UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission file number 000-29342
WADE COOK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 91-1772094
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
14675 Interurban Avenue South
Seattle, Washington 98168
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 901-3000
Indicate by check mark whether the registrant (1) has filed all documents and
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
64,383,630 shares of Common Stock, $0.01 par value, outstanding as of
September 30, 1998.
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WADE COOK FINANCIAL CORPORATION
Form 10-Q
Index
PART 1 --FINANCIAL INFORMATION...............................................1
Item 1. Financial Statements.................................................1
Condensed Consolidated Balance Sheets....................................1
Condensed Consolidated Statements of Income..............................3
Condensed Consolidated Statements of Cash Flow...........................5
Notes to Interim Financial Statements....................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................7
General..................................................................7
Liquidity and Capital Resources..........................................8
Results of Operation....................................................10
Item 3 Quantitative and Qualitative Disclosures About Market Risk...........11
PART II --OTHER INFORMATION.................................................12
Item 1. Legal Proceedings....................................................12
Item 2. Changes in Securities................................................14
Item 3. Defaults Upon Senior Securities......................................14
Item 4. Submission of Matters to a Vote of Security Holders..................14
Item 5. Other Information....................................................14
Item 6. Exhibits and Reports on Form 8-K.....................................16
<PAGE>
PART 1 -- FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, 1998 December 31, 1997
-------------------- -------------------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 1,114,732 $ 540,763
Marketable securities 3,906,525 6,162,733
Receivables, trade 3,100,641 3,283,183
Inventory 2,840,649 1,312,366
Receivables, employees 1,092,620 992,263
Other current assets 584,791 486,855
------------------- -------------------
Total current assets 12,639,958 12,778,163
------------------- -------------------
Property and equipment, net of depreciation 11,750,172 10,425,159
------------------- -------------------
Goodwill, net of amortization 2,603,034 2,637,669
------------------- -------------------
Other assets:
Non-marketable investments 17,884,073 7,330,460
Receivables, employees 4,373,659 3,892,505
Other 144,640 4,340,182
------------------- -------------------
Total other assets 22,402,372 15,563,147
------------------- -------------------
Total assets $ 49,395,536 $ 41,404,138
=================== ===================
Liabilities and Shareholders' Equity:
Current Liabilities:
Current portion of long-term debt 1,024,514 1,445,000
Book overdrafts -0- 2,156,305
Accounts payable and accrued expenses 7,616,440 6,450,485
Margin loan in investment accounts 586,735 2,766,824
Taxes payable 5,107,746 5,417,063
Deferred revenue 5,330,626 4,764,441
Payables, related parties 3,070,786 827,752
------------------- -------------------
Total current liabilities 22,736,847 23,827,870
Long-term debt 5,343,397 821,182
------------------- -------------------
Total liabilities 28,080,244 24,649,052
------------------- -------------------
Minority interest 1,065,818 687,945
------------------- -------------------
Shareholders' Equity:
Preferred stock - -
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Common stock 695,792 682,459
Paid-in capital 4,973,768 3,651,386
Prepaid advertising (500,000) (500,000)
Retained earnings 15,620,042 12,233,296
------------------- -------------------
20,789,602 16,067,141
Less: common stock in treasury at costs:
251,000 shares 540,128 -
------------------- -------------------
Total shareholders' equity 20,249,474 16,067,141
------------------- -------------------
Total liabilities, minority interest, and
shareholders' Equity $ 49,395,536 $ 41,404,138
=================== ===================
</TABLE>
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<TABLE>
Condensed Consolidated Statements of Income
(Unaudited)
For the Three Months Ended For the Nine Months Ended
------------------------------------- --------------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenue, net of returns and discounts $29,680,865 $30,867,873 $84,690,033 $71,340,343
---------------- ----------------- ----------------- -----------------
Costs and expenses:
Cost of revenue 11,715,258 12,397,795 38,478,298 27,653,051
Selling, general and administrative 16,222,055 12,815,998 43,192,796 29,713,129
---------------- ----------------- ----------------- -----------------
Total operating costs 27,937,313 25,213,793 81,671,094 57,366,180
---------------- ----------------- ----------------- -----------------
Income (loss) from operations 1,743,552 5,654,080 3,018,939 13,974,163
---------------- ----------------- ----------------- -----------------
Other income (expense):
Interest and dividends 140,607 120,756 492,421 223,576
Gain (loss) on trading securities (305,205) (238,842) 499,520 347,405
Interest expense (357,071) (96,661) (658,388) (245,423)
Undistributed income (loss) from
Equity investments (51,204) - (303,214) -
Licensing fees 853,891 - 853,891 -
Other 109,146 3,674 134,459 (9,958)
---------------- ----------------- ----------------- -----------------
Total other income 390,164 (211,073) 1,018,689 315,600
---------------- ----------------- ----------------- -----------------
Income before income taxes 2,133,716 5,443,007 4,037,628 14,289,763
Provision for income taxes 746,801 2,894,758 1,413,170 6,026,332
---------------- ----------------- ----------------- -----------------
Income from continuing operations $ 1,386,915 $ 2,548,249 $ 2,624,458 $ 8,263,431
---------------- ----------------- ----------------- -----------------
Discontinued operations:
Income from operations of Entity
Planners, Inc. to be disposed of (net
of income taxes of $314,682 in 1998 and
$293,714 in 1997) - 102,439 584,410 685,504
Operating income of Entity Planners,
Inc. during phase-out period (net of
income tax of $8,280 in 1998) - - 15,378 -
Gain on disposal of Entity Planners,
Inc. (net of income tax of $87,500 in
1998) 162,500 - 162,500 -
---------------- ----------------- ----------------- -----------------
162,500 102,439 762,288 685,504
---------------- ----------------- ----------------- -----------------
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Net income $ 1,549,415 $ 2,650,688 $3,386,746 $8,948,935
================ ================= ================= =================
Earnings per share
Income from continuing operations $ .02 $ .04 $.04 $.14
Income from discontinuing operations - * .01 .01
Income during phase-out period - - * -
Gain on disposal * - * -
---------------- ----------------- ----------------- -----------------
Net income $ .02 $ .04 $.05 $.15
================ ================= ================= =================
Weighted average number of shares 64,383,630 60,348,411 64,383,630 60,348,411
</TABLE>
* - not meaningful
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Condensed Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
Nine Months Ended
-----------------
September 30, 1998 September 30, 1997
-------------------- --------------------
<S> <C> <C>
Cash provided by operations $ 7,385,721 $ 12,533,086
Cash used in investing activities (11,033,507) (12,356,805)
Cash used in financing activities:
Proceeds from issuance of subsidiary's
minority interest - (72,655)
Net borrowings 4,221,755 1,582,095
-------------------- --------------------
Net increase in cash $ 573,969 $ 1,685,721
==================== ====================
</TABLE>
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<PAGE>
Wade Cook Financial Corporation and Subsidiaries
Notes to Interim Financial Statements
September 30, 1998
1. Basis for Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the nine
month period ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. For
further information, refer to "Factors Affecting Future Results," and to
the financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
Certain items in the 1997 consolidated financial statements have been
reclassified to comply with the condensed consolidated financial statements
presentation for 1998.
2. Earnings per Share
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding. The 1997 number of
shares and earnings per share have been restated to reflect the 3:1 stock
splits in September and December of 1997.
3. Discontinued Operations
On June 30, 1998, the Company sold the stock of Entity Planners, Inc.
(EPI), a wholly-owned subsidiary of Wade Cook Financial Corporation (WCFC),
which owns a five year licensing agreement with WCFC enabling it to provide
entity structuring services relating to the topic of asset protection,
estate planning and tax reduction. EPI was sold to a newly formed company
by principals who have been involved in the production, selling, and
marketing of products and seminars for the Company. The stock of EPI was
sold for $250,000.
4. Licensing Agreement
With the sale of EPI, the licensing agreement between WCFC and EPI was
transferred to the new owners. The agreement provides for aggregate
licensing fees of $17.470 million payable with the future cash flows of the
business transferred. The payment schedule requires, on a weekly basis, the
remittance of an amount ranging from 70 to 75 percent of net sales or 30
percent of gross sales, whichever is greater, for a period of five years.
The licensing agreement contains a renewal option.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Any statements that express or involve discussions with respect to
predictions, expectations, beliefs, plans, objectives, assumptions or future
events or performance (often, but not always, using words and phrases such as
"expects," "believe," "believes," "plans," "anticipate," "anticipates," "is
anticipated," or stating that certain actions, events or results "will," "may,"
"should," or "can" be taken, occur or be achieved) are not statements of
historical fact and may be "forward-looking statements." Forward-looking
statements are based on expectations, estimates and projections at the time the
statements are made that involve a number of risks and uncertainties which could
cause actual results or events to differ materially from those anticipated by
the Company. Such risks and uncertainties include, but are not limited to, the
Company's working capital deficiency, the effect that recent volatility in the
stock market may have on the interest of customers in the Company's seminars,
products and services and on the Company's own investments, the Company's
ability to manage its growth and to integrate recent acquisitions, fluctuations
in the commercial real estate market, failure of recently acquired hotel
properties to perform as expected, the domination of the management of the
Company by Wade B. Cook, the Company's CEO, the possibility of adverse outcomes
in pending or threatened litigation involving the Company, consequences
associated with the Company's failure to pay state and federal income tax when
due, the Company's policy of committing available cash to additional
investments, lack of liquidity in the Company's investments, and other risks and
uncertainties discussed herein and those detailed in the Company's other
Securities and Exchange Commission filings, including the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997. Investors are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revision to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events. For
the convenience of the reader, the Company has attempted to identify
forward-looking statements contained in this report with an asterisk (*).
However, the omission of an asterisk should not be presumed to mean that a
statement is not a forward-looking statement within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act.
General
Wade Cook Financial Corporation is a holding company that, through its
operating subsidiary, Wade Cook Seminars, Inc. ("WCSI"), conducts educational
business seminars and produces and sells video and audio tapes, books and other
written materials focused on investment strategies, financial planning and
personal wealth management. The Company also holds interests in marketable
securities, real estate, gold, oil and gas, and other venture capital limited
partnerships and private companies. WCSI hosts Wealth Information Network
("WIN"), an Internet web site that allows subscribers to log on for information
related to the stock market at http://www.wadecook.com. Two of the Company's
operating subsidiaries, Left Coast Advertising, Inc., and Lighthouse Publishing
Group, Inc., conduct advertising and publishing services, respectively, for the
Company. In 1997, the Company acquired Worldwide Publishers, Inc., Origin Book
Sales, Inc., Gold Leaf Press, Inc., and Ideal Travel Concepts, Inc., and to date
in 1998 the Company has acquired Get Ahead Bookstores Inc. (retail education
centers), Wade Cook Financial Education Centers, Inc. (bookstores), Quantum
Marketing, Inc. (local sales and marketing offices) and Information Quest, Inc.
(distribution of paging devices that transmit stock market data).
The acquisition of the Best Western McCarran House, located in Sparks,
Nevada, was completed during a prior quarter in 1998. Costs pursuant to the
acquisition of the McCarran House and associated with the remodeling of that
unit continue to be generated. The land, building, equipment, and furniture have
a book value of $5.5 million, and with the purchase of the hotel, the Company
assumed a $4.4 million long-term loan, which was recorded
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in the third quarter. As a result, it is likely that the Company will restate
its financial results for prior periods. During the third quarter, the Company
was negotiating the acquisition of an additional 50% interest in the property
formerly known as the St. George Hilton Inn, in St. George, Utah, bringing the
Company's ownership to 100%. The property is currently being improved for
re-flagging as a Four-Point hotel by Sheraton. Additionally, during the third
quarter, the Company was negotiating an increase in its ownership of the Airport
Ramada Suites, located in Salt Lake City, Utah, from 25% to 75%.
Although the Company, principally as the result of activities of WCSI, has
been profitable in the past, it has experienced dramatic growth, acquired or
established new businesses, increased general and administrative expenses, and
made investments in hotel and other projects outside the traditional business of
WCSI which have reduced profits in recent periods. In addition, revenue from
WCSI has been lower in recent periods than in comparable periods in the past.
The Company cannot predict the effect that recent world economic conditions or
stock market volatility will have on the interest of investors in the seminars
and other products and services of WCSI, or on WCSI's revenue or profits. There
can be no assurance that the Company's operation will be profitable in the
future.
Liquidity and Capital Resources
At September 30, 1998, the Company had current assets of $12.6 million and
current liabilities of $22.7 million, resulting in a working capital deficit of
$10.1 million. The working capital deficit at December 31, 1997 was $11.0
million. Current liabilities at September 30, 1998 include $5.3 million in
deferred revenue, which results principally from payments received from persons
who have signed up and paid in advance for future pager services from
Information Quest, subscriptions to the WIN website or to attend seminars not
yet held. Current liabilities at September 30, 1998 also include $5.1 million in
taxes payable, which includes approximately $2.7 million in delinquent payments
owed on 1997 state and federal taxes. The Company has not made estimated tax
payments with respect to income taxes in 1998. The accrued liabilities do not
include penalties and interest, which may be material.
Mr. Wade B. Cook, the Company's largest shareholder and CEO agreed to
forego $2.0 million in royalties for the quarter ended September 30, 1998, to
assist with the Company's cash flow requirements. At September 30, 1998, the
Company had payables to related parties of $3.0 million, which represent
principally royalties owed to Mr. Cook which do not include the royalties Mr.
Cook agreed to forego.
The market value of the Company's marketable securities decreased from $6.1
million at December 31, 1997 and $4.4 million at June 30, 1998 to $3.9 million
at September 30, 1998, due to sales of securities and the lower value of the
retained portfolio due to lower stock prices. Inventory increased from $1.3
million at December 31, 1997 to $2.8 million at September 30, 1998 due
principally to increases in inventory to support expanded product lines,
including products of subsidiaries acquired in the fourth quarter of 1997. At
September 30, 1998 the Company also had receivables from related parties of $4.3
million consisting principally of term loans to employees and directors, the
majority of which are secured by mortgages on real property.
The Company's principal source of cash has been from the operation of its
investment seminars and sales of tapes, books and other materials focused on
business strategies, financial planning and personal wealth management. The
Company does not have an established bank line of credit. Cash provided by
operations decreased from $12.5 million and $5.9 million in the nine-and
three-month periods ended September 30, 1997 to $7.4 million and $1.6 million in
the nine- and three-month periods ended September 30, 1998. This decrease
reflected principally losses of businesses acquired in 1997 and 1998, but also
reflected a reduction in revenue from the Company's seminars and related
businesses in the quarter ended September 30, 1998.
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<PAGE>
Cash generated from borrowing was $4.2 million and $5.3 million for the
nine-and three-month periods ended September 30, 1998, compared with $1.6
million and $3.6 million in the comparable periods in 1997, as the Company
borrowed funds in connection with its investment in hotel activities.
The Company continues to use cash to acquire interests in hotel properties
and other businesses. See "General" and Part II, Item 5 of this report. Use of
cash for these purposes has significantly exceeded cash generated by operations.
Net cash used in investment was $11.0 million and $6.7 million for the nine-and
three-month periods ended September 30, 1998, compared with $12.2 million and
$8.7 million in the comparable periods in 1997.
Non-marketable investments increased from $7.3 million at December 31, 1997
and $10.3 million at June 30, 1998 to $17.9 million at September 30, 1998, due
principally to additional investments in hotel properties. The primary addition
to the hotel investments was the completion of the acquisition of the Best
Western McCarran House. See "General" and Part II, Item 5 of this report.
The Company's non-marketable investments include the following:
Investment
Description of Investment (in dollars)
------------------------------------------------------
Oil and gas properties $ 1,050,000
Hotel and motel investments 12,464,525
Investments in undeveloped land 2,610,263
Private companies -- Various 2,062,500
industries
-----------------
18,187,288
Less: undistributed income (loss) (303,215)
-----------------
Total non-marketable investments $ 17,884,073
=================
The Company's policy of using available cash to acquire developing
businesses and non-marketable investments and its working capital deficit have
resulted in constraints on liquidity, including failure to pay tax obligations
when due.
The Company has significant cash commitments and requirements in future
periods in addition to commitments and requirements related to activities
described in the Company's reports on Form 10-K for the year ending December 31,
1997. These commitments include, but are not limited to, the following:
Under the terms of a contract with the Hewlett Packard Company ("HP"), the
Company has agreed to pay to HP an aggregate of $1.4 million dollars for the
development of an inter-office communications network.
In March 1999, the Company is obligated to make a $1.1 million payment on
the long-term loan assumed by the Company in connection with the acquisition by
the Company of the Best Western McCarran House in Sparks, Nevada.
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The Company also anticipates spending up to $1.4 million over the next six
months for improvements to its hotel properties, but this amount could be
exceeded.*
The Company regularly evaluates other acquisition and investment
opportunities, and additional cash resources may be devoted to pursuing such
opportunities.
In addition to cash received from its own operations, the Company is
entitled to receive payment under its license agreement with Entity Planners
Inc.("EPI") based on a percentage of sales, but not less than $35,539 per week
which represents the minimum weekly payment due ($40,385) less 12% payable to
Mr. Cook personally pursuant to a prior understanding between Mr. Cook and the
Company. See Part II, Item 5 of this Report. Receipt of these payments may, as a
practical matter, be dependent on the success of the business in the hands of
the buyers.
The Company has acquired new businesses, has continued to fund these
businesses in anticipation of future revenues, and has continued its policy of
committing available cash to acquisitions of new businesses and other
investments. Cash flow from operations, which has historically been the
Company's principal source of cash for working capital, has decreased in recent
periods.
If the Company is required to generate cash for working capital purposes
from its non-marketable investments, it may not be able to liquidate investments
in a timely manner, in a manner that allows the Company to realize the full
value of the investments. Failure to generate adequate cash resources for
working capital could require the Company to cut back operations, delay
expansion and development projects, or cause the Company to be unable to meet
obligations in a timely manner.
The Company is a party to various government investigations and legal
proceedings. See Part II, Item 1, of this report. Although the Company does not
presently anticipate material liability under any of these matters, the legal
fees and other costs involved may be material.* If the Company were found to be
liable in certain of these proceedings, the liability could be material. In
addition, if government agencies charge the Company with violation of certain
consumer protection or other laws and establish such violations, they could seek
to require the Company to pay material penalties or to refund money paid to the
Company by seminar attendees within their jurisdiction or significantly change
the manner in which the Company's business is conducted. Any such result could
materially adversely affect the Company's financial condition or results of
operations.
Results of Operations
Revenue from continuing operations were $84.7 million and $29.7 million for
the nine-and three-month periods ended September 30, 1998 respectively compared
with $71.3 million and $30.9 million for the comparable periods in 1997. Revenue
for the nine-and three-month periods ended September 30, 1998 included $7.4
million and $2.7 million, respectively, from subsidiaries acquired during and
after the third quarter of 1997. The decrease in revenue in the third quarter of
1998 compared with the comparable quarter in 1997 resulted principally from the
sale of EPI. Income from the license arrangement made in connection with the
sale of EPI is now accounted for as other income under licensing fees.
Cost of revenue for the nine-and three-month periods ended September 30,
1998 was $38.5 million (45.5% of revenue) and $11.7 million (39.4% of revenue)
respectively, compared with $27.6 million (38.7% of revenue) and $12.4 million
(40.2% of revenue) for the comparable periods in 1997. The decrease in cost of
revenues in the quarter ended September 30, 1998 resulted principally from a
decrease in a royalty expense payable to Mr. Cook as the result of his agreement
to forego royalties in the third quarter of 1998.
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Selling, general and administrative costs for the nine-and three-month
periods ended September 30, 1998 were $43.2 million (50.8% of revenue) and $16.2
million (54.4% of revenue), respectively, compared with $29.7 million (41.6% of
revenue) and $12.8 million (41.5% of revenue) in the comparable periods in 1997.
The increases are principally the result of increased payroll and related
expenses, printing and production of marketing materials and other costs related
to expansion of the Company's business activities and newly acquired
subsidiaries, and increases in legal and accounting expenses related to
legal compliance, litigation and investigations.
Other income was $390,000 and $1.0 million for the nine- and three-month
periods ended September 30, 1998, respectively, compared with $315,600 and a
loss of $211,073 in the comparable periods of 1997. During the quarter ended
September 30, 1998, the Company experienced a loss on trading in securities of
$305,000, but income on trading in securities for the nine months ended
September 30, 1998 was $500,000. The Company records its investment in trading
securities in accordance with Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities, and
therefore, adjusts marketable securities to market value, thereby reflecting
changes in market value through the income statement in the current period.
Increases in interest and dividends received in the nine- and three-month
periods ended September 30, 1998 were more than offset by increases in interest
expense resulting from increased debt incurred in connection with hotel
investments.
Income before income taxes for the nine-and three-month periods ended
September 30, 1998 was $4.0 million (4.7% of revenue) and $2.1 million (7.1% of
revenue) respectively, compared with $14.3 million (20.0% of revenue) and $5.4
million (17.6% of revenue) in the comparable periods in 1997. Provisions for
income taxes were $1.4 million (1.6% of revenue) and $747,000 (2.5% of revenue)
in the nine-and three-month periods ended September 30, 1998, compared with $6.0
million and $2.9 million in the comparable periods in 1997. Provisions for
income taxes are based on statutory rates.
During the third quarter of 1998, the Company sold the stock of EPI and
recognized a gain on the disposal of $162,500 (net of provision for income
taxes).
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
The following is a description of previously unreported material threatened
or pending legal proceedings and updated information regarding previously
reported material threatened or pending legal proceedings to which the Company
or any of its subsidiaries is a party or which any of their properties is
subject:
Litigation with ART and ITEX. On February 4, 1998, the Company filed a
complaint against Associated Reciprocal Traders, Ltd. ("ART") and its parent
corporation ITEX, in the Superior Court of King County in the state of
Washington. In the complaint, the Company alleged that ITEX/ART breached the
terms of an agreement dated December 29, 1995 between the Company and ITEX/ART
(the "Advertising Agreement") by not providing the Company $500,000 worth of
media credits for radio advertising. On the same day, ITEX /ART filed a lawsuit
against the Company alleging that the Company had failed to deliver an aggregate
of 1,800,000 shares of the Company to ART as required under the Advertising
Agreement and seeking to lift the stop transfer order placed on the shares by
the Company. In July 1998, the Court issued a preliminary ruling stating that
the Company is not required to deliver stock certificates to ITEX/ART and may
refuse to allow the stock to be sold until the issue of whether or not ITEX/ART
has breached the contract is decided. A trial date has been set for June 21,
1999.
Investigation by the U.S. Securities and Exchange Commission. The Company
is currently the subject of an investigation by the Securities and Exchange
Commission ("SEC"), In the Matter of Wade Cook Seminars, Inc., pursuant to which
the SEC is investigating possible violations of Sections 5(a), 5(c) and 17(a) of
the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder,
and Sections 203(a) and 206(1) and (2) of the Investment Advisers Act. The SEC
has informed the Company that the investigation should not be construed as an
indication by the SEC or its staff that any violations of law have occurred, nor
should it be construed as an adverse reflection on the merits of the securities
involved or on any person or entity. The Company presently intends to cooperate
fully with the investigation.* Although no civil or criminal charges have been
brought and the Company does not believe that it or its officers or directors
have violated applicable laws, no assurance can be given that enforcement
proceedings will not be brought against the Company, or its officers or
directors, or as to the outcome of any proceedings that are brought.*
Investigation by the state of Washington. Since September 1996, the
Washington State Securities Division has been investigating Mr. Cook, WCSI, and
the Company. The Company has been informed that the investigation is being
performed pursuant to RCW 21.20.370 and 21.20.700. Although no civil or criminal
charges have been brought and the Company does not believe that it or its
officers or directors have violated applicable laws, no assurance can be given
that enforcement proceedings will not be brought against the Company, or its
officers or directors, or as to the outcome of any proceedings that are
brought.*
Wade B. Cook v. Anthony Robbins and Robbins Research International, Inc. On
June 18, 1997, Mr. Cook filed a copyright infringement suit in the United State
District Court, Western District of Washington, against Anthony Robbins and
Robbins' Research International, Inc. seeking damages and injunctive relief. On
October 1, 1998, the United State District Court, Western District of
Washington, rendered a unanimous jury verdict in favor Mr. Cook and ordered the
defendants to pay damages in the amount of $655,900.00.
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Wade Cook Seminars, Inc. v. Anthony Robbins, Options Management, Inc.,
Charles Mellon, and Robbins Research International, Inc. On October 4, 1996,
WCSI and Mr. Cook filed a complaint in the Superior Court of King County in the
state of Washington against Charles Mellon, Anthony Robbins, Options Management,
Inc., and Robbins Research International, Inc. seeking damages and injunctive
relief for unfair competition, misappropriation of trade secrets, breach of a
non-compete agreement and inducement to breach the non-compete agreement. On
November 26, 1997, the unfair competition and misappropriation of trade secrets
claims were dismissed. The Company and Mr. Cook are appealing the dismissal with
the Washington State Court of Appeals. WCSI and Mr. Cook were granted a
voluntary dismissal without prejudice on the claims relating to the non-compete
agreement.
County of Fresno. On March 5, 1998, the Company was informed by the County
of Fresno, California, Office of the District Attorney Business Affairs Unit
("BAU") that BAU has concluded that the seminar sales contracts used by the
Company in California did not comply with sections 1678.20 through 1693 of the
California Civil Code which provides for a notice of three day right of
cancellation on seminar sales solicitation contracts. In addition, BAU contends
that the Company may have engaged in unlawful, unfair and fraudulent business
acts or practices. According to the BAU, the potential penalties for such
violations could include injunctive relief, restitution and civil penalties of
up to $2,500 for each violation. The Company currently provides its customers
seven days to cancel all sales contracts. The Company has retained local counsel
and is cooperating with the BAU to resolve the matter. Although no civil or
criminal charges have been brought, no assurance can be given that enforcement
proceedings will not be brought against the Company or its officers or directors
or as to the outcome of any proceedings that are brought. The Company has not
yet made an estimate of its potential exposure or determined the impact on its
financial statements and has not made provisions for losses, if any.
State of Texas v. Wade B. Cook and Wade Cook Seminars, Inc. On May 1, 1998,
the Attorney General of Texas filed a lawsuit in the District Court of Bexar
County, Texas. The state of Texas contends that the Company has engaged in
false, deceptive and misleading acts and practices in the course of trade and
commerce as defined in the Texas Deceptive Trade Practices-Consumer Protection
Act. Specifically, the state of Texas contends that the Company's sales
contracts fail to have the statutorily required notice of the three day right to
cancel. The petition seeks a temporary injunction, restitution and penalties
against the Company. The Company currently provides its customers seven days to
cancel all sales contracts. The Company believes that it has not intentionally
engaged in false, deceptive and misleading acts and has retained local counsel
to contest this lawsuit.* The Company has not yet made an estimate of its
potential exposure or determined the impact on its financial statements and has
not made provisions for losses, if any.
Texas Unauthorized Practice of Law Committee. In March 1998, the District 4
Subcommittee of the Unauthorized Practice of Law Committee in the state of Texas
sent a request to WCSI (f/k/a United Support Association) and two former
employees of the Company asking that the parties sign an agreement to
voluntarily cease and desist in activities which may constitute the unauthorized
practice of law in Texas. The Committee alleged that WCSI offered to set up
Nevada corporations, Living Trusts, Keogh Plans and Corporate Pension Plans,
Family Limited Partnerships, Massachusetts Business Trusts, and Charitable
Remainder Trusts. The Committee further alleged that WCSI advised clients about
legal structuring, legal advantages and legal strategies associated with such
entities, and provided specific proposals for structuring an individual's assets
and businesses. The Company declined to enter into a voluntary cease and desist
on behalf of the former employees named in the request because they no longer
work for the Company. The Company has subsequently divested that portion of its
business associated with the activities specified in the request and, in any
event, does not believe that such activities constitute the unauthorized
practice of law in the state of Texas.*
Wade Cook Financial Corporation v. Zygon International, Inc. and Dane
Spotts / Dane Spotts v. Wade Cook, et al. On March 17, 1998 Horizon Environtech,
LP, a Nevada Limited Partnership, and Wade Cook, d/b/a/ Swiss-American
Publishing, Ltd., filed a lawsuit against Zygon International, Inc., a
Washington corporation ("Zygon"), in the Superior Court of King County in the
state of Washington alleging that Zygon breached contractual obligations to pay
royalties, engaged in unfair competition, mismarked copyrights and engaged in
misrepresentation and/or deceptive acts. On September 30, 1998, Dane Spotts,
former president of Zygon, filed suit against Mr. Cook and the Company, among
others, in
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United States District Court for the Western District of Washington alleging
copyright infringement, trademark violation, breach of contract and unjust
enrichment. Both complaints relate to the ownership of intellectual property
rights in materials used for the promotion of WCSI products. On or about October
20, 1998 both parties agreed to settle the above claims which settlement did not
result in any material gain or loss to the Company.
Wade Cook Financial Corporation, et al. v. Publishers Distribution Center,
Inc., et al. On September 17, 1998, the Company filed a lawsuit against
Publishers Distribution Center, Inc. ("PDC"), a Utah Corporation, and William
Beutler, Cora Beutler, and Scott Beutler, as individuals, in the United States
District Court, District of Utah, Central Division. Shortly after filing a
complaint in the United States District Court, the Company dismissed that action
and refiled its complaint in Third Judicial District Court, Salt Lake County in
the state of Utah. The complaint alleges fraud and negligent misrepresentation
relating to the Company's attempted purchase of PDC and requests restitution in
the amount of $420,000 in addition to other relief. PDC has filed counterclaims
against the Company alleging fraud, breach of fiduciary duty and conversion. No
trial date has been set.
Attorney General for the State of Illinois. In July of 1998, the Illinois
Attorney General's Consumer Fraud Division initiated a formal investigation to
determine whether the Company has engaged in unlawful practices in the state of
Illinois. To date, the Illinois Attorney General has only issued a Civil
Investigative Demand, requesting specific information and Company records, to
which the Company has responded. The Company does not believe that it has
engaged in any unlawful activities in the state of Illinois and is cooperating
fully with the Illinois Attorney General's investigation.*
Item 2. Changes in Securities.
On September 9, 1998, the Company issued 45,000 shares of restricted common
to Tom Cloward in exchange for all the issued and outstanding common stock of
Information Quest, Inc. pursuant to the terms of a Share Exchange Agreement
dated January 1, 1998 with Information Quest. The restricted common stock was
issued in reliance on exemptions from registration provided by Section 4(2) of
the Securities Act and the laws of the state of Nevada.
On September 9, 1998, the Company issued 45,000 shares of restricted common
to Robert Hondel in exchange for all of the issued and outstanding common stock
of Quantum Marketing, Inc. pursuant to the terms of a Share Exchange Agreement
dated January 1, 1998 with Quantum. The restricted common stock was issued in
reliance on exemptions from registration provided by Section 4(2) of the
Securities Act and the laws of the state of Nevada.
On September 9, 1998, the Company issued 54,182 shares of restricted common
stock to Curtis E. Ledbetter for the surrender of Ledbetter's interest in Eagle
Bay Resources and all rights held thereunder and as partial consideration for a
50% interest in Standard American Oil Company. The restricted common stock was
issued pursuant to the terms of a Stock Purchase Agreement dated February 24,
1998 and in reliance on exemptions from registration provided by Section 4(2) of
the Securities Act of 1933 and the laws of the state of Nevada.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the quarter
covered by this report.
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Item 5. Other Information.
Standard American Oil Company Stock Purchase. On August 3, 1998, the
Company entered into a stock purchase agreement with Standard American Oil
Company, a Nevada corporation formerly incorporated under the name Solid Rock
Investment, Inc. ("Standard"), and RMS Trust, a Nevada Trust. Under the terms of
the agreement, the Company agreed to purchase a 50% interest (10,000,000 shares)
in Standard in exchange for $750,000. To date, the Company has received
10,000,000 shares in Solid Rock Investment, Inc. which are convertible into an
equal number of shares of Standard. In addition, under the terms of the
agreement the Company may contribute up to $750,000 and receive additional
shares of Standard common stock at the price of $0.10 per share. The Company
does not presently intend to purchase additional stock.
Sale of Entity Planners, Inc. ("EPI"). On June 30, 1998, the Company, EPI
and Berry, Childers & Associates, L.L.C. ("BCA") entered into a Stock Purchase
Agreement pursuant to which BCA agreed to pay to the Company an aggregate amount
of $20,000,000, consisting of $250,000 for all the outstanding shares in EPI
held by the Company, $17,470,000 for certain exclusive licenses and licensed
products of the Company and $2,280,000 for certain exclusive licenses and
licensed products of Wade Cook, the individual. Pursuant to the terms of the
Stock Purchase Agreement, the entire amount was payable over a period of 260
weeks in amounts determined based on percentages of the net and gross sales of
EPI.
The Stock Purchase Agreement was subsequently amended on September 30, 1998
to provide that BCA will pay the Company, on a weekly basis, an amount equal to
70%-75% of Net Sales (as defined in the agreement) of EPI or an amount equal to
30% of the Gross Sales (as defined in the agreement) of EPI whichever is
greater, for a period of 260 weeks. If the parties agree to renew the WCFC
license, such payments will be 65% and 30%, respectively. Notwithstanding the
foregoing, in no event will EPI's weekly payment to the Company be less than
$40,385.00 per week. Pursuant to a prior understanding between the Company and
Mr. Cook, 12% of any amounts payable under the payment schedule set forth above
is payable to Mr. Cook and 88% is payable to the Company
Interjet Net Corporation ("Interjet") stock purchase. On August 27, 1997,
the Company entered into a subscription agreement for the purchase of 256,410
shares of restricted common stock from Picometrix Inc., a Delaware corporation
for an aggregate of $500,000. Subsequently, Picometrix, Inc. changed its name to
Interjet. Additionally, on August 27, 1997 the Company purchased a warrant to
purchase 512,821 shares of Interjet restricted common stock at the price of
$1.95 a share. On August 1998, the Company exercised this warrant in full.
Year 2000. Many computer systems experience problems handling dates in and
beyond the year 1999. Therefore, some computer hardware and software will need
to be modified prior to the year 2000 in order to remain functional. The Company
is currently assessing both the readiness of its internal computer systems,
software and embedded chips for handling the year 2000. The Company intends to
complete this testing process of all significant applications and systems by
June 1999.* The Company expects to implement successfully any systems and
programming changes necessary to address year 2000 issues, and does not believe
that the cost of such actions will have a material effect on the Company's
results of operations or financial condition.* The Company does not have any
contingency plans with respect to year 2000 issues.
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There can be no assurance, however, that there will not be a delay in, or
increased costs associated with, the implementation of such changes, and the
Company's inability to implement such changes could have an adverse effect on
future results of operations or financial condition.
The Company is also assessing and addressing the possible effects on the
Company's operations of the year 2000 readiness of key suppliers and other
vendors. The Company's reliance on suppliers and vendors, and therefore, on the
proper functioning of their information systems and software, means that their
failure to address year 2000 issues could have a material impact on the
Company's operations and financial results. However, the potential impact and
related costs are not known at this time. The Company can give no guarantee that
the systems of other companies upon which the Company relies will be converted
on time or that failure to convert by another company would not have a material
adverse affect on the Company.
The Company has entered into an agreement with HP to develop an
inter-office communications network that will connect the Company's departments
and operating systems for a total cost of $1.4 million. The new system will
replace an older network system. The development and installation of this
network is unrelated to the Company's year 2000 assessment and testing efforts.
HP has represented to the Company that the new system is year 2000 compliant.
Stock Repurchase Program initiated on February 25, 1998. On February 25,
1998, at a special meeting of the Board of Directors, the Board initiated a
program to buy back up to one million shares of outstanding Company stock over a
six-month period. The total number of shares purchased under the stock buy-back
was 251,000 shares, and the price for the repurchased shares totaled five
hundred and forty thousand one hundred twenty eight dollars and ten cents
($540,128.10). All shares reacquired by the Company under the repurchase program
are retired as treasury stock. Currently, the Stock Repurchase Program has
expired and there are no plans to initiate another such repurchase program in
the future.*
Resignation of John V. Childers. On October 9, 1998, John V. Childers
resigned from the Board of Directors for Wade Cook Financial Corporation. To
date, a replacement has not been selected or approved.
Resignation of Cheryle Hamilton. On November 1, 1998, Cheryle Hamilton
resigned for the Board of Directors for Wade Cook Financial Corporation. To
date, a replacement has not been selected or approved.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Stock Purchase Agreement dated June 30, 1998, by and among the
Company, Entity Planners, Inc., and Berry, Childers & Associates,
L.L.C.
2.2 Amendment to Stock Purchase Agreement dated September 30, 1998 by and
among the Company, Entity Planners Inc. and Berry, Childers &
Associates, L.L.C.
10.1 Stock Incentive Plan
10.2 Exclusive Product License Agreement dated June 30, 1998 by and between
Wade B. Cook and Entity Planners, Inc.
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10.3 Exclusive Product License Agreement dated June 30, 1998 by and between
Wade Cook Financial Corporation and Entity Planners, Inc.
10.4 Open Ended Product Agreement between the Company and Wade Cook dated
3/20/98
10.5 Amendment to Open Ended Product Agreement dated November 13, 1998 by
and between the Company and Wade Cook
27.1 Financial Data Schedule
99.1 Resignation of John V. Childers
99.2 Resignation of Cheryle Hamilton
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Q, period ending September 30, 1998 to
be signed on its behalf by the undersigned duly authorized.
Wade Cook Financial Corporation
November 13, 1998 /s/ Wade B. Cook
- --------------------- --------------------------------------
(Date) Wade B. Cook, Chief Executive Officer
November 13, 1998 /s/ Cynthia Britton
- --------------------- --------------------------------------
(Date) Cynthia Britton, Chief Accounting Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
Exhibit 2.1 Stock Purchase Agreement dated June 30, 1998, by and among the
Company, Entity Planners, Inc., and Berry, Childers & Associates,
L.L.C.
Exhibit 2.2 Amendment to Stock Purchase Agreement dated September 30, 1998
by and among the Company, Entity Planners Inc. and Berry,
Childers & Associates, L.L.C.
Exhibit 10.1 Stock Incentive Plan
Exhibit 10.2 Exclusive Product License Agreement dated June 30, 1998 by and
between Wade B. Cook and Entity Planners, Inc.
Exhibit 10.3 Exclusive Product License Agreement dated June 30, 1998 by and
between Wade Cook Financial Corporation and Entity Planners, Inc.
Exhibit 10.4 Open Ended Product Agreement between the Company and Wade Cook
dated 3/20/98
Exhibit 10.5 Amendment to Open Ended Product Agreement dated November 13,
1998 by and between the Company and Wade Cook
Exhibit 27.1 Financial Data Schedule
Exhibit 99.1 Resignation of John V. Childers
Exhibit 99.2 Resignation of Cheryle Hamilton
Exhibit 2.1
STOCK PURCHASE AGREEMENT
DATED JUNE 30,1998
AMONG
ENTITY PLANNERS, INC.
BARRY, CHILDERS & ASSOCIATES, L.L.C.
and
WADE COOK FINANCIAL CORPORATION
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made and entered into as
of the 30th day of June, 1998, by and among Wade Cook Financial Corporation, a
Nevada corporation and its subsidiaries, located at 14675 Interurban Avenue
South, Seattle, Washington 98168-4664 ("WCFC"), Entity Planners, Inc. a Nevada
corporation located at 14675 Interurban Avenue South, Seattle, Washington 98168
("EPI") (collectively, "Sellers"), and Berry, Childers & Associates, L.L.C., an
Arkansas limited liability company whose address is P.O. Box 26114, Littlerock,
Arkansas 72221 ("Buyers" or "B & C").
RECITALS
A. Wade B. Cook individually ("Cook") owns all right, title and interest in
certain teaching and seminar curriculum related to the topics of asset
protection, estate planning, and tax reduction as listed in the attached Exhibit
A (the "Licensed Products");
B. Cook has executed an agreement in the form of the attached Exhibit B in
which he has granted an exclusive license to the Products to WCFC. WCFC has
executed an agreement in the form of the attached Exhibit C in which it has
granted an exclusive license to the Products to EPI;
C. EPI is a wholly-owned subsidiary of WCFC, and, pursuant to the Exclusive
License Agreement executed by Cook, will, upon execution of the abovementioned
exclusive license agreements, hold an exclusive license to use, market, sell and
distribute the Licensed Products;
D. Wade Cook Seminars, Inc. ("WCS") is a wholly-owned subsidiary of WCFC,
and was previously responsible for the provision of all entity structuring
services relating to the topic of asset protection, estate planning and tax
reduction prior to that certain Open Ended Product Agreement dated March 20,
1998 by and between WCFC and Cook.
E. Tim Berry ("Berry") and John v. Childers III ("Childers") are principals
in B&C limited liability company. This limited liability company was formed for
the purpose of providing legal services to clients. Berry and Childers have also
been involved in the production, selling and marketing of Products seminars for
WCS and WCFC for approximately two years;
F. Sellers are the owners of all authorized capital stock shares of EPI,
none of which shares are issued and outstanding; and
G. Buyers desire to purchase the Shares, and obtain an exclusive five year
license to use, sell, market and distribute the Licensed Products, with a
renewal option, and to further obtain a nonexclusive license to use, sell,
market and distribute the WADE COOK trademarks and the name, image, voice and
likeness of Cook in audio and visual form (the "Intellectual Property"). Sellers
desire to sell the Shares to Buyers, and license the Licensed Products and the
Intellectual Property upon the terms and conditions set forth in this Agreement
and in certain Exclusive License Agreements between the parties as set forth in
Exhibits B and C;
NOW THEREFORE, in consideration of the mutual covenants, representations,
and warranties hereafter set forth, the parties agree as follows:
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SECTION 1.
1.1. Definitions. For the purpose of this Agreement, the following terms
shall have the following respective meanings:
(a) "Code" shall mean the Internal Revenue Code of 1986, as amended;
(b) "Current Indebtedness" shall mean, as of any date with respect to
any Person, all liabilities for borrowed money and all liabilities secured by
any Lien existing on property owned by such Person whether or not such
liabilities have been assumed and all liabilities, contingent or otherwise, as
guarantor or otherwise, with respect to borrowed money or otherwise, which, in
any case, are payable on demand or within one year from the date of
determination, except any such liabilities which are renewable or extendible at
the option of the debtor to a date more than one year from the date of
determination;
(c) "Funded Indebtedness" shall mean, as of any date, with respect to
any Person, without duplication:
(i) its liabilities for borrowed money, other than Current
Indebtedness;
(ii) liabilities secured by any Lien existing on property owned
by such Person (whether or not such liabilities have been assumed), other than
Current Indebtedness;
(iii) obligations other than Current Indebtedness of such Person,
contingently or otherwise, as obligor, guarantor or otherwise, under any lease
of real or personal property or comparable arrangement with respect to use or
title which are required by generally accepted accounting principles to be
capitalized;
(iv) obligations other than Current Indebtedness of such Person,
contingently or otherwise, as guarantor or otherwise, under any arrangement with
respect to liabilities for borrowed money which, if the Company were the
obligor, would represent Funded Indebtedness or which are required by generally
accepted accounting principles to be capitalized; and
(v) any other obligations (other than deferred taxes) which are
required by generally accepted accounting principles to be shown as liabilities
on its balance sheet and which are payable or remain unpaid more than one year
from the date of determination thereof.
(d) "Gross Sales" shall mean all revenues, sales, receipts and monies
directly or indirectly received from third parties in payment for Products.
(e) "Indebtedness" shall mean the sum of Current Indebtedness and
Funded Indebtedness;
(f) "Lien" shall mean any interest in property securing an obligation
owed to, or a claim by, a Person other than the owner of the property, whether
such interest is based on the common law, statute or contract, and including but
not limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting property, except
any such usual
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or normal reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases or other title exceptions or
encumbrances affecting property that are not disruptive to the use of such
property in the ordinary course of business. For the purpose of this Agreement,
the Company or a Subsidiary shall be deemed to be the owner of any property
which it has acquired or holds subject to a conditional sale agreement,
financing lease or other arrangement pursuant to which title to the property
has. been retained by or vested in some other Person for security purposes;
(g) "Net Sales" shall mean that sum determined for each month by
determining the gross amount invoiced by EPI or B & C for Licensed Product sold
during such period, less:
(i) transportation charges, or allowances, included in amounts
invoiced;
(ii) trade, quantity, or cash discounts actually
allowed or paid to third parties;
(iii) credits or allowances for returns; and
(iv) invoiced sales, purchase, and excise taxes and any duties
paid upon importation of Product that are not paid by purchasers of Product;
(v) cost of goods sold, including materials and marketing costs;
and
(vi) wages to employees of Buyers, excluding any wages, draws or
other similar means of compensation to the principals of B & C, whether paid
directly or through another corporation, partnership or entity.
(h) "Person" shall mean and include an individual, a corporation, an
association, a partnership, a trust or estate, a government or any department or
agency thereof.
(i) "Shares" shall mean, collectively, twenty-four million shares of
common stock. par value $0.001 (the "Common Stock"), and one million shares of
preferred stock, par value $0.001 (the "Preferred Stock").
Closing Date Transactions
1.2. Purchase and Sale of Common Stock. Subject to the terms and conditions
set forth herein, at the Closing (as defined below) Sellers will sell, and
Buyers will purchase, all of the Shares owned by Sellers, constituting one
hundred percent (100%) of all the authorized capital shares of stock of EPI as
of the Closing.
1.3. Closing. The closing of the purchase and sale of the Shares (the
"Closing") shall take place at the offices of WCFC at the address set forth in
the preamble to this Agreement on June 30, 1998, or at such other place, date
and time as the parties may agree in writing, and shall be effective as of the
close of business on the day of the Closing.
1.4. Closing Date Deliveries. Simultaneously with the execution and
delivery hereof, at the Closing the Sellers will deliver to Buyers and/or its
assigns (i) one or more stock certificates representing the Shares, dated the
Closing date and registered in the name of Sellers and Buyers and/or its
assigns; (ii) an opinion, dated the Closing date, from counsel for
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Buyers, in form and substance satisfactory to Sellers and its counsel, as set
forth in the attached Exhibit D. (iii) certified copies of the Certificate of
Formation of Buyers and of resolutions adopted by the Board of Directors and the
shareholders of Buyers, if any, in form and substance reasonably satisfactory to
counsel for Sellers, in connection with the transactions contemplated by this
Agreement; (iv) a copy of the LLC Agreement of Buyers and any amendments thereto
(the "LLC Agreement"), certified as of a recent date by the Secretary of State
of the State of Arkansas, and a certificate of such Secretary of State as of a
recent date as to the due incorporation and good standing of Buyers.
SECTION 2.
Purchase Price
2.1 Payment of Purchase Price. Subject to the terms and conditions set
forth in this Agreement, Buyers shall purchase the Shares from Sellers, and
Sellers shall sell the Shares to Buyers, free and clear of all encumbrances, for
the aggregate purchase price set forth in Section 2.2 below.
2.2 Purchase Price; Closing Adjustments. The aggregate purchase price for
the Shares, the license of Licensed Products and the license of Intellectual
Property is Twenty Million and No/100 Dollars (US$20,000,000) (the "Purchase
Price"), as set forth below:
(a) Two Hundred and Fifty Thousand Dollars ($250,000) for the Shares;
(b) Seventeen Million, Four Hundred and Seventy Thousand Dollars
($17,470,000) for the WCFC and WCS exclusive licenses to the Licensed Products,
the terms and conditions of which are contained in that certain Exclusive
License Agreement between WCFC and EPI as set forth in the attached Exhibit C;
and
(c) Two Million Two Hundred and Eighty Thousand Dollars ($2,280,000)
for the exclusive license to the Licensed Products, the terms and conditions of
which are contained in that certain Exclusive License Agreement between Cook and
EPI, as set forth in the attached Exhibit B.
2.3 Payment Schedule. Buyers shall pay to WCFC, on a weekly basis beginning
on the second Monday after the execution of this Agreement, an amount equal to
seventy five percent (75%) of Net Sales or an amount equal to thirty percent
(30%) of Gross Sales whichever is greater, for a period of 104 weeks, at which
time the payment schedule shall change to the greater of seventy percent (70%)
of Net Sales or thirty percent (30%) of Gross Sales. Payments utilizing the
latter payment schedule shall be in effect for a period of 156 weeks, unless and
until the parties agree to the renewal option described in Section 9(a) of that
certain Exclusive License Agreement between WCFC and EPI set forth in the
attached Exhibit C. Once the parties exercise the renewal option, the payment
schedule will then become the greater of sixty five percent (65%) of Net Sales
or thirty percent (30%) of Gross Sales until the remaining portion of the
Purchase Price is paid to Sellers in full. Any payments received from Buyers
shall be applied first to the purchase of Shares until the amount owed Sellers
pursuant to Section 2.2(a) is paid in full, then to any amount owed Sellers and
Cook for the Licensed Products licenses pursuant to Sections 2.2 (b) and (c).
Such payments shall be divided among WCFC and Cook as follows: (1) eighty eight
percent (88%) of any payment shall be paid to WCFC, and 12 percent (12%) shall
be paid to Cook. Buyers shall have the right to prepay all or
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any portion of the Purchase Price at any time without incurring prepayment
penalties.
2.4 Payment Schedule for Additional Products. From time to time, Buyers may
decide to sell and distribute their own products at WCFC seminars, or additional
products of WCFC not included among those listed in Exhibit A. The payment
schedule to Sellers for the sale and/or distribution of such additional products
shall be as follows:
(a) Buyer Products. For existing products published by WCFC, but owned
by Buyers (i.e. "The Secret Millionaire"), Buyers shall pay WCFC an additional
amount consisting of an aggregate of: (i) WCFC's costs in publishing such
products; (ii) an additional twenty five percent (25%); and (iii) shipping
costs. The parties may agree by separate written amendment to reduce this amount
to 50% of WCFC's costs in publishing such products if Buyers can demonstrate to
WCFC's satisfaction that said products are being sold for a nominal amount or
provided free of charge to customers pursuant to promotional activities of
Buyers which result in royalties to Sellers.
(b) Future Products. For products owned or licensed by Buyers in
future, Buyers agree to enter into a exclusive publishing agreements and/or
exclusive product agreements with WCFC for the publication of such products.
Buyers shall then pay Sellers the applicable amount as set forth under the
payment schedule as set forth in Section 2.3 of this Agreement. WCFC and/or its
subsidiaries hereby waive for purposes of this agreement and the related license
agreements attached hereto, the pre-existing Noncompetition Agreement with the
principals of Buyers.
(c) WCFC Products not Included in Exhibit A. For products owned or
licensed by WCFC or its subsidiaries and affiliates which are sold/distributed
by Buyers, Buyers shall pay Sellers an amount equal to seventy percent (70%) of
Gross Sales. Such amount will not apply to or be distributed pursuant to Section
2.3 above. In consideration for the payment of such amount, Sellers agree that
the end purchasers of the Product shall have access to all goods and services as
if they had purchased the Product directly from WCFC. The parties may agree in
the future to negotiate the terms of a separate Product Distribution Agreement
which shall amend the terms and conditions of this section and shall then be
incorporated by reference into this Agreement.
(d) Attendance by WCFC Employees to Buyers' Seminars: Purchase of
Additional Products by WCFC. Current employees and/or independent contractors of
WCFC shall have the right to purchase Licensed Products and/or Additional
Products for an amount equal to the cost of such products plus ten percent
(10%). Additionally, said employees and/or independent contractors shall have
the right to attend seminars licensed from WCFC or originated by Buyers at no
cost subject to reasonable availability.
All payments required to be made to Sellers under Section 2.4 shall be
made in accordance with the payment schedule set forth in Section 2.3.
2.5 Financing for Purchase of EPI. WCFC shall provide Buyers financing
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for the Purchase Price at the rate of twelve and one half percent (12 1/2 %)
simple interest annually, or at the maximum rate allowed by law, whichever is
less. In the event Buyers default on the payment plan set forth in Section 2.3,
and such default is not cured within seven (7) days of notice by Sellers
thereof, Buyers agree that the interest rate payable to WCFC and Cook shall then
include a penalty in the sum of an additional five and one-half percent simple
interest (5 1/2%) annually, or the maximum allowed by law, whichever is lesser,
until the Purchase Price is paid in full.
2.6 Royalty Reports and Records. Buyers will maintain reports of the
distribution of Licensed Products, Additional Products and other Products sold
pursuant to this Agreement or any attachments hereto ("other Products"). Said
report shall specify quantities (by order number and description) of Licensed
Products, Additional Products and products shipped or otherwise distributed
during each month, as well as a forecast of the Licensed Products, Additional
Products or other Products to be shipped during the 90-day period following each
such report, and shall submit such reports to WCFC no later than 15 days
following the end of such month. Upon WCFC's request, Buyers will also furnish
summaries or explanations of Product distribution reports. Buyers shall keep
accurate records, books of account and logs concerning the distribution of the
Licensed Products, Additional Products and other Products adequate to determine
the amount of royalties owed WCFC, which shall be preserved by Buyers in a safe
place for a period of seven (7) years following termination of this Agreement.
During the term of this Agreement, and during the seven-year period immediately
following termination, WCFC or its certified public accountants shall have the
right, at its expense, to audit Buyers' records concerning the sale and
distribution of the Products and Additional Products. If an audit reveals that
Buyers have underpaid the royalties due WCFC, Buyers shall promptly pay to WCFC
the amount of the underpayment. If such underpayment exceeds at least two
percent (2%) of the total amount actually owed, Buyers shall promptly reimburse
WCFC for its costs and expenses in performing such audit.
SECTION 3.
Representations and Warranties of
Sellers
As an inducement for Buyers to enter into this Agreement and to consummate
the transactions contemplated hereby, Sellers represent to Buyers that:
3.1. Organization and Standing; Corporate Power. EPI is a corporation duly
organized, validly existing under and by virtue of the laws of the State of
Nevada and is in good standing under such laws and has all requisite corporate
power and authority to conduct its business as now conducted and as proposed to
be conducted. EPI is qualified, licensed or domesticated as a foreign
corporation in each of the jurisdictions where the failure to be so qualified,
licensed or domesticated would have a material adverse effect upon its
businesses, properties, prospects, or condition, financial or otherwise, and no
other jurisdiction has demanded, requested or otherwise so indicated that EPI is
required to so qualify. The attached Schedule 3.1 lists the Directors and
Officers of EPI.
3.2. Capitalization.
(a) Capital Stock. The authorized capital stock EPI currently consists
of (i) twenty-four million shares of Common Stock, of which none are issued and
outstanding; and (ii) one million shares of Preferred Stock, of which none are
issued and outstanding. All shares of Common Stock and Preferred Stock are duly
authorized, are fully paid and
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nonassessable, and will be validly issued in accordance with federal and
applicable state securities laws.
(b) Options and Rights. There are no options, calls, warrants,
conversion privileges, preemptive rights, rights of first refusal, rights of
redemption, or other commitments, rights or agreements, of any character
whatsoever, outstanding or in existence with respect to the issuance, sale,
purchase or redemption of any shares of capital stock of EPI.
3.3. Subsidiaries and Affiliates. EPI has no subsidiaries and has no
interest, direct or indirect, in any other corporation, joint venture,
partnership, association or other similar entity.
3.4. Corporate Records. The corporate minute books and stock record books
of EPI, as made available to Buyers, are true, correct and complete in all
material respects.
3.5. Authorization of the Company. All corporate action has been taken on
the part of EPI and its officers, directors and shareholders necessary for the
authorization, execution, delivery and performance of this Agreement and all of
the other agreements and instruments contemplated by this Agreement and the
consummation of the transactions contemplated herein and therein, and for the
authorization, issuance and delivery of the Shares, including the adoption of
resolutions by the Board of Directors of the Company. This Agreement and each
other agreement or instrument of EPI contemplated hereby, when executed and
delivered, shall constitute the legal, valid and binding obligation of EPI,
enforceable against EPI in accordance with its respective terms. EPI has full
power and authority to deliver this Agreement and all of the other agreements
and instruments contemplated by this Agreement to be executed and delivered, to
consummate the transactions contemplated hereby and thereby and to comply with
the terms, conditions and provisions hereof and thereof. Neither the execution,
delivery or performance by EPI of this Agreement or any of the other agreements
and instruments contemplated hereby will violate or conflict with, result in a
breach of, or constitute (with due notice or lapse of time or both) a default
under, any provision of law, any order of any court or governmental agency, the
Articles of Incorporation or Bylaws of EPI or any provision of any indenture,
agreement or other instrument to which EPI or any of its properties or assets is
bound, or result in the creation or imposition of any lien, charge, restriction,
claim or encumbrance of any nature whatsoever upon any of the properties or
assets of EPI.
3.6. Absence of Changes. (i) EPI has not entered into any transaction which
was not in the ordinary course of its business; (ii) there has been no material
adverse change in the condition (financial or otherwise), business, properties,
assets or liabilities of EPI; and (iii) to the best knowledge of EPI, after due
inquiry, there has been no event or condition of any character specifically
relating to EPI which pertains to and materially adversely affects its business,
properties, prospects or condition, financial or otherwise.
3.7. No Violation, Litigation or Regulatory Action.
(a) there are no lawsuits, claims, suits, proceedings, or
arbitrations, pending or, to the best knowledge of EPI and the Shareholders
after due inquiry, threatened against or affecting EPI in respect of the assets
or the business of EPI nor, to the best knowledge of EPI and the Shareholders,
is there any basis for any of the same, and there are no lawsuits, suits,
proceedings or arbitrations pending in which EPI is the plaintiff or claimant
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and which relate to the assets or the business of EPI. Notwithstanding the
foregoing, there is a pending investigation by the District 4 Subcommittee of
the Unauthorized Practice of Law Committee of the Supreme Court of Texas, File
No. HOU-95-101 alleging that United Support Association, Inc., the predecessor
to Wade Cook Seminars, Inc., engaged in the unauthorized practice of law in the
State of Texas. Wade Cook Seminars, Inc. is a wholly-owned subsidiary of WCFC.
WCFC is the parent company of EPI. We believe that the consummation of the
transactions contemplated in this Agreement and in the WCFC and Cook Exclusive
Licensing Agreements will resolve this matter;
(b) except for the investigation described in Section 3.7(a), there is
no action, suit or proceeding pending or, to the best knowledge of EPI and the
Shareholders after due inquiry, threatened which questions the legality or
propriety of the transactions contemplated by this Agreement; and
(c) to the best knowledge of EPI and the Shareholders after due
inquiry, no legislative or regulatory proposal has been adopted or is pending
which could adversely affect the assets, business, operations or properties of
EPI in any material respect.
3.8. Tax Matters.
(a) Between the date of this Agreement and the Closing Date, Sellers
shall cause EPI to file on a timely basis all tax returns required to be filed
by or with respect to EPI. Seller (to the extent required by applicable law)
will timely file or cause to be filed all tax returns that will be required to
be filed alter the Closing Date by, or with respect to EPI for all periods
ending on or before the Closing Date in accordance with applicable laws,
regulations and administrative requirements. All such tax returns will be true,
correct and complete when filed by Sellers. Sellers shall not make or cause to
be made any election, or file any amended tax return reflecting any position,
that could result in any adverse tax consequences to Buyers related to the
Shares for any period beginning on or after the Closing Date. Seller shall
remain liable for any additional taxes due and owing for sales or activities of
EPI prior to July 1, 1998.
(b) Following the date hereof, Sellers shall (i) give Buyers and their
authorized representatives, full access to the books and records of WCFC
relating only to EPI and entity restructuring activities (and permit Buyers to
make copies thereof), as Buyers may reasonably request, (ii) permit Buyers to
make inspections thereof, and (iii) cause WCFC's officers and advisors
(including, without limitation, its auditors, attorneys, financial advisors and
other consultants, agents and advisors) to furnish Buyers with such financial,
tax and other operating data and other information with respect to the business
and properties of WCFC relating only to EPI and to entity structuring activities
for periods ending before or including the Closing Date as Buyers may reasonably
request. Buyers shall give Sellers, and their authorized representatives, access
to their books and records (and permit Sellers to make copies thereof), subject
to the abovementioned limitation, to the extent relating to periods after or
including the Closing Date as Sellers may reasonably request for purposes of
preparing tax returns.
(c) The parties each agree to provide the other parties with such
assistance as may reasonably be requested by any of them in connection with the
preparation of any tax return, any audit or other examination of EPI by any
Governmental Body, any judicial or administrative proceedings relating to
liability for taxes, or any other claim arising under this Agreement, and each
will retain and provide the others with any records or information that may be
relevant to any such tax return, audit or action, proceeding or claim. Such
assistance shall include making employees available on a mutually convenient
basis to provide additional information and
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explanation of any material provided hereunder and shall include providing
copies of any relevant tax returns and supporting work schedules. The party
requesting assistance hereunder shall reimburse the other parties for reasonable
expenses incurred in providing such assistance. Notwithstanding any other
provision of this Agreement, Sellers hereby agree that they will retain, until
all appropriate statutes of limitation (including any extensions) expire, copies
of all tax returns relating to EPI, supporting work schedules and other records
or information which may be relevant to such tax returns, and that they will not
destroy or otherwise dispose of such materials without first providing Buyers
with a reasonable opportunity to review and copy such materials.
(d) If any party fails to provide any information requested by another
party within a reasonable period, or otherwise fail to do any act required of it
under this Agreement, then such party shall be obligated, notwithstanding any
other provision of this Agreement, to indemnify such other party and shall so
indemnify such other party and hold such other party harmless from and against
any and all costs, claims, or damages, including without limitation, all taxes
or deficiencies thereof, payable as a result of such failure.
(e) All excise, sales, use, transfer (including real property transfer
or gains), stamp, documentary, filing, recordation and other similar taxes
(together with any interest, additions to tax or penalties with respect thereto)
resulting from the sale and transfer by Sellers to Buyers of the Shares shall be
borne by Sellers, and Sellers shall timely and duly make all necessary tax
return filings with respect thereto.
(f) All real property transfer or gains taxes, other transfer,
documentary, sales, use, registration, income and other taxes and fees
(including any penalties and interest) incurred in connection with the
transactions contemplated in this Agreement shall be paid by Sellers, and
Sellers shall, at their own expense, file all necessary tax returns and other
documentation with respect to all such taxes and fees.
3.9. Registration Rights. EPI is not a party to any agreement or commitment
which obligates EPI to register under the Securities Act of 1933, as amended
(the "Securities Act"), any of its presently outstanding securities or any of
its securities which may hereafter be issued.
3.10. Offering. Subject to the accuracy of Buyers' representations in
Section 4 of this Agreement, the offer, issuance and sale of the Common and
Preferred Stock constitute, and will constitute, transactions exempt from the
registration and prospectus delivery requirements of Section 5 of the Securities
Act and EPI has obtained (or is exempt from the requirement to obtain) all
qualifications, permits, and other consents required by all applicable state
laws governing the offer, sale or issuance of securities.
3.11. Insurance. EPI (through its parent company) maintains (i) adequate
insurance on all assets and activities of a type customarily insured, covering
property damage and loss of income by fire or other casualty, and (ii) adequate
insurance protection against all liabilities (including product liability),
claims and risks against which it is customary for companies similarly situated
as EPI to insure. EPI has not failed to give any notice or present any claim
under any such insurance in a due and timely manner.
3.12. Certain Transactions. EPI is not indebted, either directly or
indirectly, to any of the officers, directors or shareholders of EPI, or to
members of their respective immediate families, in any amount whatsoever, other
than for payment of salary for services rendered and reasonable expenses; none
of said officers, directors or shareholders, or any
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members of their immediate families, are indebted to EPI or, to the best
knowledge of the Company, after due inquiry, have any direct or indirect
ownership interest in, or any contractual relationship with, any firm,
corporation or other person with which EPI is or was affiliated or with which
EPI has a business relationship, or any firm, corporation or other person which,
directly or indirectly, competes with EPI. No such officer, director or
shareholder, or any member of their immediate families, is, directly or
indirectly, a party to or otherwise an interested party with respect to any
contract or other transaction with EPI.
3.13. Contracts and Commitments. Except as expressly contemplated by this
Agreement, and except for agreements for the purchase or sale of goods,
materials, supplies or services in the ordinary course of business involving
less than $1 0,000 in each such case, EPI is not presently a party to, or bound
by, any written or oral contract, agreement, lease guarantee, credit or security
instrument or employee plan or arrangement.
3.14. Governmental Consents. No permit, consent, approval or authorization
of, or declaration to or filing with, any governmental authority is required in
connection with the execution, delivery or performance of this Agreement or any
of the other agreements contemplated by this Agreement or the consummation of
any transaction contemplated hereby or thereby, except as have been obtained or
accomplished.
3.15. Employees. Each of the officers of EPI, each key employee and each
other employee now employed by EPI who has access to confidential information of
EPI has executed a proprietary information agreement and such agreements are in
full force and effect. No officer or key employee of EPI has advised EPI (orally
or in writing) that he intends to terminate employment with EPI.
3.16. Employee Compensation. All employees of EPI and its Subsidiaries and
the compensation of each such employee of EPI in effect as of the date hereof,
as set forth in Schedule 3.16, is true and correct as of the date hereof.
3.17. No Undisclosed Liabilities. EPI is not subject to any material
liability (including, to the best of EPI's knowledge, unasserted claims),
whether absolute, contingent, accrued or otherwise, which is not shown or which
is in excess of amounts shown or reserved for in the unaudited balance sheet
included in the portion of WCFC Annual Financial Statements related to entity
structuring activities, other than liabilities of the same nature as those set
forth in such balance sheet and reasonably incurred in the ordinary course of
business after the Balance Sheet Date.
3.18. Brokers. No finder, broker, agent, financial advisor or other
intermediary has acted on behalf of EPI in connection with the offering of the
Shares or the negotiation or consummation of this Agreement or any of the
transactions contemplated hereby.
3.19. Disclosure. Neither this Agreement nor any Exhibit nor Schedules
hereto nor any certificate, document, writing or other instrument referred to
herein or furnished to Buyers by EPI, contains any untrue statement of any
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading, and there is no fact material to
Buyers'decision to purchase the Shares known to EPI which has not been disclosed
to Buyers in writing by the Company. Buyers acknowledge that Berry and Childers
have been involved in the production, marketing and selling of Products,
seminars, and in the distribution of Products
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for WCFC and WCS for approximately two years, and are familiar with the
Products, methods of operation and provision of services of WCFC and WCS.
3.20. Financial Protections. All projected financial information provided
by EPI to Buyers reflects EPI's best judgment as to such future financial
information and is based on assumptions which EPI believes to be reasonable and
which EPI has disclosed Buyers. No facts have come to the attention of EPI which
would require it to revise or amplify such assumptions.
3.21. Outstanding Debt; No Default. EPI has no outstanding Current
Indebtedness or Funded Indebtedness except as set forth in the unaudited Balance
Sheet. There exists no event of default by EPI under the provisions of any
instrument evidencing such Current Indebtedness or Funded Indebtedness and there
exists no event of default by EPI, or any default by EPI the effect of which
would have a material adverse effect on EPI, under the provisions of any other
Indebtedness of EPI or of any agreement relating thereto that is or could be
material to EPI.
3.22. Environmental Matters. All real and personal property of EPI
(including plant, buildings, fixtures or other assets presently or in the past
owned, leased or operated by EPI or by its business) and all operations of EPI
(i) are in compliance with all federal, state and local laws, regulations and
administrative orders or judicial orders and decrees relating to human safety,
solid waste and hazardous waste treatment, storage, disposal, generation and
transportation, air, water and noise pollution, soil or ground or water
contamination or the handling, storage, release into the environment or
transportation of Hazardous Substances (as hereinafter defined) ("Environmental
Laws"), and (ii) to the best knowledge of EPI and the Shareholders, are free
from all toxic or hazardous wastes, pollutants or substances, including, without
limitation, asbestos, PCBs, petroleum products and by-products, substances
defined or listed as "hazardous wastes," "hazardous substances" or "toxic
substances" or similarly identified in or pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. ss. 9601 et seq., hazardous materials identified in or pursuant to the
Hazardous Materials Transportation Act, 42 U.S.C. ss. 1802 et seq., hazardous
wastes identified in or pursuant to the Resource Conservation and Recovery Act,
42 U.S.C. ss. 6901 et seq., any chemical substance or mixture regulation under
the Toxic Substance Control Act of 1976, as amended, 15 U.S.C. ss. 2601 et seq.,
any "toxic pollutant" under the Federal Water Pollution Control Act, 33 U.S.C.
ss. 1521 et seq., as amended, any hazardous air pollutant under the Clean Air
Act, 42 U.S.C. ss. 7401 et seq., and any hazardous or toxic substance or
pollutant regulated under any other applicable Environmental Laws ("Hazardous
Substances"). There is not nor has there ever been on or in such property during
any time in which EPI owned, leased or otherwise occupied such property, any
generation, treatment, recycling, storage or disposal of any Hazardous
Substance, or any PCBs, underground storage tanks or asbestos or
asbestos-containing materials. Neither EPI nor any of its past or present
operations are or have been (a) subject to any order from or agreement with any
governmental authority or other person respecting any Environmental Law or any
action to clean up, remove, treat or in any other way address any Hazardous
Waste, or (b) in communication or agreement with any governmental authority or
other person relating to the generation, treatment, recycling, storage,
disposal, presence, release or threatened release of any Hazardous Substance
3.23 Noncompete. WCFC and WCS warrant and represent that they will not,
directly or indirectly, own, manage, operate, join, control, or participate in
the ownership, management, operation or control of, or be employed by, consult
for, or be connected in any manner with, any business engaged anywhere in the
world in the business of entity structuring,
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asset protection, estate planning and tax reduction, or any other business which
directly competes with Buyers relating to same.
SECTION 4.
Representations and Warranties of Buyers
As an inducement to Sellers to enter into this Agreement and to consummate
the transactions and exclusive licenses contemplated hereby, Buyers represent
and warrant to Sellers that:
4.1. Organization and Corporate Power. B&C is a limited liability company
duly incorporated and validly existing under the laws of the State of Arkansas,
and the company is qualified to do business in every jurisdiction in which its
ownership of property or conduct of business requires it to qualify. B&C has all
requisite financial ability and resources to execute, deliver and perform its
obligations under this Agreement, and each other agreement, document or
instrument required to be delivered hereby or in connection herewith
(collectively, the "Buyers' Documents").
4.2 Investment Intent. The Shares to be purchased by Buyers pursuant to
this Agreement are being acquired by Buyers solely for Buyers' own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of them.
4.3. Sophistication. Buyers are able to bear the economic risk of an
investment in the Shares pursuant to this Agreement and can afford to sustain a
total loss on such investment, and has such knowledge and experience in
financial and business matters that Buyers are capable of evaluating the merits
and risks of the proposed investment and therefore have the capacity to protect
its own interests in connection with the purchase of the Shares.
4.4. Authorization. All action on the part of Buyers necessary for the
authorization, execution, delivery and performance of this Agreement and all of
the other agreements and instruments of Buyers contemplated by this Agreement
and the consummation of the transactions contemplated herein and therein has
been taken, and this Agreement and each other agreement or instrument of Buyers
contemplated hereby, when executed and delivered, shall each constitute the
legal, valid and binding obligation of Buyers, enforceable against Buyers in
accordance with its terms. Buyers have has full power and authority to deliver
this Agreement and all of the other agreements and instruments contemplated by
this Agreement to be executed and delivered hereby, to consummate the
transactions contemplated hereby and thereby and to comply with the terms,
conditions and provisions hereof and thereof. Neither the execution, delivery or
performance by Buyers of this Agreement or any of the other agreements and
instruments contemplated hereby will violate or conflict with, result in a
breach of, or constitute (with due notice or lapse of time or both) a default
under any current agreements to which Buyers are a party, including those to be
delivered by Buyers under Section 1.
4.5. Environmental Matters. All real and personal property of Buyers
(including plant, buildings, fixtures or other assets presently or in the past
owned, leased or operated by Buyers or by its business) and all operations of
Buyers (i) are in compliance with all federal, state and local laws, regulations
and administrative orders or judicial orders and
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decrees relating to human safety, solid waste and hazardous waste treatment,
storage, disposal, generation and transportation, air, water and noise
pollution, soil or ground or water contamination or the handling, storage,
release into the environment or transportation of Hazardous Substances (as
hereinafter defined) ("Environmental Laws"), and (ii) to the best knowledge of
Buyers and the Members, are free from all toxic or hazardous wastes, pollutants
or substances, including, without limitation, asbestos, PCBs, petroleum products
and byproducts, substances defined or listed as "hazardous wastes," "hazardous
substances" or "toxic substances" or similarly identified in or pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. ss. 9601 et seq., hazardous materials identified in or
pursuant to the Hazardous Materials Transportation Act, 42 U.S.C. ss. 1802 et
seq., hazardous wastes identified in or pursuant to the Resource Conservation
and Recovery Act, 42 U.S.C. ss. 6901 et seq., any chemical substance or mixture
regulation under the Toxic Substance Control Act of 1976, as amended, 15 U.S.C.
ss. 2601 et seq., any "toxic pollutant" under the Federal Water Pollution
Control Act, 33 U.S.C. ss. 1521 et seq., as amended, any hazardous air pollutant
under the Clean Air Act, 42 U.S.C. ss. 7401 et seq., and any hazardous or toxic
substance or pollutant regulated under any other applicable Environmental Laws
("Hazardous Substances"). There is not nor has there ever been on or in such
property during any time in which Buyers or any Members owned, leased or
otherwise occupied such property, any generation, treatment, recycling, storage
or disposal of any Hazardous Substance, or any PCBs, underground storage tanks
or asbestos or asbestos-containing materials. Neither Buyers nor any of its past
or present operations are or have been (a) subject to any order from or
agreement with any governmental authority or other person respecting any
Environmental Law or any action to clean up, remove, treat or in any other way
address any Hazardous Waste, or (b) in communication or agreement with any
governmental authority or other person relating to the generation, treatment,
recycling, storage, disposal, presence, release or threatened release of any
Hazardous Substance.
4.6 Litigation. There is no legal, administrative, arbitration or other
proceeding by or before any Governmental Body pending or, to the best knowledge
of Buyers, threatened against Buyers, nor to the best knowledge of Buyers is
there any pending investigation by any Governmental Body, which, in each case,
would give any third party the right to enjoin or rescind the contemplated
transactions or otherwise prevent Buyers from complying with the terms and
provisions of this Agreement.
SECTION 5.
Additional Agreements
Sellers agree to use best efforts to perform or observe the following
agreements:
5.1. Financial Statements; Other Information: and Inspection Rights.
(a) Financial Statements and Other Reports. WCFC will promptly deliver
to Buyers:
(i) Monthly financial statements relating to EPI and entity
structuring activities;
(ii) As soon as available and in any event within 45 days after
the end of each of the first three quarters of each fiscal year of WCFC,
statements of
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consolidated net income and cash flows and a statement of changes in
consolidated stockholders' equity of WCFC and its Subsidiaries relating to EPI
and entity structuring activities for the period from the beginning of the then
current fiscal year to the end of such quarterly period, and a consolidated
balance sheet of WCFC and its Subsidiaries as of the end of such quarterly
period, setting forth in each case in comparative form figures for the
corresponding period or date in the preceding fiscal year, all in reasonable
detail and certified by an authorized financial officer of WCFC relating only to
EPI and entity structuring activities, subject to changes resulting from
year-end adjustments;
(iii) As soon as available and in any event within 90 days after
the end of each fiscal year of WCFC, statements of consolidated net income and
cash flows and a statement of changes in consolidated stockholders' equity of
WCFC and its Subsidiaries for such year relating only to EPI and entity
structuring activities, and a consolidated balance sheet of WCFC and its
Subsidiaries as of the end of such year, setting forth in each case in
comparative form the corresponding figures from the preceding fiscal year, all
in reasonable detail and examined and reported on by a firm of independent
public accountants of recognized standing selected by WCFC;
(iv) If EPI, or any of its Subsidiaries, becomes subject to the
requirements of the Securities Exchange Act of 1934, as amended, or any similar
or successor Federal statute, and the rules and regulations of the Securities
and Exchange Commission or successor governmental organization (the
"Commission"), promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as EPI shall send to its
stockholders and of all registration statements and regular or periodic reports,
including without limitation Annual Reports on Form 10-K and Quarterly Reports
on Form 10-Q and any current Reports on Form 8-K, in definitive form which it
files or which it is or may be required to file with the Commission;
(v) Promptly, copies of any compliance certificates furnished to
lenders in respect of indebtedness of WCFC and its Subsidiaries relating to EPI
and entity structuring activities; and
(vi) With reasonable promptness, such other financial data as
Buyers may reasonably request relating to EPI and entity structuring activities.
(b) Other Information. EPI shall deliver to Buyers, promptly after the
occurrence thereof, written notice and a description of any default or other
event which might have a material impact, including without limitation a
material adverse impact upon EPI, its financial condition. results of
operations, prospects or business.
(c) Annual Operating Plan. Buyers have prepared and delivered to
Sellers a Business Plan for the 1998 fiscal year or any updates or subsequent
revisions thereto (the "Business Plan"), including a cash flow budget (the
"Budget") and other relevant financial information and projections. Buyers
agrees to conduct its business in conformity with the Business Plan except as it
may be revised from time to time by the Board of Directors of Buyers. Prior to
each December 1, Buyers shall prepare an operating plan, including a budget, for
each succeeding 36 month period commencing each subsequent January 1, which
shall meet the approval of a majority of the members of Buyers' Board of
Directors and which shall be in at least as much detail as the Business Plan and
Budget. Buyers agree to conduct its
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business in conformity with said operating plan except as otherwise agreed
hereafter. Buyers shall furnish to Sellers (in person, by facsimile transmission
or by first-class mail) a copy of such operating plan at least 30 days prior to
the commencement of the period covered by such operating plan.
(d) Inspection Rights. Buyers shall permit any representative
designated by Sellers (provided, however, that Sellers shall not designate a
representative to whom Buyers reasonably object because of concerns regarding a
conflict of interest) at Sellers' expense, to visit and inspect any of the
properties of Buyers or any of its subsidiaries, including its and their books
of account (and to make copies thereof and to take extracts therefrom), and to
discuss its and their affairs, finances and accounts with its and their officers
or employees, all during business hours and at such reasonable times and as
often as may be reasonably requested, and with representatives of Buyers'
lenders and independent accountants (and Buyers hereby authorize such lenders
and accountants to discuss such matters with Sellers, and any such
representatives); provided that such rights shall be exercised in a manner so as
not to materially and adversely disrupt the ordinary course of business of
Buyers or any of its subsidiaries.
5.2. Members' Agreement. Except to the extent inconsistent with the terms
of this Agreement, in which event the terms of this Agreement shall control,
Buyers shall enforce each and every one of its obligations under its Limited
Liability Company Agreement and shall not, without the consent of the holders of
at least 67% of the Common Stock issued or issuable, modify or waive any of its
rights or obligations thereunder.
5.3. Rule 144 Compliance. Subject to the specific terms of the Registration
Rights Agreement, at all times after completion of a Qualified Public Offering,
Buyers agree to take such action as may be necessary to enable a holder of
Conversion Shares to complete the public sale of such shares in accordance with
Rule 144 of the Securities and Exchange Commission (the "Commission") under the
Securities Act.
5.4. Corporate Existence, Licenses and Permits: Maintenance of Properties.
So long as any portion of the Purchase Price due Sellers remains unpaid, Buyers
will at all times (i) cause to be done all things necessary to maintain,
preserve and renew its existence as a limited liability company organized under
the laws of a state of the United States of America, (ii) preserve and keep in
force and effect, and cause each of its Subsidiaries to preserve and keep in
force and effect, all licenses and permits necessary and material to the conduct
of its and their respective businesses, (iii) maintain and keep, and cause each
of its Subsidiaries to maintain and keep, its and their respective properties in
good repair, working order and condition (except for normal wear and tear), and
from time to time make all needful and proper repairs, renewals and
replacements, including without limitation all trade names and trademark
registration renewals, and (iv) remain in compliance with respect to all
applicable material regulatory requirements, so that any business material to
Buyers carried on in connection therewith may be properly and advantageously
conducted at all times.
5.5. Taxes. Buyers will duly pay and discharge, and cause each of its
Subsidiaries duly to pay and discharge, all taxes, assessments and governmental
charges upon or against Buyers or its Subsidiaries or their respective
properties, in each case before the same become delinquent and before penalties
accrue thereon, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings and Buyers and its Subsidiaries shall
have set aside on their books adequate reserves with respect thereto.
-16-
<PAGE>
5.6. Books and Accounts. Buyers will, and will cause each consolidated
Subsidiary to, maintain proper books of record and account in which true and
correct entries shall be made of its transactions and set aside on its books
from its earnings for each fiscal year all such proper reserves as in each case
shall be required in accordance with generally accepted accounting principles.
5.7. Restricted Investments. So long as any portion of the Purchase Price
owed Sellers remains unpaid, Buyers will not, and will not permit any Subsidiary
to, make or authorize any Restricted Investment. For the purposes of this
paragraph the term "Restricted Investment" shall mean (1) any investment, made
in cash or otherwise, by Buyers or any Subsidiary (i) in any Person, whether by
acquisition of stock, indebtedness or other obligation or security, by a loan,
advance or capital contribution, or otherwise, or (ii) in any property, (2) any
loan for a purpose other than as described in clause (1) of this paragraph or
(3) any advance, except the following:
(a) investments in and advances to wholly-owned Subsidiaries or
companies which simultaneously become wholly-owned Subsidiaries;
(b) investments in partnerships and joint ventures in the ordinary
course of business;
(c) investments in property and equipment to be used in the business
of Buyers or any wholly-owned Subsidiary;
(d) investments in direct obligations of, or obligations the principal
and interest of which are guaranteed by, the United States of America or any
agency thereof maturing in three years or less from the date of acquisition;
(e) investments in certificates of deposit or bankers acceptances
issued by any commercial bank located in the United States, Canada, Western
Europe or Japan which is owned by a bank holding company the commercial paper of
which is rated A2 or P2, respectively, by Standard & Poor's Corporation, or
Moody's Investors Service, or higher, and which has capital, surplus and
undivided profits aggregating at least $100,000,000;
(f) investments in commercial paper maturing within 270 days or less
from the date of acquisition rated in one of the two highest grades by Standard
& Poor's Corporation or Moody's Investors Service or by another rating agency of
nationally recognized standing;
(g) investments in money market funds;
(h) investments held by Buyers or any Subsidiary on the date hereof;
or
(i) loans and advances made to customers and dealers in the ordinary
course of business not in excess of (a) $250,000 in the aggregate, or (b) 10% of
sales, whichever is greater.
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5.8. Restrictions on Transfer. None of the Shares shall be sold,
transferred, assigned, pledged, hypothecated or otherwise disposed of unless and
until one of the following events shall have occurred:
(a) Such securities are disposed of pursuant to and in conformity with
an effective registration statement filed with the Commission pursuant to the
Securities Act or pursuant to Rule 144 of the Commission thereunder; or
(b) The seller shall have delivered to Buyers a written opinion of
counsel which is reasonably acceptable to Buyers to the effect that the proposed
transfer is exempt from the registration and prospectus delivery requirements of
the Securities Act; or
(c) The seller shall have transferred such securities to an affiliate
of the seller and such affiliate has delivered to Buyers a written agreement
making the representations set forth in Sections 4.2 and 4.3 and agreeing to be
bound by the restrictions of this Section 5.8 with respect to the shares so
transferred.
The parties hereto further agree that any certificate evidencing the
Common Shares or Preferred Shares shall bear the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF
AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER
HEREOF, A COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF THE COMPANY
provided that, if any of the events set forth in Sections 5.8(a) or 5.8(b), but
not 5.8(c), above have occurred, Buyers shall, within 1 0 days of the request of
any holder of a certificate bearing the foregoing legend and the surrender of
such certificate, issue a new stock certificate without the foregoing legend;
provided that nothing herein shall require removal of the foregoing legend if
such removal would violate federal or state securities laws.
5.9. Transactions With WCFC Affiliates. So long as any portion of the
Purchase Price owed Sellers remains unpaid, Buyers will not, and will not permit
any Subsidiary to, engage in any material transaction or enter into any contract
with a WCFC Affiliate (other than a Subsidiary), or any officer or director
thereof, except any transaction or contract that is in the ordinary course of
business of Buyers or such Subsidiary (and except for any transaction or
contract that has been disclosed pursuant to any Schedule to this Agreement) and
that is on fair and reasonable terms no more favorable to such Affiliate than
would have been obtainable in arm's-length dealing with an unaffiliated third
party.
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SECTION 6.
Indemnification
6.1. Assumption of Liability. Buyers agree to. assume all liabilities in
connection with the sale, assignment and transfer of all assets and business of
Sellers to Buyers relating to EPI, including but not limited to the entity
structuring activities of WCFC and its subsidiaries, and Buyers hereby assume
and agree to discharge all liabilities reflected on the Balance Sheet of Sellers
relating to EPI dated as of ______________, as well as such liabilities of EPI
incurred after the Closing Date.
6.2 Indemnification by Sellers. Subject to the limitations of Section 6.4
hereof, Sellers jointly and severally agree to indemnify, defend and hold Buyers
harmless from and against any and all losses, claims, liabilities, obligations,
damages, deficiencies, expenses, actions, suits, proceedings, demands,
assessments, judgments, fines, penalties, arbitration, costs and expenses,
including but not limited to attorneys' fees (collectively, the "Damages"),
whether absolute, accrued, conditional or otherwise, resulting from any
misrepresentation or breach of warranty on the part of Sellers under the terms
of this Agreement.
6.3 Indemnification by Buyers. Buyers agree to indemnify, defend and hold
Sellers harmless from and against any and all Damages whether absolute, accrued,
conditional or otherwise, and whether or not resulting from third party claims,
resulting from any misrepresentation or breach of warranty on the part of Buyers
under the terms of this Agreement, and from and against any and all Damages
asserted by third parties as a result of Buyers' acts or omissions related in
any way to or connected with the Products, the Additional Products or the
provision of entity-structuring activities. In addition, Buyers will pay any
judgment or settlement amount awarded against Sellers, or authorized expenses
incurred by Sellers.
6.4 Survival of Representations and Warranties: Limitations of Liability.
The representations and warranties of Sellers and of Buyers contained in this
Agreement, as well as the provisions of Sections 2, 2.6, 6, 7 and 8.4, shall
survive the Closing; provided, that the sole remedy available to Buyers for a
breach of any such representation or warranty by Sellers shall be by way of
claim for indemnification.
(a) With respect to any claim by Buyers against Sellers for
indemnification for breach of warranty under this Agreement, Sellers shall have
no liability for indemnification with respect to a claim for indemnification for
breach of the representation in Sections 3.1, 3.4, 3.7, 3.9, 3.10, 3.11, 3.14,
3.15, 3.16 and 3.20 or for expiration of the applicable statute of limitations
for the underlying claim, or with respect to any other claim for
indemnification, for a claim asserted twenty-four months after the Closing Date.
Buyers shall give Sellers prompt notice of any such claim for indemnification,
and such notice shall specify the facts and circumstances of the claim in
reasonable detail. Sellers shall not be liable for indemnification for any
breach of their representations or warranties contained in this Agreement.
(b) Procedures with Respect to Third-Party Claims. In the case of any
claim asserted by a third party against Sellers, Buyers shall notify Sellers of
such claim as soon as Buyers have actual knowledge of such claim, and Buyers
shall immediately assume control of the defense of such claim, and shall pay all
costs and expenses relating to same. Sellers agree to fully cooperate with
Buyers in defense of such claim, at Buyer's expense, provided that Sellers shall
have the right to: (i) participate in and approve the selection of defense
counsel; (ii) Sellers may elect to retain
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<PAGE>
separate counsel, at their own expense; and (iii) Buyers shall not compromise or
settle the claim without Sellers' written consent, which consent shall not be
unreasonably withheld. Sellers shall have no liability with respect to any
compromise or settlement thereof effected without its consent.
(c) Limitations of Liability and Exclusions of Damage. NEITHER PARTY
SHALL, UNDER ANY CIRCUMSTANCES, BE LIABLE TO THE OTHER PARTY FOR ANY
CONSEQUENTIAL, INCIDENTAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES, OR DAMAGES
BASED ON LOST PROFITS, BUSINESS OPPORTUNITIES OR GOODWILL, EVEN IF SUCH PARTY
HAS BEEN APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING. EXCEPT AS
EXPRESSLY SET FORTH HEREIN, SELLERS MAKE NO WARRANTIES, EITHER EXPRESS OR
IMPLIED, RESPECTING THE PRODUCTS, AND EXPRESSLY DISCLAIM ANY IMPLIED WARRANTIES,
INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
SECTION 7.
Confidentiality
7.1 Confidentiality. Between the date of this Agreement and the Closing
Date, Buyers shall use reasonable efforts to cause all their other employees,
auditors, attorneys, consultants, advisors and agents, to hold in strict
confidence, unless compelled to disclose by judicial or administrative process
or, in the opinion of its legal counsel, by other requirements of law, all
confidential information of Sellers furnished to Buyers by Sellers or their
respective representatives in connection with the transactions contemplated in
this Agreement and will not release or disclose such information to any other
third parties, except their auditors, attorneys, financial advisors and other
consultants, agents and advisors in connection with the consummation of the
contemplated transactions. Without limitation upon the generality of the
foregoing, Buyers will not, prior to the Closing, disclose or grant access to
any information of EPI furnished to Buyers by Sellers or their respective
representatives in connection with the contemplated transactions which have been
designated by Sellers as confidential or proprietary. If the Closing does not
occur (i) such confidential information shall be protected and maintained
confidential by Buyers, and Buyers shall use reasonable efforts to cause such
other third parties to maintain such confidences, except to the extent such
information comes otherwise into the public domain. Upon the request of Sellers,
Buyers shall promptly return to Sellers any confidential or proprietary
materials remaining in their possession, together with all copies thereof.
Buyers understand that they have a continuing obligation under this Agreement
and that certain Exclusive License Agreement between the parties to maintain all
confidential and proprietary information of Sellers confidential with the same
standard of care as Buyers utilize to maintain their own confidential and
proprietary information confidential, but in no event less than a reasonable
degree of care. For purposes of this Agreement, "confidential and proprietary
information" shall include, but is not limited to, customer mailing lists,
financial reports, sales projections, corporate strategies, and any other
information identified as confidential and/or proprietary by Sellers.
7.2 Confidentiality of Agreement; Publicity. The terms and conditions of
this Agreement shall be treated as confidential by the parties. Except to the
extent required by law, neither Buyers nor Sellers shall or shall permit any of
their respective subsidiaries, affiliates, employees, agents or advisors to,
disclose the terms and conditions of this Agreement to any third parties (other
than in the case of Buyers to their lenders) without the consent of the other
party. Notwithstanding the foregoing, nothing herein shall prohibit any party
from disclosing this Agreement and its terms to its investors, lenders, agents
and professional advisors in connection with the
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<PAGE>
contemplated transactions or the consummation thereof.
SECTION 8.
Miscellaneous
8.1 Entire Agreement. This Agreement, the Exhibits, the schedules and that
certain Exclusive License Agreement between the parties dated ____________
contain all the agreements, understandings, representations, conditions,
warranties and covenants, and constitute the sole and entire agreement between
the parties hereto pertaining to the subject matter hereof and supersede all
prior communications or agreements, written or oral. This Agreement may not be
modified except by written instrument signed by each party. The abovementioned
Exhibits, schedules and Exclusive License Agreement are incorporated herein by
this reference. To the extent of any inconsistency between this Agreement and
any Exhibit or schedule, the terms of the Agreement will take precedence.
8.2 Interpretation and Waiver. If any provision of this Agreement is
declared invalid or unenforceable, the remaining provisions of this Agreement
shall remain in full force and effect. All terms, conditions, or provisions
which may appear as pre-printed language or otherwise be inserted within any
purchase order or confirmation shall be of no force and effect notwithstanding
the execution of such purchase order or other document subsequent to the date of
this Agreement. Waiver by either Sellers or Buyers of one or more terms,
conditions, or defaults of this Agreement shall not constitute a waiver of the
remaining terms and conditions or of any future defaults of this Agreement.
8.3 Assignment. Neither party shall assign its interest in this Agreement
without the express prior written consent of the other party, except to the
surviving entity in a merger or consolidation in which it participates or to a
purchaser of all or substantially all of its assets. Subject to the above
limitation, this Agreement will inure to the benefit of and be binding upon the
parties, their successors, and assigns. Unless otherwise specifically agreed to
by the non-assigning party, no assignment by either party shall relieve the
assignor from its obligations pursuant to this Agreement.
8.4 Attorney's Fees. The prevailing party in disputes concerning this
Agreement shall be entitled to the costs of collections and enforcement,
including but not limited to reasonable attorney's fees, court costs and all
necessary expenses, regardless of whether litigation is commenced.
8.5 Notices. All notices, requests, demands or other communications which
are required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given (i) on the date of delivery
if delivered by hand or by confirmed facsimile; (ii) upon the fifth day after
such notice is deposited in the United States mail, if mailed by registered or
certified mail, postage prepaid, return receipt requested, or (iii) upon the
date of the courier's verification of delivery at the specified address if sent
by a nationally recognized overnight express courier.
8.6 Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and shall be governed by
the internal laws of the State of Nevada and applicable federal law. Buyers
hereby consent to the jurisdiction and venue of the courts of the State of
Nevada, United States of America or of any federal court located in such state.
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<PAGE>
8.7 Severability. Should any Section or any part of a Section within this
Agreement be rendered void, invalid or unenforceable by any court of law for any
reason, such invalidity or unenforceable by any court of law for any reason,
invalid or unenforceable any other Section or part of a Section in this
Agreement.
8.8 Specific Performance. The parties to this Agreement agree that the
securities purchased pursuant to this Agreement are unique, that failure to
comply with any of the obligations imposed by this Agreement shall result in
irreparable damage, and that specific performance of such obligations may be
obtained.
8.9. Descriptive Headings. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
8.10. Counterpart Signatures. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives.
WADE COOK FINANCIAL CORPORATION
/s/ Wade B. Cook
By: Wade B. Cook
Title: President and Chairman
ENTITY PLANNERS, INC.
/s/ Wade B. Cook
By: Wade B. Cook
Title: President
BERRY, CHILDERS & ASSOCIATES, L.L.C.
/s/ Tim G. Berry
By: Tim G. Berry
Title: Member
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<PAGE>
EXHIBIT A
WCFC Licensed Products
Seminars and Workshops:
Business Entity Skills Training
Wealth Institute (formerly Wealth Academy)
Entity Structuring Workshop
Executive Retreat
Ultra B.E.S.T.
Super B.E.S.T.
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EXHIBIT B
Wade B. Cook Exclusive License to ER
-24-
<PAGE>
EXHIBIT C
WCFC Exclusive License to EPI
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<PAGE>
EXHIBIT D
Opinion of Buyers' Counsel
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<PAGE>
SCHEDULE 3.1
Directors and Officers of EPI
Name
Wade B. Cook President
Larry Keim Secretary
Carl Sanders Treasurer
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<PAGE>
SCHEDULE 3.16
EPI Employees and Compensation
NONE
-28-
Exhibit 2.2
AMENDMENT TO STOCK PURCHASE AGREEMENT
ENTITY PLANNERS INC.
This Amendment entered into on September 30, 1998 (the "Amendment") is
by and among Wade Cook Financial Corporation, a Nevada corporation and its
subsidiaries, located at 14675 Interurban Avenue South, Seattle, Washington
98168-4664 ("WCFC"), Entity Planners, Inc. a Nevada corporation located at
Interurban Avenue South, Seattle, Washington 98168 ("EPI") and Berry, Childers &
Associates, L.L.C., an Arkansas limited liability company whose address is P.O.
Box 26114, Littlerock, Arkansas 72221 ("B & C"), and further amends that certain
Stock Purchase Agreement between the parties dated June 30th, 1998 (the
"Agreement").
In consideration of the foregoing and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties agree
to modify the Agreement as follows:
1. Section 2, Paragraph 2.2 (a). This section is hereby amended by adding the
----------------------------
following at the end of paragraph 2.2(a):
"Two Hundred and Fifty Thousand Dollars ($250,000) for the Shares,
payable on or before August 1, 1998."
2. Section 2, Paragraph 2.3. This section is hereby replaced in its entirety
with the following:
A) Payment Amount. Buyers shall pay to WCFC, on a weekly basis beginning
--------------
on the second Monday after the execution of this Agreement, an amount
equal to seventy five percent (75%) of Net Sales or an amount equal to
thirty percent (30%) of Gross Sales whichever is greater, for a period
of 104 weeks, at which time the payment schedule shall change to the
greater of seventy percent (70%) of Net Sales or thirty percent (30%)
of Gross Sales. Payments utilizing the latter payment schedule shall
be in effect for a period of 156 weeks, unless and until the parties
agree to the renewal option described in Section 9(a) of that certain
Exclusive License Agreement between WCFC and EPI set forth in the
attached Exhibit C. Once the parties exercise the renewal option, the
payment schedule will then become the greater of sixty five percent
(65%) of Net Sales or thirty percent (30%) of Gross Sales until the
remaining portion of the Purchase Price is paid to Sellers in full.
B) Payment Schedule. Notwithstanding the foregoing, in no event shall
-----------------
Buyers weekly payment to WCFC under this Section be less than Forty
Thousand Three Hundred and Eighty Five Dollars ($40,385) per week. Any
payments received from Buyers shall be applied first to the purchase
of Shares until the amount owed Sellers pursuant to Section 2.2(a) is
paid in full, then to any amount owed Sellers and Cook for the
Licensed Products licenses pursuant to Sections 2.2(b) and (c).
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<PAGE>
Buyers shall have the right to prepay all or any portion of the
Purchase Price at any time without incurring prepayment penalties."
3. No Other Changes; Defined Terms. Except as otherwise set forth in this
----------------------------------
Amendment and except as required to make the terms of this Agreement
consistent with the amendments made hereby, all of the terms and conditions
of the Agreement shall be unchanged and shall continue in full force and
effect in accordance with the terms thereof. Capitalized terms in this
Amendment shall have the meanings defined in the Agreement unless otherwise
defined herein.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
effective as of the date set forth above.
WADE COOK FINANCIAL CORPORATION
By:_______________________
Name:_____________________
Title:____________________
ENTITY PLANNERS, INC.
By: /s/ Robert Anderson
--------------------
Name: Robert Anderson
Title: President
BERRY, CHILDERS AND ASSOCIATES
By: /s/ Tim Berry
--------------------
Name: Tim Berry
Title: Member
-2-
Exhibit 10.1
WADE COOK FINANCIAL CORPORATION
1997 STOCK INCENTIVE PLAN
1. Establishment and Purpose.
There is hereby adopted the Wade Cook Financial Corporation 1997 Stock
Incentive Plan (the "Plan"). This Plan is intended to promote the interests of
the company (as defined below), and the stockholders of the Company by providing
directors, officers, consultants and other employees of the Company with
appropriate incentives and rewards to encourage them to enter into and continue
in the employ of the Company and to acquire a proprietary interest in the
long-term success of the Company; and to reward the performance of individual
directors, officers, consultants and other employees in fulfilling their
personal responsibilities for long-range achievements.
2. Definitions.
As used in the Plan, the following definitions apply to the terms indicated
below:
(a) "Agreement" shall mean the written agreement between the Company
and a Participant evidencing an Incentive Award.
(b) "Board" shall mean the board of Directors of the Company.
(c) "Cause" shall mean (1) the willful and continued failure by the
Participant substantially to perform his or her duties and
obligations to the Company (other than any such failure resulting
from his or her incapacity due to physical or mental illness);
(2) the willful engaging by the Participant in misconduct which
is materially injurious to the Company; (3) the commission by the
Participant of a felony; or (4) the commission by the Participant
of a crime against the Company which is materially injurious to
the Company. For purposes of this Section 2(c), no act, or
failure to act, on a Participant's part shall be considered
"willful" unless done, or omitted to be done, by the Participant
in bad faith and without reasonable belief that his or her action
or omission was in the best interest of the Company.
Determination of Cause shall be made by the Board in its sole
discretion.
(d) A "Change in Control" shall be deemed to have occurred in the
event set forth in any one of the following paragraphs shall have
occurred:
(1) any Person is or becomes the "Beneficial Owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company (not including in
the securities beneficially owned by such Person any
securities acquired directly from the Company) representing
25% or more of the Company's then outstanding securities,
excluding any Person who becomes such a Beneficial Owner in
connection with a transaction described in clause (i) of
paragraph (3) below; or
(2) the following individuals cease for any reason to constitute
a majority of the number of directors then serving;
individuals who, on the Effective Date, constitute the Board
and any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors
of the Company) whose appointment or election by the Board
or nomination for election by the Company's stockholders was
approved or recommended by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors on the Effective Date or whose appointment,
election or nomination for election was previously so
approved or recommended; or
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<PAGE>
(3) there is consummated a merger or consolidation of the
Company with any other corporation other than (i) a merger
or consolidation which would result in the voting securities
of the Company outstanding immediately prior to such merger
or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof) at
least 75% of the combined voting power of the voting
securities of the Company or such surviving entity or any
parent thereof outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
(not including in the securities Beneficially Owned by such
Person any securities acquired directly from the Company)
representing 25% or more of the combined voting power of the
Company's then outstanding securities; or
(4) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity at
least 75% of the combined voting power of the voting
securities of which are owned by Persons in substantially
the same proportions as their ownership of the Company
immediately prior to such sale.
(e) "Code" shall mean the Internal Revenue code of 1986, as amended
from time to time, and any regulations promulgated thereunder.
(f) "Company" shall mean Wade Cook Financial Corporation and, where
appropriate, each of its Subsidiaries now held or hereinafter
acquired.
(g) "Company Stock" shall mean the common stock of the Company, $.01
par value.
(h) "Disability" shall mean: (1) any physical or mental condition
that would qualify a Participant for a disability benefit under
the long-term disability plan maintained by the Company and
applicable to him or her; (2) when used in connection with the
exercise of an Incentive Stock Option following termination of
employment, disability within the meaning of Section 22(e)(3) of
the Code; or (3) such other condition as may be determined in the
sole discretion of the Board to constitute Disability.
(i) "Effective Date" shall mean the date upon which this Plan is
adopted by the Board.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(k) The "Fair Market Value" of a share of Company Stock, as of a date
of determination, shall mean (1) the closing, sales price per
share of Company Stock on the national securities exchange on
which such stock is principally traded for the last preceding
date on which there was a sale of such stock on such exchange, or
(2) if the shares of Company Stock are not listed or admitted to
trading on any such exchange, the closing price as reported by
the NASDAQ Stock Market for the last preceding day on which there
was a sale of such stock on such exchange, or (3) if the shares
of Company Stock are then listed on the NASDAQ Stock Market, the
average of the highest reported bid and lowest reported asked
price for the shares of Company Stock as reported by the National
Association of Securities Dealers, Inc. Automated Quotations
System for the last preceding day on which there was a sale of
such stock in such market, or (4) if the shares of Company Stock
are not then listed on a national securities exchange or traded
in an over-the-counter market or the value of such shares is not
otherwise readily ascertainable, such value as determined by the
Board in good faith.
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<PAGE>
(l) "Incentive Award" shall mean any Option, Tandem SAR, Stand-Alone
SAR, Restricted Stock, Phantom Stock, Stock Bonus or Other Award
granted pursuant to the terms of the Plan.
(m) "Incentive Stock Option" shall mean an Option that is an
"incentive stock option" within the meaning of Section 422 of the
Code, or any successor provision, and that is designated by the
Board as an Incentive Stock Option.
(n) "Issue Date" shall mean the date established by the Company on
which certificates representing shares of Restricted Stock shall
be issued by the Company pursuant to the terms of Section 10(e).
(o) "Non-Qualified Stock Option" shall mean an Option other than an
Incentive Stock Option.
(p) "Option" shall mean an option to purchase shares of Company Stock
granted pursuant to Section 7.
(q) "Other Award" shall mean an award granted pursuant to Section 13
hereof.
(r) "Partial Exercise" shall mean an exercise of an Incentive Award
for less than the full extent permitted at the time of such
exercise.
(s) "Participant" shall mean (1) a director, officer, consultant or
other employee to whom an Incentive Award is granted pursuant to
the Plan and (2) upon the death of an individual described in
clause (1), his or her successors, heirs, executors and
administrators, as the case may be. "Person" shall have the
meaning set forth in Section 3(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (1) the Company, (2) a bank or
other fiduciary holding securities under an employee benefit plan
of the Company, (3) an underwriter temporarily holding securities
pursuant to an offering of such securities or (4) a corporation
owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock
of the Company.
(t) "Person" shall have the meaning set forth in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and
14(d) thereof, except that such term shall not include (1) the
company, (2) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, (3) an underwriter
temporarily holding securities pursuant to an offering of such
securities or (4) a corporation owned, directly or indirectly by
the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
(u) "Phantom Stock" shall mean the right, granted pursuant to Section
II, to receive in cash or shares the Fair Market Value of a
shares of Company Stock.
(v) "Reload Option" shall mean a Non-Qualified Stock Option granted
pursuant to Section 7(c)(5).
(w) "Restricted Stock" shall mean a share of Company Stock which is
granted pursuant to the terms of Section 10 hereof and which is
subject to the restrictions set forth in Section 10(c).
(x) "Rule 16b-3" shall mean the Rule 16b-3 promulgated the Exchange
Act, as amended from time to time.
(aa) "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
(bb) "Stand-Alone SAR" shall a stock appreciation right which is
granted pursuant to Section 9 and which is not related to any
Option.
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(cc) "Stock Bonus" shall mean a bonus payable in shares of Company
Stock granted pursuant to Section 12.
(dd) "Subsidiary" shall mean a "subsidiary corporation" within the
meaning of Section 424(f) of the Code.
(ee) "Tandem SAR" shall mean a stock appreciation right which is
granted pursuant to Section 8 and which is related to an Option.
(ff) "Vesting Date" shall mean the date established by the Board on
which a share of Restricted Stock or Phantom Stock may vest.
3. Stock Subject to The Plan.
(a) Shares Available for Awards.
The maximum number of shares of Company Stock reserved for
issuance under the Plan shall be 1,000,000 shares (subject to
adjustment as provided herein). Such shares may be authorized but
unissued Company Stock or authorized and issued Company Stock
held in the Company's treasury. The Board may direct that any
stock certificate evidencing shares issued pursuant to the Plan
shall bear a legend setting forth such restrictions on
transferability as may apply to such shares pursuant to the Plan.
The grant of a Tandem SAR shall not reduce the number of shares
of Company Stock with respect to which Incentive Awards may be
granted pursuant to the Plan.
(b) Adjustment for Change in Capitalization.
In the event that the Board shall determine that any dividend or
other distribution (whether in the form of cash, Company Stock,
or other property), recapitalization, Company Stock split,
reverse Company Stock split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share
exchange, or other similar corporate function or event, affects
the Company Stock such that an adjustment is appropriate in order
to prevent dilution or enlargement of the rights of Participants
under the Plan, then the Board shall make such equitable changes
or adjustments as it deems necessary or appropriate to any or all
of (1) the number and kind of shares of Company Stock which may
then be issued in connection with Incentive Awards, (2) the
number and kind of shares of Company Stock issued or issuable in
respect of outstanding Incentive Awards, (3) the exercise price,
grant price or purchase price relating to any Incentive Award,
and (4) the maximum number of shares subject to Incentive Awards
which may be awarded to any employee during any tax year of the
Company; provided that, with respect to Incentive Stock Options,
such adjustment shall be made in accordance with Section 424 of
the Code.
(c) Re-use of Sharer.
The following shares of Company Stock shall again become
available for Incentive Awards: except as provided below, any
shares subject to an Incentive Award that remain unissued upon
the cancellation, surrender, exchange or termination of such
award for any reason whatsoever; and any shares of Restricted
Stock forfeited. Notwithstanding the foregoing, upon the exercise
of any Incentive Award granted in tandem with any other Incentive
Awards, such related Awards shall be canceled to the extent of
the number of shares of Company Stock - as to which the Incentive
Award is exercised and such number of shares shall no longer be
available for Incentive Awards under the Plan.
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4. Administration of The Plan.
The Plan shall be administered by the Board. The Board shall have the
authority in its sole discretion subject to and not inconsistent with the
express provisions of the plan, to administer the Plan and to exercise the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Incentive Awards; to determine the persons to
whom and the time or times at which Incentive Awards shall be granted; to
determine the type and number of Incentive Awards to be granted, the number of
shares of Stock to which Incentive Awards may relate and the terms and
conditions, restrictions and performance criteria relating to any Incentive
Award and whether, to what extent, and under what circumstances an Incentive
Award may be settled, canceled, forfeited, exchanged or surrendered; to make
adjustments in the performance goals in recognition of unusual or non-recurring
events affecting the Company or the financial statements of the Company, or in
response to changes in applicable laws, regulations, or accounting principles;
to construe and interpret the Plan and any Incentive Award; to prescribe, amend
and rescind rules and regulations relating to the Plan; to determine the terms
and provisions of Agreements; and to make all other determinations deemed
necessary or advisable for the administration of the Plan.
The Board may, in its absolute discretion, without amendment to the Plan,
(a) accelerate the date on which any Option or Stand-Alone SAR granted under the
Plan becomes exercisable, waive or amend the operation of Plan provisions
respecting exercise after termination of employment or otherwise adjust any of
the terms of such Option or Stand-Alone SAR, and (b) accelerate the Vesting Date
or Issue Date, or waive any condition imposed hereunder, with respect to any
share of Restricted Stock, Phantom Stock or other Incentive Award or otherwise
adjust any of the terms applicable to any such Incentive Award.
No member of the Board shall be liable for any action, omission or
determination relating to the Plan, and the Company shall indemnify (to the
extent permitted under Nevada law and the bylaws of the Company) and hold
harmless each member of the Board and each other employee of the Company to whom
any duty or power relating to the administration or interpretation of the Plan
has been delegated against any cost or expense (including counsel fees) or
liability (includes any sum paid in settlement of a claim with the approval of
the Board) arising out of any action, omission or determination relating to the
plan, unless, in either case, such action, omission or determination was taken
or made by such director or employee in bad faith and without reasonable belief
that it was in the best interests of the Company.
5. Eligibility. The persons who shall be eligible to receive Incentive
Awards pursuant to the Plan shall be such directors, officers, consultants and
other employees of the Company as the Board shall select from time to time.
6. Awards under the Plan; Agreement.
The Board may grant Options, Tandem SARS, Stand-Along SARS shares of
Restricted Stock, shares of Phantom Stock, Stock Bonuses and Other Awards in
such amounts and with such terms and conditions as the Board shall determine,
subject to the provisions of the Plan. Each Incentive Award granted under the
Plan (except an unconditional Stock bonus) shall be evidenced by an Agreement
which shall contain such provisions as the Board may in its sole discretion deem
necessary or desirable. By accepting an Incentive Award, a Participant thereby
agrees that the award shall be subject to all of the terms and provisions of the
Plan and the applicable Agreement.
7. Options.
(a) Identification of Options.
Each Option shall be clearly identified in the applicable
Agreement as either an Incentive Stock Option or a Non-Qualified
Stock Option.
(b) Exercise price.
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Each Agreement with respect to an Option shall set forth the
amount (the "option exercise price") payable by the grantee to
the Company upon exercise of the Option. The option exercise
price per share shall be determined by the Board; provided,
however, that in the case of an Incentive Stock Option, the
option exercise price shall in no event be less than the Fair
Market Value of a share of Company Stock on the date the Option
is granted.
(c) Term and Exercise of Options.
(1) Unless the applicable Agreement provides otherwise, an
Option shall be exercisable as to one-third (1/3) of the
shares covered thereby on the date of grant, with an
additional one-third (1/3) of such Option becoming
cumulatively exercisable on each of the first and second
anniversaries of the date of grant. The Board shall
determine the expiration date of each Option; provided,
however, that no Incentive Stock Option shall be exercisable
more than 10 years after the due of grant.
(2) Notwithstanding the provisions of subsection (1) above, the
exercisability of Options granted pursuant to this Section 7
may be subject to the attainment by the Company of
performance goals pre-established by the Board, based on one
or more of the following criteria: (A) return on total
stockholder equity, (B) earnings per share of Company Stock;
(C) net income (before or after taxes); (D) earnings before
interest, taxes, depreciation and amortization; (E)
revenues; (F) return on assets; (G) market share; (H) cost
reduction goals; (I) any combination of, or a specified
increase in, any of the foregoing; and (J) such other
criteria as the Board may approve; in each case, as
determined in accordance with generally accepted accounting
principles. The exercisability of Options (or portions
thereof) under this subsection (2) shall not be effective
unless the attainment of such performance measures has been
certified by the Board.
(3) An Option may be exercised for all or any portion of the
shares as to which it is exercisable, provided that no
Partial Exercise of an Option shall be for less than 100
shares of Company Stock. The Partial Exercise of an Option
shall not cause the expiration, termination or cancellation
of the remaining portion thereof.
(4) An Option shall be exercised by delivering notice to the
Company's principal office, to the attention of its
Secretary. Such notice shall be accompanied by the
applicable Agreement, shall specify the number of shares of
Company Stock with respect to which the Option is being
exercised and the effective date of the proposed exercise
and shall be signed by the Participant or other person then
having the right to exercise the Option. Payment for shares
of Company Stock purchased upon the exercise of an Option
shall be made on the effective date of such exercise by one
or a combination of the following means; (A) in cash or by
personal check, certified check, bank cashier's check or
wire transfer; (B) in shares of Company Stock owned by the
Participant prior to the date of exercise and valued at
their Fair Market Value on the effective date of such
exercise; (C) by authorizing the Company to withhold whole
shares of Company Stock which would otherwise be delivered
upon exercise of the option having a Fair Market value,
determined as of the date of exercise, equal to the
aggregate purchase price payable by reason of such exercise;
(D) in cash by a broker-dealer acceptable to the Company to
whom the optionee has submitted an irrevocable notice of
exercise; or (E) by such other provision as the Board may
from time to time authorize. The Board shall have sole
discretion to disapprove of an election pursuant to any of
clauses (B) - (E) and in the case of an optionee who is
subject to Section 16 of the Exchange Act, the Company may
require that the method of making such payment be in
compliance with
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<PAGE>
Section 16 and the rules and regulations thereunder. Any
payment in shares of Company Stock shall be effected by the
delivery of such shares to the Secretary of the Company,
duly endorsed in blank or accompanied by stock powers duly
executed in blank, together with any other documents and
evidences as the Secretary of the Company shall require.
(5) Certificates for shares of Company Stock Purchased upon the
exercise of an Option shall be issued in the name of the
Participant or other person entitled to receive such shares,
and delivered to the Participant or such other person as
soon as practicable following the effective date on which
the Option is exercised.
(6) The Board shall have the authority to specify, at the time
of grant or, with respect to Non-Qualified Stock Options, at
or after the time of grant, that a Participant shall be
granted a new Non-Qualified Stock IP Option (a "Reload
Option") for a number of shares equal to the number of
shares surrendered by the Participant upon exercise of all
or a part of an Option in the manner described in Section
7(c)(3)(ii) above, subject to the availability of shares of
Company Stock under the Plan at the time of such exercise.
Reload Options shall be subject to such conditions as may be
specified by the Board in its discretion, subject to the
terms of the Plan.
(d) Limitations on Incentive Stock Options.
(1) To the extent that the aggregate Fair Market Value of shares
of Company Stock with respect to which Incentive Stock
Options are exercisable for the first time by a Participant
during any calendar year under the Plan and any other stock
option plan of the Company shall exceed $100,000, such
Options shall be treated as Non-Qualified Stock Options.
Such Fair Market Value shall be determined as of the date on
which such Incentive Stock Option is granted.
(2) No Incentive Stock Option may be granted to an individual
if, at the time of the proposed grant, such individual owns
(or is deemed to own under the Code) stock possessing more
than ten percent of the total combined voting power of all
classes of stock of the Company unless (i) the exercise
price of such Incentive Stock Option is at least 110 percent
(110%) of the Fair Market Value of a share of Company Stock
at the time such Incentive Stock Option is granted and (ii)
such Incentive Stock Option is not exercisable after the
expiration of five years from the date such Incentive Stock
Option is granted.
(e) Effect of Termination of Employment.
(1) Unless the applicable Agreement provides otherwise, in the
event that the employment of a Participant with the Company
shall terminate for any reason other than Cause, Disability
or death, (A) Options granted to such Participant, to the
extent that they are exercisable at the time of such
termination, shall remain exercisable until the date that is
three months after such termination, on which date they
shall expire at the close, and (B) Options granted to such
Participant, to the extent that they were not exercisable at
the time of such termination, shall expire at the close of
business on the date of such termination. The three-month
period described in this Section 7(e)(1) shall be extended
to one year from the date of such termination in the event
of the Participant's death during such three-month period.
Notwithstanding the foregoing, no Option shall be
exercisable after the expiration of its term.
(2) Unless the applicable Agreement provides otherwise, in the
event the employment of a Participant with the Company shall
terminate as of the Disability or death of the Participant,
(A) Options granted to such Participant to the extent that
they were
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<PAGE>
exercisable at the time of such termination, shall remain
exercisable until the first anniversary of such termination,
on which date they shall expire, and (B) Options granted to
such Participant, to the extent that they were not
exercisable at the time of such termination, shall expire at
the close of business on the date of such termination;
provided, however, that no Option shall be exercisable after
the expiration of its term.
(3) in the event of the termination of a Participant's
employment for Cause, all outstanding options to such
Participant shall expire at the commencement of business on
the date of such termination.
(f) Acceleration of Exercise Date Upon Change in Control.
Upon the occurrence of a Change in Control, each Option granted under the
Plan and outstanding at such time shall become fully and immediately exercisable
and shall remain exercisable until its expiration, termination or cancellation.
[This Space Intentionally Left Blank]
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8. Tandem SARs.
The Board may grant in connection with any Option granted hereunder one or
more SARS relating to a number of shares of Company Stock less than or equal to
the number of shares of Company Stock subject to the related Option. A Tandem
SAR may be granted in connection with an Option only at the same time that such
Option is granted: provided, however a Tandem SAR granted in connection with a
Non-Qualified Stock Option may be granted subsequent to the time that such
Non-Qualified Stock Option is granted.
(a) Benefit Upon Exercise.
The exercise of a Tandem SAR with respect to any number of shares
of Company Stock shall entitle the Participant to a cash payment,
for each such share, equal to the excess of (1) the Fair Market
Value of a share of Company Stock on the exercise date over (2)
the option exercise price of the related Option. Such payment
shall be made as soon as practicable after the effective date of
such exercise.
(b) Term and Exercise of Tandem SAR.
(1) A Tandem SAR shall be exercisable only if and to the extent
that its related Option is exercisable.
(2) The exercise of a Tandem SAR with respect to a number of
shares of Company Stock shall cause the immediate and
automatic cancellation of its related Option with respect to
an equal number of shares. The exercise of an Option or the
cancellation, termination or expiration of an Option (other
than pursuant to this Section 8(b)(2)), with respect to a
number of shares of Company Stock shall cause the automatic
and immediate cancellation of any related Tandem Shares to
the extent of the number of shares of Company Stock subject
to such Option which is so exercised, canceled, terminated
or expired.
(3) A Tandem SAR may be exercised for all or any portion of the
shares as to which it is exercisable; provided, that no
Partial Exercise of a Tandem SAR shall be with respect to
less than 100 shares of Company Stock.
(4) No Tandem SAR shall be assignable or transferable otherwise
than together with its related Option.
(5) A Tandem SAR shall be exercised by delivering notice to the
Company's principal office, to the attention of its
Secretary. Such notice shall be accompanied by the
applicable Agreement, shall specify the number of shares of
Company Stock with respect to which the Tandem SAR is being
exercised and the effective date of the proposed exercise
and shall be signed by the Participant or other person then
having the right to exercise the Option to which the Tandem
SAR is related.
9. Stand-Alone SARs.
(a) Exercise Price.
The exercise price per share of a Stand-Alone SAR shall be
determined by the Board at the time of grant.
(b) Benefit Upon Exercise.
The exercise of a Stand-Alone SAR with respect to any number of
shares of Company Stock shall entitle the Participant to a
payment, for each such share, equal to the excess of (1) the Fair
Market Value of a share of Company Stock on the exercise date
over (2) the exercise
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<PAGE>
price of the Stand-Alone SAR. Such payments shall be made as soon
as practicable after such exercise, in cash and/or shares of
Company Stock, as determined by the Board.
(c) Term and Exercise of Stand-Alone SARs.
(1) Unless the applicable Agreement provides otherwise, a
Stand-Alone SAR shall become cumulatively exercisable as to
one-third (1/3) of shares covered thereby on the date of
grant, with an additional one-third (1/3) of such
Stand-Alone SAR to become cumulatively exercisable on each
of the first and second anniversaries of the date of grant.
The Board shall determine the expiration date of each
Stand-Alone SAR.
(2) A Stand-Alone SAR may be exercised for all or any portion of
the shares as to which it is exercisable; provided, that no
Partial Exercise of a Stand-Alone SAR shall be with respect
to less than 100 shares of Company Stock.
(3) A Stand-Alone SAR shall be exercised by delivering notice to
the Company's principal office, to the attention of its
Secretary. Such notice shall be accompanied by the
applicable Agreement, shall specify the number of shares of
Company Stock with respect to which the Stand-Alone SAR is
being exercised, and the effective date of the proposed
exercise, and shall be signed by the Participant.
(d) Effect of Termination of Employment.
The provisions set forth in Section 7(c) with respect to the
exercise of Options following termination of employment shall
apply as well to such exercise of Stand-Alone SARS.
(e) Acceleration of Exercise Date Upon Change in Control.
Upon the occurrence of a Change in Control, any Stand-Alone SAR
outstanding at such time shall become fully and immediately
exercisable and shall remain exercisable until its expiration,
termination or cancellation.
10. Restricted Stock.
(a) Issue Date and Vesting Date.
At the time of the grant of shares of Restricted Stock, the Board
shall establish an Issue Date or Issue Dates and a Vesting Date
or Vesting Dates with respect to such shares. The Board may
divide such shares into classes and assign a different Issue Date
and/or Vesting Date for each class. If the grantee is employed by
the Company on an Issue Date (which may be the date of grant),
the specified number of shares of Restricted Stock shall be
issued in accordance with the provisions of Section 10(c),
provided that all conditions to the vesting of a share of
Restricted Stock imposed pursuant to Section 10(b) are satisfied,
and except as provided in Section 10(g), upon the occurrence of
the Vesting Date with respect to a share of Restricted Stock,
such shares shall vest and the restrictions of Section 10(c)
shall lapse.
(b) Conditions to Vesting.
At the time of the grant of shares of Restricted Stock, the Board
may impose such restrictions or conditions to the vesting of such
as it, in its absolute discretion, deems appropriate.
(c) Restrictions on Transfer Prior to Vesting.
Prior to the vesting of a share of Restricted Stock, no transfer
of a Participant's rights with respect to such share, whether
voluntary or involuntary, by operation of law or otherwise, shall
be permitted. Immediately upon any attempt to transfer such
rights, such share, and all of the rights related thereto, shall
be forfeited by the Participant.
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<PAGE>
(d) Dividends on Restricted Stock.
The Board in its discretion may require that any dividends paid
on shares of Restricted Stock be held in escrow until all
restrictions on such sham have lapsed.
(e) Issuance of Certificates.
(1) Reasonably promptly after the Issue Date with respect to
shares of Restricted Stock, the Company shall cause to be
issued a stock certificate, registered in the name of the
Participant to whom such shares were granted, evidencing
such shares; provided that the Company shall not cause such
a stock certificate to be issued unless it has received a
stock power duly endorsed in blank with respect to such
shares. Each such stock certificate shall bear the following
legend:
The transferability of this certificate and the shares
represented hereby are subject to the restrictions, terms
and conditions (including forfeiture provisions and
restrictions against transfer) contained in the Wade Cook
Financial Corporation 1997 Stock Incentive Plan and an
agreement entered into between the registered owner of such
shares and the Company. A copy of the Plan and Agreement is
on file in the office of the Secretary of the Company.
------------------------------------------------------------
Such legend shall not be removed until such shares vest pursuant to the
terms hereof.
(2) Each certificate issued pursuant to this Section 10(e),
together with the stock powers relating to the shares of
Restricted Stock evidenced by such certificate, shall be
held by the Company unless the Board determines otherwise.
(f) Consequences of Vesting.
Upon the vesting of a share of Restricted Stock pursuant to the
terms hereof, the restrictions of Section 10(c) shall lapse with
respect to such share. Reasonably promptly after a share of
Restricted Stock vests, the Company shall cause to be delivered
to the Participant to whom such shares were granted, a
certificate evidencing such share, free of the legend set forth
in Section 10(c).
(g) Effect of Termination of Employment.
(1) Subject to such other provision as the Board may set forth
in the applicable Agreement, and to the Board's amendment
authority pursuant to a Participant's employment for any
reason other than Cause, any and all shares to which
restrictions on transferability apply shall be immediately
forfeited by the Participant and transferred to, and
reacquired by, the Company; provided that if the Board, in
its sole discretion, shall within thirty (30) days after
such termination of employment notify the participant in
writing of its decision not to transfer the Participant's
rights in such shares, then the Participant shall continue
to be the owner of such shares subject to such continuing
restrictions as the Board may prescribe in such notice. In
the event of a forfeiture of shares pursuant to this
section, the Company shall repay to the Participant (or the
Participant's estate) any amount paid by the Participant for
such shares. In the event that the Company requires a return
of shares, it shall also have the right to require the
return of all dividends paid on such shares, whether by
termination of any escrow arrangement under which such
dividends are held, or otherwise.
(2) In the event of the termination of a Participant's
employment for Cause all shares of Restricted Stock granted
to such participant which have not vested as of the date of
such termination shall immediately be returned to the
Company, together with any dividend
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<PAGE>
paid on such shares, in return for which the Company shall
repay to the Participant amount Paid by the Participant for
such shares.
(h) Effect of Change in Control.
Upon the occurrence of a Change in Control, all outstanding
shares of Restricted Stock which have not theretofore vested
shall immediately vest and all restrictions on such Restricted
Stock shall immediately lapse.
(i) Special Provisions Regarding Restricted Stock.
Notwithstanding anything to the contrary contained herein,
Restricted Stock granted pursuant to this Section 10 may be based
on the attainment by the Company, of performance goals
preestablished by the Board, based on one or more of the
following criteria: (1) return on total stockholder equity; (2)
earnings per share of Company Stock; (3) net income (before or
after taxes); (4) earnings before interest, taxes, depreciation
and amortization; (5) revenues (6) return on assets; (7) market
sham; (8) cost reduction goals; (9) any combination of, or a
specified increase in, any of the foregoing; and (10) such other
criteria as the Board may approve; in each case, as determined in
accordance with generally accepted accounting principles. Such
shares of Restricted Stock shall be released from restrictions
only after attainment of such performance criteria has been
certified by the Board.
11. Phantom Stock.
(a) Vesting Date.
At the time of the grant of shares of Phantom Stock, the Board
shall establish a Vesting Date or Vesting Dates with respect to
such shares. The Board may divide such shares into classes and
assign a different Vesting Date for each class provided that all
conditions to the vesting of a share of Phantom Stock imposed
pursuant to Section 11(c) are satisfied, and except as provided
in Section 11(d) upon the occurrence of the Vesting Date with
respect to a share of Phantom Stock, such share shall vest.
(b) Benefit Upon Vesting.
Upon the vesting of a share of Phantom Stock, the Participant
shall be entitled to receive within 30 days of the date on which
such share vests, an amount in cash and/or of Company Stock, as
determined by the Board, equal to the sum of (1) the Fair Market
Value of a share of Company Stock on the date on which such share
of Phantom Stock vests, and (2) the aggregate amount of cash
dividends paid with respect to a share of Company Stock during
the period commencing on the date on which the share of Phantom
Stock was granted and terminating on the date on which such share
vests.
(c) Conditions of Vesting.
At the time of the grant of shares of Phantom Stock, the Board
may impose such restrictions or conditions to the vesting of such
share as it, in its absolute discretion, deems appropriate.
(d) Effect of Termination of Employment.
Subject to such other provision as the Board may set forth in the
applicable Agreement, and to the Board's amendment authority
pursuant to Section 4, shares of Phantom Stock that have not
vested, together with any dividends credited on such Shares,
shall be forfeited upon the Participant's termination of
employment for any reason.
(e) Effect Of Change in Control.
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Upon the occurrence of a Change in Control, all outstanding
shares of Phantom Stock which have not theretofore vested shall
immediately vest and payment in respect of such shares shall be
made in accordance with the term of this Plan.
(f) Special Provisions Regarding Awards.
Notwithstanding anything to the contrary contained herein, the
vesting of Phantom Stock granted pursuant to this Section 11 may
be based on the attainment by the Company of one or more of the
performance criteria set forth in Section 10(i) hereof, in each
case, as determined in accordance with generally accepted
accounting principles. No payment in respect of any such Phantom
Stock award will be paid until the attainment of the respective
performance criteria have been certified by the Board.
12. Stock Bonuses.
In the event that the Board grants a Stock Bonus, a certificate for the
shares of Company Stock comprising such Stock Bonus shall be issued in the name
of the Participant to whom such grant was made and delivered to such Participant
as soon as practicable after the date on which such Stock Bonus is payable.
13. Other Awards.
Other forms of Incentive Awards ("Other Awards") valued in whole or in part
by reference to, or otherwise based on Company Stock may be granted either alone
or in addition to other Incentive Awards under the Plan. Subject to the
provisions of the Plan, the Board shall have sole and complete authority to
determine the persons to whom and the time or times at which such Other Awards
shall be granted, the number of shares of Company Stock to be granted pursuant
to such Other Awards and all other conditions of such Other Awards.
14. Rights As A Stockholder
No person shall have any rights as a stockholder with respect to any shares
of Company Stock covered by or relating to any Incentive Award until the date of
issuance of a stock certificate with respect to such shares. Except as otherwise
expressly provided in Section 3(c), no adjustment to any Incentive Award shall
be made for dividends or other rights for which the record date occurs prior to
the date such stock certificate is issued.
15. No Special Employment Rights; No Right To Incentive Award.
Nothing contained in the Plan or any Agreement shall confer upon any
Participant any right with respect to the continuation of employment by the
Company or interfere in any way with the right of the Company, subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate employment or to increase or decrease the compensation of the
Participant.
No person shall have any or right to receive an Incentive Award hereunder.
The Board's granting of an Incentive Award to a participant at any time shall
neither require the Board to grant any other Incentive Award to such Participant
or any other person at any time, or preclude the Board from making subsequent
grants to such Participant or any other person.
16. Securities Matters.
(a) The Company shall be under no obligation to effect the
registration pursuant to the Securities Act of any interests in
the Plan or any shares of Company Stock to be issued hereunder or
to effect similar compliance under any state laws.
Notwithstanding anything herein to the contrary, the Company
shall not be obliged to cause to be issued or delivered any
certificates evidencing shares of Company Stock pursuant to the
Plan unless and until the Company is advised by its counsel that
the issuance and delivery of such certificates is in
-13-
<PAGE>
compliance with all applicable laws, regulations of governmental
authority and the requirements of any securities exchange on
which shares of Company Stock are traded. The Board may require,
as a condition of the issuance and delivery of certificates
evidencing shares of Company Stock pursuant to the terms hereof,
that the recipient of such certificates make such agreements and
representations, and that such certificates bear such legends, as
the Board, in its sole discretion, deems necessary or desirable.
(b) The transfer of any shares of Company Stock hereunder shall be
effective only at such time as counsel to the Company shall have
determined that the issuance and delivery of such shares is in
compliance with all applicable laws, regulations of governmental
authority and the requirements of any securities exchange on
which shares of Company Stock are traded. The Board may, in its
sole discretion, defer the effectiveness of any transfer of
shares of Company Stock hereunder in order to allow the issuance
of such shares to be made pursuant to registration or an
exemption from registration or other methods for compliance
available under federal or state securities laws. The Board shall
inform the Participant in writing of such decision to defer the
effectiveness of a transfer. During the period of such deferral
in connection with the exercise of an Option, the Participant
may, by written notice, withdraw such exercise and obtain the
refund of any amount paid with respect thereto.
17. Withholding Taxes.
Whenever cash is to be paid pursuant to an Incentive Award, the Company
shall have the right to deduct therefrom an amount sufficient to satisfy any
federal, state and local withholding tax requirements related thereto.
Whenever shares of Company Stock are to be delivered pursuant to an
Incentive Award, the Company shall have the right to require the Participant to
remit to the Company in cash an amount sufficient to satisfy any federal, state
and local withholding tax requirements related thereto. With the approval of the
Board, a Participant may satisfy the foregoing requirement by electing to have
the Company withhold from delivery shares of Company Stock having a value equal
to the amount of tax to be withheld. Such shares shall be valued at their Fair
Market Value on the date of which the amount of tax to be withheld is determined
(the "Tax Date"). Fractional share amounts shall be settled in cash. Such a
withholding election may be made with respect to all or any portion of the
shares of Company Stock to be delivered pursuant to an Incentive Award.
18. Notification of Election under Section 83(b) of the Code.
If any Participant shall, in connection with the acquisition of shares of
Company Stock under the Plan, make the election permitted under Section 83(b) of
the Code, such Participant shall notify the Company of such election within 10
days of filing notice of election with the Internal Revenue Service.
19. Notification Upon Disqualifying Disposition Under Section 421(b) of the
Code.
Each Agreement with respect to an Incentive Stock Option shall require the
Participant to notify the Company of any disposition of shares of Company Stock
issued pursuant to the exercise of such Option under the circumstances described
in Section 421(b) of the Code (relating to certain disqualifying dispositions),
within 10 days of such disposition.
20. Amendment Or Termination of The Plan.
The Board may, at any time, suspend or terminate the Plan or revise or
amend it in any respect whatsoever, provided, however, that stockholder approval
shall be required if and to the extent the Board determines that such approval
is appropriate for purposes of satisfying Section 422 of the Code or Rule 16b-3.
Incentive Awards may be granted under the Plan prior to the receipt of such
stockholder approval but each such grant shall be subject in its entirety to
such approval and no award may be exercised, vested or otherwise satisfied prior
to the receipt of such approval. Nothing herein shall restrict
-14-
<PAGE>
the Board's ability to exercise its discretionary authority pursuant to Section
4, which discretion may be exercised without amendment to the Plan. No action
hereunder may, without the consent of a Participant, reduce the Participant's
rights under, any outstanding Incentive Award.
21. Transfers of Incentive Awards.
Options granted under the Plan shall not be transferable except (a) by will
or the laws of descent and distribution; (b) pursuant to a "qualified domestic
relations order" as such term is defined in the Employee Retirement Income
Security Act of 1974, as amended; or (c) as specifically provided below. Any
Participant may transfer Non-Qualified Stock Options to members of his or her
Immediate Family (as defined below) if (1) the Agreement pursuant to which the
Option was granted to provides, (2) such agreement was approved by the Board,
and (3) the Participant does not receive any consideration for the transfer.
"Immediate Family" means children, grandchildren and spouse of the Participant
or one or more trusts for the benefit of such family members or partnerships in
which such family members are the only partners. Any Non-Qualified Stock Option
agreement may be amended to provide for the transferability feature as outlined
above, provided that such amendment is approved by the Board. Any Option not
granted pursuant to an Agreement expressly permitting its transfer shall not be
transferable. During the lifetime of the Participant, options may be exercised
only by the Participant, the guardian or legal representative of the
Participant, or the transferee as permitted under this Section 21(c).
22. Expenses and Receipts.
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used for
general corporate purposes.
23. Failure to Comply.
In addition to the remedies of the Company elsewhere provided for herein,
failure by a Participant (or beneficiary) to comply with any of the terms and
conditions of the Plan or the applicable Agreement, unless such failure is
remedied by such Participant (or beneficiary) within ten days after notice of
such failure to the Board, shall be grounds for the cancellation and forfeiture
of such Incentive Award, in whole or in part, as the Board, in its absolute
discretion, may determine.
24. Effective Date and Term of Plan.
The Plan became effective on the Effective Date, but the Plan (and any
grants of Incentive Awards made prior to shareholder approval of the Plan) shall
be subject to the requisite approval of the stockholders of the Company. In the
absence of such approval, such Incentive Awards shall be null and void. Unless
earlier terminated by the Board, the right to grant Incentive Awards under the
Plan will terminate on the tenth anniversary of the Effective Date. Incentive
Awards outstanding at Plan termination will remain in effect according to their
terms and the provisions of the Plan.
25. Applicable Law.
Except to the extent preempted by any applicable federal law, the Plan will
be construed and administered in accordance with the laws of the State of
Nevada, without reference to its principles of conflicts of law.
26. Participant Rights.
No Participant shall have any claim to be granted any award under the Plan,
and there is no obligation for uniformity of treatment for Participants. Except
as provided specifically herein, a Participant or a transferee of an Incentive
Award shall have no rights as a stockholder with respect to any shares covered
by any award until the date of the issuance of a Company Stock certificate to
him or her for such shares.
-15-
<PAGE>
27. Unfunded Status of Awards.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant pursuant to an Incentive Award, nothing contained in the Plan or any
Agreement shall give any such Participant any rights that are greater than those
of a general creditor of the Company.
28. No Fractional Shares.
No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan. The Board shall determine whether cash, other Incentive Awards, or
other property shall be issued or paid in lieu of such fractional shares or
whether such fractional share or any rights thereto shall be forfeited or
otherwise eliminated.
29. Beneficiary.
A Participant may file with the Board a written designation of a
beneficiary on such form as may be prescribed by the Board and may, from time to
time, amend or revoke such designation, if no designated beneficiary survives
the Participant, the executor or administrator of the Participant's estate shall
be deemed to be the grantee's beneficiary.
30. Interpretation.
The Plan is designed and intended to comply with Rule 16b-3 and, to the
extent applicable, with Section 162(m) of the Code, and all provisions hereof
shall be construed in a manner to so comply.
31. Severability.
If any provision of the Plan is held to be invalid or unenforceable, the
other provisions of the Plan shall not be affected but shall be applied as if
the invalid or unenforceable provision had not been included in the Plan.
[This Space Intentionally Left Blank]
-16-
Exhibit 10.2
WADE B. COOK
EXCLUSIVE PRODUCT LICENSE AGREEMENT
This Exclusive Product License Agreement (the "Agreement") is made as of
this 30th day of June, 1998 (the "Effective Date"), by and between Wade B. Cook,
a resident of Washington State ("COOK"), and Entity Planners, Inc., a Nevada
corporation located at 14675 Interurban Avenue South, Seattle, Washington 98168
("EPI").
1. GRANT OF LICENSE.
(a) Distribution and Marketing License. Subject to the terms and
-------------------------------------
conditions of this Agreement, and that certain Stock Purchase Agreement between
COOK, EPI and B&C Limited Liability Company ("B&C") dated June 30, 1998 (the
"Purchase Agreement"), COOK hereby grants to EPI an exclusive license to use,
produce, market, sell and distribute the Products listed in Exhibit A of the
Purchase Agreement in the United States of America (the "Territory"). EPI agrees
not to sell, market or distribute the Products outside the Territory boundaries
at any international seminars, or to utilize the Products and COOK trademarks,
trade names, service marks and photographic images, likeness and audio
recordings to promote or provide offshore entity structuring services.
(b) License Conditions. EPI acknowledges and agrees that the Products
------------------
and any copies thereof are owned or licensed by COOK and are protected by United
States copyright laws and international treaty provisions. Therefore, EPI must
treat the Products like any other copyrighted material, and agrees not to rent,
lease or lend the Products. EPI will promptly notify COOK of any infringements
or alterations of Products or packaging that come to EPI's attention and assist
COOK in any prosecutions that COOK may undertake. EPI will not remove, destroy,
obfuscate or conceal any copyright or other proprietary markings or confidential
legends placed upon or contained upon the Products, and shall reproduce all
notices and restricted rights legend on the Products as directed by COOK. EPI
will immediately advise COOK of any legal notices served on EPI that might
reasonably be anticipated to affect COOK or its proprietary rights.
(c) Trademarks. Subject to the terms and conditions of this Agreement
----------
and the Purchase Agreement, COOK grants EPI the non-exclusive license to use and
publish in the Territory any trade name, service mark or trademark used by COOK
which is related to the Products, provided all such marks and names are so
indicated by appropriate symbol or designation in advertising and other
marketing activities to identify the Products. Such activities may take the form
of magazine advertising, direct mail promotions, and trade show displays and
such other activities as COOK may approve in advance.
(d) Right to Use COOK Photographic Image and Audio Recordings. Subject
---------------------------------------------------------
to the terms and conditions of this Agreement and the Purchase Agreement, COOK
grants EPI the non-exclusive license to use and publish in the Territory the
photographic image, likeness and audio recordings of COOK only in connection
with the promotion, marketing and distribution of the Products.
-1-
<PAGE>
(e) No Other Rights Granted. Apart from the grant of rights pursuant
-----------------------
to this Section, EPI shall not have the right to engage in any other licensable
activity, including but not limited to the preparation of derivative works, nor
any ownership right, title or interest, nor any security interest or other
interest, in the Products or the COOK photographic images, likeness or audio
recordings.
2. PAYMENT OF ROYALTIES.
(a) Royalties. For each copy of the Products and the COOK photographic
---------
image, likeness and audio recordings distributed by EPI, EPI shall pay COOK a
royalty in the amount and in the manner specified in the applicable schedule in
Section 2.2(b) of the Purchase Agreement (the "Royalties"). EPI shall pay to
COOK payments of Royalties in the amounts, in the manner, and at the times
specified in Section 2.3 of the Purchase Agreement.
(b) Royalty Reports and Records. EPI shall also maintain reports and
---------------------------
records of the distribution and sale of Products, as set forth in Section 2.6 of
the Purchase Agreement.
(c) Taxes. EPI shall pay (or reimburse COOK upon invoice) all
-----
national, state and local sales, use, value-added and other taxes, customs
duties and similar tariffs and fees, imposed by any jurisdiction and based on
this Agreement or any deliveries made hereunder, exclusive of any income taxes
levied on COOK's net income.
(d) Products Licensed "AS-IS". EXCEPT AS PROVIDED ABOVE, THE PRODUCTS
-------------------------
ARE LICENSED "AS IS" WITHOUT WARRANTY, EXPRESS OR IMPLIED, AS TO PERFORMANCE,
MERCHANTABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE. THE ENTIRE RISK AS TO
THE RESULTS AND PERFORMANCE OF THE PRODUCTS IS ASSUMED BY EPI. Licensee's sole
and exclusive remedy in the event of a warranty claim hereunder is expressly
limited to the remedies in this Agreement.
3. LIMITATION OF LIABILITY. TO THE MAXIMUM EXTENT PERMITTED BY LAW, IN NO
EVENT SHALL COOK OR ANYONE ELSE INVOLVED IN THE CREATION, PRODUCTION, DELIVERY
OR LICENSING OF THE PRODUCTS BE LIABLE TO EPI OR ANY THIRD PARTY FOR ANY
INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, OR ANY OTHER DAMAGES
WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR OTHER PECUNIARY LOSS)
ARISING OUT OF THE USE OR INABILITY TO USE THE PRODUCT, WHETHER OR NOT THE
POSSIBILITY OR CAUSE OF SUCH DAMAGES WAS KNOWN TO COOK. EXCEPT IN RESPECT OF
LIABILITY WHICH IS BY LAW INCAPABLE OF EXCLUSION, IN NO EVENT SHALL COOK'S
LIABILITY, (WHETHER BASED ON AN ACTION OR CLAIM IN CONTRACT, TORT OR OTHERWISE)
TO EPI ARISING OUT OF OR RELATING TO THE ORDER OR DELIVERY OF ANY UNIT OF A
PRODUCT EXCEED THE PER UNIT LICENSE FEE ACTUALLY PAID BY EPI TO COOK FOR SUCH
PRODUCT.
-2-
<PAGE>
4. GOVERNMENTAL APPROVALS; EXPORT LIMITATIONS. EPI shall at all times and
at its own expense strictly comply with all applicable laws, rules, regulations
and governmental orders, now or hereafter in effect, relating to its performance
of this Agreement. Without limiting the generality of the foregoing obligation,
EPI specifically acknowledges that each of the Products and certain information
relating to the Products supplied to EPI in accordance with the terms of this
Agreement are subject to United States export controls, pursuant to Export
Administration Regulations, 15 C.F.R. Parts 768-799. EPI shall comply strictly
with all requirements of the Export Administration Regulations with respect to
each Product. Without limiting the generality of the foregoing obligation, EPI
hereby expressly agrees that, without the prior written authorization of COOK
and the United States Government, EPI will not, and will cause its
representatives to agree not to, export, re-export, divert or transfer any
Product to any destination, company or person prohibited by the Export
Administration Regulations or other export control laws and regulations. EPI
shall make its records available to COOK at COOK's request, in order to permit
COOK to confirm EPI's compliance with its obligations as set forth in this
Section 4.
5. PROHIBITED MARKETING ACTIVITIES. In addition to the restrictions upon
the provision of offshore entity structuring services contained in Section 1(a),
in marketing the Products, EPI shall not, and shall not permit its resellers to
(i) make false or misleading representations with regard to COOK or the
Products; (ii) employ or cooperate in the publication or employment of any
misleading or deceptive advertising with regard to the Products; (iii) make
representations, warranties or guarantees to their end users or to the trade
with respect to the specifications, features or capabilities of the Products
other than those which are consistent with the then-current COOK-approved
documentation and materials; (iv) use the COOK photographic images and audio
recordings in any way that is defamatory or could reasonably be considered
offensive or disparaging, nor make intentional distortions, mutilations or
modifications to the COOK image, likeness or voice which would be prejudicial to
COOK or his honor or reputation, (v) redistribute the photographic images and
audio recordings as a clip library, nor (vi) enter into any contract or engage
in any practice in conflict with its obligations hereunder.
6. PROMOTIONAL MATERIALS. COOK shall have the right of prior approval of
all documents, devices, promotional, marketing and seminar materials used in or
related to the sale, marketing, or distribution of the Products and his
photographic image, likeness, and audio recordings (the "Materials") bearing its
trademarks, trade names or service marks prior to their anticipated use. Once
such Materials are approved by COOK, EPI will not need to seek further COOK
approval of the Materials unless and until there are changes made in the
Materials. However, upon prior written notice by COOK, use of the Materials
shall thereafter be subject to COOK's prior review and approval of the
anticipated use.
7. INDEMNIFICATION.
(a) By COOK. COOK shall indemnify, defend and hold harmless EPI
-------
against any claim that the Products infringe any United States patent issued as
of the date of this Agreement, United States copyright, United States trademark
(provided use of such trademark has been in accordance with this Agreement), or
trade secret, provided that COOK is given
-3-
<PAGE>
prompt notice of such claim and is given information, reasonable assistance, and
sole authority to defend or settle the claim. If COOK becomes aware that the
products do or may infringe any such rights, COOK may, at its option, obtain the
right to continue using and licensing the Products, replace or modify the
Products so that they become non-infringing, or if such remedies are not
reasonably available, to require return of the Products and provide a refund of
the Royalties paid with respect to such returned Products. Should COOK provide
EPI with a modified version of the Products, EPI shall, upon receipt of the new
version of Products, immediately cease distribution and use of the previous
version of the Products. Other than COOK's obligation of indemnification as set
forth in this Section, COOK shall have no liability to EPI from allegations that
the Products or activities related to the Products infringe or constitute
wrongful use of any proprietary right. Notwithstanding anything contained in
this Agreement to the contrary, COOK shall not be liable to EPI for any claim
arising from any alteration or modification of Products, or arising from the
distribution of an earlier version of the Products manufactured following the
delivery to EPI of a new non-infringing version of the Products pursuant to this
Section.
(b) By EPI. EPI shall be responsible for any and all claims, losses or
------
damages arising out of or incurred in connection with the publishing, marketing,
or distribution of the Products by EPI, or any false, deceptive or misleading
representations or advertising with regard to COOK or the Products; or
representations, warranties and guarantees made by EPI with respect to the
Products or the information contained in the Products. EPI agrees to indemnify
and hold COOK harmless from and with respect to any such claim, loss or damage
(including without limitation attorney's fees and costs).
8. AGREEMENT TERMS CONFIDENTIAL. Neither party shall disclose the terms of
this Agreement to any third party except as required by law or as reasonably
required to protect or enforce a party's rights hereunder. The disclosing party
shall provide the other with prior written notice of any such required
disclosure.
9. TERM AND EFFECT OF TERMINATION.
(a) Term. The term of this Agreement will be five (5) years from the
----
Effective Date unless terminated as provided herein. Thereafter, this Agreement
may be extended for a successive five (5) year term upon the agreement of both
parties to each such extension. Such renewal shall be in the form of an
amendment attached hereto as Exhibit A-1.
(b) Termination for Cause. Either party hereto may terminate this
----------------------
Agreement upon (a) 30 days written notice to the other following any material
breach or omission by the other with respect to any term, representation,
warranty, condition, or covenant hereof and (b) the failure of such other party
to cure such breach or omission prior to the expiration of such 30-day period.
This Agreement shall terminate automatically if (i) a receiver is appointed for
EPI or its property; (ii) EPI makes an assignment for the benefit of its
creditors; (iii) any proceedings are commenced by, for or against EPI under any
bankruptcy, insolvency or debtors relief law; or (iv) EPI is liquidated or
dissolved.
-4-
<PAGE>
(c) Effect of Termination. Upon termination of this Agreement the
---------------------
rights and licenses granted to EPI hereunder will immediately cease and EPI
shall immediately stop all distribution of Products. COOK reserves the right to
seek and obtain all other legal remedies available to it if EPI violates any
provisions hereof. EPI agrees to promptly return all Products and confidential
and proprietary information of COOK to COOK, including but not limited to client
lists, databases, financial information and documents, and sales and marketing
strategy, and to refrain from representing itself as an affiliate of, or service
provider to COOK, or using any of COOK's trademarks, trade names, service marks,
photographic images, likeness or audio recordings after the termination date.
Following the normal reporting timetable under this Agreement as set forth in
Section 2(b), EPI will render a complete and final accounting and will promptly
pay all monies due COOK.
(d) Survival. COOK's rights and EPI's obligations to pay COOK all
--------
amounts due hereunder, as well as the provision of Sections 1(d), 3, 7, 8, and
9(c), will survive the termination, for any reason, of this Agreement.
11. MISCELLANEOUS. This Agreement and the Exhibits hereto contain all the
agreements, understandings, representations, conditions, warranties and
covenants, and constitutes the sole and entire agreement between the parties
hereto pertaining to the subject matter hereof and supersedes all prior
communications or agreements, written or oral, except for any prior
confidentiality or nondisclosure agreements. The terms of this Agreement shall
be binding on the parties, their subsidiaries, affiliates and any party
controlling, controlled by or under common control with, the parties, the
successors, licensees, agents, employees and associated individuals of the
parties. All modifications to this Agreement must be in writing, signed by the
parties hereto. EPI may assign and/or transfer some or all of its rights and/or
delegate some or all of its obligations under this Agreement, as long as such
assignment, transfer and/or delegation includes substantially similar terms and
conditions as those contained herein, and the prospective assignee/transferee
agrees to be bound by such terms and conditions prior to the effective date of
such assignment/transfer/delegation. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision. All notices provided pursuant to this Agreement shall be in
writing and hand delivered or deposited in the United States mail first class,
postage prepaid, and addressed to the addresses set forth in the preamble, or
such other address as the party to receive the notice so designates by notice to
the other. The parties agree that this Agreement will be governed by the laws of
the State of Nevada, without regard to conflict of laws principles. Suits
relating to this Agreement shall be brought in the appropriate state or federal
court in the State of Nevada, and the parties submit to the jurisdiction of such
Nevada courts. The parties agree that injunctive relief is available for
breaches of this Agreement, without the need to prove damages or harm, or to
post any bond. In the event legal action is brought by either COOK or EPI to
enforce the terms of this Agreement, the prevailing party shall be entitled to
recover reasonable attorney fees and expenses for any proceeding, at or before
trial and upon appeal, in addition to any other relief deemed appropriate by the
court.
This Agreement constitutes the complete agreement between COOK and EPI, and
supersedes all prior agreements between the parties relating to the Products.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives as of the date first written above.
WADE B. COOK ("Licensor")
By: /s/ Wade B. Cook
Title: Personal
ENTITY PLANNERS, INC. ("Licensee")
By: /s/ Wade B. Cook
Title: President
-6-
Exhibit 10.3
WADE COOK FINANCIAL CORPORATION
EXCLUSIVE PRODUCT LICENSE AGREEMENT
This Exclusive Product License Agreement (the "Agreement") is made as of
this 30th day of June, 1998 (the "Effective Date"), by and between Wade Cook
Financial Corporation, a Nevada corporation located at 14675 Interurban Avenue
South, Seattle, Washington 98168-4664 ("WCFC"), and Entity Planners, Inc., a
Nevada corporation located at 14675 Interurban Avenue South, Seattle, Washington
98168 ("EPI").
1. GRANT OF LICENSE.
(a) Distribution and Marketing License. Subject to the terms and
-------------------------------------
conditions of this Agreement, and that certain Stock Purchase Agreement between
WCFC, EPI and B&C Limited Liability Company ("B&C") dated June 30, 1998 (the
"Purchase Agreement"), WCFC hereby grants to EPI an exclusive license to use,
produce, market, sell and distribute the Products listed in Exhibit A of the
Purchase Agreement in the United States of America (the "Territory"). EPI agrees
not to sell, market or distribute the Products outside the Territory boundaries
at any international seminars, or to utilize the Products and WCFC trademarks,
trade names and service marks to promote or provide offshore entity structuring
services. All speakers at EPI-organized seminars, or speakers at seminars
involving WCFC customers, shall attend the WCFC seminar training courses at
least once per quarter as offered by WCFC on a regular basis.
(b) License Conditions. EPI acknowledges and agrees that the Products
------------------
and any copies thereof are owned or licensed by WCFC and are protected by United
States copyright laws and international treaty provisions. Therefore, EPI must
treat the Products like any other copyrighted material, and agrees not to rent,
lease or lend the Products. EPI will promptly notify WCFC of any infringements
or alterations of Products or packaging that come to EPI's attention and assist
WCFC in any prosecutions that WCFC may undertake. EPI will not remove, destroy,
obfuscate or conceal any copyright or other proprietary markings or confidential
legends placed upon or contained upon the Products, and shall reproduce all
notices and restricted rights legend on the Products as directed by WCFC. EPI
will immediately advise WCFC of any legal notices served on EPI that might
reasonably be anticipated to affect WCFC or its proprietary rights.
(c) Trademarks. Subject to the terms and conditions of this Agreement
----------
and the Purchase Agreement, WCFC grants EPI the non-exclusive license to use and
publish in the Territory any trade name, service mark or trademark used by WCFC
which is related to the Products, provided all such marks and names are so
indicated by appropriate symbol or designation in advertising and other
marketing activities to identify the Products. Such activities may take the form
of magazine advertising, direct mail promotions, and trade show displays and
such other activities as WCFC may approve in advance.
(d) No Other Rights Granted. Apart from the grant of rights pursuant
-----------------------
to this Section, EPI shall not have the right to engage in any other licensable
activity, including but not limited to the preparation of derivative works, nor
any ownership right, title or interest, nor any security interest or other
interest, in the Products.
-1-
<PAGE>
2. PAYMENT OF ROYALTIES.
(a) Royalties. For each copy of the Products distributed by EPI, EPI
---------
shall pay WCFC a royalty in the amount and in the manner specified in the
applicable schedule in Section 2.2(b) of the Purchase Agreement (the
"Royalties"). EPI shall pay to WCFC payments of Royalties in the amounts, in the
manner, and at the times specified In Section 2.3 of the Purchase Agreement.
(b) Royalty Reports and Records. EPI shall also maintain reports and
---------------------------
records of the distribution and sale of Products, as set forth in Section 2.6 of
the Purchase Agreement.
(c) Taxes. EPI shall pay (or reimburse WCFC upon invoice) all
-----
national, state and local sales, use, value-added and other taxes, customs
duties and similar tariffs and fees, imposed by any jurisdiction and based on
this Agreement or any deliveries made hereunder, exclusive of any income taxes
levied on WCFC's net income.
(d) Products Licensed "AS-IS". EXCEPT AS PROVIDED ABOVE, THE PRODUCTS
-------------------------
ARE LICENSED "AS IS" WITHOUT WARRANTY, EXPRESS OR IMPLIED, AS TO PERFORMANCE,
MERCHANTABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE. THE ENTIRE RISK AS TO
THE RESULTS AND PERFORMANCE OF THE PRODUCTS IS ASSUMED BY EPI. Licensee's sole
and exclusive remedy in the event of a warranty claim hereunder is expressly
limited to the remedies in this Agreement.
3. LIMITATION OF LIABILITY. TO THE MAXIMUM EXTENT PERMITTED BY LAW, IN NO
EVENT SHALL WCFC OR ANYONE ELSE INVOLVED IN THE CREATION, PRODUCTION, DELIVERY
OR LICENSING OF THE PRODUCTS BE LIABLE TO EPI OR ANY THIRD PARTY FOR ANY
INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, OR ANY OTHER DAMAGES
WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR OTHER PECUNIARY LOSS)
ARISING OUT OF THE USE OR INABILITY TO USE THE PRODUCT, WHETHER OR NOT THE
POSSIBILITY OR CAUSE OF SUCH DAMAGES WAS KNOWN TO WCFC. EXCEPT IN RESPECT OF
LIABILITY WHICH IS BY LAW INCAPABLE OF EXCLUSION, IN NO EVENT SHALL WCFC'S
LIABILITY, (WHETHER BASED ON AN ACTION OR CLAIM IN CONTRACT, TORT OR OTHERWISE)
TO EPI ARISING OUT OF OR RELATING TO THE ORDER OR DELIVERY OF ANY UNIT OF A
PRODUCT EXCEED THE PER UNIT LICENSE FEE ACTUALLY PAID BY EPI TO WCFC FOR SUCH
PRODUCT.
4. GOVERNMENTAL APPROVALS; EXPORT LIMITATIONS. EPI shall at all times and
at its own expense strictly comply with all applicable laws, rules, regulations
and governmental orders, now or hereafter in effect, relating to its performance
of this Agreement. Without limiting the generality of the foregoing obligation,
EPI specifically acknowledges that each of the Products and certain information
relating to the Products supplied to EPI in
-2-
<PAGE>
accordance with the terms of this Agreement are subject to United States export
controls, pursuant to Export Administration Regulations, 15 C.F.R. Parts
768-799. EPI shall comply strictly With all requirements of the Export
Administration Regulations with respect to each Product. Without limiting the
generality of the foregoing obligation, EPI hereby expressly agrees that,
without the prior written authorization of WCFC and the United States
Government, EPI will not, and will cause its representatives to agree not to,
export, re-export, divert or transfer any Product to any destination, company or
person prohibited by the Export Administration Regulations or other export
control laws and regulations. EPI shall make its records available to WCFC at
WCFC's request, in order to permit WCFC to confirm EPI's compliance with its
obligations as set forth in this Section 4.
5. PROHIBITED MARKETING ACTIVITIES. In addition to the restrictions upon
the provision of offshore entity structuring services contained in Section 1(a),
in marketing the Products, EPI shall not, and shall not permit its resellers to
(i) make false or misleading representations with regard to WCFC or the
Products; (ii) employ or cooperate in the publication or employment of any
misleading or deceptive advertising with regard to the Products; (iii) make
representations, warranties or guarantees to their end users or to the trade
with respect to the specifications, features or capabilities of the Products
other than those which are consistent with the then-current WCFC-approved
documentation and materials; or (iv) enter into any contract or engage in any
practice in conflict with its obligations hereunder.
6. PROMOTIONAL MATERIALS. WCFC shall have the right of prior approval of
all documents, devices, promotional, marketing and seminar materials used in or
related to the sale, marketing, or distribution of the Products (the
"Materials") bearing its trademarks, trade names or service marks prior to their
anticipated use. Once such Materials are approved by WCFC, EPI will not need to
seek further WCFC approval of the Materials unless and until there are changes
made in the Materials. However, upon prior written notice by WCFC, use of the
Materials shall thereafter be subject to WCFC's prior review and approval of the
anticipated use.
7. INDEMNIFICATION.
(a) By WCFC. WCFC shall indemnify, defend and hold harmless EPI
-------
against any claim that the Products infringe any United States patent issued as
of the date of this Agreement, United States copyright, United States trademark
(provided use of such trademark has been in accordance with this Agreement), or
trade secret, provided that WCFC is given prompt notice of such claim and is
given information, reasonable assistance, and sole authority to defend or settle
the claim. If WCFC becomes aware that the products do or may infringe any such
rights, WCFC may, at its option, obtain the right to continue using and
licensing the Products, replace or modify the Products so that they become
non-infringing, or if such remedies are not reasonably available, to require
return of the Products and provide a refund of the Royalties paid with respect
to such returned Products. Should WCFC provide EPI with a modified version of
the Products, EPI shall, upon receipt of the new version of Products,
immediately cease distribution and use of the previous version of the Products.
Other than WCFC's obligation of indemnification as set forth in this Section,
WCFC shall have no liability to EPI from allegations that the Products or
activities related to the Products infringe or
-3-
<PAGE>
constitute wrongful use of any proprietary right. Notwithstanding anything
contained in this Agreement to the contrary, WCFC shall not be liable to EPI for
any claim arising from any alteration or modification of Products, or arising
from the distribution of an earlier version of the Products manufactured
following the delivery to EPI of a new non-infringing version of the Products
pursuant to this Section.
(b) By EPI. EPI shall be responsible for any and all claims, losses or
------
damages arising out of or incurred in connection with the publishing, marketing,
or distribution of the Products by EPI, or any false, deceptive or misleading
representations or advertising with regard to WCFC or the Products; or
representations, warranties and guarantees made by EPI with respect to the
Products or the information contained in the Products. EPI agrees to indemnify
and hold WCFC harmless from and with respect to any such claim, loss or damage
(including without limitation attorney's fees and costs).
8. AGREEMENT TERMS CONFIDENTIAL. Neither party shall disclose the terms
of this Agreement to any third party except as required by law or as reasonably
required to protect or enforce a party's rights hereunder. The disclosing party
shall provide the other with prior written notice of any such required
disclosure.
9. TERM AND EFFECT OF TERMINATION.
(a) Term. The term of this Agreement will be five (5) years from the
----
Effective Date unless terminated as provided herein. Thereafter, this Agreement
may be extended for a successive five (5) year term upon the agreement of both
parties to each such extension. Such renewal shall be in the form of an
amendment attached hereto as Exhibit A-1.
(b) Termination for Cause. Either party hereto may terminate this
----------------------
Agreement upon (a) 30 days written notice to the other following any material
breach or omission by the other with respect to any term, representation,
warranty, condition, or covenant hereof and (b) the failure of such other party
to cure such breach or omission prior to the expiration of such 30-day period.
This Agreement shall terminate automatically if (i) a receiver is appointed for
EPI or its property; (H) EPI makes an assignment for the benefit of its
creditors; (iii) any proceedings are commenced by, for or against EPI under any
bankruptcy, insolvency or debtor's relief law; or (iv) EPI is liquidated or
dissolved.
(c) Effect of Termination. Upon termination of this Agreement the
----------------------
rights and licenses granted to EPI hereunder will immediately cease and EPI
shall immediately stop all distribution of Products. WCFC reserves the right to
seek and obtain all other legal remedies available to it if EPI violates any
provisions hereof. EPI agrees to promptly return all Products and confidential
and proprietary information of WCFC to WCFC, including but not limited to client
lists, databases, financial information and documents, and sales and marketing
strategy, and to refrain from representing itself as an affiliate of, or service
provider to WCFC, or using any of WCFC's trademarks, trade names and service
marks after the termination date. Following the normal reporting timetable under
this Agreement as set forth in Section 2(b), EPI will render a complete and
final accounting and will promptly pay all monies due WCFC.
-4-
<PAGE>
(d) Survival. WCFC's rights and EPI's obligations to pay WCFC all
--------
amounts due hereunder, as well as the provision of Sections 1 (d), 3, 7, 8, and
9(c), will survive the termination, for any reason, of this Agreement.
11. MISCELLANEOUS. This Agreement and the Exhibits hereto contain all the
agreements, understandings, representations, conditions, warranties and
covenants, and constitutes the sole and entire agreement between the parties
hereto pertaining to the subject matter hereof and supersedes all prior
communications or agreements, written or oral, except for any prior
confidentiality or nondisclosure agreements. The terms of this Agreement shall
be binding on the parties, their subsidiaries, affiliates and any party
controlling, controlled by or under common control with, the parties, the
successors, licensees, agents, employees and associated individuals of the
parties. All modifications to this Agreement must be in writing, signed by the
parties hereto. EPI may assign and/or transfer some or all of its rights and/or
delegate some or all of its obligations under this Agreement, as long as such
assignment, transfer and/or delegation includes substantially similar terms and
conditions as those contained herein, and the prospective assignee/transferee
agrees to be bound by such terms and conditions prior to the effective date of
such assignment/transfer/delegation. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision. All notices provided pursuant to this Agreement shall be in
Writing and hand delivered or deposited in the United States mail first class,
postage prepaid, and addressed to the addresses set forth in the preamble, or
such other address as the party to receive the notice so designates by notice to
the other. The parties agree that this Agreement will be governed by the laws of
the State of Nevada, without regard to conflict of laws principles. Suits
relating to this Agreement shall be brought in the appropriate state or federal
court in the State of Nevada, and the parties submit to the jurisdiction of such
Nevada courts. The parties agree that injunctive relief is available for
breaches of this Agreement, without the need to prove damages or harm, or to
post any bond. In the event legal action is brought by either WCFC or EPI to
enforce the terms of this Agreement, the prevailing party shall be entitled to
recover reasonable attorney fees and expenses for any proceeding, at or before
trial and upon appeal, in addition to any other relief deemed appropriate by the
court.
This Agreement constitutes the complete agreement between WCFC and EPI, and
supersedes all prior agreements between the parties relating to the Products.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives as of the date first written above.
-5-
<PAGE>
WADE COOK FINANCIAL CORPORATION ("Licensor")
By: /s/ Wade B. Cook
Title: President
ENTITY PLANNERS, INC. ("Licensee")
By: /s/ Wade B. Cook
Title: President
-6-
Exhibit 10.4
OPEN ENDED PRODUCT AGREEMENT
1. Parties:
-------
This Agreement is between Wade Cook Financial Corporation, a Nevada
corporation ("WCFC") and/or assigns and Wade B. Cook, a resident of Washington
State ("Cook") and/or assigns.
2. Background:
----------
Cook owns the rights to intellectual property related to investment
strategies, financial management, and wealth management created by Wade B. Cook
("Cook IP"). WCFC through its subsidiary Wade Cook Seminars, Inc. ("WCSI") has
been sponsoring and promoting certain seminars and materials relating to said
Cook IP under the terms of a Product Agreement dated June 26, 1997 between WCSI,
Money Chef, and Cook. The parties now wish to replace that Product Agreement.
3. Term:
----
This Agreement shall take effect July 1, 1997 and remain in effect through
June 30, 2002 unless otherwise mutually agreed between the parties.
4. License:
-------
Cook hereby continues to license rights in the Cook IP, which Cook either
owns or controls, to WCFC for the purpose of producing, marketing, and selling
seminars, audio tapes, videotapes, related books and writings, and other works
stemming from the Cook IP on an individual product basis. This license shall be
a non-exclusive worldwide license. A list of current Products to which WCFC
currently has the rights under the terms of this Agreement is attached as
"Exhibit A." Additional works owned or controlled by Cook shall be licensed to
WCFC under the terms of this master license Agreement by executing individual
"Intellectual Property License Orders" ("IP Order") in the form of "Exhibit B."
Specific IP Orders shall be signed and dated by Cook as the licensor of the
intellectual property and by the licensee WCFC (or its subsidiaries, affiliates,
or assigns) in order to be effective. The Term of each IP Order shall be for the
remainder of the term of this Agreement unless otherwise specified in writing.
5. Royalties:
---------
WCFC shall pay to Cook as requested by Cook in writing, a royalty of ten
percent (10%) of all gross sales for Products licensed hereunder. Royalties
shall be paid quarterly on May 1, August 1, November 1, and February 1 for the
quarter ending the month prior to the payment.
-1-
<PAGE>
Cook shall be entitled to take draws against royalties as agreed by the chief
financial officer of the company.
6. Marketing and Promotion:
-----------------------
WCFC shall have the right to promote and advertise Products as it deems
appropriate.
7. Author's Warranty:
-----------------
Cook represents and warrants to WCFC that the work is original and that he
is the sole author and proprietor thereof, and has full power to enter into this
Agreement. Cook warrants that he owns all rights in the Products subject to the
previous license dated June 26, 1997 with WCSI. Cook agrees to indemnify and
hold harmless WCFC against any damage or judgment, including court costs and
attorneys' fees, which may be sustained or recovered against WCFC by reason of
the publication or sale of any of the Products arising from anything contained
therein. Cook also agrees to reimburse WCFC for all expenses, including court
costs, attorneys' fees, and amounts paid in settlement, sustained by WCFC in
resisting any claim, demand, suit, action or proceeding asserted or instituted
against WCFC based upon the sale of the Product or by reason of anything
contained therein.
8. Right to Use Likeness:
---------------------
Cook hereby consents to the use of his name, likeness, identity,
trademarks, and trade symbols, for the purposes of fulfilling this Agreement and
in connection with the promotion, advertising, distribution, financing,
marketing, and production of the Products or derivatives therefrom, and for
general organizational promotional purposes.
9. Examination of Books:
--------------------
WCFC shall make available to Cook, within 10 business days written notice,
at its headquarters, the financial books related to payment of royalties
hereunder.
10. Disputes:
--------
Any dispute between the parties arising out of this Agreement which cannot
be amicably settled shall be referred to arbitration upon written notice by
either party to the other. The arbitration shall be governed by the laws of the
State of Nevada. Said arbitration is to be held in Seattle, Washington. Any
award rendered in arbitration shall be binding and conclusive upon the parties
and shall not be subject to appeals or retrying by the court.
-2-
<PAGE>
11. Attorney Fees:
-------------
In the event this Agreement is placed in the hands of an attorney due to a
default in the payment or performance of any of its terms, the defaulting party
shall pay, immediately upon demand, the other party's reasonable attorney fees,
collection costs, costs of either litigation, mediation, or arbitration
(whichever is appropriate), whether or not a suit or action is filed, and any
other fees or expenses reasonably incurred by the non-defaulting party.
12. Jurisdiction:
------------
This Agreement shall be governed by the laws of Nevada.
13. Final Agreement:
---------------
This Agreement is the entire, final and complete agreement of the parties
and supersedes all written and oral agreements heretofore made or existing by
and between the parties or their representatives.
Executed in duplicate this 20th day of March, 1998.
WADE COOK FINANCIAL CORPORATION
By: /s/ Kiman A. Lucas
------------------------
Name: Kiman A. Lucas
Title: General Counsel
/s/ Wade B. Cook
- ------------------------
Name: Wade B. Cook
Title: President
/s/ Wade B. Cook
- ------------------------
Wade B. Cook, Licensor
<PAGE>
EXHIBIT A
A list of current products to which WCFC currently has the rights to:
Books:
- -----
101 Ways to Buy Real Estate Without Cash
555 Clean Jokes
Bear Market Baloney
Brilliant Deductions
Business Buy the Bible
Cook's Book on Creative Real Estate
Don't Set Goals
How to Build a Real Estate Money Machine
How to Pick Up Foreclosures
Real Estate For Real People
Stock Market Miracles
The Real Estate Money Machine
Unlimited Wealth
Wall Street Money Machine
Wealth 101
Publications and Audio and Video Tapes:
- --------------------------------------
100-Fold Return audio tape
180(degree) Cash Flow Turnaround Seminar: 180 Degrees in 180 Minutes video
A Day with Wade Cook
Are we Headed for a Bear Market? audio tape
Behind Closed Doors
Cash Flow System
Covered Calls audio tape
Dynamic Dollars video
Entity Structuring video tape
Fast Start
Financial 4X4 audio tapes and video
Financial Fortress Home Study Program
Financial Jump Start video and audio tapes
Financial Power Pack audio tapes
Fortify Your Income
High Octane Performance Entities (HOPE) audio tapes, video, and special reports
High Performance Business Strategies, formally known as High Octane Business
Strategies audio tapes
<PAGE>
Publications and Audio and Video Tapes, cont.:
- ---------------------------------------------
How to Incorporate in Nevada Special Report
How to Retire in 2 Months
Income Formulas - Cash Flow, Cash Flow, Cash Flow audio tape
Income Generation System
Legal Forms publication
Living Loving Trusts audio tape
Money Machine I audio tapes
Money Machine II-Nups audio tapes
Red Hot Financial Seminars audio tapes
Money Mysteries of the Millionaires audio tape
Next Step
Ordinary People do extraordinary things
Outrageous Returns audio tape
Owner Financing
Paper Chase Cassette Seminar
Paper Tigers audio tapes and manual
Pension Power audio tape
Power of Nevada Corporations audio tape
Property Analysis Forms
Real Estate Record Keeping System
Retirement Prosperity audio tapes and manual
Sail Through Life audio tape
SAIL: Scriptural Application In Life audio tapes
Second to None video
Seven Strategies to Success video
Special Reports publications
Special Reports, Real Estate
Stock Analysis Forms
Stock Market Power Strategies audio tape
The Corporation Kit
The Incorporation Handbook
The Next Step Video Home Study Course videos
To S or Not to S Special Report
Travel Agent Information Kit
Unlimited Wealth: 101 Secrets of the Super Rich audio tapes
Wall Street Workshop Video Home Study Course videos
Wealth, Riches, and Covenants audio tape
Winning Ways video
Zero to Zillions
<PAGE>
Seminar Curriculum and Manuals:
- ------------------------------
Build Perpetual Income (BPI)
Business Entities Skills Training (BEST)
Cook University
Entity Structuring Workshop (ESW)
Executive Retreat
Financial Clinics
Fortify Your Income (FYI)
Four Days with Wade & Ultra B.E.S.T
Next Step
Real Estate Boot camp
Real Estate Workshop
Super BEST
Travel Agent
Wall Street Workshop
Wealth Academy
Wealth Information Network (W.I.N)
Wealth Information Network Plus
WINSTOCK
Youth Wall Street Workshop
<PAGE>
EXHIBIT B
LICENSE ORDER
EFFECTIVE DATE:
EXECUTION DATE:
LICENSOR:
LICENSEE:
ENDING DATE:
PRODUCTS:
Books:
- -----
Publications and Video and Audio Tapes:
- --------------------------------------
Seminar Curriculum and Manuals:
- ------------------------------
WADE COOK FINANCIAL CORPORATION
By:__________________________
Name: Kiman A. Lucas
Title: General Counsel
_____________________________
Name: Wade B. Cook
Title: President
_____________________________
Wade B. Cook, Licensor
Exhibit 10.5
AMENDMENT TO OPEN ENDED PRODUCT AGREEMENT
WHEREAS, on March 20, 1998 Wade Cook Financial Corporation, a Nevada corporation
("WCFC") and/or its assigns and Wade B. Cook, a resident of Washington State
("Cook") and/or his assigns entered into an Open Ended Product Agreement whereby
Cook provided WCFC with a non-exclusive worldwide license to all Cook
intellectual property as listed in Exhibit A of the Agreement.
Whereas, the original Open Ended Product Agreement provided for a royalty rate
of ten percent (10%) of all gross sales for Products licensed thereunder.
Whereas, Mr. Cook and/or his assigns is a substantial shareholder in the company
and Mr. Cook and/or his assigns have a vested interest in the continuing
profitability the company.
Whereas, WCFC from time to time has certain cash flow needs beyond the resources
available.
NOW THEREFORE, the parties hereby agree that Mr. Cook and/or his assigns may
forego any amount of royalties due under the terms of the Agreement as deemed
appropriate by Cook in his sole discretion, depending on the cash flow needs and
or anticipated cash flow needs of WCFC at the time.
Executed in duplicate this 13th day of November, 1998.
WADE COOK FINANCIAL CORPORATION
By: /s/ Kiman Lucas
-------------------------------
Name: Kiman Lucas
Title: General Counsel
/s/ Wade B. Cook
- -----------------------------------
Name: Wade B. Cook
Title: President
/s/ Wade B. Cook
- -----------------------------------
Wade B. Cook, Licensor
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-1-1998 JAN-1-1998
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 1,114,732 0
<SECURITIES> 3,906,525 0
<RECEIVABLES> 3,100,641 0
<ALLOWANCES> 0 0
<INVENTORY> 2,840,649 0
<CURRENT-ASSETS> 12,639,958 0
<PP&E> 11,750,172 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 49,395,536 0
<CURRENT-LIABILITIES> 22,736,847 0
<BONDS> 5,343,397 0
0 0
0 0
<COMMON> 695,792 0
<OTHER-SE> 19,553,682 0
<TOTAL-LIABILITY-AND-EQUITY> 49,395,536 0
<SALES> 0 0
<TOTAL-REVENUES> 84,690,033 71,340,343
<CGS> 38,478,298 27,653,051
<TOTAL-COSTS> 38,478,298 27,653,051
<OTHER-EXPENSES> 43,192,796 29,713,129
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 658,388 245,423
<INCOME-PRETAX> 4,037,628 14,289,763
<INCOME-TAX> 1,413,170 6,026,332
<INCOME-CONTINUING> 2,624,458 8,263,431
<DISCONTINUED> 762,288 685,504
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,386,746 8,948,935
<EPS-PRIMARY> 0.5 .15
<EPS-DILUTED> 0.5 .15
</TABLE>
Exhibit 99.1
Letter of Resignation
- ---------------------
I, John V. Childers, hereby formally resign my commission as a Member of the
Board of Directors for Wade Cook Financial Corporation.
Dated this 9th day of October 1998.
/s/ John V. Childers
- --------------------
John V. Childers
-1-
Exhibit 99.2
CHERYLE HAMILTON
15037 S.E. 171ST STREET
RENTON, WA 98058
November 1, 1998
Dear Fellow Board Members,
It is with great thought and consideration that I hereby tender my
resignation from the Board of Directors of Wade Cook Financial, Inc. I have for
sometime been laboring with the differences between my views of how Wade Cook
Financial should be lead and how Wade Cook viewed the direction of this company.
Wade and I differed frequently in our opinions about the type of major
commitments we should make as a corporation and the direction and financial
culpability of the company. It is no possible for someone of differing views or
opinions to serve on this Board, particularly when employed by the company,
without risking their employment, as was recently evidenced by my dismissal, and
that of others.
Good luck in your pursuit of taking this company into the next
millennium.
Sincerely,
/s/ Cheryle Hamilton
Cheryle Hamilton
