporation) without the prior written consent of Payee. The Note may be
assigned at any time by Payee. Maker agrees not to assert against any assignee
of this Note any claim or defense which Maker may have against any assignor of
this Note.
-5-
<PAGE>
SECTION 9. MISCELLANEOUS.
(a) This Note may be altered only by prior written agreement signed by the
party against whom enforcement of any waiver, change, modification, or discharge
is sought. This Note may not be modified by an oral agreement, even if
supported by new consideration.
(b) This Note shall be governed by, and construed in accordance with, the
laws of the State of Washington, without giving effect to such jurisdiction's
principles of conflict of laws.
(c) Subject to Section 8, the covenants, terms, and conditions contained
in this Note apply to and bind the heirs, successors, executors, administrators
and assigns of the parties.
(d) This Note constitutes a final written expression of all the terms of
the agreement between the parties regarding the subject matter hereof, are a
complete and exclusive statement of those terms, and supersede all prior and
contemporaneous agreements, understandings, and representations between the
parties. If any provision or any word, term, clause, or other part of any
provision of this Note shall be invalid for any reason, the same shall be
ineffective, but the remainder of this Note shall not be affected and shall
remain in full force and effect.
(e) The singular includes the plural. If more than one Maker executes
this Note, the term "Maker" shall be deemed to refer to each of the undersigned
Makers as well as to all of them, and their obligations and agreements under
this Note shall be joint and several. The term "Obligor" shall be deemed to
refer to each Maker, endorser, guarantor, or surety of
-6-
<PAGE>
this Note as well as to all of them. The term "Payee" shall include the initial
party to whom payment is designated to be made and, in the event of an
assignment of this Note, the successor assignee or assignees, and, as to each
successive additional assignment, such successor assignee or assignees.
(f) All notices, consents, or other communications provided for in this
Note or otherwise required by law shall be in writing and may be given to or
made upon the respective parties at the addresses set forth in the preamble
hereof. Such addresses may be changed by notice given as provided in this
subsection. Notices shall be effective upon the date of receipt; provided,
however, that a notice (other than a notice of a changed address) sent by
certified or registered U.S. mail, with postage prepaid, shall be presumed
received not later than three (3) business days following the date of sending.
(g) Time is of the essence under this Note.
-7-
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note effective as of the date
first set forth above.
OLYMPIC CASCADE FINANCIAL CORPORATION
By: /s/ Steven A. Rothstein
----------------------------------------
Steven A. Rothstein
Chairman
-8-
<PAGE>
THIS WARRANT AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR
UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD,
ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE PLEDGED,
SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF IS
RESTRICTED AS DESCRIBED HEREIN.
OLYMPIC CASCADE FINANCIAL CORPORATION
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK,
$.02 PAR VALUE PER SHARE
No. 5
THIS CERTIFIES that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, FAI Overseas Investments Pty
Limited (the "Holder"), is entitled to subscribe for and purchase from Olympic
Cascade Financial Corporation, a Delaware corporation (the "Company"), upon the
terms and conditions set forth herein, at any time or from time to time, during
the period commencing on the date hereof (November 17, 1997) and expiring at
5:00 p.m. on November 31, 2002 (the "Exercise Period"), 45,000 shares of the
Company's common stock, $.02 par value per share ("the Common Stock"), at a
price (the "Exercise Price") per share of Common Stock equal to $5.625. As used
herein, the term "this Warrant" shall mean and include this Warrant and any
Warrant or Warrants hereafter issued as a consequence of the exercise or
transfer of this Warrant in whole or in part. As used herein, the term "Holder"
shall include any transferee to whom this Warrant has been transferred in
accordance with the terms hereof.
<PAGE>
The number of shares of Common Stock issuable upon exercise of the Warrants
(the "Warrant Shares") and the Exercise Price may be adjusted from time to time
as hereinafter set forth.
1. Subject to the provisions of Section 2, this Warrant may be exercised
during the Exercise Period, as to the whole or any lesser number of whole
Warrant Shares, by transmission by telecopy of the Election to Exercise,
followed within three (3) business days by the surrender of this Warrant (with
the Election to Exercise attached hereto duly executed) to the Company at its
office at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, or at such
other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
amount equal to the product of the Exercise Price and the number of Warrant
Shares for which this Warrant is being exercised (the "Aggregate Exercise
Price"). Alternatively, this Warrant may be exercised in the manner set forth
in the preceding sentence by surrendering this Warrant in exchange for the
number of Warrant Shares equal to the product of (x) the number of shares of
Common Stock as to which this Warrant is being exercised, multiplied by (y) a
fraction, the numerator of which is the Market Price (as defined below) of the
shares of Common Stock minus the Exercise Price of the shares of Common Stock
and the denominator of which is the Market Price per share of Common Stock.
Solely for the purposes of this Section 1 Market Price shall be calculated
either (i) on the date on which the form of election attached hereto is deemed
to have been sent to the Company pursuant to this Section 1 ("Notice Date") or
(ii) as the average of the Market Price for each of the five trading days
immediately preceding the Notice Date, whichever of (i) or (ii) results in a
greater Market Price. As used herein, the phrase "Market Price" at any date
shall be deemed to be the last reported sale price, or, in case no such reported
sale takes place on such day, the average of the last reported sale prices for
the last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the average closing sale price as furnished by the
NASD through The Nasdaq Stock Market, Inc. ("Nasdaq") or similar organization if
Nasdaq is no longer reporting such information, or if the Common Stock is not
quoted on Nasdaq, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.
2. Upon each exercise of the Holder's rights to purchase Warrant Shares,
the Holder shall be deemed to be the holder of record of the Warrant Shares
issuable upon such exercise, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Warrant Shares
shall not then have been actually delivered to the Holder. Within five (5)
business days after each such exercise of this Warrant and receipt by the
Company of this Warrant, the Election to Exercise and the Aggregate Exercise
Price, the Company shall issue and deliver to the Holder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant
-2-
<PAGE>
for cancellation, execute and deliver a new Warrant evidencing the right of the
Holder to purchase the balance of the Warrant Shares (or portions thereof)
subject to purchase hereunder.
3. Any Warrants issued upon the transfer or exercise in part of this
Warrant shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrant on the part of any other person,
and shall not be liable for any registration of transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge of the general counsel of the
Company that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer. In all cases of transfer by an
attorney, executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants to
the person entitled thereto. This Warrant may be exchanged, at the option of
the Holder thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares (or portions thereof), upon surrender
to the Company or its duly authorized agent. Notwithstanding anything contained
herein to the contrary, the Company shall have no obligation to cause Warrants
to be transferred on its books to any person if, in the opinion of counsel to
the Company, such transfer does not comply with the provisions of the Act and
the rules and regulations thereunder.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the rights to purchase all Warrant Shares granted pursuant to
the Warrants, such number of shares of Common Stock as shall, from time to time,
be sufficient therefor. The Company covenants that all shares of Common Stock
issuable upon exercise of this Warrant, upon receipt by the Company of the full
Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
5. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock, in each case, in shares
of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common
Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect at the time of the record date for such dividend or distribution
or of the effective date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined by multiplying the
Exercise Price by a
-3-
<PAGE>
fraction, the denominator of which shall be the number of shares of Common Stock
outstanding after giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
action. Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) In the event that the Company shall sell or issue at any time
after the date of issuance of this Warrant and prior to its termination, shares
of Common Stock at a consideration per share less than the Exercise Price, then
the Exercise Price shall be adjusted to a new Exercise Price (calculated to the
nearest cent) determined by dividing:
(i) an amount equal to (A) the total number of shares of Common
Stock outstanding on the date of issuance of this Warrant
multiplied by the Exercise Price in effect on the date of
issuance of this Warrant (subject, however, to adjustment in the
manner set forth in this Section 5), plus (B) the aggregate of
the amount of all consideration, if any, received by the Company
for the issuance or sale of shares of Common Stock since the date
of issuance of this Warrant, by
(ii) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
In no event shall any such adjustment be made pursuant to this Section 5(b) if
it would increase the Exercise Price in effect immediately prior to such
adjustment. Upon each adjustment of the Exercise Price pursuant to this Section
5(b), the holder of this Warrant shall thereafter be entitled to purchase, at
the Exercise Price resulting from such adjustment, the number of Warrant Shares
obtained by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Exercise Price resulting from such adjustment. In addition, in no event shall
the issuance of shares of Common Stock pursuant to options and/or warrants which
are outstanding as of the date of the issuance of this Warrant trigger the
dilution provisions of this Section 5(b).
(c) Upon each adjustment of the Exercise Price pursuant to the
provisions of this Section 5, the number of Warrant Shares issuable upon the
exercise at the adjusted Exercise Price of each Warrant shall be adjusted to the
nearest number of whole shares of Common Stock by multiplying a number equal to
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares issuable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
-4-
<PAGE>
(d) For the purpose of this Warrant, the term "Common Stock" shall
mean (i) the class of stock designated as Common Stock in the Articles of
Incorporation of the Company as amended as of the date hereof, or (ii) any other
class of stock resulting from successive changes or reclassifications of such
Common Stock consisting solely of changes in par value, or from par value to no
par value, or from no par value to par value.
(e) In case of any consolidation of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to the Holder a supplemental warrant agreement providing
that the Holder of this Warrant shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger by a holder of the number of shares of Common Stock
for which such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in this Section 5. The above provision of this subsection shall
similarly apply to successive consolidations or mergers.
(f) No adjustment in the number of Warrant Shares shall be required
if such adjustment is less than one; PROVIDED, HOWEVER, that any adjustments
which by reason of this Section 5(f) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 5 shall be made to the nearest one-thousandth of
a share.
(g) In any case in which this Section 5 shall require that an
adjustment in the number of Warrant Shares be made effective as of a record date
for a specified event, the Company may elect to defer, until the occurrence of
such event, issuing to the Holder, if the Holder exercised this Warrant after
the record date, the Warrant Shares, if any, issuable upon such exercise over
and above the Warrant Shares, if any, issuable upon such exercise prior to such
adjustment; PROVIDED, HOWEVER, that the Company shall deliver to the Holder a
due bill or other appropriate instrument evidencing the Holder's right to
receive such additional Warrant Shares upon the occurrence of the event
requiring such adjustment.
(h) Whenever there shall be an adjustment as provided in this Section
5, the Company shall promptly cause written notice thereof to be sent by
certified mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares issuable upon
the exercise of this Warrant if such Warrant were exercisable on the date of
such notice, and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which officer's certificate shall be
conclusive evidence of the correctness of any such adjustment absent manifest
error.
-5-
<PAGE>
6. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per share
than the most recent such cash dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all holders
of Common Stock entitling them to purchase any additional shares of Common Stock
or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares of
Common Stock, or any consolidation or merger, described in Section 7; or
(d) to effect any liquidation, dissolution, or winding-up of the
Company,
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, or (ii) the date on which
any such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, liquidation, dissolution, or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of shares of Common Stock shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such reclassification,
change of outstanding shares, consolidation, merger, sale, lease, conveyance of
property, liquidation, dissolution, or winding-up.
7. The issuance of any shares or other securities upon the exercise of
this Warrant, and the delivery of certificates or other instruments representing
such shares or other securities, shall be made without charge to the Holder for
any tax or other charge in respect of such issuance, other than applicable
transfer taxes. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of any certificate in a name other than that of the Holder and the
Company shall not be required to issue or deliver any such certificate unless
and until the person or persons requesting the issue thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
8. (a) If, at any time during the Exercise Period, the Company proposes
to register any of its securities under the Act (other than on a Form S-4 or a
Form S-8 or successor form thereto) it will give written notice by registered
mail, at least thirty (30) days prior to the
-6-
<PAGE>
filing of each such registration statement, to the Holders of this Warrant or
the Warrant Shares of its intention to do so. If any of the Holders of this
Warrant or the Warrant Shares notify the Company within twenty (20) days after
mailing of any such notice of its or their desire to include any such securities
in such proposed registration statement, the Company shall afford such Holders
the opportunity to have any such Warrant Shares registered under such
registration statement. In the event that the managing underwriter for said
offering advises the Company in writing that in its opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without causing a diminution in the offering
price or otherwise adversely affecting the offering, the Company will include in
such registration (a) FIRST, the securities the Company proposes to sell, (b)
SECOND, the securities held by entities that made have demand registration
rights, (c) THIRD, the Warrant Shares requested to be included in such
registration which in the opinion of such underwriter can be sold, PRO RATA
among those persons having registration rights similar those set forth in this
Section 8 who requested such registration, and (d) FOURTH, other securities
requested to be included in such registration. Notwithstanding the provisions
of this Section 8, the Company shall have the right at any time after it shall
have given written notice pursuant to this SECTION 9.2 (irrespective of whether
a written request for inclusion of any such securities shall have been made) to
elect not to file any such proposed registration statement or to withdraw the
same after the filing but prior to the effective date thereof.
(b) At any time during the one (1) year period commencing on the date
of the issuance of this Warrant, the Holder shall have the right, exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission, on one occasion, a registration statement
and such other documents, including a prospectus, as may be necessary in the
opinion of both counsel for the Company and counsel for the Holder, in order to
comply with the provisions of the Act, so as to permit a public offering and
sale by the Holder. The Company shall use its commercially reasonable efforts
to have such registration statement filed with and declared effective by the
Commission within one hundred twenty (120) days of receipt of the notice from
the Holder.
9. Unless registered as contemplated by Section 8 hereof, the Warrant
Shares issued upon exercise of the Warrants shall be subject to a stop transfer
order and the certificate or certificates evidencing such Warrant Shares shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN NOT
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT, OR AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT. SUCH SHARES ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER CONTAINED IN
-7-
<PAGE>
A WARRANT, DATED NOVEMBER 17, 1997, A COPY OF WHICH ARE ON FILE WITH THE
SECRETARY OF THE COMPANY."
10. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses and, if reasonably requested, an indemnity reasonably
acceptable to the Company, the Company shall execute and deliver to the Holder
thereof a new Warrant of like date, tenor, and denomination.
11. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
-8-
<PAGE>
12. This Warrant shall be construed in accordance with the laws of the
State of Delaware applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
Dated: November 17, 1997
OLYMPIC CASCADE FINANCIAL CORPORATION
By:
---------------------------------------------
Name: Steven A. Rothstein
Title: Chairman
-9-
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, _______________________________________________ hereby
sells, assigns, and transfers unto __________________ a Warrant to purchase
__________ shares of Common Stock, $.02 par value per share, of Olympic Cascade
Financial Corporation (the "Company"), together with all right, title, and
interest therein, and does hereby irrevocably constitute and appoint
________________________________ attorney to transfer such Warrant on the books
of the Company, with full power of substitution.
Dated:
------------------
Signature
----------------------------------
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
<PAGE>
To: Olympic Cascade Financial Corporation
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _______
Warrant Shares covered by the within Warrant and tenders payment herewith
[in the amount of $_________] [in the form of ________ number of Warrant
Shares] in accordance with the terms thereof, certifies that he owns this
Warrant free and clear of any and all claims, liens and/or encumbrances and
requests that certificates for such securities be issued in the name of,
and delivered to:
------------------------------------------------
------------------------------------------------
------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the
Warrant Shares covered by the within Warrant be registered in the name of,
and delivered to, the undersigned at the address stated below.
Dated: Name
------------------------- -----------------------------
(Print)
Address:
----------------------------------------------------------------
----------------------------------
(Signature)
<PAGE>
EXHIBIT 11
OLYMPIC CASCADE FINANCIAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
PRIMARY
SEPTEMBER 26, September 27, September 29,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net income for primary earnings per share $ 101,000 $ 1,735,000 $ 257,000
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares
outstanding during the year 1,138,479 888,637 769,182
Add common equivalent shares upon exercise
of stock options 218,779 109,297 42,669
------------- ------------- -------------
Weighted average number of shares used in
calculation of primary earnings
per share 1,357,258 997,934 811,851
------------- ------------- -------------
------------- ------------- -------------
Primary earnings per share $ .07 $ 1.74 $ .32
------------- ------------- -------------
------------- ------------- -------------
FULLY DILUTED
Weighted average number of shares used in
calculating primary earnings per share 1,357,258 997,934 811,851
Add additional shares issuable upon
exercise of stock options * 199,224 *
------------- ------------- -------------
Weighted average number of shares used in
calculation of fully diluted earnings
per share 1,357,258 1,197,158 811,851
------------- ------------- -------------
------------- ------------- -------------
Fully diluted earnings per share $ .07 $ 1.45 $ .32
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
* No effect given to common stock equivalents, as their effect would increase
the income per share.
-54-
<PAGE>
EXHIBIT 21
OLYMPIC CASCADE FINANCIAL CORPORATION
Subsidiaries of the Registrant
September 26, 1997
Percentage
of Voting
State of Securities
Subsidiary Name Incorporation Owned
- --------------- ------------- -----
National Securities Corporation Washington 100%
L. H. Friend, Weinress, Frankson &
Presson, Inc. California 100%
WestAmerica Investment Group California 100%
Travis Capital, Inc. Utah 100%
-55-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-26-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> SEP-26-1997
<CASH> 985
<RECEIVABLES> 24,284
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0
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</TABLE>
